EX-99.1 2 fs-q3_2013.htm CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 2013 fs-q3_2013.htm
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
  
6
2. SIGNIFICANT ACCOUNTING POLICIES
 
COMPREHENSIVE INCOME
      
     
7
3. FUTURE CHANGES IN ACCOUNTING POLICIES
3
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
      
 
POSITION
  
8
4. ACQUISITION OF RAINY RIVER RESOURCES
         
4
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
  
9
5. EXPENSES
 
EQUITY
      
     
11
6. TRADE AND OTHER RECEIVABLES
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    
 
     
11
7. TRADE AND OTHER PAYABLES
         
     
11
8. INVENTORIES
         
     
12
9. MINING INTERESTS
         
     
13
10. LONG-TERM DEBT
         
     
14
11. DERIVATIVE INSTRUMENTS
         
     
16
12. SHARE CAPITAL
         
     
19
13. INCOME AND MINING TAXES
         
     
20
14. RECLAMATION AND CLOSURE COST OBLIGATIONS
         
     
20
15. SUPPLEMENTAL CASH FLOW INFORMATION
     
 
  
     
21
16. SEGMENTED INFORMATION
         
     
23
17. FAIR VALUE MEASUREMENT
         
     
25
18. COMMITMENTS AND CONTINGENCIES
         
     
26
19. SUBSEQUENT EVENTS
       


                                                                                                                                    

New Gold Q3 2013 Report
 
 
 

 
CONDENSED CONSOLIDATED INCOME STATEMENTS
          
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013
        
(unaudited)
            
     
 Three months ended
 Nine months ended
     
$
$
$
$
(In millions of U.S. dollars, except per share amounts)
Note
  
            2013
            2012
            2013
            2012
             
             
Revenues
    
           196.0
           195.5
           581.3
           540.4
Operating expenses
5
  
           102.1
             88.8
           313.8
           239.1
Depreciation and depletion
    
             42.7
             29.4
           124.7
             69.9
Earnings from mine operations
    
             51.2
             77.3
           142.8
           231.4
             
Corporate administration
    
               6.5
               3.2
             21.1
             16.2
Share-based payment expenses
12
  
               2.2
               3.3
               6.5
               8.6
Exploration and business development
    
             12.5
               4.7
             28.4
             12.0
Income from operations
    
             30.0
             66.1
             86.8
           194.6
             
Finance income
5
  
               0.6
               0.2
               1.2
               1.0
Finance costs
5
  
             (9.1)
             (2.3)
           (32.0)
             (4.9)
Rainy River acquisition costs
4
  
             (4.9)
                -
             (4.9)
                -
Other gains (losses)
5
  
               5.9
           (15.6)
             39.1
           (49.7)
             
Earnings before taxes
    
             22.5
             48.4
             90.2
           141.0
Income tax expense
13
  
           (10.3)
           (30.6)
           (26.7)
           (65.9)
             
Net earnings
    
             12.2
             17.8
             63.5
             75.1
             
Attributable to:
            
Equity holders of New Gold Inc.
    
             12.2
             17.8
             63.5
             75.1
Non-controlling interests
    
                -
                -
                -
                -
     
             12.2
             17.8
             63.5
             75.1
             
Earnings per share
            
Basic
12
  
             0.02
             0.04
             0.13
             0.16
Diluted
12
  
             0.02
             0.03
             0.13
             0.16
             
Weighted average number of shares outstanding (in millions)
            
Basic
12
  
           495.3
           462.2
           482.9
           461.8
Diluted
12
  
           497.9
           468.6
           486.0
           473.6
             

 
 

  See accompanying notes to the condensed consolidated financial statements.
1
 

 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013
        
(unaudited)
            
     
 Three months ended
Nine months ended
     
$
$
$
$
(In millions of U.S. dollars)
Note
  
            2013
            2012
            2013
            2012
             
Net earnings
    
             12.2
             17.8
             63.5
             75.1
             
Other comprehensive (loss) income
            
Unrealized gains (losses) on mark-to-market of gold contracts
11
  
                -
           (27.9)
             18.1
           (37.2)
Realized gains on settlement of gold contracts
11
  
                -
             12.0
             13.8
             35.7
Reclassification of discontinued gold contracts
11
  
               7.0
                -
             11.7
                -
Unrealized gains (losses) on available-for-sale securities (net of tax)
    
               0.2
               0.1
             (0.2)
             (0.8)
Foreign currency translation adjustment
    
                -
             29.1
                -
             21.5
Deferred Income tax related to gold contracts
11
  
             (2.9)
               6.5
           (17.8)
               0.6
Total other comprehensive income (loss)
    
               4.3
             19.8
             25.6
             19.8
Total comprehensive income
    
             16.5
             37.6
             89.1
             94.9
             
Attributable to:
            
Equity holders of New Gold Inc.
    
             16.5
             37.6
             89.1
             94.9
Non-controlling interests
    
                -
                -
                -
                -
     
             16.5
             37.6
             89.1
             94.9
             

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)
         
September 30
December 31
         
$
$
(In millions of U.S. dollars)
    
Note
  
              2013
            2012
             
Assets
            
Current assets
            
Cash and cash equivalents
        
             428.8
           687.8
Trade and other receivables
    
6
  
               19.7
             46.9
Inventories
    
8
  
             189.6
           163.3
Current income tax receivable
        
               29.8
               6.6
Prepaid expenses and other
        
                 7.5
             12.9
Total current assets
        
             675.4
           917.5
             
Investments
        
                 0.7
               1.0
Non-current inventories
    
8
  
               36.7
             32.4
Mining interests
    
9
  
          3,588.8
        3,134.9
Deferred tax assets
        
             192.5
           194.1
Other
        
                 2.7
               3.8
Total assets
        
          4,496.8
        4,283.7
             
Liabilities and equity
            
Current liabilities
            
Trade and other payables
    
7
  
             111.6
           120.7
Current derivative liabilities
    
11
  
                   -
             56.4
Total current liabilities
        
             111.6
           177.1
             
Reclamation and closure cost obligations
    
14
  
               60.8
             68.5
Provisions
        
               12.1
               9.5
Non-current derivative liabilities
    
11
  
                   -
             54.1
Non-current non-hedged derivative liabilities
    
11
  
               33.4
             80.3
Long-term debt
    
10
  
             859.7
           847.8
Deferred tax liabilities
        
             402.0
           322.9
Deferred benefit
        
               46.3
             46.3
Other
        
                 0.6
               0.7
Total liabilities
        
          1,526.5
        1,607.2
             
Equity
            
Common shares
    
12
  
          2,810.6
        2,618.4
Contributed surplus
        
               88.2
             85.2
Other reserves
        
              (24.9)
           (50.5)
Retained earnings
        
               86.9
             23.4
Total equity attributable to New Gold Inc. shareholders
        
          2,960.8
        2,676.5
Non-controlling interests
        
                 9.5
                -
Total equity
        
          2,970.3
        2,676.5
Total liabilities and equity
        
          4,496.8
        4,283.7
             
Approved and authorized by the Board on October 28, 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)
        
     
 Nine months ended
     
$
$
(In millions of U.S. dollars)
Note
  
            2013
            2012
         
Common shares
        
Balance, beginning of period
    
        2,618.4
        2,464.0
Acquisition of Rainy River
4
  
           183.9
                -
Shares issued for exercise of options and warrants
12
  
               8.3
             10.9
Balance, end of period
    
        2,810.6
        2,474.9
         
Contributed surplus
        
Balance, beginning of period
    
             85.2
             80.4
Exercise of options
    
             (3.1)
             (3.1)
Equity settled share-based payments
    
               6.1
               6.5
Balance, end of period
    
             88.2
             83.8
         
Other reserves
        
Balance, beginning of period
    
           (50.5)
           (86.4)
Foreign currency translation adjustment
    
                -
             21.5
Change in fair value of available-for-sale investments
    
             (0.2)
             (0.8)
Change in fair value of hedging instruments (net of tax)
    
             25.8
             (0.9)
Balance, end of period
    
           (24.9)
           (66.6)
         
Retained earnings (deficit)
        
Balance, beginning of period
    
             23.4
         (175.6)
Net earnings
    
             63.5
             75.1
Balance, end of period
    
             86.9
         (100.5)
         
Total equity attributable to New Gold Inc. shareholders
    
        2,960.8
        2,391.6
         
Non-controlling interests
        
Balance, beginning of period
        
Acquisition of Rainy River
    
               9.5
                -
Net earnings attributable to non-controlling interests
    
                -
                -
Balance, end of period
    
               9.5
                -
         
Total equity
    
        2,970.3
        2,391.6
         
 
 
 
 

  See accompanying notes to the condensed consolidated financial statements.
4
 

 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
      
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013
        
(unaudited)
            
     
 Three months ended
 Nine months ended
         
$
$
(In millions of U.S. dollars)
Note
  
            2013
            2012
            2013
            2012
             
Operating activities
            
Net earnings
    
             12.2
             17.8
             63.5
             75.1
Adjustments for:
            
Realized gains (losses) on gold contracts
    
               7.0
             (2.5)
               8.2
             (7.3)
Realized and unrealized foreign exchange losses (gains)
5
  
             (6.7)
               3.7
             11.8
               4.7
Realized and unrealized (gains) losses on non-hedged derivatives
5
  
             (1.6)
             11.6
           (44.8)
               9.1
Unrealized losses (gains) on concentrate contracts
    
               0.3
             (1.0)
               1.3
             (1.0)
Settlement payment of gold hedge contracts
11
  
                -
                -
           (65.7)
                -
Payment of Rainy River acquistion expenses
    
           (12.9)
                -
           (12.9)
                -
Loss on redemption of senior secured notes
    
                -
                -
                -
             31.8
Reclamation and closure costs paid
14
  
             (0.4)
             (3.4)
             (1.4)
             (7.9)
Loss on disposal of assets
5
  
               0.5
               0.7
               1.7
               1.3
Depreciation and depletion
    
             42.8
             29.4
           125.1
             69.5
Equity-settled share-based payment expense
12
  
               1.9
               2.2
               6.1
               6.5
Realized and unrealized (gains) losses on cash flow hedging items
5
  
                -
             (0.6)
             (9.5)
               1.6
Income tax expense
13
  
             10.3
             30.6
             26.7
             65.9
Finance income
5
  
             (0.6)
             (0.2)
             (1.2)
             (1.0)
Finance costs
5
  
               9.1
               2.3
             32.0
               4.9
     
             61.9
             90.6
           140.9
           253.2
Change in non-cash operating working capital
15
  
           (14.0)
           (23.5)
           (31.1)
           (47.9)
Cash generated from operations
    
             47.9
             67.1
           109.8
           205.3
Income taxes paid
    
           (11.7)
           (20.4)
           (37.6)
           (75.7)
Net cash generated from operations
    
             36.2
             46.7
             72.2
           129.6
             
Investing activities
            
Mining interests
    
           (63.7)
         (142.6)
         (201.1)
         (398.0)
Proceeds received from sale of pre-commercial production inventory
    
               7.6
  
               7.6
Purchase of additional Blackwater mining claims
    
                -
                -
                -
             (6.0)
Acquisition of Rainy River (net of cash received)
4
  
         (107.2)
                -
         (107.2)
                -
Recovery of reclamation deposits
    
                -
                -
                -
               8.9
Interest received
    
               0.4
               0.2
               0.8
               0.8
Cash used in investing activities
    
         (170.5)
         (134.8)
         (307.5)
         (386.7)
             
Financing activities
            
Issuance of common shares on exercise of options and warrants
12
  
               0.8
               2.9
               5.2
               7.7
Redemption of senior secured notes
    
                -
                -
                -
         (197.6)
Proceeds from issuance of senior notes
    
                -
                -
                -
           300.0
Financing initiation costs
    
                -
                -
             (0.3)
             (8.0)
Interest paid
    
                -
                -
           (26.3)
             (7.6)
Cash generated (used) by financing activities
    
               0.8
               2.9
           (21.4)
             94.5
             
Effect of exchange rate changes on cash and cash equivalents
    
             (0.2)
               2.4
             (2.3)
               0.8
             
Decrease in cash and cash equivalents
    
         (133.7)
           (82.8)
         (259.0)
         (161.8)
Cash and cash equivalents, beginning of the period
    
           562.5
           230.4
           687.8
           309.4
Cash and cash equivalents, end of the period
    
           428.8
           147.6
           428.8
           147.6
             
Cash and cash equivalents are comprised of:
            
Cash
    
           267.5
             48.2
           267.5
             48.2
Short-term money market instruments
    
           161.3
             99.4
           161.3
             99.4
     
           428.8
           147.6
           428.8
           147.6
 
 
 
 

  See accompanying notes to the condensed consolidated financial statements.
5
 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended September 30, 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 New Afton Mine in Canada, the Cerro San Pedro Mine in Mexico, the Mesquite Mine in the United States (“U.S.”), and the Peak Gold Mines in Australia. Significant projects include the Blackwater development project in Canada, the Rainy River development project in Canada and a 30% interest in the El Morro copper-gold development project in Chile.

The Company is a corporation governed by the Business Corporations Act (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 October 28, 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.

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.

IAS 19 Employee Benefits (Amended)
IAS 19, Employee Benefits (Amended) (“IAS 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.

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. The adoption supported the Company’s current accounting policy which is disclosed as follows:

Stripping costs in surface mining
As part of its operations, the Company incurs stripping costs both during the development phase and production phase of its operations. Stripping costs incurred as part of development stage mining activities incurred by the Company are deferred and capitalized as part of mining properties.

Stripping costs incurred during the production stage are incurred in order to produce inventory or to improve access to ore which will be mined in the future. Where the costs are incurred to produce inventory, the production stripping costs are accounted for as a cost of producing those inventories, in accordance with IAS 2, Inventories. Where the costs are incurred to improve access to ore which will be mined in the future, the costs are deferred and capitalized to the balance sheet as a stripping activity asset (a non-current asset) if the following criteria are met: improved access to the ore body is probable, the component of the ore body can be accurately identified and the costs relating to the stripping activity associated with the component be reliably measured. If these criteria are not met the costs are expensed in the period in which they are incurred.

The stripping activity asset is subsequently depreciated using the units-of-production amortization method over the life of the identified component of the ore body to which access has been approved as a result of the stripping activity.
 
 

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. 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 fair value through profit or loss (“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
 
 
 
7
 
 
 
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.
 

4.  ACQUISITION OF RAINY RIVER RESOURCES

On July 24, 2013, the Company acquired 86.2% of the outstanding shares (the “first take-up”) of Rainy River Resources Limited (“Rainy River”), thus obtaining control. On August 8th, 2013 the Company acquired an additional 11.3% of the outstanding shares (the “second take-up”) increasing our total holding of Rainy River shares to 97.5%. In the first take up consideration of 22,310,594 common shares of the Company, 50,000 warrants and $166.0 million cash was paid to Rainy River shareholders. In the second take up consideration of 2,832,420 common shares of the Company and $20.9 million cash was paid to Rainy River shareholders. The Company has determined that this transaction represents a business combination with New Gold identified as the acquirer. The Company began consolidation of the operating results, cash flows and net assets of Rainy River on July 24, 2013.

Rainy River was a public company that owned the development stage Rainy River gold project, hosting National Instrument 43-101 compliant gold reserves and resources. The Rainy River gold project is situated in Richardson Township, approximately sixty-five kilometres northwest of Fort Frances in Northwestern Ontario.

The acquisition of Rainy River further enhances New Gold’s Canadian footprint while contributing an increase in gold reserves for New Gold shareholders. This robust gold project will further augment New Gold’s organic growth pipeline at below industry average cash costs.

The tables below present the purchase cost and our provisional allocation of the purchase price to the assets and liabilities acquired.


Purchase cost
  
$
     
Cash paid to Rainy River shareholders
  
 186.9
Value of New Gold shares and warrants issued
  
 183.9
Total acquisition cost
  
 370.8
Cash acquired with Rainy River
  
 79.7
Net Consideration
  
 291.1


Summary of purchase price allocation
  
$
Assets
    
Current assets (including cash of $79.7)
  
 80.0
Other assets
  
 0.1
Property, plant and equipment
  
 1.3
Rainy River project mining interest
  
 352.2
Total assets
  
 433.6
     
Liabilities
    
Current liabilities
  
 17.4
Deferred income tax liabilities
  
 35.9
Total liabilities
  
 53.3
     
Equity
    
Non-controlling interest
  
 9.5
Net assets
  
 370.8

The fair values disclosed are provisional due to the complexity of the acquisition. The review of the fair value of the assets and liabilities acquired will be completed within 12 months of the acquisition date at the latest.

We used a discounted cash flow model to estimate the expected future cash flows of the mine. Expected future cash flows are based on estimates of future production and commodity prices, operating costs and forecast capital expenditures based on the life of mine plan as at the acquisition date.

Non-controlling interest has been determined using the proportionate method.

From the date of acquisition Rainy River has contributed $0.3 million of income to net earnings. If the acquisition had been completed on January 1, 2013, Rainy River would have contributed $1.0 million of income to net earnings for the nine months ended September 30, 2013.
 
Acquisition related costs incurred by the Company of $4.9 million have been expensed.

 
8
 
 
 
5.  EXPENSES

(a) Operating expenses by nature
Operating expenses by nature for the three and nine months ended September 30, are as follows:
 
 
 Three months ended
 Nine months ended
 
$
$
$
$
 
2013
2012
2013
2012
         
Raw materials and consumables
 40.2
 42.5
 124.6
 103.6
Salaries and employee benefits
 31.1
 28.3
 91.1
 66.0
Repairs and maintenance
 6.7
 2.7
 22.4
 16.5
Contractors
 12.9
 12.4
 39.1
 25.6
Royalties
 2.9
 4.5
 10.8
 13.0
Change in inventories and work-in-progress
 (5.4)
 (12.1)
 (18.3)
 (24.5)
Operating leases
 4.8
 6.4
 18.5
 21.9
General and administrative
 8.9
 3.8
 23.8
 14.7
Other
 -
 0.3
 1.8
 2.3
 
 102.1
 88.8
 313.8
 239.1

(b) Finance costs and income
Finance costs and income for the three and nine months ended September 30, are as follows:
 
 
 Three months ended
 Nine months ended
 
$
$
$
$
 
2013
2012
2013
2012
         
Finance costs
        
Interest on senior unsecured notes
 13.4
 5.2
 40.1
 10.7
Interest on senior secured notes
 -
 -
 -
 7.0
Interest on convertible debentures
 -
 1.6
 -
 4.3
Other interest
 0.8
 0.2
 2.4
 1.1
Unwinding of the discount on decommisioning obligations
 0.2
 0.5
 1.0
 1.3
Other finance costs
 0.8
 0.9
 2.8
 2.0
 
 15.2
 8.4
 46.3
 26.4
Less: amounts included in cost of qualifying assets
 (6.1)
 (6.1)
 (14.3)
 (21.5)
 
 9.1
 2.3
 32.0
 4.9
         
   
Three months ended
  
Nine months ended
 
$
$
$
$
 
2013
2012
2013
2012
         
Finance income
        
Interest income
 0.6
0.2
 1.2
1.0

(c) Other gains (losses)
The following table summarizes other gains (losses) for the three and nine months ended September 30:
 
   
 Three months ended
 Nine months ended
   
$
$
$
$
   
2013
2012
2013
2012
           
Ineffectiveness on hedging instruments
i
 -
 0.6
 9.5
 (1.6)
Realized and unrealized gain (loss) on non-hedged derivatives
ii
 1.6
 (11.6)
 44.8
 (9.1)
Loss on redemption of senior secured notes
iii
 -
 -
 -
 (31.8)
Gain (loss) on foreign exchange
  
 6.7
 (3.7)
 (11.8)
 (4.7)
Loss on disposal of assets
  
 (0.5)
 (0.7)
 (1.7)
 (1.3)
Other
  
 (1.9)
 (0.2)
 (1.7)
 (1.2)
   
 5.9
 (15.6)
 39.1
 (49.7)

 
9
 


(i) Ineffectiveness on hedging instruments
On May 15, 2013 the Company settled its outstanding gold hedge contracts, paying $65.7 million to fully close all hedges dated to December 31, 2014 (as described in Note 11(a)). At the settlement date the hedge was deemed to be fully effective and the Company reclassified the cumulative ineffective portion of the hedge from other comprehensive income to net earnings. The Company reclassified $10.0 million upon settlement to net earnings.

(ii) Realized and unrealized gain (loss) on non-hedged derivatives
Realized and unrealized gains and (losses) on non-hedged derivatives for the three and nine months ended September 30 are as follows:


 
 Three months ended
 Nine months ended
 
$
$
$
$
 
2013
2012
2013
2012
         
Unrealized and realized gains (loses) on share purchase warrants
 1.6
 (2.6)
 44.8
 (0.8)
Unrealized losses on embedded derivative in senior secured notes
 -
 -
 -
 (3.7)
Unrealized losses on equity conversion option on debentures
 -
 (9.0)
 -
 (4.6)
 
 1.6
 (11.6)
 44.8
 (9.1)


Share purchase warrants
The Company has outstanding share purchase warrants (“Warrants”), as of September 30, 2013. The Warrants have an exercise price denominated in a currency other than the Company’s functional currency and therefore are classified as a non-hedged 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 September 30, 2013 the fair value of the derivative liability was $33.4 million (December 31, 2012 - $80.3 million). The change in fair value resulted in a gain of $1.6 million and a foreign exchange loss of $0.8 million on the revaluation of the Warrants for the three months ended September 30, 2013 (2012 – fair value loss of $2.6 million and a foreign exchange loss of $5.0 million). For the nine months ended September 30, 2013 the change in fair value resulted in a gain of $44.8 million and a foreign exchange gain of $2.1 million (2012 – loss of $0.8 million and a foreign exchange loss of $5.0 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 were outstanding) of the principal amount of the Notes to be redeemed. As at May 7, 2012 the redemption price of the Notes was 105% of the principal amount. 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 were recognized in net earnings. This resulted in a fair value loss of $nil and $3.7 million for the three and nine months ended September 30, 2012.

Equity conversion option on Convertible Debentures
The Company had subordinate convertible debentures (“Debentures”) with a face value of C$55.0 million, which were redeemed on November 20, 2012. The Company had the 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 were recognized in net earnings. This resulted in a loss of $8.9 million and a foreign exchange loss of $0.7 million for the three months ended September 30, 2012. For the nine months ended September 30, 2012, the Company recognized a loss of $4.5 million in net earnings and no foreign exchange gain or loss.

(iii) Loss on redemption of Senior Secured Notes
The Company redeemed the Notes in whole on May 7, 2012 (the “redemption date”). The Notes had a face value of $188.2 million (C$187.0 million) with a fair value of $181.2 million (C$180.0 million) on the redemption date. Embedded in the Notes was an early redemption option that had a fair value of $15.4 million on the redemption date. This option allowed the Company to redeem the Notes at a premium of 105% of face value. On the redemption date, the Company paid the premium of $9.4 million in addition to the face value, and recognized $7.0 million of accelerated accretion on the Notes.


 
10
 

 
6.  TRADE AND OTHER RECEIVABLES

  
$
$
 
September 30
December 31
 
2013
2012
     
Trade receivables
 11.5
 11.1
Sales tax receivable
 10.1
 33.9
Copper swap contracts
 (1.9)
 (0.9)
Other
 -
 2.8
 
 19.7
 46.9

 
7. TRADE AND OTHER PAYABLES

 
$
$
 
September 30
December 31
 
2013
2012
     
Trade payables
 44.3
 34.3
Interest payable
 21.3
 8.4
Accruals
 42.0
 74.7
Current portion of decommissioning obligations (Note 14)
 4.0
 3.3
 
 111.6
 120.7

 
8.  INVENTORIES

 
$
$
 
September 30
December 31
 
2013
2012
     
Heap leach ore
 154.2
 129.5
Work-in-process
 10.1
 18.1
Finished goods
 18.4
 13.9
Stockpile ore
 1.0
 0.3
Supplies
 42.6
 33.9
 
 226.3
 195.7
Less: non-current inventories
 (36.7)
 (32.4)
 
 189.6
 163.3

The amount of inventories recognized in operating expenses for the three and nine months ended September 30, 2013 was $99.2 million and $303.0 million (2012 – $81.6 million and $221.8 million). There were no write-downs or reversals of write-downs during the year. Heap leach inventories of $36.7 million (December 31, 2012 – $32.4 million) are expected to be recovered after one year.


 
11
 

 

9. 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
 40.7
 77.2
 34.1
 83.0
 -
 235.0
Acquisition of Rainy River
 -
 352.2
 1.3
 -
  
 353.5
Disposals/write-offs
 -
 -
 (5.5)
 -
 -
 (5.5)
Transfers
 45.7
 -
 46.5
 (92.2)
 -
 -
As at September 30, 2013
 1,527.1
 1,728.4
 833.8
 40.3
 9.7
 4,139.3
             
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
 81.2
 -
 51.7
 -
 -
 132.9
Disposals
 -
 -
 (3.8)
 -
 -
 (3.8)
As at September 30, 2013
 324.6
 -
 225.9
 -
 -
 550.5
             
Carrying amount
            
As at December 31, 2012
 1,197.3
 1,299.0
 579.4
 49.5
 9.7
 3,134.9
As at September 30, 2013
 1,202.5
 1,728.4
 607.9
 40.3
 9.7
 3,588.8

The Company capitalized interest of $6.2 million and $14.3 for the three and nine months ended September 30, 2013 (2012 – $6.1 million and $21.5 million) to qualifying development projects. The Company’s annualized capitalization rate is 6.53% (December 31, 2012 – annualized capitalization rate of 6.53%).

A summary of carrying amount by property as at September 30, 2013 is as follows:
 
Mining properties
      
   
Non
Plant &
Construction
September 30
 
Depletable
depletable
equipment
in Progress
2013
 
$
$
$
$
$
           
Mesquite Mine
 164.5
 31.0
 89.1
 3.8
 288.4
Cerro San Pedro Mine
 148.4
 70.7
 87.3
 4.6
 311.0
Peak Gold Mines
 109.2
 49.0
 84.5
 19.0
 261.7
New Afton Mine
 780.4
 -
 296.3
 12.9
 1,089.6
Rainy River project
 -
 361.1
 1.3
 -
 362.4
Blackwater project
 -
 785.0
 46.8
 -
 831.8
El Morro project
 -
 431.6
 -
 -
 431.6
Other projects
 -
 9.7
 -
 -
 9.7
Corporate
 -
 -
 2.6
 -
 2.6
 
 1,202.5
 1,738.1
 607.9
 40.3
 3,588.8


 
 
12
 


A summary of carrying amount by property 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
Blackwater project
 -
 725.5
 23.5
 24.2
 773.2
El Morro project
 -
 423.2
 -
 -
 423.2
Other projects
 -
 9.7
 -
 -
 9.7
Corporate
 -
 -
 3.4
 -
 3.4
 
 1,197.3
 1,308.7
 579.4
 49.5
 3,134.9

 

10.  LONG-TERM DEBT

Long-term debt consists of the following.
 
    
$
$
   
September 30
December 31
   
2013
2012
       
Senior unsecured notes - due April 15, 2020
  
 293.1
 292.5
Senior unsecured notes - due November 15, 2022
  
 490.6
 490.1
El Morro project funding loan
  
 76.0
 65.2
Revolving credit facility
(a)
 -
 -
   
 859.7
 847.8

(a) Revolving credit facility
On February 28, 2013, the Company extended its $150.0 million revolving credit facility (the “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 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:
 
   
September 30
December 31
 
Financial covenant
2013
2012
       
Minimum tangible net worth ($1.38 billion + 25% of positive quarterly net income)
>$1.51 billion
$3.35 billion
$3.05 billion
Minimum interest coverage ratio (EBITDA to interest)
>4.0:1.0
7.2 : 1
13.2 : 1
Maximum leverage ratio (net debt to EBITDA)1
<3.0:1.0
1.1 : 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 from 0.56% to 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 0.63% as at September 30, 2013.

As at September 30, 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$2.4 million for Blackwater’s reclamation requirements,  $0.6 million relating to worker’s compensation security at Mesquite and $18.8 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 $49.7 million as at September 30, 2013.

 
13
 


11.  DERIVATIVE INSTRUMENTS

The following tables summarize derivative liabilities designated as hedging instruments:
 
 
$
$
 
September 30
December 31
 
2013
2012
     
Gold contracts
 -
 110.5
Less: current derivative liabilities
 -
 (56.4)
Non-current derivative liabilities
 -
 54.1
 
On May 15, 2013 New Gold eliminated its legacy gold hedges that were associated with the 2008 project financing put in place to develop the Mesquite Mine. As a result of Mesquite’s successful start-up, the Company repaid the loan in 2010, four years ahead of schedule. Hedge accounting with respect to these contracts was discontinued on May 15, 2013. Realized gains (losses) on derivatives in a qualifying hedge relationship (prior to discontinuance of hedge accounting) are classified as revenue for gold hedging contracts. Refer to Note 11 (a) for further analysis.

Unrealized and realized non-hedged derivative gains (losses) on the provisional pricing of concentrate sales are classified as revenue. For the three and nine months ended September 30, 2013 the Company recorded a gain of $5.6 million and a loss of $13.4 million (2012 - $1.0 million gain for the three and nine months) within revenue.

The Company enters into a copper swap to reduce exposure to copper prices. Realized and unrealized gains (losses) are recorded as revenue. For the three and nine months ended September 30, 2013 the Company recorded a mark to market loss of $2.9 million and gain of $3.5 million on copper swaps outstanding (2012 - $nil and $nil) and settled to manage the risk related to provisionally priced copper concentrate sales. The notional amount of copper underlying the swaps outstanding was 8,365 tonnes with settlement periods ranging from October 2013 to January 2014.

Realized and unrealized gains (losses) on non-hedged derivatives not related to concentrate sales are recorded in other gains and losses. The following table summarizes realized and unrealized non-hedged derivative gains (losses) for the three and nine months ended September 30:
 
 
 Three months ended
 Nine months ended
 
$
$
$
$
 
2013
2012
2013
2012
         
Share purchase warrants
 1.6
 (2.6)
 44.8
 (0.8)
Prepayment option on senior secured notes
 -
 -
 -
 (3.7)
Conversion option on convertible debentures
 -
 (9.0)
 -
 (4.6)
 
 1.6
 (11.6)
 44.8
 (9.1)

The following table summarizes derivative gains (losses) in other comprehensive income for the three and nine months ended September 30:
 
 
 Three months ended
 Nine months ended
 
$
$
$
$
 
2013
2012
2013
2012
         
Effective portion of change in fair value of hedging instruments
        
Gold hedging contracts - unrealized
 -
 (27.9)
 18.1
 (37.2)
Gold hedging contracts - realized
 7.0
 12.0
 25.5
 35.7
Deferred income tax
 (2.9)
 6.5
 (17.8)
 0.6
 
 4.1
 (9.4)
 25.8
 (0.9)

(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 settled these contracts, at the Company’s option, by physical delivery of gold or on a net financial settlement basis. On May 15, 2013 the Company settled its outstanding hedge position, paying $65.7 million to fully close all hedges dated to December 2014.

On July 1, 2009, the Company’s gold hedging contracts were designated as cash flow hedges. Prospective and retrospective hedge effectiveness was 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 was recorded in other comprehensive income until the forecasted gold sale impacts earnings. Where applicable, the fair value of the derivative had been adjusted to account for the Company’s credit risk.
 
 
 
14
 
 
Prior to the discontinuance of hedge accounting, 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.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. The Company discontinued hedge accounting on May 15, 2013. At that date, any cumulative gain or loss on the hedging instrument recognized in equity remains deferred in equity until the original forecasted transaction occurs. When the forecasted transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognized immediately in net earnings.

Of the $65.7 million liability at May 15, 2013, $19.4 million had passed through the income statement in advance of electing hedge accounting in 2009. At the date of close, the hedge was determined to be fully effective and as a result the previously ineffective portion of the hedge was reversed resulting in a gain of $nil and $9.5 million (2012 – unrealized derivative gain of $0.6 million and a loss of $1.6 million) recorded in other gains and losses for the three and nine months ended September 30, 2013.

At the closing date of the hedge, the Company had unrecognized losses related to the gold hedging contracts of $46.3 million, which will remain deferred in other reserves and will be released to net earnings in the same period in which the original designated underlying forecast sales occur. For the three and nine months ended September 30, 2013 the Company transferred $7.0 million and $11.7 million of these losses to net earnings.

The fixed impact on net earnings in future years of the close out of the gold hedging contract will be a reclassification of the unrecognized losses to net earnings of $7.0 million during the remainder of 2013 and $27.6 million during 2014.

(b) Share purchase warrants
The following table summarizes information about the outstanding Warrants.
 
 
Warrant Series
 
Number
 of warrants
 
Common
shares issuable
 
 
Exercise price
 
 
Expiry date
 
(000s)
(000s)
C$
  
At September 30, 2013
        
New Gold Series A
27,850
27,850
15.00
June 28, 2017
Rainy River Warrants
50
50
20.00
February 2, 2017
 
27,900
27,900
    
         
At 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 at fair value through profit or loss (“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.

As part of the Rainy River acquisition (refer to Note 4 for additional detail), the Company acquired 100,000 Rainy River warrants. Upon the completion of the acquisition, the Warrants were converted to 50,000 New Gold Warrants and upon exercising would be converted to 50,000 common shares of the Company. The Warrants have an exercise price of C$20.00 and expire on February 2, 2017. The Warrants are classified as a non-hedged derivative liability recorded as a FVTPL liability based on the currency of the Warrants.

During the first quarter ended March 31, 2013 all the Warrants acquired during the Silver Quest Resources Ltd. asset acquisition on November 23, 2011 were exercised or expired. Of the outstanding Warrants acquired during the asset acquisition, 0.4 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.
 
  
$
$
 
September 30
December 31
 
2013
2012
     
Share purchase warrants
 33.4
 80.3

 
 
15
 
 
 
12.  SHARE CAPITAL

At September 30, 2013, the Company had unlimited authorized common shares and 502.6 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
 1,395
 8.1
Exercise of warrants
ii
 39
 0.2
Acquisition of Rainy River
iii
 25,143
 183.9
Balance - September 30, 2013
  
 502,580
 2,810.6

(i) Exercise of options
For the nine months ended September 30, 2013, the Company issued 1.4 million common shares pursuant to the exercise of stock options (2012 – 1.1 million). The Company received proceeds of $5.0 million (2012 - $7.2 million) from these exercises and transferred $3.1 million (2012 - $3.1 million) from contributed surplus.

(ii) Exercise of warrants
For the nine months ended September 30, 2013, the Company issued 39,000 common shares pursuant to the exercise of warrants related to the warrants acquired during the Silver Quest Resources Ltd. asset acquisition (2012 – 60,000). The Company received proceeds of $0.2 million (2012 - $0.6 million) from these exercises.

(iii) Acquisition of Rainy River
On July 24, 2013, the Company issued 22.3 million common shares to effect the acquisition of Rainy River Resources Inc. for an 86.2% interest in Rainy River, as described in Note 4. The shares were issued at the closing share price of the Company on July 24, 2013, the transaction completion date, of C$7.58 for consideration of $164.2 million. On August 8, 2013, the Company acquired an additional 11.3% interest through a second take-up of shares. The Company issued 2.8 million common shares at the closing price of the Company on August 8, 2013 of C$7.17 for consideration of $19.7 million.

(b)  Share-based payment expenses
The following table summarizes share-based payment expenses for the three and nine months ended September 30:
 
   
 Three months ended
 Nine months ended
   
$
$
$
$
   
2013
2012
2013
2012
           
Stock option expense
 i
 1.9
 2.2
 6.1
 6.5
Performance share unit expense
 ii
 0.1
 -
 0.6
   -
Share award unit expense
 iii
 0.2
 1.0
 (0.3)
 2.0
Deferred share award unit expense
iv
 -
 0.1
 0.1
 0.1
   
 2.2
 3.3
 6.5
 8.6
 
(i)  Stock options
Under the Company’s Stock Option Plan (the “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 certain options granted under the Plan is the five day volume weighted average share price preceding the grant date. Other options have the exercise price equal to the grant price on the date of issuance. 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. Options granted under the Plan are settled for equity. The Company has incorporated an estimated forfeiture rate for stock options that will not vest.

 
16
 
 
 
The following table presents the changes in the 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
 1,689
 9.46
Exercised
 (1,395)
 3.54
Forfeited
 (243)
 8.60
Expired
 (595)
 7.89
Balance - September 30, 2013
 10,395
 6.68

For the nine months ended September 30, 2013 the Company granted 1.7 million stock options (2012 – 2.1 million). The weighted average fair value of the stock options granted during the nine months ended September 30, 2013 was C$4.27 (2012 – C$5.48). 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 nine months ended September 30:
 
 
2013
2012
     
Grant price
C$9.72
C$11.29
Expected dividend yield
0.0%
0.0%
Expected volatility
60.0%
60.0%
Risk-free interest rate
0.61%
0.70%
Expected life of options
3.7 years
4.6 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 to seek at its 2014 shareholders’ meeting, on a PSU 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 PSUs that vested on the maturity date in lieu of a cash payment.

The Company issued 0.5 million PSUs for the nine months ended September 30, 2013 (2012 – $nil). As the Company is currently required to settle this award in cash, it will record an accrued liability and record a corresponding compensation expense. The PSU awards are financial instruments that will be fair valued at each reporting date based on the Company’s share price performance and the S&P/TSX Global Gold Index. For the three and nine months ended September 30, 2013 the Company recorded $0.1 million and $0.6 million as compensation expense (2012 - $nil). As at September 30, 2013 the liability was $0.6 million (December 31, 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 nine months ended September 30, 2013 (2012 – 0.4 million). At September 30, 2013, there were 1.1 million non-vested share awards outstanding (December 31, 2012 – 0.6 million). Including the fair value adjustment for the share award units previously issued, the Company recorded an expense of $0.7 million and $0.6 million as compensation expense for the three and nine months ended September 30, 2013 (2012 - $2.6 million and $5.1
 
 
17
 
 
million). For the three and nine months ended September 30, 2013 the Company capitalized $0.1 and $0.3 million (2012 - $0.5 million and $0.9 million) for recipients working at the Company’s development projects and included a recovery of $0.4 million and $0.6 million (2012 – $1.1 million and $2.2 million) as operating expenses as it relates to producing mine site employees.

(iv)  Deferred share units
In 2010, the Company established a director deferred share unit (“DSU”) plan for the purposes of strengthening the alignment of interests between eligible Directors of the Company and shareholders by linking a portion of the annual director compensation to the future value of the Company’s common shares.

A Director is only entitled to payment in respect of the DSUs granted to him or her when the Director ceases to be a Director of the Company for any reason. On termination, the Company shall redeem each DSU held by the Director for payment in cash, being the product of: (i) the number of DSUs held by the Director on ceasing to be a director and (ii) the greater of either: (a) the weighted average trading price; or (b) the average of daily high and low board lot trading prices of the common shares, on the TSX for the five consecutive days immediately prior to the date of termination.

The Company issued 0.1 million DSUs for the nine months ended September 30, 2013 (2012 – $nil). As the Company is currently required to settle this award in cash, it will record an accrued liability and record a corresponding compensation expense. The DSU awards are financial instruments that will be fair valued at each reporting date based on the performance measurement criteria. For the three and nine months ended September 30, 2013 the Company recorded $nil and $0.1 million as compensation expense (2012 - $0.1 million and $0.1 million). As at September 30, 2013 the liability was $0.9 million (December 31, 2012 - $0.7 million).

(c)  Earnings per share
The following table sets out the computation of diluted earnings per share for the three and nine months ended September 30:
 
  
 Three months ended
 Nine months ended
 
$
$
$
$
 
2013
2012
2013
2012
         
Net earnings
 12.2
 17.8
 63.5
 75.1
         
Dilution of net earnings
        
Dilutive effect of the Debenture conversion option
 -
 -
 -
 3.4
Dilutive effect of the Warrants
 -
 (4.7)
 -
 (2.1)
Net diluted earnings
 12.2
 13.1
 63.5
 76.4
         
Basic weighted average number of shares outstanding
 495.3
 462.2
 482.9
 461.8
(in millions)
        
         
Dilution of securities
        
Stock options
 2.6
 5.2
 3.1
 5.0
Debentures
 -
 -
 -
 5.9
Warrants
 -
 1.2
 -
 0.9
Diluted weighted average number of shares outstanding
 497.9
 468.6
 486.0
 473.6
         
Net earnings per share
        
Basic
 0.02
 0.04
 0.13
 0.16
Diluted
 0.02
 0.03
 0.13
 0.16

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$7.09 and C$8.09 for the three and nine months ended September 30, 2013 (2012 – C$10.67 and C$10.29), or the inclusion of the equity securities had an anti-dilutive effect on net earnings.
 
 
 Three months ended
 Nine months ended
 
(000s)
(000s)
(000s)
(000s)
 
2013
2012
2013
2012
         
Stock options
 5,243
 1,772
 3,705
 2,087
Warrants
 27,900
 28,246
 27,900
 28,246


 
18
 


 
13.  INCOME AND MINING TAXES

The composition of income tax expense between current tax and deferred tax for the three and nine months ended September 30:


 
 Three months ended
 Nine months ended
 
$
$
$
$
 
2013
2012
2013
2012
         
Current tax
        
Canada income tax
 -
 0.1
 0.1
 0.6
Canadian mining tax
 1.7
 -
 1.7
 -
Foreign income and mining tax
 (2.2)
 18.9
 17.6
 65.2
Adjustments in respect of the prior year
 (4.7)
 0.2
 (4.7)
 0.2
 
 (5.2)
 19.2
 14.7
 66.0
         
Deferred tax
        
Canada income tax
 8.4
 1.1
 13.8
 (3.2)
Canadian mining tax
 1.7
 -
 1.7
 -
Foreign income and mining tax
 (0.9)
 8.5
 (9.8)
 1.3
Adjustments in respect of the prior year
 6.3
 1.8
 6.3
 1.8
 
 15.5
 11.4
 12.0
 (0.1)
         
Income tax expense
 10.3
 30.6
 26.7
 65.9
 
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 and nine months ended September 30:
 
 
 Three months ended
 Nine months ended
 
$
$
$
$
 
2013
2012
2013
2012
         
Earnings before taxes
 22.5
 48.4
 90.2
 141.0
         
Canadian federal and provincial income tax rates
25.8%
25.2%
25.8%
25.2%
         
Income tax expense based on above rates
 5.8
 12.2
 23.3
 35.5
Increase (decrease) due to:
        
Non-taxable income
 (5.5)
 1.7
 (10.2)
 0.4
Non-deductible expenditures
 0.3
 4.2
 5.7
 6.0
Different statutory tax rates on earnings of foreign subsidiaries
 (1.3)
 3.2
 1.4
 7.3
Taxable gain
 0.1
 (6.8)
 0.4
 -
British Columbia mining tax
 2.1
 -
 3.4
 -
Withholding tax on repatriation
 -
 -
 0.1
 1.1
Benefit of losses not recognized in the period
 5.4
 4.9
 -
 -
Other
 3.4
 11.2
 2.6
 15.6
 
 10.3
 30.6
 26.7
 65.9
 
Effective April 1, 2013 the British Columbia corporate tax rate increased from 10% to 11%. This resulted in an effective tax rate of 25.8% instead of a rate of 25.2%.

 
19
 
 
 
14. RECLAMATION AND CLOSURE COST OBLIGATIONS
 
Changes to the reclamation and closure cost obligations are as follows:
 
 
Mesquite
Mine
Cerro San
Pedro Mine
Peak Gold
Mines
New Afton
Mine
Blackwater 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)
 -
 (0.1)
 (0.9)
 -
 (1.4)
Unwinding of discount
 0.1
 0.2
 0.5
 0.1
 0.1
 1.0
Revisions to expected cash flows
 0.8
 (0.3)
 (1.9)
 (0.8)
 (1.3)
 (3.5)
Foreign exchange movement
 -
 (0.3)
 (2.3)
 (0.3)
 (0.2)
 (3.1)
Balance, September 30, 2013
 11.9
 18.3
 18.8
 8.5
 7.3
 64.8
Less: current portion
 2.6
 0.1
 1.1
 0.2
 -
 4.0
Non current portion of closure costs
 9.3
 18.2
 17.7
 8.3
 7.3
 60.8
 
The current portion of the reclamation and closure cost obligations has been included in Note 6: Trade and other payables.

 
15.  SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information for the three and nine months ended September 30, is as follows:
 
 
 Three months ended
 Nine months ended
 
$
$
$
$
 
2013
2012
2013
2012
         
Operating activities:
        
Change in non-cash operating working capital
        
Trade and other receivables
 (9.3)
 (15.3)
 1.5
 (14.3)
Inventories
 (8.1)
 (8.4)
 (28.8)
 (23.7)
Prepaid expenses and other
 (1.7)
 (2.9)
 5.8
 0.7
Trade and other payables
 5.1
 3.1
 (9.6)
 (10.6)
 
 (14.0)
 (23.5)
 (31.1)
 (47.9)


 
20
 

 
16. 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 and nine months ended September 30:
 
           
 Three months ended
             
2013
 
Mesquite
Mine
Cerro San
Pedro Mine
Peak Gold
Mines
New Afton
Mine
Corporate
Other(1)
Total
 
$
$
$
$
$
$
$
               
Revenues(2)
 21.8
 35.9
 42.7
 95.6
 -
 -
 196.0
Operating expenses
 21.7
 22.2
 30.6
 27.6
 -
 -
 102.1
Depreciation and depletion
 5.4
 4.4
 7.4
 25.5
 -
 -
 42.7
               
Earnings from mine operations
 (5.3)
 9.3
 4.7
 42.5
 -
 -
 51.2
               
Corporate administration
 -
 -
 -
 -
 6.5
 -
 6.5
Share-based payment expenses
 -
 -
 -
 -
 2.2
 -
 2.2
Exploration and business development
 0.1
 -
 1.5
 4.2
 -
 6.7
 12.5
               
Income from operations
 (5.4)
 9.3
 3.2
 38.3
 (8.7)
 (6.7)
 30.0
               
Finance income
 -
 -
 -
 -
 0.3
 0.3
 0.6
Finance costs
 -
 (0.1)
 (0.2)
 -
 (7.9)
 (0.9)
 (9.1)
Rainy River acquisition costs
 -
 -
 -
 -
 (4.9)
 -
 (4.9)
Other (losses) gains
 (0.6)
 (2.2)
 1.9
 6.0
 1.3
 (0.5)
 5.9
               
Earnings (loss) before taxes
 (6.0)
 7.0
 4.9
 44.3
 (19.9)
 (7.8)
 22.5
Income tax (expense) recovery
 7.7
 (3.1)
 (1.2)
 (34.4)
 18.3
 2.4
 (10.3)
Net earnings (loss)
 1.7
 3.9
 3.7
 9.9
 (1.6)
 (5.4)
 12.2
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.


           
 Nine months ended
             
2013
 
Mesquite
Mine
Cerro San
Pedro Mine
Peak Gold
Mines
New Afton
Mine
Corporate
Other(1)
Total
 
$
$
$
$
$
$
$
               
Revenues(2)
 80.3
 135.0
 135.6
 230.4
 -
 -
 581.3
Operating expenses
 67.4
 72.4
 94.2
 79.8
 -
 -
 313.8
Depreciation and depletion
 16.8
 18.8
 21.9
 67.2
 -
 -
 124.7
               
Earnings from mine operations
 (3.9)
 43.8
 19.5
 83.4
 -
 -
 142.8
               
Corporate administration
 -
 -
 -
 -
 21.1
 -
 21.1
Share-based payment expenses
 -
 -
 -
 -
 6.5
 -
 6.5
Exploration and business development
 1.0
 -
 5.4
 10.6
 0.2
 11.2
 28.4
               
Income from operations
 (4.9)
 43.8
 14.1
 72.8
 (27.8)
 (11.2)
 86.8
               
Finance income
 -
 -
 0.1
 0.1
 0.7
 0.3
 1.2
Finance costs
 (0.1)
 (0.2)
 (0.7)
 (0.5)
 (27.9)
 (2.6)
 (32.0)
Rainy River acquisition costs
 -
 -
 -
 -
 (4.9)
 -
 (4.9)
Other (losses) gains
 7.4
 (1.3)
 (1.5)
 (9.2)
 46.8
 (3.1)
 39.1
               
Earnings (loss) before taxes
 2.4
 42.3
 12.0
 63.2
 (13.1)
 (16.6)
 90.2
Income tax (expense) recovery
 8.4
 (13.4)
 (2.7)
 (47.5)
 24.4
 4.1
 (26.7)
Net earnings (loss)
 10.8
 28.9
 9.3
 15.7
 11.3
 (12.5)
 63.5
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.
 
 
 
21
 

           
 Three months ended
             
2012
 
Mesquite
Mine
Cerro San
Pedro Mine
Peak Gold
Mines
New Afton
Mine
Corporate
Other(1)
Total
 
$
$
$
$
$
$
$
               
Revenues(2)
 41.7
 71.6
 50.2
 32.0
 -
 -
 195.5
Operating expenses
 22.9
 22.5
 29.8
 13.6
 -
 -
 88.8
Depreciation and depletion
 6.1
 8.0
 5.3
 10.0
 -
 -
 29.4
               
Earnings from mine operations
 12.7
 41.1
 15.1
 8.4
 -
 -
 77.3
               
Corporate administration
 -
 -
 -
 -
 3.2
 -
 3.2
Share-based payment expenses
 -
 -
 -
 -
 3.3
 -
 3.3
Exploration and business development
 -
 1.3
 1.8
 1.0
 0.5
 0.1
 4.7
               
Income from operations
 12.7
 39.8
 13.3
 7.4
 (7.0)
 (0.1)
 66.1
               
Finance income
 -
 -
 0.1
 -
 0.1
 -
 0.2
Finance costs
 (0.1)
 -
 (0.2)
 (0.1)
 (1.6)
 (0.3)
 (2.3)
Other (losses) gains
 (0.1)
 1.5
 1.9
 (26.1)
 8.8
 (1.6)
 (15.6)
               
Earnings (loss) before taxes
 12.5
 41.3
 15.1
 (18.8)
 0.3
 (2.0)
 48.4
Income tax (expense) recovery
 (3.8)
 (7.3)
 (6.3)
 (4.6)
 1.6
 (10.2)
 (30.6)
Net earnings (loss)
 8.7
 34.0
 8.8
 (23.4)
 1.9
 (12.2)
 17.8
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.


           
 Nine months ended
             
2012
 
Mesquite
Mine
Cerro San
Pedro Mine
Peak Gold
Mines
New Afton
Mine
Corporate
Other(1)
Total
 
$
$
$
$
$
$
$
               
Revenues(2)
 152.4
 215.3
 140.7
 32.0
 -
 -
 540.4
Operating expenses
 74.2
 67.9
 83.4
 13.6
 -
 -
 239.1
Depreciation and depletion
 19.9
 24.9
 15.1
 10.0
 -
 -
 69.9
               
Earnings from mine operations
 58.3
 122.5
 42.2
 8.4
 -
 -
 231.4
               
Corporate administration
 -
 -
 -
 -
 16.2
 -
 16.2
Share-based payment expenses
 -
 -
 -
 -
 8.6
 -
 8.6
Exploration and business development
 -
 4.5
 4.6
 1.0
 1.3
 0.6
 12.0
               
Income from operations
 58.3
 118.0
 37.6
 7.4
 (26.1)
 (0.6)
 194.6
               
Finance income
 -
 -
 0.3
 0.1
 0.6
 -
 1.0
Finance costs
 (0.4)
 (0.3)
 (0.6)
 (0.2)
 (2.4)
 (1.0)
 (4.9)
Other (losses) gains
 (2.9)
 1.8
 1.3
 (57.1)
 7.8
 (0.6)
 (49.7)
               
Earnings (loss) before taxes
 55.0
 119.5
 38.6
 (49.8)
 (20.1)
 (2.2)
 141.0
Income tax (expense) recovery
 (12.1)
 (32.9)
 (12.3)
 (2.7)
 4.6
 (10.5)
 (65.9)
Net earnings (loss)
 42.9
 86.6
 26.3
 (52.5)
 (15.5)
 (12.7)
 75.1
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.

 
22
 


(b)  Segment assets and liabilities
The following tables present the segmented assets and liabilities:
 
 
 September 30, 2013
 December 31, 2012
 
Total
Total
Total
Total
 
assets
liabilities
assets
liabilities
 
$
$
$
$
         
Mesquite Mine
 475.3
 133.1
 471.7
 238.2
Cerro San Pedro Mine
 444.0
 167.2
 415.5
 150.1
Peak Gold Mines
 320.3
 99.9
 324.9
 89.3
New Afton Mine
 1,211.8
 61.8
 1,181.4
 76.0
El Morro project
 430.4
 197.4
 423.2
 136.6
Blackwater project
 866.1
 21.2
 804.8
 34.0
Rainy River project
 422.6
 39.8
 -
 -
Other(1)
 326.3
 806.1
 662.2
 883.0
 
 4,496.8
 1,526.5
 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 and nine months ended September 30, 2013 related to the El Morro project is $nil and $nil (2012 – $nil and $nil).
 
 
 
 
17. 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:
 
       
 September 30, 2013
 
$
$
$
$
$
 
Loans and
    
Financial
  
 
receivables
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
 428.8
 -
 -
 -
 428.8
Trade and other receivables
 21.9
 -
 -
 -
 21.9
Provisionally priced contracts
 -
 (0.3)
 -
 -
 (0.3)
Copper swap contracts
 -
 (1.9)
 -
 -
 (1.9)
Investments
 -
 -
 0.7
 -
 0.7
Financial liabilities
          
Trade and other payables
 -
 -
 -
 107.6
 107.6
Long-term debt
 -
 -
 -
 859.7
 859.7
Warrants
 -
 33.4
 -
 -
 33.4
Share award units
 -
 3.3
 -
 -
 3.3


 
23
 

       
 December 31, 2012
 
$
$
$
$
$
 
Loans and
    
Financial
  
 
receivables
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
 49.2
 -
 -
 -
 49.2
Provisionally priced contracts
 -
 (1.4)
 -
 -
 (1.4)
Copper swap contracts
 -
 (0.9)
 -
 -
 (0.9)
Investments
 -
 -
 1.0
 -
 1.0
Financial liabilities
          
Trade and other payables
 -
 -
 -
 117.4
 117.4
Long-term debt
 -
 -
 -
 847.8
 847.8
Gold contracts
 -
 110.5
 -
 -
 110.5
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.


 
September 30,
September 30,
December 31,
December 31,
 
2013
2013
2012
2012
 
$
$
$
$
 
Carrying
Fair
Carrying
Fair
 
Value
Value
Value
Value
         
Financial assets
        
Cash and cash equivalents
 428.8
 428.8
 687.8
 687.8
Trade and other receivables
 19.7
 19.7
 46.9
 46.9
Investments
 0.7
 0.7
 1.0
 1.0
Financial liabilities
        
Trade and other payables
 111.6
 111.6
 120.7
 120.7
Long-term debt
 859.7
 872.5
 847.8
 902.9
Gold contracts
 -
 -
 110.5
 110.5
Warrants
 33.4
 33.4
 80.3
 80.3
Share award units
 3.3
 3.3
 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.


 
24
 

 
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:
 
   
 September 30, 2013
 
$
$
$
Asset (Liability)
Level 1
Level 2
Level 3
       
Investments
 0.7
 -
 -
Warrants
 (33.4)
 -
 -
Share award units
 (3.3)
 -
 -
Provisionally priced contracts
 (0.3)
 -
 -
Copper swap contracts
 -
 (1.9)
 -
Gold contracts
 -
 -
 -



   
 December 31, 2012
 
$
$
$
Asset (Liability)
Level 1
Level 2
Level 3
       
Investments
 1.0
 -
 -
Warrants
 (80.3)
 -
 -
Share award units
 (4.0)
 -
 -
Provisionally priced contracts
 (1.4)
 -
 -
Copper swap contracts
 -
 (0.9)
 -
Gold contracts
 -
 (110.5)
 -

There were no transfers between Levels 1, 2 and 3 as at September 30, 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.  

 
18. 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 for capital items related to operations and development. At September 30, 2013, these commitments totalled $29.5 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”) is the Chilean company jointly held by the Company and Goldcorp.  El Morro owns and operates the El Morro Project and participated in the legal proceedings as an interested party and beneficiary of the environmental permit. In February 2012, the Court
 
 
 
25
 
 
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. During the period of temporary suspension, Goldcorp worked with the Chilean authorities and local communities to correct the deficiencies. El Morro filed an addendum to its environmental permit which proposed compensation arrangements for certain local communities. On October 22, 2013, SEA approved the reinstatement of El Morro’s environmental permit.

(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.

 
19. SUBSEQUENT EVENTS

(a) On October 15, 2013, New Gold acquired the remaining 2.5% of the outstanding common shares of Rainy River. On this date New Gold became the sole shareholder of Rainy River and ceased recognizing a non-controlling interest in Rainy River on the consolidated statement of financial position.

(b) On October 22, 2013, SEA approved the reinstatement of El Morro’s environmental permit (refer to Note 18 (b)).

 

 
 
 
 
 
 
 
 
 
 
26