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May 24, 2012

New Gold Inc.

Company Type Resources Company Stage Symbol Share Price (CAD) 52-week High/Low Mining Gold / Silver / Copper Mid-tier Producer TSX:NGD / NYSE:NGD $8.85 $14.12 / $7.20

Overview
With three producing gold mines and three development-stage projects, New Gold Inc. (TSX:NGD / NYSE:NGD) is a growing midtier gold producer. The companys currently producing assets, located in the United States, Mexico and Australia, together with its New Afton mine, located in British Columbia, Canada, are expected to produce more than 400,000 ounces of gold in 2012. The New Afton mine will begin production in mid-2012 and in 2013 the company expects to produce between 450,000 and 500,000 ounces of gold. As of the first quarter of 2012, the companys average cash cost per ounce of gold produced was $543, yielding an average cash margin of $1,032 per ounce. Net of byproduct credits, the company expects its cash costs to fall to between $150 and $200 per ounce of gold produced in 2013, assuming a $30 per ounce price for silver and a $3.50 per pound price for copper. The companys 100% owned, development stage Blackwater project, located in British Columbia, is estimated to contain 7.8 million ounces of gold and 37 million ounces of silver in all categories. Additionally, the company holds a 30% stake in the El Morro project located in Chile, while Goldcorp Inc. holds a 70% interest. New Golds 30% represents 4.7 million ounces of gold and 3.9 billion pounds of copper in all categories.

Market Cap. Shares Out. Fully Diluted Insider Ownership Major Shareholders

Headquarters Address

Board of Directors

CEO Operating Region(s) Working Capital Burn Rate Debt Revenues Profit/Loss Net Assets

$4,086,303,110 461,729,165 530,793,357 2.83% Fidelity Mgmt, 6.01%; Van Eck Assoc, 5.79%; RS Investment Mgmt, 4.78%; BlackRock Investment Mgmt, 4.42%; Harris Investment Mgmt, 4.08%; Market Vectors Gold Miners, 3.78%; Fidelity Contrafund, 3.74% 3110-666 Burrard St. Vancouver, BC V6C 2X8 Canada 1 (604) 696-4100 phone 1 (604) 696-4110 fax info@newgold.com www.newgold.com Randall Oliphant, Robert Gallagher, James Estey, Vahan Kololian, Martyn Konig, Pierre Lassonde, Craig Nelsen, Raymond Threlkeld Robert Gallagher United States, Mexico, Australia, Canada, Chile $238,000,000 (12/31/2011) N/A $375,000,000 $166,755,000 (Q1 2012) $33,531,000 (Q1 2012) $3,292,964,000 (3/31/2012 total assets)

Management
The companys Executive Chairman and Director, Randall Oliphant, was President and Chief Executive Officer of Barrick Gold
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Corporation from 2006 to 2009 and Chairman of Western Goldfields Inc., which was acquired by New Gold in 2009. The companys President and Chief Executive Officer, Robert Gallagher, previously served in senior roles at Placer Dome Inc. and Newmont Mining Corporation. Before the business combination of Peak Gold Ltd., Metallica Resources Inc. and New Gold in 2008, Mr. Gallagher was the President and Chief Executive Officer of Peak Gold. The companys Chief Financial Officer, Brian Penny, served as CFO of Kinross Gold Corporation, Western Goldfields and Silver Bear Resources Inc. Mr. Penny was a Director of and chaired the Audit Committee of Equinox Minerals Limited until its acquisition by Barrick in 2011. The development and operation of the companys New Afton mine is managed by Ron Allum, Vice President of Operations for Canada. Mr. Allum has more than 33 years of underground mining operational experience, including 28 years in block cave mining operations at the San Manuel mine in Arizona and at the Questa mine in New Mexico. The companys Latin American operations are managed by Armando Ortega, Vice President for Latin America. Mr. Ortega also serves as Managing Director of Minera San Xavier S.A. de C.V. Previously, Mr. Ortega served as Vice President, Legal and General Counsel at Southern Copper (a subsidiary of Grupo Mexico) and as General Counsel of Grupo Mexico, S.A.B. de C.V. Mr. Ortega also held positions in the Mexican federal government where he participated in trade negotiations with the United States and Canada (the North American Free Trade Agreement) and the European Union. The companys exploration teams are led by Mark Petersen, Vice President of Exploration, who is an economic geologist with over 28 years of mining industry experience in the Americas. Mr. Petersen previously served as Vice President of Exploration for Metallica Resources, where he was responsible for exploration and development at the Cerro San Pedro project in Mexico and exploration projects in Chile, Brazil and Alaska. Mr. Petersen was also the companys technical liaison for the El Morro joint venture project in Chile. Prior to Metallica Resources, Mr. Petersen held positions as an exploration geologist with Lac Minerals Inc. and predecessor companies Bond Gold Inc. and St. Joe Gold Inc.

Operating Mines
The companys three producing mines are the Mesquite mine located in the United States, the Cerro San Pedro mine located in Mexico and the Peak mines located in Australia. The companys New Afton mine is on schedule to begin production in 2012. The company estimates that it will produce between 405,000 and 445,000 ounces of gold in 2012 and between 450,000 and 500,000 ounces of gold in 2013. Cerro San Pedro Mine The Cerro San Pedro mine, located in Cerro San Pedro, Mexico, is an open pit gold and silver (with zinc and lead) heap leach operation. The mineral rights consist of 53 mineral concessions (consolidated to 17) covering an area of 7,969 hectares. The open pit mine life is estimated to be 6 years, after which an underground operation might be implemented (exploration is currently under way). Metal recoveries are 60% for gold and 30% for silver. The mine is expected to produce 140,000 to 150,000 ounces of gold and 2 million ounces of silver in 2012 at a total cash cost of approximately $260 per ounce of gold produced. Mesquite Mine The Mesquite mine, located in Imperial County, California, United States, is an open pit gold mine and heap leach operation with an estimated 13-year mine life. The mineral rights cover a total area of approximately 1,890 hectares (4,670 acres).
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75% of produced gold is recovered from oxide ores and gravels and 35% from non-oxide ores. Metal recoveries for gold are approximately 92% (75% over the life of the mine). The mine is expected to produce 140,000 to 150,000 ounces of gold in 2012 at a total cash cost of approximately $720 per ounce of gold produced. Peak Mines The Peak mines, located in the Cobar Gold Field of Central West New South Wales, Australia, is an underground gold, silver and copper mining operation. The Peak gold mines comprise five producing mines and a copper-gold processing plant. The mineral rights consist of approximately 86,110 hectares of mining leases and exploration licenses. The primary Peak mine has an estimated 9-year mine life, but the mine has a 20-year history, thus it is likely that further exploration will extend the mine life. Metal recoveries are approximately 90% for gold and 87% for copper. The five mines feed a central mill that operates at approximately 2,200 tonnes per day (tpd). The mines are expected to produce 90,000 to 100,000 ounces of gold and 13 million pounds of copper in 2012 at a total cash cost of approximately $650 per ounce of gold produced. New Afton Mine The New Afton mine, located in British Columbia, Canada, is a block cave mining operation with an estimated 12-year mine life. The mineral rights consist of 61 mineral claims covering an area of 12,450 hectares. The project is on track for commencement of commercial production by August 2012. Metal recoveries are expected to be 88% for copper, 87% for gold and 75% for silver. Once fully operational, the New Afton mine is expected to produce an annual average of 85,000 ounces of gold and 75 million pounds of copper. Initially, the mine will operate at 6,600 tpd (60% of nameplate capacity) and will then ramp up to 11,000 tpd in early 2013. In 2012, the mine is expected to produce between 35,000 and 45,000 ounces of gold at a total cash cost of approximately $640 per ounce of gold produced, not including byproduct credits. On a byproduct basis, the total cash cost is expected to be -$1,250 per ounce of gold produced in 2012.

Reserves and Resources

At its operating mines, including New Afton, the companys NI 43-101 compliant Measured and Indicated resources total 10 million ounces of gold, 62.9 million ounces of silver, 1.7 billion pounds of copper, 753 million pounds of zinc and 106 million pounds of lead, with the majority of the resources in the Proven and Probable (reserves) category. Adding in the development stage El Morro and Blackwater projects (including the Capoose deposit) raises the companys total Measured and Indicated gold, silver and copper resources to 18.8 million ounces of gold, 115 million ounces of silver and 3.9 billion pounds of copper.
Mine / Project Blackwater/Capoose Cerro San Pedro El Morro * Mesquite New Afton Peak Total Gold (oz) 5,851,000 1,812,000 2,954,000 5,534,000 1,742,000 948,000 18,841,000 Silver (oz) 52,388,000 55,860,000 5,470,000 1,570,000 115,288,000 Copper (lbs) 2,193,000,000 1,586,000,000 167,000,000 3,946,000,000 Zinc (lbs) 753,000,000 753,000,000 Lead (lbs) 106,000,000 106,000,000

* Total for New Golds 30% ownership.

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Including all properties, in the Inferred category, the company has an additional 6.7 million ounces of gold, 78.7 million ounces of silver, 2.2 billion pounds of copper, 598 million pounds of zinc and 18 million pounds of lead.
Property Blackwater/Capoose Cerro San Pedro El Morro * Mesquite New Afton Peak Total Gold (oz) 2,725,000 956,000 1,810,000 512,000 483,000 259,000 6,745,000 Silver (oz) 40,705,000 36,024,000 1,478,000 486,000 78,693,000 Copper (lbs) 1,705,000,000 390,000,000 107,000,000 2,202,000,000 Zinc (lbs) 698,000,000 698,000,000 Lead (lbs) 18,000,000 18,000,000

* Total for New Golds 30% ownership.

The El Morro project, of which New Gold owns 30%, contains NI 43-101 compliant Proven and Probable reserves of 8.4 million ounces of gold and 6.1 billion pounds of copper. The site, which is located in the Regin de Atacama of Northern Chile (District III), covers 417 square kilometers and is one of the largest known copper and gold deposits in Latin America. Copper and gold will be recovered via flotation with average metal recovery rates of 85.1% for copper and 67.2% for gold. Initial production is expected in 2017 with full production in 2018 at a rate of 90,000 tpd. New Golds 30% share of annual production is projected to be over 100,000 ounces of gold and 95 million pounds of copper. Over the mines estimated 17-year mine life, cash costs are expected to be approximately $550 per ounce of gold net of byproduct credits.

Exploration Plans
Exploration is ongoing at the Peak mines, focusing on near mine satellite targets, and at the Cerro San Pedro mine, focusing on a potential underground resource. In 2012, an underground exploration program at the New Afton mine will focus on a near mine extension of the mineralization. At the El Morro project, drilling will focus on identifying further mineralization at the La Fortuna deposit and on further testing of the geologically similar El Morro deposit. At the Blackwater project, the company is engaged in a substantial exploration program that, in 2012, comprises 210,000 meters over 500 holes.

Growth Strategy
New Gold is the product of a series of business combinations and acquisitions beginning in 2008 when New Gold, Metallica Resources and Peak Gold joined forces. In 2009, New Gold acquired Western Goldfields, which owned the producing Mesquite mine, and, in 2011, New Gold obtained the Blackwater project through its acquisition of Richfield Ventures Corp. The strategy increased liquidity and generated a portfolio effect. As a larger entity, New Gold was able to lower production costs and increase production. The companys strategy is to continue its growth trajectory through acquisitions, exploration and mine development in mining friendly jurisdictions. CEO Robert Gallagher explains that The companys original strategy was to acquire single-asset companies with producing mines. Buying producing assets has become more expensive. Were looking at late stage exploration assets, like Blackwater, that are pre-development. Were moving up the value chain and competing with larger companies for higher quality assets. The company is focused on

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projects that will have a minimum 12-year mine life and produce 100,000 ounces of gold per year. Currently, the company has cash and cash equivalents of $326 million as well as an undrawn credit facility of $150 million. As of March 2012, the company had $382 million in debt, consisting primarily of $300 million in unsecured notes at 7% issued in April 2012. The company reported Q1 2012 financial results showing net earnings of $33.5 million with revenues of $168.7 million.

Near-term Catalysts
The companys New Afton mine, which is scheduled to begin production in June 2012, will add between $200 million and $250 million in gross annual revenues to the companys top line. The company is working towards a Preliminary Economic Assessment (PEA) of its Blackwater project, which will be completed in the third quarter of 2012, and additional drill results from the project are expected in 2012.

Investment Thesis
New Gold has shown consistent execution and growth in resources and production, has a strong balance sheet and growing cash flow. The company is in a strong position to make additional strategic acquisitions. High volatility in the gold price and in the stock market recently led to an indiscriminate sell off in gold mining shares. The companys share price recently fell to a new 52-week low. Insiders are buying shares in the open market. New Golds share price has been affected by a lawsuit and by a permitting delay at the El Morro project in Chile. The issues are of a temporary nature and if the El Morro project were subtracted entirely, New Gold would remain undervalued.

Major Risks
A judgment in the litigation between Barrick Gold and Goldcorp over the acquisition of Xstrata Copper Chiles 70% stake in the El Morro project by Goldcorp is imminent. In 2009, New Gold exercised its right of first refusal by purchasing Xstratas 70% stake in the project, which Barrick was prepared to acquire. New Gold then sold 70% of the project to Goldcorp. Barrick sued, alleging that New Gold had unlawfully sold its right of first refusal. Although it is questionable if Barrick can prove its case, litigation is unpredictable. In any case, the outcome has no impact on New Golds 30% ownership of the project. Goldcorps 70% owned subsidiary Sociedad Contractual Minera El Morro suspended construction at the El Morro project in April 2012. Engineering, design and architectural work have continued. A Chilean court ruling on April 27 suspended approval of an environmental permit issued on March 14 by the Chilean Servicio de Evaluacin Ambiental (SEA). The SEA is expected to require Goldcorp to meet with the Comunidad Agricola Los Huasco Altinos, which requested the permit review in order to discuss environmental impacts and mitigation measures. Sociedad Contractual Minera El Morro had met with local farmers individually but had not met with the Comunidad Agricola Los Huasco Altinos organization. Since Chile is a mining friendly jurisdiction, it is likely that the permit will be approved once all of the requirements have been met. However, the timeline and additional mitigation measures, if any, are unknown.
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Outside of the El Morro project, the primary risks to New Golds share price have to do with general stock market conditions and the price of gold. Mining companies are subject to normal execution and operating risks, as well as to risks associated with exogenous events. ###

About This Report

Hera Research is a subscriber-funded research service that does not receive compensation from resource companies. Hera Research focuses on value investing in companies that produce natural resources and seeks to identify resource companies whose share prices could gain 100% or more in 18 to 24 months. Hera Research, LLC or its Directors are shareholders of New Gold Inc. All information contained herein was obtained either from the company or from other authoritative sources and is assumed to be true and accurate. Hera Research does not issue buy, sell or hold recommendations or set short-term, e.g., 90-day, price targets. Hera Research provides research and does not offer investment or financial advice of any kind.

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