New Gold Provides Update On El Morro Project 

VANCOUVER, BC - New Gold Inc. reported an update on the El Morro Project in Chile, where the company is a 30 percent partner, with Goldcorp Inc., the project developer and operator, holding the remaining 70 percent.

New Gold has been informed that Goldcorp's Board of Directors has officially approved the decision to commence with construction of the El Morro Project, with the start of construction targeted for the end of the Chilean winter season in September 2012 . In total, the development of El Morro is expected to take five years at a capital cost of $3.9 billion (100% basis). Under the terms of New Gold's agreement with Goldcorp, Goldcorp is responsible for funding New Gold's 30% share of capital costs, or approximately $1.2 billion . The carried funding will accrue interest at a fixed rate of 4.58%. New Gold will repay its share of capital plus accumulated interest out of 80% of its 30% share of the project's cash flow with New Gold retaining 20% of its 30% share of cash flow from the time production commences.

"Our 30 percent interest in El Morro positions us very well as we have a meaningful share of this great project, with a proven mine developer and operator as a partner and a favourable financing arrangement that carries us through production," stated Randall Oliphant , Executive Chairman.

Initial production from the mine is expected in 2017 with full production anticipated in 2018. Development activities during 2012 will focus on access road construction, engineering, equipment procurement and exploration. Drilling will be a combination of additional condemnation drilling for infrastructure locations and exploration drilling to test potential extensions of the La Fortuna deposit. La Fortuna, which hosts the current mineral resource, is one of the two principal zones of gold-copper mineralization that have been identified to date. The El Morro zone and several additional targets have also been identified which could become the focus of future exploration efforts. Current open pit proven and probable mineral reserves on a 100% basis total 537 million tonnes at 0.52% copper and 0.49 grams per tonne gold. New Gold's 30% share of the reserves includes 1.8 billion pounds copper and 2.5 million ounces gold.

New Gold has recently received the data and analysis supporting Goldcorp's update of the project's 2008 feasibility study and has engaged Roscoe Postle Associates Inc. to complete a detailed review of the results on New Gold's behalf. The results of Goldcorp's updated study indicate that New Gold's 30 percent share of annual production is expected to be over 90,000 ounces of gold and 85 million pounds of copper over an initial 17-year mine life. Life-of-mine cash costs are expected to be approximately ( $700 ) per ounce of gold on a by-product basis and approximately $550 per ounce of gold and $1.45 per pound of copper on a co-product basis. Metals price assumptions used to calculate the average life-of-mine El Morro cash costs are $1,200 per ounce of gold and $2.75 per pound of copper.

The El Morro Project currently contemplates the mining and milling of sulphide copper and gold ore from the La Fortuna mineral deposit through a 90,000 tonne-per-day concentrator. The plant design includes: a crushing plant, semi-autogenous grinding (SAG) circuit, rougher flotation and regrind circuit, and cleaner and scavenger flotation banks. Additional project-related infrastructure includes: a desalination plant, power plant and concentrate filtration plant. The construction of a new access route from the project to the Pan American highway is also contemplated with the route serving as the concentrate and water pipeline route, and the preferred location for the project power line. Water supply is planned to be sourced from a reverse-osmosis desalination plant that will produce 740 litres per second of agricultural-quality water, which will be conveyed to site along a 193 kilometre-long water pipeline.  Concentrate will be transferred via pipeline to a concentrate filter plant at the port site for overseas shipment.