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New Gold Inc. (NYSEMKT:NGD)

Bank of America Merrill Lynch 18th Annual Canada Mining Conference

September 7, 2012 9:30 am ET

Executives

Randall Oliphant – Executive Chairman and Director

Analysts

Michael Jalonen – Bank of America Merrill Lynch

Michael Jalonen – Bank of America Merrill Lynch

Okay, moving on to our next speaker, very pleased to have from New Gold, Randall Oliphant, Executive Chairman. Randall has been with the New Gold and predecessor companies since 2007 and some of you may remember him from being CEO of Barrick and for four years 1999-2003, and so he’s had extensive experience in the mining business. I think Randall we both started in the mining business at the same time. And we’re both 35 years old and it has been like 30 years and basically, but New Gold is an evolving mid-tier gold producer and Randall, why don’t I passed on to yourself?

Randall Oliphant

Well, thank you very much Mike, and good morning ladies and gentlemen and thanks to our friends at Bank of America Merrill Lynch for accommodating our schedule. I know I’m here in the midst of sort of diversified mining companies. We had a two day management offsite of our group, which just concluded last night, which is, I couldn’t be here with the Gold guys, but as I walk you through things, it was a pretty jollification for us because we set a bunch of objectives for ourselves the year ago. We get together as the senior management once a year and we were able to achieve everything that we set out to do.

In terms of some of the pillars that sort of support our company and what we try and build on. There is a few things that we hold our selves accountable. All the growth that we believe that we have done and what we love to do going forward is, that was accretive growth. I can show you on a per share basis, our resources have grown, how our cash flow has grown, our NAV per share has grown, because maybe what differentiates New Gold from some of the other intermediate or any other gold producers is the level of insider ownership that we have in our company. We really operate this business as shareholders ourselves and every decision that we made is basically shareholders.

One of the things that we do and that’s why we get together is that we hold ourselves accountable for delivering against the targets that we set. And I’ll show you, how we have done over the course of the past few years in terms of our production that we guided to, we actually delivered our costs, what we guided to, what we actually delivered. In terms of bringing mines on stream, when we say we are going to, in fact almost all of them come on early. We never had one come on late, and they come on what they are supposed to cost.

In terms of Rob was looking to build our team. And I’ll introduce some of the new people on the slide coming up, in terms that I think put New Gold in a stronger position it’s ever been. I don’t think we’ve ever had as good as set of partners as we have today. Our resources continue to grow. We continue to bring our cost down, despite being subject to all the same cost pressures that the rest of the industry is and that’s allowed our margins to grow much faster than the gold prices being going up.

Most recently we successfully commissioned New Afton. It hit commercial production earlier than we said, it would and that continues to ramp up. It’s target is l1,000 tons a day and its that we expect to get to by probably October or November and that’s what is its processing out today. We have other world class assets that we are developing. We believe that we can double our gold production, with the projects that we have in hand. We can do that with internally generated cash. We’re not dependent on the capital markets to be able to realize our growth aspirations. But we’ve got a decent track record of growing on net asset value per share. I think I will be able to demonstrate to you how we can – believe that we will be able to continue to do that.

Now, this has enabled our company over the course of there is a sense of frustration as you can see with the bottom three lines of the, these are all the various gold indices relative to the gold prices that’s been up 74% over the course of the past three years or so. And how our stock has done. And we believe by continuing to execute the way that we have by developing quality assets in politically secured jurisdiction that we’ll be able to outperform the gold price going forward.

I referred to operational execution, what we show for each of the last few years, is what our production guidance was sort of the green colored bars I guess and then the brown ones being what we actually delivered, and every single year, we deliver what we promise, from a production perspective, and in fact our cost have also been lower than what we projected. You can see for 2012, we estimate 405,000 to 445,000 ounces of production and we’re well on track to that. And from a cost perspective to $410 to $430 an ounce, and we’re also tracking well towards that number.

I mentioned our team, a new member of our team, he just started in the middle of July is Ernie Mast. He is our Vice President of Operations. He is a terrific guy. He did have the principal role of being the person who is going to build the Minera Panama, a project that in my role as the Director of Franco, we just agreed to put up a bunch of money for a gold stream there. But I think largely for personal reasons, Ernie want to get his family back to Canada. His kids were in high school. He liked the people he met at New Gold. He liked where we are going and wanted to join us.

Another person who has joined most recently and a lot of the names on this list of our Board would be familiar to you and we love being partners with these guys, because they brought a history of building gold companies and more importantly building them in a way that face value for shareholders, and they are all significant shareholders themselves. He is David Emerson, and because we have New Afton, in British Columbia.

We’ve got Blackwater coming on in British Columbia, one that another strong person, who is an institution in BC. And David has a history there being Head of the Vancouver Airport Authority, President and CEO of Canfor, on the Board of a lot of other BC based companies. He is also on the board of Finning, which is the world’s largest CAT dealer. But David had also serviced as Canada’s Minister of Trade, Minister of Industry, and he is a very respected person. I think has a very good sense of what’s going on in Ottawa. And although he switched parties, when asked David Peterson, one of our fellow Franco Directors, what that meant sometimes in political circle it’s important, they said he is regarded primarily as a public servant and as a patriot, and has an impeccable track record. So we’re delighted to have him on our Board.

And as I mentioned earlier, we sort of eat our own cooking and that our Board and Management team have significant investment in this company. Where our assets are today? The operating mines is the one shown in brown, they are all in politically secured jurisdictions, New Afton, Mesquite, Cerro San Pedro and Peak are big development projects are Blackwater and our 30% interest in El Morro. And while we are always looking to build our resource base, because it’s really the fund that we’ll look to continue to build and operate this company. Now you can see over the course of the past few years on a per share basis, we have been able to grow our resources by 40% per share.

Costs are important in our industry and I guess one of the things that disappointed people is that gold went up, their margins haven’t expanded. And New Gold is probably had the opposite experience and we feel fortunate about that. I think in 2008, and we are probably in the highest quartile cost gold producer, today we are in the lowest quartile producer. And what’s led to that is largely our mines ramping up, as we produce more gold we simply just take our cost and divide it by a bigger number. But this is also where our copper byproducts or silver byproducts more than offset appreciation in Australian Dollars, Canadian Dollars, Mexican Peso, higher diesel fuel costs, higher demands for labor, because we have sort of a natural economic edge in the company, where all those things that push up commodity currencies, and other commodity input costs.

Now there is a pretty strong correlation as you can see between silver and copper, that largely offset those. And we’re delighted that not only our cost going to be lower this year than they have ever been, but next year there will be even lower than that. And that’s what’s enabled our margins to expand, we show here 241% despite the gold price being up about 70%.

Our three operating mines, as they have in the past continue to do what they say they are going to do. You can see that the cost are quite different between them, for our Mesquite for instance there is the full brunt of higher diesel fuel prices, whereas Cerro San Pedro benefits a lot from higher sliver prices. And the Peak mines benefit from, we hear a lot about cost pressures in Australia, but the copper prices largely offset.

So for the first half of this year, we have been $500 an ounce and as I mentioned with the start up of New Afton, which has both gold and copper that’s what will help pull our cost down much lower in the second half of the year.

In terms of New Afton, we are very proud of what our team achieved there. A) they brought it on stream earlier than they said they would. I believe they were within 7% or 8% of the budgeted cost from 2008, which is sort of unheard of in this industry. And I think the location is pretty important. I can think of an easier mine to develop from the perspective of it. But a 10 minute drive outside of the City of Kamloops, city of a 100,000 people where people really like to live and others go on vacation. So we were fortunate to have that. We took out, I don’t know about 25 people, half analyst, half institutions to go and see New Afton. I think they were sort of surprised, you can pick up a Starbucks coffee and drive down the Trans-Canada Highway, that power lines are already there.

You drive by all the mining suppliers on your way there, and I think it was probably an easier mine to develop. It also enabled us to attract the work force, that probably is better than what our mine deserve. I mean our General Manager there had 30 or 35 years of block cave experience, even more than us Mike. I think we were in high school when we was doing this. But he has worked at (inaudible) and the block cave there, which is arguably three ports most important asset. So why would he want to work at a mine that’s maybe, less than 10% the size of that. Well, because he can live in Kamloops, he has a daughter and grandchildren in Seattle. And that’s just typical of why people are working with us. It feel fortunate because of the location.

Today is million ounces of gold, the billion pounds of copper. We got exploration potential down below that where we believe we can continue to grow it. But over the next 12 years, it will generate in the order of $0.25 billion of cash for us, each year which means it will largely recover the whole capital costs in probably the first three years of operations, then we’ve got another nine years to go, plus we’ve got all of those expansion possibility.

I mentioned some of the exploration we have, right now where all of our reserves what’s called the B-block, we have a C-block below that. We already have identified a resource in one of our folks is now we dropped the mine up and running just to explore that. Because we like to look at two things. One is, can we take this 12 year mine life to perhaps 20 years, at the same time given that the mine has ramped up much faster than we ever thought in terms of it’s the capacity of the mills to get to a 11,000 tons a day. There is scope to expand beyond that where maybe we can both extend the mine life and increase the annual production numbers beyond sort of the 85,000 ounces of gold a year and 75 million pounds of copper that I showed on the previous page. We also have a big land position, and now that we’ve got the mine up and running again our focus is what else do we have here. So it’s pretty exciting at New Afton and I can’t tell you how remarkably proud we are of these guys, delivering in capacity what the said they would, in fact doing it a bit early.

As you probably know we have an interest of 30% in El Morro, the operator of this project is Goldcorp. This was subject to some litigation where Barrick was suing Xstrata, Goldcorp, and our selves over the whole transfer of the 70% interest and we are delighted on June 26, that the Judge saw things our way. Our deal stood, I think it was a pretty conclusive decision which Barrick elected not to appeal, and now we’ve got clarity in terms of where we are.

As you may or may not know our joint venture agreement with Goldcorp as they put up 100% of the capital costs. We get cash flow from the minute this mine starts, 20% of our 30% share until the capital is recovered. Today the capital cost was just updated to $3.9 billion, so our share of that of maybe $1.2 billion is going to be funded by Goldcorp. And to put in perspective at today’s metal prices, this project should generate about $1 billion a year of cash flow for 17 years, plus on top of that, there is a lots of potential to expand it. As it’s our head of exploration puts the first drill hole into El Morro, so our company knows it remarkably well. And there is also a higher grade area right at the bottom of the pit, which Goldcorp believes it will be a block cave mine, that’s about double the gold grade, and about 40% higher copper grades and when we have in the reserve.

So all the current base case this 17 year mine life, we really think it will be mining at El Morro for decades. This issue is now with respect to some local indigenous groups who have challenged the Government of Chile through the courts, say that they were inadequately consulted. I think the Chilean government and the courts are trying to figure out what that means and what is consultation mean, and where does this go. It’s not something we’re particularly concerned about, largely because Goldcorp has to take care of that as the operator.

But secondly, I think it’s more of a problem for the Chilean government than it is for any company in terms of how did they go above once they have approved building a mine dealing with this and what does that mean for further mining approvals down the road, to be even more dramatic about it. What would happen for a current operating mine if indigenous people say, hey, we want to be properly consulted in the past either in this the EIA is still good. We’re pretty confident this is going to get resolved in the next year. And again El Morro will be a core asset of our company for a long time.

Blackwater is probably the most exciting team that we’ve got going on. Blackwater has the capacities more than double the company’s gold production. As you may recall we bought this I think closed in June of last year. At that time, we had 4 million ounces of gold, today it’s got 9.6 million ounces of gold. The resource continues to expand and this is probably the largest pure gold discovery ever found west of Ontario. It’s not a well understood area. Nobody knows where all this gold came from. We have a conclusive property that 25 kilometers away, that’s already 800,000 ounces of gold and 56 million ounces of silver. These deposits never seem to statistically happen in isolation where we have a 10 million ounce deposit, nothing else around whether it’s a 2 million or 4 million, 5 million ounce deposit as well.

And so what we’ve done is we’ve worked to try and increase our land position and we’re now up to about 1,000 square kilometer, because frankly the geologists don’t know what’s the source was of all this gold. We want to control everything in the area from the perspective of dealing with First Nations of having fleet flexibility of where we put tailing stands, waste, dumps, not having to lay that on other people’s ground. Our drilling is remarkably aggressive this year. We’re going to drill about 250 kilometers of drilling, I read somewhere that they had this maybe the most sensitive drilling program going on in mining right now, but we’re both trying to upgrade our resource and also expand the size of it.

The cost of building Blackwater, we can fund internally with the cash flows that we have because our mines, three operating mines before New Afton, generated about $230 million of cash flow last year. New Afton will generate a similar amount of cash and so we can continue to build this flexibility that we have in our balance sheet in our cash position today. Funding of this project is not going to be an issue.

We just announced yesterday that we’re actually going to have a breakfast bring out the preliminary economic assessment of Blackwater, here in Toronto, on September 20. What we want to do is make our whole team available, who have been dealing with all of the permitting, the feasibility study, and have a couple of hour session, where people can ask any questions that they want. We’ll always have Mark Petersen, our Head of Exploration who has been finding all these ounces and he was sort of the person who really insisted that we needed to go after this available if any of you can join us that morning.

Here we show the overall land position. This is in Central British Columbia, its pretty flat terrain, it’s sort of close enough to centers that we can drawn a lot of the people and the resources from there, but far enough away that we don’t really impact any one. One of the calling cards of our company and one of the reasons why we thought that we wanted to get involved in Blackwater was our teams in British Columbia have an outstanding relationship with all the First Nations group. In fact our local chief was PDAC here in Toronto, about a year and a half ago, talking about the model that we have and he’s like he rolled it all across Canada. That’s made things a lot easier for us in dealing with First Nations in British Columbia. We already have and they even acquired letters of support, to support our multi year exploration permit.

Bob Gallagher our President, who is based in Vancouver, really nurtures these relationships for us and it’s been quite successful in doing so. Here is a the rough timeline of where we are again, the PEA coming out in a week and a half from now, the feasibility study will prepare through 2013. We started on the permitting of this and giving scope of work. We’ve already have lots of interaction with the government. Government of British Columbia is trying to figure out what did they do in rural areas because of the pine beetle problems and the layoffs in the forestry industry. And the mining industry is really a great way of, how a rural person who wants to earn $70,000 a year, kind of doing work, how they can replace those jobs. And even the new the NDP party, who looks like they might win the next election in BC, have already been reaching out to people like David Emerson, and people on our company to say look, we know we went a little bit nuts last time, this is pretty important mining to BC and you want to know that we’re going to supportive of economic ventures.

So the big construction period, when we’ll be spending the bulk of the money will be in 2015 and ’16 and then we expect to have a full year of production in 2017.

So in the very near term here is where we are growing, our production we have begun this year, cost should be lower, our margins expanding and then in 2013, and this is largely having a New Afton on stream with the full year. Our cost should go down to somewhat below $200 an ounce. Our production go up towards 0.5 million ounces of gold. And because effectively what happens then is the copper that we get byproducts from Peak and New Afton and the silver that we get from Cerro San Pedro virtually pay all of the companies operating costs, and you get in the order of 0.5 million ounces of gold for free.

As we look further out with El Morro and Blackwater coming on we can see our production growing to over 1 million ounces from the 400,000 ounces of gold production that we have this year or being about 2.5 times what it is today. And that’s what sort of makes us pretty exciting is in largely a no growth industry being the gold business, be able to take our production to 2.5 times what it is today, again with internal projects all located in politically secured jurisdictions.

This is a chart that our shareholders seem to delight because as we showed on one of the earlier graphs our stock price has done well over the course of the past two years. In large, what it does is just the followed the growth in the NAV per share. So the NAVs or the average of the 14 analysts who follow our company, what they think of our various assets was back in June of 2009, when Hannes has joined now and I joined New Gold as part of the New Gold, Western Goldfields merger. And while there is ebbs and flows in gold stock trader premiums and discounts to NAV depending on what’s going on.

Our operating portfolio, we the market believes we’re double it was three years ago. Part of that there is assuming higher metal prices, but also and our mines have extended their product of lives, as you can see their cost have been coming down. There is lots of initiatives going on to make the more valuable and what we meeting about over the course of past couple of days is, how do you keep this going.

New Afton was our project three years from production. Today looking at something that’s been generating the order of $250 million of cash for at least 12 years, the market has to started to assign a higher value to that. But we believe overtime we can probably get this to about double the number that is there, just as we’ve done in the past, by continuing to expand the resource, to turn into reserves and continuing to execute.

El Morro, the market three years ago we thought our interests worth $40 million, today it’s about $700 million. While I know everybody is concerned about capital costs projects, again our share of the cash flow to this will be about $300 million a year for at least 17 years, plus all of the upside, and of course our share of capital is 1.2 billion. I believe that this project will get build and that will be one of the best today. It is one of the best undeveloped mining projects in the world.

Blackwater we brought and all of the other companies associated with it. We’re about $600 million and today the average NAV is about $1 billion. When we bring out our PEA, as we continue to find more ounces of gold, a 0.5 million ounce producer of gold, if you look at other competitor companies, this can generate in the order of $0.5 billion a year of cash flow for a very long time. we believe ultimately we’ll be signed a much higher than a $1 billion. And we don’t really care when it gets to that. We have a nice steady growth going on, we’re shareholders our selves. We’re going to own our shares for a long period of time. We can see that overtime as we continue to execute, expand our resources that the market takes care of itself.

In other way that we look at is, as owners ourselves is, what is the enterprise value of the company today, because El Morro and Blackwater aren’t in production yet, backing of those any of these numbers that we showed earlier, we have a value of about $3.7 billion for operating assets, and for New Afton, based on consensus cash flow for our company of over $0.5 billion a year, we feel very comfortable of owners of this business. That we can recoup that whole amount in seven years plus we have got all the upside associated with them.

We’ve outlined earlier a bunch of catalyst for 2012 and I feel very fortunate to, so many efforts were done by others so that I can report to you, that everything that we said we would do this year, we have done and we had done it on time or early. We updated the Blackwater resource earlier this year. Our production started at New Afton, we said that we would win the El Morro litigation and we did that, because they kept finding more gold we had to update the Blackwater resource once again to for use in our PEA. New Afton hit commercial production earlier than we thought it would. We said that we have our Blackwater PEA out in September and we’ll be doing that on September 20.

And El Morro’s engineering and development planning continues to advance and Goldcorp are on the case dealing with this permitting issue, and we’ll have further updates over the balance of this year for what’s going on at Blackwater and as I mentioned drilling in this deeper area at New Afton.

We think putting it all together as a group and the reason why we own shares in our company is, we really like to team with people that we have on our Board and our management. We are fully funded with the strong balance sheet that will enables us to sleep at night. The asset base is diversified, it’s all in mining friendly jurisdiction. We don’t wake in the middle of the night worrying about any of that. There is lots of organic growth, lots of metal optionality. Our production is growing, our margins are expanding. We believe that we can continue to expand the net asset value of our assets. There is lots of catalyst that will come about not only in 2012, but we’ll have a whole other list for 2013. And putting it all together, that’s why we’re pretty excited about this company and proud owners of these shares.

With that Mike, as we’ve got a few minutes, I can answer questions.

Question-and-Answer Session

Michael Jalonen – Bank of America Merrill Lynch

And it’s for questions, if there is any, maybe I could ask one. There is one Larry has got one.

Unidentified Analyst

Randall, you’ve got a mine coming on this year, and your next two mine is 2017. Are you looking making that acquisition project that might come on in between to kind of fill in that growth gap?

Randall Oliphant

That’s an excellent question Larry. And we’re looking at all those things really hard, because from it’d be perfect to have something that’s building in that gap. We’re also in an environment where a lot of the development companies that we’ve been looking at, the service 70% off sale right now. And how do we take advantage of the position that we are in, people being afraid of new projects, the stock prices have traded down, with people seeing a lot of dilution coming for those. And I think what we have established because it’s really is partnership our company, and there is about five or six companies that have come together over the course of this past maybe four or five years to form new gold. So we’re in touch with people, but we need to find some that’s really compelling to do.

We don’t need to do anything and we don’t want to end up buying something, remember we had this production gap that we’re looking to fill. And it took us two years to find Blackwater. We saw lots of things available and Hannes working along with Mark Petersen, our Head of Exploration, they managed to find a 4 million ounce gold deposit. In Canada virtually nobody had ever heard of, in a jurisdiction where we were the logical owner. I think as I speak to other people in the industry there is no better owner of that project than New Gold. That said other companies are more confident or stronger, but in terms of operating a mine in BC because our guys are just permitted New Afton, the First Nations relationships that we could fund it internally. It just made more sense for us than for anybody else, the same way there is other regions of the world, where we aren’t the logical owner.

So we relentlessly go to teams keeping good relationships with these companies, looking at what we can do. We love to be able to do something using our cash, because we’re very sensitive to dilution because we look at these per share metrics and if find something that’s good to do, we’ll do it. But we feel very fortunate that we don’t have to, but seeing the values of where they are now, it’s probably never been more attracted to look at these things.

Michael Jalonen – Bank of America Merrill Lynch

I think that brings us out of time, but if you all join me to thank Randall and New Gold for the presentation, and thank you Randall.

Randall Oliphant

Thank you.

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