New Gold loses $148.9-million (U.S.) in Q3

NEW GOLD ANNOUNCES REVISED NEW AFTON DEVELOPMENT SCHEDULE AND THIRD QUARTER RESULTS

New Gold Inc. has released the financial and operational results for the quarter ending Sept. 30, 2008, and the revised New Afton project development schedule. All figures are in U.S. dollars unless otherwise stated.

Third quarter :

• Gold sales increased by 7 per cent to 67,156 ounces over the prior quarter;
• Total cash cost reduced by 8 per cent to $566 per ounce (net of byproduct credits) over the prior quarter;
• Adjusted net earnings(1) of $8.0-million or four cents per share, before writedown of the company's investment in Amapari. Net loss was $148.9-million including the $156.9-million Amapari impairment;
• Foreign exchange gains of $15.5-million;
• Cash and cash equivalents of $251.1-million;
• Decision to slow development of the New Afton project.

Revised New Afton development schedule

Due to the volatility and uncertainty of today's capital markets and New Gold's current cash position coupled with the financing requirements for the fast-track construction of the New Afton project, New Gold has made the decision to slow development of the project.

Under the revised development plan, surface construction will be shut down in an orderly fashion over the coming weeks while development of the underground workings will continue at a reduced rate to gain access to the bottom of the orebody. The revised schedule projects a cash requirement of approximately $83.0-million in 2009, as compared with the previous fast-track schedule, which had a cash requirement of $320.0-million for the coming year. Under the original fast-track schedule, operations were to commence in late 2009, ramping up to achieve full production in the second quarter of 2011. With the revised plan, surface construction would resume at the end of 2010 with anticipated full production in the second half of 2012.

"I am most conscious of the impacts that the decision to slow the development of the New Afton project will have on our shareholders, employees and the communities adjacent to the project," said Robert Gallagher, president and chief executive officer. "In the current atmosphere of uncertain financial markets, coupled with the severe cost pressures in the construction industry, this is the right action to take to ensure completion of the project in the shortest time frame while maximizing value to our stakeholders. We have identified potential cost reductions in the revised development plan. At today's commodity prices, New Afton will be a strong cash producer. New Gold is making progress in putting in place the required funding that would enable us to complete development of the project."

Amapari writedown

New Gold has reviewed the carrying value of its investment in Amapari and has concluded that there has been an impairment. The evaluation of results from the 2007/2008 drill program has not added significant amounts of oxides that would be economical to process in the existing heap leach circuit. Remaining heap-leachable material will be exhausted in the fourth quarter of 2009. Production beyond 2009 is subject to continuing studies on the feasibility of mining and processing the sulphide resources underlying and surrounding the oxide pits. As a result of the limited mine life for the oxides and unproven economic viability of the identified sulphide resources, management has written down its investment in Amapari by $156.9-million, net of tax recoveries, to a value of $10.6-million.

Third quarter financial review

Consolidated revenue for the third quarter 2008 was $63.4-million with a realized gold price of $870 per ounce. Gold sales in the third quarter were 67,156 ounces, consistent with previous guidance. Cash cost was $566 per ounce, net of byproduct sales for the third quarter, which is above forecast due to higher operating costs at Amapari, lower copper concentrate sales at Peak mines and the impact of falling copper price on copper revenues not yet received.

Consolidated net earnings for the third quarter 2008, before the impairment charge, were $8.0-million, which includes a $15.5-million gain on foreign exchange. Foreign exchange gains arise mainly from Canadian-dollar-denominated monetary items and the revaluation of foreign future income tax liabilities.

Third quarter operational review

Cerro San Pedro

Cerro San Pedro achieved good results in the third quarter with gold sales of 26,070 ounces. The increase in production over the second quarter was due to a higher recovery as leach pads approach equilibrium. Total cash cost, net of byproduct sales for the third quarter, was $369 per ounce and for the nine-month period ending Sept. 30, 2008, was $403 per ounce. Cash cost was lower in the third quarter mainly because of the increase in the volume of gold sold, offset by the reduction in the selling price of silver, higher strip ratio and increased consumable costs. Operating cash flow from the mine for the third quarter was $7.0-million. Consistent with previous guidance, gold and silver production during the fourth quarter will be lower than previous quarters as planned mining progresses through a lower-grade, higher strip ratio phase.

Amapari mine - ( Ampari now on care and maintenance - 2009-01-02 )

see: http://www.stockwatch.com/swnet/news...

Amapari had gold sales of 16,661 ounces in the third quarter at a realized gold price of $853 per ounce and cash cost of $882 per ounce, resulting in negative cash flow from operations of $5.1-million. The full impact of the recently improved operating performance on production and cash cost is expected to be realized in the fourth quarter due to delayed recoveries associated with heap leaching. Recoverable ounces placed on the leach pads increased 44 per cent from 16,400 in the second quarter to 23,600 in the third quarter. Higher mobile equipment availabilities resulted in more tonnes moved and higher-grade ore deliveries, while better plant availability increased tonnes placed. Work to improve recovery is showing positive results with completed piles averaging 75 per cent in the quarter compared with historic results in the low 60-per-cent range.

Peak mines

Peak mines gold sales in the third quarter totalled 24,425 ounces at a realized gold price of $878 per ounce sold. Gold production returned to planned levels with improvement in ore grade as mining focused on primary stopes. Record mill throughput of 196,633 tonnes reflects consistent underground production and high mill availability. Total cash cost for the quarter was $560 per ounce, net of byproduct sales. The higher-than-forecast cash cost is primarily a result of a negative adjustment of approximately $155 per ounce to copper concentrate accounts receivable, due to decreased copper prices. Operating cash flow from the Peak mines in the third quarter was $5.0-million, which was adversely affected by the delay in receipt of copper concentrate sales.

El Morro

New Gold has a 30-per-cent interest in the El Morro project with joint venture partner and operator Xstrata PLC. El Morro is a 450-million-tonne copper-gold deposit located in north-central Chile. New Gold's share of the project's reserves is two million ounces of gold and 1.7 billion pounds of copper(2). Development of the El Morro project is expected to progress to the permitting stage with delivery of the project's environmental impact statement to the Chilean authorities in the coming weeks. Permitting is expected to take from 12 to 18 months, after which development activities could proceed. Total capital cost of the project has been estimated at $2.5-billion. New Gold has an agreement with Xstrata whereby Xstrata will finance, at New Gold's election, 70 per cent of New Gold's 30-per-cent share of El Morro's project development costs. New Gold is pleased to see the project progressing toward the permitting stage and views El Morro as an important part of its growth pipeline.

Corporate outlook

"The third quarter saw improvements in operating performance at Amapari and Peak mines, and we expect to see the full effect of those improvements in the fourth quarter results. At Cerro San Pedro gold production has ramped up continuously to record levels in the third quarter. Consistent with previous guidance, production will be lower in the fourth quarter due to planned mining of lower-grade ore. Consolidated total cash cost, net of byproduct sales, will be adversely impacted with the recent decrease in copper and silver prices. As a result, New Gold expects to exceed its cash cost guidance for the full year but leaves its anticipated gold production of 250,000 ounces for the year unchanged," said Robert Gallagher, president and chief executive officer.

"In the current uncertain and volatile financial atmosphere, New Gold has made the decision to slow development at the New Afton project to maintain its solid financial position. At the end of the current quarter New Gold has cash and cash equivalents of $251.1-million. New Afton is an important part of New Gold's internal growth strategy and management is making progress in putting in place the required funding that would enable us to resume full development of the project."

(1) These data are furnished to provide additional information and are a non-generally accepted accounting principles measure. The data should not be considered in isolation as a substitute for measures of performance prepared in accordance with GAAP and are not necessarily indicative of net earnings presented under GAAP.

(2) Proven and probable reserves, 450,234,000 tonnes; gold grade, 0.46 gram per tonne; and copper, 0.58 per cent; the qualified persons (as defined under National Instrument 43-101) for the mineral reserve estimates are Barton G. Stone, PG, and Richard J. Lambert, PE, Pincock, Allen & Holt. See El Morro feasibility technical report, May 9, 2008.

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