EX-99.1 2 fs2013_q1.htm CONDENSED CONSOLIDATED FINANCIAL STATEMENT MARCH 31, 2013

Exhibit 99.1

TABLE OF CONTENTS |  |  |
FINANCIAL STATEMENTS |  | NOTES TO THE FINANCIAL STATEMENTS
1 | CONDENSED CONSOLIDATED INCOME STATEMENTS |  | 6 | 1.DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
2 | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |  | 6 | 2.SIGNIFICANT ACCOUNTING POLICIES
3 | CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |  | 7 | 3.FUTURE CHANGES IN ACCOUNTING POLICIES
4 | CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |  | 8 | 4.EXPENSES
5 | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |  | 9 | 5.TRADE AND OTHER RECEIVABLES
|  |  | 10 | 6.TRADE AND OTHER PAYABLES
|  |  | 10 | 7.INVENTORIES
|  |  | 11 | 8.MINING INTERESTS
|  |  | 12 | 9.LONG-TERM DEBT
|  |  | 13 | 10.DERIVATIVE INSTRUMENTS
|  |  | 14 | 11.SHARE CAPITAL
|  |  | 17 | 12.INCOME AND MINING TAXES
|  |  | 18 | 13.RECLAMATION AND CLOSURE COST OBLIGATIONS
|  |  | 18 | 14.SUPPLEMENTAL CASH FLOW INFORMATION
|  |  | 19 | 15.SEGMENTED INFORMATION
|  |  | 20 | 16.FAIR VALUE MEASUREMENT
|  |  | 22 | 17.COMMITMENTS AND CONTINGENCIES

New Gold Q1 2013 Report

CONDENSED CONSOLIDATED INCOME STATEMENTS |  |  |  |
(unaudited) |  |  |  |  |
|  |  | Three months ended March 31
|  |  | $ |  | $
(In millions of U.S. dollars, except per share amounts) | Note |  | 2013 |  | 2012
Revenues |  |  | 201.8 |  | 168.8
Operating expenses | 4 |  | 106.1 |  | 72.3
Depreciation and depletion |  |  | 37.9 |  | 18.8
Earnings from mine operations |  |  | 57.8 |  | 77.7
Corporate administration |  |  | 7.3 |  | 6.7
Share-based payment expenses | 11 |  | 2.5 |  | 2.4
Exploration and business development |  |  | 4.0 |  | 2.8
Income from operations |  |  | 44.0 |  | 65.8
Finance income | 4 |  | 0.4 |  | 0.2
Finance costs | 4 |  | (11.5) |  | (2.1)
Other gains (losses) | 4 |  | 15.8 |  | (12.1)
Earnings before taxes |  |  | 48.7 |  | 51.8
Income tax expense | 12 |  | (12.4) |  | (18.3)
Net earnings |  |  | 36.3 |  | 33.5
Earnings per share |  |  |  |  |
Basic | 11 |  | 0.08 |  | 0.07
Diluted | 11 |  | 0.08 |  | 0.07
Weighted average number of shares outstanding (in millions) |  |  |  |  |
Basic | 11 |  | 476.2 |  | 461.4
Diluted | 11 |  | 480.5 |  | 472.9

See accompanying notes to the condensed consolidated financial statements.
1

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |  |
(unaudited) |  |  |  |  |
|  |  | Three months ended March 31
|  |  | $ |  | $
(In millions of U.S. dollars) | Note |  | 2013 |  | 2012
Net earnings |  |  | 36.3 |  | 33.5
Other comprehensive (loss) income |  |  |  |  |
Unrealized losses on mark-to-market of gold contracts | 10 |  | 9.1 |  | (22.0)
Realized losses on settlement of gold contracts | 10 |  | 10.8 |  | 12.9
Unrealized losses on available-for-sale securities (net of tax) |  |  | (0.3) |  | (0.7)
Foreign currency translation adjustment |  |  | - |  | 23.4
Deferred Income tax related to gold contracts | 10 |  | (8.1) |  | 3.7
Total other comprehensive income (loss) |  |  | 11.5 |  | 17.3
Total comprehensive income |  |  | 47.8 |  | 50.8
All items recorded in other comprehensive income will be reclassifed in subsequent periods to net earnings |

See accompanying notes to the condensed consolidated financial statements.
2

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |  |  |
(unaudited) |  |  |  |  |  |
|  |  |  | March 31 |  | December 31
|  |  |  | $ |  | $
(In millions of U.S. dollars) |  |  | Note | 2013 |  | 2012
Assets |  |  |  |  |  |
Current assets |  |  |  |  |  |
Cash and cash equivalents |  |  |  | 672.4 |  | 687.8
Trade and other receivables |  |  | 5 | 23.4 |  | 46.9
Inventories |  |  | 7 | 170.2 |  | 163.3
Current income tax receivable |  |  |  | 6.1 |  | 6.6
Prepaid expenses and other |  |  |  | 10.3 |  | 12.9
Total current assets |  |  |  | 882.4 |  | 917.5
Investments |  |  |  | 0.7 |  | 1.0
Non-current inventories |  |  | 7 | 32.3 |  | 32.4
Mining interests |  |  | 8 | 3,190.4 |  | 3,134.9
Deferred tax assets |  |  |  | 192.8 |  | 194.1
Other |  |  |  | 3.6 |  | 3.8
Total assets |  |  |  | 4,302.2 |  | 4,283.7
Liabilities and equity |  |  |  |  |  |
Current liabilities |  |  |  |  |  |
Trade and other payables |  |  | 6 | 111.8 |  | 120.7
Current derivative liabilities |  |  | 10 | 51.4 |  | 56.4
Total current liabilities |  |  |  | 163.2 |  | 177.1
Reclamation and closure cost obligations |  |  | 13 | 67.0 |  | 68.5
Provisions |  |  |  | 10.7 |  | 9.5
Non-current derivative liabilities |  |  | 10 | 37.0 |  | 54.1
Non-current non-hedged derivative liabilities |  | 10 | 56.2 |  | 80.3
Long-term debt |  |  | 9 | 854.3 |  | 847.8
Deferred tax liabilities |  |  |  | 336.4 |  | 322.9
Deferred benefit |  |  |  | 46.3 |  | 46.3
Other |  |  |  | 1.0 |  | 0.7
Total liabilities |  |  |  | 1,572.1 |  | 1,607.2
Equity |  |  |  |  |  |
Common shares |  |  | 11 | 2,624.1 |  | 2,618.4
Contributed surplus |  |  |  | 85.3 |  | 85.2
Other reserves |  |  |  | (39.0) |  | (50.5)
Retained earnings |  |  |  | 59.7 |  | 23.4
Total equity |  |  |  | 2,730.1 |  | 2,676.5
Total liabilities and equity |  |  |  | 4,302.2 |  | 4,283.7
Approved and authorized by the Board on May 1, 2013 |  |  |  |  |
"Robert Gallagher" |  | "James Estey" |  |  |  |
Robert Gallagher, Director |  | James Estey, Director |  |  |  |

See accompanying notes to the condensed consolidated financial statements.
3

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |  |
(unaudited) |  |  |  |  |
|  |  | Three months ended March 31
|  |  | $ |  | $
(In millions of U.S. dollars) | Note |  | 2013 |  | 2012
Common shares |  |  |  |  |
Balance, beginning of period |  |  | 2,618.4 |  | 2,464.0
Shares issued for exercise of options and warrants | 11 |  | 5.7 |  | 4.5
Balance, end of period |  |  | 2,624.1 |  | 2,468.5
Contributed surplus |  |  |  |  |
Balance, beginning of period |  |  | 85.2 |  | 80.4
Exercise of options |  |  | (2.0) |  | (1.2)
Equity settled share-based payments |  |  | 2.1 |  | 2.0
Balance, end of period |  |  | 85.3 |  | 81.2
Other reserves |  |  |  |  |
Balance, beginning of period |  |  | (50.5) |  | (86.4)
Foreign currency translation adjustment |  |  | - |  | 23.4
Change in fair value of available-for-sale investments |  |  | (0.3) |  | (0.7)
Change in fair value of hedging instruments (net of tax) |  |  | 11.8 |  | (5.4)
Balance, end of period |  |  | (39.0) |  | (69.1)
Retained earnings (deficit) |  |  |  |  |
Balance, beginning of period |  |  | 23.4 |  | (175.6)
Net earnings |  |  | 36.3 |  | 33.5
Balance, end of period |  |  | 59.7 |  | (142.1)
Total equity |  |  | 2,730.1 |  | 2,338.5

See accompanying notes to the condensed consolidated financial statements.
4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |  |  |  |
(unaudited) |  |  |  |  |
|  |  | Three months ended March 31
|  |  | $ |  | $
(In millions of U.S. dollars) | Note |  | 2013 |  | 2012
Operating activities |  |  |  |  |
Net earnings |  |  | 36.3 |  | 33.5
Adjustments for: |  |  |  |  |
Realized gains on gold contracts |  |  | (2.7) |  | (2.4)
Realized and unrealized foreign exchange losses | 4 |  | 5.6 |  | 1.5
Unrealized (gains) losses on non-hedged derivatives | 4 |  | (22.6) |  | 8.6
Unrealized losses on concentrate contracts | 10 |  | 0.5 |  | -
Reclamation and closure costs paid | 13 |  | (0.4) |  | -
Loss on disposal of assets | 4 |  | 0.5 |  | 0.3
Depreciation and depletion |  |  | 37.8 |  | 18.5
Equity-settled share-based payment expense | 11 |  | 2.1 |  | 2.0
Unrealized losses on cash flow hedging items | 4 |  | 0.5 |  | 0.2
Income tax expense | 12 |  | 12.4 |  | 18.3
Finance income | 4 |  | (0.4) |  | (0.2)
Finance costs | 4 |  | 11.5 |  | 2.1
|  |  | 81.1 |  | 82.4
Change in non-cash operating working capital | 14 |  | (12.9) |  | (16.3)
Cash generated from operations |  |  | 68.2 |  | 66.1
Income taxes paid |  |  | (9.7) |  | (29.4)
Net cash generated from operations |  |  | 58.5 |  | 36.7
Investing activities |  |  |  |  |
Mining interests |  |  | (76.4) |  | (110.1)
Purchase of additional Blackwater mining claims |  |  | - |  | (6.0)
Interest received |  |  | 0.2 |  | 0.2
Cash used in investing activities |  |  | (76.2) |  | (115.9)
Financing activities |  |  |  |  |
Issuance of common shares on exercise of options and warrants | 11 |  | 3.7 |  | 3.3
Financing initiation costs |  |  | (0.3) |  | (1.6)
Cash generated by financing activities |  |  | 3.4 |  | 1.7
Effect of exchange rate changes on cash and cash equivalents |  |  | (1.1) |  | 3.8
Decrease in cash and cash equivalents |  |  | (15.4) |  | (73.7)
Cash and cash equivalents, beginning of the period |  |  | 687.8 |  | 309.4
Cash and cash equivalents, end of the period |  |  | 672.4 |  | 235.7
Cash and cash equivalents are comprised of: |  |  |  |  |
Cash |  |  | 317.6 |  | 138.0
Short-term money market instruments |  |  | 354.8 |  | 97.7
|  |  | 672.4 |  | 235.7

See accompanying notes to the condensed consolidated financial statements.
5

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2013 and 2012
(Amounts expressed in millions of U.S. dollars, except per share amounts and unless otherwise noted)

1.  DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
New Gold Inc. (the “Company”) and its subsidiaries are gold producers engaged in gold mining and related activities including acquisition, exploration, extraction, processing and reclamation. The Company’s assets are comprised of the Mesquite Mine in the United States (“U.S.”), the Cerro San Pedro Mine in Mexico, the Peak Gold Mines in Australia, and the New Afton Mine in Canada. Significant projects include the Blackwater development project in Canada and a 30% interest in the El Morro copper-gold development project in Chile.
The Company is a publicly listed company incorporated in Canada with limited liability under the legislation of the Province of British Columbia. The Company’s shares are listed on the Toronto Stock Exchange and the New York Stock Exchange MKT under the symbol NGD.
The Company’s registered office is located at 1800 – 555 Burrard Street, Vancouver, British Columbia, V7X 1M9, Canada.

2.  SIGNIFICANT ACCOUNTING POLICIES
(a)  Statement of compliance
These unaudited condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting, on a basis consistent with the accounting policies disclosed in the audited consolidated financial statements for the fiscal year ended December 31, 2012.
These unaudited interim financial statements should be read in conjunction with the most recently issued Annual Financial Report of the Company which includes information necessary or useful to understanding the Company's business and financial statement presentation. In particular, the Company's significant accounting policies were presented as Note 2 to the audited consolidated financial statements for the fiscal year ended December 31, 2012, and have been consistently applied in the preparation of these unaudited condensed consolidated interim financial statements, except as noted in 2(b).
These unaudited condensed consolidated interim financial statements were approved by the Board of Directors of the Company on May 1, 2013.
(b)  Changes in accounting policies
The Company has adopted the following new and revised International Financial Reporting standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) along with any amendments, effective January 1, 2013. These changes were made in accordance with the applicable transitional provisions.
IFRS 7, Financial Instrument Disclosure (Amended)
IFRS 7, Financial Instrument Disclosure (Amended)(“IFRS 7”), requires disclosure about all recognized financial instruments that are offset in accordance with IAS 32 Financial Instruments: Presentation. The amendments also require disclosure of information about recognized financial instruments subject to enforceable master netting arrangements and similar agreements even if they are not set off under IAS 32. The Company has reviewed the amendment and determined that no additional disclosures are currently required.
IFRS 10, Consolidated Financial Statements
IFRS 10, Consolidated Financial Statements (“IFRS 10”), replaces the guidance on control and consolidation in IAS 27, Consolidated Separate Financial Statements, and SIC-12, Consolidation – Special Purpose Entities. IFRS 10 requires consolidation of an investee only if the investor possesses the power over the investee, has exposure to variable returns from its involvement with the investee and has the ability to use its power over the investee to affect its returns. The Company assessed its consolidation conclusions on January 1, 2013 and determined that the adoption of IFRS 10 did not result in any change in the consolidation status of any of its subsidiaries and investees.
IFRS 11, Joint Arrangements
IFRS 11, Joint Arrangements (“IFRS 11”), supersedes IAS 31, Interests in Joint Ventures, and requires joint arrangements to be classified either as joint operations or joint ventures depending on the contractual rights and obligations of each investor that jointly controls the arrangement. For joint operations, a company recognizes its share of assets, liabilities, revenues and expenses of the joint operation. An investment in a joint venture is accounted for using the equity method as set out in IAS 28, Investments in Associates and Joint Ventures (amended in 2011). The other amendments did not affect the Company. The Company has classified its joint arrangements and concluded that the adoption of IFRS 11 did not result in any changes in the accounting for its joint arrangements.
6

IFRS 12, Disclosure of Interests in Other Entities
IFRS 12, Disclosure of Interests in Other Entities (“IFRS 12”), combines the disclosure requirements for the Company’s subsidiaries, joint arrangements, associates and unconsolidated structured entities. The requirements of IFRS 12 include reporting on the nature of risks associated with the Company’s interests in other entities, and the effects of those interests on the Company’s consolidated financial statements. The Company has assessed its disclosure and concluded that the adoption of IFRS 12 did not results in any change in disclosure in these condensed consolidated interim financial statements, however will result in additional disclosure in the year-end financial statements.
IFRS 13, Fair Value Measurement
IFRS 13, Fair Value Measurement (“IFRS 13”), provides a single framework for measuring fair value. The measurement of the fair value of an asset or liability is based on assumptions that market participants would use when pricing the asset or liability under current market conditions, including assumptions about risk. The Company adopted IFRS 13 on January 1, 2013 on a prospective basis. The adoption of IFRS 13 did not require any adjustments to the valuation techniques used by the Company to measure fair value and did not result in any measurement adjustments as at January 1, 2013.
IFRS 19 Employee Benefits (Amended)
IFRS 19, Employee Benefits (Amended (“IFRS 19”) revised accounting for employee benefits. It requires the recognition of all re-measurements of defined benefit liabilities/assets immediately in other comprehensive income (removal of the so-called ‘corridor’ method), the immediate recognition of all past service cost in profit or loss and the calculation of a net interest expense or income by applying the discount rate to the net defined benefit liability or asset. This replaces the expected return on plan assets that is currently included in net earnings. The standard also introduces a number of additional disclosures for defined benefit liabilities/assets and could affect the timing of the recognition of termination benefits. The adoption of the amendments had no material impact.
IAS 1 Amendment, Presentation of Items of Other Comprehensive Income (“IAS 1”)
The Company has adopted the amendments to IAS 1 effective January 1, 2013. These amendments required the Company to group other comprehensive income items by those that will be reclassified subsequently to profit or loss and those that will not be reclassified. These changes did not result in any adjustments to other comprehensive income or comprehensive income.
IFRIC 20, Stripping Costs in the Production Phase of a Mine
IFRIC 20, Stripping Costs in the Production Phase of a Mine (“IFRIC 20”), clarifies the accounting for the costs of stripping activity in the production phase of a mine when two benefits occur: (i) usable ore that can be used to produce inventory and (ii) improved access to further quantities of material that will be mined in future periods. IFRIC 20 includes guidance on transition for pre-existing stripping assets. The adoption of IFRIC 20 did not require any adjustments to the existing accounting for stripping activities and did not result in any measurement adjustments as at January 1, 2013.

3.  FUTURE CHANGES IN ACCOUNTING POLICIES
Accounting standards anticipated to be effective January 1, 2015
Financial instruments
The IASB intends to replace IAS 39 – Financial Instruments: Recognition and Measurement (“IAS 39”) in its entirety with IFRS 9 – Financial Instruments (“IFRS 9”) in three main phases. IFRS 9 will be the new standard for the financial reporting of financial instruments that is principles-based and less complex than IAS 39. In November 2009 and October 2010, phase 1 of IFRS 9 was issued and amended, respectively, which addressed the classification and measurement of financial assets and financial liabilities. IFRS 9 requires that all financial assets be classified and subsequently measured at amortized cost or at fair value based on the Company’s business model for managing financial assets and the contractual cash flow characteristics of the financial assets. Financial liabilities are classified as subsequently measured at amortized cost except for financial liabilities classified as at FVTPL, financial guarantees and certain other exceptions. On July 22, 2011, the IASB agreed to defer the mandatory effective date of IFRS 9 from annual periods beginning on or after January 1, 2013 (with earlier application permitted) to annual periods beginning on or after January 1, 2015 (with earlier application still permitted). The IASB proposed the deferral of IFRS 9 in an exposure draft with a 60-day comment period which ended on October 21, 2011. The Company is currently evaluating the impact the final standard is expected to have on its consolidated financial statements.
7

4.  EXPENSES
(a) Operating expenses by nature
Operating expenses by nature for the three months ended March 31, are as follows:

|  |  |  |  |  | $ |  | $
|  |  |  |  |  | 2013 |  | 2012
Raw materials and consumables |  |  |  |  |  | 42.9 |  | 32.9
Salaries and employee benefits |  |  |  |  |  | 29.0 |  | 18.9
Repairs and maintenance |  |  |  |  |  | 7.2 |  | 7.3
Contractors |  |  |  |  |  | 12.1 |  | 5.0
Royalties |  |  |  |  |  | 4.4 |  | 3.5
Shipping costs |  |  |  |  |  | 0.4 |  | 0.1
Change in inventories and work-in-progress |  |  |  |  |  | (6.5) |  | (9.0)
Operating leases |  |  |  |  |  | 7.0 |  | 7.5
General and administrative |  |  |  |  |  | 8.2 |  | 4.7
Other |  |  |  |  |  | 1.4 |  | 1.4
|  |  |  |  |  | 106.1 |  | 72.3

(b) Finance costs and income
Finance costs and income for the three months ended March 31, are as follows:

|  |  |  |  |  | $ |  | $
|  |  |  |  |  | 2013 |  | 2012
Finance costs |  |  |  |  |  |  |  |
Interest on senior unsecured notes |  |  |  |  |  | 13.4 |  | -
Interest on senior secured notes |  |  |  |  |  | - |  | 5.0
Interest on convertible debentures |  |  |  |  |  | - |  | 1.5
Other interest |  |  |  |  |  | 0.7 |  | 0.4
Unwinding of the discount on decommisioning obligations |  |  |  |  |  | 0.6 |  | 0.4
Other finance costs |  |  |  |  |  | 0.8 |  | 1.3
|  |  |  |  |  | 15.5 |  | 8.6
Less: amounts included in cost of qualifying assets |  |  |  |  |  | (4.0) |  | (6.5)
|  |  |  |  |  | 11.5 |  | 2.1
|  |  |  |  |  | $ |  | $
|  |  |  |  |  | 2013 |  | 2012
Finance income |  |  |  |  |  |  |  |
Interest income |  |  |  |  |  | 0.4 |  | 0.2

(c) Other gains and losses
The following table summarizes other gains and (losses) for the three months ended March 31:

|  |  |  |  |  | $ |  | $
|  |  |  |  |  | 2013 |  | 2012
Ineffectiveness on hedging instruments |  |  |  |  | i | (0.5) |  | (0.2)
Unrealized gain (loss) on non-hedged derivatives |  |  |  |  | ii | 22.6 |  | (8.6)
Loss on foreign exchange |  |  |  |  |  | (5.6) |  | (1.5)
Loss on disposal of assets |  |  |  |  |  | (0.5) |  | (0.3)
Other |  |  |  |  |  | (0.2) |  | (1.5)
|  |  |  |  |  | 15.8 |  | (12.1)

(i) Ineffectiveness on hedging instruments
The Company has gold forward sales contracts that commenced in July 2008 representing a commitment of 5,500 ounces per month ending in December 2014 (as described in Note 10 (a)). The effective portion of gold contracts is recorded in other comprehensive income until the forecasted gold sale impacts earnings. The ineffective portion is recorded in net earnings in the current period. The ineffective portion has resulted in a loss of $0.5 million for the three months ended March 31, 2013 (2012 – loss of $0.2 million).
8

(ii) Fair value loss on non-hedged derivatives
The following table presents realized and unrealized gains and (losses) on non-hedged derivatives for the three months ended March 31:

|  |  |  |  |  | $ |  | $
|  |  |  |  |  | 2013 |  | 2012
Unrealized gain (loss) on share purchase warrants |  |  |  |  |  | 22.6 |  | (7.6)
Unrealized loss on embedded derivative in senior secured notes |  |  |  |  |  | - |  | (3.7)
Unrealized gain on equity conversion option on debentures |  |  |  |  |  | - |  | 2.7
|  |  |  |  |  | 22.6 |  | (8.6)

Share purchase warrants
The Company has outstanding share purchase warrants (“Warrants”), as of March 31, 2013. The Warrants have an exercise price denominated in a currency other than the Company’s functional currency and therefore are classified as a derivative liability. The Warrants are measured at fair value on initial recognition, and subsequently re-measured at fair value at the end of each reporting period. Gains or losses are recognized in net earnings.
At March 31, 2013 the fair value of the derivative liability was $56.2 million (C$57.1 million) (December 31, 2012 - $80.3 million (C$79.9 million)). The change in fair value resulted in a gain of $22.6 million and a foreign exchange gain of $1.5 million on the revaluation of the Warrants for the three months ended March 31, 2013 (2012 – fair value loss of $7.6 million and a foreign exchange loss of $2.7 million).
Embedded derivative in Senior Secured Notes
The Company had Senior Secured Notes (“Notes”) with a face value of C$187.0 million which were redeemed on May 7, 2012. The Company had the right to redeem the Notes, in whole or in part at any time prior to June 27, 2017, the maturity date, at a price ranging from 120% to 100% (decreasing based on the length of time the Notes are outstanding) of the principal amount of the Notes to be redeemed. As at March 31, 2012 the redemption price of 105%. The early redemption feature in the Notes qualified as an embedded derivative and was bifurcated for reporting purposes. The embedded derivative was measured at fair value on initial recognition, and subsequently re-measured at fair value at the end of each reporting period. Gains or losses are recognized in net earnings. This resulted in a fair value loss of $3.7 million for the three months ended March 31, 2012.
Equity conversion Option on Convertible Debentures
The Company had subordinate convertible debentures (“Debentures”) with a face value of C$55.0 million were redeemed on November 20, 2012. The Company had to right to give notice of the intended early redemption if its share price traded at a 25% premium to the C$9.35 per share conversion price for a period of 30 days on a volume weighted average basis. This occurred on October 11, 2012.
The Debentures were classified as compound financial instruments for reporting purposes due to the holder conversion option. The conversion option was treated as a derivative liability measured at fair value on initial recognition, and was subsequently re-measured at fair value at the end of each reporting period. Gains or losses are recognized in net earnings. This resulted in a gain of $2.7 million for the three months ended March 31, 2012.

5.  TRADE AND OTHER RECEIVABLES

|  | $ |  | $
|  | March 31 |  | December 31
|  | 2013 |  | 2012
Trade receivables |  | 5.3 |  | 11.1
Sales tax receivable |  | 14.2 |  | 33.9
Copper swap contracts |  | 2.2 |  | (0.9)
Other |  | 1.7 |  | 2.8
|  | 23.4 |  | 46.9

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6. TRADE AND OTHER PAYABLES

|  | $ |  | $
|  | March 31 |  | December 31
|  | 2013 |  | 2012
Trade payables |  | 32.3 |  | 34.3
Interest payable |  | 21.4 |  | 8.4
Accruals |  | 54.9 |  | 74.7
Current portion of decommissioning obligations (Note 13) |  | 3.2 |  | 3.3
|  | 111.8 |  | 120.7

7.  INVENTORIES

|  | $ |  | $
|  | March 31 |  | December 31
|  | 2013 |  | 2012
Heap leach ore |  | 140.8 |  | 129.5
Work-in-process |  | 14.6 |  | 18.1
Finished goods |  | 11.1 |  | 13.9
Stockpile ore |  | 1.4 |  | 0.3
Supplies |  | 34.6 |  | 33.9
|  | 202.5 |  | 195.7
Less: non-current inventories |  | (32.3) |  | (32.4)
|  | 170.2 |  | 163.3

The amount of inventories recognized in operating expenses for the three months ended March 31, 2013 was $101.8 million (December 31, 2012 – $68.8 million). There were no write-downs or reversals of write-downs during the year. Heap leach inventories of $32.3 million (December 31, 2012 – $32.4 million) are expected to be recovered after one year.
10

8. MINING INTERESTS

|  | Mining properties |  |  |  |  |  |  |  |
|  |  |  | Non |  | Plant & |  | Construction |  | Exploration |  |
|  | Depletable |  | depletable |  | equipment |  | in progress |  | & evaluation |  | Total
|  | $ |  | $ |  | $ |  | $ |  | $ |  | $
Cost |  |  |  |  |  |  |  |  |  |  |  |
As at December 31, 2011 |  | 609.9 |  | 1,728.4 |  | 612.8 |  | 31.0 |  | 9.7 |  | 2,991.8
Additions |  | 28.6 |  | 320.5 |  | 116.0 |  | 135.5 |  | - |  | 600.6
Disposals/write-offs |  | (0.1) |  | - |  | (15.8) |  | - |  | - |  | (15.9)
Transfers |  | 791.7 |  | (742.8) |  | 41.1 |  | (117.0) |  | - |  | (27.0)
Pre-commerical production revenue |  | - |  | (14.5) |  | - |  | - |  | - |  | (14.5)
Foreign exchange translation |  | 10.6 |  | 7.4 |  | 3.3 |  | - |  | - |  | 21.3
As at December 31, 2012 |  | 1,440.7 |  | 1,299.0 |  | 757.4 |  | 49.5 |  | 9.7 |  | 3,556.3
Additions |  | 8.3 |  | 28.1 |  | 7.0 |  | 53.1 |  | - |  | 96.5
Disposals/write-offs |  | - |  | - |  | (1.1) |  | - |  | - |  | (1.1)
Transfers |  | 24.5 |  | - |  | 52.0 |  | (76.5) |  | - |  | -
As at March 31, 2013 |  | 1,473.5 |  | 1,327.1 |  | 815.3 |  | 26.1 |  | 9.7 |  | 3,651.7
Accumulated depreciation |  |  |  |  |  |  |  |  |  |  |  |
As at December 31, 2011 |  | 162.1 |  | - |  | 134.4 |  | - |  | - |  | 296.5
Depreciation for the period |  | 81.3 |  | - |  | 55.6 |  | - |  | - |  | 136.9
Disposals |  | - |  | - |  | (12.5) |  | - |  | - |  | (12.5)
Foreign exchange translation |  | - |  | - |  | 0.5 |  | - |  | - |  | 0.5
As at December 31, 2012 |  | 243.4 |  | - |  | 178.0 |  | - |  | - |  | 421.4
Depreciation for the period |  | 23.0 |  | - |  | 17.5 |  | - |  | - |  | 40.5
Disposals |  | - |  | - |  | (0.6) |  | - |  | - |  | (0.6)
As at March 31, 2013 |  | 266.4 |  | - |  | 194.9 |  | - |  | - |  | 461.3
Carrying amount |  |  |  |  |  |  |  |  |  |  |  |
As at December 31, 2012 |  | 1,197.3 |  | 1,299.0 |  | 579.4 |  | 49.5 |  | 9.7 |  | 3,134.9
As at March 31, 2013 |  | 1,207.1 |  | 1,327.1 |  | 620.4 |  | 26.1 |  | 9.7 |  | 3,190.4

The Company capitalized interest of $4.0 million for the three months ended March 31, 2013 (2012 – $6.5 million) to qualifying development projects. The Company used a capitalization rate of 1.63% during the three months ended March 31, 2013 to determine the amount of general borrowing costs eligible for capitalization to qualifying development projects. For the three months ended March 31, 2012 the Company had no general borrowings, however interest on the Senior Secured Notes and the Convertible Debentures were fully capitalized to the New Afton Mine while it was in development in 2012.
A summary of carrying amount by property as at March 31, 2013 is as follows:

|  | Mining properties |  |  |  |  |  |
|  |  |  | Non |  | Plant & |  | Construction |  | March 31
|  | Depletable |  | depletable |  | equipment |  | in Progress |  | 2013
|  | $ |  | $ |  | $ |  | $ |  | $
Mesquite Mine |  | 166.7 |  | 30.7 |  | 95.3 |  | 1.5 |  | 294.2
Cerro San Pedro Mine |  | 159.1 |  | 70.7 |  | 78.5 |  | 3.7 |  | 312.0
Peak Gold Mines |  | 100.2 |  | 49.0 |  | 94.0 |  | 12.2 |  | 255.4
New Afton Mine |  | 781.1 |  | - |  | 303.0 |  | 8.7 |  | 1,092.8
El Morro Project |  | - |  | 428.6 |  | - |  | - |  | 428.6
Blackwater Project |  | - |  | 748.1 |  | 46.7 |  | - |  | 794.8
Other Projects |  | - |  | 9.7 |  | - |  | - |  | 9.7
Corporate |  | - |  | - |  | 2.9 |  | - |  | 2.9
|  | 1,207.1 |  | 1,336.8 |  | 620.4 |  | 26.1 |  | 3,190.4

11

A summary of carrying amount by property is as at December 31, 2012 is as follows:

|  | Mining properties |  |  |  |  |  |
|  |  |  | Non |  | Plant & |  | Construction |  | December 31
|  | Depletable |  | depletable |  | equipment |  | in Progress |  | 2012
|  | $ |  | $ |  | $ |  | $ |  | $
Mesquite Mine |  | 169.9 |  | 30.6 |  | 91.1 |  | 1.1 |  | 292.7
Cerro San Pedro Mine |  | 170.6 |  | 70.7 |  | 70.9 |  | 4.4 |  | 316.6
Peak Gold Mines |  | 103.4 |  | 49.0 |  | 87.6 |  | 10.2 |  | 250.2
New Afton Mine |  | 753.4 |  | - |  | 302.9 |  | 9.6 |  | 1,065.9
El Morro Project |  | - |  | 423.2 |  | - |  | - |  | 423.2
Blackwater Project |  | - |  | 725.5 |  | 23.5 |  | 24.2 |  | 773.2
Other Projects |  | - |  | 9.7 |  | - |  | - |  | 9.7
Corporate |  | - |  | - |  | 3.4 |  | - |  | 3.4
|  | 1,197.3 |  | 1,308.7 |  | 579.4 |  | 49.5 |  | 3,134.9

9.  LONG-TERM DEBT
Long-term debt consists of the following.

|  | $ |  | $
|  | March 31 |  | December 31
|  | 2013 |  | 2012
Senior Unsecured Notes - due April 15, 2020 |  | 292.7 |  | 292.5
Senior Unsecured Notes - due November 15, 2022 |  | 490.3 |  | 490.1
El Morro project funding loan |  | 71.3 |  | 65.2
Revolving credit facility | (a) | - |  | -
|  | 854.3 |  | 847.8

(a) Revolving credit facility
On February 28, 2013, the Company extended its $150.0 million revolving credit facility for an additional twelve months to December 14, 2014. At the same time certain terms of the facility were amended, resulting in a reduction in pricing and increased flexibility with regard to shareholder distributions and to the security underpinning the facility. In addition, net debt, rather than total debt, will be used to calculate leverage for the purpose of covenant tests and pricing levels. The commitments from each member of the bank group remain the same, and all other major aspects of the facility remain unchanged.
The Facility contains various covenants customary for a loan facility of this nature, including limits on indebtedness, asset sales and liens. Significant financial covenants are as follows:

|  | March 31 |  | December 31
|  | 2013 |  | 2012
Min. tangible net worth ($1.38 billion + 25% of positive quarterly net income) | >$1.46 billion | $3.1 billion |  | $3.05 billion
Minimum interest coverage ratio (EBITDA to interest) | >4.0:1.0 | 10.2:1 |  | 13.2 : 1
Maximum leverage ratio (net debt to EBITDA)1 | <3.0:1.0 | 0.4:1 |  | 2.0:1
1 The comparative covenant test presented as at December 31, 2012 was not recalculated using net debt to EBITDA. It was calculated using total debt which was the covenant test at the time |

The interest margin on drawings under the Facility ranges from 1.25% to 3.50% over LIBOR, the Prime Rate or the Base Rate, based on the Company’s debt to EBITDA ratio and the currency and type of credit selected by the Company. The standby fees on undrawn amounts under the Facility range between 0.56% and 0.88% depending on the Company’s net debt to EBITDA ratio. Based on the Company’s net debt to EBITDA ratio, the rate is 0.56% as at March 31, 2013.
As at March 31, 2013, the Company has not drawn any funds under the Facility; however the Facility has been used to issue letters of credit of A$10.2 million for Peak Mines’ reclamation bond for the State of New South Wales, C$9.5 million for New Afton’s commitment to B.C. Hydro for power and transmission construction work (the B.C. Hydro letter of credit will be released over time as New Afton consumes and pays for power in the early period of operations), C$9.5 million for New Afton’s reclamation requirements, C$1.2 million for Blackwater’s reclamation requirements and $18.4 million relating to environmental and reclamation requirements at Cerro San Pedro. The annual fees are 1.60% of the value of the outstanding letters of credit, which totalled $48.9 million as at March 31, 2013.
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10.  DERIVATIVE INSTRUMENTS
The following tables summarize derivative liabilities designated as hedging instruments.

|  | $ |  | $
|  | March 31 |  | December 31
|  | 2013 |  | 2012
Gold contracts |  | 88.4 |  | 110.5
Less: current derivative liabilities |  | (51.4) |  | (56.4)
Non-current derivative liabilities |  | 37.0 |  | 54.1

Realized gains (losses) on derivatives not in a hedging relationship are recorded in other gains and losses. Unrealized and realized non-hedged derivative gains (losses) on concentrate sales are classified as revenue. For the three months ended March 31, 2013 the Company recorded an unrealized and realized loss of $0.5 million (2012 - $nil). Realized gains (losses) on derivatives in a qualifying hedge relationship are classified as revenue for gold hedging contracts.
For the three months ended March 31, 2013, the Company recorded a mark-to-market gain of $2.2 million on copper swaps outstanding to manage the risk related to provisionally priced copper concentrate sales. The notional amount of copper underlying the swaps outstanding was 8,910 tonnes with settlement periods ranging from April 2013 to July 2013.
The following table summarizes realized and unrealized non-hedged derivative gains (losses) for the three months ended March 31:

|  |  |  |  |  | $ |  | $
|  |  |  |  |  | 2013 |  | 2012
Share purchase warrants |  |  |  |  |  | 22.6 |  | (7.6)
Conversion option on convertible debentures |  |  |  |  |  | - |  | 2.7
Prepayment option on Senior Secured Notes |  |  |  |  |  | - |  | (3.7)
|  |  |  |  |  | 22.6 |  | (8.6)

The following table summarizes derivative gains (losses) in other comprehensive income for the three months ended March 31:

|  |  |  |  |  | $ |  | $
|  |  |  |  |  | 2013 |  | 2012
Effective portion of change in fair value of hedging instruments |  |  |  |  |  |  |  |
Gold hedging contracts - unrealized |  |  |  |  |  | 9.1 |  | (22.0)
Gold hedging contracts - realized |  |  |  |  |  | 10.8 |  | 12.9
Deferred income tax |  |  |  |  |  | (8.1) |  | 3.7
|  |  |  |  |  | 11.8 |  | (5.4)

An unrealized derivative loss of $0.5 million (2012 – $0.2 million) relating to the ineffective portion of the change in fair value of hedging instruments was recorded in net earnings for the three months ended March 31, 2013.
The net amount of existing gains (losses) arising from the unrealized fair value of the Company’s gold hedging contracts, which are derivatives that are designated as cash flow hedges and are reported in other comprehensive income, would be reclassified to net earnings as contracts are settled on a monthly basis. The amount of such reclassification would be dependent upon fair values and amounts of the contracts settled. At March 31, 2013, the Company’s estimate of the net amount of existing derivative losses arising from the unrealized fair value of derivatives designated as cash flow hedges, which are reported in other comprehensive income and are expected to be reclassified to net earnings in the next 12 months, excluding tax effects, is $40.1 million for the gold hedging contracts.
(a) Gold hedging contracts
Under a term loan facility the Company retired on February 26, 2010, the Mesquite Mine was required to enter into a gold hedging program. The Company settles these contracts, at the Company’s option, by physical delivery of gold or on a net financial settlement basis. At March 31, 2013, the Company had gold forward sales contracts for 115,500 ounces of gold at a price of $801 per ounce at a remaining commitment of 5,500 ounces per month for 21 months.
13

On July 1, 2009, the Company’s gold hedging contracts were designated as cash flow hedges. Prospective and retrospective hedge effectiveness is assessed on these hedges using a hypothetical derivative method. The hypothetical derivative assessment involves comparing the effect of changes in gold spot and forward prices each period on the changes in fair value of both the actual and hypothetical derivative. The effective portion of the gold contracts is recorded in other comprehensive income until the forecasted gold sale impacts earnings. Where applicable, the fair value of the derivative has been adjusted to account for the Company’s credit risk.
(b) Share purchase warrants
The following table summarizes information about outstanding share purchase warrants.

Warrant Series | Number of warrants | Common shares issuable | Exercise price | Expiry date
| (000s) | (000s) | C$ |
March 31, 2013 |  |  |  |
New Gold Series A | 27,850 | 27,850 | 15.00 | June 28, 2017
December 31, 2012 |  |  |  |
New Gold Series A | 27,850 | 27,850 | 15.00 | June 28, 2017
Silver Quest Warrants - B | 122 | 122 | 10.22 | January 19, 2013
Silver Quest Warrants - C | 148 | 148 | 11.56 | January 20, 2013
Silver Quest Warrants - D | 126 | 126 | 11.56 | January 29, 2013
| 28,246 | 28,246 |  |

The warrants are classified as a non-hedged derivative liability recorded as a FVTPL liability due to the currency of the warrants. The warrants are priced in Canadian dollars, which is not the functional currency of the Company. Therefore the warrants are fair valued using the market price with gains or losses recorded in net earnings.
During the three months ending March 31, 2013 all the share purchase warrants acquired during the Silver Quest Resources Ltd asset acquisition on November 23, 2011 were exercised or expired. Of the outstanding warrants, 0.3 million expired un-exercised.
(c) Non-current non-hedged derivative asset and liabilities classified as FVTPL assets and liabilities
The following table summarizes FVTPL assets and liabilities.

|  | $ |  | $
|  | March 31 |  | December 31
|  | 2013 |  | 2012
Share purchase warrants |  | 56.2 |  | 80.3

11.  SHARE CAPITAL
At March 31, 2013, the Company had unlimited authorized common shares and 476.9 million common shares outstanding.
(a) No par value common shares issued

|  | Number |  |
|  | of shares |  |
|  | (000s) |  | $
Balance - December 31, 2011 |  | 461,358 |  | 2,464.0
Exercise of options |  | 1,339 |  | 11.6
Exercise of warrants |  | 7,434 |  | 75.5
Conversion of debentures |  | 5,872 |  | 67.3
Balance - December 31, 2012 |  | 476,003 |  | 2,618.4
Exercise of options | i | 825 |  | 5.5
Exercise of warrants |  | 39 |  | 0.2
Balance - March 31, 2013 |  | 476,867 |  | 2,624.1

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(i) Exercise of options
For the three months ended March 31, 2013, the Company issued 0.8 million common shares pursuant to the exercise of stock options (2012 – 0.3 million). The Company received proceeds of $3.5 million (2012 - $3.1 million) from these exercises and transferred $2.0 million (2012 - $1.2 million) from contributed surplus.
(b)  Share-based payment expenses
The following table summarizes share-based payment expenses for the three months ended March 31.

|  |  |  |  |  | $ |  | $
|  |  |  |  |  | 2013 |  | 2012
Stock option expense |  |  |  |  | i | 2.1 |  | 2.0
Performance share unit expense |  |  |  |  | ii | 0.2 |  | -
Share award unit expense |  |  |  |  | iii | 0.1 |  | 0.4
Deferred share award unit expense |  |  |  |  |  | 0.1 |  | -
|  |  |  |  |  | 2.5 |  | 2.4

(i)  Stock options
Under the Company’s Stock Option Plan (“Plan”), the maximum number of shares reserved for exercise of all options granted by the Company may not exceed 5% of the Company’s shares issued and outstanding at the time the options are granted. The exercise price of each option granted under the Plan is the five day volume weighted average share price preceding the grant date. Options granted under the Plan expire no later than the 5th or 7th anniversary of the date the options were granted and vesting provisions for issued options are determined at the discretion of the Board, although the Company has a practice of not having options vest earlier than 12 months. Options granted under the Plan are settled for equity. The Company has incorporated an estimated forfeiture rate for stock options that will not vest.
The following table presents the changes in the stock option plan.

|  | Number |  | Weighted avg
|  | of options |  | exercise price
|  | (000s) |  | C$
Balance - December 31, 2011 |  | 10,280 |  | 4.83
Granted |  | 2,160 |  | 11.46
Exercised |  | (1,339) |  | 5.92
Expired |  | (56) |  | 6.62
Forfeited |  | (106) |  | 7.98
Balance -December 31, 2012 |  | 10,939 |  | 5.96
Granted |  | 1,342 |  | 10.01
Exercised |  | (825) |  | 4.00
Expired |  | (2) |  | 6.30
Balance - March 31, 2013 |  | 11,454 |  | 6.58

For the three months ended March 31, 2013 the Company granted 1.3 million stock options (2012 – 1.7 million). The weighted average fair value of the stock options granted during the three months ended March 31, 2013 was C$4.47 (2012 – C$5.73). Options were priced using a Black-Scholes option-pricing model. Volatility is measured as the annualized standard deviation of stock price returns, based on historical movements of the Company’s share price and those of a number of peer companies. The grant date fair value will be amortized as part of compensation expense over the vesting period.
The Company had the following weighted average assumptions in the Black-Scholes option-pricing model for the three months ended March 31.

|  | 2013 |  | 2012
Grant price |  | C$10.01 |  | C$11.87
Expected dividend yield |  | 0.0% |  | 0.0%
Expected volatility |  | 60.0% |  | 60.0%
Risk-free interest rate |  | 0.60% |  | 0.71%
Expected life of options |  | 3.7 years |  | 3.7 years

(ii)  Performance share units
In 2013, the Company established a performance share unit (“PSU”) plan for employees and officers of the Company. A PSU unit represents the right to receive the cash equivalent of a common share or, at the Company’s option, a common share purchased on the market. PSUs issued vest at the end of three years. The number of units which will vest is determined based on the Company’s total return performance (based on the preceding five trading days volume weighted average share price) relative to the S&P/TSX Global Gold Index Total Return Index Value during the applicable period. Each of the three years where the PSU is outstanding will be weighted 25%, and the three year annualized period will be weighted 25% as well. The number of units that vest is determined by multiplying the number of units granted to the participant by the return performance adjustment factor, which ranges from 0.5 to 1.5. Therefore, the number of units that will vest and are paid out may be higher or lower than the number of units originally granted to a participant. Subject to TSX and shareholder approvals, which the Company intends seeking at its 2014 shareholders’ meeting, on a Maturity Date, a PSU Participant may, at the discretion of the Board, be issued the equivalent number of common shares of New Gold as the number of PSU that vested on the Maturity Date in lieu of a cash payment.
15

As the Company is required to settle this award in cash, it will record an accrued liability and record a corresponding compensation expense. The share award unit is a financial instrument that will be fair valued at each reporting date based in the performance measurement criteria. For the three months ended March 31, 2013 the company recorded $0.2 million as compensation expense (2012 - $nil).
(iii)  Share award units
In 2009, the Company established a share award unit plan as part of its long-term incentive program. Each share award unit allows the recipient, subject to certain plan restrictions, to receive cash on the entitlement date equal to the Company’s volume weighted average share price on the TSX for the five days prior to the anniversary date. One-third of the share awards units vest annually on the anniversary of the grant date. As the Company is required to settle this award in cash, it will record an accrued liability and record a corresponding compensation expense. The share award unit is a financial instrument that will be fair valued at each reporting date based on the five day volume weighted average price of the Company’s common shares. The changes in fair value will be included in the compensation expense for that period.
The Company issued 0.6 million share award units for the three months ended March 31, 2013 (2012 – 0.4 million). At March 31, 2013, there were 1.2 million non-vested share awards outstanding (2012 – 0.6 million). Including the fair value adjustment for the share award units previously issued, the Company recorded $0.6 million as compensation expense for the three months ended March 31, 2013 (2012 - $1.2 million). For the three months ended March 31, 2013 the Company capitalized $0.2 million (2012 - $0.4 million) for recipients working at the Company’s development projects and included $0.3 million (2012 – $0.4 million) as operating expenses as it relates to producing mine site employees.
(c)  Earnings per share
The following table sets out the computation of diluted earnings per share for the three months ended March 31.

|  |  |  |  |  | $ |  | $
|  |  |  |  |  | 2013 |  | 2012
Net earnings |  |  |  |  |  | 36.3 |  | 33.5
Dilution of net earnings |  |  |  |  |  |  |  |
Dilutive effect of the Debenture conversion option |  |  |  |  |  | - |  | (2.0)
Net diluted earnings |  |  |  |  |  | 36.3 |  | 31.5
Basic weighted average number of shares outstanding |  |  |  |  |  | 476.2 |  | 461.4
(in millions) |  |  |  |  |  |  |  |
Dilution of securities |  |  |  |  |  |  |  |
Stock options |  |  |  |  |  | 4.3 |  | 5.6
Debentures |  |  |  |  |  | - |  | 5.9
Diluted weighted average number of shares outstanding |  |  |  |  |  | 480.5 |  | 472.9
Net earnings per share |  |  |  |  |  |  |  |
Basic |  |  |  |  |  | 0.08 |  | 0.07
Diluted |  |  |  |  |  | 0.08 |  | 0.07

The following table lists the equity securities excluded from the computation of diluted earnings per share. The securities were excluded as the exercise prices relating to the particular security exceed the average market price of the Company’s common shares of C$9.88 for the three months ended March 31, 2013 (2012 – C$10.81), or the inclusion of the equity securities had an anti-dilutive effect on net earnings.

|  |  |  |  |  | (000s) |  | (000s)
|  |  |  |  |  | 2013 |  | 2012
Stock options |  |  |  |  |  | 3,453 |  | 1,912
Warrants |  |  |  |  |  | 27,850 |  | 56,981

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12.  INCOME AND MINING TAXES
The composition of income tax expense between current tax and deferred tax for the three months ended March 31.

|  |  |  |  |  | $ |  | $
|  |  |  |  |  | 2013 |  | 2012
Current tax |  |  |  |  |  |  |  |
Canada income tax |  |  |  |  |  | 0.1 |  | (0.3)
Foreign income and mining tax |  |  |  |  |  | 10.3 |  | 22.6
|  |  |  |  |  | 10.4 |  | 22.3
Deferred tax |  |  |  |  |  |  |  |
Canada income tax and mining tax |  |  |  |  |  | 2.6 |  | (0.4)
Foreign income and mining tax |  |  |  |  |  | (0.6) |  | (3.6)
|  |  |  |  |  | 2.0 |  | (4.0)
Income tax expense |  |  |  |  |  | 12.4 |  | 18.3

Income tax expense differs from the amount that would result from applying the Canadian federal and provincial income tax rates to earnings before taxes. The differences result from the following items for the three months ended March 31.

|  |  |  |  |  | $ |  | $
|  |  |  |  |  | 2013 |  | 2012
Earnings before taxes |  |  |  |  |  | 48.7 |  | 51.8
Canadian federal and provincial income tax rates |  |  |  |  |  | 25.1% |  | 25.0%
Income tax expense based on above rates |  |  |  |  |  | 12.2 |  | 13.0
Increase (decrease) due to: |  |  |  |  |  |  |  |
Non-taxable income |  |  |  |  |  | (5.9) |  | (2.3)
Non-deductible expenditures |  |  |  |  |  | 0.9 |  | (0.2)
Different statutory tax rates on earnings of foreign subsidiaries |  |  |  |  |  | 3.5 |  | 3.1
BC mining tax |  |  |  |  |  | 0.8 |  | -
Withholding tax on repatriation |  |  |  |  |  | 0.1 |  | 1.1
Other |  |  |  |  |  | 0.8 |  | 3.6
|  |  |  |  |  | 12.4 |  | 18.3

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13. RECLAMATION AND CLOSURE COST OBLIGATIONS
Changes to the reclamation and closure cost obligations are as follows:

| Mesquite |  | Cerro San |  | Peak Gold |  | New Afton |  | Blackwater |  |
| Mine |  | Pedro Mine |  | Mines |  | Mine |  | Project |  | Total
| $ |  | $ |  | $ |  | $ |  | $ |  | $
Balance, December 31, 2011 | 10.5 |  | 16.8 |  | 17.6 |  | 9.8 |  | 0.3 |  | 55.0
Reclamation expenditures | (7.7) |  | - |  | - |  | (0.3) |  | - |  | (8.0)
Unwinding of discount | 0.2 |  | 0.3 |  | 0.6 |  | 0.2 |  | - |  | 1.3
Revisions to expected cash flows | 8.4 |  | 0.3 |  | 4.6 |  | 0.4 |  | 8.4 |  | 22.1
Foreign exchange movement | - |  | 1.3 |  | (0.2) |  | 0.3 |  | - |  | 1.4
Balance, December 31, 2012 | 11.4 |  | 18.7 |  | 22.6 |  | 10.4 |  | 8.7 |  | 71.8
Less: current portion of closure costs | 0.7 |  | 0.2 |  | 1.2 |  | 1.2 |  | - |  | 3.3
Non current portion of closure costs | 10.7 |  | 18.5 |  | 21.4 |  | 9.2 |  | 8.7 |  | 68.5
Balance, December 31, 2012 | 11.4 |  | 18.7 |  | 22.6 |  | 10.4 |  | 8.7 |  | 71.8
Reclamation expenditures | - |  | - |  | - |  | (0.4) |  | - |  | (0.4)
Unwinding of discount | 0.1 |  | 0.1 |  | 0.2 |  | 0.1 |  | 0.1 |  | 0.6
Revisions to expected cash flows | (0.5) |  | (0.4) |  | (1.2) |  | (0.1) |  | (0.2) |  | (2.4)
Foreign exchange movement | - |  | 0.9 |  | 0.1 |  | (0.2) |  | (0.2) |  | 0.6
Balance, March 31, 2013 | 11.0 |  | 19.3 |  | 21.7 |  | 9.8 |  | 8.4 |  | 70.2
Less: current portion | 1.2 |  | 0.2 |  | 1.2 |  | 0.6 |  | - |  | 3.2
Non current portion of closure costs | 9.8 |  | 19.1 |  | 20.5 |  | 9.2 |  | 8.4 |  | 67.0

The current portion of the reclamation and closure cost obligations has been included in Trade and other payables.

14.  SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the three months ended March 31.

|  |  |  |  |  | $ |  | $
|  |  |  |  |  | 2013 |  | 2012
Operating activities: |  |  |  |  |  |  |  |
Change in non-cash operating working capital |  |  |  |  |  |  |  |
Trade and other receivables |  |  |  |  |  | 1.4 |  | 1.0
Inventories |  |  |  |  |  | (6.7) |  | (11.0)
Prepaid expenses and other |  |  |  |  |  | 1.3 |  | (8.3)
Trade and other payables |  |  |  |  |  | (8.9) |  | 2.0
|  |  |  |  |  | (12.9) |  | (16.3)

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15. SEGMENTED INFORMATION
(a) Segment revenues and results
The Company manages its reportable operating segments by operating mines, development projects and exploration projects. The results from operations for these reportable operating segments are summarized for the three months ended March 31.

|  |  |  |  |  |  |  |  |  |  |  |  | 2013
| Mesquite |  | Cerro San |  | Peak Gold |  | New Afton |  |  |  |  |  |
| Mine |  | Pedro Mine |  | Mines |  | Mine |  | Corporate |  | Other(1) |  | Total
| $ |  | $ |  | $ |  | $ |  | $ |  | $ |  | $
Revenues(2) | 30.9 |  | 53.5 |  | 54.0 |  | 63.4 |  | - |  | - |  | 201.8
Operating expenses | 22.4 |  | 24.3 |  | 32.8 |  | 26.6 |  | - |  | - |  | 106.1
Depreciation and depletion | 5.4 |  | 6.6 |  | 7.5 |  | 18.4 |  | - |  | - |  | 37.9
Earnings from mine operations | 3.1 |  | 22.6 |  | 13.7 |  | 18.4 |  | - |  | - |  | 57.8
Corporate administration | - |  | - |  | - |  | - |  | 7.3 |  | - |  | 7.3
Share-based payment expenses | - |  | - |  | - |  | - |  | 2.5 |  | - |  | 2.5
Exploration and business development | - |  | - |  | 1.7 |  | 1.9 |  | 0.1 |  | 0.3 |  | 4.0
Income from operations | 3.1 |  | 22.6 |  | 12.0 |  | 16.5 |  | (9.9) |  | (0.3) |  | 44.0
Finance income | - |  | - |  | - |  | 0.1 |  | 0.3 |  | - |  | 0.4
Finance costs | (0.1) |  | - |  | (0.2) |  | (0.2) |  | (10.2) |  | (0.8) |  | (11.5)
Other (losses) gains | (1.2) |  | 1.1 |  | (1.0) |  | 16.8 |  | (2.3) |  | 2.4 |  | 15.8
Earnings (loss) before taxes | 1.8 |  | 23.7 |  | 10.8 |  | 33.2 |  | (22.1) |  | 1.3 |  | 48.7
Income tax (expense) recovery | (0.3) |  | (6.4) |  | (3.3) |  | (5.6) |  | 2.8 |  | 0.4 |  | (12.4)
Net earnings (loss) | 1.5 |  | 17.3 |  | 7.5 |  | 27.6 |  | (19.3) |  | 1.7 |  | 36.3

1. Other includes balances relating to the exploration properties that have no revenues or operating costs.
2. Segmented revenue reported above represents revenue generated from external customers. There were no inter-segment sales in the period.

|  |  |  |  |  |  |  |  |  |  |  |  | 2012
| Mesquite |  | Cerro San |  | Peak Gold |  | New Afton |  |  |  |  |  |
| Mine |  | Pedro Mine |  | Mines |  | Mine |  | Corporate |  | Other(1) |  | Total
| $ |  | $ |  | $ |  | $ |  | $ |  | $ |  | $
Revenues(2) | 62.0 |  | 69.9 |  | 36.9 |  | - |  | - |  | - |  | 168.8
Operating expenses | 27.1 |  | 22.5 |  | 22.7 |  | - |  | - |  | - |  | 72.3
Depreciation and depletion | 7.4 |  | 7.4 |  | 4.0 |  | - |  | - |  | - |  | 18.8
Earnings from mine operations | 27.5 |  | 40.0 |  | 10.2 |  | - |  | - |  | - |  | 77.7
Corporate administration | - |  | - |  | - |  | - |  | 6.7 |  | - |  | 6.7
Share-based payment expenses | - |  | - |  | - |  | - |  | 2.4 |  | - |  | 2.4
Exploration and business development | - |  | 1.6 |  | 0.9 |  | - |  | - |  | 0.3 |  | 2.8
Income from operations | 27.5 |  | 38.4 |  | 9.3 |  | - |  | (9.1) |  | (0.3) |  | 65.8
Finance income | - |  | - |  | 0.2 |  | - |  | - |  | - |  | 0.2
Finance costs | (0.1) |  | (0.1) |  | (0.3) |  | - |  | (1.2) |  | (0.4) |  | (2.1)
Other (losses) gains | (0.5) |  | (0.3) |  | (0.1) |  | (1.2) |  | (10.5) |  | 0.5 |  | (12.1)
Earnings (loss) before taxes | 26.9 |  | 38.0 |  | 9.1 |  | (1.2) |  | (20.8) |  | (0.2) |  | 51.8
Income tax (expense) recovery | (6.6) |  | (9.9) |  | (2.2) |  | (1.8) |  | 2.3 |  | (0.1) |  | (18.3)
Net earnings (loss) | 20.3 |  | 28.1 |  | 6.9 |  | (3.0) |  | (18.5) |  | (0.3) |  | 33.5

1. Other includes balances relating to the exploration properties that have no revenues or operating costs.
2. Segmented revenue reported above represents revenue generated from external customers. There were no inter-segment sales in the period.
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(b)  Segment assets and liabilities
The following tables present the segmented assets and liabilities:

|  |  |  |  |  | March 31, 2013 |  | December 31, 2012
|  |  |  | Total |  | Total |  | Total |  | Total
|  |  |  | assets |  | liabilities |  | assets |  | liabilities
|  |  |  | $ |  | $ |  | $ |  | $
Mesquite Mine |  |  |  | 474.2 |  | 225.8 |  | 471.7 |  | 238.2
Cerro San Pedro Mine |  |  |  | 427.0 |  | 213.0 |  | 415.5 |  | 150.1
Peak Gold Mines |  |  |  | 329.0 |  | 99.7 |  | 324.9 |  | 89.3
New Afton Mine |  |  |  | 1,184.5 |  | 22.8 |  | 1,181.4 |  | 76.0
El Morro Project |  |  |  | 428.6 |  | 142.8 |  | 423.2 |  | 136.6
Blackwater Project |  |  |  | 824.7 |  | 20.6 |  | 804.8 |  | 34.0
Other(1) |  |  |  | 634.2 |  | 847.4 |  | 662.2 |  | 883.0
|  |  |  | 4,302.2 |  | 1,572.1 |  | 4,283.7 |  | 1,607.2

1. Other includes corporate balances and exploration properties.
The Company accounts for its investment in the El Morro project using equity method accounting. Under the equity method, the investment is initially recognized at cost, and the carrying amount is increased or decreased to recognize the Company’s share of the profit or loss after the date of acquisition. The amount recorded in net earnings for the three months ended March 31, 2013 related to the El Morro project is $nil (2012 – $nil).

16. FAIR VALUE MEASUREMENT
The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In assessing the fair value of a particular contract, the market participant would consider the credit risk of the counterparty to the contract. Consequently, when it is appropriate to do so, the Company adjusts the valuation models to incorporate a measure of credit risk. Fair value represents management's estimates of the current market value at a given point in time.
The Company’s financial assets and liabilities are classified and measured as follows:

|  |  |  |  |  |  |  |  |  | March 31, 2013
|  | $ |  | $ |  | $ |  | $ |  | $
|  | Loans and |  | Designated |  |  |  | Financial |  |
|  | receivables |  | as Fair value |  | Available |  | liabilities at |  |
|  | at amortized |  | through |  | for sale at |  | amortized |  |
|  | cost |  | profit/loss |  | fair value |  | cost |  | Total
Financial assets |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | 672.4 |  | - |  | - |  | - |  | 672.4
Trade and other receivables |  | 21.2 |  | - |  | - |  | - |  | 21.2
Copper swap contracts |  | - |  | 2.2 |  | - |  | - |  | 2.2
Investments |  | - |  | - |  | 0.7 |  | - |  | 0.7
Financial liabilities |  |  |  |  |  |  |  |  |  |
Trade and interest payable |  | - |  | - |  | - |  | 53.7 |  | 53.7
Long-term debt |  | - |  | - |  | - |  | 854.3 |  | 854.3
Gold contracts |  | - |  | 88.4 |  | - |  | - |  | 88.4
Warrants |  | - |  | 56.2 |  | - |  | - |  | 56.2
Share award units |  | - |  | 5.3 |  | - |  | - |  | 5.3

20

|  |  |  |  |  |  |  | December 31, 2012
|  | $ |  | $ |  | $ |  | $ |  | $
|  | Loans and |  | Designated |  |  |  | Financial |  |
|  | receivables |  | as Fair value |  | Available |  | liabilities at |  |
|  | at amortized |  | through |  | for sale at |  | amortized |  |
|  | cost |  | profit/loss |  | fair value |  | cost |  | Total
Financial assets |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | 687.8 |  | - |  | - |  | - |  | 687.8
Trade and other receivables |  | 46.9 |  | - |  | - |  | - |  | 46.9
Investments |  | - |  | - |  | 1.0 |  | - |  | 1.0
Financial liabilities |  |  |  |  |  |  |  |  |  |
Trade and interest payables |  | - |  | - |  | - |  | 42.7 |  | 42.7
Long-term debt |  | - |  | - |  | - |  | 847.8 |  | 847.8
Gold contracts |  | - |  | 110.5 |  | - |  | - |  | 110.5
Copper swap contracts |  | - |  | 0.9 |  | - |  | - |  | 0.9
Warrants |  | - |  | 80.3 |  | - |  | - |  | 80.3
Share award units |  | - |  | 4.0 |  | - |  | - |  | 4.0

The carrying values and fair values of the Company’s financial instruments are as follows.

|  | 2013 |  | 2013 |  | 2012 |  | 2012
|  | $ |  | $ |  | $ |  | $
|  | Carrying |  | Fair |  | Carrying |  | Fair
|  | Value |  | Value |  | Value |  | Value
Financial assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | 672.4 |  | 672.4 |  | 687.8 |  | 687.8
Trade and other receivables |  | 21.2 |  | 21.2 |  | 46.9 |  | 46.9
Investments |  | 0.7 |  | 0.7 |  | 1.0 |  | 1.0
Copper swap contracts |  | 2.2 |  | 2.2 |  | (0.9) |  | (0.9)
Financial liabilities |  |  |  |  |  |  |  |
Trade and interest payables |  | 53.7 |  | 53.7 |  | 42.7 |  | 42.7
Long-term debt |  | 854.3 |  | 917.6 |  | 847.8 |  | 902.9
Gold contracts |  | 88.4 |  | 88.4 |  | 110.5 |  | 110.5
Warrants |  | 56.2 |  | 56.2 |  | 80.3 |  | 80.3
Share award units |  | 5.3 |  | 5.3 |  | 4.0 |  | 4.0

The Company has not offset financial assets with financial liabilities.
The Company has certain financial assets and liabilities that are held at fair value. The investments and the gold contracts are presented at fair value at each reporting date using appropriate valuation methodology. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts), or inputs that are derived principally from or corroborated by observable market data or other means. Level 3 inputs are unobservable (supported by little or no market activity). The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.
The following table summarizes information about financial assets and liabilities measured at fair value on a recurring basis in the statement of financial position and categorized by level of significance of the inputs used in making the measurements:

|  |  |  |  |  |  |  | March 31, 2013
|  |  |  | $ |  | $ |  | $
Asset (Liability) |  |  |  | Level 1 |  | Level 2 |  | Level 3
Investments |  |  |  | 0.7 |  | - |  | -
Warrants |  |  |  | (56.2) |  | - |  | -
Share award units |  |  |  | (5.3) |  | - |  | -
Copper swap contracts |  |  |  | - |  | 2.2 |  | -
Gold contracts |  |  |  | - |  | (88.4) |  | -

21

|  |  |  |  |  | December 31, 2012
|  |  |  | $ |  | $ |  | $
Asset (Liability) |  |  |  | Level 1 |  | Level 2 |  | Level 3
Investments |  |  |  | 1.0 |  | - |  | -
Warrants |  |  |  | (80.3) |  | - |  | -
Share award units |  |  |  | (4.0) |  | - |  | -
Copper swap contracts |  |  |  | - |  | (0.9) |  | -
Gold contracts |  |  |  | - |  | (110.5) |  | -

There were no transfers between Level 1, 2 and 3 as at March 31, 2013. The Company’s policy is to recognize transfers into and transfers out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer.
Valuation methodologies for Level 2 financial assets and liabilities
Gold contracts
The Company’s current derivative liabilities include commodity forward contracts for a portion of the Company’s gold sales. The fair value of the forward contracts is calculated using discounted contractual cash flows based on quoted forward curves and discount rates incorporating LIBOR and the Company’s appropriate interest rate spread.
Copper swap contracts
The fair value of the copper swaps is calculated using the mark-to-market forward prices of London Metal Exchange copper based on the applicable settlement dates of the outstanding swap contracts and the Company’s appropriate interest rate spread.

17. COMMITMENTS AND CONTINGENCIES
In assessing the loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company and its legal counsel evaluate the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency suggests that a loss is probable, and the amount can easily be estimated, then a loss is recorded. When a contingent loss is not probable but is reasonably possible, or is probable but the amount of the loss cannot be reliably estimated, then details of the contingent loss are disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the Company discloses the nature of the guarantees. Legal fees incurred in connection with pending legal proceedings are expensed as incurred. If the Company is unable to resolve these disputes favourably, it may have a material adverse impact on our financial condition, cash flow and results of operations.
(a) The Company has entered into a number of contractual commitments related to equipment orders to purchase long lead items or critical pieces of mining equipment. At March 31, 2013, these commitments totalled $42.5 million (December 31, 2012 – $87.4 million), all of which are expected to fall due over the next 12 months.
(b) The Chilean Environmental Permitting Authority ("Servicio de Evaluación Ambiental" or "SEA") approved the El Morro Project’s environmental permit in March 2011. A constitutional action was filed against the SEA in May 2011 by the Comunidad Agricola Los Huasco Altinos (“CAHA”) seeking annulment of the environmental permit. Sociedad Contractual Mineral El Morro (“El Morro”), the Chilean company jointly held by the Company and Goldcorp and which owns and operates the El Morro Project, participated in the legal proceedings as an interested party and beneficiary of the environmental permit. In February 2012, the Court of Appeals of Antofagasta ruled against approval of the environmental permit, for the primary reason that the SEA had not adequately consulted or compensated the indigenous people that form the CAHA. SEA and El Morro appealed the ruling; however, the ruling was confirmed by the Supreme Court of Chile on April 27, 2012. Based on the Supreme Court’s announcement, El Morro immediately suspended all project field work being executed under the terms of the environmental permit. On June 22, 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. During the period of temporary suspension, Goldcorp’s focus is on supporting the advancement of the consultation process, evaluating potential future exploration targets and optimizing project economics including sourcing a long-term power supply.
(c) In March 2011, the municipality of Cerro de San Pedro approved a new municipal land use plan, after public consultation, which clearly designates the area of the Cerro San Pedro Mine for mining. New Gold believes this plan resolves any ambiguity regarding the land use in the area in which Cerro San Pedro is located, and which has had a history of ongoing legal challenges related to the environmental authorization (“EIS”) for the Mine. In April 2011, a request was filed for a new EIS based on the new Municipal Plan and on August 5, 2011 a new EIS was granted.
22