ex99_2.htm

CIRCULAR REGARDING

SPECIAL MEETING OF

NOTEHOLDERS

(IN CONNECTION WITH NOTICE GIVEN APRIL 17, 2008)

AMENDMENT OF NOTE INDENTURE DATED AS OF JUNE 28, 2007

FOR 10% SUBORDINATED NOTES

DUE JUNE 28, 2017

SPECIAL MEETING OF NOTEHOLDERS

OF NEW GOLD INC.

TO BE HELD ON FRIDAY, MAY 9, 2008

AT 2:00 P.M. (TORONTO TIME)

IN CONNECTION WITH NOTICE GIVEN APRIL 17, 2008

April 23, 2008

Dear Noteholder:

By way of a notice mailed by Computershare Trust Company of Canada (the “Note Trustee”) on April 17, 2008, you have been invited to attend a meeting (the “Meeting”) of the holders of the listed 10% subordinated notes due June 28, 2017 (the “Notes”) of New Gold Inc. (“New Gold”) to be held at 2:00 p.m. (Toronto time) on Friday, May 9, 2008 at the offices of Fraser Milner Casgrain LLP, Fraser & Beatty Room, 39th Floor, 1 First Canadian Place, 100 King Street West, Toronto, Ontario.

At this meeting, you will be asked to consider certain amendments to the terms of a note indenture between New Gold and the Note Trustee dated as of June 28, 2007 (the “Indenture”) pursuant to which the Notes, which are listed on the Toronto Stock Exchange, were issued. The amendments are being proposed by New Gold to: (i) allow the flexibility for New Gold to pursue a transaction (the “Transaction”) with Peak Gold Ltd. (“Peak”) and Metallica Resources Inc. (“Metallica”); (ii) provide for the protection of the interests of holders of Notes in the event that New Gold is able to implement the Transaction; and (iii) for the reasons further detailed in the accompanying circular.

On March 31, 2008, New Gold announced that it had entered into a letter agreement (the “Letter Agreement”) with Peak and Metallica in relation to the Transaction. The Letter Agreement includes a condition precedent in favour of Metallica and Peak, pursuant to which Metallica and Peak will not be obligated to complete the Transaction if the terms of the Notes have not been amended to the satisfaction of Metallica and Peak. Following discussions with some major holders of Notes, New Gold agreed to put forward the amended and restated Indenture (the “Amended and Restated Indenture”) set out in the accompanying circular to ensure that the flexibility to implement the Transaction is provided together with protection by way of security over the assets of the New Afton Project of New Gold to be granted in favour of the Note Trustee for the holders of Notes. The directors of Metallica and Peak have approved the proposed amendments.

The accompanying circular explains the proposed amendments and provides specific information regarding the Meeting. Please review the entire circular, including all schedules, carefully. The directors of New Gold have carefully considered the proposed amendments and have determined that it is in the best interests of New Gold for the proposed amendments to be approved. The directors of New Gold unanimously recommend that you vote FOR the resolution approving the Amended and Restated Indenture. In order to pass, Noteholders holding not less than 51% of the principal amount outstanding pursuant to the Notes must be represented at the Meeting and the resolution approving the Amended and Restated Indenture must be approved by not less than 66⅔% of the votes cast by Noteholders in person or by proxy at the Meeting.

Regardless of the number of Notes that you own, your vote is very important. Whether or not you plan to attend the Meeting, please submit your proxy as soon as possible to ensure that your Notes are represented at the Meeting. Additionally, by voting now, your prompt response will help to reduce proxy solicitation expenses.

If the proposed amendments are not approved by the Noteholders, Metallica and Peak will not be obligated to complete the Transaction as this condition precedent in their favour in the Letter Agreement will not be satisfied.

Should you have any questions on information contained in the enclosed documents or require information on voting your Notes, please contact Kingsdale Shareholder Services Inc. toll-free at 1-866-581-0506.

Sincerely,

(Signed) “Clifford J. Davis”

President and Chief Executive Officer

TABLE OF CONTENTS

BACKGROUND AND REASONS FOR THE AMENDED AND RESTATED INDENTURE	2
RECOMMENDATION OF THE BOARD OF DIRECTORS	10
AMENDED AND RESTATED INDENTURE	11
EXTRAORDINARY RESOLUTION	11
OTHER APPROVALS AND REGULATORY MATTERS	12
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS	12
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS	12
GENERAL PROXY INFORMATION	13
INTERESTS OF INFORMED PERSONS IN MATERIAL TRANSACTIONS	15
DOCUMENTS INCORPORATED BY REFERENCE	15
ADDITIONAL INFORMATION	16
DIRECTORS' APPROVAL	16

NOTICE TO UNITED STATES NOTEHOLDERS

This solicitation of proxies is not subject to the requirements of Section 14(a) of the United States Securities Exchange Act of 1934, as amended (the “U.S. Exchange Act”). Accordingly, such solicitation is made in the United States with respect to securities of a Canadian foreign private issuer in accordance with Canadian corporate and securities laws and the information circular attached hereto, including the Schedules attached thereto and the documents incorporated by reference therein (collectively, the “Circular”), has been prepared in accordance with disclosure requirements applicable in Canada. Holders of Notes of New Gold Inc. (the “Company”) in the United States should be aware that such requirements are different from those of the United States applicable to proxy statements under the U.S. Exchange Act.

Enforcement by holders of Notes of civil liabilities under the United States securities laws may be affected adversely by the fact that the Company is organized under the laws of a jurisdiction other than the United States, that the officers and directors of the Company are residents of a country other than the United States, that some of the experts named in the Circular are residents of Canada and that a substantial portion of the assets of the Company and such persons are located outside of the United States.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Circular and the documents incorporated by reference contain “forward looking statements”. Forward looking statements include, but are not limited to, statements with respect to the Transaction, the impact of the Amended and Restated Indenture, future price of commodities, the estimation of mineral reserves and resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, costs and timing of the development of new deposits, success of exploration activities, permitting time lines, currency fluctuations, requirements for additional capital, government regulation of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. In certain cases, forward looking statements can be identified by the use of words such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward looking statements. Such factors include, among others, risks relating to the Company’s ability to commence production and generate material revenues or obtain adequate financing for its planned exploration and development activities; risks related to international operations; the availability, or lack of availability, to the Company of insurance; actual results of current exploration activities; conclusions of economic evaluations; changes in project parameters as plans continue to be refined; future prices of commodities; possible variations in ore reserves, grade or recovery rates; failure of plant, equipment or processes to operate as anticipated; risks related to joint venture operations; accidents, labour disputes and other risks of the mining industry. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward looking statements, this list is not exhaustive and there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Other than as required by law, the Company does not intend, and undertakes no obligation to update any forward looking statements to reflect, among other things, new information or future events. There can be no assurance that forward looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward looking statements.

CURRENCY

All amounts in this Circular are expressed in Canadian dollars, unless otherwise indicated.

NEW GOLD INC.

INFORMATION CIRCULAR

Unless the context otherwise suggests, references to “Notes” refer to the outstanding 10% subordinated notes of New Gold Inc. (the “Company” or “New Gold”), and any holder of a Note is referred to as a “Noteholder”. References to the “Meeting” refer to the special meeting of Noteholders of the Company to be held at the time and place and for the purposes set forth in the Notice of Meeting distributed by Computershare Trust Company of Canada (the “Note Trustee”) on April 17, 2008, and shall include any adjournment or adjournments thereof.

BACKGROUND AND REASONS FOR THE AMENDED AND RESTATED INDENTURE

The Notes were created and issued pursuant to the terms of the Indenture entered into between the Company and the Note Trustee dated as of June 28, 2007 (the “Indenture”). The Indenture was entered into in connection with the public offering of units of the Company, which units consisted of $1,000 in principal amount of Notes and 100 warrants to purchase common shares of the Company for $15.00 per common share on or prior to June 28, 2017.

Pursuant to the terms of the Indenture, each Note is an unsecured series D note with a face value of $1,000, with a 10% coupon and a 10-year term. The Indenture is available for review under the profile of the Company at www.sedar.com.

As of April 23, 2008, 237,000,000 Notes were issued and outstanding, of which none were held by insiders of the Company.

At the time of closing of the issue of the Notes, the Company held discussions with representatives of certain Noteholders regarding amendments to the Indenture. The representative Noteholders and the Company agreed upon the form of these revisions in March, 2008. These amendments included, among other things: (i) restrictions of transactions between the Company and affiliates; (ii) limitations on the type of business permitted to be conducted by the Company; (iii) restrictions on asset sales by the Company and procedures regarding the disposition of proceeds from those sales; and (iv) an additional event of default which would be triggered by the failure to pay indebtedness exceeding $3 million (other than the Notes) when due.

On March 31, 2008, the Company announced that it had entered into a letter agreement (the “Letter Agreement”) with Peak Gold Ltd. (“Peak”) and Metallica Resources Inc. (“Metallica”) in relation to a transaction to combine their businesses (the “Transaction”). The Letter Agreement includes a condition precedent in favour of Metallica and Peak, pursuant to which Metallica and Peak will not be obligated to complete the Transaction if the terms of the Notes have not been amended to the satisfaction of Metallica and Peak. Following discussions with certain holders of Notes, the Company prepared an amended and restated indenture (the “Amended and Restated Indenture”), a copy of which is included with this Circular, to implement the initial amendments referred to above as well as the amendments set out herein necessary to enable the Transaction to proceed. As noted below, the Board of Directors of the Company has unanimously approved the form of Amended and Restated Indenture. The Company has been advised that the directors of Peak and Metallica have reviewed and approved the amendments to the Indenture.

The Indenture currently includes a requirement at Section 5.1 that the Company make an offer to redeem the Notes if it has not obtained all necessary permits for the exploration, construction, development and conduct of mining operations at the New Afton Project on or before June 28, 2008. While the Company is working towards this objective, the Amended and Restated Indenture replaces this provision, as outlined below, with a more general covenant to diligently work towards obtaining and maintaining necessary permits. In order to provide the time to implement the Transaction without triggering this right of redemption, the Company has included a waiver of this right of redemption in the extraordinary resolution.

The Amended and Restated Indenture will only be implemented if the Transaction proceeds.

Summary of Proposed Amendments to Note Indenture dated June 28, 2007

Consent Fee:

In consideration of the Noteholders’ consent to the proposed amendments, the Company will pay the Noteholders a consent fee of the aggregate amount of 3% of the principal amount of the Notes, comprised of 4,150,000 warrants (the “Consent Fee Warrants”). The newly issued warrants will, provided the listing criteria are satisfied, be listed on the TSX and will, on completion of the Transaction, be created and issued under an indenture or an indenture supplemental thereto having substantially the same terms as the warrant indenture dated June 28, 2007 issued by New Gold, being warrants to purchase common shares of the Company for $15.00 per common share on or prior to June 28, 2017. The closing price of the existing warrants on April 4, 2008 was $1.75.

Proposed Amendments:

1.	Permit Covenant (existing section 5.1). Section 5.1 of the Indenture will be deleted and replaced by the following new section 7.16:

“7.16 Permits

The Company shall at all times carry on and conduct its business in accordance with good business practice and diligently work towards obtaining and, once obtained, maintaining in good standing, all permits required for the operation of its properties, including all permits required for the exploration, construction and development of, and the conduct of mining operations at the New Afton Project.”

2.	Restrictive Covenants with respect to incurring indebtedness and granting security. Section 7.3 will be deleted and replaced by the following new Section 7.3:

“(a) The Company covenants that it will not:

(i)

create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of any Indebtedness except for the Notes, the Debentures and Permitted Indebtedness; or

(ii)

directly or indirectly create, incur, assume or suffer to exist any Security Interest of any kind securing any Indebtedness on any New Afton Project Asset, except for Permitted Encumbrances.

(b)

The Company will not, directly or indirectly, make the following restricted payments: (i) declare or pay any dividend or make any distribution or payment of any kind (other than dividends or distributions payable in Common Shares or in options, warrants or other rights to purchase Common Shares) on or in respect of any shares in the capital of the Company; (ii) purchase, redeem or otherwise acquire for cash any shares in the capital of the Company or any warrants, rights or options to purchase or acquire shares in the capital of the Company (except for the Debentures on which, for greater certainty, distributions may be made and which may purchased, redeemed or otherwise acquired in accordance with the terms of the Debenture Indenture but subject to section 7.3(c) below); or (iii) make any principal payment on, purchase, redeem, prepay or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment, scheduled sinking fund or scheduled and mandatory offer to redeem, payment, any Indebtedness of the Company that is not Indebtedness represented by the Notes or the Debentures (subject to section 7.3(c) below), or Permitted Indebtedness or, any Indebtedness which in accordance with its terms, is subordinate or junior in right of payment to the Notes.

(c)

If the Company exercises its option to redeem any Debentures pursuant to section 5.1 of the Debenture Indenture and if, at such time, any Notes are outstanding, the Company agrees that it will not (except at maturity of the Debentures) repay the redemption amount for such Debentures in cash, but only in common shares in accordance with section 5.7 of the Debenture Indenture.”

3.	Limitation on Conduct of Business. The following covenant will be inserted as a new section 7.17 of the Indenture:

“7.17 Limitation on Conduct of Business

The Company shall not engage in the conduct of any business other than the business of mining and businesses reasonably related thereto. For greater certainty, the foregoing shall not limit the Company’s ability to acquire additional assets to carry on any such business.”

4.	Sale of Assets. The following covenant will be inserted as a new section 7.18 of the Indenture:

“7.18 Sale of Assets

The Company shall not, directly or indirectly, Transfer any New Afton Project Asset or enter into any agreement to do so, except for:

(a)

any such Transfer made in the ordinary course of business for fair market value consideration; or

(b)

Transfers of production subject to any Risk Management Agreement or offtake agreement at the price specified therefor in such agreement.

The Note Trustee shall, from time to time at the Company’s request, without any further authorization by Noteholders, provide partial discharges of all security held by the Note Trustee to discharge from such security each New Afton Project Asset upon the transfer thereof as permitted by this section 7.18.”

5.	Additional Event of Default relating to Cross Acceleration. The following will be added as a new section 8.1(k):

“(k)

the Company fails to pay the principal of, premium, if any, interest on, or any other amount owing in respect of any of its Indebtedness which is outstanding in an aggregate principal amount exceeding $3,000,000 when such amount becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure continues after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness or any other default or event of default occurs and continues (after the applicable grace period, if any) pursuant to any agreement or instrument relating to such Indebtedness if, as result of such failure, default, or event of default, payment of all such Indebtedness has been accelerated and all such Indebtedness is then due and payable prior to its stated maturity.”

6.	New Security. The following will be added as a new section 7.19 of the Indenture:

“7.19 Security to be granted by the Company to the Note Trustee for the Noteholders

of operating credit facilities and credit card credit lines that constitute Permitted Indebtedness pursuant to paragraph (f) of the definition of Permitted Indebtedness. The Note Trustee shall, from time to time, at the Company’s request, without any further authorization by Noteholders, provide agreements to evidence such equal priority. ”

7.	Restrictions on Dividend Payments by the Company. The existing subsections 7.3(b)(i) and 7.3(b)(ii) of the Indenture shall continue to restrict the Company from paying dividends or redeeming shares as set out therein.

[See Amended Section 7.3 above.]

8.	Restriction on Payments by the Company to its Subsidiaries. The following will be added as a new section 7.20 of the Indenture:

“7.20 Restrictions on Payments by the Company to its Subsidiaries

The Company will calculate the New Afton Cash Flow for a preceding financial quarter of the Company before using any New Afton Cash Flow for such preceding financial quarter to make an investment in, advance to or payment to any of the Company’s Subsidiaries. The Company shall not make investments in, advances to or payments to any of the Company’s Subsidiaries, out of the New Afton Cash Flow for such preceding financial quarter, in an aggregate amount that exceeds fifty per cent (50%) of the New Afton Cash Flow for such preceding financial quarter.”

9.	Offer to Redeem from New Afton Excess Cash Flow. The following will be added as a new section 7.21 of the Indenture:

“7.21 New Afton Excess Cash Flow Offer to Redeem Notes

On or before the last day of the first financial quarter of each fiscal year of the Company, commencing with the fiscal year ending December 31, 2008, the Company will furnish a certificate to the Note Trustee setting out the calculation of New Afton Excess Cash Flow for the previous fiscal year. If the aggregate amount of New Afton Excess Cash Flow exceeds $10 million (an “Excess Cash Flow Event”), the Company will, within 30 days after the date of certification, make an offer to all the Holders to redeem the Notes on a pro rata basis (an “Excess Cash Flow Offer to Redeem”) on the following conditions:

(a)

The Excess Cash Flow Offer to Redeem shall be for an aggregate maximum amount equal to the amount of New Afton Excess Cash Flow as at the end of the previous fiscal year.

(b)

Each Note to be redeemed shall be selected on a pro rata basis to the nearest multiple of $1,000 in accordance with the principal amount of the Notes registered in the name of each Holder. Notes in denominations in excess of $1,000 may be selected and called for redemption in part only (such part being $1,000 or an integral multiple thereof). The Holder of any Note called for redemption in part only, upon surrender of such Note for payment, shall be entitled to receive, without expense to such Holder, a new Note for the unredeemed part of the Note so surrendered, and the Company shall execute and the Note Trustee shall certify and deliver, at the expense of the Company, such new Note upon receipt of the Note so surrendered.

(c)

The redemption price for each Note to be redeemed, shall be an amount equal to 100% of the principal amount of the Note or part thereof that has been called for redemption, as applicable, plus accrued and unpaid interest, if any, up to but excluding the Redemption Date.

(d)

Any Excess Cash Flow Offer to Redeem shall be conducted in the manner contemplated by sections 5.3, 5.4, 5.5(ii), 5.6 and 5.7, to the extent that such provisions do not conflict with this section 7.21.

(e)

Each Holder may accept or reject the Excess Cash Flow Offer to Redeem as it applies to its pro rata share (the “Excess Cash Flow Pro Rata Share”). If a Holder accepts the Excess Cash Flow Offer to Redeem, it may also indicate whether it wishes to redeem additional Notes (in excess of its Excess Cash Flow Pro Rata Share) pursuant to subsection (f) below. A Holder’s election to redeem together with the Note for redemption must be surrendered to the Paying Agent not later than the close of business on the third Business Day immediately preceding the Redemption Date.

(f)

If any Holder rejects the Excess Cash Flow Offer to Redeem, the amount of New Afton Excess Cash Flow representing its Excess Cash Flow Pro Rata Share may at the Company’s option be re-allocated pro rata among the Holders who have indicated that they wish to have additional Notes redeemed.

(g)

If all Holders reject the Excess Cash Flow Offer to Redeem or if the Company has redeemed the applicable Notes as required by this section 7.21, the Company shall be thereafter released and discharged of all its obligations with respect to such Excess Cash Flow Offer to Redeem and the balance of such New Afton Excess Cash Flow shall immediately be reduced to zero and, for greater certainty, such amount may be used by the Company for general corporate purposes.”

10.	Deletion of Article 6. Article 6 shall be deleted from the Indenture.

11.	Renaming Notes. The Notes will be called senior secured notes instead of subordinated notes and the following shall be added to section 2.3 of the Indenture:

“The amendments contained in this Note Indenture which:

(a)

provide for the delivery of security to the Note Trustee;

(b)

affect the subordinated nature of the Notes; or

(c)

change the description of the Notes to senior secured notes,

shall not, despite any reference in the Notes to “subordinated”, require any replacement of Notes issued in the form of Schedule “A” hereto or prejudice or otherwise affect the validity of Notes issued in the form of Schedule “A” `hereto, and all such Notes shall be subject to the provisions of this Note Indenture.”

12.	Entire Agreement. The following section 1.12 shall be added to the Indenture:

“1.12 Amendment and Restatement

This Note Indenture amends and restates the Original Note Indenture in its entirety, constitutes the entire agreement between the parties hereto with respect to the subject matter herein, and cancels and supersedes any prior agreement, undertaking, declaration, commitment or representation, written or oral, in respect thereof.”

Proposed New or Amended Definitions:

“New Afton Cash Flow” means, for any financial quarter or fiscal year of the Company, the sum (without duplication) of:

(a)

the total amount (calculated in Canadian dollars) realized and received by the Company during such period from sales of production from the New Afton Project; less

(b)

New Afton Project Costs paid during such period; plus (or less)

(c)

net payments received (or made) by the Company during such period under any Risk Management Agreement relating to production from the New Afton Project; less

(d)

the amount of principal, interest and lease payments made under Notes, Debentures, or other Permitted Indebtedness during such period; less

(e)

any voluntary prepayments of the Notes during such period.

provided that, if New Afton Cash Flow is less than zero, it shall be deemed to be nil.

“New Afton Excess Cash Flow” means, for any fiscal year of the Company, fifty per cent (50%) of the New Afton Cash Flow for such fiscal year.

“New Afton Project Assets” means all present and future personal and real property forming part of, or directly relating to the New Afton Project (including intangible property, cash flows and accounts receivable related to the operation of the New Afton Project).

“New Afton Project Costs” means for any fiscal year, the aggregate of:

(a)

all capital expenditures actually paid by or on behalf of the Company during such period in respect of constructing, reinstating, equipping, installing and completing the New Afton Project and rendering the New Afton Project operational; and

(b)

all payments paid by or on behalf of the Company during such period to any Person for the purpose of exploring, developing, operating, maintaining or protecting the New Afton Project (including the New Afton Project Assets) or in mining, milling, smelting, loading, refining, delivering or marketing production from the New Afton Project, in each case together with any applicable taxes actually paid during such period, including:

(i)

the cash costs actually paid during such period in connection with the operation, administration, maintenance and reclamation of the New Afton Project (whether to mine, smelt, refine, mill and/or deliver production for sale or otherwise);

(ii)

the cash costs actually paid during such period in connection with the maintenance of the mining license and other mining rights relating to the New Afton Project;

(iii)

all profit, income, property, mineral and other taxes imposed by any governmental agency or department (or any subdivision or authority thereof), in each such case actually paid by the Company during such period;

(iv)

all payments actually paid under any royalty agreements during such period and any production royalties calculated and payable (whether in cash or in kind) as a percentage of relevant metal produced and sold in connection with the New Afton Project; and

(v)

all financial obligations incurred with respect to any mine reclamation obligations of the Company in connection with the New Afton Project; and

(c)

the amount of any reserve established by the Board of Directors of the Company in respect of future capital or operating costs associated with the New Afton Project.

“Permitted Encumbrances” means:

(a)

any Security Interest or deposit under workers’ compensation, social security or similar legislation or in connection with bids, tenders, leases, contracts or expropriation proceedings or to secure public or statutory obligations, surety and appeal bonds or costs of litigation where required by law;

(b)

any Security Interest or privilege imposed by law, such as builders’, mechanics’, materialman’s, carriers’, warehousemen’s and landlords’ liens and privileges; or any Security Interest or privilege arising out of judgments or awards with respect to which, at the time an appeal or proceedings for review is being prosecuted and with respect to which it has secured a stay of execution pending such appeal or proceedings for review; or any Security Interest, statutory lien or statutory deemed trust for taxes, assessments or governmental charges or levies not at the time due and delinquent or the validity of which is being contested at the time in good faith; or any undetermined or inchoate Security Interest or privilege incidental to current operations that has not been filed pursuant to law against the Company or that relates to Obligations not due or delinquent; or the deposit of cash or securities in connection with any Security Interest or privilege referred to in this paragraph (b);

(c)

any right reserved to or vested in any municipality or governmental or other public authority by the terms of any lease, licence, franchise, grant or permit held or acquired by the Company, or by any statutory provision, to terminate the lease, licence, franchise, grant or permit or to purchase assets used in connection therewith or to require annual or other periodic payments as a condition of the continuance thereof;

(d)

any Security Interest or right of distress reserved in or exercisable under any lease for rent to which the Company is a party and for compliance with the terms of the lease provided such liens do not extend to any property or asset which is not leased property to such lease;

(e)

any Security Interest created or assumed by the Company in favour of a public utility or any municipality or governmental or other public authority when required by the utility, municipality or other authority in connection with the operations of the Company;

(f)

any Security Interest created in relation to the Bonds or Notes;

(g)

any Security Interest(s) created in relation to Purchase Money Obligations or Capital Lease Obligations that constitute Permitted Indebtedness pursuant to paragraph (a) of the definition of Permitted Indebtedness, provided that such Security Interest does not extend to any asset other than the asset being acquired or leased, as the case may be, and its proceeds;

(h)

any reservations, limitations, provisos and conditions expressed in original grants from any Governmental Authority;

(i)

any minor encumbrance, such as easements, rights-of-way, servitudes or other similar rights in land granted to or reserved by other Persons, rights-of-way for sewers, electric lines, telegraph and telephone lines, oil and natural gas pipelines and other similar purposes, or zoning or other restrictions applicable to the Company’s use of real property, that do not in the aggregate materially detract from the value of the property or materially impair its use in the operation of the business of the Company;

(j)

any Security Interest created to secure the Obligations of the Company in respect of operating credit facilities and credit card credit lines that constitute Permitted Indebtedness pursuant to paragraph (f) of the definition of Permitted Indebtedness, provided that such Security Interest:

(i)

does not charge any New Afton Project Assets other than the Company’s existing and after-acquired inventory and accounts comprising New Afton Project Assets; and

(ii)

in the Company’s existing and after-acquired inventory and accounts comprising New Afton Project Assets ranks equally, as to priority, with the Note Trustee’s Security Interest in such inventory and accounts;

(k)

any Security Interest created in respect of ABCP (as hereinafter defined) or Restructured ABCP (as hereinafter defined) that secures Indebtedness of the Company that constitutes Permitted Indebtedness pursuant to paragraph (g) of the definition of Permitted Indebtedness;

(l)

any obligation to deliver a commodity pursuant to an agreement or arrangement that constitutes Permitted Indebtedness pursuant to paragraph (h) of the definition of Permitted Indebtedness; and

(m)

any Security Interest created as security for Indebtedness that constitutes Permitted Indebtedness pursuant to paragraph (h) of the definition of Permitted Indebtedness.

“Permitted Indebtedness” means:

(a)

Purchase Money Obligations and Capital Lease Obligations of the Company (and refinancings and renewals thereof) to a maximum aggregate amount of $3 million outstanding at any time;

(b)

Indebtedness in respect of the commercial development of the mineral reserves as described in the Technical Report up to a maximum principal amount of $75,000,000, from the Closing Date and thereafter at any point in time (for greater certainty, the aggregate cost of acquisition of the Teck Assets and the NPI Royalty shall not be included in calculating the maximum principal amount of $75,000,000) provided that such Indebtedness will not in any way rank senior to the Notes and has a maturity date extending at least to the maturity date of the Notes;

(c)

any Indebtedness related to the acquisition by the Company of the Teck Assets;

(d)

Obligations or amounts owed to trade creditors, suppliers and service providers and accruals in relation thereto incurred in the ordinary court of business, in each case due and payable or outstanding for less than one year;

(e)

Obligations in respect of performance and surety bonds and completion guarantees provided by the Company in the ordinary course of business;

(f)

Obligations of the Company (including Obligations of the Company with respect to banker’s acceptances and contingent reimbursement obligations relating to letters of credit and other financial instruments) under operating credit facilities and corporate credit card credit lines incurred by the Company in the ordinary course of business for the purpose of financing ongoing operations of the Company to a maximum aggregate principal amount at any time for all such operating credit facilities of $5,000,000;

(g)

Obligations of the Company in respect of loans made to the Company that are secured by: (A) asset-backed commercial paper that was issued to the Company by one or more of the trusts or other conduits identified as issuers in the Restructuring Proposal (the “ABCP”); or (B) financial instruments issued to the Company pursuant to the Restructuring Proposal as a holder of such

ABCP (“Restructured ABCP”), provided that the recourse to the obligor in respect of a failure to repay such loans is limited solely to such ABCP or Restructured ABCP;

(h)

Obligations of the Company under any Risk Management Agreement, provided that such agreement or arrangement is entered into by the Company in the ordinary course of business for risk management purposes and not for speculative purposes; provided that:

(i)

any Interest Swap Obligations are entered into to protect the Company from fluctuations in interest rates on Indebtedness incurred in accordance with and as permitted by this Indenture to the extent the notional principal amount of such Interest Swap Obligation does not exceed the principal amount of the Indebtedness to which such Interest Swap Obligation relates; and

(ii)

in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder;

(i)

Obligations of the Company in respect of any Indebtedness incurred by the Company which, by its terms, has the repayment of principal specifically subordinated in right of payment upon liquidation or bankruptcy to the Obligations of the Company in respect of the Notes, and which has a scheduled maturity date that is not earlier than the day following the Maturity Date of the Notes; and

(j)

Obligations of the Company under any guarantee by the Company of Indebtedness of any Subsidiary provided that the creditor under the guarantee has no recourse to any of the New Afton Project Assets.

“Risk Management Agreement” means collectively, (i) all currency exchange or interest rate swap agreements, currency exchange or interest rate cap agreements or currency exchange or interest rate collar agreements between the Company and any other Person, (ii) all net forward sale, put/call options, spot deferred sale or other similar arrangements and agreements entered into relating to the sale or purchase of any commodity, and (iii) all other agreements or arrangements designed to protect the Company against fluctuations in currency exchange or interest rates or commodity prices.

“Transfer” means any transfer, sale, assignment, lease as lessor, conveyance or other disposition but shall exclude any transfer, assignment, conveyance or other disposition made as security for an obligation (and, when used as a verb, “Transfer” has a comparable meaning).

A copy of the form of Amended and Restated Indenture setting out the amendments in detail is attached as Schedule “A” to this Circular. Noteholders shall be provided with notice of the execution of the Amended and Restated Indenture by way of a press release to be issued by the Company, immediately following completion of the Transaction, receipt of the requisite Noteholder approval and the receipt of regulatory approvals.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The material factors considered by the directors of the Company which provided support for the conclusion that the Amended and Restated Indenture is in the best interests of the Company include:

(a)

the Amended and Restated Indenture provides for: (i) additional covenants on the operation of the business of the Company; (ii) security being granted over the New Afton Project Assets in favour of the Note Trustee for the Noteholders; (iii) restrictions on the use of cash generated by the New Afton assets; and (iv) additional liquidity provided through required annual offers to redeem Notes equal to one-half of certain excess cash flow generated by the New Afton Project;

(a)

if approved by the shareholders of the Company, Metallica and Peak, following approval of the Amended and Restated Indenture, the Transaction may see the Company transformed from a single asset copper gold development company into a globally diversified intermediate gold company with market capitalization of approximately US$1.6 billion;

(b)

in order to be effective, the Amended and Restated Indenture must be approved at a meeting of Noteholders, at which more than 51% of the aggregate principal amount of the Notes outstanding are represented, by the holders of not less than 66 ⅔% of the aggregate principal amount of the Notes voted in respect of the extraordinary resolution, or by instrument in writing signed by Noteholders representing not less than 66 ⅔% of the aggregate principal amount of the Notes; and

(c)

if the Amended and Restated Indenture is not approved, it is likely that the Transaction will not proceed.

The directors did not find it practicable to assign relative weights to the foregoing factors; accordingly, they did not do so.

THE DIRECTORS OF THE COMPANY BELIEVE THAT THE AMENDED AND RESTATED INDENTURE IS IN THE BEST INTERESTS OF THE COMPANY AND ACCORDINGLY RECOMMEND THAT THE NOTEHOLDERS VOTE IN FAVOUR OF THE AMENDED AND RESTATED INDENTURE.

AMENDED AND RESTATED INDENTURE

The Indenture provides the Noteholders with the power, exercisable by “extraordinary resolution” (as hereinafter defined) to, among other things, agree with the Company to any modification, alteration, compromise or arrangement of the rights of Noteholders. The Indenture defines an “extraordinary resolution” to mean a resolution proposed at a meeting of Noteholders duly convened for that purpose and held in accordance with the terms of the Indenture at which there are present, in person or by proxy, Noteholders representing more than 51% of the aggregate principal amount of all then outstanding Notes and passed by the affirmative votes of Noteholders representing not less than 66⅔% of the aggregate principal amount of all of the then outstanding Notes represented at the meeting and voted on the poll upon such resolution. A copy of the form of Amended and Restated Indenture is attached as Schedule “A” to this Circular. Noteholders shall be provided with notice of the execution of the Amended and Restated Indenture by way of a press release to be issued by the Company, immediately following completion of the Transaction, receipt of the requisite Noteholder approval and the receipt of regulatory approvals.

An “extraordinary resolution” may also be adopted by resolution in writing executed by Noteholders representing not less than 66⅔% of the aggregate principal amount of all of the then outstanding Notes. In an effort to save the time and expense involved in the Meeting the Company is seeking written authorization of the “extraordinary resolution”. If written authorization is obtained, the Company will cancel the Meeting.

EXTRAORDINARY RESOLUTION

Under the Indenture, the amendments set out in the Amended and Restated Indenture must be passed by an extraordinary resolution of the Noteholders.

The persons named in the enclosed form of proxy intend to vote at the Meeting for the approval of the extraordinary resolution concerning the Amended and Restated Indenture, unless otherwise directed by the Noteholder appointing them.

The form of the extraordinary resolution to be placed before the Noteholders at the Meeting is as follows:

“BE IT RESOLVED AS AN EXTRAORDINARY RESOLUTION THAT:

The Noteholders hereby approve the terms of the amended and restated note indenture (the “Amended and Restated Indenture”) substantially in the form attached as Schedule “A” to the Circular dated April 23, 2008 and delivered to the Noteholders (the “Circular”) and Computershare Trust Company of Canada, as note trustee (the “Note Trustee”) is hereby authorized and directed, upon completion of the Transaction, to sign and deliver the Amended and Restated Indenture for the purpose of amending and restating the terms of the 10% subordinated note indenture between the Company and the Note Trustee dated as June 28, 2007 (the “Indenture”), and the terms of the 10% subordinated notes governed by the Indenture (the “Notes”) in the manner described in the Circular, and any officer of the Note Trustee be and is hereby authorized and directed to execute and deliver the Amended and Restated Indenture with such further immaterial or clarification changes as the person executing same may approve, the approval of such changes to be conclusively evidenced by the execution of such Amended and Restated Indenture.

The Noteholders hereby authorize and direct, upon completion of the Transaction, the Note Trustee to sign and deliver all such security agreements, debentures, charges, debenture delivery agreements, assignments, postponements, subordinations, releases, discharges, certificates, instruments, notices, other agreements and other documents, and do all such other acts and things, as may be required in connection with the grant of security over the New Afton Project Assets (to the extent the New Afton Project Assets may be so charged) subject to Permitted Encumbrances.

.Any officer or director of the Note Trustee is authorized and directed to sign and deliver all such certificates, instruments, agreements, notices and other documents and to do such other acts and things as, in the opinion of such person, may be necessary or desirable in connection with the Amended and Restated Indenture, the security over the New Afton Project Assets, and to give effect to the foregoing and facilitate the implementation of the foregoing resolution.

The Noteholders hereby waive any default under section 5.1 of the Indenture until the earlier to occur of: (i) the expiry of seven days following any shareholder meeting of shareholders of the Company, Peak Gold Ltd. or Metallica Resources Inc. in connection with the Transaction where the shareholders do not approve of the Transaction; and (ii) September 30, 2008, and hereby direct and instruct the Note Trustee to sign and deliver evidence of such waiver at the Company’s request.

Notwithstanding the passing of this resolution by the Noteholders, the directors of the Company are hereby authorized and empowered without further notice to or approval of the Noteholders not to proceed with the amendments to the Indenture and the Notes described in the Circular or to revoke this extraordinary resolution at any time prior to this resolution being effective.”

OTHER APPROVALS AND REGULATORY MATTERS

Stock Exchange Listings

Application will be made to the TSX to approve the listing of the Consent Fee Warrants subject to the Company fulfilling all of the listing requirements of the TSX.

CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

The amendments to the Note Indenture and the issuance of Consent Fee Warrants to Noteholders may have Canadian tax consequences for such Noteholders. Similarly, the exercise or disposition of the Consent Fee Warrants by a Noteholder may also have Canadian tax consequences. Noteholders are urged to consult their own tax advisors to determine the tax consequences in their particular circumstances.

UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

U.S. Noteholders are urged to consult with their own U.S. tax advisors with respect to the U.S. tax consequences of the transactions described herein.

GENERAL PROXY INFORMATION

Solicitation of Proxies

This Circular is furnished in connection with the solicitation of proxies by the management of the Company for use at the Meeting. Proxies may be solicited by mail, personally or by telephone by officers and directors or other representatives of the Company. The Company may also reimburse brokers or nominees holding Notes in their names or in the names of their principals for their reasonable expenses in sending solicitation materials to their principals. Kingsdale Shareholder Services Inc. has been retained by the Company as proxy solicitation agent in connection with the solicitation of proxies at the Meeting at an agreed cost of C$29,000 plus additional costs relating to out-of-pocket expenses.

The directors of the Company have fixed the close of business on April 17, 2008 as the record date, being the date for the determination of the registered holders of Notes entitled to receive notice of and to vote at the Meeting, and any adjournment or adjournments thereof. Duly completed and executed proxies must be received by the Note Trustee at the address indicated on the enclosed envelope no later than 2:00 p.m. (Toronto time) on May 7, 2008, or no later than 48 hours (excluding Saturdays, Sundays and holidays) before the time of any adjourned Meeting.

Unless otherwise stated, the information contained in this Circular is as of April 23, 2008.

Appointment and Revocation of Proxies

The persons named in the enclosed form of proxy are officers and/or directors of the Company. A Noteholder desiring to appoint some other person, who need not be a Noteholder, to represent him or her at the Meeting, may do so by inserting such person's name in the blank space provided in the enclosed form of proxy or by completing another proper form of proxy and, in either case, depositing the completed and executed proxy at the office of the Note Trustee indicated on the enclosed envelope no later than 2:00 p.m. (Toronto time) on May 7, 2008, or no later than 48 hours (excluding Saturdays, Sundays and holidays) before the time of any adjourned Meeting.

A Noteholder forwarding the enclosed proxy may indicate the manner in which the appointee is to vote with respect to any specific item by checking the appropriate space. If the Noteholder giving the proxy wishes to confer a discretionary authority with respect to any item of business, then the space opposite the item is to be left blank. The Notes represented by the proxy submitted by a Noteholder will be voted in accordance with the directions, if any, given in the proxy.

A proxy given pursuant to this solicitation may be revoked by an instrument in writing executed by a Noteholder or by a Noteholder's attorney authorized in writing (or, if the Noteholder is a Company, by a duly authorized officer or attorney) and deposited either at the registered office of the Company (Suite 1460, 70 University Avenue, Toronto, Ontario, M5J 2M4; Attention: Corporate Secretary) at any time up to and including the last business day preceding the day of the Meeting, or with the Chairman of the Meeting on the day of the Meeting or in any other manner permitted by law.

Exercise of Discretion by Proxies

The persons named in the enclosed form of proxy will vote the Notes in respect of which they are appointed in accordance with the direction of the Noteholders appointing them. In the absence of such direction, such Notes will be voted in favour of the passing of the extraordinary resolution. The enclosed form of proxy confers discretionary authority upon the persons named therein with respect to amendments or variations to matters

identified in the Notice of Meeting and with respect to other matters that may properly come before the Meeting. At the time of printing of this Circular, management knows of no such amendments, variations or other matters to come before the Meeting. However, if any other matters that are not now known to management should properly come before the Meeting, the proxy will be voted on such matters in accordance with the best judgment of the named proxies.

Voting by Non-Registered Noteholders

Only registered Noteholders of the Company or the persons they appoint as their proxies are permitted to vote at the Meeting. Most Noteholders of the Company are “non-registered” Noteholders (“Non-Registered Noteholders”) because the Notes they own are not registered in their names but are instead registered in the name of the brokerage firm, bank or trust company through which they purchased the Notes. Notes beneficially owned by a Non-Registered Noteholder are registered either: (i) in the name of an intermediary (an “Intermediary”) that the Non-Registered Noteholder deals with in respect of the Notes (Intermediaries include, among others, banks, trust companies, securities dealers or brokers and trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar plans); or (ii) in the name of a clearing agency (such as The Canadian Depository for Securities Limited) of which the Intermediary is a participant. In accordance with applicable securities law requirements, the Company will have distributed copies of the Circular and the form of proxy (collectively, the “Meeting Materials”) to the clearing agencies and Intermediaries for distribution to Non-Registered Noteholders.

Intermediaries are required to forward the Meeting Materials to Non-Registered Noteholders unless a Non-Registered Noteholder has waived the right to receive them. Intermediaries often use service companies to forward the Meeting Materials to Non-Registered Noteholders. Generally, Non-Registered Noteholders who have not waived the right to receive Meeting Materials will either:

(i)

be given a voting instruction form that is not signed by the Intermediary and that, when properly completed and signed by the Non-Registered Noteholder and returned to the Intermediary or its service company, will constitute voting instructions (often called a “voting instruction form”) which the Intermediary must follow. Typically, the voting instruction form will consist of a one page pre-printed form. Sometimes, instead of the one page pre-printed form, the voting instruction form will consist of a regular printed proxy form accompanied by a page of instructions that contains a removable label with a bar-code and other information. In order for the form of proxy to validly constitute a voting instruction form, the Non-Registered Noteholder must remove the label from the instructions and affix it to the form of proxy, properly complete and sign the form of proxy and submit it to the Intermediary or its service company in accordance with the instructions of the Intermediary or its service company; or

(ii)

be given a form of proxy that has already been signed by the Intermediary (typically by a facsimile, stamped signature), which is restricted as to the number of Notes beneficially owned by the Non-Registered Noteholder but that is otherwise not completed by the Intermediary. Because the Intermediary has already signed the form of proxy, this form of proxy is not required to be signed by the Non-Registered Noteholder when submitting the proxy. In this case, the Non-Registered Noteholder who wishes to submit a proxy should properly complete the form of proxy and deposit it with New Gold Inc., c/o Computershare Trust Company of Canada, 100 University Avenue, 9th Floor, Toronto, Ontario, M5J 2Y9 (Attn: Proxy Department).

In either case, the purpose of these procedures is to permit Non-Registered Noteholders to direct the voting of the Notes of the Company they beneficially own. Should a Non-Registered Noteholder who receives one of the above forms wish to vote at the Meeting in person (or have another person attend and vote on behalf of the Non-Registered Noteholder), the Non-Registered Noteholder should strike out the persons named in the form of proxy and insert the Non-Registered Noteholder or such other person's name in the blank space provided. In either case, Non

Registered Noteholders should carefully follow the instructions of their Intermediary, including those regarding when and where the proxy or voting instruction form is to be delivered.

A Non-Registered Noteholder may revoke a voting instruction form or a waiver of the right to receive Meeting Materials and to vote that has been given to an Intermediary at any time by written notice to the Intermediary provided that an Intermediary is not required to act on a revocation of a voting instruction form or of a waiver of the right to receive Meeting Materials and to vote that is not received by the Intermediary at least seven days prior to the Meeting.

Interest of Certain Persons in Matters to be Acted Upon

As at the date hereof, insiders of the Company do not hold any Notes.

Voting Securities and Principal Holders Thereof

As of April 23, 2008, 237,000,000 Notes were issued and outstanding. Each $1,000 in principal amount of Notes entitles the holder thereof to one vote on all matters to be acted upon at the Meeting. The record date for the determination of Noteholders entitled to receive notice of and to vote at the Meeting has been fixed at April 17, 2008. In accordance with the provisions of the Indenture, the Company will prepare a list of holders of Notes as of such record date. Each Noteholder named in the list will be entitled to vote the Notes shown opposite his or her name on the list at the Meeting. All such holders of record of Notes are entitled either to attend and vote thereat in person the Notes held by them or, provided a completed and executed proxy shall have been delivered to the Note Trustee within the time specified in the attached Notice of Meeting, to attend and vote thereat by proxy the Notes held by them.

INTERESTS OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

Other than as disclosed elsewhere in this Circular, since the commencement of the Company's last completed financial year, no informed person of the Company or any associate or affiliate of an informed person has or had any material interest, direct or indirect, in any transaction or any proposed transaction that has materially affected or will materially affect the Company.

DOCUMENTS INCORPORATED BY REFERENCE

Information has been incorporated by reference in this Circular from documents filed with securities commissions or similar regulatory authorities in Canada (the “Canadian Securities Authorities”). Copies of the documents incorporated herein by reference may be obtained by a Noteholder without charge at any time prior to the Meeting from the Chief Financial Officer of the Company at Suite 1460, 70 University Avenue, Toronto, Ontario, M5J 2M4, telephone (416) 977-1067. These documents are also available through the Internet on the System for Electronic Document Analysis and Retrieval, which can be accessed online at www.sedar.com.

The following documents, filed by the Company with the securities commissions or similar regulatory authorities in each of the provinces of Canada, are specifically incorporated by reference into, and form an integral part of, this Circular:

(a)

the annual information form (“AIF”) of the Company dated March 31, 2008;

(b)

the press release (the “Press Release”) of the Company dated March 31, 2008; and

(c)

the material change report (the “MCR”) of the Company dated April 3, 2008 relating to the announcement of the Transaction.

Any statement contained in this Circular, the AIF, the Press Release or the MCR or in a document incorporated or deemed to be incorporated by reference herein or therein shall be deemed to be modified or superseded, for purposes of this Circular, to the extent that a statement contained herein or therein or in any other subsequently filed document that also is, or is deemed to be, incorporated by reference herein modifies, replaces or supersedes such statement.

Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Circular. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes.

The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made.

ADDITIONAL INFORMATION

Additional information relating to the Company may be found on www.sedar.com. Additional financial information is provided in the Company's comparative financial statements and management's discussion and analysis for the fiscal year ended December 31, 2007, which can be found at www.sedar.com. Noteholders may also request these documents from the Chief Financial Officer of the Company at Suite 1460, 70 University Avenue, Toronto, Ontario, M5J 2M4

DIRECTORS' APPROVAL

The contents of this Circular and the sending thereof to the Noteholders of the Company have been approved by the directors of the Company.

BY ORDER OF THE DIRECTORS

(Signed) “Clifford J. Davis”

President and Chief Executive Officer

Toronto, Ontario

April 23, 2008

SCHEDULE “A”

DATED AS OF JUNE 28, 2007<>, 2008

NEW GOLD INC.

AS ISSUER

and

COMPUTERSHARE TRUST COMPANY OF CANADA

AS NOTE TRUSTEE

AMENDED AND RESTATED NOTE INDENTURE

PROVIDING FOR THE ISSUE OF UP TO $242,000,000

10% SUBORDINATEDSENIOR SECURED NOTES

DUE JUNE 28, 2017

TABLE OF CONTENTS

Page

ARTICLE 1

INTERPRETATION

1.1

Definitions

1.2

Meaning of “outstanding” for Certain Purposes

1013

1.3

Interpretation Not Affected by Headings

1113

1.4

Statute References

1114

1.5

Currency

1114

1.6

Non-Business Days

1114

1.7

Invalidity of Provisions

1114

1.8

Governing Law

1114

1.9

Paramountcy

1114

1.10

Number and Gender

1114

1.11

Time of Essence

1114

1.12

Amendment and Restatement

ARTICLE 2

THE NOTES

1215

2.1

Creation and Issuance of Notes

1215

2.2

Form and Terms of Notes

1215

2.3

Form of Notes

1215

2.4

Global Notes

1216

2.5

Legends

1317

2.6

Execution of Notes

1518

2.7

Certification

1518

2.8

Interest

1518

2.9

Rank and Subordination

1619

2.10

Payment of Interest and Principal in Respect of Notes

1619

2.11

Registration and Transfer of Notes

1821

2.12

Ownership of Notes

2024

2.13

Exchange of Notes

2124

2.14

Replacement of Notes

2125

2.15

Option of Holder as to Place of Payment

2225

2.16

Record of Payments

2225

2.17

Surrender for Cancellation

2225

2.18

Right to Receive Note Indenture

2226

2.19

Withholding Taxes

2226

ARTICLE 3

PURCHASE FOR CANCELLATION OF NOTES

2326

3.1

Purchase of Notes for Cancellation

2326

3.2

Cancellation of Notes

2326

ARTICLE 4

OPTIONAL REDEMPTION OF NOTES

2327

4.1

Optional Redemption of Notes

2327

4.2

Partial Redemption of Notes

2427

4.3

Optional Redemption of Notes on Change of Control

2528

4.4

Places of Payment

2528

4.5

Notice of Redemption

2529

4.6

Notes Due on Redemption Date

2529

4.7

Deposit of Redemption Monies

2629

4.8

Cancellation of Notes

2629

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TABLE OF CONTENTS

Page

ARTICLE 5

MANDATORY OFFERS TO REDEEM

2327

5.1

Offer to Redeem on Failure to Obtain Required Permits

5.1

Intentionally deleted

5.2

Offer to Redeem on Change of Control

2630

5.3

Term of Offer to Redeem

2831

5.4

Notice of Offer to Redeem

2831

5.5

Manner of Redemption

2832

5.6

Payment to Holders

2932

5.7

Compliance with Applicable Securities Laws

2932

ARTICLE 6

SUBORDINATION OF NOTES TO SECURED INDEBTEDNESS

29 INTENTIONALLY DELETED

6.1

Agreement to Subordinate

6.2

Distribution on Insolvency or Winding–up

6.3

Knowledge of Trustee

6.4

Trustee May Hold the Secured Indebtedness

ARTICLE 7

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY

3032

7.1

General Representations Warranties and Covenants

3032

7.2

To Maintain Office or Agency

3133

7.3

Restrictive Covenants of the Company

3133

7.4

Not to Extend Time for Payment of Interest or Principal

3234

7.5

To Provide Certificate of Compliance

3234

7.6

Continued Listing

3334

7.7

To Pay Note Trustee’s Remuneration and Expenses

3335

7.8

To Obtain Consent of Note Trustee

3335

7.9

To Provide Financial Statements

3335

7.10

To Pay Additional Amounts

3335

7.11

Further Assurances

3435

7.12

Note Trustee May Perform Covenants

3435

7.13

Request for Note Indenture

3436

7.14

Covenant to Notify Note Trustee of Change of Name

3436

7.15

Covenant to Seek Noteholder Approval

3436

7.16

Permits

7.17

Limitation on Conduct of Business

7.18

Sale of Assets

7.19

Security to be granted by the Company to the Note Trustee for the Noteholders

7.20

Restrictions on Payments by the Company to its Subsidiaries

7.21

New Afton Excess Cash Flow Offer to Redeem Notes

7.22

Consideration for Amendment and Restatement

ARTICLE 8

DEFAULT AND ENFORCEMENT

3539

8.1

Events of Default

3539

8.2

Notice of Events of Default

3640

8.3

Acceleration on Default

3640

8.4

Waiver of Default

3741

8.5

Enforcement by the Note Trustee

3741

8.6

Noteholders May Not Sue

3842

- ii -

TABLE OF CONTENTS

Page

8.7

Application of Moneys

3842

8.8

Distribution of Moneys

3943

8.9

Persons Dealing with Note Trustee

4044

8.10

Note Trustee Appointed Attorney

4044

8.11

Remedies Cumulative

4044

8.12

Immunity of Noteholders, Note Trustees and Others

4044

8.13

Judgment Against the Company

4044

ARTICLE 9

SATISFACTION, DISCHARGE AND DEFEASANCE

4145

9.1

Cancellation

4145

9.2

Non-Presentation of Notes

4145

9.3

Repayment of Unclaimed Moneys

4145

9.4

Discharge

4146

9.5

Defeasance

4246

ARTICLE 10

SUCCESSORS

4347

10.1

Certain Requirements in Respect of Merger, etc 43.

10.2

Vesting of Powers in Successor

4448

ARTICLE 11

MEETINGS OF NOTEHOLDERS

4448

11.1

Right to Convene Meetings

4448

11.2

Notice of Meetings

4448

11.3

Chairman

4449

11.4

Quorum

4549

11.5

Power to Adjourn

4549

11.6

Show of Hands

4549

11.7

Poll

4549

11.8

Voting

4550

11.9

Regulations

4650

11.10

The Company and Note Trustee May Be Represented

4651

11.11

Powers Exercisable by Extraordinary Resolution

4651

11.12

Meaning of “Ordinary Resolution”

4852

11.13

Meaning of “Extraordinary Resolution”

4853

11.14

Powers Cumulative

4953

11.15

Minutes

4953

11.16

Signed Instruments

4954

11.17

Binding Effect of Resolutions

5054

11.18

Evidence of Rights of Noteholders

5054

11.19

Record Date

5054

ARTICLE 12

NOTICES

5055

12.1

Notice to the Company

5055

12.2

Notice to Noteholders

5155

12.3

Notice to the Note Trustee

5155

12.4

Mail Service Interruption

5155

12.5

Waiver of Notice

5256

ARTICLE 13

CONCERNING THE NOTE TRUSTEE

5256

13.1

Indenture Legislation

5256

- iii -

TABLE OF CONTENTS

Page

13.2

Corporate Note Trustee Required Eligibility

5256

13.3

No Conflict of Interest

5256

13.4

Rights and Duties of Note Trustee

5357

13.5

Evidence Experts and Advisers

5458

13.6

Note Trustee May Deal in Notes

5459

13.7

Note Trustee Not Required to Give Security

5559

13.8

Protection of Note Trustee

5559

13.9

Investment of Trust Moneys

5660

13.10

Action by Note Trustee to Protect Interests

5660

13.11

Replacement of Note Trustee

5660

13.12

Authority to Carry on Business

5761

13.13

Acceptance of Trusts

5761

13.14

Limitation of Liability

5761

13.15

Compensation

5762

13.16

Compliance with Anti-Money Laundering and Suppression of Terrorism Legislation

5862

13.17

Compliance with Privacy Code

5862

ARTICLE 14

SUPPLEMENTAL NOTE INDENTURES

5863

14.1

Supplemental Note Indentures

5863

14.2

Effect of Supplemental Note Indentures

5964

ARTICLE 15

STOCK EXCHANGE APPROVAL

6064

15.1

Stock Exchange Approval

6064

ARTICLE 16

EXECUTION

6064

16.1

Counterparts

6064

16.2

Language of Note Indenture

6064

16.3

Formal Date

6064

SCHEDULE “A” – SPECIMEN FORM OF NOTE CERTIFICATE

A-1

- iv -

THIS AMENDED AND RESTATED NOTE INDENTURE made as of the 28th<> day of June<>, 2007,2008,

BETWEEN:

NEW GOLD INC., a corporation incorporated under the laws of the Province of British Columbia,

(hereinafter referred to as the “Company”),

AND:

COMPUTERSHARE TRUST COMPANY OF CANADA, a trust company incorporated under the laws of Canada, and duly authorized to carry on the trust business in each province of Canada

(hereinafter referred to as the “Note Trustee”).

WHEREAS the Company is desirous of creating and issuing Notesand the Note Trustee entered into the Original Note Indenture (as hereinafter defined), with respect to the creation and issuance of which is provided for by this Note Indenturethe Notes (as hereinafter defined);

AND WHEREAS the Company, under the laws relating thereto, is duly authorized to create and issue the Notes to be issued as herein provided to evidence indebtedness of the Company existing on the date hereof or incurred by the Company at any time hereafter;

AND WHEREAS the Company and the Note Trustee wish to amend and restate the Original Note Indenture in its entirety to include certain additional provisions that have been agreed to by the Company for the benefit of the Noteholders;

AND WHEREAS all necessary resolutions of the Directors (as hereinafter defined) have been duly passed and other proceedings taken and conditions complied with to makein the creation and issue of the Notes proposed to be issued hereunder and to make this Amended and Restated Note Indenture and the execution thereof and hereof legal, valid and effective;

AND WHEREAS the foregoing recitals are made as representations and statements of fact by the Company and not by the Note Trustee;

NOW THEREFORE THIS AMENDED AND RESTATED NOTE INDENTURE WITNESSETH and it is hereby agreed and declared as follows:

ARTICLE 1

INTERPRETATION

1.1	Definitions

In this Note Indenture, unless there is something in the subject matter or context inconsistent therewith:

“Affiliate” has the meaning given thereto in the Securities Act;

“AMEX” means the American Stock Exchange;

“Applicable Law” means, at any time, with respect to any Person, property, transaction, event or other matter, as applicable, all laws, rules, statutes, regulations, treaties, orders, judgments and decrees, and all official requests, directives, rules, guidelines, orders, policies, practise and other requirements of any governmental authority relating or applicable at such time to such Person, property, transaction, event or other matter, and also includes any interpretation thereof by any Person having jurisdiction over it or charged with its administration or interpretation;

“Applicable Securities Legislation” means the Canadian Securities Laws and the U.S. Securities Laws;

“Associate” has the meaning ascribed thereto in the Securities Act;

“Authorized Officer” means any director of the Company or an individual who holds one or more of the offices of Chief Executive Officer, President, Chief Financial Officer, Vice President, General Counsel, Secretary or President of the Company;

“BEO Participants” means institutions that participate directly or indirectly in the Depository’s book entry registration system for the Notes;

“Bonds” means the land reclamation and remediation bond of the Company, being an interest-bearing bond required for land reclamation and environmental protection by Canadian regulatory authorities;

“Business Day” means any day other than Saturday, Sunday or a statutory holiday when banks are not open in the City of Vancouver, British Columbia or Toronto, Ontario;

“Canadian Government Obligations” means any bonds or securities issued or guaranteed by the Government of Canada or by the government of any Province of Canada rated at least A (high);

“Canadian Securities Laws” means, collectively, all applicable securities laws of each of the Provinces of Canada and the respective rules and regulations under such laws together with applicable published fee schedules, prescribed forms, policy statements, national or multilateral instruments, orders, blanket rulings and other regulatory instruments of the securities regulatory authorities in the Provinces of Canada;

“Capital Lease” means, with respect to a Person, a lease or other arrangement in respect of real or personal property that is required to be classified and accounted for as a capital lease obligation on a balance sheet of the Person in accordance with Generally Accepted Accounting Principles;

“Capital Lease Obligation” means, with respect to a Person, the obligation of the Person to pay rent or other amounts under a Capital Lease and for the purposes of this definition, the amount of such obligation at any date shall be the capitalized amount of such obligation at such date as determined in accordance with Generally Accepted Accounting Principles;

“Certificate of the Company” means an instrument signed in the name of the Company and without personal liability by any two Directors or any two of the President and Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer , the Secretary and any Vice President of the Company, if applicable, and any combination of any two of the foregoing, certifying the matters specified therein;

“Certified Resolution” means a copy of a resolution certified by an Authorized Officer to have been duly passed by the directors of the Company and to be in full force and effect on the date of such certification;

“Change of Control” means an occurrence which shall be deemed to have occurred at such time as any Person (including a Person’s Affiliates and Associates), becomes the beneficial owner, directly or indirectly, or otherwise exercises control or direction over Common Shares carrying in excess of 50% of the total voting rights attached to the issued and outstanding Common Shares and includes the consummation of any amalgamation, consolidation, statutory arrangement (involving a business combination) or merger of the Company with or into another person or entity: (1) in which the Company is not the continuing or surviving entity; or (2) pursuant to which the issued and outstanding Common Shares of the Company would be reclassified, changed or converted into or exchanged for cash, securities or other property, other than any such transaction in which the holders of the issued and outstanding Common Shares immediately prior to such transaction are converted into or exchanged for voting securities or securities exchangeable at the option of the holder into Voting Shares of the surviving or transferor Person constituting 50% or more of such Voting Shares immediately after such transaction (giving effect to such issuance and the exercise of any rights to convert or exchange such securities into Voting Shares);

“Closing Date” means June 28, 2007;

“Common Shares” means the common shares of the Company as such common shares existexisted at the close of business on the date of execution and delivery of thisthe Original Note Indenture;

“Company” means New Gold Inc. and every successor Person thereto which shall have complied with the provisions of Article 10;

“Contingent Liabilities” means with respect to a Person, any agreement, undertaking or arrangement by which the Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or other, to provide funds for payment, to supply funds to, or otherwise to invest in a debtor, or otherwise to assure a creditor against loss) the obligation, debt or other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any Person. The amount of any contingent liability will, subject to any limitation contained therein, be deemed to be the outstanding principal amount (or maximum principal amount, if larger) of the obligation, debt or other liability to which the contingent liability is related;

“Counsel” means a barrister or solicitor or firm of barristers and solicitors retained by the Note Trustee, who may be counsel to the Company, or retained by the Company and acceptable to the Note Trustee;

“Currency Agreement” means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Subsidiary against fluctuations in currency values.

“Date of the Change of Control” means the date on which any transaction constituting a Change of Control closes;

“Date of Permit Failure” means the date on which the Permit Failure occurs;

“Date of Project Change of Control” means the date on which any transaction constituting a Project Change of Control closes;

“Debentures” means the 5% subordinated convertible debentures of the Company issued pursuant to the terms of a trust indenture referred to as the “Debenture Indenture” between the Company and Computershare Trust Company of Canada (as “Debenture Trustee”) and dated June 28, 2007;

“Debenture Indebtedness” means all present and future debts, liabilities and obligations of the Company to the holders of Debentures under and in connection with the Debenture Indenture and the Debentures, including all principal money owing on the Debentures, the premium, if any, interest (including interest on overdue principal, premium, if any and interest) and all fees paid and other money from time to time owing pursuant to the terms of the Debenture Indenture;

“Default” means an event or condition, the occurrence of which would, with the lapse of time or the giving of notice, or both, become an Event of Default;;

“Definitive Notes” means Notes which are Fully Registered as individual certificates issued pursuant to section 2.3 in the form of Schedule “A” hereto;

“Depository” means CDS Clearing and Depository Services Inc. or such other Person as is designated in writing by the Company to act as depository in respect of the Notes;

“Director” means a director of the Company for the time being and “Directors” means the board of directors of the Company or, whenever duly empowered, a committee of the board of directors of the Company, and reference to action by the Directors means action by the directors as a board or action by such a committee of the board as a committee;

“EBITDA” means at any point in time, the net income of the Company determined in conformity with Generally Accepted Accounting Principles before interest, taxes, depreciation and amortization, and all extraordinary gains and extraordinary losses for such period, to the extent such amounts were deducted (or added in the case of extraordinary gains) as derived from the Company’s most recent financial statements;

“Event of Default” has the meaning attributed to such term in section 8.1;

“Excess Cash Flow Event” has the meaning attributed to such term in section 7.21;

“Excess Cash Flow Offer to Redeem” has the meaning attributed to such term in section 7.21;

“Extraordinary Resolution” has the meaning attributed to such term in sections 11.12 and 11.16;

“Fully Registered” means registered as to both principal and interest;

“Generally Accepted Accounting Principles” means Canadian generally accepted accounting principles as provided in the Handbook of the Canadian Institute of Chartered Accountants from time to time;

“Global Note” means a Note which is Fully Registered in the name of the Depository representing all or a portion of the aggregate principal amount of the Notes issued hereunder;

“Indebtedness” means, with respect to a Person, without duplication:

(a)all Obligations of the Person for borrowed money, including Obligations with respect to bankers’ acceptances and contingent reimbursement obligation relating to letters of credit and other financial instruments;

(b)the net Obligations under Currency Agreements and Interest Swap Obligations of such Person;

(c)all Capital Lease Obligations and Purchase Money Obligations of the Person; and

(d)all Contingent Liabilities of the Person with respect to Obligations of another Person if such Obligations are of the type referred to in paragraphs (a) to (d);

“Indenture Legislation” has the meaning attributed to such term in subsection 13.1(a);

“Interest Payment Date” means a date on which interest is due and payable in accordance with the terms of this Note Indenture;

“Interest Swap Obligations” means the Obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements;

“Maturity Date” means with respect to a Note, the date on which the principal of such Note becomes due and payable as therein or herein provided, whether at the Stated Maturity Date thereof or by declaration, acceleration, redemption or otherwise;

“Maturity Record Date” has the meaning ascribed thereto isin section 2.10(c);

“New Afton Cash Flow” means for any financial quarter or fiscal year of the Company, the sum (without duplication) of:

(a) the total amount (calculated in Canadian dollars) realized and received by the Company during such period from sales of production from the New Afton Project; less

(b) New Afton Project Costs paid during such period; plus (or less)

(c) net payments received (or made) by the Company during such period under any Risk Management Agreement relating to production from the New Afton Project; less

(d) the amount of principal, interest and lease payments made under Notes, Debentures, or other Permitted Indebtedness during such period; less

(e) any voluntary prepayments of the Notes during such period,

provided that, if the New Afton Cash Flow is less than zero, it shall be deemed to be nil;

“New Afton Excess Cash Flow” means, for any fiscal year of the Company, fifty per cent (50%) of the New Afton Cash Flow for such fiscal year;

“New Afton Project” means the Company’s New Afton gold-copper project near Kamloops, British Columbia as described in the Technical Report;

“New Afton Project Assets” means all present and future personal and real property forming part of or directly relating to the New Afton Project (including intangible property, cash flows and accounts receivable related to the operation of the New Afton Project);

“New Afton Project Costs” means for any fiscal year, the aggregate of:

(a) all capital expenditures actually paid by or on behalf of the Company during such period in respect of constructing, reinstating, equipping, installing and completing the New Afton Project and rendering the New Afton Project operational; and

(b) all payments paid by or on behalf of the Company during such period to any Person for the purpose of exploring, developing, operating, maintaining or protecting the New Afton Project (including the New Afton Project Assets) or in mining, milling, smelting, loading, refining, delivering or marketing production from the New Afton Project, in each case together with any applicable taxes actually paid during such period, including:

(i)

(ii)

the cash costs actually paid during such period in connection with the maintenance of the mining license and other mining rights relating to the New Afton Project;

(iii)

(iv)

(v)

all financial obligations incurred with respect to any mine reclamation obligations of the Company in connection with the New Afton Project; and

(c) the amount of any reserve established by the Board of Directors of the Company in respect of future capital or operating costs associated with the New Afton Project;

“New Afton Security Interest” means the security interests in and charges of the New Afton Project Assets granted by the Company to the Note Trustee;

“New Warrants” means 4,150,000 warrants to be issued by the Company on completion of the acquisition by the Company of all the shares of Peak Gold Ltd. and Metallica Resources Inc.;

“Note Indebtedness” means all present and future debts, liabilities and Obligations of the Company to the Noteholders under and in connection with this Note Indenture and the Notes, including all principal money owing on the Notes, the premium, if any, interest (including interest on overdue principal, premium, if any and interest) and all fees paid and other money from time to time owing pursuant to the terms of this Note Indenture;

“Note Trustee” means Computershare Trust Company of Canada and every successor Person thereto;

“Notes” means the 10% subordinatedsenior secured notes of the Company issued and certified hereunder, or deemed to be issued and certified hereunder, in definitive form;

“Noteholders” or “Holders” means, at a particular time, the Persons entered in the registers hereinafter mentioned as holders of Notes outstanding at such time;

“Noteholders’ Request” means an instrument signed in one or more counterparts by the Holders of not less than 25% of the aggregate principal amount of the outstanding Notes, requesting the Note Trustee to take or refrain from taking the action or proceeding specified therein;

“Notice of Offer to Redeem” has the meaning ascribed thereto in section 5.4;

“NPI Royalty” means the 10% net profit royalty granted to Westridge Enterprises Ltd. and Indo-Gold Development Ltd. by the Company which the Company has the option to purchase for $2,000,000 on or before December 1, 2010;

“Obligations” means all obligations for principal, premium, interest, penalties, fees, indemnification, reimbursement, damages and other liabilities payable under the documentation governing the Indebtedness to which such obligations relate;

“Offer to Redeem” has the meaning ascribed thereto in section 5.3;

“Officer’s Certificate” means a Certificate of the Company signed in the name of the Company by any Director or the Chief Executive Officer, the President, the Chief Financial Officer, the Chief Operating Officer or the Secretary of the Company;

“Opinion of Counsel” means a written opinion of Counsel to the Company, addressed to the Note Trustee (among other addressees) or such other counsel as determined by the Note Trustee, acting reasonably;

“Original Note Indenture” means the note indenture dated as of June 28, 2007 between the Company and the Note Trustee;

“Paying Agent” means the Note Trustee or may mean a Person authorized by the Company and the Note Trustee to pay the principal amount or interest payable in respect of any Notes on behalf of the Company;

“Permitted Encumbrances” means:

(a) any Security Interest or deposit under workers’ compensation, social security or similar legislation or in connection with bids, tenders, leases, contracts or expropriation

proceedings or to secure public or statutory obligations, surety and appeal bonds or costs of litigation where required by law;

(b) any Security Interest or privilege imposed by law, such as builders’, mechanics’, materialman’s, carriers’, warehousemen’s and landlords’ liens and privileges; or any Security Interest or privilege arising out of judgments or awards with respect to which, at the time an appeal or proceedings for review is being prosecuted and with respect to which it has secured a stay of execution pending such appeal or proceedings for review; or any Security Interest, statutory lien or statutory deemed trust for taxes, assessments or governmental charges or levies not at the time due and delinquent or the validity of which is being contested at the time in good faith; or any undetermined or inchoate Security Interest or privilege incidental to current operations that has not been filed pursuant to law against the Company or that relates to Obligations not due or delinquent; or the deposit of cash or securities in connection with any Security Interest or privilege referred to in this paragraph (b);

(c) any right reserved to or vested in any municipality or governmental or other public authority by the terms of any lease, licence, franchise, grant or permit held or acquired by the Company, or by any statutory provision, to terminate the lease, licence, franchise, grant or permit or to purchase assets used in connection therewith or to require annual or other periodic payments as a condition of the continuance thereof;

(d) any Security Interest or right of distress reserved in or exercisable under any lease for rent to which the Company is a party and for compliance with the terms of the lease provided such liens do not extend to any property or asset which is not leased property to such lease;

(e) any Security Interest created or assumed by the Company or a Subsidiary in favour of a public utility or any municipality or governmental or other public authority when required by the utility, municipality or other authority in connection with the operations of the Company;

(f) any Security Interest created in relation to the Bonds or Notes;

(g) any Security Interest(s) created in relation to any Purchase Money Obligations to a maximum of $3,000,000, in the aggregate at any one time andor Capital Lease Obligations that constitute Permitted Indebtedness pursuant to paragraph (a) of the definition of Permitted Indebtedness, provided that such Security Interest does not extend to any asset other than the asset being acquired or leased, as the case may be, and its proceeds;

(h) any reservations, limitations, provisos and conditions expressed in original grants from any Governmental Authority; and

(i) any minor encumbrance, such as easements, rights-of-way, servitudes or other similar rights in land granted to or reserved by other Persons, rights-of-way for sewers, electric lines, telegraph and telephone lines, oil and natural gas pipelines and other similar purposes, or zoning or other restrictions applicable to the Company’s use of real property, that do not in the aggregate materially detract from the value of the property or materially impair its use in the operation of the business of the Company.;

“Permit Failure” has the meaning ascribed thereto in section 5.1;

(j) any Security Interest created to secure the Obligations of the Company in respect of operating credit facilities and credit card credit lines that constitute Permitted Indebtedness pursuant to paragraph (f) of the definition of Permitted Indebtedness, provided that such Security Interest:

(i)

does not charge any New Afton Project Assets other than the Company’s existing and after-acquired inventory and accounts comprising New Afton Project Assets; and

(ii)

(k) any Security Interest created in respect of ABCP or Restructured ABCP that secures Indebtedness of the Company that constitutes Permitted Indebtedness pursuant to paragraph (g) of the definition of Permitted Indebtedness;

(l) any obligation to deliver a commodity pursuant to an agreement or arrangement that constitutes Permitted Indebtedness pursuant to paragraph (h) of the definition of Permitted Indebtedness; and

(m) any Security Interest created as security for Indebtedness that constitutes Permitted Indebtedness pursuant to paragraph (h) of the definition of Permitted Indebtedness;

“Permitted Indebtedness” means:

(a) Note Indebtedness;

(b) Debenture Indebtedness;

(a)(c) Purchase Money Obligations and Capital Lease Obligations of the Company (and refinancings and renewals thereof) to a maximum aggregate amount of $3,000,000 in the aggregateoutstanding at any one time;

(b)(d) Indebtedness in respect of the commercial development of the mineral reserves as described in the Technical Report up to a maximum principal amount of $75,000,000, from the date hereofClosing Date and thereafter at any point in time (for greater certainty, the aggregate cost of acquisition of the Teck Assets and the NPI Royalty shall not be included in calculating the maximum principal amount of $75,000,000) provided that such Indebtedness will not in any way rank senior to the Notes and has a maturity date extending at least to the maturity date of the Notes;

(c)(e) any Indebtedness related to the acquisition by the Company of the Teck Assets;

(d)(f) Obligations or amounts ownedowed to trade creditors, suppliers and service providers and accruals in relation thereto incurred in the ordinary court of business, in each case due and payable or outstanding for less than one year;

(e) Obligations in respect of performance and surety bonds and completion guarantees provided by the Company in the ordinary course of business;

(f) Obligations of the Company (including Obligations of the Company with respect to banker’s acceptances and contingent reimbursement obligations relating to letters of credit and other financial instruments) under operating credit facilities and corporate credit card credit lines incurred by the Company in the ordinary course of business for the purpose of financing ongoing operations of the Company to a maximum aggregate principal amount at any time for all such operating credit facilities of $5,000,000;

(g) Obligations of the Company in respect of loans made to the Company that are secured by: (A) asset-backed commercial paper that was issued to the Company by one or more of the trusts or other conduits identified as issuers in the Restructuring Proposal (the “ABCP”); or (B) financial instruments issued to the Company pursuant to the Restructuring Proposal as a holder of such ABCP (“Restructured ABCP”), provided that the recourse to the obligor in respect of a failure to repay such loans is limited solely to such ABCP or Restructured ABCP;

(h) Obligations of the Company under any Risk Management Agreement, provided that such agreement or arrangement is entered into by the Company in the ordinary course of business for risk management purposes and not for speculative purposes; provided that:

(i)

(g) Interest Swap Obligations of the Company covering Indebtedness of the Company; provided, however, that suchany Interest Swap Obligations are entered into to protect the Company from fluctuations in interest rates on Indebtedness incurred in accordance with and as permitted by this Indenture to the extent the notional principal amount of such Interest Swap Obligation does not exceed the principal amount of the Indebtedness to which such Interest Swap Obligation relates; and

(ii)

(h) Indebtedness of the Company under Currency Agreements; provided, however, that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder;

(a) Obligations in respect of performance and surety bonds and completion guarantees provided by the Company of the Company in the ordinary course of business;Obligations of the Company in respect of any Indebtedness incurred by the Company which, by its terms, has the repayment of principal specifically subordinated in right of payment upon liquidation or bankruptcy to the Obligations of the Company in respect of the Notes, and which has a scheduled maturity date that is not earlier than the day following the Maturity Date of the Notes; and

(b) Obligations of the Company under any guarantee by the Company of Indebtedness of any Subsidiary provided that the creditor under the guarantee has no recourse to any of the New Afton Project Assets;

“Person” means any individual, partnership, limited partnership, joint venture, syndicate, sole proprietorship, company or corporation with or without share capital, body corporate, unincorporated association, trust, trustee, executor, administrator or other legal personal

representative, government or governmental authority or entity, however designated or constituted;

“Project Change of Control” means an occurrence which shall be deemed to have occurred at such time as the Company ceases to beneficially own, directly or indirectly, more than a 50% interest in the Company’s New Afton Project;

“Purchase Date” the date on which payment for Notes purchased pursuant to Article 3 is made;

“Purchase Money Obligations” means, with respect to a Person, indebtedness of the Person issued, incurred or assumed to finance all or part of the cost of acquiring any asset for the Person, other than shares, bonds and other securities, or constructing, installing or improving any real property or fixtures of the Person, provided that the indebtedness is issued, incurred or assumed at the time of such acquisition, construction, installation or improvement and does not exceed 100% of such costs;

“Recognized Stock Exchange” means the TSX or any other stock exchange on which the Common Shares are then listed and posted for trading;

“Redemption Amount” has the meaning ascribed thereto in section 4.5;

“Redemption Date” means the date selected by the Company for redemption pursuant to Article 44, Article 5 or section 7.21;

“Redemption Notice” has the meaning attributed to such term in section 4.5;

“Registrar” means, from time to time, the Person responsible for keeping a register of the Noteholders.

“Regular Interest Record Date” has the meaning attributed to such term in subsection 2.10(a);

“Regulation S” means Regulation S adopted by the United States Securities and Exchange Commission under the U.S. Securities Act;

“Secured Indebtedness” means the principal of, the premium (if any) and interest and other Obligations on Indebtedness of the Company (other than Note Indebtedness) which is subject to a Security Interest, presently in existence, which in accordance with Generally Accepted Accounting Principles would be classified on the Company’s balance sheet as liabilities, other than indebtedness represented by the Notes, unless it is provided by the terms of the instrument creating or evidencing such Secured Indebtedness that such indebtedness is not to be superior in right of payment to the Notes but ranks pari passu with, or subordinate in right of payment to, the Notes;

“Security Interest” means any security interest, assignment by way of security, mortgage, charge (whether fixed or floating), hypothec, pledge, lien or other encumbrance on or interest in property or assets (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof or any agreement to give any security interest)that secures the payment of Obligations;

“Securities Act” means the Securities Act (British Columbia);

“Stated Maturity Date” means June 28, 2017;

“Subsidiary” has the meaning given thereto in the Securities Act and “Subsidiaries” shall mean more than one Subsidiary;

“Successor” has the meaning attributed to such term in subsection 10.1;

“Technical Report” means the technical report prepared on behalf of the Company by Hatch Ltd., with respect to the Company’s New Afton gold-copper project near Kamloops, British Columbia, titled “New Afton Project, NI 43-101 Independent Technical Report” and dated April, 2007;

“Teck Assets” means the assets referred to in a letter of intent between the Company and Teck Cominco Ltd. including: (3) surface rights to more than 4,000 acres of land, encompassing all of the Teck owned land south of the Trans-Canada Highway (which covers the site for the proposed development of the New Afton Project into an underground mine); and (4) the right to purchase the 2% net smelter return royalty, to be held by Teck Cominco Ltd. over the New Afton Project, for $12,000,000;

“this Note Indenture”, “this Amended and Restated Note Indenture”, “hereto”, “hereby”, “hereunder”, “hereof”, “herein” and similar expressions refer to this amended and restated note indenture and not to any particular Article, section, subsection, paragraph, clause, subsection, subdivision or other portion hereof, and include any and every supplemental note indenture; and “supplemental note indenture” includes any and every instrument which amends this Note Indenture or is supplemental or ancillary hereto or in implementation hereof and the expressions “Article”, “section”, “subsection” and “paragraph” followed by a number mean and refer to the specified Article, section, subsection or paragraph of this Note Indenture;

“Total Interest” means, for any period, the aggregate amount of interest expense in respect of all Indebtedness, including all capitalized interest;

“TSX” means the Toronto Stock Exchange;

“United States” means the United States of America, its territories and possessions, any State of the United States, and the District of Columbia;

“U.S. Person” means a “U.S. Person” as that term is defined in Rule 902(k) of Regulation S;

“U.S. Securities Act” means the United States Securities Act of 1933, as amended;

“U.S. Securities Laws” means all applicable securities legislation in the United States, including without limitation, the U.S. Securities Act and the rules and regulations promulgated thereunder, and any applicable state securities laws;

“Voting Shares” means shares of capital stock of any class of any corporation carrying voting rights under all circumstances, provided that for the purposes of such definition, shares which only carry the right to vote conditionally on the happening of any event shall not be considered Voting Shares, whether or not such event shall have occurred, nor shall any shares be deemed to cease to be Voting Shares solely by reason of a right to vote accruing to shares of another class or classes by reason of the happening of such event; and

“Written Request of the Company” and “Written Direction of the Company” mean, respectively, an order, a request or a direction signed in the name of the Company by any Director, or the President and Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer or the Secretary of the Company, and may consist of one or more instruments so executed.

Words importing the singular include the plural and vice versa and words importing gender include all genders.

1.2	Meaning of “outstanding” for Certain Purposes

Every Note certified and delivered by the Note Trustee hereunder shall be deemed to be outstanding until it shall be cancelled or delivered to the Note Trustee for cancellation, or a new Note shall be issued in substitution therefor under section 2.13 or 2.14, or moneys for the payment thereof shall be set aside under Article 9, provided that:

(a) where a new Note has been issued in substitution for a Note which has been mutilated, lost, stolen or destroyed, only the new Note shall be counted for the purpose of determining the aggregate principal amount of Notes outstanding;

(b) Notes which have been partially redeemed or purchased shall be deemed to be outstanding only to the extent of the unredeemed or unpurchased part of the principal amount thereof; and

(c) for the purpose of any provision of this Note Indenture entitling Holders of outstanding Notes to vote, sign consents, requests or other instruments or take other action under this Note Indenture, or to constitute a quorum at any meeting of Holders, Notes owned, directly or indirectly, legally or equitably by the Company or any Affiliate or Subsidiary of the Company shall be disregarded, except that:

(i)

for the purpose of determining whether the Note Trustee shall be protected in acting and relying on any such vote, consent, request or other instrument or other action, or on the Noteholders present or represented at any meeting of Noteholders constituting a quorum, only the Notes of which the Note Trustee has received actual written notice that they are so owned shall be so disregarded;

(ii)

Notes so owned which have been pledged in good faith other than to the Company or an Affiliate or Subsidiary of the Company shall not be so disregarded if the pledgee shall establish, to the satisfaction of the Note Trustee, the pledgee’s right to vote such Notes, sign consents, requisitions or other

instruments or take such other actions in his discretion free from the control of the Company or any Affiliate or Subsidiary of the Company; and

(iii)

Notes so owned shall not be disregarded if they are the only Notes outstanding.

1.3	Interpretation Not Affected by Headings

The division of this Note Indenture into articles, sections, subsections and paragraphs, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Note Indenture.

1.4	Statute References

Any reference in this Note Indenture to a statute shall be deemed to be a reference to such statute as amended, re-enacted or replaced from time to time.

1.5

Currency

Any reference in this Note Indenture to “Dollars”, “dollars” or “$” shall be deemed to be a reference to lawful money of Canada and any reference to any payments to be made by the Company shall be deemed to be a reference to payments made in lawful money of Canada.

1.6	Non-Business Days

Whenever any payment to be made hereunder shall be due, any period of time would begin or end, any calculation is to be made or any other action is to be taken on or as of, a day other than a Business Day, such payment shall be made, such period of time shall begin or end, such calculation shall be made and such other actions shall be taken, as the case may be, unless otherwise specifically provided for herein, on or as of the next succeeding Business Day and the holder of any Note shall not be entitled to any further interest or other payment in respect of such delay.

1.7	Invalidity of Provisions

Each of the provisions contained in this Note Indenture or the Notes is distinct and severable and a declaration of invalidity or unenforceability of any such provision by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof or thereof.

1.8	Governing Law

This Note Indenture and the Notes shall be governed by, construed and enforced in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable therein and shall be treated in all respects as British Columbia contracts.

1.9	Paramountcy

In the event of any inconsistency between the provisions of any section of this Note Indenture and the provisions of the Schedules which form a part hereof, the provisions of this Note Indenture shall prevail.

1.10 Number and Gender

In this Note Indenture, unless the context otherwise requires, words importing the singular include the plural and vice versa and words importing gender include all genders.

1.11	Time of Essence

Time shall be of the essence in all respects in this Note Indenture.

1.12	Amendment and Restatement

ARTICLE 2

THE NOTES

2.1	Creation and Issuance of Notes

The Company hereby creates and authorizes for issuance 242,000 Notes. The Notes shall be dated the date hereofJune 28, 2007 (including all replacement certificates issued in accordance with this Note Indenture) notwithstanding their date of issue and will become due and payable, together with all accrued interest and unpaid interest thereon, on June 28, 2017, the Stated Maturity Date.

2.2	Form and Terms of Notes

The Notes authorized for issue hereunder are limited to an aggregate principal amount of $242,000,000 and shall be designated as “10% Subordinated Notes due June 28, 2017”. The Notes shall mature and become due and payable on June 28, 2017, in $1,000 principal denominations or integral multiples thereof and shall bear interest (subject to section 2.8) from June 28, 2007 at the rate of 10% per annum (after as well as before default or judgment, with interest on amounts in default at the same rate) payable in arrears in equal semi-annual instalments on January 1 and July 1 in each year. The first such interest payment to be made on January 1, 2008 for the period from and including June 28, 2007 being $50.9651.2328967 per $1,000 principal amount.

Subject to section 9.2, the principal amount of the Notes and interest thereon due on maturity will be made payable in lawful money of Canada against surrender of such Notes by the respective Holders thereof at the principal offices of the Note Trustee in the Cities of Vancouver, British Columbia or Toronto, Ontario.

2.3	Form of Notes

The Notes shall be issued only as Fully Registered Notes in denominations of $1,000 and integral multiples thereof and in the form of Definitive Notes or Global Notes. The Notes and the certificate of the Note Trustee endorsed thereon shall be in the English language and, if approved by the Company, the French language. The form of Note and the Certificate of the Note Trustee shall be substantially in the form set out in Schedule “A” to this Note Indenture (as applicable) with such appropriate additions, deletions, substitutions and variations as the Note Trustee may approve and shall bear such distinguishing letters and numbers as the Note Trustee may approve, such approval of the Note Trustee to be

conclusively evidenced by its certification of the Notes. In the event that any provision of the Notes in the French language shall be susceptible of an interpretation different from the equivalent provision in the English language, the interpretation of such provision in the English language shall be determinative.

The Notes may be engraved, printed or lithographed, mimeographed or typewritten, or partly in one form and partly in another, as the Company may determine.

The amendments contained in this Note Indenture which:

(a) provide for the delivery of security to the Note Trustee;

(b) affect the subordinated nature of the Notes; or

shall not, despite any reference in the Notes to “subordinated”, require any replacement of Notes issued in the form of Schedule “A” hereto or prejudice or otherwise affect the validity of Notes issued in the form of Schedule “A” hereto, and all such Notes shall be subject to the provisions of this Note Indenture.

2.4	Global Notes

The Notes (other than Notes issued to or for the account or benefit of a person in the United States) may be represented by one or more Global Notes. Each Global Note authenticated in accordance with this Note Indenture shall be registered in the name of the Depository designated for such Global Note or a nominee thereof and delivered to such Depository or a nominee thereof as custodian therefor, and each such Global Note shall constitute a single Note for all purposes of this Note Indenture. Beneficial interests in the Global Note will not be shown on the Register or the records maintained by the Depository but will be represented through book-entry accounts of BEO Participants on behalf of the beneficial owners of such Global Note. None of the Company, the Note Trustee and any other Paying Agent shall have any responsibility or liability for any aspects of the records relating to or payments made by any Depository or any BEO Participant on account of the beneficial interest in any Global Note. Except as provided in this section 2.4, owners of beneficial interests in any Global Note shall not be entitled to have Notes registered in their names and shall not receive or be entitled to receive Notes in definitive form.

Notwithstanding any other provision in this Note Indenture, no Global Note may be exchanged in whole or in part for Notes registered, and no transfer of a Global Note in whole or in part may be registered, in the name of any Person other than the Depository for such Global Note or a nominee thereof unless:

(a) the Depository notifies the Company that it is unwilling or unable to continue to act as depository in connection with the Global Note and the Company is unable to locate a qualified successor;

(b) the Company determines that the Depository is no longer willing, able or qualified to discharge properly its responsibilities as Holder of the Global Note and the Company is unable to locate a qualified successor;

(c) the Depository ceases to be a clearing agency or otherwise ceases to be eligible to be a depository and the Company is unable to locate a qualified successor;

(d) the Company determines that the Notes shall no longer be held as Global Notes through the Depository;

(e) the Depository determines to transfer the Global Notes in accordance with subsection 2.11(j)(i) to 2.11(j)(v); or

(f) such right is required by Applicable Law, as determined by the Company and the Company Counsel;

following which Notes in Fully Registered form shall be issued to the beneficial owners of such Notes or their nominees.

Subject to the provisions of this section 2.4, any exchange of a Global Note for Notes may be made in whole or in part in accordance with the provisions of section 2.13, mutatis mutandis. All such Notes issued in exchange for a Global Note or any portion thereof shall be registered in such names as the Depository for such Global Note shall direct and shall be entitled to the same benefits and subject to the same terms and conditions (except insofar as they relate specifically to Global Notes) as the Global Note or portion thereof surrendered upon such exchange.

Every Note authenticated and delivered upon registration of transfer of a Global Note, or in exchange for or in lieu of a Global Note or any portion thereof, whether pursuant to this section 2.4 or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Note, unless such Note is registered in the name of a Person other than the Depository for such Global Note or a nominee thereof.

2.5

Legends

(a)

The Notes have not been and will not be registered under the U.S. Securities Act or under any United States state securities laws. Each Note certificate originally issued in the United States, or to, or for the account or benefit of, a U.S. Person, and each Note certificate issued in exchange therefor or in substitution thereof shall bear the following legend or such variations thereof as the Company may prescribe from time to time:

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”) OR UNDER ANY STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT, (C) INSIDE THE UNITED STATES PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE U.S. SECURITIES ACT OR ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT ON THE CONDITION THAT THE HOLDER HAS, PRIOR TO SUCH SALE, FURNISHED TO THE COMPANY AN OPINION OF COUNSEL AS TO THE AVAILABILITY OF THE EXEMPTION REASONABLY SATISFACTORY TO THE COMPANY, OR (D) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE U.S. SECURITIES ACT, AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS IN THE UNITED STATES OR SECURITIES

LAWS OF ANY OTHER APPLICABLE JURISDICTIONS. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA”;

provided that, if the Notes are being sold outside the United States in accordance with Rule 904 of Regulation S under the U.S. Securities Act, and provided that the Company is a “Foreign Issuer” within the meaning of Regulation S at the time of such sale, the legend may be removed by providing a declaration to the Note Trustee substantially in the form as set forth in Annex I to Schedule “A” hereto (or as the Note Trustee or the Company may prescribe from time to time), provided, however, that the Company and/or the Note Trustee may impose additional reasonable requirements for the removal of legends from Notes that are sold in compliance with Rule 904 of Regulation S under the U.S. Securities Act in the future.

(b) Upon receipt of a duly executed and proper form of declaration as referred to in this section 2.5, the Company shall use its reasonable best efforts to cause such legend in subsection 2.5(a) to be removed within three Business Days of receipt of such declaration.

(c) Notwithstanding any other provisions of this Note Indenture, in processing and registering transfers of Notes, no duty or responsibility whatsoever shall rest upon the Note Trustee to determine the compliance by any transferor or transferee with the terms of the legend contained in subsection 2.5(a), or with the relevant securities laws or regulations, including, without limitation, Regulation S of the Securities Act, and the Note Trustee shall be entitled to assume that all transfers are legal and proper insofar as they relate to such aforementioned legend, laws and regulations.

2.6	Execution of Notes

The Notes shall be signed (either manually or by facsimile signature) by two persons, each of whom is either a Director, the President and Chief Executive Officer, the President, the Chief Financial Officer, the Chief Operating Officer or the Secretary of the Company. A signature upon any of the Notes shall for all purposes of this Note Indenture be deemed to be the signature of the individual whose signature it purports to be and to have been signed at the time such signature (either manual or in facsimile) may appear on the Notes and notwithstanding that any individual whose signature (either manual or in facsimile) may appear on the Note was not, at the Closing Date, or is not, at the date of this Note Indenture or at the date of the Notes or at the date of the certifying and delivery thereof, a Director, the President and Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer or Secretary, as the case may be, of the Company, such Notes shall be valid and binding upon the Company and the holders thereof shall be entitled to the benefits of this Note Indenture.

2.7	Certification

No Note shall be issued or, if issued, shall be obligatory or shall entitle the Holder thereof to the benefits of this Note Indenture, until it has been certified by manual signature by or on behalf of the Note Trustee substantially in the form of the Note set out in Schedule “A” hereto or in some other form approved by the Company and the Note Trustee, whose approval shall be conclusively evidenced by the certification thereof. Such certification on any Note shall be conclusive evidence that such Note is duly issued and is a valid and binding obligation of the Company and that the Holder is entitled to the benefits of this Note Indenture.

The certificate of the Note Trustee on any Note issued hereunder shall not be construed as a representation or warranty by the Note Trustee as to the validity of this Note Indenture or of such Note or its issuance (except the due certification thereof and any other warranties by law) or as to the performance by the Company of, and its obligations under, this Note Indenture and the Note Trustee shall in no respect be liable or answerable for the use made of the Notes or any of them or the proceeds thereof.

2.8

Interest

(a)Every Note, whether issued originally or in exchange for other previously issued Notes, shall bear interest from and including the latter of (5) the date of issue; and (6) the last Interest Payment Date with respect to which interest shall have been paid or made available for payment on the Notes, to, but not including, the subsequent Interest Payment Date. For greater certainty, any Notes issued on exercise of the over-allotment option granted to the underwriters in connection with the issuance and sale of the Notes shall bear interest from June 28, 2007.

(b)Interest shall be computed on the basis of a year of 365 days or 366 days in a leap year, as the case may be for payments other than semi annual interest payments.

(c)Subject to accrual of any interest or unpaid interest from time to time, interest on each Note shall cease to accrue from the earliest of: (7) the Maturity Date; (8) the Date of Permit Failure; (iii) the Date of the Change of Control; (iv) the Date of Project Change of Control; (v) if redeemed in accordance with Article 4, Article 5 or section 7.21, the Redemption Date; or (vi)(9) if purchased in accordance with Article 3, the date of payment, unless, in the case of (i) and (ivii) above, upon due presentation and surrender thereof for payment on or after the date appropriate, such payment is improperly withheld or refused by or on behalf of the Company, in which case the provisions of Article 8 shall apply.

(d)Wherever in this Note Indenture or the Notes there is mention, in any context, of the payment of interest, such mention shall be deemed to include the payment of interest on amounts in default to the extent that in such context such interest is, was or would be payable pursuant to this Note Indenture or such Notes and express mention of interest on amounts in default in any of the provisions hereof shall not be construed as excluding such interest in those provisions hereof where such express mention is not made.

(e)If the date for payment of any amount of principal or interest in respect of a Note is not a Business Day at the place of payment, then payment shall be made on the next Business Day at such place and the Holder of such Note shall not be entitled to any further interest or other payment in respect of the delay.

2.9	Rank and Subordination

The Notes certified and issued under this Note Indenture rank: (10) pari passu with one another, in accordance with their tenor without discrimination, preference or priority and, except to the extent prescribed by law and except for the New Afton Security Interest, with all other present and future unsubordinated and unsecured Indebtedness of the Company; (11) except for the New Afton Security Interest, pari passu to Permitted Indebtedness; and (iii)(iii) senior to the Debentures.

2.10 Payment of Interest and Principal in Respect of Notes

(a) Subject to early purchase or redemption pursuant to Article 3 and Article 4, respectively, as interest becomes due on the Notes, the Company, either directly or through the Note Trustee or any agent of the Note Trustee, shall send or forward by first class mail (postage prepaid), electronic transfer of funds or such other means as may be agreed to by the Note Trustee, payment of such interest to the order of the registered Holder of such Note appearing on the registers maintained by the Note Trustee at the close of business on the fifteenth Business Day prior to the applicable Interest Payment Date (the “Regular Interest Record Date”) and addressed to the Holder at the Holder’s last address appearing on the register, unless such holder otherwise directs. If payment is made by cheque to the Holder, such cheque shall be forwarded at least three Business Days prior to each applicable Interest Payment Date and if payment is made by other means (such as electronic transfer of funds) such payment shall be made at least one Business Day prior to each applicable Interest Payment Date. The Company may make provision for the making of any such payment in such other manner as is acceptable to the Note Trustee. Subject to the provisions of this Note Indenture, the mailing of such cheque or the making of such payment in such other manner shall satisfy and discharge all liability for interest, as the case may be, on the Notes to the extent of the sum represented thereby unless such cheque shall not be honoured upon presentation. For greater certainty, any interest payment required to be made on the Notes shall be subject to section 2.19. In the event of non-receipt of any cheque for or other payment of interest by the person to whom it is so sent as aforesaid, the Company will issue or cause to be issued to such person a replacement cheque or other payment for a like amount upon being furnished with such evidence of non-receipt as it or the Note Trustee shall reasonably require and upon being indemnified to its satisfaction. Notwithstanding the foregoing, if the Company is prevented by circumstances beyond its control (including, without limitation, any interruption in mail service) from making payment of any interest due on each Note in the manner provided above, the Company may make payment of such interest or make such interest available for payment in any other manner acceptable to the Note Trustee with the same effect as though payment had been made in the manner provided above.

(b) If a Note or a portion thereof is called or presented to the Company for purchase or redemption and the Purchase Date or Redemption Date is subsequent to a Regular Interest Record Date but prior to the related Interest Payment Date, interest accrued on such Note will be paid upon presentation and surrender of such Note up to but excluding the Purchase Date or the Redemption Date.

(c) On the Maturity Date, the Company either directly or through the Note Trustee or any agent of the Note Trustee, shall send or forward by first class mail (postage prepaid), electronic transfer of funds or such other means as may be agreed to by the Note Trustee, payment of all the principal and all accrued and unpaid interest on the then outstanding Notes, up to but excluding the Maturity Date. Such payment shall be made to the order of the registered Holder of such Note appearing on the registers maintained by the Note Trustee at the close of business on the fifteenth Business Day prior to the Maturity Date (the “Maturity Record Date”) and addressed to the Holder at the Holder’s last address appearing on the register as of the Maturity Record Date, unless such holder otherwise directs. If payment is made by cheque to the Holder such cheque shall be forwarded at least three Business Days prior to the Maturity Date and if payment is made by other means (such as electronic transfer of funds) such payment

shall be made at least one Business Day prior to the Maturity Date. The Company may make provision for the making of any such payment in such other manner as is acceptable to the Note Trustee. Subject to the provisions of this Note Indenture, the mailing of such cheque or the making of such payment in such other manner shall satisfy and discharge all liability for principal, premium and interest, as the case may be, on the Notes to the extent of the sum represented thereby unless such cheque shall not be honoured upon presentation. In the event of non-receipt of any cheque for or other payment of interest by the person to whom it is so sent as aforesaid, the Company will issue or cause to be issued to such person a replacement cheque or other payment for a like amount upon being furnished with such evidence of non-receipt as it or the Note Trustee shall reasonably require and upon being indemnified to its satisfaction. Notwithstanding the foregoing, if the Company is prevented by circumstances beyond its control (including, without limitation, any interruption in mail service) from making payment on each Note in the manner provided above, the Company may make such payment available in any other manner acceptable to the Note Trustee with the same effect as though payment had been made in the manner provided above.

(d) If any payment of principal, premium or interest on the Maturity Date or the Interest Payment Date, as applicable, is to be made through the Note Trustee, that Company shall deposit cleared funds, equal to the full amount of any such payment in the manner directed by the Note Trustee at least 24 hours prior to the date on which such payment must be forwarded to the Holders pursuant to the terms of this Note Indenture. The Note Trustee shall disburse such interest payments only upon receiving the cleared funds, and under no circumstances shall the Note Trustee be obligated to disburse amounts of money in excess of what it has received from the Company.

(e) If any payment of principal, premium or interest made directly to any Holder by the Company, then the Company shall within 30 days of making such payment, provide the Note Trustee with an Officer’s Certificate setting forth the details of any such payment.

2.11	Registration and Transfer of Notes

(a) The Company shall, at all times while any Notes are outstanding, cause to be kept by and at the principal corporate trust office of the Note Trustee in the City of Vancouver, British Columbia a central register, and in the City of Toronto, Ontario and such other place or places, by the Note Trustee or by such other Registrar or Registrars, if any, as the Company with the approval of the Note Trustee may designate, branch registers in which shall be entered the names and latest known addresses of the Holders of Notes and the other particulars, as prescribed by law, of the Notes held by them respectively and of all transfers of Notes. Such registration shall be noted on the Notes by the Note Trustee or other Registrar. No transfer of a registered Note shall be effective as against the Company unless made on one of the appropriate registers by the Noteholder or his executors or administrators or other legal representatives or his or their attorney duly appointed by an instrument in form and execution satisfactory to the Note Trustee and upon due completion of the form of transfer attached to the Note certificate and compliance with such requirements as the Note Trustee or other Registrar may prescribe, acting reasonably, and unless such transfer shall have been duly noted on the Note by the Note Trustee or other Registrar. For the purposes of this section, the Note Trustee shall be the Registrar and transfer agent for the Notes until notified by the Company otherwise.

(b)Notwithstanding anything contained in this Note Indenture, or the certificate evidencing the Notes, the Note Trustee:

(i)

shall only register a transfer of a Note imprinted with the legends specified in section 2.5 if the Note Trustee has received, in addition to a properly completed and executed transfer form in the form included in such certificate, either (A) a properly completed and executed declaration in the form attached as Annex I to Schedule “A” hereto (or as otherwise prescribed by the Company), or (B) a written opinion of or other evidence satisfactory to the Company, acting reasonably, to the effect that the transfer of such Note is in compliance with applicable United States federal and state securities laws and, in the case of subparagraph (B), the Company has provided a direction to the Note Trustee to proceed with such registration including, if deemed required by the Company, instructions to imprint the Note issued to such transferee with the legend specified in section 2.5; and

(ii)

shall not register any transfer of a Note if it has reasonable grounds to believe that such transfer is otherwise not in accordance with Applicable Law.

(c) Upon becoming a Noteholder in accordance with the provisions of this Note Indenture, the transferee thereof shall be deemed to have acknowledged and agreed to be bound by this Note Indenture. Upon registration of such transferee as the holder of the Note, the transferor shall cease to have any further rights under this Note Indenture with respect to such Note or Common Shares issuable in respect thereof.

(d) The registers referred to in this section shall at all reasonable times during business hours on a Business Day be open for inspection by the Company, the Note Trustee and any Noteholder.

(e) A Noteholder may at any time and from time to time have a Note transferred at any of the places at which a register is kept pursuant to the provisions of this section in accordance with such reasonable regulations as the Note Trustee may prescribe. A Noteholder may at any time and from time to time have the registration of a Note transferred from the register in which the registration thereof appears to another register maintained in another place authorized for that purpose under the provisions of this Note Indenture upon payment of a reasonable fee to be fixed by the Note Trustee.

(f) Neither the Company nor the Note Trustee nor any Registrar shall be required: (12) to transfer or exchange any Notes on any Interest Payment Date or during a period of 15 Business Days immediately preceding any such date, provided that such transfer restriction shall not affect the ability of Noteholders to trade the Notes on the TSX or the AMEX (if applicable); (13) to transfer or exchange any Notes on the date of any selection by the Note Trustee or the Company of any Notes to be purchased, pursuant to Article 3, or during the 15 Business Days immediately preceding any such date or thereafter for a period of up to but not exceeding the 15th Business Day following the mailing of any notice of purchase; (14) to transfer or exchange any Notes on the date of any selection by the Note Trustee of any Notes to be redeemed, pursuant to Article 4, or during the 15 Business Days immediately preceding any such date or thereafter for a period of up to but not exceeding the 15th Business Day following the mailing of any Redemption Notice; (15) to transfer or exchange any Notes on the date of any selection by the Note Trustee or the Company of any Notes to be redeemed, pursuant

to Article 5, or during the 15 Business Days immediately preceding any such date or thereafter for a period of up to but not exceeding the 15th Business Day following the mailing of any Notice of Offer to Redeem;

(g) None of the Note Trustee, any Registrar for any of the Notes or the Company shall be charged with notice of or be bound to see to the execution of any trust, whether express, implied or constructive, in respect of any Note and may transfer any Note on the direction of the Holder thereof, whether named as trustee or otherwise, as though that Person were the beneficial owner thereof.

(h) Except in the case of the central register required to be kept at the City of Vancouver, British Columbia, the Company shall have power at any time to close any branch register and in that event it shall transfer the records thereof to another existing register or to a new register and thereafter such Notes shall be deemed to be registered on such existing or new register, as the case may be. In the event that the register in any place is closed and the records transferred to a register in another place, notice of such change shall be given to the Noteholders registered in the register so closed and the particulars of such change shall be recorded in the central register required to be kept in the City of Vancouver, British Columbia.

(i) Every Registrar shall, when requested to do so in writing by the Company or the Note Trustee, furnish the Company or the Note Trustee, as the case may be, with a list of the names and addresses of the Holders of Notes entered on the registers maintained by such Registrar and showing the principal amounts and serial numbers of the Notes held by each such Holder.

(j) A Holder may at any time and from time to time, subject to this section 2.11, have such Note transferred at the place at which the register is kept pursuant to the provisions of this section 2.11. No transfer of a Note shall be effective as against the Company unless:

(i)

such transfer is made by the Holder or the executor, administrator or other legal representative of, or any attorney for, the Holder, duly appointed by an instrument in form and execution satisfactory to the Registrar, upon surrender to the Registrar of the Note and a duly executed form of transfer;

(ii)

such transfer is made in compliance with all Applicable Laws;

(iii)

such transfer is made in compliance with requirements as the Registrar may prescribe;

(iv)

such transfer has been noted on the register by the Registrar; and

(v)

such transfer is made in compliance with subsection 2.11(k).

(k)

Notwithstanding any other provision of this Note Indenture, a Global Note registered in the name of the Depository or a nominee of the Depository may not be transferred by the Depository or such nominee except in the following circumstances:

(i)

such Global Note may be transferred by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or to another

nominee of the Depository or by the Depository or its nominee to a successor Depository or its nominee;

(ii)

such Global Note may be transferred at any time after the Depository for such Global Note has notified the Company or the Company determines that the Depository is unwilling or unable or no longer eligible to continue as Depository for such Global Note;

(iii)

such Global Note may be transferred at any time after the Company has determined, in its sole discretion, that the Notes represented by such Global Note shall no longer be held by the Depository as Global Notes; and

(iv)

such Global Note may be transferred at any time after the Note Trustee has determined that an Event of Default has occurred and is continuing with respect to the Notes issued in the form of such Global Note, provided that at the time of such transfer such Event of Default has not been waived in accordance with the provisions of this Note Indenture.

(l) The registered transferee of a Note shall be entitled, after the appropriate form of transfer is lodged with the Registrar and upon compliance with all other conditions in that regard required by this Note Indenture or by law, to be entered on the register as the Holder free from all equities or rights of setoff or counterclaim between the Company and the transferor or any previous Holder, except in respect of equities of which the Company is required to take notice by statute or by order of a court of competent jurisdiction.

2.12	Ownership of Notes

(a) The Person in whose name a Fully Registered Note shall be registered shall be deemed to be the owner thereof for all purposes of this Note Indenture and payment of or on account of the principal of, and interest on, such Note shall be made only to or upon the order in writing of the Holder thereof and such payment shall be a complete discharge to the Note Trustee, any Registrar of Notes, the Company and any Paying Agent for the amounts so paid.

(b) If a Note is registered in the name of more than one Person, the principal, and interest from time to time payable in respect thereof may be paid to the order of all such Persons and each such payment shall be a good and sufficient discharge to the Company, the Note Trustee, any other Registrar and any Paying Agent for the amount so paid.

(c) Notwithstanding any other provision of this Note Indenture, all payments in respect of Notes represented by a Global Certificate shall be made to the Depository or its nominee.

(d) The Holder for the time being of a Fully Registered Note shall be entitled to the principal and interest evidenced by such Note, free from all equities or rights of set-off or counterclaim between the Company and the original or any intermediate Holder thereof (except any equities of which the Company is required to take notice by law or by order of a court of competent jurisdiction) and all Persons may act accordingly and a transferee of a Note shall, after the appropriate form of transfer is lodged with the Note Trustee or other Registrar of Notes and upon compliance with all other conditions in that

behalf required by this Note Indenture or by any conditions contained in such Note or by law, be entitled to be entered on the appropriate register or on any one of the appropriate registers as the owner of such Note free from all equities or rights of set-off or counterclaim between the Company and the transferor or any previous Holder thereof, save in respect of equities of which the Company is required to take notice by law or by order of a court of competent jurisdiction.

2.13	Exchange of Notes

(a) Subject to sections 2.3 and 2.11, Notes of any denomination may be exchanged for Notes of any other authorized denomination or denominations, any such exchange to be for Notes of an equivalent aggregate principal amount, at the expense of the exchanging Noteholder. Exchanges of Notes may be made at the principal offices of the Note Trustee in the City of Vancouver and the City of Toronto and at such other locations where registers for Notes are maintained. Any Notes tendered for exchange shall be surrendered to the Note Trustee and shall be cancelled. The Company shall execute, and the Note Trustee shall certify, all Notes necessary to carry out such exchanges.

(b) Except as otherwise provided herein, upon any exchange of Notes of any denomination for Notes of any other authorized denominations and upon any transfer of Notes, the Note Trustee or other Registrar of Notes may make a sufficient charge to reimburse it for any stamp tax, security transfer tax or other governmental charge required to be paid, and in addition a reasonable charge for its services for each Note exchanged or transferred, and payment of such charges shall be made by the party requesting such exchange or transfer as a condition precedent thereto.

2.14	Replacement of Notes

Subject to section 2.11, if any of the Notes issued hereunder shall become mutilated or be lost, stolen or destroyed, and in the absence of notice that such Note has been acquired by a good faith purchaser within the meaning of the Business Corporations Act (British Columbia), the Company, in its discretion, may issue, and thereupon the Note Trustee shall certify and deliver, a replacement Note of like date and tenor as the one mutilated, lost, stolen or destroyed in exchange for and in place of and upon surrender and cancellation of such mutilated Note, or, in the case of a lost, stolen or destroyed Note, in lieu of and in substitution for the same, and the substituted Note shall be in a form of the Note attached as Schedule “A” hereto and shall be entitled to the benefits of this Note Indenture and rank equally with all other Notes issued or to be issued hereunder. In case of loss, theft or destruction, the applicant for a substituted Note shall furnish to the Company and to the Note Trustee such evidence of such loss, theft or destruction as shall be satisfactory to them in their discretion and shall also furnish an indemnity and a third party bond indemnity in amount and form satisfactory to the Company and the Note Trustee in their discretion. The applicant shall pay all expenses incidental to the issuance of any such new Note.

2.15	Option of Holder as to Place of Payment

Except as herein otherwise provided, all amounts which at any time become payable on account of any Note or any interest thereon shall be payable at the option of the Holder at any of the places at which the principal and interest in respect of such Note are payable.

2.16 Record of Payments

The Note Trustee shall maintain accounts and records evidencing each payment of principal of and interest on the Notes, which accounts and records shall constitute, in the absence of manifest error, prima facie evidence thereof.

None of the Company, the Note Trustee, any other Registrar and any Paying Agent shall be liable or responsible to any Person for any aspect of the records related to or payments made on account of beneficial interests in any Global Note or for maintaining, reviewing, or supervising any records relating to such beneficial interests.

2.17	Surrender for Cancellation

If the principal amount due upon any Note shall become payable before the stated maturity thereof, the Person presenting such Note for payment shall surrender the same for cancellation to the Note Trustee’s office in the City of Vancouver, British Columbia or the City of Toronto, Ontario and the Company shall pay or cause to be paid the interest accrued and unpaid thereon (computed on a per diem basis if the date fixed for payment is not an Interest Payment Date).

2.18	Right to Receive Note Indenture

Each Noteholder is entitled to receive from the Company a copy of this Note Indenture on written request and upon payment of a reasonable copying charge.

2.19	Withholding Taxes

Any payments of interest made by the Company with respect to the Notes shall be made free and clear of and without deduction for or on account of any present or future tax, duty, levy, impost, assessment, or other governmental charge imposed or levied by or on behalf of a Canadian governmental authority, which the Company is required to withhold by law or by the interpretation or administration thereof. If the Company is required by such laws or by the interpretation or administration thereof to withhold any amount from any payment with respect to any payments for interest on the Notes, the Company shall “gross-up” any such affected payment so that the Holder receives a net amount equal to the amount the Holder would have received had such withholding tax not been payable. The Company will furnish to the affected Holders of the Notes, within 30 days after the date that the payment of any aforementioned amounts are due pursuant to Applicable Law, copies of receipts evidencing such payment by the Company.

ARTICLE 3

PURCHASE FOR CANCELLATION OF NOTES

3.1	Purchase of Notes for Cancellation

The Company may, at any time when it is not in default hereunder, purchase all or any of the Notes in the market (which shall include purchase from or through an investment dealer or a firm holding membership on a Recognized Stock Exchange) or by invitation for tenders or by private contract, at any price, in compliance with any Applicable Securities Legislation and stock exchange rules. All Notes so purchased shall forthwith be delivered to the Note Trustee and shall be cancelled by it and, subject to the following paragraph of this section 3.1, no Notes shall be issued in substitution therefor.

If, upon an invitation for tenders, more Notes are tendered at the same lowest price than the Company is prepared to accept, the Notes to be purchased by the Company shall be selected by the Note Trustee by lot, or in such other manner (which may include on a pro rata basis, random selection by computer or any other method) as the Note Trustee may consider equitable and expedient, from the Notes tendered by each Noteholder who tendered at such lowest price. For this purpose the Note Trustee may make, and from time to time amend, regulations with respect to the manner in which Notes may be so selected and regulations so made shall be valid and binding upon all Noteholders, notwithstanding the fact that, as a result thereof, one or more of such Notes become subject to purchase in part only. The Holder of any Note of which a part only is purchased, upon surrender of such Note for payment, shall be entitled to receive, without expense to such Holder, one or more new Notes for the unpurchased part so surrendered and the Note Trustee shall certify and deliver such new Note or Notes upon receipt of the Note so surrendered.

3.2	Cancellation of Notes

Subject to the provisions of this Article 3 as to Notes purchased in part, all Notes purchased under this Article 3 shall forthwith be delivered to the Note Trustee and shall be cancelled by it and no Notes shall be issued in substitution therefor.

ARTICLE 4

OPTIONAL REDEMPTION OF NOTES

4.1	Optional Redemption of Notes

(a) The Notes are redeemable at any time. The Company shall have the right at its option to redeem the Notes, in whole at any time or in part from time to time, on or after June 28, 2007 and up to but excluding the Maturity Date, on not more than 60 days’ and not less than 30 days’ prior notice to the Holders at a redemption price, payable in cash, which is equal to the principal amount of the Notes to be redeemed, multiplied by the percentage in effect on Redemption Date (as stated below in subsection 4.1(b)), plus accrued and unpaid interest up to but excluding the Redemption Date.

(b) The percentage to be applied, from time to time, to the principal amount of the Notes to be redeemed pursuant to subsection 4.1(a) is as follows:

Time Period	Percentage
June 28, 2007 through June 27, 2008	120%
June 28, 2008 through June 27, 2009	117%
June 28, 2009 through June 27, 2010	114%
June 28, 2010 through June 27, 2011	110%
June 28, 2011 through June 27, 2012	105%
June 28, 2012 through June 27, 2013	104%
June 28, 2013 through June 27, 2014	103%
June 28, 2014 through June 27, 2015	102%
June 28, 2015 through June 27, 2016	101%
June 28, 2016 through June 27, 2017	100%

(c) Concurrently with providing the Redemption Notice (as hereinafter defined), the Company shall provide the Note Trustee with an Officer’s Certificate setting forth the

details of any redemption contemplated by this section 4.1 (including the eligibility and interest calculations, if necessary) which the Note Trustee may rely upon without any independent obligation to verify the accuracy of information set out therein.

4.2	Partial Redemption of Notes

If less than all the outstanding Notes are to be redeemed pursuant to section 4.1, the Company shall in each such case, at least 15 days before the date upon which the Redemption Notice is to be given, notify the Note Trustee by a Written Direction of the Company, of its intention to redeem such Notes and of the aggregate principal amount of Notes to be redeemed. At any time prior to the date upon which the Redemption Notice is to be given, the Company may revoke such intention by notifying the Note Trustee by a Written Direction of the Company, that the Company no longer intends to make a partial redemption of the Notes.

The Notes to be so redeemed shall:

(a) in the case of Global Notes, be redeemed on a pro rata basis to the nearest multiple of $1,000 in accordance with the principal amount of the Notes outstanding; or

(b) in the case of Notes which are not Global Notes, be selected by the Note Trustee (16) on a pro rata basis to the nearest multiple of $1,000 in accordance with the principal amount of the Notes registered in the name of each Holder, (17) by lot in such manner as the Note Trustee may deem equitable, or (18) in such other manner as the Note Trustee may deem equitable.

Notes in denominations in excess of $1,000 may be selected and called for redemption in part only (such part being $1,000 or an integral multiple thereof) and, unless the context otherwise requires, references to Notes in this Article 4 shall be deemed to include any such part of the principal amount of Notes which shall have been so selected and called for redemption. The Holder of any Note called for redemption in part only, upon surrender of such Note for payment, shall be entitled to receive, without expense to such Holder, a new Note for the unredeemed part of the Note so surrendered, and the Company shall execute and the Note Trustee shall certify and deliver, at the expense of the Company, such new Note upon receipt of the Note so surrendered.

4.3	Optional Redemption of Notes on Change of Control

(a) Upon the occurrence of a Change of Control where less than 10% of the aggregate consideration is or can be received wholly or partially in cash, the Company shall have the right, at its option, to redeem all Notes then outstanding (the “Optional COC Redemption”), in whole, but not in part, at a redemption price, in cash, which is equal to the principal amount of the Notes to be redeemed, multiplied by the percentage in effect on Redemption Date (as stated below in subsection 4.3(b)), plus accrued and unpaid interest up to but excluding the Redemption Date.

(b) The percentage to be applied, from time to time, to the principal amount of the Notes to be redeemed pursuant to subsection 4.3(a)is as follows:

Time Period	Percentage
June 28, 2007 through June 27, 2008	110%
June 28, 2008 through June 27, 2009	108%
June 28, 2009 through June 27, 2010	105%
June 28, 2010 through June 27, 2011	105%
June 28, 2011 through June 27, 2012	105%
June 28, 2012 through June 27, 2013	104%
June 28, 2013 through June 27, 2014	103%
June 28, 2014 through June 27, 2015	102%
June 28, 2015 through June 27, 2016	101%
June 28, 2016 through June 27, 2017	100%

4.4	Places of Payment

The Redemption Amount will be payable upon presentation and surrender of the Notes called for redemption at any of the places where the register is maintained pursuant to section 2.11 or any other places specified in the Redemption Notice.

4.5	Notice of Redemption

Notice of redemption of the Notes pursuant to sections 4.14.1, 4.2 or 4.24.3 (the “Redemption Notice”) shall be given by the Company to the Note Trustee and Holders not less than 30 days prior to the date fixed by the Company for redemption (a “Redemption Date”) in the manner provided in sections 12.2 and 12.3. Every such notice shall specify the aggregate principal amount of Notes called for redemption, the redemption amount relating thereto determined in accordance with the terms of this Note Indenture (the “Redemption Amount”), the Redemption Date, the places of payment and shall state that interest upon the principal amount of Notes called for redemption shall cease to be payable from and after the Redemption Date.

4.6	Notes Due on Redemption Date

Upon a Redemption Notice being given in accordance with section 4.5, the Redemption Amount shall become due and payable on the Redemption Date specified in such Redemption Notice and with the same effect as if it were the Maturity Date of such Notes, the provisions hereof or of any such Notes notwithstanding, and, from and after such Redemption Date, interest shall cease, unless payment of the Redemption Amount shall not be made on presentation for surrender of such Notes at any of the places specified in the Redemption Notice on or after the Redemption Date.

4.7	Deposit of Redemption Monies

Upon the Notes being called for redemption as provided for in section 4.5, the Company shall deposit with the Note Trustee or any Paying Agent to the order of the Note Trustee or for the account of the Note Trustee, on or prior to the Redemption Date specified in the Redemption Notice, cleared funds, equal to such sums as are sufficient to pay the Redemption Amount of the Notes which are to be redeemed at least 24 hours prior to the date on which such payment must be forwarded to the Holders pursuant to the terms of this Note Indenture. From the sums so deposited, the Note Trustee shall pay or cause to be paid to the Holders, upon surrender of the Notes, the Redemption Amount thereof.

4.8 Cancellation of Notes

On the Redemption Date, provided that the Company has deposited the Redemption Amount in accordance with section 4.7, each Note (or the portions thereof) in respect of which the Company's redemption right has been exercised shall be deemed to be transferred by the Holder thereof, without any further act or formality on its part, free and clear of all liens, claims and encumbrances, to the Company for cancellation and the Company shall be deemed to have cancelled such Note upon deemed delivery and the name of such holder will be removed from the register of Noteholders and such Note shall be forthwith cancelled by the Note Trustee and may not be reissued or resold and, subject to section 4.2, no Notes shall be issued in substitution therefor.

ARTICLE 5

MANDATORY OFFERS TO REDEEM

5.1	Offer to Redeem on Failure to Obtain Required PermitsIntentionally deleted

If the Company has not yet obtained all necessary permits required for the exploration, construction, development and conduct of mining operations at the New Afton Project on or before the date that is 12 months following the date hereof (a “Permit Failure”), the Company must offer (which offer each Holder may accept or reject), to redeem all Notes then outstanding (the "Permit Failure Offer to Redeem"), in whole, but not in part, at a redemption price, in cash, which is equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest up to but excluding the Redemption Date specified in the Notice of Offer to Redeem.

5.2	Offer to Redeem on Change of Control

(a) Upon the occurrence of a Change of Control where 10% or more of the aggregate consideration is or can be received wholly or partially in cash, the Company must offer (which offer each Holder may accept or reject) to redeem all Notes then outstanding (the “Cash COC Offer to Redeem”), in whole, but not in part, at a redemption price, in cash, which is equal to the principal amount of the Notes to be redeemed, multiplied by the percentage in effect on the Redemption Date (as stated below in subsection 5.2(b)), plus accrued and unpaid interest up to but excluding the Redemption Date.

(b )The percentage to be applied, from time to time, to the principal amount of the Notes to be redeemed pursuant to subsection 5.2(a) is as follows:

Time Period	Percentage
June 28, 2007 through June 27, 2008	120%
June 28, 2008 through June 27, 2009	117%
June 28, 2009 through June 27, 2010	114%
June 28, 2010 through June 27, 2011	110%
June 28, 2011 through June 27, 2012	105%
June 28, 2012 through June 27, 2013	104%
June 28, 2013 through June 27, 2014	103%
June 28, 2014 through June 27, 2015	102%
June 28, 2015 through June 27, 2016	101%
June 28, 2016 through June 27, 2017	100%

(c) Upon the occurrence of a Change of Control where (19) less than 10% of the aggregate consideration is or can be received wholly or partially in cash; and (20) the Company does not elect to make an Optional COC Redemption pursuant to section 4.3, the Company must offer (which offer each Holder may accept or reject) to redeem all Notes then outstanding (the “Non-Cash COC Offer to Redeem”), in whole, but not in part, at a redemption price, in cash, which is equal to the principal amount of the Notes to be redeemed, multiplied by the percentage in effect on the Redemption Date (as stated below in subsection 5.2(d)), plus accrued and unpaid interest up to but excluding the Redemption Date.

(d) The percentage to be applied, from time to time, to the principal amount of the Notes to be redeemed pursuant to subsection 5.2(c) is as follows:

Time Period	Percentage
June 28, 2007 through June 27, 2008	103%
June 28, 2008 through June 27, 2009	103%
June 28, 2009 through June 27, 2010	103%
June 28, 2010 through June 27, 2011	102%
June 28, 2011 through June 27, 2012	101%
June 28, 2012 through June 27, 2013	101%
June 28, 2013 through June 27, 2014	101%
June 28, 2014 through June 27, 2015	101%
June 28, 2015 through June 27, 2016	101%
June 28, 2016 through June 27, 2017	101%

(e) Upon the occurrence of a Project Change of Control the Company must offer (which offer each Holder may accept or reject) to redeem all Notes then outstanding (the “Project COC Offer to Redeem”), in whole, but not in part, at a redemption price, in cash, which is equal to the principal amount of the Notes to be redeemed, multiplied by the percentage in effect on Redemption Date (as stated below in subsection 5.2(f)), plus accrued and unpaid interest up to but excluding the Redemption Date.

(f) The percentage to be applied, from time to time, to the principal amount of the Notes to be redeemed pursuant to subsection 5.2(e) is as follows:

Time Period	Percentage
June 28, 2007 through June 27, 2008	120%
June 28, 2008 through June 27, 2009	117%
June 28, 2009 through June 27, 2010	114%
June 28, 2010 through June 27, 2011	110%
June 28, 2011 through June 27, 2012	105%
June 28, 2012 through June 27, 2013	104%
June 28, 2013 through June 27, 2014	103%
June 28, 2014 through June 27, 2015	102%
June 28, 2015 through June 27, 2016	101%
June 28, 2016 through June 27, 2017	100%