Randall Oliphant - Executive Chairman
Robert Gallagher - President and Chief Executive Officer

"We maintained momentum in our disciplined growth strategy, completing a pivotal merger through which we became a fully-funded growth company. We out-delivered on our operational goals — achieving record results for production, cash cost(1) and cash flow during 2009."

Fellow shareholders

In what was undeniably a dynamic year for New Gold, we exceeded our major goals for building shareholder value in 2009. Setting high goals for value enhancement and operational performance is one thing; achieving them is another. Our track record of doing so, we believe, sets New Gold apart from the crowd in terms of current performance and future potential.

We maintained momentum in our disciplined growth strategy, completing a pivotal merger through which we became a fully-funded growth company. We out-delivered on our operational goals — achieving record results for production, cash cost(1) and cash flow during 2009. Further, we enhanced our financial position, acting with patience and discipline to significantly strengthen our balance sheet and enhance our financial flexibility as we look forward. There were also challenges last year that we met with the resilience that has become another defining characteristic of New Gold, along with the dynamism and spirit of innovation that will help us continue to build this company. Investor support for New Gold grew considerably during the year. Our share price appreciated by 115% during the year, significantly outpacing the 24% increase of the S&P/TSX gold index.


The main event of 2009 was our business combination in June with Western Goldfields Inc. (WGI), which added the mesquite mine to our portfolio of assets. As a result, New Gold has emerged as a standout in its peer group, with a singular combination of current operational strengths and future upside among intermediate gold producers — a category of companies that has traditionally offered the best returns for investors. The merger was beneficial in bringing together like-minded companies that were both focused on becoming intermediate producers. New Gold offered excellent growth potential in its portfolio of properties, but desired funding to fully develop its suite of exciting development projects. WGI offered strong cash flow potential but desired additional development properties. The merger married strength to strength to create a fully-funded growth company with an experienced management team and Board.

The combination with WGI was our second major transaction in a year, and followed our three-way merger with Peak Gold and metallica resources in June 2008. To put our growth trajectory in perspective, we have transformed New Gold from a single-asset development company in early 2008 to an intermediate company with production exceeding 300,000 ounces of gold this year. Going forward, we expect that organic growth alone will further increase production toward 500,000 ounces over the coming years. This provides an excellent platform on which to augment our growth through disciplined mergers and acquisitions that are accretive to shareholder value.


We will continue our steadfast commitment to growing responsibly: to meeting the high, internationally recognized standards for worker health and safety, environmental protection and sustainable community development that characterize all our operations. This commitment is reflected in the numerous awards our operations have won in recent years. To cite just two 2009 examples, our Mesquite Mine in California won the American Red Cross "Real Heroes" Award for safety and our Cerro San Pedro Mine in Mexico won the national "Silver Hat" safety award as the safest mine of its size in the country for the second year running. In a significant demonstration of our dedication to sustainability, New Gold became a business partner of the United Nations Global Compact, which sets high standards across an array of human rights, environmental and labour practices.


New Gold beat guidance targets for both production and total cash cost(1) in 2009.

  • Gold production rose 29% to 301,773 ounces, while gold sales rose 23% to 292,407 ounces;
  • Total cash cost(1) declined 18% to $465 an ounce, or about $100 per ounce less than the $566 an ounce in 2008;
  • Earnings from mine operations rose 314% to $88.6 million, while cash flow from operations rose 242% to $79.0 million.

In addition, all our operations more than replaced ounces mined during the year, resulting in a 10% increase in gold reserves. This positions us well to extend our mine lives and increase production as we go forward. These results are a credit to our hard-working on-site teams, to whom we extend our thanks and congratulations.

The Mesquite Mine in California finished the year with a record fourth quarter that positions the operation for continued improvements in 2010 and 2011. Mesquite is expected to be a strong performer in the years ahead.

Peak Gold Mines in Australia continued a 17-year tradition of success with another excellent performance, powered by operating improvements, and a doubling of copper production. Peak, once again, replaced its mined ounces and continues to have excellent potential to replace production with new reserves and resources through exploration and underground development well into the future.

We also surpassed our 2009 guidance for production at lower costs, net of silver by-product, at Cerro San Pedro (CSP) in Mexico. Gold and silver production both rose meaningfully, reflecting increased tonnage of ore mined and continued improvements in recoveries. CSP's strong performance during the year was achieved despite the effects of a court-ordered temporary suspension of mining activities in mid-November, which was subsequently lifted by an injunction we obtained in December. While CSP enjoys the overwhelming support of local communities and their residents, it has encountered opposition to mining activities from a mainly non-resident faction. Cerro San Pedro is currently fully operational and producing gold and silver while New Gold works diligently with local and federal governmental groups in an effort to establish a long-term solution that allows the company to continuously operate Cerro San Pedro, and thus provide ongoing financial and socio-economic benefits to the local people and communities.

Our confidence in our ability to achieve a fair resolution of the matter remains high, since the mine has an enviable record of meeting its environmental and social commitments. For example, as well as winning a second-straight government award for safety, CSP won an international award in 2009 for best practices in the use of explosives, and its Environmental Management System was recertified by the International Organization for Standardization (ISO) as fully compliant with ISO 14001:2004 status.


On the financial front we worked to strengthen and simplify our balance sheet in 2009. Our focus was on making the right moves at the right times as opportunities arose. During a time when the gold industry, like others, was impacted by the world credit crisis and low commodity prices, New Gold had the flexibility to reduce our total debt and bought back C$50 million worth of long-term notes for total consideration of C$30 million; these notes are now back to trading at their face value. As credit markets improved, we acted opportunistically to monetize our asset backed notes; C$9.4 million of the notes matured and was realized in April and two portions were sold in December 2009 and January 2010, respectively. In total, the company realized proceeds of C$90.5 million on face value notes of C$148.9 million. We continue to hold C$21 million of face-value notes that we feel provide us a continued option in the event the credit markets recover in full. In addition, subsequent to the year end, we fully paid off the mesquite term loan, which had been $69 million at the time of the WGI merger.

Rising gold prices, in combination with a positive market reaction to our WGI merger, provided an opportunity to strengthen our cash position. We completed a successful bought-deal equity offering in September for net proceeds of $103 million.

The net result of these transactions:

Since December 31, 2008, and including certain transactions completed in early 2010, New Gold has improved from a $30 million net debt position to an approximately $132 million net cash position, excluding the expected cash proceeds from the completion of the Amapari sale.

During the year, your management team was also very active in sharing the New Gold story with more investors to increase our visibility, trading liquidity and share price. We added to our European shareholder base, doubled our coverage among prominent analysts and more than tripled our trading liquidity. These financial achievements greatly add to our ability to pursue our goals for further growth.


New Afton

A major part of our growth strategy involves enhancing the value of our existing portfolio of assets. A prime example is our New Afton development project in British Columbia, Canada, which has the potential to more than double our cash flow when it comes on stream in a little over two years. As this project quickly progresses toward production, it will only help to increase the certainty around the timeline to project development, production start-up, and operating costs. This should improve New Afton's value in the eyes of analysts and investors. In 2009, we continued on our successful path to production, meeting our development targets while maintaining our timeline for a mid-2012 production start.

El Morro

The El Morro copper-gold project in Chile represents another cornerstone growth asset for the company. One of New Gold's predecessor companies Metallica Resources, originally discovered El Morro so it also represents an important part of our history. Early in 2010, New Gold exercised our right of first refusal on the sale of the 70% interest in the project held by Xstrata Copper Chile S.A.

In February 2010, a New Gold subsidiary acquired Xstrata's 70% interest. Subsequently, New Gold sold that subsidiary to Goldcorp Inc., maintaining a 30% interest in this world-class project and amending the terms of the El Morro Shareholders Agreement to significantly enhance the economics of the project for New Gold shareholders.

The transaction highlights for New Gold include: Goldcorp funding for 100% of New Gold's $225 million share of the development and construction capital for the project; a lower interest rate on the funded amount; timely commencement of construction once required permits and approvals are received; and a $50 million payment.

While a statement of claim relating to the 70% interest is outstanding, we have closed the transaction and are moving forward. We are very excited about the opportunity to participate in this great project and look forward to further assessing its significant exploration potential.


While much smaller than El Morro, in our view, Amapari was similarly undervalued by the market at the beginning of the year. After careful consideration, we put the mine on care and maintenance in the early part of 2009. In early 2010, we announced an agreement to sell Amapari to Beadell Resources Inc., an Australian miner with interests in Brazil. This transaction would further increase our financial flexibility, and the ability to participate in the future success of Beadell.

Overall, our various initiatives to enhance the valuation of our assets, including El Morro, Amapari and our asset backed notes, have had significant results.

  • The value of these once-underappreciated assets has risen from about $40 million in mid-2009 to more than $450 million today.


We completed two major transactions in 2008 and 2009 that demonstrated our ability to carry out our growth strategy in a disciplined fashion that is accretive to shareholders. We have moved in strategic steps, adding assets with attractive production and cash flow potential in a process that has focused on quality rather than simply on growth as an end in itself. We have an excellent team, the right strategy and a much stronger financial base to continue to build shareholder value.


We will continue to benefit from the guidance of Directors with outstanding industry experience and deal-making connections. They represent a critical mass of gold-industry talent with a singular focus on enhancing shareholder value because, after all, they are major shareholders themselves. During 2009, we drew on the wise counsel of proven company-builders Pierre Lassonde and Ian Telfer, investment veterans James Estey, Vahan Kololian and Martyn Konig, and industry veterans Craig Nelsen and Raymond Threlkeld. We thank them for their invaluable support and advice.


During 2010 and beyond, we intend to build on our achievements of 2009. We have an exceptional production-growth profile, which forecasts an increase of over 60% from 2009 to 2013, while cash costs are forecast to fall approximately 60% over the same period. As a result, we expect an exceptional increase in cash flow generation, with our operating margin expected to increase more than 160% from 2009 to 2013.

We have come far in the past 18 months, and have emerged as a fully-funded intermediate producer with attributes that set us apart.

These include:

  • Our proven ability to execute on operational and financial goals;
  • Our outlook for increasing production, coupled with decreasing cash costs, over the next four years with our current portfolio of assets;
  • Our proven ability to complete transactions that are accretive to shareholder value;
  • Our strong balance sheet; and
  • Our proven management team and exceptional Board of Directors.

The outlook is bright for New Gold. We thank you for your support and trust that you share our excitement about New Gold's future.


Randall Oliphant,
Executive Chairman

Robert Gallagher,
President and Chief Executive Officer

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