LETTER TO SHAREHOLDERS
New Gold has a clear vision of
becoming a million ounce, low
cost gold producer by 2012.
Robert Gallagher, President & Chief Executive Officer

To our shareholders:

2008 was a transformational year for New Gold with the merger of three companies, Metallica Resources Inc. (“Metallica Resources”), Peak Gold Ltd. (“Peak Gold”) and New Gold Inc. (“New Gold”) on June 30, 2008, to create an intermediate gold mining company with a solid platform for future growth. Our stated objectives in 2008 were to deliver on our operational targets, maintain a strong financial position and achieve growth through our development projects and through further consolidation of junior gold producers. We are proud to have made progress on those objectives, despite the unprecedented economic challenges which unfolded in the latter half of 2008.

We are pleased to report excellent operational performance for 2008, exceeding our production guidance by 9% at our operating mines in Mexico, Australia and Brazil. This reflects the quality of our team and is consistent with management's commitment to delivering on our operational targets.  

In 2008, New Gold produced 272,046 ounces of gold, 8.2 million pounds of copper and 1.1 million ounces of silver at a cash cost of $549 per ounce of gold, net of by-product sales.  Comparative figures for 2007 were 239,687 ounces of gold, 7.5 million pounds of copper and 0.4 million ounces of silver at a cash cost of $349, net of by-product sales.

The New Gold team made difficult decisions in a tough economic climate to ensure that the company is in a stronger position. On November 12, 2008, New Gold announced that due to the volatility and uncertainty of capital markets, the development schedule for New Afton would be extended to reduce costs and maximize financial flexibility in the complex and uncertain financial climate. Under the original fast track schedule, operations were to commence in late 2009, ramping up to achieve full production in the second quarter of 2011. With the revised plan, underground development is continuing while surface construction will resume at the end of 2011, with full production being achieved in the second half of 2012.

The Amapari mine in Brazil was placed on temporary care and maintenance on January 2, 2009, due to depletion of ore suitable for treatment at the existing facility. New Gold is evaluating a recently completed Preliminary Assessment on the economics to develop the underlying sulphide resource, which would require the installation of a conventional crush/grind/carbon-in-leach mill.

Consistent with maintaining a strong balance sheet, in January 2009, we announced a reduction in our debt position by C$50 million with the buy back of a portion of our Senior Secured Notes for cash consideration of C$30 million. As a result of this transaction, New Gold’s total debt position was reduced to C$242 million.

New Gold is forecasting 2009 gold production of between 190,000 and 210,000 ounces at a cash cost of between $465 and $485 per ounce, net of by-product sales. Capital expenditures for 2009 are expected to be $107.0 million, which includes $78.5 million for New Afton (including capitalized interest), $24.5 million for Peak Mines and $2.8 million for Cerro San Pedro. Exploration expense in 2009 is expected to be $6.2 million.

In 2009, we have continued positioning the company to execute on our accretive growth strategy. We are thrilled about the next milestone in the exciting growth of the company. The announcement of the business combination with Western Goldfields Inc. on March 4th, 2009, further delivers on our previously stated growth strategy.

Sustainable Growth

Our commitment to operating in a socially responsible and sustainable manner is unwavering. We believe that our mining operations are among the most environmentally, economically and socially responsible in the world. We seek excellence in the management of health and safety, environment and sustainability, and consider this to be a key driver to achieve a productive and profitable business, while contributing in a meaningful way to the sustainable development of the communities in which we operate. We are proud to have met or exceeded regulatory requirements for health, safety, the environment and sustainability at each of our operations.

New Gold strives to ensure places of work free from injury, and achieved a lost time injury rate significantly below international mining industry averages in 2008. Ongoing community programs such as the weekly medical care provided to 10 communities near our Cerro San Pedro operation and the Community Development Funds which support income generating projects near Amapari are further evidence of our commitment to operating as a responsible global organization. At Peak, our environmental achievements were recognized by the Local Business Awards of the Cobar region of Australia. Environmental stewardship was demonstrated by participating in the establishment of a regional recycling program, holding a Clean-Up Australia event and a tree-planting day with local school children. Our ground-breaking agreement with First Nations groups at the New Afton project in the Province of British Columbia has set the groundwork for assisting local governments and other organizations to develop their own meaningful agreements with First Nations.

Looking Ahead

As we look forward to 2009, we are excited about the next milestone in the growth of our company with the recent announcement of the business combination with Western Goldfields. Highlights of the proposed transaction include stronger cash flow to fund the New Afton project, a strengthened management team and board of directors, and diversified gold production expected to grow to over 400,000 gold ounces by 2012.

We are committed to delivering on our operational targets and will continue to take the steps necessary to maintain a strong financial position. We foresee extensive opportunities for growth through the development of our New Afton and El Morro projects, and through further merger and acquisition activity with junior gold producers.

On behalf of the Board of Directors, I would like to thank our shareholders for their continued support, as well as our employees for their hard work, dedication and many contributions to this past year’s accomplishments.

Sincerely,

Robert Gallagher, President and CEO