VANCOUVER, Oct. 17, 2011 /CNW/ - New Gold Inc. ("New Gold") (TSX:NGD)(NYSE AMEX:NGD) today announces that the company and Geo Minerals Ltd. ("Geo") (TSX.V:GM) have entered into a definitive agreement whereby New Gold will acquire, through a plan of arrangement (the "Arrangement"), all of the outstanding common shares of Geo. By acquiring Geo, New Gold will add 1,470 hectares of land ("West Blackwater properties") immediately to the northwest of the company's Blackwater Project. The Blackwater Project is located in Central British Columbia, approximately 160 kilometres southwest of the city of Prince George.

Under the terms of the Arrangement, each Geo shareholder will receive C$0.16 for each Geo share held. In addition, Geo shareholders will receive one common share of a new exploration company ("Spinco") for every 15 Geo common shares held. Upon completion of the Arrangement, New Gold will retain Geo's West Blackwater properties and cash and the remainder of Geo's portfolio of exploration properties will be transferred to Spinco.

The net cash payment by New Gold for the Geo shares, after adjusting for the conversion of convertible securities and the related proceeds, is approximately C$17 million. Also, as part of the Arrangement, New Gold will complete a C$250,000 placement that will result in the company holding a 9.9% interest in Spinco upon closing.

The Arrangement has been approved unanimously by the Boards of Directors of New Gold and Geo and will be subject to, among other things, court approval and the favourable vote of 66 2/3% of the votes cast by holders of the Geo securities at a special meeting of Geo securityholders called to approve the transaction which is expected to take place in December 2011. Directors, Officers and a group of other individual shareholders of Geo have entered into voting agreements with New Gold under which they have agreed to vote in favour of the Arrangement, their Geo securities entitled to vote on the Arrangement, which represent approximately 29% of such outstanding Geo securities as of October 14, 2011. As part of the Arrangement, New Gold retains the right to match any superior proposal. The special meeting of securityholders of Geo and the closing of the transaction are targeted to occur in December 2011.

New Gold looks forward to closing the Geo Arrangement to build further on its land position at the Blackwater Project. The company continues to actively drill the Blackwater deposit and plans to provide further updates on the company's exploration efforts over the coming months.

About New Gold Inc.

New Gold is an intermediate gold mining company. The company has a portfolio of three producing assets and three significant development projects. The Mesquite Mine in the United States, the Cerro San Pedro Mine in Mexico and Peak Gold Mines in Australia are expected to produce between 380,000 and 400,000 ounces of gold in 2011. The fully-funded New Afton project in Canada is scheduled to add further growth in 2012. In addition, New Gold owns 30% of the world-class El Morro project located in Chile and, in June 2011, New Gold acquired the exciting Blackwater project in Canada. For further information on the company, please visit www.newgold.com