6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of February 2020.

Commission File Number 001-31722

New Gold Inc.

Suite 3320 – 181 Bay Street

Toronto, Ontario M5J 2T3

Canada

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☐ Form 40-F ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

DOCUMENTS FILED AS PART OF THIS FORM 6-K

Exhibit	Description
99.1	Consolidated Financial Statements for the year ended December 31, 2019
99.2	Management’s Discussion and Analysis for the year ended December 31, 2019

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		NEW GOLD INC.
	By:	/s/ Sean Keating
Date: February 13, 2020		Sean Keating Vice President, General Counsel and Corporate Secretary

EX-99.1

Exhibit 99.1

Contents

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS	2
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING	3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	6
CONSOLIDATED INCOME STATEMENTS	8
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	9
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION	10
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY	11
CONSOLIDATED STATEMENTS OF CASH FLOW	12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS	13
1. Description of business and nature of operations	13
2. Basis of preparation and significant accounting policies	13
3. Critical judgments and estimation uncertainties	23
4. Revisions to prior period comparatives	26
5. Expenses	27
6. Trade and other receivables	28
7. Trade and other payables	29
8. Inventories	29
9. Mining interests	30
10. Impairment	31
11. Long-term debt	32
12. Gold stream obligation	34
13. Leases	35
14. Derivative instruments	36
15. Share capital	39
16. Discontinued operations	41
17. Income and mining taxes	43
18. Reclamation and closure cost obligations	46
19. Supplemental cash flow information	47
20. Segmented information	48
21. Capital risk management	51
22. Financial risk management	52
23. Fair value measurement	56
24. Compensation of key management personnel	59
25. Commitments	60

1

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The consolidated financial statements, the notes thereto and other financial information contained in the Management’s Discussion and Analysis have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and are the responsibility of the management of New Gold Inc. The financial information presented in the Management’s Discussion and Analysis is consistent with the data that is contained in the consolidated financial statements. The consolidated financial statements, where necessary, include amounts which are based on the best estimates and judgment of management.

In order to discharge management’s responsibility for the integrity of the financial statements, the Company maintains a system of internal accounting controls. These controls are designed to provide reasonable assurance that the Company’s assets are safeguarded, transactions are executed and recorded in accordance with management’s authorization, proper records are maintained and relevant and reliable financial information is produced. These controls include maintaining quality standards in hiring and training of employees, policies and procedures manuals, a corporate code of conduct and ensuring that there is proper accountability for performance within appropriate and well-defined areas of responsibility. The system of internal controls is further supported by a compliance function, which is designed to ensure that we and our employees comply with securities legislation and conflict of interest rules.

The Board of Directors is responsible for overseeing management’s performance of its responsibilities for financial reporting and internal control. The Audit Committee, which is composed of non-executive directors, meets with management as well as the external auditors to ensure that management is properly fulfilling its financial reporting responsibilities to the Directors who approve the consolidated financial statements. The external auditors have full and unrestricted access to the Audit Committee to discuss the scope of their audits, the adequacy of the system of internal controls and review financial reporting issues.

The consolidated financial statements have been audited by Deloitte LLP, the Company’s independent registered public accounting firm, in accordance with standards of the Public Company Accounting Oversight Board (United States).

(Signed) Renaud Adams	(Signed) Robert Chausse
Renaud Adams	Robert Chausse
President and	Executive Vice President and
Chief Executive Officer	Chief Financial Officer
Toronto, Canada
February 12, 2020

2

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company’s management, including the President and Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Company’s internal control over financial reporting includes those policies and procedures that:

● pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

The Company’s management, under the supervision of the President and Chief Executive Officer and the Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d—15(f) under the Exchange Act as of December 31, 2019. In making this assessment, it used the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that, as of December 31, 2019, the Company’s internal control over financial reporting is effective based on those criteria.  There are no material weaknesses that have been identified by management.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been audited by Deloitte LLP, the Company’s independent registered public accounting firm, as stated in their report immediately preceding the Company’s audited consolidated financial statements for the year ended December 31, 2019.

(Signed) Renaud Adams	(Signed) Robert Chausse
Renaud Adams	Robert Chausse
President and	Executive Vice President and
Chief Executive Officer	Chief Financial Officer
Toronto, Canada
February 12, 2020

3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and Board of Directors of New Gold Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of New Gold Inc. and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated income statements, statements of comprehensive income, statements of changes in equity and statements of cash flow, for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its financial performance and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 12, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

4

Impairment of Mining Interests — Assessment of Whether Indicators of Impairment or Impairment Reversal Exist —Refer to Notes 2, 3, 9 and 10 to the financial statements.

Critical Audit Matter Description

The Company’s determination of whether or not an indicator of impairment or impairment reversal exists in mining interests at the cash generating unit (CGU) levels requires significant management judgment.

While there are several factors that are required to determine whether or not an indicator of impairment or impairment reversal exists, the judgments with the highest degree of subjectivity are future commodity prices (for both gold and copper), market capitalization deficiency assessment (specifically, the inputs related to control premiums, industry specific factors, and company performance), the discount rate, and the in-situ ounce multiples.  Auditing these estimates and inputs required a high degree of subjectivity in applying audit procedures and in evaluating the results of those procedures.  This resulted in an increased extent of audit effort, including the involvement of a fair value specialist.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the future commodity prices (for both gold and copper),  market capitalization deficiency assessment (specifically the inputs related to control premiums, industry specific factors, and company performance), the discount rate, and the in-situ ounce multiples in the assessment of indicators of impairment or impairment reversal included the following, among others:

● Evaluated the effectiveness of the Company’s controls over management’s assessment of indicators of impairment or impairment reversal.

● With the assistance of a fair value specialist;

o Evaluated the future commodity prices (for both gold and copper) by comparing forecasts to third party forecasts,

o Performed an assessment of the market capitalization to the carrying value of the CGUs which included; assessing control premiums, industry specific factors, and company performance,

o Evaluated the reasonableness of the discount rate by comparing to independent market data, and

o Evaluated the reasonableness of management’s determination of the in-situ ounce multiples by comparing to independent market data.

 “/s/ Deloitte LLP”

Chartered Professional Accountants

Licensed Public Accountants

Toronto, Canada

February 12, 2020

We have served as the Company's auditor since 2007.

5

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and Board of Directors of New Gold Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of New Gold Inc. and subsidiaries (the “Company”) as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report dated February 12, 2020 expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

6

“/s/ Deloitte LLP”

Chartered Professional Accountants

Licensed Public Accountants

Toronto, Canada

February 12, 2020

7

CONSOLIDATED INCOME STATEMENTS

						Year ended December 31
(in millions of U.S. dollars, except per share amounts)	Note		2019			2018 (Note 4)
Revenues				630.6			604.5
Operating expenses		5		371.9			325.4
Depreciation and depletion				240.6			239.9
Revenue less cost of goods sold				18.1			39.2
Corporate administration				17.6			23.2
Corporate restructuring(1)				1.1			4.1
Share-based payment expenses		15		1.7			0.7
Exploration and business development				5.6			3.0
Asset impairment		10		-			1,054.8
Loss from operations				(7.9	)		(1,046.6	)
Finance income		5		2.2			1.5
Finance costs		5		(62.6	)		(69.0	)
Other (losses) gains		5		(5.6	)		18.1
Loss before taxes				(73.9	)		(1,096.0	)
Income tax recovery		17		0.4			10.4
Loss from continuing operations(2)				(73.5	)		(1,085.6	)
Loss from discontinued operations, net of tax(2)		16		-			(154.9	)
Net loss				(73.5	)		(1,240.5	)
Loss from continuing operations per share
Basic		15		(0.12	)		(1.88	)
Diluted		15		(0.12	)		(1.88	)
Net loss per share
Basic		15		(0.12	)		(2.14	)
Diluted		15		(0.12	)		(2.14	)
Weighted average number of shares outstanding (in millions)
Basic		15		611.1			578.7
Diluted		15		611.1			578.7

1. During 2019 and 2018, the Company recognized restructuring charges of $1.1 million and $4.1million respectively related to severance and other termination benefits.

2. In the prior year period, Peak Mines and Mesquite were classified as discontinued operations and accordingly earnings and cash flows from continuing operations are presented exclusive of Peak Mines and Mesquite. Peak Mines was sold in April 2018 and Mesquite was sold in October 2018. Refer to Note 16 for further details.

See accompanying notes to the consolidated financial statements.

8

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

						Year ended December 31
(in millions of U.S. dollars)	Note		2019			2018 (Note 4)
Net loss				(73.5	)		(1,240.5	)
Other comprehensive income
(Loss) gain on revaluation of gold stream obligation		12		(24.4	)		66.6
Deferred income tax related to gold stream obligation		12		4.7			(21.6	)
Total other comprehensive (loss) income				(19.7	)		45.0
Total comprehensive loss				(93.2	)		(1,195.5	)

See accompanying notes to the consolidated financial statements.

9

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

						As at December 31
(in millions of U.S. dollars)	Note		2019			2018 (Note 4)
ASSETS
Current assets
Cash and cash equivalents				83.4			103.7
Trade and other receivables		6		23.7			35.9
Inventories		8		110.0			141.8
Current income tax receivable				4.5			4.3
Prepaid expenses and other				7.1			4.7
Total current assets				228.7			290.4
Non-current inventories		8		-			14.9
Mining interests		9		1,928.0			1,853.4
Other		16		1.8			10.9
Total assets				2,158.5			2,169.6
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables		7		171.6			130.9
Current income tax payable				0.3			-
Total current liabilities				171.9			130.9
Reclamation and closure cost obligations		18		94.7			86.1
Gold stream obligation		12		142.9			161.9
Long-term debt		11		714.5			780.5
Deferred tax liabilities		17		48.3			56.3
Lease obligations		13		23.9			8.9
Other				1.0			0.5
Total liabilities				1,197.2			1,225.1
Equity
Common shares		15		3,144.5			3,035.2
Contributed surplus				105.7			105.0
Other reserves				(13.6	)		6.1
Deficit				(2,275.3	)		(2,201.8	)
Total equity				961.3			944.5
Total liabilities and equity				2,158.5			2,169.6

See accompanying notes to the consolidated financial statements.

 

Approved and authorized by the Board of Directors on February 12, 2020

“Ian Pearce”	“Marilyn Schonberner”
Ian Pearce, Director	Marilyn Schonberner, Director

10

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

						Year ended December 31
(in millions of U.S. dollars)	Note		2019			2018 (Note 4)
COMMON SHARES
Balance, beginning of period				3,035.2			3,036.5
Common share issuance		15		109.3			0.3
Shares issued for exercise of options and vested PSUs				-			0.3
Reversal of deferred tax recovery				-			(1.9	)
Balance, end of period				3,144.5			3,035.2
CONTRIBUTED SURPLUS
Balance, beginning of period				105.0			103.2
Exercise of options and vested PSU’s		15		-			(0.3	)
Equity settled share-based payments				0.7			2.1
Balance, end of period				105.7			105.0
OTHER RESERVES
Balance, beginning of period				6.1			(38.9	)
(Loss) gain on revaluation of gold stream obligation (net of tax)		12		(19.7	)		45.0
Balance, end of period				(13.6	)		6.1
DEFICIT
Balance, beginning of period				(2,201.8	)		(961.3	)
Net loss				(73.5	)		(1,240.5	)
Balance, end of period				(2,275.3	)		(2,201.8	)
Total equity				961.3			944.5

See accompanying notes to the consolidated financial statements.

11

CONSOLIDATED STATEMENTS OF CASH FLOW

			Year ended December 31
(in millions of U.S. dollars)	Note		2019			2018 (Note 4)
OPERATING ACTIVITIES
Loss from continuing operations				(73.5	)		(1,085.6	)
Adjustments for:
Asset impairment		10		-			1,054.8
Foreign exchange loss (gain)		5		3.3			(6.6	)
Reclamation and closure costs paid		18		(8.8	)		(1.2	)
Depreciation and depletion				241.7			241.2
Other non-cash adjustments		19		17.5			9.0
Income tax recovery		17		(0.4	)		(10.4	)
Finance income		5		(2.2	)		(1.5	)
Finance costs		5		62.6			69.0
				240.2			268.7
Change in non-cash operating working capital		19		25.9			(71.6	)
Income taxes paid				(2.6	)		(4.1	)
Operating cash flows generated from continuing operations(1)				263.5			193.0
Operating cash flows generated from discontinued operations		16		-			52.1
Cash generated from operations				263.5			245.1
INVESTING ACTIVITIES
Mining interests				(253.3	)		(213.9	)
Proceeds from the sale of other assets				2.7			1.1
Proceeds from sale of Mesquite, net of transaction costs and other adjustments		16		12.4			149.8
Proceeds from the sale of Peak Mines, net of transaction costs		16		-			42.4
Government grant received		9		2.0			-
Interest received				2.2			1.2
Investing cash flows used by continuing operations(1)				(234.0	)		(19.4	)
Investing cash flows used by discontinued operations		16		-			(12.8	)
Cash used by investing activities				(234.0	)		(32.2	)
FINANCING ACTIVITIES
Proceeds received from issuance of common shares		15		106.7			-
Drawdown of Credit Facility				30.0			-
Lease payments				(13.0	)		(4.0	)
Repayment of long-term debt		11		(100.0	)		(230.0	)
Cash settlement of gold stream obligation		12		(19.8	)		(14.9	)
Financing initiation costs				-			(0.6	)
Interest paid				(54.1	)		(63.2	)
Cash used by financing activities				(50.2	)		(312.7	)
Effect of exchange rate changes on cash and cash equivalents				0.4			(0.5	)
Cash and cash equivalents sold or classified as held-for-sale				-			(12.2	)
Change in cash and cash equivalents				(20.3	)		(112.5	)
Cash and cash equivalents, beginning of period				103.7			216.2
Cash and cash equivalents, end of period				83.4			103.7
Cash and cash equivalents are comprised of:
Cash				66.0			64.3
Short-term money market instruments				17.5			39.4
				83.4			103.7

1. In the prior year period, Peak Mines and Mesquite were classified as discontinued operations and accordingly earnings and cash flows from continuing operations are presented exclusive of Peak Mines and Mesquite. Peak Mines was sold in April 2018 and Mesquite was sold in October 2018. Refer to Note 16 for further details.

See accompanying notes to the consolidated financial statements.

12

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2019

(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. (“New Gold” or the “Company”) is an intermediate gold mining company engaged in the development and operation of mineral properties. The assets of the Company, directly or through its subsidiaries, are comprised of the Rainy River Mine in Canada (“Rainy River”), the New Afton Mine in Canada (“New Afton”) and the Cerro San Pedro Mine in Mexico (“Cerro San Pedro”). The Company also owns the Blackwater project in Canada (“Blackwater”). The Company completed the sale of the Peak Mines in Australia (“Peak Mines”) in early April 2018 and completed the sale of the Mesquite Mine in the United States (“Mesquite”) in October 2018.

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 NYSE American under the symbol NGD.

The Company’s registered office is located at 1100 Melville Street, Suite 610, Vancouver, British Columbia, V6E 4A6, Canada.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board (“IASB”), referred to as “IFRS”. These consolidated financial statements were approved by the Board of Directors of the Company on February 12, 2020.

(b) Basis of preparation

The consolidated financial statements have been prepared on the historical cost basis except for those assets and liabilities that are measured at fair values at the end of each reporting period. Additionally, these consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.

(c) Basis of consolidation

Subsidiaries

These consolidated financial statements include the financial statements of the Company and entities controlled by the Company (“Subsidiaries”). Control exists when the Company is exposed, or has rights to variable returns from its involvement with the Subsidiary and has the ability to affect those returns through its power over the Subsidiary.

THE PRINCIPAL SUBSIDIARIES OF THE COMPANY ARE AS FOLLOWS:

Name of subsidiary/associate(1)	Principal activity	Method of accounting	Country of incorporation and operation	Interest as at December 31, 2019	Interest as at December 31, 2018
Minera San Xavier S.A. de C.V.	Mining	Consolidated	Mexico	100%	100%

1. The Company sold Peak Gold Mines Pty Ltd in April 2018 and sold Western Mesquite Mines Inc. in October 2018.

2. New Gold Inc. directly owns the assets of Rainy River, New Afton and Blackwater.

13

(d) Business combinations and asset acquisitions

A business combination is an acquisition of assets and liabilities that constitute a business. A business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return to the company and its shareholders in the form of improved earnings, lower costs or other economic benefits.

Business combinations are accounted for using the acquisition method whereby identifiable assets acquired and liabilities assumed, including contingent liabilities, are recorded at 100% of their acquisition-date fair values. The acquisition date is the date the Company obtains control over the acquiree, which is generally the date that consideration is transferred and the Company acquires the assets and assumes the liabilities of the acquiree. The Company considers all relevant facts and circumstances in determining the acquisition date.

The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, the liabilities, including contingent consideration, incurred and payable by the Company to former owners of the acquiree and the equity interests issued by the Company. The measurement date for equity interests issued by the Company is the acquisition date.

Acquisition-related costs, other than costs to issue debt or equity securities, of the Company, including investment banking fees, legal fees, accounting fees, valuation fees, and other professional or consulting fees are expensed as incurred. The costs to issue equity securities of the Company as consideration for the acquisition are reduced from share capital as share issue costs.

The Company accounts for the purchase of assets and assumption of liabilities as an acquisition of net assets when the transactions do not qualify as a business combination under IFRS 3, Business Combinations, as the significant inputs and processes that constitute a business are not identified. The purchase consideration is allocated to the fair value of the assets acquired and liabilities assumed based on management’s best estimates and available information at the time of the acquisition. Acquisition-related costs, other than costs to issue debt or equity securities, of the Company, including investment banking fees, legal fees, accounting fees, valuation fees, and other professional or consulting fees are capitalized as part of the asset acquisition.

(e) Cash and cash equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the date of acquisition to be cash equivalents. These highly liquid investments only comprise short-term Canadian and United States government treasury bills and other evidences of indebtedness and treasury bills of the Canadian provinces with a minimum credit rating of R-1 mid from the Dominion Bond Rating Service or an equivalent rating from Standard & Poor’s and Moody’s.  In addition, the Company invests in bankers’ acceptances and other evidences of indebtedness of certain financial institutions, including Canadian banks.

(f) Inventories

Finished goods, work-in-process, ore and stockpiled ore are valued at the lower of weighted average production cost or net realizable value. Production costs include the cost of raw materials, direct labour, mine-site overhead expenses and depreciation and depletion of mining interests. Net realizable value is calculated as the estimated price at the time of sale based on prevailing and long-term metal prices less estimated future production costs to convert the inventories into saleable form. At operations where ore extracted contains significant amount of metals other than gold, primarily copper or silver, cost is allocated between the joint products on a pro rata basis.

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Stockpiles represent ore that has been extracted from the mine and is available for further processing. Costs are added to stockpiles based on current mining costs, including applicable overhead and depreciation and depletion relating to mining operations and removed at each stockpile’s average cost per recoverable unit as material is processed.

Work-in-process inventory represents materials that are currently in the process of being converted into finished goods. The average production cost of finished goods represents the average cost of work-in-process inventories incurred prior to the refining process, plus applicable refining, selling, shipping costs and associated royalties.

Supplies are measured at weighted average cost. In the event that the net realizable value of the finished product, the production of which the supplies are held for use in, is lower than the expected cost of the finished product, the supplies are written down to net realizable value.

(g) Mining interests

Mining interests include mining properties and related plant and equipment. Capitalized costs are depreciated and depleted using either a unit-of-production method over the estimated economic life of the mine to which they relate, or for plant and equipment, using the straight-line method over their estimated useful lives, if shorter than the mine life.

Mining properties

The costs associated with mining properties include acquired interests in production, development and exploration stage properties representing the fair value at the time they were acquired.

Mining properties include costs directly attributable to bringing a mineral asset into the state where it is capable of operating in the manner intended by management. The determination of development costs to be capitalized during the production stage of a mine operation requires the use of judgments and estimates.

The Company estimates its mineral reserves and mineral resources based on information compiled by appropriately qualified persons. The estimation of recoverable reserves will be impacted by forecasted commodity prices, exchange rates, production costs and recoveries amongst other factors. Changes in the reserve or resource estimates may impact the carrying value of assets and depreciation and impairment charges recorded in the consolidated income statement.

A mining property is considered to be capable of operating in a manner intended by management when it commences commercial production. The critical judgments included in the determination of the commencement of commercial production are described in Note 3(a)(i).  Upon commencement of commercial production, a mining property is depleted on a unit-of-production method. Unit-of-production depletion rates are determined based on the estimated recoverable proven and probable mineral reserves at the mine.

Costs related to property acquisitions are capitalized until the viability of the mineral property is determined. When either external or internal triggering events determine that a property is not economically recoverable, the capitalized costs are written off.

The costs associated with the acquisition of land holdings are included within mining interest and are not depleted.

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Exploration and evaluation

Exploration and evaluation costs are expensed until the probability that future economic benefits will flow to the entity and the asset cost or value can be measured reliably. Management uses the following criteria to determine the economic recoverability and probability of future economic benefits:

● The Company controls access to the benefit;

● Internal project economics are beneficial to the Company;

● The project is technically feasible; and

● Costs can be reliably measured.

Further development expenditures are capitalized to the property.

Drilling and related costs incurred on sites without an existing mine and on areas outside the boundary of a known mineral deposit which contains proven and probable reserves are exploration expenditures and are expensed as incurred to the date of establishing that property costs are economically recoverable. Further development expenditures, subsequent to the establishment of economic recoverability, are capitalized to the property.

Property, plant and equipment

Property, plant and equipment consists of buildings and fixtures, processing equipment and surface and underground fixed and mobile equipment.

Depreciation and depletion rates of major categories of asset costs

Mining properties are depleted using a unit-of-production method over the estimated economic life of the mine to which they relate. Management reviews the estimated total recoverable ounces contained in depletable reserves at each financial year end, and when events and circumstances indicate that such a review should be made. Plant and equipment is depreciated using the straight-line method over their estimated useful lives, or the remaining life of the mine, if shorter. Right-of-use assets are depreciated using the straight-line method over the remaining lease term, or the remaining life of the mine, if shorter.

Asset class	Estimated useful life (years)
Plant and machinery	3 – 13
Mobile equipment	5 – 7

Capitalized borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset that necessarily takes a substantial period of time to get ready for its intended use are capitalized until such time as the assets are substantially ready for their intended use. Other borrowing costs are recognized as an expense in the period in which they are incurred.

Where funds are borrowed specifically to finance a project, the amount capitalized represents the actual borrowing costs incurred. Where the funds used to finance a project form part of general borrowings, the amount capitalized is calculated using a weighted average of interest rates applicable to relevant general borrowings of the Company during the period, to a maximum of actual borrowing costs incurred. Capitalization of interest is suspended during extended periods in which active development is interrupted.

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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. 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 statement of financial position as a stripping activity asset (included in mining interest) 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 can 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 depleted using the units-of-production depletion method over the life of the identified component of the ore body to which access has been improved as a result of the stripping activity.

Derecognition

Upon sale or abandonment, the cost of the asset and related accumulated depreciation or depletion are removed from the accounts and any gains or losses thereon are recognized in net earnings.

(h) Impairment of long-lived assets

The Company reviews and evaluates its mining interests for indicators of impairment at the end of each reporting period. Impairment assessments are conducted at the level of cash-generating units (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Each operating mine and development project represents a separate CGU as each mine site or development project has the ability or the potential to generate cash inflows that are separately identifiable and independent of each other. If an indication of impairment exists, the recoverable amount of the CGU is estimated. An impairment loss is recognized when the carrying amount of the CGU is in excess of its recoverable amount.

The recoverable amount of a mine site is the greater of its fair value less costs to dispose and value in use. In determining the recoverable amounts of the Company’s mine sites, the Company uses the fair value less costs to dispose as this will generally be greater than or equal to the value in use. When there is no binding sales agreement, fair value less costs to dispose is estimated as the discounted future after-tax cash flows expected to be derived from a mine site, less an amount for costs to dispose estimated based on similar past transactions. The inputs used in the fair value measurement constitute Level 3 inputs under the fair value hierarchy. When discounting estimated future cash flows, the Company uses an after-tax discount rate that would approximate what market participants would assign. Estimated cash flows are based on expected future production, metal selling prices, operating costs and capital costs. If the recoverable amount of a mine site is estimated to be less than its carrying amount, the carrying amount is reduced to its recoverable amount. The carrying amount of each mine site includes the carrying amounts of mining properties, plant and equipment, and certain deferred tax balances. Impairment losses are recognized as expenses in the period they are incurred. The allocation of an impairment loss, if any, for a particular mine site to its assets is based on the relative book values of these assets at the date of impairment, to the extent that the impairment allocation does not reduce the carrying values of these asset classes below their recoverable amounts.

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The Company assesses at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for a long-lived asset may no longer exist or may have decreased. If any such indication exists, the Company estimates the recoverable amount of that CGU. A reversal of an impairment loss is recognized up to the lesser of the recoverable amount or the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the CGU in prior years. Reversals of impairment losses are recognized in net earnings in the period the reversals occur.

(i) Reclamation and closure cost obligations

The Company’s mining and exploration activities are subject to various governmental laws and regulations relating to the protection of the environment. The Company has made, and intends to make in the future, expenditures to comply with such laws and regulations. The Company has recorded a liability and corresponding asset for the estimated future cost of reclamation and closure, including site rehabilitation and long-term treatment and monitoring costs These costs represent management’s best estimates which incorporate assumptions on the effects of inflation, movements in foreign exchange rates and the effects of country and other specific risks associated with the related liabilities. The costs are discounted to net present value using the risk free rate applicable to the future cash outflows. Such estimates are, however, subject to changes in laws and regulations or changes to market inputs to the decommissioning model.

The present value of estimated costs is recorded in the period in which the asset is installed or the environment is disturbed and a reasonable estimate of future costs and discount rates can be made. The provision is discounted using a risk-free rate and estimates of future cash flows are adjusted to reflect risk.

After the initial measurement, the obligation is adjusted to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The increase in the provision due to the passage of time is recognized in finance costs, whereas increases and decreases due to changes in the estimated future cash flows are capitalized and depreciated over the life of the related asset unless the amount deducted from the cost exceeds the carrying value of the asset, in which case the excess is recorded in net earnings. Actual costs incurred upon settlement of the site restoration obligation are charged against the provision to the extent the provision was established for those costs. Upon settlement of the liability, a gain or loss may be recorded in net earnings.

(j) Income taxes

The income tax expense or benefit for the period consists of two components: current and deferred.

Current Tax

The tax currently payable is based on taxable earnings for the year. Taxable earnings differ from earnings before taxes due to items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. Current tax is calculated using tax rates and laws that were enacted or substantively enacted at the statement of financial position date in each of the jurisdictions and includes any adjustments for taxes payable or recovery in respect of prior periods.

Deferred Tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated statement of financial position and the corresponding tax base used in the computation of taxable net earnings. Deferred tax is calculated based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates that are expected to apply in the year of realization or settlement based on tax rates and laws enacted or substantively enacted at the statement of financial position date.

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Deferred tax liabilities are generally recorded for all taxable temporary differences. Deferred tax liabilities are recognized for taxable temporary differences arising on investments in Subsidiaries except where the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future.

Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable earnings will be available against which those deductible temporary differences can be utilized. The carrying amount of the deferred tax assets are reviewed at each statement of financial position date and are reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The Company records foreign exchange gains and losses representing the impacts of movements in foreign exchange rates on the tax base of non-monetary assets and liabilities which are denominated in foreign currencies. Foreign exchange gains and losses relating to deferred income taxes are included within other (losses) gains in the consolidated income statement.

Current and deferred tax for the year

Current and deferred tax are recognized in net earnings except when they arise as a result of items recognized in other comprehensive income or directly in equity in the current or prior periods, in which case the related current and deferred income taxes are also recognized in other comprehensive income or directly in equity, respectively.

Government assistance and tax credits

Any federal or provincial tax credits received by the Company, with respect to exploration or development work conducted on any of its properties, are credited as a reduction to the carrying costs of the property to which the credits relate. The Company records these tax credits when there is reasonable assurance with regard to collections and assessments as well as reasonable assurance that the Company will comply with the conditions associated to them.

(k) Foreign currency translation

The individual financial statements of each Subsidiary are presented in the currency of the primary economic environment in which that entity operates (its functional currency). The functional currency of the Company and the presentation currency of the consolidated financial statements is the United States dollar (“U.S. dollar”).

Management determines the functional currency by examining the primary economic environment of each operating mine, development and exploration project. The Company considers the following factors in determining its functional currency:

● The main influences of sales prices for goods and the country whose competitive forces and regulations mainly determine the sales price;

● The currency that mainly influences labour, material and other costs of providing goods;

● The currency in which funds from financing activities are generated; and

● The currency in which receipts from operating activities are usually retained.

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When preparing the consolidated financial statements of the Company, the Company translates non-U.S. dollar balances into U.S. dollars as follows:

● Mining interest and equity method investments using historical exchange rates;

● Financial instruments measured at fair value through profit or loss using the closing exchange rate as at the statement of financial position date with translation gains and losses recorded in net earnings;

● Deferred tax assets and liabilities using the closing exchange rate as at the statement of financial position date with translation gains and losses recorded in net earnings;

● Other assets and liabilities using the closing exchange rate as at the statement of financial position date with translation gains and losses recorded in net earnings; and

● Income and expenses using the average exchange rate for the period, except for expenses that relate to non-monetary assets and liabilities measured at historical rates, which are translated using the same historical rate as the associated non-monetary assets and liabilities.

(l) Earnings (loss) per share

Earnings (loss) per share calculations are based on the weighted average number of common shares and common share equivalents issued and outstanding during the year. Diluted earnings per share are calculated using the treasury stock method. This requires the calculation of diluted earnings per share by assuming that outstanding stock options with an average market price that exceeds the average exercise price of the options and warrants for the year, are exercised and the assumed proceeds are used to repurchase shares of the Company at the average market price of the common share for the year.

(m) Revenue recognition

Revenue from the sale of metals and metals in concentrate is recognized when the Company satisfies the performance obligations associated with the sale. Typically, this is accomplished when control over the metals and metals in concentrate are passed from the Company to the buyer. Factors that may indicate the point in time at which control passes include:

● The Company has transferred to the buyer the significant risks and rewards of ownership to the purchaser;

● The Company has transferred legal title to the asset sold to the purchaser;

● The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

● The Company has transferred physical possession of the asset to the purchaser;

● The Company has present right to payment; and

● The purchaser has accepted the asset.

Revenue from the sale of metals in concentrate may be subject to adjustment upon final settlement of estimated metal prices, weights and assays. Revenue is recognized based on the estimated fair value of the total consideration receivable. Adjustments to revenue for metal prices and other adjustments are recorded at each period end and on final settlement. Refining and treatment charges are netted against revenue for sales of metal concentrate.

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(n) Financial assets

Financial assets are initially measured at fair value and are subsequently measured at either amortized cost or fair value through profit or loss, depending on the classification of the financial assets. The classification of assets is driven by the Company’s business model for managing financial assets and their contractual cash flow characteristics.

The fair value of financial instruments traded in active markets is based on quoted market prices at the date of the statement of financial position.  The quoted market price used for financial assets held by the Company is the last bid price of the day.

The Company has categorized its financial assets in accordance with International Financial Reporting Standard 9, Financial Instruments (“IFRS 9”) into one of the following two categories:

Category under IFRS 9	Description
Fair value through profit or loss	Includes equity investments, gold and copper price option contract assets, gold and copper swap contracts, copper forward contracts, and other financial assets designated to this category under the fair value option. The Company has assessed the contractual cash flows of its provisionally priced contracts in accordance with IFRS 9 and has classified these contracts as fair value through profit or loss (“FVTPL”).
Financial assets at amortized cost	Includes cash and cash equivalents, and trade receivables at amortized cost.

(o) Financial liabilities

Financial liabilities are accounted for at amortized cost except for those at FVTPL which includes liabilities designated as FVTPL and derivatives. Financial liabilities classified as FVTPL or those which are designated as FVTPL under the fair value option are measured at fair value with unrealized gains and losses recognized in net earnings. In cases where financial liabilities are designated as FVTPL, the part of a fair value change due to an entity's own credit risk is recorded in other comprehensive income rather than the Income statement. Financial liabilities at amortized cost are initially measured at fair value net of transaction costs, and subsequently measured at amortized cost.

The Company has classified its financial liabilities in accordance with IFRS 9 into one of the following two categories:

Category under IFRS 9	Description
Fair value through profit or loss	Includes provisions related to the RSU plans, DSU plans and the cash settled portion of the PSU plans, gold and copper price option contract liabilities and gold stream obligation.
Financial liabilities at amortized cost	Includes trade and other payables and long-term debt.

(p) Derivative instruments

Derivative instruments, including embedded derivatives, are recorded at fair value on initial recognition and at each subsequent reporting period. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are recorded in net earnings.

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Gold Stream Obligation

The Company has a gold stream agreement with RGLD Gold AG, a wholly owned subsidiary of Royal Gold Inc. (“Royal Gold”). For accounting purposes, the Company has determined that the gold stream obligation represents a financing contract with embedded derivatives. The value of the embedded derivatives changes in response to changes in metal prices and in the number of ounces expected to be delivered.  As the gold stream obligation has embedded derivatives that would otherwise need to be accounted for separately at FVTPL, the Company has designated the deposit received from Royal Gold as a financial liability at FVTPL, with initial and subsequent measurement at fair value, as permitted under IFRS 9. Transaction costs directly attributable to the gold stream obligation were expensed through profit or loss.

Fair value of the gold stream obligation on initial recognition was determined by the amount of the cash advance received. Subsequent fair value is calculated on each reporting date with gains and losses recorded in net earnings. Fair value adjustments as a result of the Company’s own credit risk are recorded in the consolidated statement of comprehensive loss, as required by IFRS 9 for financial liabilities designated as at FVTPL. Components of the adjustment to fair value at each reporting date include:

● Accretion expense due to passage of time

● Change in the risk-free interest rate

● Change in the Company specific credit spread

● Change in any expected ounces to be delivered

● Change in future metal prices

Provisional pricing

Certain products are “provisionally priced” whereby the selling price is subject to final adjustment up to 150 days after delivery to the customer. The final price is based on the market price at the relevant quotation point stipulated in the contract. As is customary in the industry, revenue on provisionally priced sales is recognized based on estimates of the fair value of the consideration receivable based on relevant forward market prices. At each reporting date, provisionally priced metal is marked to market based on the forward selling price for the quotational period stipulated in the contract. For this purpose, the selling price can be measured reliably for those products, such as gold and copper, for which there exists active and freely traded commodity markets. The marking to market of provisionally priced sales contracts is recorded as an adjustment to revenue.

Gold and copper price option contracts

In order to increase cash flow certainty, the Company holds gold and copper price option contracts, purchasing put options and selling call options. These are treated as derivative financial instruments and marked to market at each reporting period on the consolidated statement of financial position with changes in fair value recognized in other gains and losses. Realized gains and losses as a result of the exercise of the Company’s call and put options up to an amount not exceeding the Company’s production of gold ounces or copper pounds for the reporting period are recorded as an adjustment to revenue. The exercise of options on gold ounces or copper pounds in excess of the Company’s production for the reporting period are recorded as other gains and losses.

Gold and copper swaps

In order to mitigate a portion of the metal price exposure associated with the time lag between the provisional and final determination of concentrate sales, the Company has entered into cash settled derivative gold and copper contracts to swap future contracted monthly average metal prices for fixed metal prices. At each reporting date, these gold and copper swap agreements are marked to market based on corresponding forward gold and copper prices. The marking to market of gold and copper swap agreements is recorded as an adjustment to revenue.

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(q) Trade and other receivables

Trade and other receivables are carried at amortized cost less impairment. Trade and other receivables are impaired if they are determined to be uncollectible.

(r) Leases

As noted below, the Company has adopted IFRS 16, Leases (“IFRS 16”) on January 1, 2019. As the Company adopted the IFRS 16, Leases using the modified retrospective approach, the leases in the prior-year comparative period are accounted for under IAS 17. Under IAS 17 leases were classified as finance leases when the terms of the lease transfered substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. All other leases were classified as operating leases.

Applying IFRS 16, the Company recognizes right-of-use assets and lease liabilities in the consolidated statement of financial position initially measured as the present value of future lease payment and recognizes depreciation of right-of-use assets and interest on lease liabilities in the consolidated income statement. Lease payments are recognized within the consolidated statement of cash flows within financing activities.

For short-term leases (lease terms of 12 months or less) and leases of low-value or immaterial assets, the Company has opted to recognize these lease payments as expenses on the consolidated income statement, as permitted by IFRS 16. This expense is presented within operating expenses.

(s) New and amended IFRS Standards that are effective for the current year

The Company has adopted the following new IFRS policy along with any amendments, effective January 1, 2019. These changes were made in accordance with the applicable transitional provisions.

IFRS 16 – Leases

On January 6, 2016, the IASB issued IFRS 16. This standard specifies the methodology to recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases.  The effective date is for reporting periods beginning on or after January 1, 2019 with early adoption permitted.

The Company adopted IFRS 16 on January 1, 2019 using the modified retrospective approach. Under this approach, the cumulative effect of initially applying IFRS 16 is recognized as an adjustment to equity at the date of initial application. Comparative figures are not restated to reflect the adoption of IFRS 16. Additionally, the Company has adopted the exemption for leases with a lease term of 12 months or less and for leases that are low value. Given that the Company’s existing operating leases are not material, no adjustment to equity has been recognized upon IFRS 16 adoption on January 1, 2019.

3. CRITICAL JUDGMENTS AND ESTIMATION UNCERTAINTIES

The preparation of the Company’s consolidated financial statements in conformity with IFRS requires the Company’s management to make judgments, estimates and assumptions about the future events that affect the amounts reported in the consolidated financial statements and related notes to the financial statements. Estimates and assumptions are continually evaluated and are based on management’s experience and other facts and circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively.

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The areas which require management to make significant judgments, estimates and assumptions in determining carrying values include, but are not limited to:

(a) Critical judgments in the application of accounting policies

(i) Commencement of commercial production

Prior to the period when a mine has reached management’s intended operating levels, costs incurred as part of the development of the related mining property are capitalized and any mineral sales during the commissioning period are offset against the costs capitalized. The Company defines the commencement of commercial production as the date that a mine has achieved a consistent level of production. Depletion of capitalized costs for mining properties begins when operating levels intended by management have been reached.

There are a number of factors the Company considers when determining if conditions exist for the commencement of commercial production of an operating mine. Management examines the following when making that judgment:

● All major capital expenditures to bring the mine to the condition necessary for it to be capable of operating in the manner intended by management have been completed;

● The completion of a reasonable period of testing of the mine plant and equipment has been completed;

● The mine or mill has reached a pre-determined percentage of design capacity; and

● The ability to sustain ongoing production of ore has been achieved.

The list is not exhaustive and each specific circumstance is taken into account before making the decision.

(ii) Functional currency

The functional currency for each of the Company’s Subsidiaries is the currency of the primary economic environment in which the entity operates. The Company has determined the functional currency of each entity as the U.S. dollar. Determination of the functional currency may involve certain judgments to determine the primary economic environment and the Company reconsiders the functional currency of its entities if there is a change in events and conditions which determines the primary economic environment.

(iii) Determination of economic viability

Management has determined that exploratory drilling, evaluation, development and related costs incurred on the Blackwater project, and New Afton C-zone project have future economic benefits and are economically recoverable. In making this judgment, management has assessed various criteria including, but not limited to, the geologic and metallurgic information, history of conversion of mineral deposits to proven and probable mineral reserves, operating management expertise, existing permits, the expectation of receiving additional permits and life-of-mine (“LOM”) plans.

(iv) Carrying value of long-lived assets and impairment charges

In determining whether the impairment or reversal of a previous impairment of the carrying value of an asset is necessary, management first determines whether there are external or internal indicators that would signal the need to test for impairment or impairment reversal. These indicators consist of but are not limited to the prolonged significant changes in commodity prices, per ounce in-situ multiples, significant change to LOM plans, significant changes in discount rates and the factors which lead to a market capitalization deficiency. If an impairment or impairment reversal indicator is identified, the Company compares the carrying value of the asset against the recoverable amount. These determinations and their individual assumptions require that management make a decision based on the best available information at each reporting period.

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As at December 31, 2018, indicators of impairment existed for Rainy River and Blackwater as the Company experienced a sustained and prolonged period where the carrying value of its net assets were more that its market capitalization. The results of the impairment assessment, including the significant estimates and assumptions used, are set out in Note 10.

(v) Determination of CGU

In determining a CGU, management had to examine the smallest identifiable group of assets that generates cash inflows that are largely independent of cash inflows from other assets or groups of assets. The Company has determined that each mine site and development project qualifies as an individual CGU. Each of these assets generates or will have the ability to generate cash inflows that are independent of the other assets and therefore qualifies as an individual asset for impairment testing purposes.

(vi) Classification of Gold Stream Instruments

The Company holds a gold stream agreement with a counterparty for the purchase and delivery of gold and silver. Management has assessed this gold stream agreement under the scope of IFRS 9, Financial Instruments as to whether or not the agreements constitute a financial instrument. As the gold stream obligation has embedded derivatives that would otherwise need to be accounted for separately at FVTPL, Management has designated the deposit received from Royal Gold as a financial liability at FVTPL, with initial and subsequent measurement at fair value, as permitted under IFRS 9.

(b) Key sources of estimation uncertainty in the application of accounting policies

(i) Revenue recognition

Revenue from sales of concentrate is recorded when control of the goods pass to the purchaser. Variations between the prices set in the contracts and final settlement prices may be caused by changes in the market prices and result in an embedded derivative in the accounts receivable. The embedded derivative is recorded at fair value each reporting period until final settlement occurs, with changes in the fair value being recorded as revenue. For changes in metal quantities upon receipt of new information and assays, the provisional sales quantities are adjusted as well, with the change being recorded as revenue.

(ii) Inventory valuation

Management values inventory at the lower of weighted average production costs or net realizable value (“NRV”). Weighted average production costs include expenditures incurred and depreciation and depletion of assets used in mining and processing activities that are deferred and accumulated as the cost of ore in stockpiles, work-in-process and finished metals inventories. The allocation of costs to ore in stockpiles and in-process inventories and the determination of NRV involve the use of estimates. Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, the number of contained ounces or pounds (based on assay data), and the estimated metallurgical recovery rates (based on the expected processing method). Timing and ultimate recovery of metal contained in stockpiles vary from the estimates.

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(iii) Mineral reserves and resources

The figures for mineral reserves and mineral resources are determined in accordance with National Instrument 43-101, “Standards of Disclosure for Mineral Projects”, issued by the Canadian Securities Administrators. There are numerous estimates in determining the mineral reserves and resource estimates. Such estimation is a subjective process, and the accuracy of any mineral reserve or resource estimate is a function of the quantity and quality of available data and of the assumptions made and judgments used in engineering and geological interpretation. Differences between management’s assumptions including economic assumptions, such as metal prices and market conditions, could have a material effect in the future on the Company’s financial position and results of operations.

(iv) Estimated recoverable ounces

The carrying amounts of the Company’s mining properties are depleted based on recoverable ounces. Changes to estimates of recoverable ounces and depletable costs including changes resulting from revisions to the Company’s mine plans and changes in metal price forecasts can result in a change to future depletion rates.

(v) Deferred income taxes

In assessing the probability of realizing income tax assets recognized, management makes estimates related to expectations of future taxable income, applicable tax planning opportunities, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. In making its assessments, management gives additional weight to positive and negative evidence that can be objectively verified. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. Forecasted cash flows from operations are based on LOM projections internally developed and reviewed by management. The Company considers tax planning opportunities that are within the Company’s control, are feasible and implementable without significant obstacles. Examination by applicable tax authorities is supported based on individual facts and circumstances of the relevant tax position examined in light of all available evidence. Where applicable tax laws and regulations are either unclear or subject to ongoing varying interpretations, it is possible that changes in these estimates can occur that materially affect the amounts of income tax assets recognized. At the end of each reporting period, the Company reassesses unrecognized income tax assets.

(vi) Reclamation and closure cost obligations

The Company’s provision for reclamation and closure cost obligations represents management’s best estimate of the present value of the future cash outflows required to settle the liability which reflects estimates of future costs, inflation, movements in foreign exchange rates and assumptions of risks associated with the future cash outflows, and the applicable risk-free interest rates for discounting the future cash outflows. Changes in the above factors can result in a change to the provision recognized by the Company.

4. REVISIONS TO PRIOR PERIOD COMPARATIVES

In the first quarter of 2019 the Company identified an immaterial error relating to its deferred tax liabilities. The result of this error is an increase to income tax expense and deferred tax liabilities of $14.8 million for the year ended December 31, 2018. The resulting understatement of the deferred tax liabilities, the income tax expense and the deficit balance of $14.8 million for the year ended December 31, 2018 have been revised in the comparative consolidated statement of financial position, consolidated income statements and the consolidated statement of cash flow.

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5. EXPENSES

(a) Operating expenses by nature

	Year Ended December 31
(in millions of U.S. dollars)	2019			2018
OPERATING EXPENSES BY NATURE
Raw materials and consumables		126.6			148.1
Salaries and employee benefits		112.5			102.1
Contractors		81.1			60.6
Repairs and maintenance		37.2			47.7
General and administrative		24.4			20.3
Leases		6.9			4.2
Royalties		6.2			3.5
Drilling and analytical		3.8			2.4
Other		6.1			5.2
Total production expenses		404.8			394.1
Less: Production expenses capitalized		(71.6	)		(45.3	)
Add (less): Change in inventories		38.7			(23.4	)
Total operating expenses		371.9			325.4

(b) Finance costs and income

	Year ended December 31
(in millions of U.S. dollars)	2019		2018
FINANCE COSTS
Interest and accretion on senior unsecured notes(1)		51.1		53.2
Interest on Credit Facility		0.1		9.0
Accretion expense on decommissioning obligations (Note 18)		2.7		2.0
Loss on repayment of long-term debt (Note 11)		1.2		-
Other finance costs		7.5		4.8
Total finance costs		62.6		69.0
FINANCE INCOME
Interest income		2.2		1.5

1. For the year ended 31 December 2019, the Company capitalized $0.6 million of interest expense to qualifying assets.

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(c) Other (losses) and gains

	Year ended December 31
(in millions of U.S. dollars)	2019			2018
OTHER (LOSSES) AND GAINS
Rainy River Underground project costs(1)		(3.4	)		-
(Loss) gain on foreign exchange		(3.7	)		6.6
Loss on disposal of assets		(1.2	)		(0.3	)
Loss on revaluation of investments		-			(0.2	)
Unrealized gain on revaluation of gold stream obligation (Note 12)		20.1			11.7
Settlement and loss on revaluation of gold price option contracts		(21.7	)		(4.8	)
Settlement and (loss) gain on revaluation of copper price option contracts		(0.7	)		4.8
Settlement and gain on revaluation of foreign exchange forward contracts		1.5			-
Revaluation of Cerro San Pedro’s reclamation and closure cost obligation(2)		0.6			(1.0	)
Gain on receivable associated with Mesquite sale(3)		4.0			-
Other(2)		(1.1	)		1.3
Total other (losses) gains		(5.6	)		18.1

1. In early 2019, the Company announced that it has deferred the Rainy River underground mine development plan. As a result, the Company has recognized demobilization and related costs within other (losses) and gains.

2. Cerro San Pedro has transitioned to the reclamation phase of its mine life cycle effective December 31, 2018. As a result, changes in estimate to Cerro San Pedro’s reclamation and closure cost obligation resulting from revisions to the expected cash flows will be recognized within other gains and losses. Additionally, social closure costs associated with Cerro San Pedro are also recognized within other (losses) gains within the Other line item.

3. In 2019, the Company recognized a gain on the collection of the outstanding working capital proceeds due from the sale of Mesquite and income tax refunds at Mesquite.

6. TRADE AND OTHER RECEIVABLES

	As at December 31		As at December 31
(in millions of U.S. dollars)	2019		2018
TRADE AND OTHER RECEIVABLES
Trade receivables		5.9		9.5
Sales tax receivable		7.1		14.0
Unsettled provisionally priced concentrate derivatives and swap contracts (Note 14)		0.2		(0.7	)
Proceeds due from the sale of Mesquite, including income tax refund receivable (Note 16)		9.0		11.2
Other		1.5		1.9
Total trade and other receivables		23.7		35.9

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7. TRADE AND OTHER PAYABLES

	As at December 31		As at December 31
(in millions of U.S. dollars)	2019		2018
TRADE AND OTHER PAYABLES
Trade payables		39.7		47.1
Interest payable		6.1		6.9
Accruals		65.5		47.3
Current portion of reclamation and closure cost obligations (Note 18)		12.3		6.5
Current portion of gold stream obligation (Note 12)		21.6		18.3
Current portion of derivative liabilities (Note 14)		26.4		4.8
Total trade and other payables		171.6		130.9

8. INVENTORIES

	As at December 31		As at December 31
(in millions of U.S. dollars)	2019		2018
INVENTORIES
Stockpile ore(3)		32.6		74.3
Work-in-process		8.3		7.7
Finished goods(1)		12.5		25.4
Supplies		56.6		49.3
		110.0		156.7
Less: non-current inventories(2)		-		(14.9	)
Total current inventories		110.0		141.8

1. The amount of inventories recognized in operating expenses for the year ended December 31, 2019 was $358.0 million (2018 - $311.6 million).

2. Non-current inventories consist of low-grade stockpiled inventories at Rainy River.

3. For the year ended December 31, 2019, the Company wrote down $19.8 million of stockpile ore at Rainy River, of which $14.1 million was included in operating expenses and $5.7 million was included in depreciation and depletion, primarily resulting from the write down of the low-grade stockpile.

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9. MINING INTERESTS

Mining Properties
	Depletable			Non- depletable			Plant & equipment			Construction in progress			Total
(in millions of U.S. dollars)
COST
As at December 31, 2017		2,353.0			562.0			1,379.3			57.0			4,351.3
Additions		70.8			23.8			48.3			72.0			214.9
Disposals		(0.4	)		-			(4.8	)		-			(5.2	)
Sale of Mesquite(1)		(323.5	)		-			(232.0	)		(1.8	)		(557.3	)
Transfers		(0.6	)		-			0.6			-			-
Asset impairment		(836.6	)		(218.2	)		-			-			(1,054.8	)
As at December 31, 2018		1,262.7			367.6			1,191.4			127.2			2,948.9
Additions		87.3			43.5			75.5			103.5			309.8
Disposals		(0.2	)		(0.1	)		(6.7	)		-			(7.0	)
Transfers		101.3			-			-			(101.3	)		-
Government Grants(2)		-			(2.0	)		-			-			(2.0	)
As at Decemeber 31, 2019		1,451.1			409.0			1,260.2			129.4			3,249.7
ACCUMULATED DEPRECIATION
As at December 31, 2017		737.3			-			413.6			-			1,150.9
Depreciation for the year		169.1			-			130.7			-			299.8
Disposals		(0.1	)		-			(3.6	)		-			(3.7	)
Sale of Mesquite(1)		(189.3	)		-			(162.2	)		-			(351.5	)
As at December 31, 2018		717.0			-			378.5			-			1,095.5
Depreciation for the year		114.4			-			114.9			-			229.3
Disposals		-			-			(3.1	)		-			(3.1	)
As at December 31, 2019		831.4			-			490.3			-			1,321.7
CARRYING AMOUNT
As at December 31, 2018		545.7			367.6			812.9			127.2			1,853.4
As at December 31, 2019		619.7			409.0			769.9			129.4			1,928.0

1. Refer to Note 16 for further information on discontinued operations. Mesquite was classified as an asset held-for-sale in the third quarter of 2018 and was sold in October 2018.

2. The province of British Columbia provides an incentive for exploration in British Columbia as a refundable tax credit. This refundable tax credit is treated as government assistance and reduces Mining Interests. For the year ended December 31, 2019, the Company received $2.0 million in refundable tax credits which was recorded as a reduction to Mining Interests.

Carrying amount by property as at December 31, 2019

	As at December 31, 2019
(in millions of U.S. dollars)	Depletable		Non- depletable		Plant & equipment		Construction in progress		Total
MINING INTEREST BY SITE
New Afton		371.4		50.0		149.2		17.8		588.4
Rainy River		248.3		17.8		602.1		111.6		979.8
Blackwater		-		340.1		14.5		-		354.6
Other(1)		-		1.1		4.1		-		5.2
Carrying amount		619.7		409.0		769.9		129.4		1,928.0

1. Other includes corporate balances and exploration properties.

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Carrying amount by property as at December 31, 2018:

	As at December 31, 2018
(in millions of U.S. dollars)	Depletable		Non- depletable		Plant & equipment		Construction in progress		Total
MINING INTEREST BY SITE
New Afton		421.9		26.1		191.6		16.4		656.0
Cerro San Pedro(2)		-		-		-		-		-
Rainy River		123.8		14.3		605.0		110.8		853.9
Blackwater		-		326.1		14.2		-		340.3
Other(1)		-		1.1		2.1		-		3.2
Carrying amount		545.7		367.6		812.9		127.2		1,853.4

1. Other includes corporate balances and exploration properties.

2. Cerro San Pedro transitioned to the reclamation phase of its mine life cycle on December 31, 2018. As a result, Cerro San Pedro’s mining interest are fully amortized as at December 31, 2018.

10. IMPAIRMENT

In accordance with the Company’s accounting policies, the recoverable amount of an asset or cash-generating unit (“CGU”) is estimated when an indication of impairment exists.

During the second half of 2018, the Company experienced a significant and prolonged period where the carrying value of its net assets was more that its market capitalization. The Company identified this market capitalization deficiency as an indicator of impairment as at December 31, 2018. As a result of this impairment indicator, the Company assessed its CGUs and determined that impairments existed at Rainy River and Blackwater.

At Rainy River, the impairment loss was largely driven by increased capital expenditures and a lower in-situ value as a result of applying a lower per ounce value to in-situ ounces. At Blackwater, the Company assessed the value of the project using an in-situ metric approach for reserves and resources, rather than a discounted cash flow approach, consistent with the approach a market participant would take and also applying a lower per ounce value to in situ ounces. This approach incorporated values based on recent comparable market transactions. In the second quarter of 2018, the Company completed an updated Rainy River life-of-mine (“LOM”) plan and released an updated NI 43-101 Technical Report for Rainy River in early August 2018. The Company identified the changes to the mine plan and increased cost estimates at Rainy River as indicators of impairment as at June 30, 2018 and recorded an after-tax impairment loss of $282.1 million within net loss. For the year ended December 31, 2018, the Company recorded an after-tax impairment loss of $953.2 million.

June 30, 2018			December 31, 2018		Year ended December 31, 2018
(in millions of U.S. dollars)
IMPAIRMENT LOSS
Rainy River depletable mining properties	383.7			452.9		836.6
Blackwater non-depletable mining properties	-			218.2		218.2
Total impairment loss	383.7			671.1		1,054.8
Tax recovery(1)	(101.6	)		-		(101.6	)
Total impairment loss, net of tax	282.1			671.1		953.2

1. There was no tax recovery associated with the impairment losses at Rainy River and Blackwater recorded during the fourth quarter of 2018 as the Company has not recognized any deferred tax assets as at December 31, 2018. Refer to Note 17 for further information.

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11. LONG-TERM DEBT

Long-term debt consists of the following:

			As at December 31
(in millions of U.S. dollars)	2019		2018
LONG-TERM DEBT
Senior unsecured notes - due November 15, 2022 (a)		397.4		495.3
Senior unsecured notes - due May 15, 2025 (b)		287.1		285.2
Credit Facility (c)		30.0		-
Total long-term debt		714.5		780.5

(a) Senior Unsecured Notes – due November 15, 2022

As at December 31, 2019, the Company has $400.3 million of senior unsecured notes outstanding that become due and payable on November 15, 2022 (“2022 Unsecured Notes”).The 2022 Unsecured Notes are denominated in U.S. dollars and bear interest at the rate of 6.25% per annum. Interest is payable in arrears in equal semi-annual instalments on May 15 and November 15 of each year. The Company incurred transaction costs of $9.9 million which have been offset against the carrying amount of the 2022 Unsecured Notes and are being amortized to net earnings using the effective interest method. In 2019, $99.7 million in principle of the 2022 Unsecured Notes were repurchased and cancelled. The Company incurred $0.3 million in transaction costs associated with the repurchase and cancellation of the 2022 Unsecured Notes.

The 2022 Unsecured Notes are subject to a minimum interest coverage incurrence covenant of earnings before interest, taxes, depreciation, amortization, impairment, and other non-cash adjustments to interest of 2:1. The test is applied on a pro-forma basis prior to the Company incurring additional debt, entering into business combinations or acquiring significant assets, or certain other corporate actions. There are no maintenance covenants.

The 2022 Unsecured Notes are redeemable by the Company in whole or in part:

● During the 12-month period beginning on November 15 of the years indicated at the redemption prices below, expressed as a percentage of the principal amount of the 2022 Unsecured Notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date:

Date	Redemption prices (%)
2019	101.04%
2020 and thereafter	100.00%

(b) Senior Unsecured Notes – due May 15, 2025

As at December 31, 2019 the Company has $300.0 million of senior unsecured notes outstanding that mature and become due and payable on May 15, 2025 (“2025 Unsecured Notes”). The face value is $300.0 million. The 2025 Unsecured Notes are denominated in U.S. dollars and bear interest at the rate of 6.375% per annum. Interest is payable in arrears in equal semi-annual instalments on May 15 and November 15 of each year. The Company incurred initial transaction costs of $10.7 million which have been offset against the carrying amount of the 2025 Unsecured Notes and are being amortized to net earnings using the effective interest method.

The 2025 Unsecured Notes are subject to a minimum interest coverage incurrence covenant of earnings before interest, taxes, depreciation, amortization, impairment, and other non-cash adjustments to interest of 2:1. The test is applied on a pro-forma basis prior to the Company incurring additional debt, entering into business combinations or acquiring significant assets, or certain other corporate actions. There are no maintenance covenants.

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The 2025 Unsecured Notes are redeemable by the Company in whole or in part:

● At any time prior to May 15, 2020 at a redemption price of 100% of the aggregate principal amount of the 2025 Unsecured Notes, plus a make-whole premium (consisting of future interest that would have been paid up to the first call date of May 15, 2020), plus accrued and unpaid interest, if any, to the redemption date.

● During the 12-month period beginning on May 15 of the years indicated at the redemption prices below, expressed as a percentage of the principal amount of the 2025 Unsecured Notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date:

Date	Redemption prices (%)
2020	104.78%
2021	103.19%
2022	101.59%
2023 and thereafter	100.00%

(c) Credit Facility

The Company holds a revolving credit facility (the “Credit Facility”) with a maturity date of August 2021 and has a borrowing limit of $400.0 million.

The Credit Facility contains various covenants customary for a loan facility of this nature, including limits on indebtedness, asset sales and liens. The Credit Facility contains three covenant tests, the minimum interest coverage ratio, being earnings before interest, taxes, depreciation, amortization, exploration, impairment and other non-cash adjustments (“Adjusted EBITDA”) to interest, the maximum net debt to Adjusted EBITDA ratio (“Leverage Ratio”), and the maximum gross secured debt to Adjusted EBITDA (“Secured Leverage Ratio”), all of which are measured on a rolling four-quarter basis at the end of every quarter. Significant financial covenants are as follows:

		Twelve months ended December 31	Twelve months ended December 31
Financial Covenant		2019	2018
FINANCIAL COVENANTS
Minimum interest coverage ratio (Adjusted EBITDA to interest)	>3.0 : 1	4.3 : 1	4.5 : 1
Maximum leverage ratio (net debt to Adjusted EBITDA)	<4.5 : 1	3.1 : 1	2.6 : 1
Maximum secured leverage ratio (secured debt to Adjusted EBITDA)	<2.0 : 1	0.7 : 1	0.4 : 1

The interest margin on drawings under the Credit Facility ranges from 1.25% to 3.75% over LIBOR, the Prime Rate or the Base Rate, based on the Company’s Leverage Ratio and the currency and type of credit selected by the Company. Based on the Company’s Leverage Ratio, the rate is 3.25% over LIBOR as at December 31, 2019 (December 31, 2018 – 3.25%). The standby fees on undrawn amounts under the Credit Facility range from 0.51% to 0.84%, depending on the Company’s Leverage Ratio. Based on the Company’s Leverage Ratio, the rate is 0.73% as at December 31, 2019 (December 31, 2018 – 0.73%).

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As at December 31, 2019, the Company has drawn $30.0 million under the Credit Facility and the Credit Facility has been used to issue letters of credit amounting of $118.9 million (December 31, 2018 - $110.8 million). Letters of credit relate to reclamation bonds, and other financial assurances required with various government agencies.

The following is a summary of the changes in liabilities arising from financing activities for the year ended December 31, 2019:

	As at December 31, 2018		Borrowings		Repayments			Fair Value changes		Interest & Accretion		Foreign Exchange		As at December 31, 2019
LIABILITIES ARISING FROM FINANCING ACTVITIES
Long-term debt		780.5		30.0		(99.7	)		1.2		2.5		-		714.5
Interest payable		6.9		-		(49.9	)		-		48.7		-		5.7
Gold stream obligation		180.2		-		(20.0	)		4.3		-		-		164.5
Total		967.6		30.0		(169.6	)		5.5		51.2		-		884.7

12. GOLD STREAM OBLIGATION

In 2015, the Company entered into a $175 million streaming transaction with RGLD Gold AG, a wholly owned subsidiary of Royal Gold Inc. (“Royal Gold”). Under the terms of the agreement, the Company will deliver to Royal Gold 6.5% of gold production from Rainy River up to a total of 230,000 ounces of gold and then 3.25% of the mine’s gold production thereafter. The Company will also deliver to Royal Gold 60% of the mine’s silver production to a maximum of 3.1 million ounces and then 30% of silver production thereafter. Royal Gold paid $175.0 million in consideration of this transaction.

In addition to the upfront deposit, Royal Gold will pay 25% of the average spot gold or silver price at the time each ounce of gold or silver is delivered under the stream. The difference between the spot price of metal and the cash received from Royal Gold will reduce the $175.0 million deposit over the life of the mine. Upon expiry of the 40‐year term of the agreement (which may be extended in certain circumstances), any balance of the $175.0 million upfront deposit remaining unpaid will be refunded to Royal Gold.

The Company has designated the gold stream obligation as a financial liability at fair value through profit or loss (“FVTPL”) under the scope of IFRS 9. Accordingly, the Company values the liability at the present value of its expected future cash flows at each reporting period with changes in fair value reflected in the consolidated income statements and consolidated statements of comprehensive income.

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The following is a summary of the changes in the Company’s gold stream obligation:

(in millions of U.S. dollars)
CHANGE IN STREAM OBLIGATION
Balance, December 31, 2017	273.5
Settlements during the period	(15.0	)
Fair value adjustments related to changes in the Company’s own credit risk(1)	(66.6	)
Other fair value adjustments(2)	(11.7	)
Balance, December 31, 2018	180.2
Less: current portion of gold stream obligation(3)	(18.3	)
Non-current portion of gold stream obligation	161.9
Balance, December 31, 2018	180.2
Settlements during the period	(20.0	)
Fair value adjustments related to changes in the Company’s own credit risk(1)	24.4
Other fair value adjustments(2)	(20.1	)
Balance, December 31, 2019	164.5
Less: current portion of gold stream obligation(3)	(21.6	)
Non-current portion of gold stream obligation	142.9

1. Fair value adjustments related to changes in the Company’s own credit risk are included in other comprehensive income.

2. Other fair value adjustments are included in the consolidated income statements.

3. The current portion of the gold stream obligation is included in trade and other payables on the statement of financial position.

Fair value adjustments represent the net effect on the gold stream obligation of changes in the variables included in the Company’s valuation model between the date of receipt of deposit and the reporting date. These variables include accretion, risk-free interest rate, future metal prices, Company-specific credit spread and expected gold and silver ounces to be delivered.

13. LEASES

The Company adopted IFRS 16 on January 1, 2019 using the modified retrospective approach. Under this approach, the cumulative effect of initially applying IFRS 16 is recognized as an adjustment to equity at the date of initial application. Comparative figures are not restated to reflect the adoption of IFRS 16. Additionally, the Company adopted the exemption for leases with a lease term of 12 months or less and for leases that are low value. As the Company’s operating leases were not material, no adjustment to equity was recognized upon IFRS 16 adoption on January 1, 2019.

(a) Right-of-use assets

The Company leases assets such as buildings, mobile equipment and machinery. These assets are included in Mining Interests on the statement of financial position and are classified as plant & equipment as per note 9 of the Company’s consolidated financial statements.

35

	As at December 31, 2019
(in millions of U.S. dollars)
RIGHT-OF-USE ASSETS
Balance, January 1, 2019		20.8
Additions		28.5
Depreciation		(6.1	)
Disposals		-
Balance, December 31, 2019		43.2

(b) Lease liabilities

Please see below for a maturity analysis of the Company’s lease payments:

	As at December 31, 2019
(in millions of U.S. dollars)
MATURITY ANALYSIS FOR LEASES
Less than 1 year		9.8
Between 1 and 3 years		17.0
Between 3 and 5 years		8.6
More than 5 years		-
Total undiscounted lease payments(1)		35.4
Carrying value of lease liabilities		32.6
Less: current portion of lease liabilities(2)		(8.7	)
Non-current portion of lease liabilities		23.9

1. Total undiscounted lease payments excludes leases that are classified as short term and leases for low value assets, which are not recognized as lease liabilities.

2. The current portion of the lease liabiltiies is included in trade and other payables on the statement of financial position.

For the year ended December 31, 2019, the Company recognized $1.5 million in interest expense on lease liabilities. For the year ended December 31, 2019, the Company expensed $9.9 million related to leases that are classified as short term and $1.7 million of leases for low value assets.

14. DERIVATIVE INSTRUMENTS

	As at December 31		As at December 31
(in millions of U.S. dollars)	2019		2018
DERIVATIVE ASSETS
Unsettled provisionally priced concentrate derivatives, and swap contracts(2)		0.2		-
Copper price option contracts		-		0.7
Total derivative assets		0.2		0.7
DERIVATIVE LIABILITIES
Unsettled provisionally priced concentrate derivatives, and swap contracts(2)		-		0.7
Gold price option contracts(1)		26.4		4.8
Total derivative liabilities		26.4		5.5

1. As at December 31, 2019, gold price option contracts are included within trade and other payables in the statement of financial position. As at December 31, 2018, copper price option contracts are included within prepaids and other in the statement of financial position and gold price option contracts are included within trade and other payables in the statement of financial position.

2. Unsettled provisionally priced concentrate derivatives are included within trade and other receivables in the statement of financial position.

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(a) Provisionally priced contracts

The Company had provisionally priced sales for which price finalization is outstanding at December 31, 2019. Realized and unrealized non-hedged derivative gains (losses) on the provisional pricing of concentrate sales are classified as revenue, with the unsettled provisionally priced concentrate derivatives included in trade and other receivables. The Company enters into gold and copper swap contracts to reduce exposure to gold and copper prices. Realized and unrealized gains (losses) are recorded in revenue, with the unsettled gold and copper swaps included in trade and other receivables.

The following tables summarize the realized and unrealized gains (losses) on provisionally priced sales:

	Year ended December 31, 2019
(in millions of U.S. dollars)	Gold		Copper			Total
GAIN (LOSS) ON THE PROVISIONAL PRICING OF CONCENTRATE SALES
Realized		2.2		(1.7	)		0.5
Unrealized		0.5		1.0			1.5
Total gain (loss)		2.7		(0.7	)		2.0

	Year ended December 31, 2018
(in millions of U.S. dollars)	Gold			Copper			Total
GAIN (LOSS) ON THE PROVISIONAL PRICING OF CONCENTRATE SALES
Realized		(1.2	)		(7.7	)		(8.9	)
Unrealized		1.1			(2.7	)		(1.6	)
Total (loss) gain		(0.1	)		(10.4	)		(10.5	)

 The following tables summarize the realized and unrealized gains (losses) on gold and copper swap contracts:

	Year ended December 31, 2019
(in millions of U.S. dollars)	Gold			Copper			Total
(LOSS) GAIN ON SWAP CONTRACTS
Realized		(3.2	)		0.2			(3.0	)
Unrealized		(0.4	)		(0.9	)		(1.3	)
Total (loss) gain		(3.6	)		(0.7	)		(4.3	)

	Year ended December 31, 2018
(in millions of U.S. dollars)	Gold			Copper		Total
(LOSS) GAIN ON SWAP CONTRACTS
Realized		1.3			11.3		12.6
Unrealized		(0.8	)		1.7		0.9
Total gain (loss)		0.5			13.0		13.5

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The following table summarizes the net exposure to the impact of movements in market commodity prices for provisionally priced sales:

As at December 31			As at December 31
	2019		2018
VOLUMES SUBJECT TO FINAL PRICING NET OF OUTSTANDING SWAPS
Gold ounces (000s)		0.9		0.8
Copper pounds (millions)		0.5		1.6

(b)  Copper price option contracts

In December 2018, the Company entered into copper price option contracts by purchasing put options at an average strike price of $2.50 per pound and selling call options at an average strike price of $3.00 per pound for 21,600 tonnes (approximately 47.6 million pounds) of copper production during 2019. The Company entered into these contracts at no premium and therefore incurred no investment costs upon initiation. As at December 31, 2019, these copper price option contracts are expired.

(c)  Gold price option contracts

In December 2018, the Company entered into gold price option contracts by purchasing put options at an average strike price of $1,230 per ounce and selling call options at an average strike price of $1,300 per ounce for 192,000 ounces of gold production between January 2019 and December 2019. In the second quarter of 2019, the Company further entered into gold price option contracts by purchasing put options and selling call options at average strike prices outlined in the table below.

The call options sold and put options purchased are treated as derivative financial instruments and marked to market at each reporting period on the consolidated statement of financial position with changes in fair value recognized in other gains and losses. Realized gains and losses as a result of the exercise of the Company’s call and put options up to an amount not exceeding the Company’s production of gold ounces for the reporting period are recorded as an adjustment to revenue. The exercise of options on gold ounces in excess of the Company’s gold production for the reporting period are recorded as other gains and losses.

	Quantity outstanding	Remaining term	Exercise price ($/oz)	Fair value  - asset (liability) (1)
GOLD PRICE OPTION CONTRACTS OUTSTANDING
Gold call contracts - sold	72,000 oz	January 2020 – June  2020	1,355	(12.6)
Gold call contracts – sold	96,000 oz	July 2020 – December 2020	1,415	(14.1)
Gold put contracts - purchased	168,000 oz	January 2020 – December  2020	1,300	0.3

1. The Company presents the fair value of its put and call options on a net basis on the consolidated statements of financial position. The Company has a legally enforceable right to set off the amounts under its option contracts and intends to settle on a net basis.

(d)  Foreign exchange forward contracts

In 2019, the Company entered into foreign exchange forward contracts in order to hedge the Company’s spending in Canadian dollars. The Company has hedged $20.0 million U.S. dollars per month at average Canadian dollar to U.S. dollar foreign exchange rate of 1.34. These contracts were treated as derivative financial instruments and marked-to-market at each reporting period on the consolidated statement of financial position with changes in fair value recognized in other gains and losses. The Company entered into these contracts at no premium and therefore incurred no investment costs upon initiation. As at December 31, 2019, these foreign exchange forward contracts are expired.

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15. SHARE CAPITAL

At December 31, 2019, the Company had unlimited authorized common shares and 676.0 million common shares outstanding.

(a) No par value common shares issued

	Number of shares
(in millions of U.S. dollars, except where noted)		(000s	)	$
NO PAR VALUE COMMON SHARES ISSUED
Balance at December 31, 2017		578,636		3,036.5
Issuance of common shares under First Nations agreements		113		0.3
Exercise of options and vested performance share units		366		0.3
Reversal of deferred tax recovery(1)		-		(1.9	)
Balance at December 31, 2018		579,115		3,035.2
Issuance of common shares(2)		93,750		106.7
Issuance of common shares under First Nations agreeements		3,077		2.6
Exercise of options and vested performance share units		15		-
Balance at December 31, 2019		675,957		3,144.5

1. In 2017, the Company closed an equity  financing and related agreements and recognized a deferred tax recovery of $1.9 million. This deferred tax recovery was reversed in 2018.

2. On August 30, 2019, New Gold Inc. closed its offering of common shares of the Company with a syndicate of underwriters. An aggregate of 93,750,000 Common Shares were issued by the Company at a price of C$1.60 per share for net proceeds of $106.7 million (gross proceeds of C$150.0 million less equity issuance costs).

(b) Share-based payment expenses

The following table summarizes share-based payment expenses:

	Year ended December 31
(in millions of U.S. dollars)	2019		2018
SHARE-BASED PAYMENT EXPENSES
Stock option expense (i)		0.5		1.4
Performance share unit expense		0.3		0.1
Restricted share unit expense(1)		1.1		(0.3	)
Deferred share unit expense		0.8		(0.8	)
Shares issued under First Nations agreements(1)		-		0.3
Total share-based payment expenses		2.7		0.7

1.      For the year ended December 31, 2019 $1.0 million were recognized in operating expenses (2018 – ($nil) million).

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(i) Stock options

The following table presents changes in the Company’s stock option plan:

	Number of options			Weighted average exercise price
		(000s	)	C$/share
CHANGES TO THE COMPANY’S STOCK OPTION PLAN
Balance at December 31, 2017		13,087			5.08
Forfeited		(1,925	)		4.13
Expired		(2,534	)		8.22
Balance at December 31, 2018		8,628			4.39
Granted		2,360			1.12
Forfeited		(1,417	)		3.58
Expired		(3,993	)		5.01
Balance at December 31, 2019		5,578			2.81

(c) Loss per share

The following table sets out the calculation of loss per share:

	Year ended December 31
(in millions of U.S. dollars, except where noted)	2019			2018
CALCULATION OF LOSS PER SHARE
Loss from continuing operations		(73.5	)		(1,085.6	)
Net loss		(73.5	)		(1,239.7	)
Basic weighted average number of shares outstanding (in millions)		611.1			578.7
Dilution of securities:
Stock options		-			-
Diluted weighted average number of shares outstanding (in millions)		611.1			578.7
Loss from continuing operations per share:
Basic		(0.12	)		(1.88	)
Diluted		(0.12	)		(1.88	)
Net loss per share:
Basic		(0.12	)		(2.14	)
Diluted		(0.12	)		(2.14	)

The following table lists the equity securities excluded from the calculation of diluted loss per share. All stock options are excluded from the calculation when the Company is in a net loss position.

	Year ended December 31
(in millions of units)	2019		2018
EQUITY SECURITIES EXCLUDED FROM THE CALCULATION OF DILUTED EARNINGS PER SHARE
Stock options		5.6		8.6

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16. DISCONTINUED OPERATIONS

(a) Peak Mines

In the third quarter of 2017, Peak Mines in Australia (“Peak Mines”) met the criteria as a discontinued operation under IFRS 5. The Company completed the sale of Peak Mines in early April 2018 and recognized a loss from discontinued operations, net of tax of $0.8 million for the year ended December 31, 2018.

(b) Mesquite

In September 2018, the Company announced that it had entered into an agreement to sell the Mesquite Mine in the United States (“Mesquite”) and as a result Mesquite met the criteria as a discontinued operation under IFRS 5. The Company completed the sale of Mesquite in October 2018.

For the year ended December 31, 2018, the net earnings from Mesquite was reported as earnings from discontinued operations. Upon execution of the sale, the Company received $158.0 million in cash and incurred $0.9 million in disposal costs. In addition to the net cash proceeds, the purchase consideration included a working capital receivable due from the purchaser, which was collected in the first quarter of 2019. Additionally, the expected purchase consideration included an estimate for a receivable from the purchaser related to income tax refunds that were recoverable by Mesquite at the date of the sale, which is included in current assets on the statement of financial position. For the year ended December 31, 2018, the Company recognized a loss from discontinued operations of $154.1 million related to Mesquite.

The net earnings from Mesquite for the year ended December 31, 2018 are as follows:

	Year Ended December 31
(in millions of U.S. dollars, except per share amounts)	2018
Revenues		146.1
Operating expenses		95.6
Depreciation and depletion		35.4
Revenue less cost of goods sold		15.1
Finance income		0.4
Finance costs		(0.4	)
Other losses		-
Impairment loss on held-for-sale assets		(253.1	)
Loss before taxes		(238.0	)
Income tax recovery		83.9
Loss from discontinued operations, net of tax		(154.1	)

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The following table provides details of the cash flow from operating, investing and financing activities of Mesquite for the year ended December 31, 2018:

	Year ended December 31
(in millions of U.S. dollars)	2018
OPERATING ACTIVITIES
Loss from discontinued operations		(154.1	)
Adjustments for:
Depreciation and depletion		35.4
Income tax recovery		(83.9	)
Finance income		(0.4	)
Finance costs		0.4
Impairment loss on held-for-sale assets		253.1
		50.5
Change in non-cash operating working capital		(15.9	)
Income taxes received		2.6
Cash generated from operations		37.2
INVESTING ACTIVITIES
Mining interests		(4.5	)
Interest received		0.4
Cash used by investing activities		(4.1	)
Change in cash and cash equivalents		33.1

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17. INCOME AND MINING TAXES

The following table outlines the composition of income tax expense between current tax and deferred tax:

	Year ended December 31
(in millions of U.S. dollars)	2019			2018
CURRENT INCOME AND MINING TAX EXPENSE
Canada		2.2			4.2
Foreign		0.4			(0.1	)
		2.6			4.1
DEFERRED INCOME AND MINING TAX EXPENSE
Canada		1.9			(19.2	)
Adjustments in respect of prior year		(4.9	)		4.7
		(3.0	)		(14.5	)
Total income tax recovery		(0.4	)		(10.4	)

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:

	Year ended December 31
(in millions of U.S. dollars)	2019			2018
Loss before taxes		(73.9	)		(1,096.0	)
Canadian federal and provincial income tax rates		26.3	%		26.3	%
Income tax recovery based on above rates		(19.4	)		(288.2	)
INCREASE (DECREASE) DUE TO
Permanent differences		(0.1	)		58.3
Different statutory tax rates on earnings of foreign subsidiaries		-			(4.1	)
Foreign exchange on non-monetary assets and liabilities		0.2			0.4
Other foreign exchange differences		3.7			(3.2	)
Prior years’ adjustments relating to tax provision and tax returns		(5.2	)		4.7
Canadian mining tax		(2.5	)		26.6
Change in unrecognized deferred tax assets		22.9			210.0
Sale of Peak and Mesquite		-			(15.1	)
Other		-			0.2
Income tax recovery		(0.4	)		(10.4	)

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The following tables provide analysis of the deferred tax assets and liabilities, all of which are located in Canada:

	Year Ended December 31
(in millions of U.S. dollars)	2019			2018
DEFERRED TAX ASSETS
Capital losses		18.4			37.1
Property, plant and equipment and Mining interests		122.7			110.8
Tax credits		49.9			47.5
Ontario Mining Tax		45.4			53.9
Other		18.9			12.1
		255.3			261.4
DEFERRED TAX LIABILITIES
British Columbia Mining Tax		(48.3	)		(56.3	)
		(48.3	)		(56.3	)
Unrecognized deferred tax asset		(255.3	)		(261.4	)
Deferred income tax liabilities, net		(48.3	)		(56.3	)

The following table outlines the movement in the net deferred tax liabilities:

	Year ended December 31
(in millions of U.S. dollars)	2019			2018
MOVEMENT IN THE NET DEFERRED TAX LIABILITIES
Balance at the beginning of the year		(56.3	)		(78.0	)
Recognized in net loss		3.0			14.5
Recognized in other comprehensive income		4.8			(23.5	)
Recognized as foreign exchange		0.2			(1.3	)
Reclassified as held-for-sale or disposed of		-			32.0
Total movement in the net deferred tax liabilities		(48.3	)		(56.3	)

Deferred income tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through future taxable profits is probable. The Company did not recognize deductible temporary differences on the following losses by country:

● Canadian capital loss carry-forwards of $139.9 million with no expiry date; and

● Other loss carry-forwards of $40.3 million with varying expiry dates.

The Company did not recognize net deductible temporary differences and tax credits in the amount of $728.2 million for income taxes (2018 - $783.9 million), which includes the Canadian loss carry-forwards noted above, and $534.1 million for mining taxes (2018 - $634.6 million) on other temporary differences.

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The Company recognizes deferred taxes by taking into account the effects of local enacted tax legislation. Deferred tax assets are fully recognized when the Company concludes that sufficient positive evidence exists to demonstrate that it is probable that a deferred tax asset will be realized. In order to determine whether an asset can be recognized, it must be considered probable that an entity will have sufficient taxable profits available in the future to enable recovery of the asset. IAS 12 states that an entity will have sufficient taxable profits available in the future to enable the recovery of the asset when:

● There are sufficient taxable temporary differences relating to the same tax authority and the same taxable entity that are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset that can be carried back or forward;

● It is probable that the entity will have sufficient taxable profit relating to the same tax authority and the same taxable entity, in the same period as the reversal of the deductible temporary difference (or in the periods into which a tax loss arising from the deferred tax asset can be carried back or forward). In making this evaluation taxable amounts arising from deductible temporary differences that are expected to originate in future periods should be ignored because these will need further future taxable profits in order to be utilized.

● Tax planning opportunities that are available to the entity that will create taxable profit in appropriate periods.

Future income is impacted by changes in market gold, copper and silver prices as well as forecasted future costs and expenses to produce gold and copper reserves. In addition, the quantities of proven and probable gold and copper reserves, market interest rates and foreign currency exchange rates also impact future levels of taxable income. Any change in any of these factors will result in an adjustment to the recognition of deferred tax assets to reflect the Company's latest assessment of the amount of deferred tax assets that is probable will be realized.

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18. RECLAMATION AND CLOSURE COST OBLIGATIONS

Changes to the reclamation and closure cost obligations are as follows:

(in millions of U.S. dollars)	Rainy River			New Afton			Mesquite			Cerro San Pedro			Blackwater			Total
CHANGES TO RECLAMATION AND CLOSURE COST OBLIGATIONS
Balance – December 31, 2017		63.4			11.6			20.5			19.2			9.4			124.1
Reclamation expenditures		(0.3	)		-			-			(0.9	)		-			(1.2	)
Unwinding of discount		1.5			0.2			0.4			0.1			0.2			2.4
Revisions to expected cash flows		(6.1	)		(0.3	)		(0.9	)		1.5			(0.5	)		(6.3	)
Foreign exchange movement		(4.9	)		(0.8	)		-			0.1			(0.8	)		(6.4	)
Less: amounts reclassified as held for sale and sold		-			-			(20.0	)		-			-			(20.0	)
Balance – December 31, 2018		53.6			10.7			-			20.0			8.3			92.6
Less: current portion of closure costs (Note 7)		-			-			-			(6.5	)		-			(6.5	)
Non-current portion of closure costs		53.6			10.7			-			13.5			8.3			86.1
Balance – December 31, 2018		53.6			10.7			-			20.0			8.3			92.6
Reclamation expenditures		(0.2	)		-			-			(8.6	)		-			(8.8	)
Unwinding of discount		1.1			0.2			-			1.2			0.2			2.7
Revisions to expected cash flows		9.7			6.4			-			(0.6	)		0.5			16.0
Foreign exchange movement		2.8			0.7			-			0.6			0.4			4.5
Balance – December 31, 2019		67.0			18.0			-			12.6			9.4			107.0
Less: current portion of closure costs (Note 7)		(1.4	)		-			-			(10.9	)		-			(12.3	)
Non-current portion of closure costs		65.6			18.0			-			1.7			9.4			94.7

Each period the Company reviews cost estimates and other assumptions used in the valuation of the obligations at each of its mining properties and development properties to reflect events, changes in circumstances and new information available. Changes in these cost estimates and assumptions have a corresponding impact on the fair value of the obligation. The fair values of the obligations are measured by discounting the expected cash flows using a discount factor that reflects the risk-free rate of interest. The Company prepares estimates of the timing and amount of expected cash flows when an obligation is incurred. Expected cash flows are updated to reflect changes in facts and circumstances. The principal factors that can cause expected cash flows to change are: the construction of new processing facilities; obligations realized through additional ore bodies mined; changes in the quantities of material in reserves and a corresponding change in the LOM plan; changing ore characteristics that impact required environmental protection measures and related costs; changes in water quality that impact the extent of water treatment required; and changes in laws and regulations governing the protection of the environment. The fair value of an obligation is recorded when it is incurred.

The majority of the expenditures are expected to occur between 2020 and 2030. The discount rates used in estimating the site reclamation and closure cost obligations were between 1.8% and 5.4% for the year ended December 31, 2019 (2018 – 1.9% and 7.1%), and the inflation rate used was between 1.4% and 3.3% for the year ended December 31, 2019 (2018 – 1.4% and 3.3%).

Regulatory authorities in certain jurisdictions require that security be provided to cover the estimated reclamation and remediation obligations. As at December 31, 2019, letters of credit totalling $118.9 million (2018 - $110.8 million) had been issued to various regulatory agencies to satisfy financial assurance requirements for this purpose. The letters of credit are secured by the revolving Credit Facility (Note 11 (c)), and the annual fees are 1.50% of the value of the outstanding letters of credit.

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19. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information (included within operating activities) is as follows:

	Year ended December 31
(in millions of U.S. dollars)	2019			2018
CHANGE IN NON-CASH OPERATING WORKING CAPITAL
Trade and other receivables		4.4			(5.4	)
Inventories		16.2			(53.1	)
Prepaid expenses and other		(2.3	)		(0.6	)
Trade and other payables		7.6			(12.5	)
Total change in non-cash operating working capital		25.9			(71.6	)

	Year ended December 31
(in millions of U.S. dollars)	2019			2018
OTHER NON-CASH ADJUSTMENTS
Unrealized loss on concentrate contracts		(0.2	)		0.7
Equity settled share-based payment expense		0.7			2.7
Loss on disposal of assets		1.2			0.3
Settlement and loss on revaluation of gold price option contracts		21.7			4.8
Unrealized gain on gold stream obligation		(20.1	)		(11.7	)
Settlement (gain) loss on revaluation of copper price option contracts		0.7			(4.8	)
Revaluation of CSP’s reclamation and closure cost obligation		(0.6	)		1.0
Inventory write-downs		14.1			15.8
Other non-cash adjustments		-			0.2
Total other non-cash adjustments		17.5			9.0

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20. SEGMENTED INFORMATION

(a) Segment revenues and results

The Company manages its reportable operating segments by operating mines and development projects. Operating results of reportable operating segments are reviewed by the Company's chief operating decision maker ("CODM") to make decisions about resources to be allocated to the segments and to assess their performance. Effective January 1, 2019, Cerro San Pedro is in the reclamation phase of its mine life cycle. As a result, the Company has grouped Cerro San Pedro with the Company’s development and exploration properties that have no revenues or operating costs. The segmented information for the twelve months ended December 31, 2018 has been restated to reflect the Company’s reportable operating segments for the twelve months ended December 31, 2019. The results from operations for these reportable operating segments are summarized in the following tables:

Year ended December 31, 2019
(in millions of U.S. dollars)	Rainy River		New Afton		Corporate			Other(1)		Total
OPERATING SEGMENT RESULTS
Gold revenues		354.2		80.2		-			-		434.4
Copper revenues		-		187.3		-			-		187.3
Silver revenues		4.7		4.2		-			-		8.9
Total revenues(2)		358.9		271.7		-			-		630.6
Operating expenses		258.4		113.5		-			-		371.9
Depreciation and depletion		93.9		146.7		-			-		240.6
Revenue less cost of goods sold		6.6		11.5		-			-		18.1
Corporate administration		-		-		17.6			-		17.6
Corporate restructuring(3)		-		-		1.1			-		1.1
Share-based payment expenses		-		-		1.7			-		1.7
Exploration and business development		1.4		3.1		1.1			-		5.6
(Loss) income from operations		5.2		8.4		(21.5	)		-		(7.9	)

1. Other includes balances relating to Cerro San Pedro, the development and 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 year ended December 31, 2019.

3. During 2019, the Company recognized restructuring charges of $1.1 million related to severance and other termination benefits.

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Year ended December 31, 2018
(in millions of U.S. dollars)	Rainy River			New Afton		Corporate			Other(1)			Total
OPERATING SEGMENT RESULTS
Gold revenues		270.6			83.8		-			13.8			368.2
Copper revenues		-			226.1		-			-			226.1
Silver revenues		3.8			4.2		-			2.2			10.2
Total revenues(2)		274.4			314.1		-			16.0			604.5
Operating expenses		179.9			104.3		-			41.2			325.4
Depreciation and depletion		78.3			158.2		-			3.4			239.9
Revenue less cost of goods sold		16.2			51.6		-			(28.6	)		39.2
Corporate administration		-			-		23.2			-			23.2
Corporate restructuring(3)		-			-		4.1			-			4.1
Share-based payment expenses		-			-		0.7			-			0.7
Asset impairment		836.6			-		-			218.2			1,054.8
Exploration and business development		0.5			0.5		1.9			0.1			3.0
(Loss) income from operations		(820.9	)		51.1		(29.9	)		(246.9	)		(1,046.6	)

1. Other includes balances relating to Cerro san Pedro, the development and 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 year ended December 31, 2018.

3. In 2018, the Company recognized a restructuring charge of approximately $4.1 million in severance and other termination benefits related to changes at the executive leadership level of the organization.

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(b) Segmented assets and liabilities

The following table presents the segmented assets and liabilities:

	Total assets						Total liabilities		Capital expenditures(1)
	As at December 31		As at December 31		As at December 31		As at December 31		Year ended December 31
(in millions of U.S. dollars)	2019		2018		2019		2018		2019		2018
SEGMENTED ASSETS AND LIABILITIES
Rainy River		1,078.4		986.0		334.9		313.6		185.9		170.6
New Afton		647.7		730.9		89.8		73.8		61.8		35.9
Blackwater		356.5		341.4		27.9		18.8		5.1		7.3
Other(2)		75.9		111.3		744.6		818.9		0.5		0.1
		2,158.5		2,169.6		1,197.2		1,225.1		253.3		213.9
Assets and liabilities held for sale and capital expenditures from discontinued operations (Note 16)		-		-		-		-		-		13.2
Total assets, liabilities and capital expenditures		2,158.5		2,169.6		1,197.2		1,225.1		253.3		227.1

1. Capital expenditures per consolidated statement of cash flows.

2. Other includes corporate balance, exploration properties and Cerro San Pedro.

(c) Geographical information

The Company operates in one principal geographical area - Canada (country of domicile). In 2018, the Company had operated in the United States, Mexico and Australia. The Company’s revenue and non-current assets are located in Canada.

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(d) Information about major customers

The following table presents sales to individual customers exceeding 10% of annual sales for the following periods. The following five customers represent 89% (2018 – five customers representing 79%) of the Company’s sales revenue for the years ended December 31.

		Year ended December 31
(in millions of U.S. dollars)		2019
CUSTOMER	REPORTING SEGMENT
1	Rainy River		128.9
2	Rainy River		126.7
3	Rainy River		102.5
4	New Afton		100.9
5	New Afton		99.2
Total sales to customers exceeding 10% of annual sales			558.2

		Year ended December 31
(in millions of U.S. dollars)		2018
CUSTOMER	REPORTING SEGMENT
1	Rainy River		137.9
2	New Afton		109.9
3	New Afton		94.2
4	Rainy River		78.0
5	New Afton		70.7
Total sales to customers exceeding 10% of annual sales			490.7

The Company is not economically dependent on a limited number of customers for the sale of its product because gold and other metals can be sold through numerous commodity market traders worldwide. Refer to Note 22(a) for further discussion on the Company’s exposure to credit risk.

21. CAPITAL RISK MANAGEMENT

The Company manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance.

In the management of capital, the Company includes the components of equity, long-term debt, net of cash and cash equivalents, and investments.

	Year ended December 31
(in millions of U.S. dollars)	2019			2018
CAPITAL (AS DEFINED ABOVE) IS SUMMARIZED AS FOLLOWS
Equity		961.3			944.5
Long-term debt		714.5			780.5
		1,675.8			1,725.0
Cash and cash equivalents		(83.4	)		(103.7	)
Total		1,592.4			1,621.3

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The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying capital instruments. To maintain or adjust the capital structure, the Company may issue new shares, restructure or issue new debt, acquire or dispose of assets or sell its investments.

In order to facilitate the management of its capital requirements, the Company prepares annual budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions.  The annual budget is approved by the Board of Directors. The Company’s investment policy is to invest its surplus funds in permitted investments consisting of treasury bills, bonds, notes and other evidences of indebtedness of Canada, the United States or any of the Canadian provinces with a minimum credit rating of R-1 mid from the Dominion Bond Rating Service (“DBRS”) or an equivalent rating from Standard & Poor’s and Moody’s and with maturities of 12 months or less at the original date of acquisition.  In addition, the Company is permitted to invest in bankers’ acceptances and other evidences of indebtedness of certain financial institutions.  All investments must have a maximum term to maturity of 12 months and the average term will generally range from seven days to 90 days. Under the policy, the Company is not permitted to make investments in asset-backed commercial paper.

22. FINANCIAL RISK MANAGEMENT

The Company examines the various financial instrument risks to which it is exposed and assesses the impact and likelihood of those risks.  These risks may include credit risk, liquidity risk, market risk and other price risks. Where material, these risks are reviewed and monitored by the Board of Directors.

(a) Credit risk

Credit risk is the risk of an unexpected loss if a party to the Company’s financial instruments fails to meet its contractual obligations. The Company’s financial assets are primarily composed of cash and cash equivalents, and trade and other receivables. Credit risk is primarily associated with trade and other receivables; however, it also arises on cash and cash equivalents, gold and copper price options, and foreign exchange forward contracts. To mitigate exposure to credit risk, the Company has established policies to limit the concentration of credit risk, to ensure counterparties demonstrate minimum acceptable credit worthiness, and to ensure liquidity of available funds.

The Company closely monitors its financial assets and does not have any significant concentration of credit risk. The Company sells its gold exclusively to large international organizations with strong credit ratings. The historical level of customer defaults is minimal and, as a result, the credit risk associated with gold and copper concentrate trade receivables at December 31, 2019 is not considered to be high.

The Company’s maximum exposure to credit risk is as follows:

	Year ended December 31
(in millions of U.S. dollars)	2019		2018
CREDIT RISK EXPOSURE
Cash and cash equivalents		83.4		103.7
Trade and other receivables		23.7		35.9
Total financial instrument exposure to credit risk		107.1		139.6

A significant portion of the Company’s cash and cash equivalents is held in large Canadian financial institutions. Short-term investments (including those presented as part of cash and cash equivalents) are composed of financial instruments issued by Canadian banks with high investment-grade ratings and the governments of Canada and the U.S.

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The Company employs a restrictive investment policy as detailed in the capital risk management section, which is described in Note 21.

The aging of trade and other receivables is as follows:

As at December 31
(in millions of U.S. dollars)	0-30 days		31-60 days		61-90 days		91-120 days		Over 120 days		2019 Total		2018 Total
AGING TRADE AND OTHER RECEIVABLES
Rainy River		4.5		-		-		-		1.0		5.5		8.8
New Afton		3.4		-		-		2.9		-		6.3		8.3
Cerro San Pedro		0.5		0.1		0.1		0.1		0.6		1.4		5.1
Blackwater		-		-		-		-		0.3		0.3		0.3
Corporate		10.2		-		-		-		-		10.2		13.4
Total trade and other receivables		18.6		0.1		0.1		3.0		1.9		23.7		35.9

The Company sells its gold and copper concentrate production from New Afton to five different customers under off-take contracts.

The Company is not economically dependent on a limited number of customers for the sale of its gold and other metals because gold and other metals can be sold through numerous commodity market traders worldwide.

(b) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure and financial leverage, as outlined in Note 21.

The following table shows the contractual maturities of debt commitments.  The amounts presented represent the future undiscounted principal and interest cash flows, and therefore, do not equate to the carrying amounts on the consolidated statements of financial position.

As at December 31
(in millions of U.S. dollars)	< 1 year		1-3 years		4-5 years		After 5 years		2019 Total		2018 Total
DEBT COMMITMENTS
Trade and other payables		150.0		-		-		-		150.0		112.6
Long-term debt		-		430.3		-		300.0		730.3		800.0
Interest payable on long-term debt		44.2		85.1		38.3		7.1		174.7		242.9
Gold stream obligation		22.0		49.9		54.9		65.9		192.7		267.5
Total debt commitments		216.2		565.3		93.2		373.0		1,247.7		1,423.0

The Company’s future operating cash flow and cash position are highly dependent on metal prices, including gold and copper, as well as other factors. Taking into consideration the Company’s current cash position, volatile equity markets, and global uncertainty in the capital markets, the Company is continually reviewing expenditures and assessing business opportunities to enhance liquidity in order to ensure adequate liquidity and flexibility to support its growth strategy, including the development of its projects, while continuing production at its current operations. A period of continuous low gold and copper prices may necessitate the deferral of capital expenditures which may impact the timing of development work and project completion, as well as production from mining operations. In addition, in such a price environment, the Company may be required to adopt one or more alternatives to increase liquidity.

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(c) Currency Risk

The Company operates in Canada and Mexico. As a result, the Company has foreign currency exposure with respect to items not denominated in U.S. dollars. The three main types of foreign exchange risk for the Company can be categorized as follows:

(i) Transaction exposure

The Company’s operations sell commodities and incur costs in different currencies. This creates exposure at the operational level, which may affect the Company’s profitability as exchange rates fluctuate.

(ii) Exposure to currency risk

The Company is exposed to currency risk through the following assets and liabilities denominated in currencies other than the U.S. dollar: cash and cash equivalents, investments, accounts receivable, accounts payable and accruals, reclamation and closure cost obligations.

The currencies of the Company’s financial instruments and other foreign currency denominated liabilities, based on notional amounts, were as follows:

	As at December 31, 2019
(in millions of U.S. dollars)	CAD			MXN
EXPOSURE TO CURRENCY RISK
Cash and cash equivalents		11.0			0.3
Trade and other receivables		7.0			0.9
Income tax (payable) receivable		(0.3	)		4.6
Trade and other payables		(86.8	)		(13.5	)
Deferred tax liability		(48.3	)		-
Reclamation and closure cost obligations		(93.3	)		(1.4	)
Share units		(1.9	)		-
Total exposure to currency risk		(212.6	)		(9.1	)

54

	As at December 31, 2018
(in millions of U.S. dollars)	CAD			MXN
EXPOSURE TO CURRENCY RISK
Cash and cash equivalents		12.9			0.6
Trade and other receivables		9.9			4.9
Income tax receivable		-			4.6
Trade and other payables		(105.0	)		(14.1	)
Deferred tax liability		(54.5	)		-
Reclamation and closure cost obligations		(72.6	)		(13.5	)
Performance share units and restricted share units		(0.5	)		-
Total exposure to currency risk		(209.8	)		(17.5	)

(iii) Translation exposure

The Company’s functional and reporting currency is U.S. dollars. The Company’s operations translate their operating results from the host currency to U.S. dollars. Therefore, exchange rate movements in the Canadian dollar and Mexican peso can have a significant impact on the Company’s consolidated operating results. A 10% strengthening (weakening) of the U.S. dollar against the following currencies would have decreased (increased) the Company’s net loss from the financial instruments presented by the amounts shown below.

	Year ended December 31
(in millions of U.S. dollars)	2019		2018
IMPACT OF 10% CHANGE IN FOREIGN EXCHANGE RATES
Canadian dollar		21.3		21.0
Mexican peso		0.9		1.8

(d) Interest Rate Risk

Interest rate risk is the risk that the fair value or the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The majority of the Company’s outstanding debt obligations are fixed and are therefore not exposed to changes in market interest rates. The Credit Facility interest is variable and a 1% change in interest rates would not result in a material difference in interest paid for the year ended December 31, 2019 as only $30.0 million was drawn on the Credit Facility late in 2019.

The Company is exposed to interest rate risk on its cash and cash equivalents. Interest earned on cash and cash equivalents is based on prevailing money market and bank account interest rates which may fluctuate. A 1.0% change in the interest rate would result in a difference of approximately $0.8 million in interest earned by the Company for the year ended December 31, 2019. The Company has not entered into any derivative contracts to manage this risk.

(e) Metal and Input Price Risk

The Company’s earnings, cash flows and financial condition are subject to price risk due to fluctuations in the market price of gold, silver and copper.

For the year ended December 31, 2019, the Company’s revenue and cash flows were impacted by gold prices and copper prices. Metal price declines could cause continued development of, and production from, the Company’s properties to be uneconomic. There is a time lag between the shipment of gold and copper and final pricing, and changes in pricing can impact the Company’s revenue and working capital position. The Company’s exposure to changes in gold and copper prices has been significantly reduced as the Company has entered into gold and copper price option contracts (whereby it sold a series of call option contracts and purchased a series of put option contracts) to reduce exposure to changes in gold and copper prices. The details of the remaining contracts as at December 31, 2019 can be found in Note 14.

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Reserve calculations and mine plans using significantly lower gold, silver, copper and other metal prices could result in significant reductions in mineral reserve and resource estimates and revisions in the Company’s life-of-mine plans, which in turn could result in material write-downs of its investments in mining properties and increased depletion, reclamation and closure charges.  Depending on the price of gold or other metals, the Company may determine that it is impractical to commence or, if commenced, to continue commercial production at a particular site.  Metal price fluctuations also create adjustments to the provisional prices of sales made in previous periods that have not yet been subject to final pricing, and these adjustments could have an adverse impact on the Company’s financial results and financial condition. Any of these factors could result in a material adverse effect on the Company’s results of operations and financial condition.

The Company is also subject to price risk for fluctuations in the cost of energy, principally electricity and purchased petroleum products. The Company’s costs are affected by the prices of commodities and other inputs it consumes or uses in its operations.  The prices of such commodities and inputs are influenced by supply and demand trends affecting the mining industry in general and other factors outside the Company’s control. Increases in the price for materials consumed in the Company’s mining and production activities could materially adversely affect its results of operations and financial condition.

An increase in gold and copper prices would decrease the Company’s net loss whereas an increase in fuel and electricity prices would increase the Company’s net loss. A 10% change in commodity prices and fuel and electricity prices would impact the Company’s net earnings before taxes and other comprehensive income before taxes as follows:

Year ended December 31, 2019					Year ended December 31, 2018
(in millions of U.S. dollars)	Net Earnings		Other Comprehensive Income		Net Earnings		Other Comprehensive Income
IMPACT OF 10% CHANGE IN COMMODITY PRICES
Gold price		19.0		-		37.6		-
Copper price		20.7		-		6.5		-
Fuel and electricity price		7.0		-		5.5		-

23. FAIR VALUE MEASUREMENT

Fair value is the price that would be received when selling 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.

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The Company has certain financial assets and liabilities that are held at fair value. 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. There were no transfers among Levels 1, 2 and 3 during the year ended December 31, 2019 or the year ended December 31, 2018. 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 and 3 financial assets and liabilities:

Provisionally priced contracts and gold and copper swap contracts

The fair value of the provisionally priced contracts and the gold and copper swap contracts is calculated using the mark-to-market forward prices of London Metals Exchange gold and copper based on the applicable settlement dates of the outstanding provisionally priced contracts and copper swap contracts.

Gold and copper price option contracts

The fair value of the gold and copper price option contracts are calculated using the mark-to-market method based on fair value prices obtained from the counterparties of the gold price option contracts and copper price option contracts.

Foreign exchange forward contracts

The fair value of foreign exchange forward contracts is calculated using the mark-to-market method based on the difference between the forward Canadian dollar to U.S dollar foreign exchange rate and the foreign exchange rates of the contracts.

Gold stream obligation

The fair value of the gold stream obligation is calculated using the risk-free interest rate derived from the U.S. Treasury rate, forward metal prices, company specific credit spread based on the yield on the Company’s 2025 Senior Unsecured Notes, and expected gold and silver ounces to be delivered from Rainy River’s life of mine model.

Proceeds due from income tax refunds at Mesquite

The proceeds due from income tax refunds at Mesquite is related to income tax refunds that were recoverable by Mesquite on the date of the sale of Mesquite. These income tax refunds are required to be paid to the Company once Mesquite receives these income tax refunds. The fair value of the income tax refund receivable is calculated based on the value of the income tax refunds that Mesquite is expected to receive.

Performance share units (PSU)

The fair value of the PSU liability is calculated using the quantity of base options subject to cash settlement, the weighted-average three-year achieved performance ratio (calculated using the annualized return of the Company’s share price compared to the annualized return of the S&P Global Gold Index) and the expected share price at the end of the vesting period.

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The following table summarizes the Company’s financial assets and liabilities by category and information about financial assets and liabilities measured at fair value on a recurring basis in the statement of financial position categorized by level of significance of the inputs used in making the measurements:

		As at December 31, 2019				As at December 31, 2018
(in millions of U.S. dollars)	Category	Level				Level
FINANCIAL ASSETS
Cash and cash equivalents	Financial assets at amortized cost			83.4				103.7
Trade and other receivables	Financial assets at amortized cost			14.5				36.6
Provisionally priced contracts	Financial instruments at FVTPL		2	1.5			2	(1.6	)
Gold and copper swap contracts	Financial instruments at FVTPL		2	(1.3	)		2	0.9
Copper price option contracts	Financial Instruments at FVTPL		2	-			2	0.7
Proceeds due from income tax refunds at Mesquite(2)	Financial assets at amortized cost		3	9.0			3	8.5
Investments	Financial instruments at FVTPL		1	0.5			1	0.8
FINANCIAL LIABILITIES
Trade and other payables(1)	Financial liabilities at amortized cost			111.3				101.3
Long-term debt	Financial liabilities at amortized cost			714.5				780.5
Gold stream obligation	Financial instruments at FVTPL		3	164.5			3	182.4
Performance share units	Financial instruments at FVTPL		3	0.2			3	0.2
Restricted share units	Financial instruments at FVTPL		1	0.5			1	0.3
Deferred share units	Financial instruments at FVTPL		1	1.1			1	0.3
Gold price option contracts	Financial instruments at FVTPL		2	26.4			2	4.8

1. Trade and other payables exclude the short-term portion of reclamation and closure cost obligations and the short-term portion of the gold stream obligation.

2. Proceeds due from income tax refunds at Mesquite are included in current assets on the consolidated statement of financial position.

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

As at December 31, 2019							As at December 31, 2018
(in millions of U.S. dollars)	Carrying value			Fair value			Carrying value			Fair value
FINANCIAL ASSETS
Cash and cash equivalents		83.4			83.4			103.7			103.7
Trade and other receivables		14.5			14.5			36.6			36.6
Provisionally priced contracts		1.5			1.5			(1.6	)		(1.6	)
Gold and copper swap contracts		(1.3	)		(1.3	)		0.9			0.9
Copper price option contracts		-			-			0.7			0.7
Proceeds due from income tax refunds at Mesquite(2)		9.0			9.0			8.5			8.5
Investments		0.5			0.5			0.8			0.8
FINANCIAL LIABILITIES
Trade and other payables(1)		111.3			111.3			101.3			101.3
Long-term debt		714.5			707.7			780.5			652.9
Gold stream obligation		164.5			164.5			182.4			182.4
Performance share units		0.2			0.2			0.2			0.2
Restricted share units		0.5			0.5			0.3			0.3
Deferred share units		1.1			1.1			0.3			0.3
Gold price option contracts		26.4			26.4			4.8			4.8

1. Trade and other payables exclude the short-term portion of reclamation and closure cost obligation and the short-term portion of the gold stream obligation.

2. Proceeds due from income tax refunds at Mesquite are included in other non-current assets on the consolidated statement of financial position.

24. COMPENSATION OF KEY MANAGEMENT PERSONNEL

The remuneration of the Company’s key management personnel⁽¹⁾ was as follows:

	Year ended December 31
(in millions of U.S. dollars)	2019		2018
KEY MANAGEMENT PERSONNEL REMUNERATION
Short-term benefits(2)		1.9		1.5
Share-based payments		0.2		-
Termination benefits		1.1		4.1
Total key management personnel remuneration		3.2		5.6

1.  Key management personnel are those persons having authority and responsibility for planning, directing, and controlling the activities of the Company.

2. Short-term benefits include salaries, bonuses payable within twelve months of the statement of financial position date and other annual employee benefits.

The remuneration of key executives is determined by the compensation committee having regard to the performance of individuals and market trends.

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25. COMMITMENTS

The Company has entered into a number of contractual commitments for capital items relating to operations and development. At December 31, 2019, these commitments totalled $72.5 million, $72.3 million of which is expected to fall due over the next 12 months. This compares to commitments of $27.2 million as at December 31, 2018, $26.9 million of which was expected to fall due over the upcoming year. Certain contractual commitments may contain cancellation clauses; however, the Company discloses its commitments based on management’s intent to fulfill the contracts.

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EX-99.2

Exhibit 99.2

MANAGEMENT’S DISCUSSION AND ANALYSIS

All dollar figures are in United States dollars and tabular dollar amounts are in millions, unless otherwise noted.

For the year ended December 31, 2019

The following Management’s Discussion and Analysis (“MD&A”) provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of New Gold Inc. and its subsidiaries (“New Gold” or the “Company”). This MD&A should be read in conjunction with New Gold’s consolidated financial statements for the year ended December 31, 2019 and 2018 and related notes, which are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). This MD&A contains forward-looking statements that are subject to risks and uncertainties, as discussed in the cautionary note contained in this MD&A. The reader is cautioned not to place undue reliance on forward-looking statements. All dollar figures are in United States dollars and tabular dollar amounts are in millions, unless otherwise noted. This MD&A has been prepared as at February 12, 2020. Additional information relating to the Company, including the Company’s Annual Information Form, is available on SEDAR at www.sedar.com.

OUR BUSINESS

New Gold is a Canadian-focused intermediate gold mining company with a portfolio of two core producing assets in Canada, the Rainy River gold mine (“Rainy River”) and the New Afton gold-copper mine (“New Afton”) as well as the 100% owned Blackwater development project (“Blackwater”). The Company also operates the Cerro San Pedro gold-silver mine (“Cerro San Pedro”) in Mexico, which is currently in the reclamation phase.  New Gold’s vision is to build a leading diversified intermediate gold company based in Canada that is committed to environmental and social responsibility.

1

Contents

OUR BUSINESS	1
OPERATING AND FINANCIAL HIGHLIGHTS	3
CORPORATE DEVELOPMENTS	5
OUTLOOK FOR 2020	5
MINERAL RESERVES AND MINERAL RESOURCES UPDATE	6
KEY PERFORMANCE DRIVERS	6
FINANCIAL RESULTS	9
REVIEW OF OPERATING MINES	14
DEVELOPMENT AND EXPLORATION REVIEW	20
FINANCIAL CONDITION REVIEW	21
NON-GAAP FINANCIAL PERFORMANCE MEASURES	27
ENTERPRISE RISK MANAGEMENT AND RISK FACTORS	41
CRITICAL JUDGMENTS AND ESTIMATION UNCERTAINTIES	57
ACCOUNTING POLICIES	57
CONTROLS AND PROCEDURES	58
MINERAL RESERVES AND MINERAL RESOURCES	60

2

OPERATING AND FINANCIAL HIGHLIGHTS

OPERATING HIGHLIGHTS

The Company completed the sale of Peak Mines in April 2018 and the sale of Mesquite in October 2018. As a result, Peak and Mesquite Mines have been classified as discontinued operations in the prior-year periods. Operating highlights are disclosed on a continuing operations basis (unless otherwise noted).

	Three months ended December 31						Year ended December 31
	2019		2018		2019		2018		2017
CONTINUING OPERATING INFORMATION
Gold equivalent (“eq.”) (ounces)(3):
Produced(1)		101,423		146,901		486,141		522,602		363,981
Sold(1)		104,446		131,110		488,165		495,453		340,772
Gold (ounces):
Produced(1)		66,856		97,428		322,557		315,483		149,009
Sold(1)		71,691		84,421		331,053		298,002		140,654
Copper (millions of pounds):
Produced(1)		18.3		20.8		79.4		85.1		90.6
Sold(1)		17.3		19.7		76.4		81.1		84.5
Revenue(1)
Gold ($/ounce)		1,335		1,209		1,311		1,236		1,211
Copper ($/pound)		2.39		2.71		2.45		2.79		2.41
Average realized price(1)(2)
Gold ($/ounce)		1,366		1,230		1,337		1,263		1,278
Copper ($/pound)		2.69		2.96		2.71		3.06		2.66
Operating expenses per gold eq. ounce sold ($/ounce) (3)		1,007		579		762		657		582
Total cash costs per gold eq. ounce sold ($/ounce)(2)(3)		942		581		792		684		669
All-in sustaining costs per gold eq. ounce sold ($/ounce) (2)(3)		1,862		904		1,310		1,099		905

1. Production is shown on a total contained basis while sales are shown on a net payable basis, including final product inventory and smelter payable adjustments,
where applicable.

2. The Company uses certain non-GAAP financial performance measures throughout this MD&A. Average realized price, total cash costs and all-in sustaining costs per gold eq. ounce sold and total cash costs and all-in sustaining costs on a co-product basis are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

3. Gold eq. ounces include silver ounces and copper ounces produced or sold converted to a gold eq. based on a ratio of the average spot market prices for the commodities for each period. For pricing assumptions, please refer to the “Review of Operating Mines” section of this MD&A.

3

FINANCIAL HIGHLIGHTS

	Three months ended December 31									Year ended December 31
(in millions of U.S. dollars, except where noted)	2019			2018			2019			2018			2017
FINANCIAL INFORMATION FROM CONTINUING OPERATIONS
Revenue		139.2			157.4			630.6			604.5			388.7
Operating margin(1)		34.0			81.5			258.7			279.1			190.4
Revenue less cost of goods sold		(30.4	)		20.8			18.1			39.2			30.3
Net earnings (loss)		0.3			(742.5	)		(73.5	)		(1,085.6	)		(108.0	)
Adjusted net (loss) earnings(1)		(28.0	)		7.9			(47.2	)		(25.4	)		(21.0	)
Operating cash flows		47.9			57.8			263.5			193.0			197.1
Operating cash flows before changes in non-cash operating working capital(1)		38.8			74.8			237.6			264.6			153.3
Capital expenditures (sustaining)(1)		90.0			30.7			217.4			174.8			43.3
Capital expenditures (growth)(1)		12.3			8.7			35.9			39.1			510.9
Total assets		2,158.5			2,169.6			2,158.5			2,169.6			4,017.3
Cash and cash equivalents		83.4			103.7			83.4			103.7			216.2
Long-term debt		714.5			780.5			714.5			780.5			1,007.7
Non-current liabilities excluding long-term debt		310.8			313.7			310.8			313.7			626.1
SHARE DATA
Loss per share from operations:
Basic ($)		0.00			(1.28	)		(0.12	)		(1.88	)		(0.28	)
Diluted ($)		0.00			(1.28	)		(0.12	)		(1.88	)		(0.28	)
Adjusted net loss per basic share ($)(1)		(0.04	)		0.01			(0.08	)		(0.04	)		(0.04	)
Share price as at December 31 (TSX – Canadian dollars)		1.15			1.05			1.15			1.05			4.13
Weighted average outstanding shares (basic) (millions)		674.4			578.7			611.1			578.7			564.7

1. The Company uses certain non-GAAP financial performance measures throughout this MD&A. Operating margin, adjusted net earnings (loss), adjusted net earnings (loss) per basic share, capital expenditures (sustaining and growth) and operating cash flows before changes in non-cash operating working capital are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

4

CORPORATE DEVELOPMENTS

On August 30, 2019, the Company closed a bought deal financing of 93,750,000 common shares at a price of C$1.60 per share for net proceeds to New Gold of approximately $107 million (gross proceeds of C$150 million less equity issuance costs).

The Company has used the majority of the proceeds to repurchase for cancellation a portion of the Company’s 2022 senior unsecured notes. In 2019, $100 million of the 2022 unsecured notes were repurchased and cancelled.

Subsequent to period end, the Company completed a comprehensive mine optimization study that includes a review of alternative open pit and underground mining scenarios at Rainy River which achieved the overall objective of improving the return on investment over the life of the mine. The results of the study will be released on February 13, 2020. The Company also will be releasing the results of New Afton’s updated life of mine plan on February 13, 2020.

OUTLOOK FOR 2020

Operational Estimates	Rainy River	New Afton	2020 Consolidated Guidance
Gold Produced (ounces)	240,000 – 260,000	73,000 – 83,000	313,000 – 343,000
Copper Produced (Mlbs)	-	75 - 85	75 – 85
Gold Eq. Produced (ounces)(1)	245,000 – 265,000	220,000 – 250,000	465,000 – 515,000
Operating expense per gold eq. ounce(1)	$875 - $955	$550 - $630	$725 - $805
Cash Costs per gold eq. ounce (1)	$875 - $955	$665 - $745	$775 - $855
Corporate G&A per gold eq. ounce(1)	-	-	$30 - $40
Depreciation and depletion per gold eq. ounce(1)	$490 - $570	$275 - $355	$390 - $470
All-in Sustaining Costs per gold eq. ounce (1)	$1,470 - $1,550	$940 - $1,020	$1,260 - $1,340
Capital Investment & Exploration Estimates	Rainy River	New Afton	2020 Consolidated Guidance
Sustaining Capital & Sustaining Leases ($M)	$128 - $162	$50 - $70	$178 - $232
Growth Capital ($M)(2)	$3 - $9	$85 - $105	$100 - $126
Exploration ($M)(3)	$2 - $6	$5 - $10	$9 - $18
1.Gold equivalent ounces includes approximately 420,000 to 445,000 ounces of silver at Rainy River and approximately 330,000 to 340,000 ounces of silver at New Afton.
2.Consolidated growth capital includes ~$12 million for Blackwater.
3. Exploration includes ~$2 million for Blackwater.

The Company announces its operational outlook for 2020 with company-wide gold eq. production expected to be in-line with the prior year.

During the year the Company will continue to advance its strategy of re-positioning itself for long-term success that will include: implementing the updated Rainy River life of mine plan with a diligent focus on optimizing operational and cost performance that improves the return on investment over the life of the mine; continuing to advancing the internally funded development program for the New Afton C-zone; and focusing on organic growth opportunities by advancing strategic exploration programs at both assets.

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In 2020, the Company will report production on a gold equivalent basis as well as on a per-metal basis. Cash costs and All-in sustaining costs (“AISC”) will be reported on a per gold equivalent ounce basis. Throughout the year the Company will report gold equivalent ounces using a constant ratio of $1,500 per gold ounce, $17.75 per silver ounce and $2.85 per pound copper, and a foreign exchange rate of 1.30 Canadian dollars to the US dollar.

MINERAL RESERVES AND MINERAL RESOURCES UPDATE

Consolidated gold Mineral Reserves decreased by approximately 1,622,000 gold ounces when compared to December 31, 2018. This is primarily due to the mine optimization study described in the “Corporate Developments” section of this MD&A, which resulted in updated open pit and underground mine plans, resulting in a reduction in Mineral Reserves at Rainy River. This decrease includes approximately 280,000 gold ounces of mining depletion at Rainy River and approximately 85,000 gold ounces of mining depletion at New Afton. Mining depletion was partially offset by approximately 30,000 gold ounces of positive resource-to-reserve conversions from drilling, updated mining designs and operational plans at New Afton.

Measured and Indicated Mineral Resources decreased by approximately 166,000 gold ounces due to the decrease in open pit mineral at Rainy River partially offset by increased underground Mineral Resources at Rainy River and New Afton. Measured and Indicated Mineral Resources and Blackwater remain materially unchanged as compared to previously reported Measured and Indicated Mineral Resources.

Inferred Resources decreased by approximately 246,000 gold ounces due the decrease at Rainy River.

KEY PERFORMANCE DRIVERS

There is a range of key performance drivers that are critical to the successful implementation of New Gold’s strategy and the achievement of its goals. The key internal drivers are production volumes and costs. The key external drivers are market prices of gold, copper and silver, as well as foreign exchange rates.

Production Volumes and Costs

For an analysis of the impact of production volumes and costs for the three months and year ended December 31, 2019 relative to prior-year periods, refer to the “Review of Operating Mines” section of this MD&A.

Commodity Prices

Gold Prices

The price of gold is the single largest factor affecting New Gold’s profitability and operating cash flows. As such, the current and future financial performance of the Company is expected to be closely related to the prevailing price of gold.

For the year ended December 31, 2019, New Gold’s gold revenue per ounce and average realized gold price per ounce were $1,311 and $1,337 respectively, compared to the London Bullion Market Association (“LBMA”) p.m. average gold price of $1,392 per ounce.

For the three months ended December 31, 2019, New Gold’s gold revenue per ounce and average realized gold price per ounce were $1,335 and $1,366 respectively, compared to the LBMA p.m. average gold price of $1,480 per ounce.

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The Company has entered into gold price option collar contracts to provide downside price protection. The call options that were exercised in 2019 had an average strike price of $1,300 which impacted gold revenue per ounce and average realized gold price per ounce. The Company’s gold price option collar contracts extend until the end of 2020. For further information on the Company’s gold price option collar contracts, please refer to the “Liquidity and Cash Flow” section of this MD&A.

Copper Prices

For the year ended December 31, 2019, New Gold’s copper revenue per pound and average realized copper price per pound were $2.45 and $2.71 respectively compared to the average London Metal Exchange (“LME”) copper price of $2.72 per pound.

For the three months ended December 31, 2019, New Gold’s copper revenue per pound and average realized copper price per pound were $2.39 and $2.69 respectively compared to the average LME copper price of $2.67 per pound.

In December 2018, the Company entered into copper price option collar contracts by purchasing put options with an average strike price of $2.50 per pound and selling call options at an average strike price $3.00 per pound to provide downside price protection. These copper price option contracts expired at the end of 2019.

Foreign Exchange Rates

The Company’s key operations are in Canada, while revenue is generated in U.S. dollars. As a result, the Company has foreign currency exposure with respect to costs not denominated in U.S. dollars. New Gold’s operating results and cash flows are influenced by changes in various exchange rates against the U.S. dollar. The Company has exposure to the Canadian dollar through New Afton, Rainy River, and Blackwater, as well as through corporate administration costs. The Company also has exposure to the Mexican peso through its reclamation activities at Cerro San Pedro.

The spot Canadian dollar strengthened against the U.S. dollar by approximately 5% during 2019. The average Canadian dollar against the average U.S. dollar for the three months ended December 31, 2019 was consistent with the prior quarter and the prior-year period. The strengthening or weakening of the Canadian dollar impacts costs in U.S. dollar terms at the Company’s Canadian operations, as well as capital costs at the Company’s Canadian development property as a significant portion of operating and capital costs are denominated in Canadian dollars.

In the second quarter of 2019, the Company entered into foreign exchange forward contracts in order to hedge the Company’s spending in Canadian dollars. The Company has hedged $20.0 million U.S. dollars per month at average Canadian dollar to U.S. dollar foreign exchange rate of 1.34. These foreign exchange forward contracts expired at the end of 2019.

For an analysis of the impact of foreign exchange fluctuations on operating costs for the three months and year ended December 31, 2019 relative to prior-year periods, refer to the “Review of Operating Mines” sections for Rainy River and New Afton.

Economic Outlook

The LBMA p.m. gold price increased by 18% since the start of 2019. Gold held in exchange-traded products remained near all-time highs in the fourth-quarter of 2019, coinciding with the rise in gold prices to multi-year highs.

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Prospects for gold are encouraged by several structural factors. Mine supply has been plateauing as high-quality deposits become more difficult to find and more expensive to develop and mine. Exploration budgets have been cut in recent years, increasing the likelihood that supply will remain muted, even in the face of increasing gold prices.

Economic events can have significant effects on the price of gold, through currency rate fluctuations, the relative strength of the U.S. dollar, gold supply and demand, and macroeconomic factors such as interest rates and inflation expectations. Management anticipates that the long-term economic environment should provide support for precious metals and for gold in particular and believes the prospects for the business are favourable.

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FINANCIAL RESULTS

Summary of Financial Results

	Three months ended December 31									Year ended December 31
(in millions of U.S. dollars, except where noted)	2019			2018			2019			2018			2017
FINANCIAL RESULTS
Revenue		139.2			157.4			630.6			604.5			388.7
Operating expenses		105.2			75.9			371.9			325.4			198.3
Depreciation and depletion		64.4			60.7			240.6			239.9			160.1
Revenue less cost of goods sold		(30.4	)		20.8			18.1			39.2			30.3
Corporate administration		4.8			7.6			17.6			23.2			23.7
Corporate restructuring		1.1			1.8			1.1			4.1			4.2
Share-based payment expenses		(0.1	)		0.2			1.7			0.7			5.1
Exploration and business development		1.3			1.5			5.6			3.0			6.4
Asset impairment		-			671.1			-			1,054.8			268.4
Loss from operations		(37.5	)		(661.4	)		(7.9	)		(1,046.6	)		(277.5	)
Finance income		0.5			0.5			2.2			1.5			1.1
Finance costs		(14.3	)		(17.1	)		(62.6	)		(69.0	)		(12.8	)
Other gains and losses
Rainy River underground project costs		-			-			(3.4	)		-			-
(Loss) gain on foreign exchange		(2.4	)		23.9			(3.7	)		6.6			43.8
Settlement and (loss) gain on foreign exchange forward contracts		(0.5	)		-			1.5			-			-
(Loss) gain on disposal of El Morro stream and other assets		(0.8	)		1.1			(1.2	)		(0.3	)		33.3
Loss on revaluation of investments		(0.1	)		-			-			(0.2	)		(0.2	)
Unrealized gain (loss) on revaluation of gold stream obligation		46.3			(2.5	)		20.1			11.7			(21.8	)
Settlement and (loss) gain on revaluation of copper price option contracts and copper forward contracts		(0.2	)		(2.2	)		(0.7	)		4.8			(4.4	)
Settlement and gain (loss) on revaluation of gold price option contracts		3.5			(4.8	)		(21.7	)		(4.8	)		(6.5	)
Revaluation of CSP’s reclamation and closure cost obligation		(0.6	)		(1.0	)		0.6			(1.0	)		-
Gain on receivable associated with Mesquite sale		-			-			4.0			-			-
Other		(0.2	)		(0.2	)		(1.1	)		1.3			2.4
Loss before taxes		(6.3	)		(663.7	)		(73.9	)		(1,096.0	)		(242.6	)
Income tax recovery (expense)		6.6			(78.8	)		0.4			10.4			84.6
Net income (loss) from continuing operations		0.3			(742.5	)		(73.5	)		(1,085.6	)		(158.0	)
(Loss) earnings from discontinued operations		-			(0.7	)		-			(154.9	)		50.0
Net income (loss)		0.3			(743.2	)		(73.5	)		(1,240.5	)		(108.0	)
Adjusted net loss from continuing operations (1)		(28.0	)		7.9			(47.2	)		(25.4	)		(21.0	)

1. The Company uses certain non-GAAP financial performance measures throughout this MD&A. For a detailed description of each of the non-GAAP measures used in this MD&A and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

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Revenue

For the year ended December 31, 2019, the $26.1 million, or 4.3%, increase in revenue was due to an increase in gold prices and gold ounces sold partially offset by a decrease in copper prices and copper sales. Additionally, the prior year included $16.0 million of revenue from Cerro San Pedro, which entered the reclamation phase at the end of 2018. The average realized prices for the year ended December 31, 2019 were $1,337 per gold ounce, and $2.71 per pound of copper. This compared to $1,263 per gold ounce and $3.06 per pound of copper in the prior year.

For the three months ended December 31, 2019, the $18.2 million, or 11.5%, decrease in revenue was due to a decrease in copper prices and gold and copper sales volumes, partially offset by an increase in gold prices. Additionally, the prior-year period included $1.5 million of revenue from Cerro San Pedro, which entered the reclamation phase at the end of 2018. The average realized prices for the three months ended December 31, 2019 were $1,366 per gold ounce, and $2.69 per pound of copper. This compared to $1,230 per gold ounce and $2.96 per pound of copper in the prior-year period.

A detailed discussion of production is included in the “Review of Operating Mines” section of this MD&A.

Operating expenses

For the year ended December 31, 2019, operating expenses increased compared to the prior year due to increased throughput at planned lower grades and an increase in operating waste tonnes mined at Rainy River and higher sales volume. Additionally, operating expenses were impacted by an inventory write-down of $14.1 million at Rainy River relating primarily to the write-down of the low-grade stockpile from inventory. Going forward, additions to the low-grade stockpile will be expensed as incurred for accounting purposes.

For the three months ended December 31, 2019, operating expenses increased compared with the prior-year period due to the inventory write-down described above and increased throughput at planned lower grades and an increase in operating waste tonnes mined at Rainy River.

Depreciation and depletion

For the year ended December 31, 2019, depreciation and depletion was consistent with the prior year as higher depreciation and depletion at Rainy River resulting from higher sales volumes was offset by lower depreciation and depletion at New Afton resulting from lower sales volumes.

For the three months ended December 31, 2019, depreciation and depletion was impacted by the inventory write-down described above, resulting in a charge to depreciation and depletion of $5.7 million. This resulted in higher depreciation and depletion than the prior-year period.

In 2020, we expect depreciation and depletion to increase as a result of decreased Mineral Reserves at Rainy River. Refer to the “Mineral Reserves and Mineral Resources Update” section of this MD&A for further information.

Revenue less cost of goods sold

For the three months ended December 31, 2019, revenue less costs of goods sold decreased due to lower revenues and higher operating expenses, as described above. For the year ended December 31, 2019, revenue less costs of goods sold decreased due to higher operating expenses, partially offset by higher revenue.

Corporate administration, corporate restructuring and share-based payment expenses

For the three months and year ended December 31, 2019, corporate administration decreased compared with the prior-year periods due to a lower corporate headcount, resulting in lower compensation and benefit expenses. The Company recognized a corporate restructuring expense of $1.1 million for the year ended December 31, 2019, compared to $4.1 million in the prior year. Corporate restructuring expenses relate to restructuring the senior leadership team. Share-based payment expenses were consistent with the prior year.

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Finance income and finance costs

For the three months and year ended December 31, 2019, finance costs decreased relative to the prior-year period as the credit facility remained undrawn until the fourth quarter of 2019.

Other gains and losses

The following other gains and losses are added back for the purposes of adjusted net earnings:

Underground project costs

Underground project costs of $3.4 million for the year ended December 31, 2019 relate to costs associated with the deferral of the Rainy River underground mine development plan and include demobilization and related costs. The cost to transfer ownership of infrastructure and equipment from the contractor has been capitalized.

Foreign exchange

Movements in foreign exchange are primarily due to the revaluation of the deferred tax liabilities at the balance sheet date and the appreciation or depreciation of the Canadian dollar and Mexican peso compared to the U.S. dollar in the current period.

Foreign exchange forward contracts

For the three months and year ended December 31, 2019, the Company recognized a foreign exchange loss of $0.5 million and a foreign exchange gain of $1.5 million respectively.

Gold stream obligation

For the three months and year ended December 31, 2019, the Company recognized a gain on the revaluation of the gold stream obligation derivative instrument of $46.3 million and $20.1 million, respectively. The gain was primarily driven by a decrease in estimated stream settlements over the remaining life of the instrument, as a result of Rainy River’s optimized mine plan.

Copper option contracts

For the three months and year ended December 31, 2019, the Company recognized a loss on the revaluation of copper price option contracts of $0.2 million and $0.7 million, respectively. The loss was primarily driven by higher copper prices and the expiry of the option contracts.

Gold option contracts

For the three months ended December 31, 2019, the Company recognized a gain on the revaluation of gold price option contracts of $2.8 million, primarily resulting from the exercise and expiry of the option contracts. For the year ended December 31, 2019, the Company recognized an unrealized loss on the revaluation of the gold price option contracts of $22.4 million due to an increase in gold prices. A realized loss of $8.1 million and $17.6 million was recognized in the three months and year ended December 31, 2019, respectively.

Mesquite sale proceeds

The $4.0 million gain on the Mesquite sale receivable represents $2.1 million of outstanding working capital proceeds collected in the first quarter of 2019, and $1.9 million on the revaluation of the proceeds due from income tax receivable at Mesquite.

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CSP’s reclamation, closure cost obligation

Cerro San Pedro transitioned to the reclamation phase of its mine life cycle effective December 31, 2018. The revaluation of Cerro San Pedro’s reclamation and closure cost obligation for the three months and year ended December 31, 2019 is a result of changes in estimates to the expected cash flows.

Asset Impairment

For the year ended December 31, 2018, the Company recorded impairment losses of $836.6 million at Rainy River and $218.2 million at Blackwater, totaling $1,054.8 million pre-tax ($953.2 million after-tax).

Income tax

Income tax recovery for the year ended December 31, 2019 was $0.4 million when compared to a recovery of $10.4 million in the prior year. The current year income tax recovery relates primarily to current and deferred mineral taxes in the period, whereas the prior year income tax recovery included the tax effect of asset impairments and impact of the derecognition of deferred tax assets.

Income tax recovery for the three months ended December 31, 2019 was $6.6 million when compared to an income tax expense of $78.8 million in the prior-year period. The income tax recovery in the current period was primarily driven by deferred mineral taxes, whereas the income tax expense in the prior-year period was primarily driven by the impact of the derecognition of deferred tax assets.

On an adjusted earnings basis, the adjusted tax expense for the year ended December 31, 2019 was $1.0 million compared to an adjusted tax recovery of $12.9 million in the prior year. The adjusted tax recovery for the three months ended December 31, 2019 was $1.8 million compared to an adjusted tax recovery of $6.6 million in the prior-year period.

The adjusted tax expense excludes the impact of inventory write-downs, corporate restructuring costs, losses on debt modification and other gains and losses on the consolidated income statement. Please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

Earnings from discontinued operations, net of tax

Peak Mines and Mesquite were classified as discontinued operations for the three months ended December 31, 2018 and the years ended December 31, 2018 and December 31, 2017.

Net income (loss)

For the three months and year ended December 31, 2019, the net income (loss) increased due to impairment losses recognized in the prior year.

Adjusted net earnings (loss) from continuing operations

Net losses have been adjusted for inventory write-downs, corporate restructuring charges, losses on debt modification and other gains and losses on the consolidated income statement. Key elements in other gains and losses are: underground project costs at Rainy River; the fair value changes for the gold stream obligation; fair value changes for copper and gold price option contracts, fair value changes for foreign exchange forward contracts, and a foreign exchange gains/loss. The adjusted entries are also impacted for tax to the extent that the underlying entries are impacted for tax in the unadjusted net earnings. Please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

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Adjusted net loss for the year ended December 31, 2019 was $47.2 million, or $0.08 per basic share, compared to an adjusted net loss of $25.4 million, or $0.04 per basic share, in the prior year. Adjusted net loss was impacted by higher operating expenses, partially offset by higher revenues and lower finance costs as described above. Adjusted net loss for the three months ended December 31, 2019 was $28.0 million, or $0.04 per basic share, compared to adjusted net earnings of $7.9 million, or $0.01 per basic share, in the prior-year period. Adjusted net loss was primarily impacted by lower revenue and higher operating expenses as described above.

For further information on the Company’s liquidity and cash flow position, please refer to the “Liquidity and Cash Flow” section of this MD&A. For further information on the Company’s financial results, please refer to the “Financial Results” section of this MD&A.

Key Quarterly Operating and Financial Information

Selected financial and operating information for the current and previous quarters is as follows:

(in millions of U.S. dollars,  except where noted)	Q4 2019	Q3 2019		Q2 2019		Q1 2019		Q4 2018		Q3 2018		Q2 2018		Q1 2018		Q4 2017
OPERATING INFORMATION(2)
Gold production from operations (ounces)(1)	66,856	91,087		85,216		79,398		97,428		77,533		76,751		63,711		58,070
Gold sales from operations (ounces)(1)	71,691	85,867		84,184		89,312		84,421		76,653		72,774		64,154		54,170
Revenue	139.2	168.4		155.1		167.9		157.4		147.1		152.5		147.5		123.5
Net income (loss)	0.3	(24.7	)	(35.7	)	(13.4	)	(742.5	)	(1.6	)	(310.6	)	(30.9	)	(226.9	)
Per share:
Basic ($)	0.00	(0.04	)	(0.06	)	(0.02	)	(1.28	)	(0.00	)	(0.54	)	(0.05	)	(0.39	)
Diluted ($)	0.00	(0.04	)	(0.06	)	(0.02	)	(1.28	)	(0.00	)	(0.54	)	(0.05	)	(0.39	)

1. A detailed discussion of production is included in the “Review of Operating Mines” section of this MD&A.

2. Operating information for all periods presented are from continuing operations.

In the first quarter of 2019 the Company identified an immaterial error relating to its deferred tax liabilities. The result of this error is an increase to income tax expense and deferred tax liabilities of $14.8 million for the year ended December 31, 2018. The resulting understatement of the deferred tax liabilities, the income tax expense and the deficit balance of $14.8 million for the year ended December 31,2018 have been revised in the comparative consolidated statement of financial position, consolidated income statements and the consolidated statement of cash flow

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REVIEW OF OPERATING MINES

Rainy River Mine, Ontario, Canada

Rainy River is a gold mine located approximately 50 kilometres northwest of Fort Frances, a town of approximately 8,000 people, in northwestern Ontario, Canada.

A summary of Rainy River’s operating results is provided below.

Three months ended December 31								Year ended December 31
(in millions of U.S. dollars, except where noted)	2019			2018		2019		2018
OPERATING INFORMATION
Ore mined (thousands of tonnes)		1,793			2,949		6,830		12,296
Waste mined (thousands of tonnes)		10,731			7,310		36,387		27,267
Ore processed (thousands of tonnes)		2,072			1,901		8,023		6,546
Ratio of waste-to-ore		5.99			2.48		5.33		2.22
Average gold grade (grams/tonne)		0.85			1.42		1.08		1.25
Gold recovery rate (%)		91			89		91		86
Gold eq. (ounces)(1)(3):
Produced		51,915			78,074		257,051		230,349
Sold		57,258			66,880		268,718		217,771
Gold (ounces)(1):
Produced		51,122			77,202		253,772		227,284
Sold		56,390			66,123		265,359		214,804
Average gold realized price(1)(2) ($/ounce)		1,366			1,229		1,335		1,260
Operating expenses per gold eq. ounce sold ($/ounce)(3)		1,278			648		962		826
Total cash costs per gold eq. ounce sold (2)(3)		1,032			648		910		826
All-in sustaining costs per gold eq. sold (2)(3)		2,429			1,056		1,630		1,498
FINANCIAL INFORMATION
Revenue		78.4			82.2		358.9		274.4
Operating margin (2)		5.2			38.9		100.5		94.5
Revenue less cost of goods sold		(24.2	)		18.9		6.6		16.2
Capital expenditures (sustaining capital) (2)		79.3			25.6		179.1		142.1
Capital expenditures (growth capital) (2)		0.1			6.1		6.8		28.5

1.    Production is shown on a total contained basis while sales are shown on a net payable basis, including final product inventory and smelter payable adjustments, where applicable.

2. The Company uses certain non-GAAP financial performance measures throughout this MD&A. Total cash costs and all-in sustaining costs per gold eq ounce sold, average realized price, and operating margin and capital expenditures (sustaining capital, sustaining leases, and growth capital) are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

3. Gold eq. ounces include silver ounces and copper ounces produced or sold converted to a gold eq. based on a ratio of the average spot market prices for the commodities for each period. The ratio for Q4 2019 was calculated based on average spot market prices of $1,480 per gold ounce and $17.31 per silver ounce. The ratio for Q4 2018 was calculated based on average spot market prices of $1,228 per gold ounce and $14.54 per silver ounce.

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Operating results

Production

During the quarter, approximately 1.8 million ore tonnes and 10.7 million waste tonnes (including 3.9 million capitalized waste tonnes) were mined from the open pit at an average strip ratio of 5.99:1 as Phase 2 waste stripping continued to be prioritized during the quarter. Earlier in the year, the decision was made to prioritize waste stripping in order to prepare ore faces in anticipation of the updated life of mine plan. Additionally, 0.8 million tonnes of out-pit material were mined during the quarter for use in planned dam raises.  Total tonnes mined per day for the quarter averaged 136,124 tonnes per day, an increase of more than 20% over the prior three quarters.

Mill throughput for the quarter averaged 22,521 tonnes per day. As previously disclosed, due to an extended period of heavy rainfall in the area, the mill operated at lower capacity in October in order to manage water levels in the Tailings Management Area (“TMA”). Once the Stage 2 TMA dam construction was completed in late October, which provided approximately 7 to 8 million cubic meters of additional TMA capacity, mill throughput increased to average 24,858 tonnes per day for November and December, exceeding the target range of 24,000 tonnes per day (original design was 21,000 tonnes per day).

Mill availability for the quarter averaged 89%, achieving target levels with all major mill upgrades substantially completed. As the mill has demonstrated consistent operations at target levels, there remains potential for further increases in mill throughput in the coming quarters as mill availability improves and the pebble crusher is commissioned.

Gold recovery averaged 91% for the quarter, in-line with plan.

Subsequent to period end, the Company completed a comprehensive mine optimization study that includes a review of alternative open pit and underground mining scenarios which achieved the overall objective of improving the return on investment over the life of the mine. The results of the study were released on February 13, 2020.

As operational performance has improved over the past five quarters, the focus is now shifting from stabilizing operations to optimizing operational and cost performance. To support this initiative, the Company has engaged an external consultant to support improved overall equipment efficiencies with the objective of optimizing open pit mining productivity and unit cost performance.

Revenue

For the three months ended December 31, 2019, revenue decreased compared to the prior-year period due to lower sales volumes, partially offset by higher gold prices. For the year ended December 31, 2019, revenue increased compared to the prior year due to higher sales volumes and higher gold prices.

Revenue less cost of goods sold

For the three months and year ended December 31, 2019, revenue less cost of goods sold decreased when compared to the prior-year periods, primarily driven by lower revenues and higher operating expenses.

Operating expenses, total cash costs, all-in sustaining costs, and capital expenditures

Operating expenses were $1,278 per gold eq. ounce for the quarter and $962 per gold eq. ounce for the year and included a non-cash inventory write down of $14.1 million primarily related to the derecognition of the low-grade stockpile as inventory. Operating expenses per gold eq. ounce for the three months and year ended December 31, 2019 increased when compared to the prior-year periods as lower grade gold ore was mined and processed.

15

Total cash costs were $1,032 per gold eq. ounce for the quarter and $910 per gold eq. ounce for the year, achieving guidance of $870 to $950 per gold eq. ounce. Total cash costs per gold eq. ounce for the three months and year ended December 31, 2019 increased when compared to the prior-year periods as lower grade gold ore was mined and processed.

Sustaining capital (net of proceeds from disposal of assets) and sustaining lease payments for the quarter increased to $79 million, which primarily related to the completion of the Stage 2 TMA dam construction, installation of wick drains for stabilization of the east waste dump, ongoing renovations of the camp facility and construction work for the rescoped maintenance and warehouse facilities, and $12 million of capitalized mining costs. Sustaining capital (net of proceeds from disposal of assets) and sustaining lease payments for the year were $189 million, including $32 million of capitalized mining costs, in-line with reduced annual sustaining capital estimates of $175 to $190 million (from $210-$230 million) due to cost reductions of approximately $15 million related to the TMA and the rescoped maintenance and warehouse facilities, as well as the deferral of capital to 2020 of approximately $20 million.

AISC were $2,429 per gold eq. ounce for the quarter, impacted by higher sustaining capital spend during the quarter, primarily related to the completion of substantially all deferred construction capital projects as noted above, as well as higher capitalized mining costs. AISC for the year was $1,630 per gold eq. ounce, below guidance of $1,690 to $1,790 per gold eq. ounce due to lower than planned sustaining capital for the year. The increase in all-in sustaining costs per gold eq. ounce for the three months and year ended December 31, 2019 when compared to the prior-year periods was primarily driven by higher total cash costs and sustaining capital expenditures.

Growth capital for the year was $6.8 million, higher than annual guidance of approximately $3 million, primarily related to the purchase of underground infrastructure.

Impact of foreign exchange on operations

Rainy River’s operations are impacted by fluctuations in the valuation of the U.S. dollar against the Canadian dollar. For the three months ended December 31, 2019, the value of the U.S. dollar averaged $1.32 against the Canadian dollar, consistent with the prior-year period. For the year ended December 31, 2019, the value of the U.S. dollar averaged $1.33 against the Canadian dollar compared to $1.30 in the prior year. This had a positive impact on total cash costs of $22 per gold ounce sold against the prior year.

Exploration activities

Exploration activities continued in the fourth quarter, with the completion of the soil geochemical survey and the geological mapping in the northeastern portion of the broader Rainy River land package. Data interpretation is underway to identify drill-ready targets for follow-up reconnaissance drilling campaign planned for the first half of 2020.

16

New Afton Mine, British Columbia, Canada

The New Afton mine is located near Kamloops, a city of approximately 90,000 people, in south-central British Columbia.

A summary of New Afton’s operating results is provided below.

				Three months ended December 31				Year ended December 31
(in millions of U.S. dollars, except where noted)	2019			2018		2019		2018
OPERATING INFORMATION
Ore mined (thousands of tonnes)		1,266			1,573		5,437		5,839
Ore processed (thousands of tonnes)		1,459			1,381		5,584		5,354
Average grade:
Gold (grams/tonne)		0.42			0.51		0.47		0.53
Copper (%)		0.70			0.82		0.78		0.87
Recovery rate (%):
Gold		79			84		82		85
Copper		81			83		83		83
Gold eq. (ounces)(1)(4):
Produced		49,507			67,240		229,091		279,755
Sold		47,188			63,004		219,447		265,247
Gold (ounces)(1):
Produced		15,734			18,778		68,785		77,329
Sold		15,301			17,176		65,694		72,489
Copper (millions of pounds)(1):
Produced		18.3			20.8		79.4		85.1
Sold		17.3			19.7		76.4		81.1
Revenue
Gold ($/ounce)		1,218			1,130		1,220		1,156
Copper ($/pound)		2.39			2.71		2.45		2.79
Average realized price (2):
Gold ($/ounce)		1,364			1,237		1,348		1,266
Copper ($/pound)		2.68			2.96		2.71		3.06
Operating expenses per gold eq. ounce sold ($/ounce)(4)		678			388		517		393
Operating expenses per gold ounce sold ($/ounce) (3)		640			375		509		384
Operating expenses per copper pound sold ($/pound) (3)		1.26			0.90		1.02		0.93
Total cash costs per gold eq. sold ($/ounce) (2)(4)		833			499		647		507
All-in sustaining costs per gold eq. sold ($/ounce) (2)(4)		1,076			587		829		638
Total cash costs on a co-product basis (2)
Gold ($/ounce)		786			482		637		495
Copper ($/pound)		1.55			1.16		1.28		1.19
All-in sustaining costs on a co-product basis (2)
Gold ($/ounce)		1016			567		816		623
Copper ($/pound)		2.00			1.36		1.64		1.50
FINANCIAL INFORMATION:
Revenue		60.8			73.7		271.7		314.1
Operating margin (2)		28.8			49.2		158.2		209.8
Revenue less cost of goods sold		(6.2	)		9.3		11.5		51.6
Capital expenditures (sustaining capital) (2)		10.6			5.0		37.7		32.6
Capital expenditures (growth capital) (2)		10.5			1.0		24.1		3.3

1. Production is shown on a total contained basis while sales are shown on a net payable basis, including final product inventory and smelter payable adjustments, where applicable.

2. The Company uses certain non-GAAP financial performance measures throughout this MD&A. Total cash costs and all-in sustaining costs per gold ounce sold, total cash costs and all-in sustaining costs on a co-product basis, average realized price, operating margin, and capital expenditures (sustaining capital, sustaining leases, and growth capital) are non-GAAP financial performance measures with no standard meaning under IFRS. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

3. Operating expenses are apportioned to each metal produced on a percentage of revenue basis. For further information and a detailed reconciliation, please refer to the “Non-GAAP Financial Performance Measures” section of this MD&A.

4. Gold eq. ounces include silver ounces and copper ounces produced or sold converted to a gold eq. based on a ratio of the average spot market prices for the commodities for each period. The ratio for Q4 2019 was calculated based on average spot market prices of $1,480 per gold ounce, $17.31 per silver ounce and $2.67 per copper pound. The ratio for Q4 2018 was calculated based on average spot market prices of $1,228 per gold ounce, $14.54 per silver ounce and $2.80 per copper pound.

17

Operating results

Production

The mine produced 49,507 gold eq. ounces for the quarter (15,734 ounces of gold, and 18.3 million pounds of copper) and 229,091 ounces (68,785 ounces of gold, and 79.4 million pounds of copper) for the year, achieving production guidance of 215,000 to 245,000 gold eq. ounces. Production in the quarter was impacted by unscheduled belt repairs that resulted in mill feed being supplemented by the intermediate grade stockpile. Gold eq. production was impacted by the lower realized copper price.

The supergene recovery circuit is complete and operating at target recoveries and utilization.

Efforts during the quarter continued to focus on de-risking the execution of the C-zone project, primarily focusing on the finalization of the tailings disposal plan and advancing permitting efforts. Sub-level cave (SLC) definition, mining operability and sequencing will continue to be further defined for potential incorporation of additional resources from the SLC zone into the mine plan. During the quarter, exploration-heading development towards the C-zone advanced by approximately 1,135 metres. The results of the updated life of mine plan were released on February 13, 2020.

Revenue

For the three months and year ended December 31, 2019, revenue decreased compared to the prior-year period due to lower copper prices and lower planned sales volume.

Revenue less cost of goods sold

For the three months and year ended December 31, 2019, the decrease in revenue less cost of goods sold when compared to the prior-year periods was primarily driven by lower revenues and higher operating expenses due to planned lower gold and copper grades.

Operating expenses, total cash costs, all-in sustaining costs, and capital expenditures

Operating expenses were $678 per gold eq. ounce for the quarter and $517 per gold eq. ounce for the year, impacted by costs related to belt repairs noted above and lower gold eq. ounces due the lower copper price.

Total cash costs were $833 per gold eq. ounce for the quarter and $647 per gold eq. ounce for the year, slightly above guidance of $600 to $640 per gold eq. ounce primarily due to the lower gold eq. ounces related to the lower copper price.

The increase in operating expenses per gold eq. ounce, total cash costs per gold eq. ounce for the three months and year ended December 31, 2019 when compared to the prior-year periods was primarily driven by higher operating expenses associated with the mining and processing of lower grade gold and copper ore.

Sustaining capital and sustaining lease payments for the quarter were $10.7 million, and $38.0 million for the year, below annual guidance of $45 to $55 million due to improved cost efficiencies realized on development meters, as well as the impact of working capital as payments for capital projects incurred later in the fourth quarter are expected in the first quarter of 2020. Sustaining capital primarily related to B3 mine development and a tailings dam raise.

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AISC were $1,076 per gold eq. ounce for the quarter and $829 per gold eq. ounce for the year, achieving guidance of $810 to $890 per gold eq. ounce. The increase in AISC per gold eq. ounce for the three months and year ended December 31, 2019 when compared to the prior-year periods was primarily driven by higher total cash costs and sustaining capital expenditures.

Growth capital was $10.5 million for the quarter and $24.1 million for the year, primarily related to C-zone development, below annual guidance of $40 to $45 million due to realized cost efficiencies in development metres, as well as the impact of working capital as payments for capital projects incurred later in the fourth quarter are expected in the first quarter of 2020.

Impact of foreign exchange on operations

New Afton’s operations are impacted by fluctuations in the valuation of the U.S. dollar against the Canadian dollar. For the three months ended December 31, 2019, the value of the U.S. dollar averaged $1.32 against the Canadian dollar, consistent with the prior-year period. For the year ended December 31, 2019, the value of the U.S. dollar averaged $1.33 against the Canadian dollar compared to $1.30 in the prior year. This had a positive impact on total cash costs of $13 per gold ounce sold against the prior year.

Exploration activities

The New Afton delineation and exploration programs completed in 2019 include three key initiatives: 1) underground drilling to delineate and expand mineral resources within and beneath the SLC zone, located to the east of the planned B3 block cave; 2) underground exploration drilling of the D-zone target to test the potential for additional mineral resources down plunge of the C-zone block cave mineral reserve; and 3) surface geophysical and geochemical surveys along the prospective Cherry Creek trend located within three kilometres of the New Afton mill (See May 29, 2019 press release). The regional exploration program advanced during the quarter with the definition of high priority drill targets within the Cherry Creek trend area; first-pass exploration drilling program has been finalized and is currently scheduled to start during the first quarter of 2020 upon permit issuance.

19

DEVELOPMENT AND EXPLORATION REVIEW

Blackwater Project, British Columbia, Canada

Blackwater is a bulk-tonnage, gold-silver project located approximately 160 kilometres southwest of Prince George, a city of approximately 80,000 people, in central British Columbia, Canada. The project property position covers over 1,000 square kilometres and is located near infrastructure.

Environmental and permitting activities

Following successful completion of the environmental assessment phase (“EA”) and the receipt of an EA certification on June 24, 2019, the Company has been preparing submissions to regulatory authorities to comply with conditions of its EA approvals. This follows the April 15, 2019 announcement that the federal Minister of Environment and Climate Change issued a positive decision statement regarding Blackwater’s environmental assessment under the Canadian Environmental Assessment Act. Engagement and negotiations with First Nations regarding participation agreements (“PAs”) continue.

The Company will continue to assess alternative project scenarios at Blackwater that would involve lower initial capital requirements and higher-grade pit. In addition, the Company is considering other strategic alternatives with respect to the Blackwater project.

Project costs

For the three months ended December 31 2019, capital expenditures totaled $1.7 million, compared to $1.6 million in the prior-year period. For the year ended December 31, 2019, capital expenditures totaled $5.1 million, compared to $7.3 million in the prior year. Expenditures in 2019 related to the advancement of the EA process prior to the receipt of the EA certificate as well as work to comply with the conditions of its EA approval and related environmental and engineering studies, as well as discussions with First Nations on PAs.

The province of British Columbia provides an incentive for exploration in British Columbia as a refundable tax credit. This refundable tax credit is treated as government assistance and reduces Mining Interest. For the year ended December 31, 2019, the Company received $2.0 million in refundable tax credits.

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FINANCIAL CONDITION REVIEW

Balance Sheet Review 

	As at December 31		As at December 31
(in millions of U.S. dollars)	2019		2018
BALANCE SHEET INFORMATION
Cash and cash equivalents		83.4		103.7
Other current assets		145.3		186.7
Non-current assets		1,929.8		1,879.2
Total assets		2,158.5		2,169.6
Current liabilities		171.9		130.9
Non-current liabilities excluding long-term debt		310.8		313.7
Long-term debt		714.5		780.5
Total liabilities		1,197.2		1,225.1
Total equity		961.3		944.5
Total liabilities and equity		2,158.5		2,169.6

Assets

Cash and cash equivalents

In August 2019, the Company issued 93,750,000 common shares for net proceeds of $106.8 million. The net proceeds were used primarily for debt repayment, with $99.7 million of the Company’s 2022 senior unsecured notes repurchased for cancellation during the year. The Company also drew $30.0 million on its revolving credit facility in November 2019.

The decrease in cash and cash equivalents was primarily driven by capital expenditures and the repayment of debt, partially offset by operating cash flows and the proceeds received on the common share issuance and the drawdown on the revolving credit facility described above.

Other current assets

Other current assets primarily consist of trade and other receivables, inventories, prepaid expenses, and income tax receivables. Other current assets decreased when compared with the prior period primarily due to the decrease in metal inventory and accounts receivable.

Non-current assets

Non-current assets consist of mining interests which include the Company’s mining properties, development projects, property, plant and equipment, and long-term inventory. The increase in non-current assets is primarily attributable to the Company’s investments in its mining interests partially offset by depreciation and depletion.

Liabilities

Current liabilities

Current liabilities consist primarily of trade and other payables. Current liabilities increased compared to the prior year as a result of an increase in derivative liabilities and accruals at New Afton and Blackwater.

21

Non-current liabilities excluding long-term debt

Non-current liabilities excluding long-term debt consist primarily of reclamation and closure cost obligations, the gold stream obligation and deferred tax liabilities.

The Company’s asset retirement obligations consist of reclamation and closure costs for Rainy River, New Afton, Cerro San Pedro and Blackwater. Significant reclamation and closure activities include land rehabilitation, demolition of buildings and mine facilities, ongoing monitoring, and other costs. The long-term discounted portion of the liability as at December 31, 2019 was $94.7 million when compared to the prior year balance at December 31, 2018 of $86.1 million. The increase was primarily driven by lower discount rates and updates to the underlying reclamation and closure costs.

The deferred income tax liability decreased from $56.3 million as at December 31, 2018 to $48.3 million at December 31, 2019. The decrease in deferred income tax liability was primarily driven by deferred mineral taxes.

The decrease in non-current liabilities excluding long-term debt is due to the decrease in gold stream obligation resulting from lower expected stream settlements over the life of the instrument, partially offset by an increase in lease obligations.

Long-term debt and other financial liabilities containing financial covenants

The majority of the Company’s contractual obligations consist of long-term debt and interest payable. Long-term debt includes senior unsecured notes and the amounts drawn on the Company’s revolving credit facility (the “Credit Facility”).

As at December 31, 2019, the Company has $400.3 million of senior unsecured notes outstanding that mature and become due and payable on November 15, 2022 (“2022 Unsecured Notes”). The 2022 Unsecured Notes are denominated in U.S. dollars and bear interest at the rate of 6.25% per annum. The Company issued $300.0 million of senior unsecured notes (“2025 Unsecured Notes”) which mature and become due and payable on May 15, 2025, andbear interest at the rate of 6.375% per annum. Interest is payable in arrears in equal semi-annual instalments in May and November of each year. The 2022 and 2025 Unsecured Notes are subject to a minimum interest coverage incurrence covenant (earnings before interest, taxes, depreciation, amortization, impairment and other non-cash adjustments to interest) of 2.0: 1.0. In 2019, $99.7 million of the Company’s 2022 Unsecured Notes were repurchased for cancellation.

The Credit Facility has a maturity date of August 2021 and a borrowing limit of $400.0 million. As at December 31, 2019, the Company has drawn $30.0 million and issued letters of credit amounting to $118.9 million (December 31, 2018 - $110.8 million) under the Credit Facility. Letters of credit relate to reclamation bonds, and other financial assurances required with various government agencies.

The Credit Facility contains various covenants customary for a loan facility of this nature, including limits on indebtedness, asset sales and liens. The Credit Facility contains three covenant tests, the minimum interest coverage ratio, being earnings before interest, taxes, depreciation, amortization, exploration, impairment and other non-cash adjustments (“Adjusted EBITDA”) to interest, the maximum net debt to Adjusted EBITDA ratio (“Leverage Ratio”), and the maximum gross secured debt to Adjusted EBITDA, all of which are measured on a rolling four-quarter basis at the end of every quarter.

22

Significant financial covenants from the credit facility are as follows:

		Twelve months ended                         December 31	Twelve months ended December 31
	Financial covenant	2019	2018
FINANCIAL COVENANTS
Minimum interest coverage ratio (Adjusted EBITDA to interest)	>3.0 : 1	4.3 : 1	4.5 : 1
Maximum leverage ratio (net debt to Adjusted EBITDA)	<4.5 : 1	3.1 : 1	2.6 : 1
Maximum secured leverage ratio (secured debt to Adjusted EBITDA)	<2.0 : 1	0.7 : 1	0.4 : 1

Liquidity and Cash Flow

As at December 31, 2019, the Company had cash and cash equivalents of $83.4 million compared to $103.7 million at December 31, 2018. The Company’s investment policy is to invest its surplus funds in permitted investments consisting of treasury bills, bonds, notes and other evidences of indebtedness of Canada, the U.S. or any of the Canadian provinces with a minimum credit rating of R-1 mid from the DBRS or an equivalent rating from Standard & Poor’s or Moody’s and with maturities of 12 months or less at the original date of acquisition.  In addition, the Company is permitted to invest in bankers’ acceptances and other evidences of indebtedness of certain financial institutions. All investments must have a maximum term to maturity of 12 months and the average term will generally range from seven days to 90 days. Under the policy, the Company is not permitted to make investments in asset-backed commercial paper.

The Company’s liquidity is impacted by several factors which include, but are not limited to, gold and copper market prices, capital expenditures, operating costs, interest rates and foreign exchange rates.  These factors are monitored by the Company on a regular basis and will continue to be reviewed.

The Company’s cash flows from operating, investing and financing activities, as presented in the consolidated statements of cash flows, are summarized in the following table for the three months and year ended December 31, 2019 and 2018:

Three months ended December 31							Year ended December 31
(in millions of U.S. dollars, except where noted)	2019			2018			2019			2018
CASH FLOW INFORMATION
Cash generated from continuing operations		47.9			57.8			263.5			193.0
Investing cash flows used by continuing operations (capital expenditures and other)		(99.8	)		(39.0	)		(249.1	)		(212.7	)
Cash generated from investing activities (sale of Mesquite, Peak Mines, and other assets)		2.8			150.6			15.1			193.3
Cash used in financing activities		(46.6	)		(194.3	)		(50.2	)		(312.7	)
Effect of exchange rate changes on cash and cash equivalents		0.3			(0.4	)		0.4			(0.5	)
Cash flows related to discontinued operations		-			-			-			27.2
Change in cash and cash equivalents		(95.4	)		(25.3	)		(20.3	)		(112.5	)

Operating Activities

For the year ended December 31, 2019, the increase in cash generated from continuing operations was due to higher revenue resulting from higher gold prices and sales volume. For the three months ended December 31, 2019, the decrease in cash generated from continuing operation was primarily due to lower revenues resulting from lower sales volume.

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Investing Activities

Cash used in investing activities is primarily for the continued capital investment in the Company’s operating mines and development projects.

The following table summarizes the capital expenditures (mining interests per the consolidated statements of cash flows) for the years ended December 31, 2019 and 2018:

Three months ended December 31					Year ended December 31
(in millions of U.S. dollars)	2019		2018		2019		2018
CAPITAL EXPENDITURES BY SITE
Rainy River		79.4		31.7		185.9		170.6
New Afton		21.1		6.0		61.8		35.9
Blackwater		1.7		1.6		5.1		7.3
Other		0.1		0.1		0.5		0.1
Capital expenditures from continuing operations		102.3		39.4		253.3		213.9

Financing Activities

On August 30, 2019, the Company closed its offering of common shares of the Company. An aggregate of 93,750,000 common shares were issued at a price of C$1.60 per share for net proceeds of $106.7 million.

For the three months and year ended December 31, 2019 cash used in financing activities related to the long-term debt repayment, interest paid, lease payments, and gold stream obligation payments.

The Company’s December 31, 2019 cash balance of $83.4 million, together with $251.1 million available for drawdown under the Credit Facility at December 31, 2019, provided the Company with $334.5 million of liquidity.

The net cash generated by operations is highly dependent on metal prices, including gold and copper, as well as other factors, including the Canadian/U.S. dollar exchange rate. To mitigate a portion of this risk, in December 2018 and early 2019, the Company entered into gold price option collar contracts for 2019 and 2020 production by purchasing put options and selling call options. The Company has purchased put options at an average strike price of $1,300 per ounce and sold call options at an average strike price of $1,355 per ounce for 72,000 ounces of gold production between January 2020 and June 2020 and purchased put options at an average strike price of $1,300 per ounce and sold call options at an average strike price of $1,415 per ounce for 96,000 ounces of gold production between July 2020 and December 2020. Please refer to Note 14 of the consolidated financial statements for further information.

In 2020, the Company is expecting to continue to advance the C-zone development at New Afton resulting in significant capital expenditures. Assuming the continuation of prevailing commodity prices and exchange rates, and operations performing in accordance with mine plans, the Company believes it has adequate liquidity to implement its near-term operational plan and will be able to repay future indebtedness from a combination of internally generated cash flow, refinancing activities and other corporate actions.

Commitments

The Company has entered into a number of contractual commitments for capital items relating to operations and development. At December 31, 2019, these commitments totalled $72.5 million, $72.3 million of which is expected to fall due over the next 12 months. This compares to commitments of $27.2 million as at December 31, 2018. Certain contractual commitments may contain cancellation clauses; however, the Company discloses its commitments based on management’s intent to fulfill the contracts.

24

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. 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. As at December 31, 2019 and 2018 there were no contingent losses recorded.

25

Contractual Obligations

The following is a summary of the Company’s payments due under contractual obligations:

							As at December 31				As at December 31
(in millions of U.S. dollars, except where noted)	< 1 year		1-3 Years		4-5 Years		After 5 Years		2019 Total		2018 Total
CONTRACTUAL OBLIGATIONS
Long-term debt		-		430.3		-		300.0		730.3		800.0
Interest payable on long-term debt		44.2		85.1		38.3		7.1		174.7		242.9
Total lease commitments		9.8		17.0		8.6		-		35.4		19.9
Capital expenditure commitments		72.3		0.2		-		-		72.5		27.2
Reclamation and closure cost obligations		12.7		8.0		6.5		109.7		136.9		116.6
Gold stream obligation		22.0		49.9		54.9		65.9		192.7		267.5
Total contractual obligations		161.0		590.5		108.3		482.7		1,342.5		1,474.1

Related Party Transactions

The Company did not enter into any related party transactions during the three months and year ended December 31, 2019.

Off-Balance Sheet Arrangements

The Company did not have any off-balance sheet arrangements during the three months and year ended December 31, 2019.

Outstanding Shares

As at February 12, 2019, there were 676.0 million common shares of the Company outstanding. The Company had 5.6 million stock options outstanding under its share option plan, exercisable for up to 5.6 million common shares.

26

NON-GAAP FINANCIAL PERFORMANCE MEASURES

Total Cash Costs per Gold Equivalent Ounce

“Total cash costs per gold equivalent ounce” is a non-GAAP measure that is a common financial performance measure in the gold mining industry but with no standard meaning under IFRS. New Gold reports total cash costs on a sales basis. The Company believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company’s performance and ability to generate liquidity through operating cash flow to fund future capital expenditures and working capital needs. New Gold believes that this measure, along with sales, is a key indicator of a Company’s ability to generate operating earnings and cash flow from its mining operations.

Total cash costs are intended to provide additional information only and do not have any standardized meaning under IFRS and may not be comparable to similar measures presented by other mining companies. They should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The measure is not necessarily indicative of cash flow from operations under IFRS or operating costs presented under IFRS.

Total cash cost figures are calculated in accordance with a standard developed by The Gold Institute, a worldwide association of suppliers of gold and gold products that ceased operations in 2002. Adoption of the standard is voluntary and the cost measures presented may not be comparable to other similarly titled measures of other companies. Total cash costs include mine site operating costs such as mining, processing and administration costs, royalties, production taxes and realized gains and losses on fuel contracts, but are exclusive of amortization, reclamation, capital and exploration costs and net of by-product sales. Total cash costs are then divided by gold equivalent ounces sold to arrive at the total cash costs per equivalent ounce sold.

In addition to gold the Company produces copper and silver. Gold equivalent ounces of copper and silver produced or sold in a quarter are computed by calculating the ratio of the average spot market copper and silver prices to the average spot market gold price in a quarter and multiplying this ratio by the pounds of copper and silver ounces produced or sold during that quarter. Gold equivalent ounces produced or sold in a period longer than one quarter are calculated by adding the number of gold equivalent ounces in each quarter of that period. In 2020 the Company will report gold eq. ounces using a consistent ratio. Notwithstanding the impact of copper and silver sales, as a Company focused on gold production, New Gold aims to assess the economic results of its operations in relation to gold, which is the primary driver of New Gold’s business. New Gold believes this metric is of interest to its investors, who invest in the Company primarily as a gold mining Company. To determine the relevant costs associated with gold equivalent ounces, New Gold believes it is appropriate to reflect all operating costs that are extracted in its operations.

Previously New Gold calculated total cash costs per ounce for Rainy River and Cerro San Pedro net of by-product silver sales revenue. New Gold has calculated New Afton total cash costs per ounce net of by-product silver and copper sales revenue for comparative purposes. Total cash costs per gold ounce net of by-product sales and are divided by gold ounces sold to arrive at a per ounce figure. New Gold notes that in connection with New Afton, the copper by-product revenue was sufficiently large to result in a negative total cash cost on a single mine basis.

To provide additional information to investors, New Gold has also calculated total cash costs at New Afton on an individual co-product basis which apportions the cash costs to each metal produced on a percentage of revenue basis, and subsequently divides the amount by the total gold ounces, silver ounces or pounds of copper sold, as the case may be, to arrive at per ounce or per pound figures.

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Sustaining Capital

"Sustaining capital" is a non-GAAP financial measure as well as “sustaining lease”. New Gold defines sustaining capital as net capital expenditures that are intended to maintain operation of its gold producing assets. A sustaining lease is similarly a capital lease payment that is sustaining in nature. To determine sustaining capital expenditures, New Gold uses cash flow related to mining interests from its statement of cash flows and deducts any expenditures that are non-sustaining or growth capital. Management uses sustaining capital and other sustaining costs, to understand the aggregate net result of the drivers of all-in sustaining costs other than total cash costs.  Sustaining capital and sustaining lease are intended to provide additional information only, does not have any standardized meaning under IFRS, and may not be comparable to similar measures presented by other mining companies. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Growth Capital

"Growth capital" is a non-GAAP financial measure. New Gold terms non-sustaining capital costs to be “growth capital”, which are capital expenditures to develop new operations or capital expenditures related to major projects at existing operations where these projects will materially increase production. To determine growth capital expenditures, New Gold uses cash flow related to mining interests from its statement of cash flows and deducts any expenditures that are sustaining capital. Growth capital is intended to provide additional information only, does not have any standardized meaning under IFRS, and may not be comparable to similar measures presented by other mining companies. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

All-in Sustaining Costs per Gold Equivalent Ounce

“All-in sustaining costs per gold equivalent ounce” is a non-GAAP measure based on guidance announced by the World Gold Council (“WGC”) in September 2013. The WGC is a non-profit association of the world’s leading gold mining companies established in 1987 to promote the use of gold to industry, consumers and investors. The WGC is not a regulatory body and does not have the authority to develop accounting standards or disclosure requirements.  The WGC has worked with its member companies, including New Gold, to develop a measure that expands on IFRS measures such as operating expenses and non-GAAP measures to provide visibility into the economics of a gold mining company. Current IFRS measures used in the gold industry, such as operating expenses, do not capture all of the expenditures incurred to discover, develop and sustain gold production. New Gold believes the all-in sustaining costs measure provides further transparency into costs associated with producing gold and will assist analysts, investors, and other stakeholders of the Company in assessing its operating performance, its ability to generate free cash flow from current operations and its overall value. In addition, the Compensation Committee of the Board of Directors uses all-in sustaining costs, together with other measures, in its Company scorecard to set incentive compensation goals and assess performance.

All-in sustaining costs per gold equivalent ounce is intended to provide additional information only and does not have any standardized meaning under IFRS and may not be comparable to similar measures presented by other mining companies. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The measure is not necessarily indicative of cash flow from operations under IFRS or operating costs presented under IFRS.

28

New Gold defines all-in sustaining costs per gold equivalent ounce as the sum of total cash costs, net capital expenditures that are sustaining in nature, corporate general and administrative costs, capitalized and expensed exploration that is sustaining in nature, lease payments that are sustaining in nature, and environmental reclamation costs, all divided by the total gold equivalent ounces sold to arrive at a per ounce figure. The table “Sustaining Capital Expenditure Reconciliation” reconciles New Gold’s sustaining capital to its cash flow statement.  The definition of sustaining versus non-sustaining is similarly applied to capitalized and expensed exploration costs and lease payments. Exploration costs and lease payments to develop new operations or that relate to major projects at existing operations where these projects are expected to materially increase production are classified as non-sustaining and are excluded. Gold equivalent ounces of copper and silver produced or sold in a quarter are computed by calculating the ratio of the average spot market copper and silver prices to the average spot market gold price in a quarter and multiplying this ratio by the pounds of copper and silver ounces produced or sold during that quarter. Gold equivalent ounces produced or sold in a period longer than one quarter are calculated by adding the number of gold equivalent ounces in each quarter of that period. In 2020 the Company will report gold eq. ounces using a consistent ratio.

Costs excluded from all-in sustaining costs are non-sustaining capital expenditures, non-sustaining lease payments and exploration costs, financing costs, tax expense, and transaction costs associated with mergers, acquisitions and divestitures, and any items that are deducted for the purposes of adjusted earnings.

Previously New Gold calculated all-in sustaining costs per ounce for Rainy River and Cerro San Pedro net of by-product silver sales revenue. New Gold has calculated New Afton all-in sustaining costs per ounce net of by-product silver and copper sales revenue for comparative purposes. All-in sustaining costs per gold ounce net of by-product sales and are divided by gold ounces sold to arrive at a per ounce figure. New Gold notes that in connection with New Afton, the copper by-product revenue was sufficiently large to result in a negative all in sustaining cost.

To provide additional information to investors, New Gold has also calculated New Afton all-in sustaining costs per ounce on an individual co-product basis, which apportions the all-in sustaining costs to each metal produced on a percentage of revenue basis, and subsequently divides the amount by the total gold ounces, silver ounces or pounds of copper sold, as the case may be, to arrive at per ounce or per pound figures.

29

Cash Costs and AISC per Gold Equivalent Ounce Reconciliation Tables

The following tables reconcile these non-GAAP measures to the most directly comparable IFRS measure on an aggregate and mine-by-mine basis.

	Three months ended December 31
(in millions of U.S. dollars, except where noted)	2019			2018
CONSOLIDATED OPEX, CASH COST AND AISC FROM CONTINUING OPERATIONS RECONCILIATION
Operating expenses		105.2			75.9
Gold equivalent ounces sold(2)		104,446			131,110
Operating expenses per gold equivalent ounce sold ($/ounce)		1,007			579
Operating expenses		105.2			75.9
Treatment and refining charges on concentrate sales		7.3			7.0
Adjustments(1)		(14.1	)		(6.7	)
Total cash costs		98.4			76.2
Gold equivalent ounces sold(2)		104,446			131,110
Total cash costs per gold equivalent ounce sold ($/ounce)		942			581
Sustaining capital expenditures(3)(5)		87.6			29.4
Sustaining exploration - expensed		-			1.4
Sustaining leases		2.2			-
Corporate G&A including share-based compensation(4)		4.4			9.5
Reclamation expenses		1.8			2.0
Total all-in sustaining costs		194.4			118.5
Gold equivalent ounces sold(2)		104,446			131,110
All-in sustaining costs per gold equivalent ounce sold ($/ounce)		1,862			904

1. Adjustments in the current period include the stockpile inventory write-down at Rainy River included in operating expenses. Adjustments in the prior period include the non-cash heap leach inventory write-down and social closure costs incurred at Cerro San Pedro included in operating expenses.

2. Gold eq. ounces produced includes silver ounces and copper pounds converted to a gold eq. based on a ratio of the average spot market prices for the commodities for each period. The ratio for Q4 2019 was calculated based on average spot market prices of $1,480 per gold ounce, $17.31 per silver ounce and $2.67 per copper pound. The ratio for Q4 2018 was calculated based on average spot market prices of $1,228 per gold ounce, $14.54 per silver ounce and $2.80 per copper pound.

3. See “Total Sustaining Capital Expenditures Reconciliation” to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.

4. Includes the sum of corporate administration costs and share-based payment expense per the income statement, net of any non-cash depreciation within those figures.

5. Sustaining capital expenditures are net of proceeds from disposal of assets.

30

	Year ended December 31
(in millions of U.S. dollars, except where noted)	2019			2018
CONSOLIDATED OPEX, CASH COST AND AISC FROM CONTINUING OPERATIONS RECONCILIATION
Operating expenses		371.9			325.4
Gold equivalent ounces sold(2)		488,165			495,453
Operating expenses per gold equivalent ounce sold ($/ounce)		762			657
Operating expenses		371.9			325.4
Treatment and refining charges on concentrate sales		28.6			30.0
Adjustments(1)		(14.1	)		(16.9	)
Total cash costs		386.4			338.5
Gold equivalent ounces sold(2)		488,165			495,453
Total cash costs per gold equivalent ounce sold ($/ounce)		792			684
Sustaining capital expenditures(3)(5)		214.7			173.2
Sustaining exploration - expensed		0.3			2.9
Sustaining leases		12.9			-
Corporate G&A including share-based compensation(4)		18.4			23.2
Reclamation expenses		6.6			6.6
Total all-in sustaining costs		639.3			544.4
Gold equivalent ounces sold(2)		488,165			495,453
All-in sustaining costs per gold equivalent ounce sold ($/ounce)		1,310			1,099

1. Adjustments in the current year include the stockpile inventory write-down at Rainy River included in operating expenses. Adjustments in the prior year include the non-cash heap leach inventory write-down and social closure costs incurred at Cerro San Pedro included in operating expenses.

2. Gold equivalent ounces includes silver ounces and copper pounds produced converted to a gold equivalent based on a ratio of the average spot market prices for the commodities for each period.

3. See “Total Sustaining Capital Expenditures Reconciliation” to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.

4. Includes the sum of corporate administration costs and share-based payment expense per the income statement, net of any non-cash depreciation within those figures.

5. Sustaining capital expenditures are net of proceeds from disposal of assets.

31

	Three months ended December 31
(in millions of U.S. dollars, except where noted)	2019			2018
RAINY RIVER OPEX, CASH COSTS AND AISC RECONCILIATION
Operating expenses		73.2			43.3
Gold Equivalent Ounces sold (1)		57,258			66,880
Operating expenses per unit of gold sold ($/ounce)		1,278			648
Operating expenses		73.2			43.3
Adjustments(4)		(14.1	)		-
Total cash costs		59.1			43.3
Gold Equivalent Ounces sold		57,258			66,880
Total cash costs per Gold Equivalent Ounce sold ($/ounce)		1,032			648
Sustaining capital expenditures(2)(3)		77.0			25.6
Sustaining leases		2.0			-
Sustaining exploration - expensed		-			0.1
Reclamation expenses		1.0			1.6
Total all-in sustaining costs		139.1			70.6
Gold Equivalent Ounces sold (1)		57,258			66,880
All-in sustaining costs per Gold Equivalent Ounce sold ($/ounce)		2,429			1,056

1. Gold eq. ounces for Rainy River includes silver ounces produced or sold converted to a gold eq. based on a ratio of the average spot market prices for the commodities for each period. The ratio for Q4 2019 was calculated based on average spot market prices of $1,480 per gold ounce, $17.31 per silver ounce and $2.67 per copper pound. The ratio for Q4 2018 was calculated based on average spot market prices of $1,228 per gold ounce, $14.54 per silver ounce and $2.80 per copper pound.

2. See “Total Sustaining Capital Expenditures Reconciliation” to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.

3. Sustaining capital expenditures are net of proceeds from disposal of assets.

4. Adjustments in the current year include the stockpile inventory write-down at Rainy River included in operating expenses.

	Year ended December 31
(in millions of U.S. dollars, except where noted)	2019			2018
RAINY RIVER OPEX, CASH COSTS AND AISC RECONCILIATION
Operating expenses		258.4			179.9
Gold Equivalent Ounces sold (1)		268,718			217,771
Operating expenses per unit of gold sold ($/ounce)		962			826
Operating expenses Treatment and refining charges		258.4 0.1			179.9 -
Adjustments(4)		(14.1	)		-
Total cash costs		244.4			179.9
Gold Equivalent Ounces sold		268,718			217,771
Total cash costs per Gold Equivalent Ounce sold ($/ounce)		910			826
Sustaining capital expenditures(2)(3)		176.5			141.9
Sustaining exploration expense		-			0.5
Sustaining leases		12.2			-
Reclamation expenses		4.8			4.0
Total all-in sustaining costs		437.9			326.3
Gold Equivalent Ounces sold (1)		268,718			217,771
All-in sustaining costs per Gold Equivalent Ounce sold ($/ounce)		1,630			1,498

1. Gold eq. ounces for Rainy River includes silver ounces produced converted to a gold equivalent based on a ratio of the average spot market prices for the commodities for each period.

2. See “Total Sustaining Capital Expenditures Reconciliation” to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.

3. Sustaining capital expenditures are net of proceeds from disposal of assets.

4. Adjustments in the current year include the stockpile inventory write-down at Rainy River included in operating expenses.

32

	Three months ended December 31
(in millions of U.S. dollars, except where noted)	2019		2018
NEW AFTON OPEX, CASH COSTS AND AISC RECONCILIATION ON A GOLD EQUIVALENT BASIS
Operating expenses		32.0		24.5
Gold Equivalent Ounces sold (1)		47,188		63,004
Operating expenses per unit of gold sold ($/ounce)		678		388
Operating expenses		32.0		24.5
Treatment and refining charges on concentrate sales		7.3		7.0
Total cash costs		39.3		31.5
Gold Equivalent Ounces sold (1)		47,188		63,004
Total cash costs per Gold Equivalent Ounce sold ($/ounce)		833		499
Sustaining capital expenditures(2)		10.6		5.0
Sustaining exploration - expensed		-		0.1
Sustaining leases		0.1		-
Reclamation expenses		0.8		0.4
Total all-in sustaining costs		50.8		37.0
Gold Equivalent Ounces sold (1)		47,188		63,004
All-in sustaining costs per Gold Equivalent Ounce sold ($/ounce)		1,076		587

1. Gold eq. ounces for New Afton includes silver ounces and copper pounds produced or sold converted to a gold eq. based on a ratio of the average spot market prices for the commodities for each period.  The ratio for Q4 2019 was calculated based on average spot market prices of $1,480 per gold ounce, $17.31 per silver ounce and $2.67 per copper pound. The ratio for Q4 2018 was calculated based on average spot market prices of $1,228 per gold ounce, $14.54 per silver ounce and $2.80 per copper pound.

2. See “Total Sustaining Capital Expenditures Reconciliation” to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.

	Year ended December 31
(in millions of U.S. dollars, except where noted)	2019		2018
NEW AFTON OPEX, CASH COSTS AND AISC RECONCILIATION ON A GOLD EQUIVALENT BASIS
Operating expenses		113.5		104.3
Gold Equivalent Ounces sold (1)		219,447		265,247
Operating expenses per unit of gold sold ($/ounce)		517		393
Operating expenses		113.5		104.3
Treatment and refining charges on concentrate sales		28.5		30.0
Total cash costs		142.0		134.3
Gold Equivalent Ounces sold (1)		219,447		265,247
Total cash costs per Gold Equivalent Ounce sold ($/ounce)		647		507
Sustaining capital expenditures(2)		37.7		32.6
Sustaining exploration - expensed		-		0.4
Sustaining leases		0.3		-
Reclamation expenses		1.9		1.8
Total all-in sustaining costs		181.9		169.0
Gold Equivalent Ounces sold (1)		219,447		265,247
All-in sustaining costs per Gold Equivalent Ounce sold ($/ounce)		829		638

1.
Gold equivalent ounces for New Afton includes silver ounces and copper pounds produced converted to a gold equivalent based on a ratio of the average spot market prices for the commodities for each period.

2.
See “Total Sustaining Capital Expenditures Reconciliation” to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.

33

Three months ended December 31, 2019
(in millions of U.S. dollars, except where noted)	Gold		Copper		Silver		Total
NEW AFTON OPEX, CASH COSTS AND AISC RECONCILIATION ON A CO-PRODUCT BASIS
Operating expenses(1)		9.8		21.7		0.5		32.0
Units of metal sold (ounces/millions of pounds/millions of ounces)		15,301		17.3		0.1
Operating expenses per unit of metal sold ($/ounce or pound)		640		1.26		7.70
Operating expenses		9.8		21.7		0.5		32.0
Treatment and refining charges on concentrate sales		2.2		5.0		0.1		7.3
Total cash costs		12.0		26.7		0.6		39.3
By-product silver and copper sales								(47.3	)
Total cash costs net of by-product revenue								(8.0	)
Units of metal sold (ounces/millions of pounds/millions of ounces)		15,301		17.3		0.1
Total cash costs on a co-product basis(2) ($/ounce or pound)		786		1.55		9.47
Total cash costs per gold ounce sold ($/ounce)								(525	)
Total co-product cash costs		12.0		26.7		0.6
Total cash costs net of by-product revenue								(8.0	)
Sustaining capital expenditures(3)		3.2		7.2		0.2		10.6
Sustaining leases		-		0.1		-		0.1
Reclamation expenses		0.2		0.5		-		0.7
Total co-product all-in sustaining costs		15.4		34.5		0.8
Total all-in sustaining costs net of by-product revenue								3.5
All-in sustaining costs on a co-product basis(2) ($/ounce or pound)		1,016		2.00		12.23
All-in sustaining costs per gold ounce sold ($/ounce)								226

1. Operating expenses are apportioned to each metal produced on a percentage of revenue basis.

2. Amounts presented on a co-product basis remove the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.

3. See “Total Sustaining Capital Expenditures Reconciliation” to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.

Three months ended December 31, 2018
(in millions of U.S. dollars, except where noted)	Gold		Copper		Silver		Total
NEW AFTON OPEX, CASH COSTS AND AISC RECONCILIATION ON A CO-PRODUCT BASIS
Operating expenses(1)		6.4		17.7		0.3		24.5
Units of metal sold (ounces/millions of pounds/millions of ounces)		17,176		19.7		0.1
Operating expenses per unit of metal sold ($/ounce or pound)		375		0.90		4.15
Operating expenses		6.4		17.7		0.3		24.5
Treatment and refining charges on concentrate sales		1.8		5.1		0.1		7.0
Total cash costs		8.2		22.8		0.4		31.5
By-product silver and copper sales								(59.4	)
Total cash costs net of by-product revenue								(27.9	)
Units of metal sold (ounces/millions of pounds/millions of ounces)		17,176		19.7		0.1
Total cash costs on a co-product basis(2) ($/ounce or pound)		482		1.16		5.2
Total cash costs per gold ounce sold ($/ounce)								(1,629	)
Total co-product cash costs		8.3		22.8		0.4
Total cash costs net of by-product revenue								(27.9	)
Sustaining capital expenditures(3)		1.3		3.7		0.1		5.1
Sustaining exploration expense		-		0.1		-		0.1
Reclamation expenses		0.1		0.3		-		0.4
Total co-product all-in sustaining costs		9.7		26.9		0.5
Total all-in sustaining costs net of by-product revenue								(22.4	)
All-in sustaining costs on a co-product basis(2) ($/ounce or pound)		567		1.36		6.12
All-in sustaining costs per gold ounce sold ($/ounce)								(1,306	)

1. Operating expenses are apportioned to each metal produced on a percentage of revenue basis.

2. Amounts presented on a co-product basis remove the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.

3. See “Total Sustaining Capital Expenditures Reconciliation” to reconcile sustaining capital expenditures to mining interests per the statement of cash flow.

34

Year ended December 31, 2019
(in millions of U.S. dollars, except where noted)	Gold		Copper		Silver		Total
NEW AFTON OPEX, CASH COSTS AND AISC RECONCILIATION ON A CO-PRODUCT BASIS
Operating expenses(1)		33.5		78.3		1.8		113.5
Units of metal sold (ounces/millions of pounds/millions of ounces)		65,694		76.4		0.3
Operating expenses per unit of metal sold ($/ounce or pound)		509		1.02		6.27
Operating expenses		33.5		78.3		1.8		113.5
Treatment and refining charges on concentrate sales		8.4		19.6		0.4		28.5
Total cash costs		41.9		97.9		2.2		142.0
By-product silver and copper sales								(211.8	)
Total cash costs net of by-product revenue								(69.9	)
Units of metal sold (ounces/millions of pounds/millions of ounces)		65,694		76.4		0.3
Total cash costs on a co-product basis(2) ($/ounce or pound)		637		1.28		7.84
Total cash costs per gold ounce sold ($/ounce)								(1,063	)
Total co-product cash costs		41.9		97.9		2.2
Total cash costs net of by-product revenue								(69.9	)
Sustaining capital expenditures(3)		11.1		26.0		0.6		37.7
Sustaining leases		0.1		0.2		-		0.3
Reclamation expenses		0.6		1.3		-		1.9
Total co-product all-in sustaining costs		53.6		125.4		2.8
Total all-in sustaining costs net of by-product revenue								(30.0	)
All-in sustaining costs on a co-product basis(2) ($/ounce or pound)		816		1.64		10.04
All-in sustaining costs per gold ounce sold ($/ounce)								(456	)

1.  Operating expenses are apportioned to each metal produced on a percentage of revenue basis.

2. Amounts presented on a co-product basis remove the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.

3. See “Total Sustaining Capital Expenditures Reconciliation” to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.

35

Year ended December 31, 2018
(in millions of U.S. dollars, except where noted)	Gold		Copper		Silver		Total
NEW AFTON OPEX, CASH COSTS AND AISC RECONCILIATION ON A CO-PRODUCT BASIS
Operating expenses(1)		27.8		75.1		1.4		104.3
Units of metal sold (ounces/millions of pounds/millions of ounces)		72,489		81.1		0.3
Operating expenses per unit of metal sold ($/ounce or pound)		384		0.93		4.53
Operating expenses		27.8		75.1		1.4		(104.3	)
Treatment and refining charges on concentrate sales		8.0		21.6		0.4		30.0
Total cash costs		35.8		96.7		1.8		134.3
By-product silver and copper sales								(252.2	)
Total cash costs net of by-product revenue								(117.9	)
Units of metal sold (ounces/millions of pounds/millions of ounces)		72,489		81.1		0.3
Total cash costs on a co-product basis(2) ($/ounce or pound)		495		1.19		5.84
Total cash costs per gold ounce sold ($/ounce)								(1,626	)
Total co-product cash costs		35.8		96.7		1.8
Total cash costs net of by-product revenue								(117.9	)
Sustaining capital expenditures(3)		8.7		23.5		0.4		32.6
Sustaining exploration expense		0.1		0.3		-		0.4
Reclamation expenses		0.5		1.3		-		1.8
Total co-product all-in sustaining costs		45.1		121.8		2.2
Total all-in sustaining costs net of by-product revenue								(83.1	)
All-in sustaining costs on a co-product basis(2) ($/ounce or pound)		623		1.50		7.35
All-in sustaining costs per gold ounce sold ($/ounce)								(1,147	)

1.  Operating expenses are apportioned to each metal produced on a percentage of revenue basis.

2. Amounts presented on a co-product basis remove the impact of other metal sales that are produced as a by-product of our gold production and apportions the cash costs to each metal produced on a percentage of revenue basis.

3. See “Total Sustaining Capital Expenditures Reconciliation” to reconcile sustaining capital expenditures to mining interests per the statement of cash flows.

Sustaining Capital Expenditures ReconciliationTables

Three months ended December 31							Year ended December 31
(in millions of U.S. dollars, except where noted)	2019			2018			2019			2018
TOTAL SUSTAINING CAPITAL EXPENDITURES
Mining interests per statement of cash flows		102.3			39.4			253.3			213.9
New Afton growth capital expenditures(1)		(10.5	)		(1.0	)		(24.1	)		(3.3	)
Rainy River growth capital expenditures(1)		(0.1	)		(6.1	)		(6.8	)		(28.5	)
Blackwater growth capital expenditures		(1.7	)		(1.6	)		(5.1	)		(7.3	)
Sustaining capital expenditures		90.0			30.7			217.4			174.8

1. Growth capital expenditures at New Afton in the current period and prior-year period relate to project advancement for the C-zone. Growth capital expenditures at Rainy River in the current period is primarily the purchase of underground infrastructure and in the prior-year period related to the payment of working capital for project development (pre-commercial production).

36

Adjusted Net Earnings and Adjusted Net Earnings from Continuing Operations per Share

“Adjusted net earnings from continuing operations” and “adjusted net earnings from continuing operations per share” are non-GAAP financial measures with no standard meaning under IFRS which exclude the following from net earnings:

● Impairment losses;

● Inventory write-downs;

● Items included in “Other gains and losses” as per Note 5 of the Company’s consolidated financial statements; and

● Certain non-recurring items.

Earnings from continuing operations have been adjusted, including the associated tax impact, for the group of costs in “Other gains and losses” on the condensed consolidated income statements. Key entries in this grouping are: the fair value changes for the gold stream obligation; the gold and copper option contracts; foreign exchange forward contracts; foreign exchange gain or loss and loss on disposal of assets. The adjusted entries are also impacted for tax to the extent that the underlying entries are impacted for tax in the unadjusted net earnings.

The Company uses adjusted net earnings for its own internal purposes. Management’s internal budgets and forecasts and public guidance do not reflect the items which have been excluded from the determination of adjusted net earnings. Consequently, the presentation of adjusted net earnings enables shareholders to better understand the underlying operating performance of our core mining business through the eyes of management. Management periodically evaluates the components of adjusted net earnings based on an internal assessment of performance measures that are useful for evaluating the operating performance of our business and a review of the non-GAAP measures used by mining industry analysts and other mining companies. Adjusted net earnings are intended to provide additional information only and does not have any standardized meaning under IFRS and may not be comparable to similar measures presented by other companies. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The measure is not necessarily indicative of operating profit or cash flows from operations as determined under IFRS. The following table reconciles this non-GAAP measure to the most directly comparable IFRS measure.

Three months ended December 31										Year ended December 31
(in millions of U.S. dollars, except where noted)	2019			2018			2019			2018			2017
ADJUSTED NET LOSS FROM CONTINUING OPERATIONS RECONCILIATION
Loss before taxes		(6.3	)		(663.7	)		(73.9	)		(1,096.0	)		(242.6	)
Other losses (gains)(1)		(45.0	)		(14.3	)		5.6			(18.1	)		(46.6	)
Loss (gain) on debt modification		0.6			-			1.2			-			(3.3	)
Asset impairment		-			671.1			-			1,054.8			268.4
Inventory write-down		19.8			6.4			19.8			16.9			-
Corporate restructuring		1.1			1.8			1.1			4.1			4.2
Adjusted net loss before taxes		(29.8	)		1.3			(46.2	)		(38.3	)		(19.9	)
Income tax recovery (expense)		6.6			(78.8	)		0.4			10.4			84.6
Income tax adjustments		(4.8	)		85.4			(1.4	)		2.5			(85.7	)
Adjusted income tax (expense) recovery		1.8			6.6			(1.0	)		12.9			(1.1	)
Adjusted net (loss) earnings		(28.0	)		7.9			(47.2	)		(25.4	)		(21.0	)
Adjusted (loss) earnings per share (basic and diluted)		(0.04	)		0.01			(0.08	)		(0.04	)		(0.04	)

1. Please refer to Note 5 of the Company’s consolidated financial statements for a detailed breakdown of other gains and losses.

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Operating Cash Flows Generated from Operations, before Changes in Non-Cash Operating Working Capital

“Operating cash flows generated from operations, before changes in non-cash operating working capital” is a non-GAAP financial measure with no standard meaning under IFRS, which excludes changes in non-cash operating working capital. Management uses this measure to evaluate the Company’s ability to generate cash from its operations before temporary working capital changes.

Operating cash flows generated from operations, before non-cash changes in working capital is intended to provide additional information only and does not have any standardized meaning under IFRS; it should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Other companies may calculate this measure differently and this measure is unlikely to be comparable to similar measures presented by other companies.

Three months ended December 31									Year ended December 31
(in millions of U.S. dollars)	2019			2018		2019			2018		2017
CASH RECONCILIATION FROM CONTINUING OPERATIONS
Cash generated from operations		47.9			57.8		263.5			193.0		197.1
Add back (deduct): Change in non-cash operating working capital		(9.1	)		17.0		(25.9	)		71.6		(43.8	)
Cash generated from operations before changes in non-cash operating working capital		38.8			74.8		237.6			264.6		153.3

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Operating Margin

“Operating margin” is a non-GAAP financial measure with no standard meaning under IFRS, which management uses to evaluate the Company’s aggregated and mine-by-mine contribution to net earnings before non-cash depreciation and depletion charges. Operating margin is calculated as revenue less operating expenses and therefore does not include depreciation and depletion. Operating margin is intended to provide additional information only and does not have any standardized meaning under IFRS; it should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Other companies may calculate this measure differently and this measure is unlikely to be comparable to similar measures presented by other companies. The following tables reconcile this non-GAAP measure to the most directly comparable IFRS measure on an aggregated and mine-by-mine basis.

Operating Margin Reconciliation Tables

	Three months ended December 31				Year ended December 31
(in millions of U.S. dollars)	2019		2018		2019		2018
TOTAL OPERATING MARGIN
Revenue		139.2		157.4		630.6		604.5
Less: Operating expenses		105.2		75.9		371.9		325.4
Total operating margin		34.0		81.5		258.7		279.1

	Three months ended December 31				Year ended December 31
(in millions of U.S. dollars)	2019		2018		2019		2018
RAINY RIVER OPERATING MARGIN
Revenue		78.4		82.2		358.9		274.4
Less: Operating expenses		73.2		43.3		258.4		179.9
Rainy River operating margin		5.2		38.9		100.5		94.5

	Three months ended December 31				Year ended December 31
(in millions of U.S. dollars)	2019		2018		2019		2018
NEW AFTON OPERATING MARGIN
Revenue		60.8		73.7		271.7		314.1
Less: Operating expenses		32.0		24.5		113.5		104.3
New Afton operating margin		28.8		49.2		158.2		209.8

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Average Realized Price

“Average realized price per ounce of gold sold” is a non-GAAP financial measure with no standard meaning under IFRS. Management uses this measure to better understand the price realized in each reporting period for gold sales. Average realized price is intended to provide additional information only and does not have any standardized meaning under IFRS; it should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Other companies may calculate this measure differently and this measure is unlikely to be comparable to similar measures presented by other companies. The following tables reconcile this non-GAAP measure to the most directly comparable IFRS measure on an aggregate and mine-by-mine basis.

	Three months ended December 31				Year ended December 31
(in millions of U.S. dollars, except where noted)	2019		2018		2019		2018
TOTAL AVERAGE REALIZED PRICE FROM CONTINUING OPERATIONS
Revenue from gold sales		95.8		101.9		434.4		368.2
Treatment and refining charges on gold concentrate sales		2.1		1.8		8.3		8.0
Gross revenue from gold sales		97.9		103.7		442.7		376.2
Gold ounces sold		71,691		84,421		331,053		298,002
Total average realized price per gold ounce sold ($/ounce)		1,366		1,230		1,337		1,263

	Three months ended December 31				Year ended December 31
(in millions of U.S. dollars, except where noted)	2019		2018		2019		2018
RAINY RIVER AVERAGE REALIZED PRICE
Revenue from gold sales		77.1		81.2		354.4		270.6
Gold ounces sold		56,390		66,123		265,359		214,804
Rainy River average realized price per gold ounce sold ($/ounce)		1,366		1,229		1,335		1,260

	Three months ended December 31				Year ended December 31
(in millions of U.S. dollars, except where noted)	2019		2018		2019		2018
NEW AFTON AVERAGE REALIZED PRICE
Revenue from gold sales		18.7		19.3		80.2		83.8
Treatment and refining charges on gold concentrate sales		2.1		1.8		8.3		8.0
Gross revenue from gold sales		20.8		21.1		88.5		91.8
Gold ounces sold		15,301		17,176		65,694		72,489
New Afton average realized price per gold ounce sold ($/ounce)		1,364		1,237		1,348		1,266

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ENTERPRISERISK MANAGEMENT AND RISK FACTORS

The Company is subject to various financial and other risks that could materially adversely affect the Company’s future business, operations and financial condition. The following is a summary of certain risks facing the Company. For a more comprehensive discussion of these and other risks facing Company, please refer to the section entitled “Risk Factors” in the Company’s most recent Annual Information Form filed on SEDAR at www.sedar.com.

Financial Risk Management

The Company examines the various financial instrument risks to which it is exposed and assesses the impact and likelihood of those risks.  These risks may include credit risk, liquidity risk, market risk and other price risks. Where material, these risks are reviewed and monitored by the Board of Directors.

(a) Credit risk

Credit risk is the risk of an unexpected loss if a party to the Company’s financial instruments fails to meet its contractual obligations. The Company’s financial assets are primarily composed of cash and cash equivalents, and trade and other receivables. Credit risk is primarily associated with trade and other receivables; however, it also arises on cash and cash equivalents and gold price options. To mitigate exposure to credit risk, the Company has established policies to limit the concentration of credit risk, to ensure counterparties demonstrate minimum acceptable credit worthiness, and to ensure liquidity of available funds.

The Company closely monitors its financial assets and does not have any significant concentration of credit risk. The Company sells its gold exclusively to large international organizations with strong credit ratings. The historical level of customer defaults is minimal and, as a result, the credit risk associated with gold and copper concentrate trade receivables at December 31, 2019 is not considered to be high.

The Company’s maximum exposure to credit risk is as follows:

	Year ended December 31
(in millions of U.S. dollars)	2019		2018
CREDIT RISK EXPOSURE
Cash and cash equivalents		83.4		103.7
Trade and other receivables		23.7		35.9
Total financial instrument exposure to credit risk		107.1		139.6

A significant portion of the Company’s cash and cash equivalents is held in large Canadian financial institutions. Short-term investments (including those presented as part of cash and cash equivalents) are composed of financial instruments issued by Canadian banks with high investment-grade ratings and the governments of Canada and the U.S.

The Company employs a restrictive investment policy as detailed in the capital risk management section, which is described in Note 21 of the consolidated financial statements.

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The aging of trade and other receivables is as follows:

											As at December 31
(in millions of U.S. dollars)	0-30 days		31-60 days		61-90 days		91-120 days		Over 120 days		2019 Total		2018 Total
AGING TRADE AND OTHER RECEIVABLES
Rainy River		4.5		-		-		-		1.0		5.5		8.8
New Afton		3.4		-		-		2.9		-		6.3		8.3
Cerro San Pedro		0.5		0.1		0.1		0.1		0.6		1.4		5.1
Blackwater		-		-		-		-		0.3		0.3		0.3
Corporate		10.2		-		-		-		-		10.2		13.4
Total trade and other receivables		18.6		0.1		0.1		3.0		1.9		23.7		35.9

The Company sells its gold and copper concentrate production from New Afton to five different customers under off-take contracts.

The Company is not economically dependent on a limited number of customers for the sale of its gold and other metals because gold and other metals can be sold through numerous commodity market traders worldwide.

(b) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure and financial leverage, as outlined in Note 21 of the consolidated financial statements.

The following table shows the contractual maturities of debt commitments.  The amounts presented represent the future undiscounted principal and interest cash flows, and therefore, do not equate to the carrying amounts on the consolidated statements of financial position.

As at December 31
(in millions of U.S. dollars)	< 1 year		1-3 years		4-5 years		After 5 years		2019 Total		2018 Total
DEBT COMMITMENTS
Trade and other payables		150.0		-		-		-		150.0		112.6
Long-term debt		-		430.3		-		300.0		730.3		800.0
Interest payable on long-term debt		44.2		85.1		38.3		7.1		174.7		242.9
Gold stream obligation		22.0		49.9		54.9		65.9		192.7		267.5
Total debt commitments		216.2		565.3		93.2		373.0		1,247.7		1,423.0

The Company’s future operating cash flow and cash position are highly dependent on metal prices, including gold and copper, as well as other factors. Taking into consideration the Company’s current cash position, volatile equity markets, and global uncertainty in the capital markets, the Company is continually reviewing expenditures and assessing business opportunities to enhance liquidity in order to ensure adequate liquidity and flexibility to support its growth strategy, including the development of its projects, while continuing production at its current operations. A period of continuous low gold and copper prices may necessitate the deferral of capital expenditures which may impact the timing of development work and project completion, as well as production from mining operations. In addition, in such a price environment, the Company may be required to adopt one or more alternatives to increase liquidity.

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(c) Currency Risk

The Company operates in Canada and Mexico. As a result, the Company has foreign currency exposure with respect to items not denominated in U.S. dollars. The three main types of foreign exchange risk for the Company can be categorized as follows:

(i) Transaction exposure

The Company’s operations sell commodities and incur costs in different currencies. This creates exposure at the operational level, which may affect the Company’s profitability as exchange rates fluctuate.

(ii) Exposure to currency risk

The Company is exposed to currency risk through the following assets and liabilities denominated in currencies other than the U.S. dollar: cash and cash equivalents, investments; accounts receivable, accounts payable and accruals, reclamation and closure cost obligations.

The currencies of the Company’s financial instruments and other foreign currency denominated liabilities, based on notional amounts, were as follows:

	As at December 31, 2019
(in millions of U.S. dollars)	CAD			MXN
EXPOSURE TO CURRENCY RISK
Cash and cash equivalents		11.0			0.3
Trade and other receivables		7.0			0.9
Income tax (payable) receivable		(0.3	)		4.6
Trade and other payables		(86.8	)		(13.5	)
Deferred tax liability		(48.3	)		-
Reclamation and closure cost obligations		(93.3	)		(1.4	)
Share units		(1.9	)		-
Total exposure to currency risk		212.6			(9.1	)

	As at December 31, 2018
(in millions of U.S. dollars)	CAD			MXN
EXPOSURE TO CURRENCY RISK
Cash and cash equivalents		12.9			0.6
Trade and other receivables		9.9			4.9
Income tax receivable		-			4.6
Trade and other payables		(105.0	)		(14.1	)
Deferred tax liability		(54.5	)		-
Reclamation and closure cost obligations		(72.6	)		(13.5	)
Performance share units and restricted share units		(0.5	)		-
Total exposure to currency risk		209.8			(17.5	)

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(iii) Translation exposure

The Company’s functional and reporting currency is U.S. dollars. The Company’s operations translate their operating results from the host currency to U.S. dollars. Therefore, exchange rate movements in the Canadian dollar and Mexican peso can have a significant impact on the Company’s consolidated operating results. A 10% strengthening (weakening) of the U.S. dollar against the following currencies would have decreased (increased) the Company’s net loss from the financial instruments presented by the amounts shown below.

	Year ended December 31
(in millions of U.S. dollars)	2019		2018
IMPACT OF 10% CHANGE IN FOREIGN EXCHANGE RATES
Canadian dollar		21.3		21.0
Mexican peso		0.9		1.8

(d) Interest Rate Risk

Interest rate risk is the risk that the fair value or the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The majority of the Company’s outstanding debt obligations are fixed and are therefore not exposed to changes in market interest rates. The Credit Facility interest is variable and a 1% change in interest rates would not result in a material difference in interest paid for the year ended December 31, 2019 as only $30.0 million was drawn on the Credit Facility late in 2019.

The Company is exposed to interest rate risk on its cash and cash equivalents. Interest earned on cash and cash equivalents is based on prevailing money market and bank account interest rates which may fluctuate. A 1.0% change in the interest rate would result in a difference of approximately $0.8 million in interest earned by the Company for the year ended December 31, 2019 The Company has not entered into any derivative contracts to manage this risk.

(e) Metal and Input Price Risk

The Company’s earnings, cash flows and financial condition are subject to price risk due to fluctuations in the market price of gold, silver and copper.

For the year ended December 31, 2019, the Company’s revenue and cash flows were impacted by gold prices and copper prices. Metal price declines could cause continued development of, and production from, the Company’s properties to be uneconomic. There is a time lag between the shipment of gold and copper and final pricing, and changes in pricing can impact the Company’s revenue and working capital position. The Company’s exposure to changes in gold and copper prices has been significantly reduced as the Company has entered into gold and copper price option contracts (whereby it sold a series of call option contracts and purchased a series of put option contracts) to reduce exposure to changes in gold and copper prices. The details of the remaining contracts as at December 31, 2019 can be found in Note 14 of the consolidated financial statements.

Reserve calculations and mine plans using significantly lower gold, silver, copper and other metal prices could result in significant reductions in mineral reserve and resource estimates and revisions in the Company’s life-of-mine plans, which in turn could result in material write-downs of its investments in mining properties and increased depletion, reclamation and closure charges.  Depending on the price of gold or other metals, the Company may determine that it is impractical to commence or, if commenced, to continue commercial production at a particular site.  Metal price fluctuations also create adjustments to the provisional prices of sales made in previous periods that have not yet been subject to final pricing, and these adjustments could have an adverse impact on the Company’s financial results and financial condition. Any of these factors could result in a material adverse effect on the Company’s results of operations and financial condition.

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The Company is also subject to price risk for fluctuations in the cost of energy, principally electricity and purchased petroleum products, which are subject to carbon taxes. The Company’s costs are affected by the prices of commodities and other inputs it consumes or uses in its operations, such as lime, sodium cyanide and explosives.  The prices of such commodities and inputs are influenced by supply and demand trends affecting the mining industry in general and other factors outside the Company’s control. Increases in the price for materials consumed in the Company’s mining and production activities could materially adversely affect its results of operations and financial condition.

An increase in gold and copper prices would decrease the Company’s net loss whereas an increase in fuel and electicity prices would increase the Company’s net loss. A 10% change in commodity prices and fuel and electricity prices would impact the Company’s net earnings before taxes and other comprehensive income before taxes as follows:

	Year ended December 31, 2019				Year ended December 31, 2018
(in millions of U.S. dollars)	Net Earnings		Other Comprehensive Income		Net Earnings		Other Comprehensive Income
IMPACT OF 10% CHANGE IN COMMODITY PRICES
Gold price		19.0		-		37.6		-
Copper price		20.7		-		6.5		-
Fuel and electricity price		7.0		-		5.5		-

Other Risks

Production Estimates

Forecasts of future production are estimates based on interpretation and assumptions, and actual production may be less than estimated. The Company’s production forecasts are based on full production being achieved at all of its mines.  The Company’s ability to achieve and maintain full production rates at these mines is subject to a number of risks and uncertainties.  The Company’s production estimates are dependent on, among other things, the accuracy of Mineral Reserve and Mineral Resource estimates, the accuracy of its life of mine plans, the accuracy of assumptions regarding ore grades and recovery rates, ground conditions, physical characteristics of ores, such as hardness and the presence or absence of particular metallurgical characteristics, and the accuracy of estimated rates and costs of mining and processing and mill availability, and the receipt and maintenance of permits. The Company’s actual production may vary from its estimates for a variety of reasons, including, those identified under the heading “Operating Risks” below. The failure of the Company to achieve its production estimates could have a material adverse effect on the Company’s prospects, results of operations and financial condition.

Cost Estimates

The Company prepares estimates of operating costs, capital costs and closure costs for each operation and project.   The Company’s actual costs are dependent on a number of factors, including the exchange rate between the United States dollar and the Canadian dollar and, to a lesser extent, Mexican peso, smelting and refining charges, penalty elements in concentrates, royalties, the price of gold and byproduct metals, the cost of inputs used in mining operations and events that impact production levels.

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New Gold’s actual costs may vary from estimates for a variety of reasons, including changing waste-to-ore ratios, ore grade metallurgy, weather conditions, ground conditions, labour and other input costs, commodity prices, general inflationary pressures and currency exchange rates, as well as those identified under the heading “Operating Risks” below. Failure to achieve cost estimates or material increases in costs could have an adverse impact on New Gold’s future cash flows, profitability, results of operations and financial condition.

Construction Risks

As a result of the substantial expenditures involved in development projects, developments are prone to material cost overruns versus budget. The capital expenditures and time required to develop new mines are considerable and changes in cost or construction schedules can significantly increase both the time and capital required to build the project.

Construction costs and timelines can be impacted by a wide variety of factors, many of which are beyond the control of the Company.  These include, but are not limited to, weather conditions, ground conditions, performance of the mining fleet and availability of appropriate rock and other material required for construction, availability and performance of contractors and suppliers, delivery and installation of equipment, design changes, accuracy of estimates and availability of accommodations for the workforce.

Project development schedules are also dependent on obtaining the governmental approvals necessary for the operation of a project. The timeline to obtain these government approvals is often beyond the control of the Company. A delay in start-up or commercial production would increase capital costs and delay receipt of revenues.

The New Afton C-zone and B3 is currently in the construction stage of its development. Given the inherent risks and uncertainties associated with the development of a new mine, there can be no assurance that the construction will continue in accordance with current expectations or at all, or that construction costs will be consistent with the budget, or that the mine will operate as planned.

Government Regulation

The mining, processing, development, exploration and reclamation and closure activities of the Company are subject to various laws governing prospecting, development, production, exports, imports, taxes, labour standards and occupational health and safety, mine safety, toxic substances, waste disposal, environmental protection and remediation, protection of endangered and protected species, land use, water use, land claims of local people, relations with local First Nations, such as the British Columbia Declaration on the Rights of Indigenous Peoples Act, and other matters.  No assurance can be given that new rules and regulations will not be enacted or that existing rules and regulations will not be applied in a manner which could have an adverse effect on the Company’s financial position and results of operations. Amendments to current laws, regulations and permits governing operations or development activities and activities of mining and exploration companies, or more stringent or different implementation, could have a material adverse impact on the Company’s results of operations or financial position, or could require abandonment or delays in the development of new mining properties or the suspension or curtailment of operations at existing mines.  Failure to comply with any applicable laws, regulations or permitting requirements may result in enforcement actions against the Company, including orders issued by regulatory or judicial authorities causing operations or development activities to cease or be curtailed or suspended, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions (see also “Permitting” below).  The Company could be forced to compensate those suffering loss or damage by reason of its mining operations or exploration or development activities and could face civil or criminal fines or penalties imposed for violations of applicable laws or regulations.  Any such regulatory or judicial action could materially increase the Company’s operating costs and delay or curtail or otherwise negatively impact the Company’s operations and other activities.

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Permitting

The Company’s operations, development projects and exploration activities are subject to receiving and maintaining licenses, permits and approvals (collectively, “permits”) from appropriate governmental authorities. Before any development on any of its properties the Company must receive numerous permits, and continued operations at the Company’s mines is also dependent on maintaining and renewing required permits or obtaining additional permits.

New Gold may be unable to obtain on a timely basis or maintain in the future all necessary permits required to explore and develop its properties, commence construction or operation of mining facilities and properties or maintain continued operations. Delays may occur in connection with obtaining necessary renewals of permits for the Company’s existing operations and activities, additional permits for existing or future operations or activities, or additional permits associated with new legislation. It is possible that previously issued permits may become suspended or revoked for a variety of reasons, including through government or court action. New Gold is currently anticipating receiving permits for the B3 and C-zone developments.

In the past there have been challenges to the Company’s permits that were temporarily successful as well as delays in the renewal of certain permits or receiving additional required permits. There can be no assurance that the Company will receive or continue to hold all permits necessary to develop or continue operating at any particular property or to pursue the Company’s exploration activities.  To the extent that required permits cannot be obtained or maintained, the Company may be curtailed or prohibited from continuing its mining operations or from proceeding with planned exploration or development of mineral properties. Even if permits or renewals are available, the terms of such permits may be unattractive to the Company and result in the applicable operations or activities being financially unattractive or uneconomic. An inability to obtain or maintain permits or to conduct mining operations pursuant to applicable permits would materially reduce the Company’s production and cash flow and could undermine its profitability.

Dependence on the Rainy River and New Afton mines

The Company’s operations at the Rainy River and New Afton mines are expected to account for substantially all of the Company’s gold and copper production in 2020. Any adverse condition affecting mining or milling conditions at the Rainy River mine or New Afton mine could have a material adverse effect on the Company’s financial performance and results of operations.

Unless the Company acquires or develops other significant gold-producing assets, the Company will continue to be dependent on its operations at the Rainy River and New Afton mines for a substantial portion of its cash flow provided by operating activities.

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Operating Risks

Mining operations generally involve a high degree of risk. The Company’s operations are subject to all the hazards and risks normally encountered in the exploration, development and production of gold, copper and silver including unusual and unexpected geologic formations, seismic activity, rock bursts, rock slides, cave-ins, slope or pit wall failures, flooding, fire, metal losses, periodic interruption due to inclement or hazardous weather conditions and other conditions that would impact the drilling and removal of material. Block caving activities, including at New Afton, generally result in surface subsidence. The configuration of subsidence presently occurring above the west cave at New Afton is slightly offset from the original model, which is thought to be driven largely by the weaker rockmass located south of the cave footprint. The subsidence is being monitored and evaluated on an ongoing basis. Surface subsidence or any of the above hazards and risks could result in reduced production, damage to, or destruction of, mines and other producing facilities, damage to life or property, environmental damage and possible legal liability. In addition, production may be adversely impacted by operational problems such as a failure of a production hoist, filter press, SAG mill or other equipment, or industrial accidents, as well as other potential issues such as actual ore mined varying from estimates of grade or tonnage, dilution, block cave performance and metallurgical or other characteristics, significant increases or decreases in precipitation an over or under supply of water, interruptions in electrical power, shortages of required inputs, labour shortages or strikes, restrictions or regulations imposed by government agencies or changes in the regulatory environment.  The Company’s milling operations are subject to hazards such as equipment failure or failure of retaining dams around tailings disposal areas, which may result in environmental pollution and consequent liability. In addition, short-term operating factors, such as the need for orderly development of the ore bodies or the processing of new or different ore grades, may cause a mining operation to be unprofitable in any particular accounting period.  The occurrence of one or more of these events may result in the death of, or personal injury to, employees, other personnel or third parties, the loss of mining equipment, damage to or destruction of mineral properties or production facilities, monetary losses, deferral or unanticipated fluctuations in production, suspension, curtailment or termination of operations, environmental damage and potential legal liabilities, any of which may adversely affect the Company’s business, reputation, prospects, results of operations and financial condition.

Risks Related to Further Processing

The Company’s operations produce concentrate, doré or other products that are not refined metals (“Unrefined Product”) and generally require further processing at a smelter and/or a refinery to become marketable metal.  Such Unrefined Product contains metals and other elements that require removal, some of which may limit the smelters or brokers who can or will purchase or process the Unrefined Product and the refineries who will process the Unrefined Product, or negatively impact the terms of such purchase or processing arrangements.  Treatment and refining charges are also subject to fluctuations, which could negatively impact the Company’s revenue or expenses.

In addition, the Company is generally responsible for transporting Unrefined Products either to the smelter or refinery or to a designated point where risk of loss is transferred.  The Company is exposed to risks related to the cost and availability of transportation and storage facilities associated with Unrefined Product, and the Company may not be able to make alternative transportation or storage arrangements on reasonable commercial terms or at all. The Company is dependent on the Port of Vancouver for the storage and transportation of all concentrate from New Afton; in the event the Port of Vancouver is closed, there is no commercial alternative port available.  There can be no assurance that the Company will be able to continue to sell and process its Unrefined Product, including the related transportation and storage, on reasonable commercial terms or at all.

Exploration and Development Risks

The exploration for and development of mineral deposits involves significant risks, which even a combination of careful evaluation, experience and knowledge cannot eliminate. While the discovery of an ore body may result in substantial rewards, few properties that are explored are ultimately developed into producing mines. Once a site with mineralization is discovered, it may take several years from the initial phases of drilling until production is possible, during which time the economic feasibility of production may change.  Major expenses may be required to locate and establish Mineral Reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. It is impossible to ensure that the exploration or development programs planned by the Company or any of its partners will result in a profitable commercial mining operation.

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Whether a mineral deposit will be commercially viable depends on a number of factors, including but not limited to: the particular attributes of the deposit, such as accuracy of estimated size, continuity of mineralization, average grade and metallurgical characteristics (see “Uncertainty in the Estimation of Mineral Reserves and Mineral Resources” below); proximity to infrastructure; metal prices, which are highly cyclical; and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in the Company being unable to receive an adequate return on invested capital.

Development projects are uncertain and capital cost estimates, projected operating costs, production rates, recovery rates, mine life and other operating parameters and economic returns may differ significantly from those estimated for a project.  Development projects rely on the accuracy of predicted factors including capital and operating costs, metallurgical recoveries, reserve estimates and future metal prices. Development projects also rely on diligent capital management to prevent overspending. In addition, there can be no assurance that gold, silver or copper recoveries in small scale laboratory tests will be duplicated in larger scale tests under on-site conditions or during production.

At New Afton, the Company is developing the B3 and C-zones at New Afton as well as certain construction projects at Rainy River, such as installation of wick drains in the east waste dump and construction of a maintenance and warehouse facility. The Company may engage in other development and expansion activities at its operating mines from time to time. Expansion projects, including development and expansions of facilities and extensions to new ore bodies or new portions of existing ore bodies, can have risks and uncertainties similar to development projects.

A project is subject to numerous risks during development including, but not limited to, the accuracy of feasibility studies, obtaining and complying with required permits, changes in environmental or other government regulations, securing all necessary surface and land tenure rights, consulting and accommodating First Nations and other Indigenous groups and financing risks. In particular, the Company is actively engaged in consultation with various First Nations in connection with the New Afton C-zone expansion and Blackwater projects in British Columbia. This engagement may be impacted by the British Columbia Declaration on the Rights of Indigenous Peoples Act. Unforeseen circumstances, including those related to the amount and nature of the mineralization at the development site, technological impediments to extraction and processing, legal challenges or restrictions or governmental intervention, infrastructure limitations, environmental issues, unexpected ground conditions or other unforeseen development challenges, commodity prices, disputes with local communities or other events, could result in one or more of New Gold’s planned developments becoming impractical or uneconomic to complete. Any such occurrence could have an adverse impact on New Gold’s growth, financial condition and results of operations. There can be no assurance that the Company’s expansion and development projects will continue in accordance with current expectations or at all.  See also “Permitting” above.

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Risks related to Rainy River’s early years of production

The first few years of production for the Rainy River Mine is subject to a number of inherent risks. It is not unusual in the mining industry for new mining operations to experience unexpected problems leading up to and during beginning period of production, including failure of equipment, machinery, the processing circuit or other processes to perform as designed or intended, inadequate water, insufficient ore stockpile or grade, and failure to deliver adequate tonnes of ore to the mill, any of which could result in delays, slowdowns or suspensions and require more capital than anticipated. In addition, Mineral Reserves and Mineral Resources , and anticipated costs, including, without limitation, operating expenses, cash costs and all-in sustaining costs, anticipated mine life, projected production, anticipated production rates and other projected economic and operating parameters may not be realized, and the level of future metal prices needed to ensure commercial viability may deteriorate. Consequently, there is a risk that Rainy River may encounter problems, be subject to delays or have other material adverse consequences for the Company during its first few years of production, including its operating results, cash flow and financial condition.

Financing Risks

The Company’s mining, processing, development and exploration activities may require additional external financing. There can be no assurance that additional capital or other types of financing will be available when needed or that, if available, the terms of such financing will be acceptable to the Company. If raised by offering equity securities or securities convertible into equity securities, any additional financing may involve substantial dilution to existing shareholders.  If raised through asset sales, such sales may not be at favorable terms for the Company, may reduce the assets and future economic performance of the Company. Failure to obtain sufficient financing could result in the delay or indefinite postponement of exploration, development, construction or production on any or all of the Company’s mineral properties. The cost and terms of such financing may significantly reduce the expected benefits from new developments and/or render such developments uneconomic.

Need for Additional Mineral Reserves and Mineral Resources

Because mines have limited lives based on Proven and Probable Mineral Reserves, the Company continually seeks to replace and expand its Mineral Reserves and Mineral Resources. The Company’s ability to maintain or increase its annual production of gold, copper and silver depends in significant part on its ability to find or acquire new Mineral Reserves and Mineral Resources and bring new mines into production, and to expand Mineral Reserves and Mineral Resources at existing mines. Exploration is inherently speculative. New Gold’s exploration projects involve many risks and exploration is frequently unsuccessful. See “Exploration and Development Risks” above. There is a risk that depletion of Mineral Reserves will not be offset by discoveries or acquisitions. The mineral base of New Gold may decline if Mineral Reserves are mined without adequate replacement.

Uncertainty in the Estimation of Mineral Reserves and Mineral Resources

Mineral Reserves and Mineral Resources are estimates only, and no assurance can be given that the anticipated tonnages and grades will be achieved, that the indicated level of recovery will be realized or that Mineral Reserves can be mined or processed profitably.  Mineral Reserve and Mineral Resource estimates may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing and other risks and relevant issues.  There are numerous uncertainties inherent in estimating Mineral Reserves and Mineral Resources, including many factors beyond the Company’s control.  Such estimation is a subjective process, and the accuracy of any Mineral Reserve or Mineral Resource estimate is a function of the quantity and quality of available data, the nature of the ore body and of the assumptions made and judgments used in engineering and geological interpretation. These estimates may require adjustments or downward revisions based upon further exploration or development work, drilling or actual production experience.

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Fluctuations in gold, copper and silver prices, results of drilling, metallurgical testing and production, the evaluation of mine plans after the date of any estimate, permitting requirements or unforeseen technical or operational difficulties may require revision of Mineral Reserve and Mineral Resource estimates.  Prolonged declines in the market price of gold (or applicable by-product metal prices) may render Mineral Reserves and Mineral Resources containing relatively lower grades of mineralization uneconomical to recover and could materially reduce the Company’s Mineral Reserves and Mineral Resources. Mineral Resource estimates for properties that have not commenced production or at deposits that have not yet been exploited are based, in most instances, on very limited and widely spaced drill hole information, which is not necessarily indicative of conditions between and around the drill holes.  Accordingly, such Mineral Resource estimates may require revision as more geologic and drilling information becomes available and as actual production experience is gained. Should reductions in Mineral Resources or Mineral Reserves occur, the Company may be required to take a material write-down of its investment in mining properties, reduce the carrying value of one or more of its assets or delay or discontinue production or the development of new projects, resulting in reduced net income or increased net losses and reduced cash flow.  Mineral Resources and Mineral Reserves should not be interpreted as assurances of mine life or of the profitability of current or future operations.  There is a degree of uncertainty attributable to the calculation and estimation of Mineral Resources and Mineral Reserves and corresponding grades being mined and, as a result, the volume and grade of Reserves mined and processed and recovery rates may not be the same as currently anticipated.  Any material reductions in estimates of Mineral Reserves and Mineral Resources, or of the Company’s ability to extract these Mineral Reserves and Mineral Resources, could have a material adverse effect on the Company’s projects, results of operations and financial condition.

Mineral Resources are not Mineral Reserves and have a greater degree of uncertainty as to their existence and feasibility.  There is no assurance that Mineral Resources will be upgraded to Proven or Probable Mineral Reserves.

Impairment

On a quarterly basis, the Company reviews and evaluates its mining interests for indicators of impairment. Impairment assessments are conducted at the level of cash-generating units (“CGUs”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Each operating mine, development and exploration project represents a separate CGU. If an indication of impairment exists, the recoverable amount of the CGU is estimated. An impairment loss is recognized when the carrying amount of the CGU is in excess of its recoverable amount. The assessment for impairment is subjective and requires management to make significant judgments and assumptions in respect of a number of factors, including estimates of production levels, operating costs and capital expenditures reflected in New Gold’s life-of-mine plans, the value of in-situ ounces, exploration potential and land holdings, as well as economic factors beyond management’s control, such as gold, copper and silver prices, discount rates, foreign exchange rates, and observable net asset value multiples.  It is possible that the actual fair value could be significantly different from those estimates.  In addition, should management’s estimate of the future not reflect actual events, further impairment charges may materialize, and the timing and amount of such impairment charges is difficult to predict.

Title Claims and Rights of Indigenous Peoples

Certain of New Gold’s properties may be subject to the rights or the asserted rights of various community stakeholders, including First Nations and other Aboriginal peoples.  The presence of community stakeholders may impact the Company’s ability to develop or operate its mining properties and its projects or to conduct exploration activities.  Accordingly, the Company is subject to the risk that one or more groups may oppose the continued operation, further development or new development or exploration of the Company’s current or future mining properties and projects.  Such opposition may be directed through legal or administrative proceedings, or through protests or other campaigns against the Company’s activities.

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Governments in many jurisdictions must consult with, or require the Company to consult with, indigenous peoples with respect to grants of mineral rights and the issuance or amendment of project authorizations.  In British Columbia, the provincial government has enacted the Declaration on the Rights of Indigenous Peoples Act, which may affect consultation requirements in that jurisdiction. Consultation and other rights of Indigenous peoples may require accommodation including undertakings regarding employment, royalty payments and other matters.  This may affect the Company’s ability to acquire within a reasonable time frame effective mineral titles, permits or licenses in these jurisdictions, including in some parts of Canada and Mexico in which title or other rights are claimed by Indigenous peoples, and may affect the timetable and costs of development and operation of mineral properties in these jurisdictions.  The risk of unforeseen title claims by indigenous peoples also could affect existing operations as well as development projects.  These legal requirements may also affect the Company’s ability to expand or transfer existing operations or to develop new projects.

Environmental Risk

The Company is subject to environmental regulation in Canada and Mexico where it operates or has exploration or development activities.  In addition, the Company will be subject to environmental regulation in any other jurisdictions in which it may operate or have exploration or development properties. These regulations address, among other things, endangered and protected species, emissions, noise, air and water quality standards, land use and reclamation. They also set out limitations on the generation, transportation, storage and disposal of solid, liquid and hazardous waste.

Environmental legislation is evolving in a manner, which will involve, in certain jurisdictions, stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. No certainty exists that future changes in environmental regulation, or the application of such regulations, if any, will not adversely affect the Company’s operations or development properties or exploration activities. The Company cannot give any assurance that, notwithstanding its precautions, breaches of environmental laws (whether inadvertent or not) or environmental pollution will not materially and adversely affect its financial condition and results from operations.  Environmental hazards may exist on the Company’s properties which are unknown to management at present and which have been caused by previous owners or operators of the properties. Changes in weather conditions can also cause environmental hazards, such as increased precipitation leading to a heightened risk of environmental incidents and need for water management mitigation.  Increased precipitation can also affect compliance with environmental regulations and affect operations. In addition, measures taken to address and mitigate known environmental hazards or risks may not be fully successful, and such hazards or risks may materialize.

New Gold may also acquire properties with known or undiscovered environmental risks.  Any indemnification from the entity from which the Company acquires such properties may not be adequate to pay all the fines, penalties and costs (such as clean-up and restoration costs) incurred related to such properties. New Afton has also been used for mining and related operations for many years before the Company acquired it and was acquired as is or with assumed environmental liabilities from previous owners or operators. The Company has been required to address contamination at its properties in the past and may need to continue to do so in the future, either for existing environmental conditions or for leaks, discharges or contamination that may arise from its ongoing operations or other contingencies.  The cost of addressing environmental conditions or risks, and liabilities associated with environmental damage, may be significant, and could have a material adverse effect on the Company’s business, prospects, results of operations and financial condition.  Production at New Gold’s mines involves the use of various chemicals, including certain chemicals that are designated as hazardous substances. Contamination from hazardous substances, either at the Company’s own properties or other locations for which it may be responsible, may subject the Company to liability for the investigation or remediation of contamination, as well as for claims seeking to recover for related property damage, personal injury or damage to natural resources. The occurrence of any of these adverse events could have a material adverse effect on the Company’s prospects, results of operations and financial position.

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Production at certain of the Company’s mines involves the use of sodium cyanide which is a toxic material. Should sodium cyanide leak or otherwise be discharged from the containment system, the Company may become subject to liability for cleanup work that may not be insured, in addition to liability for any damage caused.  Such liability could be material.

Insurance and Uninsured Risks

New Gold’s business is subject to a number of risks and hazards generally including adverse environmental conditions, industrial accidents, labour disputes, unusual or unexpected geological conditions, ground or slope or wall failures, cave-ins, metallurgical or other processing problems, fires, operational problems, changes in the regulatory environment and natural phenomena, such as inclement weather conditions, floods, hurricanes and earthquakes.  Such occurrences could result in damage to mineral properties or production facilities or other property, personal injury or death, environmental damage to its properties or the properties of others, delays in mining, monetary losses and possible legal liability.

Although the Company maintains insurance to protect against certain risks in such amounts as it considers reasonable, such insurance will not cover all the potential risks associated with a mining company’s operations.  The Company may also be unable to maintain insurance to cover these risks at economically feasible premiums.  Insurance coverage may not continue to be available on acceptable terms or may not be adequate to cover any resulting liability.  Moreover, insurance against risks such as loss of title to mineral property, environmental pollution, or other hazards as a result of exploration, development and production is not generally available to the Company or to other companies in the mining industry on acceptable terms.  New Gold may also become subject to liability for pollution or other hazards which may not be insured against or which the Company may elect not to insure against because of premium costs or other reasons.  Losses from these events may cause the Company to incur significant costs that could have a material adverse effect on results of operations and financial condition.

Reclamation Costs

The Company’s operations are subject to reclamation plans that establish its obligations to reclaim properties after minerals have been mined from a site. These obligations represent significant future costs for the Company. Reclamation bonds or other forms of financial assurance are often required to secure reclamation activities. Governing authorities require companies to periodically recalculate the amount of a reclamation bond and may require bond amounts to be increased. It may be necessary to revise the planned reclamation expenditures and the operating plan for a mine in order to fund an increase to a reclamation bond. In addition, reclamation bonds are generally issued under the Company’s credit facilities; increases in the amount of reclamation bonds will decrease the amount of the Credit Facility available for other purposes. Reclamation bonds may represent only a portion of the total amount of money that will be spent on reclamation over the life of a mine operation. The actual costs of reclamation set out in mine plans are estimates only and may not represent the actual amounts that will be required to complete all reclamation activity. If actual costs are significantly higher than the Company’s estimates, then its results of operations and financial position could be materially adversely affected.

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Debt and Liquidity Risk

As of December 31, 2019, the Company had long-term debt comprising of two series of notes having an aggregate face value of $700 million. In addition, the Company has a $400 million Credit Facility. The Company’s ability to make scheduled payments of the principal of, to pay interest on or to refinance its indebtedness depends on the Company’s future performance, which is subject to economic, financial, competitive and other factors many of which are not under the control of New Gold.  The Company is exposed to interest rate risk on variable rate debt, if any.  Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due, including, among others, debt repayments, interest payments and contractual commitments.

The Company may not continue to generate cash flow from operations in the future sufficient to service its debt and make necessary or planned capital expenditures.  If the Company is unable to generate such cash flow, it may be required to adopt one or more alternatives, such as selling assets, borrowing additional funds, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive.  The Company’s ability to borrow additional funds or refinance its indebtedness will depend on the capital markets and its financial condition at such time.  The Company may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on its debt obligations.  In addition, if New Gold is unable to maintain its indebtedness and financial ratios at levels acceptable to its credit rating agencies, or should New Gold’s business prospects deteriorate, the ratings currently assigned to New Gold by Moody’s Investor Services and Standard & Poor’s Ratings Services could be downgraded, which could adversely affect the value of New Gold’s outstanding securities and existing debt and its ability to obtain new financing on favourable terms, and increase New Gold’s borrowing costs.

If the Company’s cash flow and other sources of liquidity are not sufficient to continue operations and make necessary and planned capital expenditures, the Company may cancel or defer capital expenditures and/or suspend or curtail operations.  Such an action may impact production at mining operations and/or the timelines and cost associated with development projects, which could have a material adverse effect on the Company’s prospects, results from operations and financial condition.

The terms of the Company’s Credit Facility and stream agreement with Royal Gold require the Company to satisfy various affirmative and negative covenants and to meet certain financial ratios and tests. In addition, the terms of the Company’s 2022 Unsecured Notes and 2025 Unsecured Notes require the Company to satisfy various affirmative and negative covenants.  These covenants limit, among other things, the Company’s ability to incur indebtedness, create certain liens on assets or engage in certain types of transactions.  There are no assurances that in future, the Company will not, as a result of these covenants, be limited in its ability to respond to changes in its business or competitive activities or be restricted in its ability to engage in mergers, acquisitions or dispositions of assets.  Furthermore, a failure to comply with these covenants, including, in the case of the Credit Facility and stream agreement with Royal Gold, a failure to meet the financial tests or ratios, would likely result in an event of default under the Credit Facility and/or the 2022 Unsecured Notes and/or the 2025 Unsecured Notes and/or stream agreement and would allow the lenders or noteholders or other contractual counterparty, as the case may be, to accelerate the debt or other obligations as the case may be.

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Litigation and Dispute Resolution

From time to time New Gold is subject to legal claims, with and without merit. These claims may commence informally and reach a commercial settlement or may progress to a more formal dispute resolution process.  The causes of potential future claims cannot be known and may arise from, among other things, business activities, environmental laws, volatility in stock price or failure to comply with disclosure obligations.  In particular, the complex activities and significant expenditures associated with construction activities may lead to various claims, some of which may be material.   Defense and settlement costs may be substantial, even with respect to claims that have no merit.  Due to the inherent uncertainty of the litigation and dispute resolution process, there can be no assurance that the resolution of any particular legal proceeding or dispute will not have a material adverse effect on the Company’s future cash flows, results of operations or financial condition.

Title Risks

The acquisition of title to mineral properties is a very detailed and time-consuming process. Title to mineral concessions may be disputed.  Although the Company believes it has taken reasonable measures to ensure proper title to its properties, there is no guarantee that title to any of such properties will not be challenged or impaired.  Third parties may have valid claims underlying portions of our interest, including prior unregistered liens, agreements, transfers, royalties or claims, including Aboriginal land claims, and title may be affected by, among other things, undetected defects.  In some cases, title to mineral rights and surface rights has been divided, and the Company may hold only surface rights or only mineral rights over a particular property, which can lead to potential conflict with the holder of the other rights.  As a result of these issues, the Company may be constrained in its ability to operate its properties or unable to enforce its rights with respect to its properties or the economics of is mineral properties may be impacted.  An impairment to or defect in the Company’s title to its properties or a dispute regarding property or other related rights could have a material adverse effect on the Company’s business, financial condition or results of operations.

Hedging Risks

From time to time the Company uses or may use certain derivative products to hedge or manage the risks associated with changes in gold prices, silver prices, copper prices, interest rates, foreign currency exchange rates and energy prices. The use of derivative instruments involves certain inherent risks including, among other things: (i) credit risk – the risk of an unexpected loss arising if a counterparty with which the Company has entered into transactions fails to meet its contractual obligations; (ii) market liquidity risk – the risk that the Company has entered into a derivative position that cannot be closed out quickly, by either liquidating such derivative instrument or by establishing an offsetting position; and (iii) unrealized mark-to-market risk – the risk that, in respect of certain derivative products, an adverse change in market prices for commodities, currencies or interest rates will result in the Company incurring an unrealized mark-to-market loss in respect of such derivative products.

There is no assurance that any hedging program or transactions which may be adopted or utilized by New Gold designed to reduce the risk associated with changes in gold prices, silver prices, copper prices, interest rates, foreign currency exchange rates or energy prices will be successful. Although hedging may protect New Gold from an adverse price change, it may also prevent New Gold from benefitting fully from a positive price change.

Climate Change Risks

Changes in climate conditions could adversely affect the Company’s business and operations through the impact of (i) more extreme temperatures, precipitation levels and other weather events; (ii) changes to laws and regulations related to climate change; and (iii) changes in the price or availability of goods and services required by our business.

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Climate change may lead to more extreme temperatures, precipitation levels and other weather events. Extreme high or low temperatures could impact the operation of equipment and the safety of personnel at the Company’s sites, which could result in damage to equipment, injury to personnel and production disruptions.  Changes in precipitation levels may impact the availability of water at the Company’s operations, which the mills require to operate, potentially leading to production disruptions. Low precipitation also increases the risk of large forest fires, as occurred in proximity to the Company’s operations in British Columbia in the summer of 2017, which could cause production disruptions or damage site infrastructure. Increases in precipitation levels could also lead to water management challenges. Extreme weather events, such as forest fires, severe storms or floods, all of which may be more probable and more extreme due to climate change, may negatively impact operations and disrupt production. Significant capital investment may be required to address these occurrences and to adapt to changes in average operating conditions caused by these changes to the climate.

Climate change may lead to new laws and regulations that affect the Company’s business and operations. Many governments are moving to enact climate change legislation and treaties at the international, national, state, provincial and local levels. Where legislation already exists, regulations relating to emission levels and energy efficiency are becoming more stringent. Some of the costs associated with meeting more stringent regulations can be offset by increased energy efficiency and technological innovation. However, if the current regulatory trend continues, meeting more stringent regulations is anticipated to result in increased costs. For example, the Company’s operations will pay Canadian Federal and Provincial carbon taxes in 2020.

Climate change may lead to changes in the price and availability of goods and services required for the Company’s operations, which require the regular supply of consumables such as diesel, electricity, and sodium cyanide to operate efficiently. The Company’s operations also depend on service providers to transport these consumables and other goods to the operations and to transport doré and concentrate produced by the Company to refiners. The effects of extreme weather described above and changes in legislation and regulation on the Company’s suppliers and their industries may cause limited availability or higher price for these goods and services, which could result in higher costs or production disruptions. 

We can provide no assurance that efforts to mitigate the risks of climate changes will be effective and that the physical risks of climate change will not have an adverse effect on the Company’s operations and profitability.

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CRITICAL JUDGMENTS AND ESTIMATION UNCERTAINTIES

The preparation of the Company’s consolidated financial statements in conformity with IFRS requires the Company’s management to make judgments, estimates and assumptions about the future events that affect the amounts reported in the consolidated financial statements and related notes to the financial statements. Estimates and assumptions are continually evaluated and are based on management’s experience and other facts and circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively.

The areas which require management to make significant judgments, estimates and assumptions in determining carrying values are described in the Company’s audited consolidated financial statements for the year ended December 31, 2019.

ACCOUNTING POLICIES

The Company's significant accounting policies and future changes in accounting policies are presented in the audited consolidated financial statements for the year ended December 31, 2019 and have been consistently applied in the preparation of the audited consolidated financial statements.

Changes in accounting policies

On January 6, 2016, the IASB issued IFRS 16, Leases (“IFRS 16”). This standard specifies the methodology to recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases. This standard replaces IAS 17 Leases.  The effective date is for reporting periods beginning on or after January 1, 2019 with early adoption permitted.

The Company adopted IFRS 16 on January 1, 2019 using the modified retrospective approach. Under this approach, the cumulative effect of initially applying IFRS 16 is recognized as an adjustment to equity at the date of initial application. Comparative figures are not restated to reflect the adoption of IFRS 16. Additionally, the Company has adopted the exemption for leases with a lease term of 12 months or less and for leases that are low value. Given that the Company’s existing operating leases are not material, no adjustment to equity has been recognized upon IFRS 16 adoption on January 1, 2019.

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CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management, with the participation of and under the supervision of its President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) and in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, as of December 31, 2019. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2019, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Company in reports it files is recorded, processed, summarized and reported, within the appropriate time periods.

Internal Controls over Financial Reporting

New Gold’s management, with the participation of its President and Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal controls over financial reporting. Internal controls over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards. New Gold’s management assessed the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2019 based on the 2013 updated Committee of Sponsoring Organization of the Treadway Commission (“COSO”) and has concluded that New Gold’s internal controls over financial reporting are effective as of December 31, 2019.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been audited by Deloitte LLP, the Company’s independent registered public accounting firm, as stated in their report immediately preceding the Company’s audited consolidated financial statements for the year ended December 31, 2019.

Limitations of Controls and Procedures

The Company’s management, including its President and Chief Executive Officer and Chief Financial Officer, believe that any internal controls and procedures for financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations of all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented and/or detected. These inherent limitations include the realities that judgments in decision-making can be faulty and breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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Changes in Internal Controls over Financial Reporting

There has been no change in the Company’s design of internal controls and procedures over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting during the period covered by this MD&A.

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MINERAL RESERVES AND MINERAL RESOURCES

Mineral Reserves

New Gold’s Mineral Reserve estimates as at December 31, 2019 are presented in the following table.

MINERAL RESERVES
			Metal grade						Contained metal
	Tonnes 000s		Gold g/t		Silver g/t		Copper %		Gold Koz		Silver Koz		Copper Mlbs
RAINY RIVER
Open Pit Mineral Reserves
Direct processing
Proven		15,700		1.21		2.4		-		612		1,187		-
Probable		30,675		1.15		2.5		-		1,136		2,416		-
Open Pit P&P (direct proc.)		46,375		1.17		2.4		-		1,748		3,602		-
Low grade
Proven		5,702		0.35		1.9		-		65		341		-
Probable		15,470		0.35		2.2		-		172		1,076		-
Open Pit P&P (low grade)		21,172		0.35		2.1		-		237		1,417		-
Stockpile
Proven		5,928		0.53		1.1		-		102		211		-
Probable		-		-		-		-		-		-		-
Open Pit P&P (stockpile)		5,928		0.53		1.1		-		102		211		-
Open Pit Total Mineral Reserves		73,476		0.88		2.2		-		2,087		5,231		-
Underground
Proven		-		-		-		-		-		-		-
Probable		4,096		4.17		7.8		-		549		1,034		-
Underground P&P (direct    proc.)		4,096		4.17		7.8		-		549		1,034		-
Combined Direct proc. & Low grade
Proven		27,331		0.88		2.0		-		779		1,740		-
Probable		50,240		1.15		2.8		-		1,857		4,526		-
Total Rainy River Mineral Reserves		77,572		1.06		2.5		-		2,636		6,265		-
NEW AFTON
A&B Zones
Proven		-		-		-		-		-		-		-
Probable		20,213		0.55		1.9		0.73		357		1,234		323
C Zone
Proven		-		-		-		-		-		-		-
Probable		27,088		0.74		1.8		0.80		648		1,610		478
Total New Afton Mineral Reserves		47,302		0.66		1.9		0.77		1,005		2,844		802
BLACKWATER
Direct processing Reserves
Proven		124,500		0.95		5.5		-		3,790		22,100		-
Probable		169,700		0.68		4.1		-		3,730		22,300		-
P&P (direct processing)		294,300		0.79		4.7		-		7,510		44,400		-
Low grade Reserves
Proven		20,100		0.50		3.6		-		330		2,300		-
Probable		30,100		0.34		14.6		-		330		14,100		-
P&P (low grade)		50,200		0.40		10.2		-		650		16,400		-
Combined Direct proc. & Low grade
Proven		144,600		0.88		5.3		-		4,110		24,400		-
Probable		199,800		0.63		5.7		-		4,050		36,400		-
Total Blackwater Mineral Reserves		344,400		0.74		5.5		-		8,170		60,800		-
TOTAL PROVEN & PROBABLE MINERAL RESERVES										11,811		69,909		802

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Measured and Indicated Mineral Resources

Mineral Resource estimates as at December 31, 2019 are presented in the following tables:

MEASURED & INDICATED MINERAL RESOURCES (Exclusive of Mineral Reserves)
			Metal grade						Contained metal
	Tonnes 000s		Gold g/t		Silver g/t		Copper %		Gold Koz		Silver Koz		Copper Mlbs
RAINY RIVER
High and Medium grade Mineral Resources
Open Pit
Measured		695		1.46		2.9		-		33		64		-
Indicated		4,813		1.18		3.4		-		182		531		-
Open Pit M&I (High and med. grade)		5,508		1.21		3.4		-		214		596		-
Underground
Measured		-		-		-		-		-		-		-
Indicated		14,866		3.49		9.1		-		1,669		4,331		-
Underground M&I		14,866		3.49		9.1		-		1,669		4,331		-
Low grade Mineral Resources
Open Pit
Measured		293		0.34		1.9		-		3		18		-
Indicated		2,460		0.34		2.2		-		27		175		-
Open Pit M&I (High, medium and low grade)		2,753		0.34		2.2		-		30		193		-
Combined M&I
Measured		988		1.13		2.6		-		36		82		-
Indicated		22,139		2.64		7.1		-		1,878		5,037		-
Total Rainy River M&I		23,127		2.57		6.9		-		1,914		5,120		-
NEW AFTON
A&B Zones
Measured		17,013		0.63		1.7		0.83		346		940		312
Indicated		9,759		0.44		2.6		0.71		138		825		154
A&B Zone M&I		26,773		0.56		2.1		0.79		484		1,765		466
C-zone
Measured		6,116		0.78		2.0		0.94		154		401		126
Indicated		12,727		0.71		2.1		0.83		292		852		233
C-zone M&I		18,843		0.74		2.1		0.86		446		1,254		359
HW Lens
Measured		-		-		-		-		-		-		-
Indicated		11,362		0.51		2.0		0.44		187		738		109
HW Lens M&I		11,362		0.51		2.0		0.44		187		738		109
Combined M&I
Measured		23,154		0.67		1.8		0.86		500		1,345		438
Indicated		33,854		0.57		2.2		0.66		617		2,409		495
Total New Afton M&I		57,008		0.61		2.1		0.74		1,118		3,754		933
BLACKWATER
Direct processing Mineral Resources
Measured		288		1.39		6.6		-		13		61		-
Indicated		45,440		0.84		4.7		-		1,227		6,866		-
M&I (direct proc.)		45,728		0.84		4.7		-		1,240		6,927		-
Low grade Mineral Resources
Measured		11		0.29		7.4		-		-		3		-
Indicated		15,831		0.32		3.9		-		162		1,985		-
M&I (low grade)		15,842		0.32		3.9		-		162		1,988		-
Total Blackwater M&I		61,570		0.71		4.5		-		1,402		8,915		-
TOTAL M&I MINERAL RESOURCES										4,434		17,788		933

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Inferred Mineral Resources

INFERRED MINERAL RESOURCES
			Metal grade								Contained metal
	Tonnes 000s		Gold g/t		Silver g/t		Copper %		Gold Koz		Silver Koz		Copper Mlbs
RAINY RIVER
High and Medium grade Resources
Open Pit		2,015		0.61		1.8		-		39		114		-
Underground		1,297		3.76		3.5		-		157		146		-
Total Direct Processing		3,312		1.84		2.4		-		196		260		-
Low grade Resources
Open Pit		167		0.35		1.4		-		2		8		-
Rainy River Inferred		3,479		1.77		2.4		-		198		268		-
NEW AFTON
A&B Zones		6,367		0.34		1.3		0.35		70		272		49
C-zone		7,650		0.41		1.3		0.47		101		316		71
HW Lens		3		0.49		0.6		0.19		-		-		-
New Afton Inferred		14,022		0.38		1.3		0.42		172		589		121
BLACKWATER
Direct processing		13,933		0.76		4.0		-		341		1,792		-
Low grade Resources		4,225		0.32		3.5		-		44		475		-
Blackwater Inferred		18,158		0.66		3.9		-		385		2,267		-
TOTAL INFERRED MINERAL RESOURCES										754		3,124		121

Notes to the Mineral Reserve and Mineral Resource estimates are provided below.

Notes to Mineral Reserve and Resource Estimates

1. New Gold’s Mineral Reserves and Mineral Resources have been estimated in accordance with the CIM Standards (2014), which are incorporated by reference in NI 43-101.

2. All Mineral Reserve and Mineral Resource estimates for New Gold’s properties and projects are effective as at December 31, 2019.

3. New Gold’s year-end 2019 Mineral Reserves and Mineral Resources have been estimated based on the following metal prices and foreign exchange (FX) rate criteria:

	Gold $/ounce		Silver $/ounce		Copper $/pound		FX CAD:USD
Mineral Reserves		$1,275		$17.00		$3.00		$1.30
Mineral Resources		$1,375		$19.00		$3.25		$1.30

4. Cut-offs for the Company’s Mineral Reserves and Mineral Resources are outlined in the following table:

Mineral Property		Mineral Reserves Lower cut-off	Mineral Resources Lower Cut-off
Rainy River	O/P direct processing:	0.46 – 0.49 g/t AuEq	0.44 – 0.45 g/t AuEq
	O/P low grade material:	0.30 g/t AuEq	0.30 g/t AuEq
	U/G direct processing:	2.20 g/t AuEq	2.00 g/t AuEq
New Afton	Main Zone – B1 & B2 Blocks:	USD$ 21.00/t	All Resources:  0.40% CuEq
	B3 Block & C-zone:	USD$ 24.00/t
Blackwater	O/P direct processing:	0.26 – 0.38 g/t AuEq	All Resources:  0.40 g/t AuEq
	O/P low grade material:	0.32 g/t AuEq

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5. New Gold reports its measured and indicated mineral resources exclusive of Mineral Reserves. Measured and indicated Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. Inferred Mineral Resources have a greater amount of uncertainty as to their existence and technical feasibility, do not have demonstrated economic viability, and are likewise exclusive of Mineral Reserves.  Numbers may not add due to rounding.

6. Mineral Resources are classified as measured, indicated and inferred based on relative levels of confidence in their estimation and on technical and economic parameters consistent with the methods considered to be most suitable to their potential commercial extraction. The designators ‘open pit’ and ‘underground’ may be used to indicate the envisioned mining method for different portions of a resource. Similarly, the designators ‘direct processing’ and ‘lower grade material’ may be applied to differentiate material envisioned to be mined and processed directly from material to be mined and stored separately for future processing. Mineral Reserves and Mineral Resources may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical, marketing and other risks and relevant issues. Additional details regarding mineral reserve and mineral resource estimation, classification, reporting parameters, key assumptions and associated risks for each of New Gold’s material properties are provided in the respective NI 43-101 Technical Reports, which will be available on the Company’s SEDAR profile available at www.sedar.com within 45 days of the release to the market.

7. The preparation of New Gold's consolidated statement and estimation of Mineral Reserves has been completed under the oversight and review of Mr. Andrew Croal, Director of Technical Services for the Company. Mr. Croal is a Professional Engineer and member of the Association of Professional Engineers Ontario. Preparation of New Gold’s consolidated statement and estimation of Mineral Resources has been completed under the oversight and review of Mr. Michele Della Libera, Director, Exploration for the Company. Mr. Della Libera is a Professional Geoscientist and member of the Association of Professional Geoscientists of Ontario and of the Engineers and Geoscientists of British Columbia. Mr. Croal and Mr. Della Libera are "Qualified Persons" as defined by NI 43-101.

8. Please refer to the Company’s press release dated February 13, 2020 with respect to the updated life of mine results for the Rainy River and New Afton mines for further disclosure required by NI 43-101.

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CAUTIONARY NOTES

Cautionary Note to U.S. Readers Concerning Estimates of Mineral Reserves and Mineral Resources

This MD&A was prepared in accordance with Canadian standards for reporting of mineral resource estimates, which differ in some respects from United States standards. In particular, and without limiting the generality of the foregoing, the terms “inferred mineral resources,” “indicated mineral resources,” “measured mineral resources” and “mineral resources” used or referenced in this MD&A are Canadian mineral disclosure terms as defined in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) under the guidelines set out in the 2014 Canadian Institute of Mining, Metallurgy and Petroleum Standards for Mineral Resources and Mineral Reserves, Definitions and Guidelines, May 2014 (the “CIM Standards”). Until recently, the CIM Standards differed significantly from standards in the United States. The U.S. Securities and Exchange Commission (the “SEC”) has adopted amendments to its disclosure rules to modernize the mineral property disclosure requirements for issuers whose securities are registered with the SEC under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). These amendments became effective February 25, 2019 (the “SEC Modernization Rules”) with compliance required for the first fiscal year beginning on or after January 1, 2021. The SEC Modernization Rules replace the historical property disclosure requirements for mining registrants that were included in SEC Industry Guide 7, which will be rescinded from and after the required compliance date of the SEC Modernization Rules. As a result of the adoption of the SEC Modernization Rules, the SEC now recognizes estimates of “measured mineral resources”, “indicated mineral resources” and “inferred mineral resources”. In addition, the SEC has amended its definitions of “proven mineral reserves” and “probable mineral reserves” to be “substantially similar” to the corresponding definitions under the CIM Standards, as required under NI 43-101.  Accordingly, during this period leading up to the compliance date of the SEC Modernization Rules, information regarding mineral resources or mineral reserves contained or referenced in this MD&A may not be comparable to similar information made public by United States companies.

Readers are cautioned that “inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or other economic studies, except in limited circumstances. The term “resource” does not equate to the term “reserves”. Readers should not to assume that all or any part of measured or indicated mineral resources will ever be converted into mineral reserves. Readers are also cautioned not to assume that all or any part of an inferred mineral resource exists, or is economically or legally mineable.

Cautionary Note Regarding Forward-Looking Statements

Certain information contained in this MD&A, including any information relating to New Gold’s future financial or operating performance are “forward looking”. All statements in this MD&A, other than statements of historical fact, which address events, results, outcomes or developments that New Gold expects to occur are “forward-looking statements”. Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by the use of forward-looking terminology such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “targeted”, “estimates”, “forecasts”, “intends”, “anticipates”, “projects”, “potential”, “believes” or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “should”, “might” or “will be taken”, “occur” or “be achieved” or the negative connotation of such terms. Forward-looking statements in this MD&A include those under the heading “Outlook for 2020” and “Development and Exploration Review” include, among others, statements with respect to: guidance for production, operating expenses per gold ounce sold, total cash costs and all-in sustaining costs, and the factors contributing to those expected results, as well as expected capital expenditures; Mineral Reserve and Mineral Resource estimates; grades expected to be mined at the Company’s operations; the expected production, costs, economics and operating parameters of Blackwater and New Afton C-zone; planned activities for 2020 and beyond at the Company’s operations and projects, as well as planned exploration activities, expenses; expected permitting and development activities for the New Afton C-zone and production, costs, economics, grade and other operating parameters of Rainy River and New Afton; planned development activities and timing for 2020 and future years at Rainy River.

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All forward-looking statements in this MD&A are based on the opinions and estimates of management as of the date such statements are made and are subject to important risk factors and uncertainties, many of which are beyond New Gold’s ability to control or predict. Certain material assumptions regarding such forward-looking statements are discussed in this MD&A, New Gold’s Annual Information Form and its technical reports to be filed within 45 days of this release filed on SEDAR at www.sedar.com. In addition to, and subject to, such assumptions discussed in more detail elsewhere, the forward-looking statements in this MD&A are also subject to the following assumptions: (1) there being no significant disruptions affecting New Gold’s operations; (2) political and legal developments in jurisdictions where New Gold operates, or may in the future operate, being consistent with New Gold’s current expectations; (3) the accuracy of New Gold’s current Mineral Reserve and Mineral Resource estimates; (4) the exchange rate between the Canadian dollar and U.S. dollar and, to a lesser extent, the Mexican peso, being approximately consistent with current levels; (5) prices for diesel, natural gas, fuel oil, electricity and other key supplies being approximately consistent with current levels; (6) equipment, labour and material costs increasing on a basis consistent with New Gold’s current expectations; (7) arrangements with First Nations and other Aboriginal groups in respect of New Afton, Rainy River and Blackwater being consistent with New Gold’s current expectations; (8) all required permits, licenses and authorizations being obtained from the relevant governments and other relevant stakeholders within the expected timelines; (9) the results of the feasibility studies for New Afton C-zone and Blackwater being realized; and (10) in the case of production, cost and expenditure outlooks at operating mine’s for 2020, metals and commodity prices,  exchange rates, grades, recovery rates, mill availability and mill throughput rates being consistent with those estimated for the purposes of 2020 guidance and the material assumptions identified under the heading “Outlook for 2020”.

Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to known and unknown risks, uncertainties and other factors that may cause actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Such factors include, without limitation: significant capital requirements and the availability and management of capital resources; additional funding requirements; price volatility in the spot and forward markets for metals and other commodities; fluctuations in the international currency markets and in the rates of exchange of the currencies of Canada and the United States and, to a lesser extent, Mexico; discrepancies between actual and estimated production, between actual and estimated Mineral Reserves and Mineral Resources and between actual and estimated metallurgical recoveries; risks related to early production at the Rainy River Mine, including failure of equipment, machinery, the process circuit or other processes to perform as designed or intended; changes in national and local government legislation in Canada and, to a lesser extent,  Mexico or any other country in which New Gold currently or may in the future carry on business; taxation; controls, regulations and political or economic developments in the countries in which New Gold does or may carry on business; the speculative nature of mineral exploration and development, including the risks of obtaining and maintaining the validity and enforceability of the necessary licenses and permits and complying with the permitting requirements of each jurisdiction in which New Gold operates, including, but not limited to: in Canada, obtaining the necessary permits for New Afton C-zone and Blackwater; the lack of certainty with respect to foreign legal systems, which may not be immune from the influence of political pressure, corruption or other factors that are inconsistent with the rule of law; the uncertainties inherent to current and future legal challenges New Gold is or may become a party to; diminishing quantities or grades of Mineral Reserves and Mineral Resources; competition; loss of key employees; rising costs of labour, supplies, fuel and equipment; actual results of current exploration or reclamation activities; uncertainties inherent to mining economic studies including the feasibility studies for New Afton C-zone and Blackwater; the uncertainty with respect to prevailing market conditions necessary for a positive development or construction decision for Blackwater; changes in project parameters as plans continue to be refined; accidents; labour disputes; defective title to mineral claims or property or contests over claims to mineral properties; unexpected delays and costs inherent to consulting and accommodating rights of First Nations and other Aboriginal groups; uncertainties and unanticipated delays associated with obtaining and maintaining necessary licenses, permits and authorizations and complying with permitting requirements, including those associated with the environmental assessment process for Blackwater. In addition, there are risks and hazards associated with the business of mineral exploration, development and mining, including environmental events and hazards, industrial accidents, unusual or unexpected formations, pressures, cave-ins, flooding and gold bullion losses (and the risk of inadequate insurance or inability to obtain insurance to cover these risks), the risks identified in the “Enterprise Risk Management and Risk Factors” section of this MD&A as well as “Risk Factors” included in New Gold’s disclosure documents filed on and available on SEDAR at www.sedar.com. Forward-looking statements are not guarantees of future performance, and actual results and future events could materially differ from those anticipated in such statements. All of the forward-looking statements contained in this MD&A are qualified by these cautionary statements. New Gold expressly disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, events or otherwise, except in accordance with applicable securities laws.

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Technical Information

The scientific and technical information relating to the operation of New Gold’s operating mine’s and Mineral Reserves contained herein has been reviewed and approved by Mr. Andrew Croal, Director, Technical Services of New Gold.  The scientific and technical information relating to Mineral Resources and exploration activities and results contained herein has been reviewed and approved by Mr. Michele Della Libera, Director, Exploration of New Gold. All other scientific and technical information contained herein has been reviewed and approved by Eric Vinet, Vice President of New Gold. Mr. Croal is a Professional Engineer and member of the Association of Professional Engineers Ontario. Mr. Vinet is a Professional Engineer and member of the Ordre des ingénieurs du Québec. Mr. Croal, Mr. Della Libera and Mr. Vinet are "Qualified Persons" for the purposes of NI 43-101.

The estimates of Mineral Reserves and Mineral Resources discussed in this MD&A may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical, marketing and other relevant issues. New Gold’s current Annual Information Form and the NI 43-101 Technical Reports for its mineral properties, all of which are available on SEDAR at www.sedar.com, contain further details regarding Mineral Reserve and Mineral Resource estimates, classification and reporting parameters, key assumptions and associated risks for each of New Gold's mineral properties, including a breakdown by category.

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