New Gold Announces Lowest Costs And Highest Cash Flow Quarter In Its History

VANCOUVER - New Gold Inc. reported that it finished 2012 with gold production of 411,892 ounces at total cash costs of $421 per ounce. Importantly, New Gold's 2013 guidance outlines continued gold production growth coupled with a further decline in costs. For 2013, the company forecasts gold production of 440,000 to 480,000 ounces at total cash costs of $265 to $285 per ounce. "2012 was a transformative year for our company with the successful start of production at New Afton," said Randall Oliphant, Executive Chairman. "The fourth quarter provided a first look at the robust cash flow potential of our now four producing mines."

Revenue increased by 42% in the fourth quarter and 14% for the year. The quarterly and full year revenue benefitted from higher gold and copper sales, primarily due to New Afton's start-up, and higher average realized gold prices. These benefits were partially offset by lower realized copper prices in both periods and lower silver revenues. The increases in revenue led to higher earnings from mine operations during the fourth quarter and full year 2012.

Net earnings in the fourth quarter of 2012 were $124 million. Net earnings were positively impacted by a $70 million pre-tax gain on realized and unrealized non-hedged derivatives. The pre-tax gain included $50 million due to the company's November 2012 C$9.00 warrant exercise and C$55 million debenture redemption with the balance related to the mark-to-market of New Gold's C$15.00 warrants due in 2017. Adjusted net earnings were $50 million. For the full year, net earnings were $199 million and adjusted net earnings were $184 million. 2012 net earnings and adjusted net earnings increased despite a combination of: a $40 million increase in depreciation and depletion at New Afton, an $11 million increase in expensed exploration which resulted in continued exploration success at Blackwater and New Afton as well as an $11 million increase in interest expense.

Net cash generated from operations increased by 61% during the fourth quarter. This increase was driven by New Afton achieving full production which resulted in a combination of higher gold sales and lower unit costs. For the full year, cash generated from operations before working capital increased by 12% to $381 million . Net cash generated from operations in 2012 increased to $236 million . When compared to the prior year, 2012 net cash generated from operations was impacted by: a $32 million increase in working capital resulting from an inventory build-up at the Peak Mines and smelter receivables at New Afton, a $12 million cash tax payment that was related to Cerro San Pedro's 2011 taxes payable, and an $8 million reclamation expenditure at Mesquite that will now not be required at end of the mine life. These items, which primarily impacted the net cash generated from operations in the first nine months of 2012, are not expected to be reoccurring.

New Gold finished 2012 with a cash balance of $688 million . The company has an additional $100 million of liquidity through an undrawn credit facility. The consolidated debt position of the company at December 31, 2012 was $848 million which included: face value $300 million 7.00% senior unsecured notes due in 2020 (book value - $293 million ), face value $500 million 6.25% senior unsecured notes due in 2022 (book value - $490 million ) and $65 million in El Morro funding loans. The company had 476 million common shares outstanding at December 31, 2012 .

The first full quarter of production from New Afton led to a 12% increase in New Gold's consolidated gold production during the fourth quarter when compared to the same quarter of the prior year. Beyond the contribution from New Afton, which was still in the development stage during the fourth quarter of 2011, increased gold production at the Peak Mines partially offset decreases at Mesquite and Cerro San Pedro.

The full year 2012 increase in gold production of 6% was driven by a combination of the successful production start at New Afton and a 12% increase in gold production at the Peak Mines during the year. This was partially offset by production declines at Mesquite and Cerro San Pedro resulting from lower grades being placed on the leach pads as expected from the mines' plans.

New Gold's consolidated copper production during the fourth quarter increased significantly to 21 million pounds from three million pounds in the same period of the prior year. The increase was primarily attributable to a full quarter of operations at New Afton, with consolidated copper production further benefitting from the Peak Mines 9% higher copper production.

For full year 2012, copper production increased by 236% when compared to 2011. The increase was due to the combination of the successful New Afton start-up and a 13% increase in copper production at the Peak Mines.

Silver production at Cerro San Pedro remained consistent during both the quarter and full year period.

New Gold's fourth quarter gold production was achieved at the lowest costs in the company's history and at among the lowest costs in the industry. Total cash costs(1) during the fourth quarter were $254 per ounce. Costs in the fourth quarter of 2012 benefitted from the impact of New Afton successfully achieving full production.

During the fourth quarter, New Afton continued its successful transition to full production. After achieving its design capacity of 11,000 tonnes per day over one month ahead of schedule in late September, New Afton's fourth quarter mill throughput averaged 11,700 tonnes per day. The combination of this higher throughput, planned increases in gold and copper grades and continual improvements in process recoveries led to solid quarterly production at low costs.

After commencing production ahead of schedule in late June of 2012, New Afton's first six months of operation were a success by virtually every measure. Production of both gold and copper met the company's expectations and costs were also in line with targets. New Afton finished 2012 having completed the development of 54 drawbells versus a target for the year of 48.

In late January 2013 , the permanent underground gyratory crusher was successfully commissioned at New Afton. With the crusher up and running the underground mining rate has steadily increased, averaging approximately 11,000 tonnes per day in recent weeks. New Gold looks forward to 2013 with a full year of operations from New Afton expected to result in increased gold and copper production as well as lower total cash costs(1).

With New Afton having ramped up smoothly, the team is now exploring opportunities to further enhance the value of the asset. One initiative being pursued is the evaluation of strategies to increase the mining and milling rate beyond the current nameplate capacity of 11,000 tonnes per day. The New Afton team is targeting an increase in throughput to an average of 12,000 tonnes per day, an increase of 9% over the design rate, by the end of 2013. In order to assess the operation's potential to go beyond this higher rate, the New Afton team intends to evaluate which elements of the operation, if any, would represent bottlenecks in reaching a sustainable throughput above 12,000 tonnes per day.

New Gold intends to provide updates on this initiative as well as the continued exploration program, which has already been successful in adding two years to New Afton's mine life, during the second half of 2013.

"I am very proud of all our operating teams for continuing to deliver on their targets, however, I believe the team at New Afton deserves additional recognition for the job they have done," stated Robert Gallagher , President and Chief Executive Officer. "To bring this mine into production ahead of schedule and then transition it towards full operation in six months, all in a challenging market, is a real testament to everyone's contribution."

New Gold's share of the El Morro project provides the company with a 30% fully-carried interest in an advanced stage, world-class copper/gold project in northern Chile . The El Morro and La Fortuna deposits currently represent the two principal zones of gold-copper mineralization. Future exploration efforts will also test the potential bulk-mineable gold and copper production below the bottom of the La Fortuna open pit. Based on the most recent Feasibility Study, completed in late 2011, once in production, New Gold's 30% 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.

Under the terms of New Gold's agreement with Goldcorp Inc. ("Goldcorp"), Goldcorp is responsible for funding New Gold's 30% share of capital costs. 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 share of the project's cash flow with New Gold retaining 20% of its share of cash flow from the time production commences.

Activity at site has been limited recently due to the previously announced temporary suspension of the project's environmental permit, pending the resolution by the Chilean Environmental Permitting Authority (the "Servicio de Evaluaciùn Ambiental" or "SEA") of certain deficiencies in consultation asserted by a group of indigenous people whose claims were supported by the Chilean court. In June 2012 , SEA initiated the administrative process to address the deficiencies identified by the Chilean court. It is anticipated the consultation process could be completed by late 2013.

The company's Blackwater project was advanced significantly during 2012. Over 270,000 metres of drilling were completed on the project with the majority focused on upgrading the mineral resource to the Measured and Indicated resource classification. This increase in resource classification enables the resource estimate to be used as the basis for Blackwater's Feasibility Study which remains on target for completion in late 2013. In September 2012 , the Preliminary Economic Assessment ("PEA") for Blackwater was released which outlined the parameters of a conventional truck and shovel open pit mine with a 60,000 tonne per day processing plant that had the potential to produce an average of over 500,000 ounces of gold per year(4).

The PEA is preliminary in nature and includes Inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the PEA based on these mineral resources will be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

Since the PEA, the Blackwater team has continued to refine and optimize the project development plan with various trade-off studies and will continue to do so throughout 2013. Based on the additional work that has been completed to date, the PEA assumptions for capital and operating costs continue to be viewed as reasonable. Outlined below are some of the key achievements at Blackwater during 2012.

Consolidated copper production in 2013 is expected to double to a range of 78 to 88 million pounds as a result of New Afton hitting full production and the steady copper contribution from the Peak Mines. Silver production at Cerro San Pedro is expected to move to 1.4 to 1.6 million ounces due to the planned processing of lower silver grades as a result of mine sequencing. New Gold's copper and silver by-product revenue continues to provide an effective natural hedge against the various cost pressures being faced by the broader industry which allows the company to deliver lower costs and expand margins.

Per the company's plans, gold production is expected to be higher in the second half of the year than the first half, with a commensurate decrease in total cash costs. As a result of the higher production and lower costs expected in the second half of 2013, approximately 65% of the company's cash flow is anticipated to be generated in the final two quarters of the year.