EXHIBIT 3
                                                                      ---------


                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


--------------------------------------------------------------------------------
INTRODUCTION
--------------------------------------------------------------------------------

This  discussion  and  analysis  of  the  financial  condition  and  results  of
operations  (MD&A) of Ivanhoe Mines Ltd. should be read in conjunction  with the
audited  consolidated  financial  statements of Ivanhoe Mines Ltd. and the notes
thereto for the year ended December 31, 2007.  These  financial  statements have
been prepared in accordance  with United  States of America  generally  accepted
accounting  principles (U.S.  GAAP). In this MD&A,  unless the context otherwise
dictates,  a  reference  to the  Company  refers to  Ivanhoe  Mines  Ltd.  and a
reference  to Ivanhoe  Mines  refers to Ivanhoe  Mines Ltd.,  together  with its
subsidiaries.

Additional information about the Company, including its Annual Information Form,
is available at WWW.SEDAR.COM.

This MD&A contains  forward-looking  statements.  Please refer to the cautionary
language on page 59.

The effective date of this MD&A is March 28, 2008.



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OVERVIEW
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                 IVANHOE MINES ANNOUNCES 2007 FINANCIAL RESULTS
                            AND REVIEW OF OPERATIONS

HIGHLIGHTS

   o  A NEW NI 43-101  INITIAL  RESOURCE  ESTIMATE  AT THE HERUGA  DISCOVERY  IN
      MONGOLIA  HAS ADDED 13.4  MILLION  OUNCES OF GOLD AND 8 BILLION  POUNDS OF
      COPPER  TO THE  OYU  TOLGOI  PROJECT'S  TOTAL  INFERRED  RESOURCES  -- AND
      DRILLING IS CONTINUING TO EXPAND THE DISCOVERY.

   o  OYU  TOLGOI'S  SHAFT NO.1 HAS  REACHED  ITS TOTAL  DEPTH OF 1,385  METRES,
      ALLOWING  COMMENCEMENT OF UNDERGROUND  MINE DEVELOPMENT OF THE COPPER- AND
      GOLD-RICH HUGO DUMMETT NORTH DEPOSIT.

   o  THE OYU TOLGOI PROJECT IS AWAITING AN APPROVED  INVESTMENT  AGREEMENT WITH
      MONGOLIA  TO  BEGIN  FULL-SCALE   CONSTRUCTION.

   o  IVANHOE'S  81%-OWNED  SUBSIDIARY,  SOUTHGOBI ENERGY RESOURCES,  HAS RAISED
      $117.9 MILLION AND IS PREPARING TO OPEN ITS FIRST COAL MINE IN MONGOLIA.

   o  IVANHOE  AUSTRALIA HAS  SIGNIFICANTLY  EXPANDED ITS  EXPLORATION  PROGRAM,
      TARGETTING  MAJOR  COPPER,  GOLD  AND  URANIUM  DISCOVERIES  IN  NORTHWEST
      QUEENSLAND.


                                       1
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


   o  IVANHOE IS ADVANCING DEVELOPMENT PLANS TO BRING THE BAKYRCHIK GOLD MINE IN
      KAZAKHSTAN INTO COMMERCIAL  PRODUCTION.

   o  IVANHOE'S   42%-OWNED   SUBSIDIARY,   JINSHAN  GOLD  MINES,  HAS  STARTED
      PRODUCTION  FROM ITS FIRST GOLD MINE IN CHINA  WITH AN INITIAL  TARGET OF
      120,000 OUNCES PER YEAR.

   o  IVANHOE INCURRED $304 MILLION IN EXPLORATION EXPENSES IN 2007.

MONGOLIA

OYU TOLGOI COPPER-GOLD PROJECT

UNDERGROUND  DEVELOPMENT  PROGRAM  ADVANCING AT  HIGH-GRADE  HUGO DUMMETT  NORTH
DEPOSIT IN PREPARATION FOR PRODUCTION

On January 27, 2008, the Oyu Tolgoi team  celebrated the completion of Shaft No.
1. The completed shaft is 6.7 metres in diameter,  concrete lined,  with a final
depth of 1,385 metres. It is the deepest underground shaft in Mongolia.  Lateral
development  activities  on the  1,300-metre  level have  commenced,  which will
involve  tunnelling into Oyu Tolgoi's Hugo Dummett North high-grade  underground
copper  and gold  deposit,  facilitating  access  for  exploration  and  initial
production  from  the  underground  mine.  The  shaft  eventually  will  help to
ventilate the deep mine.

The Oyu Tolgoi site infrastructure was significantly expanded in 2007, including
the  construction  of a  centralized  camp and the  supply  of power  and  other
utilities.  Site efforts also focused on the sinking of Shaft No. 1,  completion
of sub-surface works at Shaft No. 2 and the winterization of the camp.

Preliminary  sub-surface  work at Shaft No. 2 began in mid-2007 and, as planned,
paused for winter in  mid-December.  Progress in 2007  included  completing  the
concrete  headframe to 14 metres below grade and extending the conveyor  gallery
and  ventilation  system.  Shaft No. 2 is  planned  to be the  initial,  primary
underground production and service shaft at Oyu Tolgoi.

At year  end,  engineering  of the  Oyu  Tolgoi  concentrator  had  reached  80%
completion and site excavation work was  approximately  25% complete.  The focus
for 2008 is to maintain procurement for the concentrator equipment.

Infrastructure  engineering was completed or commenced on 27 different packages,
including a diesel  power  station,  operations  water  supply and a road to the
border with China. The principal  activities included engineering for the diesel
power  station,  which  will  provide  construction  power to the  project,  and
engineering  on the Gunii  Hooloi  bore  field,  which will serve as a long-term
water  source  for the  mine.  Engineering  design  is  continuing  in 2008  and
implementation options will be assessed.


                                       2
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


The  design  contract  for a  coal-fired  power  plant was  awarded  in 2007 and
engineering  is underway,  with the first phase  expected to be completed by May
2008. Operation of the power plant will support the concentrator schedule.

The Oyu Tolgoi  Project  posted an  outstanding  health and safety  achievement,
completing  the entire year without a lost-time  incident  (LTI) at the site and
extending the LTI-free period from December 18, 2006.  Employees and contractors
on site worked a total of 3.4 million hours during 2007.

OYU TOLGOI PROJECT AWAITING AN APPROVED INVESTMENT AGREEMENT TO BEGIN FULL-SCALE
CONSTRUCTION

During  the  fourth  quarter  of  2007,   members  of  the  Mongolian   National
Parliament's Standing Committee on Economics visited large-scale,  international
mining  operations  to gather  information  about  mining  issues  and  approval
processes that guide mine  developments  in other  countries.  The Committee had
been given the  responsibility  to review and report to  Parliament on the draft
Investment  Agreement  for Oyu Tolgoi that had been  negotiated by Ivanhoe Mines
and its strategic partner,  Rio Tinto, with the Government of Mongolia's Working
Group in April  2007.  Mines  owned or  operated  by Rio Tinto were among  those
visited by the MPs.

While the Committee's  travel and review was underway,  the governing  Mongolian
People's  Revolutionary  Party (MPRP) voted to replace its leader,  resulting in
the installation of a new Prime Minister and formation of a new cabinet. The new
Government  assumed  office on December  13,  2007.  On the same day,  new Prime
Minister  Sanjaa  Bayar  said  that  any  review  and  evaluation  of the  draft
Investment  Agreement by the Government would be more reliable if the Government
retained the services of an internationally  recognized,  independent  financial
organization  to assist  in  concluding  a "world  standard"  agreement  for Oyu
Tolgoi.  He withdrew the draft Investment  Agreement from Parliament to end what
he said was a legislative  stalemate -- and said that finalizing an agreement to
permit the  construction  of Oyu Tolgoi to proceed  was one of his  Government's
priorities  before the national  general  election  scheduled for June 29, 2008.
(The MPRP currently  holds a narrow  majority in the  Parliament,  with 39 of 76
seats.)

The  Government  subsequently  declared  that it  intended  to make a series  of
revisions to Mongolia's  Minerals Law before attempting to complete an agreement
for Oyu Tolgoi.  It now appears likely that proposed  amendments to the Minerals
Law will be discussed in the coming spring session of Parliament  that is set to
begin April 7, 2008.

Ivanhoe Mines is monitoring the  deliberations  of Parliament and actions by the
Government of Mongolia, and is continuing to assess the implications for the Oyu
Tolgoi development  schedule.  A final Investment Agreement also remains subject
to approvals  by the  respective  Boards of  Directors of Ivanhoe  Mines and Rio
Tinto.


                                       3
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


Ivanhoe  Mines,  with  the  encouraging  support  of  its  Mongolian  employees,
suppliers  and  contractors,  has  expressed  its  concern  to  all  Members  of
Parliament,  the  Government's  Cabinet and the  President  about the  potential
adverse  impacts on the cost of, and timing  for,  the Oyu Tolgoi  Project  that
would result from any further  delays in the  parliamentary  review and approval
process.  Without an  approved  Investment  Agreement,  further  progress on the
project remains uncertain.

NEW GOLD- AND  MOLYBDENUM-RICH  HERUGA  DEPOSIT  DISCOVERED  BY  IVANHOE  ON THE
JAVKHLANT  CONCESSION OF THE ENTREE GOLD-IVANHOE MINES'  JOINT-VENTURE  PROPERTY
ADJOINING THE SOUTHERN BOUNDARY OF OYU TOLGOI

Ivanhoe  Mines  completed  approximately  64,000  metres of  drilling on the Oyu
Tolgoi  Project during 2007.  This included  37,500 metres  specifically  on the
Heruga  Deposit,   located  within  the  Javkhlant   concession  of  the  Entree
Gold-Ivanhoe  Mines'  earn-in  joint-venture  property  adjoining  the  southern
boundary of Oyu Tolgoi.  Heruga  remains open at both ends and, in part,  on the
southeastern side; ongoing drilling is expanding the mineralization.

In March 2008,  Ivanhoe  Mines  announced  the first  resource  estimate for the
Heruga Deposit.  The deposit is estimated to contain an inferred resource of 760
million tonnes grading 0.48% copper, 0.55 g/t gold and 142 ppm molybdenum, for a
copper equivalent grade of 0.91%, using a 0.60% copper equivalent cut-off grade.
Based on this initial  estimate,  the Heruga  Deposit is estimated to contain at
least eight billion  pounds of copper and 13.4 million  ounces of gold.  Using a
higher cut-off grade of 1% copper equivalent, Heruga contains inferred resources
of 210 million tonnes grading 0.57% copper, 0.97g/t gold and 145 ppm molybdenum,
totalling 2.6 billion pounds of copper and 6.4 million ounces of gold.

Thirty-four  drill holes  (including  daughter holes) on nine sections spaced at
150-300-metre intervals, for a combined strike length of 1,800-metres, were used
in the  resource  estimate.  The deposit is open ended,  with one rig  currently
drilling on the  northern-most  section of the deposit,  150 metres south of the
Oyu Tolgoi boundary, in significant copper/gold mineralization.

Extending Heruga northward,  the Induced Polarization (IP) data, which have been
a good  indicator for the  mineralization,  suggest that the  mineralized  block
between  the two Bor  Tolgoi  faults  could  extend  an  additional  500  metres
northeast onto the 100% Ivanhoe  Mines-owned Oyu Tolgoi mining licence.  Of even
greater  interest,  there  are  three  northeast-trending,   post-mineral  fault
structures  that cut across the  northern end of the  deposit.  Ultimately,  the
deposit may extend  approximately four kilometres further north, to the southern
end  of the  Southwest  and  South  Oyu  deposits,  which  abut a  similar-aged,
east-west  fault referred to as the Solongo Fault.  The IP shows a broad zone of
increased chargeability along the four-kilometre trend.

The  discovery of this new deposit  attests to the  potential  of the  remaining
Ivanhoe Mines land area along the Oyu Tolgoi  mineralized  trend that has yet to
be explored by deep drilling.


                                       4
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


The Oyu Tolgoi  structural trend, as currently  defined,  now has a total strike
length in excess of 20  kilometres,  encompassing  Oyu  Tolgoi in the centre and
extensions onto the joint  Entree/Ivanhoe  Mines agreement area to the south and
north.  From the Heruga Deposit in the south,  the trend now extends through the
Oyu  Tolgoi  deposits  to  the  Ulaan  Khud,  or  Airport  North  Zone,  located
approximately 10 kilometres north-northeast of the Hugo Dummett Deposit.

In March 2008,  Ivanhoe Mines advised Entree Gold that it had incurred in excess
of $27.5 million in exploration expenditures on the Entree Gold-Ivanhoe Mines JV
agreement  areas and  therefore  has earned a 60%  interest  in all  minerals --
including the Heruga  Deposit -- on the Javkhlant  exploration  tenement and the
northern  extension  of the Hugo  Dummett  North  Deposit on the  Shivee  Tolgoi
exploration  tenement.  Ivanhoe  Mines  intends to  continue  incurring  earn-in
expenditures  in  accordance  with the terms of the JV agreement to increase its
participating interest in the project. Subject to Ivanhoe Mines spending a total
of $35 million on exploration  and/or  development on the JV properties prior to
November 2012,  Ivanhoe Mines will earn a  participating  interest of 80% in all
minerals  extracted  below a  sub-surface  depth of 560  metres on the  optioned
property and a 70% participating interest in all minerals extracted from surface
to a depth of 560 metres.

Ivanhoe Mines directly held  approximately  14.8% of the issued and  outstanding
share  capital of Entree,  in addition to the earn-in  rights,  at December  31,
2007.


MONGOLIA

COAL PROJECTS

SOUTHGOBI ENERGY RESOURCES (80.5% OWNED)

1. SOUTHGOBI  ENERGY PREPARING TO BEGIN OPEN-PIT COAL MINING AT ITS OVOOT TOLGOI
MINE IN MONGOLIA

SouthGobi Energy Resources Ltd. (SouthGobi) expects to begin mining at its Ovoot
Tolgoi Coal Project in southern  Mongolia in Q2'08.  The first shipments of coal
to markets in China are expected during Q3'08.

SouthGobi  has taken  delivery of a fleet of  surface-mining  equipment  for the
Ovoot Tolgoi Project.  The equipment,  valued at approximately  $16 million,  is
being  used for  pre-development  activities  and will be used for mining at the
open pit once operations commence.

On  September  11,  2007,  SouthGobi  received  official  notification  from the
Government  of  Mongolia  that it had  been  granted  a mining  licence  for its
open-pit  coal  mine at Ovoot  Tolgoi,  which is  approximately  950  kilometres
south-west of Ulaanbaatar and within 45 kilometres of the border with China. The
mining  licence for Ovoot Tolgoi covers an area of 9,308  hectares  encompassing
the West and Southeast  pits, as well as the airport.  A 30-year  Mining Licence
Certificate,  dated  September  20,  2007,  was  received  on  October  1, 2007.
SouthGobi is expecting to receive the Permit to Mine in Q2'08.


                                       5
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


Capital costs to start production at Ovoot Tolgoi are estimated at approximately
C$45  million.  The  engineering  and design for a permanent  camp,  maintenance
facilities and offices has been completed and  construction is expected to start
in Q2'08.

2.  INITIAL  RESOURCE  ESTIMATE  FOR  SOUTHGOBI'S  TSAGAAN  TOLGOI COAL  PROJECT
IDENTIFIES A POTENTIAL SOURCE OF COAL FOR A COAL-FIRED POWER PLANT AT OYU TOLGOI

In  February  2008,  SouthGobi  announced  that  it  had  received  an  initial,
independent National Instrument (NI) 43-101-compliant  resource estimate for its
Tsagaan Tolgoi coal project in southern  Mongolia.  The project contains initial
measured  plus  indicated  coal  resources  of  36.4  million  tonnes,  with  an
additional inferred coal resource of approximately nine million tonnes.

The  exploration  work  supporting  the Tsagaan  Tolgoi  resource  estimate  has
successfully  achieved its limited  objective of  identifying  coal resources of
sufficient  quality and quantity  (approximately  25 million  tonnes) to support
power generation for the Oyu Tolgoi Project, 115 kilometres to the east. Further
exploration is planned in 2008.

SOUTHGOBI  ENERGY CLOSES EQUITY  FINANCINGS  THAT HAVE RAISED C$117.9 MILLION IN
2008

SouthGobi has completed three private equity financings in 2008 to raise a total
of C$117.9  million.  The proceeds from these  offerings will be used to finance
initial  development  of an open-pit  coal mine at the Ovoot Tolgoi coal project
and to finance  additional  drilling  and  engineering  focused on  developing a
potential  underground coal mine at Ovoot Tolgoi.  Proceeds also will be used to
explore and develop SouthGobi's other coal and mineral projects, to identify and
investigate new projects and for general corporate and administrative purposes.

Concurrent  with the closing of the first and second  placements,  Ivanhoe Mines
converted its 25.6 million  preferred  shares and  convertible  debt into common
shares  of  SouthGobi.  Ivanhoe  Mines  currently  owns  approximately  80.5% of
SouthGobi's issued and outstanding share capital.


CHINA

1. IVANHOE MINES

EXPLORATION  RESUMED IN NORTHERN CHINA,  FOCUSING ON  HIGH-QUALITY  PROJECTS FOR
ACQUISITION

Reconnaissance  field  exploration  re-commenced  in March 2007,  focused on the
western Gobi region of China's Inner Mongolia  Autonomous Region and surrounding
provinces,  and  continued  until the end of the  fourth  quarter.  The  program
consisted  of  the  field  geological   assessment  of  more  than  50  licenced


                                       6
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


intrusive-related  and  breccia-hosted  gold,  silver and copper  deposits,  and
involved  detailed data reviews,  field  traverses and systematic  rock-chip and
channel sampling of all properties.

The aim of the program has been to identify high-quality, semi-advanced projects
for acquisition through joint-venture formation with, or direct purchase from,
the existing licence holders.

2. JINSHAN GOLD MINES (42.0% OWNED)

GOLD PRODUCTION COMMENCED IN 2007 AT CSH 217 MINE

In July 2007,  Jinshan Gold Mines  (Jinshan)  announced the pouring of the first
500-ounce gold dore bar at the CSH 217 Gold Mine in Inner Mongolia,  China.  The
pouring marked the start of pre-commercial production at the mine.

Gold  production  totalled  29,900 ounces from the start-up on July 31, 2007, to
the end of February 2008. During this period, gold sales totalled $22.3 million,
at an  average,  unhedged  price of $798 per  ounce.  The mine is  operating  at
approximately  50% of its design capacity,  with leaching slowed during start-up
and through the first winter of operation.


AUSTRALIA

CLONCURRY IOCG PROJECT EXPANDING EXPLORATION

In 2007, Ivanhoe Mines spent $22.1 million on the Cloncurry Project (compared to
$2.2 million in 2006),  having  steadily  increased  exploration  efforts at the
Cloncurry  Project  during  the  year.  Ivanhoe  Mines is  continuing  to assess
financing alternatives for Cloncurry.

Styles of mineralization on the Cloncurry Project include iron-oxide-copper-gold
(IOCG) at Mt. Elliott;  IOCG  mineralization with associated uranium at Amethyst
Castle;  and  copper  hosted  in  shales  and  siltstones  at Mt Dore.  Results,
particularly at Mt. Dore and Mt. Elliott, are very encouraging.  Recent drilling
has  indicated  that  mineralization  at the  Swan  and  Swell  zones,  and  the
previously  mined  Mt.  Elliott  and  Corbould  zones,  are all part of the same
mineralized system now referred to as the Mt. Elliott system.

THE MT. DORE PROJECT

Mt. Dore is the most advanced  project on the property and provides the earliest
opportunity for copper production.  Significant non-NI 43-101-compliant  mineral
resources  have been  previously  declared at the prospect  and vertical  infill
drilling to  re-establish  a valid NI  43-101-compliant  resource  commenced  in
Q3'07.  This drilling program initially was planned to comprise 19 holes, but in


                                       7
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


Q4'07 was extended to 27 holes totalling  9,750 metres.  A total of 4,290 metres
(11 holes) was completed by the end of 2007.

Secondary  copper  within this system is hosted within  east-dipping  shales and
siltstones overlain by granites. The sediments are locally brecciated. Copper is
mostly in the form of chalcocite  and  chrysocolla.  The zone of  mineralization
(defined  using a 0.25%  copper  cut-off)  has a strike  length  of at least 600
metres and dips to the east at  approximately  40(0).  The  central  part of the
mineralized zone is thicker, wider and defined for at least 400 metres down-dip.
The  mineralized  zone at surface in the central part is generally from 25 to 50
metres  thick,  thickening  to more than 100  metres  at  depth.  Mineralization
remains open along strike and at depth.

THE MT. ELLIOTT PROJECT

A total of 67 diamond  drill-holes,  totalling 59,029 metres,  were completed on
the Mt. Elliott IOCG project in 2007. Drilling in Q1'07 focused on extending the
mineralization  at the Swan Zone. By Q2'07,  there were six rigs at Mt. Elliott;
work  during  this  quarter  included  testing  the  Swell  Zone  with a view to
establishing its  relationships  to the Swan and Elliott zones.  There currently
are four rigs on site.

Extensive  modelling  of the Mt.  Elliott  drill data was  carried out in Q4'07,
constructing  shells using 0.25%,  0.5%, 1% and 2%  copper-equivalent  cut-offs.
This   work   indicated   that  the   Swell   Zone  is  a   relatively   planar,
northwest-striking  zone that dips steeply to the northeast.  It is sub-parallel
to, and located  immediately  southwest of, the Mt. Elliott Zone. The Swan Zone,
west of Swell and about 750 metres west of the Mt.  Elliott  Zone, is flat-lying
at surface and dips steeply to the north. The deeper, steeply-dipping section of
the Swan Zone is  northwest  of,  and along the  projected  strike of, the Swell
Zone.  Swell remains open to the southeast,  while the  steep-dipping  Swan Zone
remains  open to the  northwest.  Both zones are open at depth.  Drilling at the
Swan Zone has indicated  that the system  extends to at least 1,200 metres below
surface.  The Mt.  Elliott  system has a strike of at least 1.3  kilometres  and
covers an area of more than one square kilometre.

In  October  2007,  Ivanhoe  Mines  announced  the  discovery  of a  significant
high-grade  (above  2%  copper-equivalent  cut-off)  zone  of  copper  and  gold
mineralization  on the western margin of the Swan Zone. More recent drilling and
modelling  indicates  the Swan  high-grade  zone (SHGZ) is an  L-shaped  feature
comprising an eastern,  upper  vertical zone  connected to a larger,  flat-lying
section of the high-grade zone. The flat-lying  section of the SHGZ is more than
300 metres long (from west to east),  40 metres high in the central  part and up
to 70 metres  across  (north to  south).  The top of the  flat-lying  section is
located at about 550 metres below surface.

The tenor and thickness of the high-grade  mineralization  at Swan appears to be
superior to that  previously  mined at the former Mt.  Elliott Mine and there is
potential for further large,  high-grade mineralized zones in and around the Mt.
Elliott system.  Ivanhoe Mines is conducting an aggressive  drilling campaign to
explore  the  immediate  area  around  the SHGZ to expand the size and to better
understand the structural  controls of the  mineralization.  A pattern of infill
vertical  drilling  to achieve a mineral  resource on this zone is underway as a
priority undertaking and will be completed in 2008.


                                       8
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


KAZAKHSTAN

PROGRESS ON LARGE-SCALE ROTARY-KILN TECHNOLOGY  DEMONSTRATION PLANT AT BAKYRCHIK
GOLD PROJECT

Ivanhoe Mines,  which acquired a majority interest in the Bakyrchik Gold Project
in Kazakhstan in 1996, has reached  agreement with Kazakh  partners,  subject to
government approval, to acquire additional gold assets in Kazakhstan and advance
the mine to  full-scale  production.  Ivanhoe  Mines  is  continuing  to  assess
financing alternatives for the Bakyrchik Project.

Construction of a rotary-kiln  technology  demonstration plant began in 2007 and
is scheduled for  completion  early in Q3'08.  The  demonstration  plant will be
capable of processing  100,000  tonnes of ore per annum,  using a  40-metre-long
rotary-kiln  to  oxidize  the  ore,   followed  by  conventional   grinding  and
cyanidation.  Bakyrchik has a stockpile of  approximately  100,000 tonnes of ore
grading 8.17 grams of gold per tonne that will be run through the  demonstration
plant to confirm metallurgical parameters.

Construction of the plant currently involves seven major on-site contractors and
10 off-site equipment fabricators. Construction activities have commenced on all
major areas and  infrastructure.  Most purchase orders for the major  mechanical
equipment have been placed. It is expected that the demonstration  plant will be
completed at the end of Q2'08, with  commissioning  commencing in Q3'08. This is
due largely to the competition for  contracting  resources in Kazakhstan,  which
reflects strong economic  growth and high levels of construction  activity.  The
work plan was  revised  and  submitted  to the  Ministry  of Energy and  Mineral
Resources in December for approval;  the plan  requested an  additional  year to
achieve the goal of a 900,000-tonne-per-annum industrial plant.

Discussions  were  initiated with a contractor  that  specializes in underground
mining.  It is expected that the  discussions  will continue to analyze the most
cost-effective and efficient way to commence mining activities in 2008.


FINANCIAL RESULTS

Ivanhoe  Mines is  engaged  primarily  in  exploration  activities,  although  a
significant   portion  of  its  expenditures   relate  directly  to  development
activities  at  its  Oyu  Tolgoi  Project.  Exploration  costs  are  charged  to
operations  in the  period  incurred  and often  constitute  the bulk of Ivanhoe
Mines'  operating  loss for that period.  It is expected that Ivanhoe Mines will
commence  capitalizing Oyu Tolgoi development costs once an Investment Agreement
is finalized with the Government of Mongolia.


                                       9
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


In 2007,  Ivanhoe  Mines  recorded  a net loss of $457.7  million  (or $1.22 per
share),  compared to a net loss of $198.7  million (or $0.59 per share) in 2006,
representing a $259.0 million increase.  Included in the 2007 net loss is $304.0
million  in  exploration  expenses,  an  increase  of $91.0  million  over 2006.
Included  in  exploration   expenses  are  shaft  sinking  and  engineering  and
development  costs for the Oyu Tolgoi  Project  that have been  expensed and not
capitalized.  Results  for the year  also  were  affected  by a  $134.3  million
write-down  of an  investment  held for  sale,  a $24.5  million  write-down  of
asset-backed  commercial  paper,  offset by an $11.5 million increase in foreign
exchange  gains  and a  $12.3  million  increase  in  income  from  discontinued
operations.

At December 31, 2007, consolidated working capital was $65.7 million,  including
cash of $145.7 million, compared with working capital of $364.7 million and cash
of $363.6 million at December 31, 2006.




                                      10
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


--------------------------------------------------------------------------------
INDEX
--------------------------------------------------------------------------------

The MD&A is comprised of the following sections:

   1.  Selected Annual Financial Information

   2.  Review of Operations

       A. Exploration Activities

       B. Investment Held for Sale

       C. Discontinued Operations

       D. Administrative and Other

   3.  Selected Quarterly Data

   4.  Fourth Quarter

   5.  Liquidity and Capital Resources

   6.  Share Capital

   7.  Outlook

   8.  Off-Balance-Sheet Arrangements

   9.  Contractual Obligations

   10. Changes in Accounting Policies

   11. Critical Accounting Estimates

   12. Recent Accounting Pronouncements

   13. Risks and Uncertainties

   14. Related-Party Transactions

   15. Disclosure Controls and Procedures

   16. Management's Report on Internal Control over Financial Reporting

   17. Qualified Persons

   18. Oversight Role of the Audit Committee

   19. Cautionary Statements

   20. Forward-Looking Statements

   21. Management's Report to Shareholders


                                      11
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


--------------------------------------------------------------------------------
SELECTED ANNUAL FINANCIAL INFORMATION
--------------------------------------------------------------------------------

This selected financial information is in accordance with U.S. GAAP as presented
in the annual consolidated financial statements.

($ in millions of U.S. dollars, except per share information)

<TABLE>
<CAPTION>
                                                                         Years ended December 31,
                                                                   2007           2006            2005
===========================================================================================================
<S>                                                               <C>             <C>             <C>

Exploration expenses                                               $ (304.0)      $ (213.0)       $ (133.3)
General and administrative                                            (27.1)         (28.2)          (17.7)
Foreign exchange gains                                                 11.9            0.4             7.8
Share of income from investment held for sale                           0.4           18.5            23.0
Write-down of carrying value of investment held for sale             (134.3)           0.0             0.0
Write-down of carrying value of other long-term investments           (24.5)           0.0             0.0

Net loss from continuing operations                                $ (489.6)      $ (218.3)       $ (125.7)
Net income from discontinued operations                                31.9           19.6            35.9
-----------------------------------------------------------------------------------------------------------
Net loss                                                           $ (457.7)      $ (198.7)        $ (89.8)
-----------------------------------------------------------------------------------------------------------

Net loss per share from continuing operations                       $ (1.31)       $ (0.65)        $ (0.41)
Net income per share from discontinued operations                    $ 0.09         $ 0.06          $ 0.12
===========================================================================================================
Net loss per share                                                  $ (1.22)       $ (0.59)        $ (0.29)
===========================================================================================================

===========================================================================================================
Total assets                                                        $ 530.2        $ 703.2         $ 396.8
===========================================================================================================

===========================================================================================================
Total long-term financial liabilities                               $ 142.9          $ 5.1           $ 5.1
===========================================================================================================
</TABLE>



                                      12
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


-------------------------------------------------------------------------------
REVIEW OF OPERATIONS
--------------------------------------------------------------------------------

Ivanhoe Mines is an  international  mining company with  operations  focussed in
Central Asia and the Asia Pacific region. Ivanhoe Mines' core assets are its Oyu
Tolgoi   Copper  and  Gold   Project  in  southern   Mongolia,   its   Cloncurry
Iron-Oxide-Copper-Gold  Project in Queensland,  Australia and its Bakyrchik Gold
Project in Kazakhstan.  Ivanhoe Mines also owns 80.5% of SouthGobi. SouthGobi is
developing the Ovoot Tolgoi Coal Project in southern Mongolia.

Ivanhoe  Mines is  engaged  primarily  in  exploration  activities,  although  a
significant   portion  of  its  expenditures   relate  directly  to  development
activities  at  its  Oyu  Tolgoi  Project.  Exploration  costs  are  charged  to
operations  in the  period  incurred  and often  constitute  the bulk of Ivanhoe
Mines'  operating  loss for that period.  It is expected that Ivanhoe Mines will
commence  capitalizing Oyu Tolgoi development costs once an Investment Agreement
is finalized with the Government of Mongolia.

In 2007,  Ivanhoe  Mines  recorded  a net loss of $457.7  million  (or $1.22 per
share),  compared to a net loss of $198.7  million (or $0.59 per share) in 2006,
representing a $259.0 million increase.  Included in the 2007 net loss is $304.0
million  in  exploration  expenses,  an  increase  of $91.0  million  over 2006.
Included  in  exploration   expenses  are  shaft  sinking  and  engineering  and
development  costs for the Oyu Tolgoi  Project  that have been  expensed and not
capitalized.  Results  for the year  also  were  affected  by a  $134.3  million
write-down  of  investment  held for sale, a $24.5  million  write-down of asset
backed  commercial paper offset by an $11.5 million increase in foreign exchange
gains and a $12.3 million increase in income from discontinued operations.

A.   EXPLORATION ACTIVITIES

Summary of exploration expenditures by location:

                                              Years ended December 31,
                                           2007          2006         2005
=============================================================================
Exploration expense ($ in millions)        $ 304.0      $ 213.0      $ 133.3

Percentage allocation
  Mongolia                                   90.5%        93.1%        92.0%
  Australia                                   7.3%         1.0%         1.1%
  China                                       0.3%         4.3%         3.3%
  Indonesia                                   1.2%         0.4%         0.0%
  Philippines                                 0.3%         0.3%         0.0%
  Bulgaria                                    0.0%         0.3%         1.8%
  Other                                       0.4%         0.6%         1.8%
=============================================================================
                                            100.0%       100.0%       100.0%
=============================================================================

In 2007,  Ivanhoe Mines expensed  $304.0 million in exploration  and development
activities,  compared  to  $213.0  million  in  2006.  In  2007,  Ivanhoe  Mines
exploration  activities were focused on the Oyu Tolgoi Project and the Cloncurry
Project in Queensland,  Australia.  The majority of the $304.0 million was spent


                                      13
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


on the  Mongolian  projects  ($274.9  million) as well a  significant  amount at
Cloncurry ($22.1 million).


MONGOLIA

Exploration expense for Mongolia in 2007 consisted of the following exploration
and development costs:

MONGOLIA EXPLORATION EXPENSES
<TABLE>
<CAPTION>
                                                       2007           % of Total     2006        % of Total
===========================================================================================================
<S>                                                   <C>            <C>            <C>         <C>
($ in million's)

Oyu Tolgoi
   Concentrator and Infrastructure Engineering          $   64.0             23.3%   $   28.9         14.6%
   Site Construction                                        80.7             29.4%       53.2         26.8%
   Shaft No. 1 Sinking                                      44.1             16.0%       35.5         17.9%
   Exploration                                              14.7              5.3%       14.2          7.2%
   Owner's Costs (a)                                        42.0             15.3%       44.0         22.2%
                                                        --------                     --------
                                                           245.5                        175.8
Coal Division (a)                                           14.8              5.4%       10.1          5.1%
Other Mongolia Exploration (including SouthGobi) (a)        14.6              5.3%       12.3          6.2%
-----------------------------------------------------------------------------------------------------------
                                                        $  274.9            100.0%   $  198.2        100.0%
===========================================================================================================
</TABLE>
(a) Includes non-cash stock-based compensation.

Exploration  and  development  expenditures  capitalized in 2007 totalled $127.1
million,  compared to $34.3  million in 2006.  During 2007,  the $127.1  million
capitalized  related  mainly to $112.5  million  spent at Oyu Tolgoi for surface
infrastructure  for Shaft No. 1 and No. 2, camp construction  costs and payments
for long-lead time equipment items such as the concentrator.

OYU TOLGOI COPPER-GOLD PROJECT

The Oyu Tolgoi Project consists of two groups of deposits -- the Southern Oyu
Deposits and the Hugo Dummett Deposits -- that are contained within an aggregate
area of approximately 6.3 kilometres north-south by 3.0 kilometres east-west.

OYU TOLGOI PROJECT AWAITING AN APPROVED INVESTMENT AGREEMENT TO BEGIN FULL-SCALE
CONSTRUCTION

On April 10, 2007, after several months of  negotiations,  Ivanhoe Mines and its
strategic  partner,  Rio Tinto,  announced  that they had reached  agreement  in


                                      14
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


principle with the Government of Mongolia's  Working Group on a draft Investment
Agreement  designed  to  stabilize  tax and fiscal  issues and guide the planned
development and long-term operation of the Oyu Tolgoi Project.

Following a Cabinet  review in June 2007,  the draft  Investment  Agreement  was
approved for  presentation  to  Mongolia's  State Great Hural  (Parliament)  and
distributed  within  Parliament in July 2007.  Consideration and approval by the
Parliament of the draft  Investment  Agreement had been expected to be the final
step in the process of  reaching an  agreement  in  accordance  with the revised
Minerals Law enacted by Parliament in 2006.

The Parliament's  Standing Committee on Economics discussed the draft Investment
Agreement  on August 6 and 7,  2007.  Although  Parliament  extended  its spring
session  into  August and  September,  the draft  Investment  Agreement  was not
formally  discussed in  Parliament  prior to the  adjournment  of the session in
September 2007.

During the fourth quarter of 2007, members of the Committee visited large-scale,
international  mining  operations to gather  information about mining issues and
approval  processes  that  guide  mine  developments  in  other  countries.  The
Committee had been given the  responsibility  to review and report to Parliament
on the draft  Investment  Agreement.  Mines  owned or operated by Rio Tinto were
among those visited by the MPs.

While the Committee's  travel and review was underway,  the governing  Mongolian
People's  Revolutionary  Party (MPRP) voted to replace its leader,  resulting in
the installation of a new Prime Minister and formation of a new cabinet. The new
Government  assumed  office on December  13,  2007.  On the same day,  new Prime
Minister  Sanjaa  Bayar  said  that  any  review  and  evaluation  of the  draft
Investment  Agreement by the Government would be more reliable if the Government
retained the services of an internationally  recognized,  independent  financial
organization  to assist  in  concluding  a "world  standard"  agreement  for Oyu
Tolgoi.  He withdrew the draft Investment  Agreement from Parliament to end what
he said was a legislative  stalemate -- and said that finalizing an agreement to
permit the  construction  of Oyu Tolgoi to proceed  was one of his  Government's
priorities  before the national  general  election  scheduled for June 29, 2008.
(The MPRP currently  holds a narrow  majority in the  Parliament,  with 39 of 76
seats.)

The  Government  subsequently  declared  that it  intended  to make a series  of
revisions to Mongolia's  Minerals Law before attempting to complete an agreement
for Oyu Tolgoi.  It now appears likely that proposed  amendments to the Minerals
Law will be discussed in the coming spring session of Parliament  that is set to
begin April 7, 2008.

Ivanhoe Mines is monitoring the  deliberations  of Parliament and actions by the
Government of Mongolia, and is continuing to assess the implications for the Oyu
Tolgoi development  schedule.  A final Investment Agreement also remains subject
to approvals  by the  respective  Boards of  Directors of Ivanhoe  Mines and Rio
Tinto.


                                      15
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


Ivanhoe  Mines,  with  the  encouraging  support  of  its  Mongolian  employees,
suppliers  and  contractors,  has  expressed  its  concern  to  all  Members  of
Parliament,  the  Government's  Cabinet and the  President  about the  potential
adverse  impacts on the cost of, and timing  for,  the Oyu Tolgoi  Project  that
would result from any further  delays in the  parliamentary  review and approval
process.  Without an  approved  Investment  Agreement,  further  progress on the
project remains uncertain.

UNDERGROUND  DEVELOPMENT  PROGRAM  ADVANCING AT  HIGH-GRADE  HUGO DUMMETT  NORTH
DEPOSIT IN PREPARATION FOR PRODUCTION

On January 27, 2008, the Oyu Tolgoi team  celebrated the completion of Shaft No.
1. The completed shaft is 6.7 metres in diameter,  concrete lined,  with a final
depth of 1,385 metres. It is the deepest underground shaft in Mongolia.  Lateral
development  activities  on the  1,300-metre  level have  commenced,  which will
involve  tunnelling into Oyu Tolgoi's Hugo Dummett North high-grade  underground
copper  and gold  deposit,  facilitating  access  for  exploration  and  initial
production  from  the  underground  mine.  The  shaft  eventually  will  help to
ventilate the deep mine.

The Oyu Tolgoi site infrastructure was significantly expanded in 2007, including
the  construction  of a  centralized  camp and the  supply  of power  and  other
utilities.  Site efforts also focused on the sinking of Shaft No. 1,  completion
of sub-surface works at Shaft No. 2 and the winterization of the camp.

Preliminary  sub-surface  work at Shaft No. 2 began in mid-2007 and, as planned,
paused for winter in  mid-December.  Progress in 2007  included  completing  the
concrete  headframe to 14 metres below grade and extending the conveyor  gallery
and  ventilation  system.  Shaft No. 2 is  planned  to be the  initial,  primary
underground production and service shaft at Oyu Tolgoi.

At year  end,  engineering  of the  Oyu  Tolgoi  concentrator  had  reached  80%
completion and site excavation work was  approximately  25% complete.  The focus
for 2008 is to maintain procurement for the concentrator equipment.

The camp facilities at Oyu Tolgoi have been increased  throughout 2007. The main
camp is fully  integrated  to a centralized  power,  communication,  water,  and
sewage system.  Long term generator  power,  multiple water wells,  and a sewage
treatment  plant  create a viable  camp suited to the Gobi's  harsh  conditions.
Additional underground utilities have been installed to support future expansion
of the camp to support full  construction.  The total installed  capacity of the
three camps stands at 2,500 beds.

Infrastructure  engineering was completed or commenced on 27 different packages,
including a diesel  power  station,  operations  water  supply and a road to the
border with China. The principal  activities included engineering for the diesel
power  station,  which  will  provide  construction  power to the  project,  and
engineering  on the Gunii  Hooloi  bore  field,  which will serve as a long-term
water  source  for the  mine.  Engineering  design  is  continuing  in 2008  and
implementation options will be assessed.


                                      16
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


The design for a coal-fired  power plant was awarded in 2007 and  engineering is
underway,  with the first phase expected to be completed by May 2008.  Operation
of the power plant will support the concentrator schedule.

The Oyu Tolgoi  Project  posted an  outstanding  health and safety  achievement,
completing  the entire year without a lost-time  incident  (LTI) at the site and
extending the LTI-free period from December 18, 2006.  Employees and contractors
on site worked a total of 3.4 million hours during 2007.

OYU TOLGOI STRATEGIC PLANNING ADVANCES

Ivanhoe Mines has continued to improve the overall  strategy for the development
of Oyu Tolgoi and has advanced the level of engineering  and procurement for the
Project.

An updated Integrated  Development Plan (2008 IDP) is nearing completion,  which
will address all known factors  affecting  the project.  The updated IDP will be
finalized  and  released  after  an  acceptable  Investment  Agreement  has been
negotiated  with the  Government  of  Mongolia  and  approved  by all parties --
including  the  Ivanhoe  Mines  Board of  Directors.  The  unprecedented  global
minerals  boom,  with its  attendant  record-high  market  prices,  has produced
escalating  capital-cost  pressures on planned mining projects around the world.
The  2008  IDP  will  take  these   developments   into  account  and  introduce
compensating   initiatives  that  would  lead  to  higher  overall  life-of-mine
production at Oyu Tolgoi,  with more metal being produced  earlier in the mine's
life than was  envisioned  in the 2005 IDP.  The 2008 IDP also will  advance the
level of the accuracy of related studies to a bankable stage.

The main changes from the 2005 IDP are expected to be:

   o  Increasing  mill  throughput  to a nominal  100,000 tpd from the  original
      85,000 tpd outlined in the 2005 IDP.

   o  The  construction of a 3-x-150 MW coal fired power station in Mongolia for
      the project.  The 2005 IDP  envisioned  that power could be imported  from
      China's Inner  Mongolian power grid at an expected price of $0.0426 c/kWh.
      The current  plan sees a power plant  constructed  at the site  delivering
      power at a long term average of $0.0233 c/kWh.

   o  Optimisation   of  underground   production  to  prioritize   higher-grade
      material.

   o  Updating of all major  capital and  operating  estimates to reflect  scope
      changes and escalation.

   o  A review of all economic  drivers,  including  metal  prices,  recoveries,
      selling assumptions etc.

   o  The impact of changes in Mongolian laws.

   o  The conclusion of an Investment  Agreement  similar to the draft agreement
      that was negotiated with a government-appointed working group in 2007.

Work has been  prepared  assuming  that  Ivanhoe  Mines will  continue to retain
equipment  previously  purchased  and that  Ivanhoe  Mines will  purchase  other
long-lead-time  equipment  as noted in the  development  plan.  This  assumption


                                      17
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


depends  on a  tentative  commitment  with Rio Tinto  regarding  the  funding of
equipment  purchases  while Ivanhoe  Mines and Rio Tinto  continue to engage the
Government of Mongolia in discussions on an Investment Agreement.

In the event that an agreement is not reached with Rio Tinto, Ivanhoe Mines will
assess whether it is able to acquire and maintain existing  equipment  purchases
without Rio Tinto's  support.  Should  Ivanhoe Mines be unable to, or decide not
to, acquire or continue to hold long-lead-time equipment that has been purchased
or  committed  to, the draft 2008 IDP will need to be  modified  to reflect  the
corresponding  changes to the mine plan and the impact on the Oyu Tolgoi project
economics.

NEW GOLD-AND  MOLYBDENUM-RICH  COPPER HERUGA DEPOSIT DISCOVERED ON THE JAVKHLANT
CONCESSION OF THE ENTREE  GOLD-IVANHOE MINES'  JOINT-VENTURE  PROPERTY ADJOINING
THE SOUTHERN BOUNDARY OF OYU TOLGOI

Ivanhoe  Mines  completed  approximately  64,000  metres of  drilling on the Oyu
Tolgoi  Project during 2007.  This included  37,500 metres  specifically  on the
Heruga  Deposit,   located  within  the  Javkhlant   concession  of  the  Entree
Gold-Ivanhoe  Mines'  earn-in  joint-venture  property  adjoining  the  southern
boundary of Oyu Tolgoi.  Heruga  remains open at both ends and, in part,  on the
southeastern side; ongoing drilling is expanding the mineralization.

In March 2008,  Ivanhoe  Mines  announced  the first  resource  estimate for the
Heruga Deposit.  The deposit is estimated to contain an inferred resource of 760
million tonnes grading 0.48% copper, 0.55g/t gold and 142 ppm molybdenum,  for a
copper equivalent grade of 0.91%, using a 0.60% copper equivalent cut-off grade.
Based on this initial  estimate,  the Heruga  Deposit is estimated to contain at
least eight billion  pounds of copper and 13.4 million  ounces of gold.  Using a
higher cut-off grade of 1% copper equivalent, Heruga contains inferred resources
of 210 million tonnes grading 0.57% copper, 0.97g/t gold and 145 ppm molybdenum,
totalling 2.6 billion pounds of copper and 6.4 million ounces of gold.

Thirty-four  drill holes  (including  daughter holes) on nine sections spaced at
150-300-metre intervals, for a combined strike length of 1,800-metres, were used
in the  resource  estimate.  The deposit is open ended,  with one rig  currently
drilling on the  northern-most  section of the deposit,  150 metres south of the
Oyu Tolgoi boundary, in significant copper/gold mineralization.

The Oyu Tolgoi  structural trend, as currently  defined,  now has a total strike
length in excess of 20  kilometres,  encompassing  Oyu  Tolgoi in the centre and
extensions onto the joint  Entree/Ivanhoe  Mines agreement area to the south and
north.  From the Heruga Deposit in the south,  the trend now extends through the
Oyu  Tolgoi  deposits  to  the  Ulaan  Khud,  or  Airport  North  Zone,  located
approximately 10 kilometres north-northeast of the Hugo Dummett Deposit.


                                      18
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


The total  Oyu  Tolgoi  Project  resources,  including  those  contained  on the
adjoining Shivee Tolgoi and Javkhlant properties, are as follows:

TOTAL OYU TOLGOI PROJECT  RESOURCES  MARCH  2008(1)(2)
(BASED ON A 0.60% COPPER EQUIVALENT CUT-OFF)(3)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
RESOURCE                           CU         AU        MO       CUEQ(4)       |                                       |
CATEGORY           TONNES          (%)      (G/T)     (PPM)       (%)          |            CONTAINED METAL(5)         |
------------------------------------------------------------------------------------------------------------------------
<S>              <C>               <C>      <C>       <C>         <C>           <C>             <C>           <C>
                                                                                  CU        |       AU     |     CUEQ(4)
                                                                                 (`000 LBS) |    (OUNCES)  |  (`000 LBS)
------------------------------------------------------------------------------------------------------------------------
 Measured          101,590,000      0.64      1.10       -         1.34           1,430,000      3,590,000     3,000,000
 Indicated       1,285,840,000      1.38      0.42       -         1.65          39,120,000     17,360,000    46,770,000
------------------------------------------------------------------------------------------------------------------------
 Measured +      1,387,430,000      1.33      0.47       -         1.63          40,680,000     20,970,000    49,860,000
 Indicated
------------------------------------------------------------------------------------------------------------------------
 Inferred        2,157,130,000      0.80      0.35       50        1.05          38,230,000     24,220,000    50,050,000
------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
     (1) Resource  classifications conform to CIM Standards on Mineral Resources
         and  Reserves  referred  to  in  National  Instrument  43-101.  Mineral
         Resources  that  are not  Reserves  do not have  demonstrated  economic
         viability.  Measured and Indicated Resources are that part of a mineral
         resource for which  quantity and grade can be estimated with a level of
         confidence  sufficient  to  allow  the  application  of  technical  and
         economic  parameters  to support mine  planning and  evaluation  of the
         economic viability of the project. An Inferred Resource is that part of
         a mineral resource for which quantity and grade can be estimated on the
         basis of  geological  evidence  and  limited  sampling  and  reasonably
         assumed,  but not verified,  geological and grade continuity.
     (2) This table  includes  estimated  resources on Entree  Gold's Hugo North
         Extension Deposit and the Heruga Deposit. These Properties are owned by
         Entree Gold but are  subject to earn-in  rights by Ivanhoe  Mines.  The
         estimate  includes  indicated  resources of 117,000,000  tonnes grading
         1.8% copper and 0.61 g/t gold and  inferred  resources  of  855,500,000
         tonnes  grading 0.53% copper and 0.52 g/t gold and a 142ppm  molybdenum
         at a 0.6% cut-off grade on the combined Hugo North Extension and Heruga
         deposits.
     (3) The 0.6% CuEq cut-off has been used to enable  comparison with previous
         disclosures.
     (4) CuEq has been  calculated  using  assumed metal prices  ($1.35/lb.  for
         copper  and  $650/oz  for gold and  $10/lb for  molybdenum);  %CuEq.  =
         Cu+((Au*18.98)+(Mo*0.01586))/29.76.  Mo grades  outside  of Heruga  are
         assumed to be zero for CuEq calculations.  The equivalence  formula was
         calculated  assuming that gold and molybdenum  recoveries  would be 91%
         and copper recovery would be 72%.
     (5) The contained gold and copper  represent  estimated  contained metal in
         the ground and have not been adjusted for the metallurgical  recoveries
         of gold and copper. Differences in measured and indicated totals relate
         to rounding associated with tonnes and grade.

The current inferred  resource  estimate is based on a wide-spaced  pattern that
Ivanhoe Mines believes has not fully delineated the higher-grade gold-rich core.
This may allow for a  significant  increase  in  gold-rich  resources  as infill
drilling is undertaken.

On the southeast side of Heruga, hole EJD0026 was drilled 400 metres east of the
defined mineral  resource to test for a possible Hugo North-like zone that might
have existed  along the eastern  margin of the  deposit.  While the hole did not


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                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


intersect  high-grade  mineralization,  it did encounter 300 metres grading 0.51
g/t gold,  0.33%  copper and 102 ppm  molybdenum,  starting at 1,484 metres down
hole. This included 104 metres at the top of the  intersection  grading 0.55 g/t
gold, 0.56% copper and 233 ppm molybdenum,  followed by 26 metres of dyke and 18
metres grading 1.24 g/t gold,  0.56% copper and 112 ppm molybdenum.  The overall
zone lies down dip,  beyond the projection of the resource block model and, as a
stand-alone  intersection,  was not included in this resource  estimate.  Infill
drilling,  which  confirms grade  continuity  between the  intersection  and the
resource block model,  may  significantly  expand the inferred  resource base in
this area.

The  deposit  is open at both  ends  and,  in part,  on the  southeastern  side.
EJD0028,  which  is  drilling  on  the  northern-most  section,   4759500N,  has
intersected 24 metres starting at 1,118 metres down hole, grading 0.42 g/t gold,
0.71%  copper  and 306 ppm  molybdenum.  The  remaining  assays for the hole are
pending;  however, similar  moderate-to-strong copper mineralization is reported
in the hole to a depth of 1,550 metres.  The hole is 200 metres east of EJD0025,
which was  included in the resource  estimate,  and had an  intersection  of 144
metres starting at 996 metres that averaged 0.20 g/t gold,  0.58% copper and 130
ppm  molybdenum,  followed by 20 metres of barren dyke and 54 metres of 0.15 g/t
gold,  0.56% copper and 232 ppm  molybdenum.  The West Bor Tolgoi  fault,  which
defines the western limit of the currently  defined deposit,  was intersected at
the base of the 52-metre interval.  The East Bor Tolgoi fault, which defines the
eastern limit of the deposit on its northern end, is projected approximately 300
metres further east of the top of the EJD0028 interval reported above.

Extending  Heruga  northward,  the IP data, which have been a good indicator for
the  mineralization,  suggest  that the  mineralized  block  between the two Bor
Tolgoi  faults could extend an  additional  500 metres  northeast  onto the 100%
Ivanhoe Mines owned Oyu Tolgoi mining license.  Of even greater interest,  there
are three northeast-trending,  post-mineral fault structures that cut across the
northern end of the deposit.  Ultimately,  the deposit may extend  approximately
four  kilometres  further north,  to the southern end of the Southwest and South
Oyu deposits,  which abut a  similar-aged,  east-west  fault  referred to as the
Solongo Fault.  The IP shows a broad zone of increased  chargeability  along the
four-kilometre trend.

In March 2008,  Ivanhoe Mines advised Entree Gold that it had incurred in excess
of $27.5 million in exploration expenditures on the Entree Gold-Ivanhoe Mines JV
agreement  areas and  therefore  has earned a 60%  interest  in all  minerals --
including the Heruga  Deposit -- on the Javkhlant  exploration  tenement and the
northern  extension  of the Hugo  Dummett  North  Deposit on the  Shivee  Tolgoi
exploration  tenement.  Ivanhoe  Mines  intends to  continue  incurring  earn-in
expenditures  in  accordance  with the terms of the JV agreement to increase its
participating interest in the project. Subject to Ivanhoe Mines spending a total
of $35 million on exploration  and/or  development on the JV properties prior to
November 2012,  Ivanhoe Mines will earn a  participating  interest of 80% in all
minerals  extracted  below a  sub-surface  depth of 560  metres on the  optioned
property and a 70% participating interest in all minerals extracted from surface
to a depth of 560 metres.

Ivanhoe Mines directly held  approximately  14.8% of the issued and  outstanding
share capital of Entree Gold, in addition to the earn-in rights, at December 31,
2007.

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                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


RIO TINTO PROVIDES $350 MILLION CONVERTIBLE CREDIT FACILITY TO IVANHOE MINES

In  September  2007,  Ivanhoe  Mines  announced  that Rio Tinto would  provide a
convertible  credit  facility  of up to $350  million  to finance  ongoing  mine
development  activities at the Oyu Tolgoi Project pending the finalization of an
Investment  Agreement  between  Ivanhoe Mines and the Government of Mongolia.  A
definitive Credit Agreement was signed in October 2007,  following which Ivanhoe
Mines made an initial  draw  against  the credit  facility of $150  million.  In
January  2008,  Ivanhoe  Mines drew down an  additional  $100  million  from the
facility.

The proceeds of the credit  facility will be used to ensure that  long-lead-time
orders for the manufacture of mining equipment such as trucks,  tires,  electric
motors and ball  mills,  and  development  work on Shafts No. 1 and No. 2 at Oyu
Tolgoi,  remain on schedule  pending a satisfactory  conclusion of an Investment
Agreement with the Mongolian Government.  The Credit Agreement contemplates that
all such development activities and expenditures will be made in accordance with
an Operating Plan and Budget  unanimously  approved by the Ivanhoe Mines and Rio
Tinto representatives on the Oyu Tolgoi Technical Committee.

Amounts  advanced  under the credit  facility  will bear  interest at a rate per
annum equal to the  three-month  London  Inter-Bank  Offered Rate plus 3.3%, and
will mature on September 12, 2010. The  outstanding  principal  amount and up to
$108.0 million in interest are convertible into up to 45.8 million common shares
of  Ivanhoe  Mines at a price of  US$10.00  per share and will be  automatically
converted into common shares upon maturity.

As  part  of  the  credit   facility   transaction,   Rio  Tinto  also  received
share-purchase  warrants  exercisable to purchase up to 35 million common shares
of Ivanhoe  Mines at a price of  US$10.00  per share for a period of five years.
These warrants may be exercised on a basis  proportionate to the amount of funds
drawn down by Ivanhoe Mines under the credit facility, plus interest.

Assuming the completion of the second tranche equity investment  contemplated by
the October 2006 Private Placement Agreement, if Rio Tinto were to fully convert
the maximum  amount  available  for  conversion  under the credit  facility  and
exercise all of its share purchase warrants,  it would hold approximately  256.2
million common shares of Ivanhoe Mines representing 42.1% of Ivanhoe Mines' then
outstanding common shares on a fully diluted basis (43.1% undiluted).

Ivanhoe  Mines and Rio Tinto also agreed to amend  certain  terms of the October
2006  Private  Placement  Agreement.  Rio Tinto now has the right to appoint the
Chairman of the Technical Committee overseeing  development and operation of the
Oyu Tolgoi project in 2009 rather than in 2011 and Rio Tinto's maximum permitted
shareholding in Ivanhoe Mines has been increased to 46.65% from 40%.


                                      21
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                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


MONGOLIA

COAL PROJECTS

SOUTHGOBI ENERGY RESOURCES (80.5% OWNED)

SOUTHGOBI  ENERGY  PREPARING TO BEGIN  OPEN-PIT  COAL MINING AT ITS OVOOT TOLGOI
MINE IN MONGOLIA

SouthGobi  expects to begin  mining at its Ovoot Tolgoi Coal Project in southern
Mongolia in Q2'08.  The first shipments of coal to markets in China are expected
during Q3'08.

SouthGobi  has taken  delivery of a fleet of  surface-mining  equipment  for the
Ovoot Tolgoi Project.  The equipment,  valued at approximately  $16 million,  is
being  used for  pre-development  activities  and will be used for mining at the
open pit once operations commence.

On  September  11,  2007,  SouthGobi  received  official  notification  from the
Government  of  Mongolia  that it had  been  granted  a mining  license  for its
open-pit  coal  mine at Ovoot  Tolgoi,  which is  approximately  950  kilometres
south-west of the Ulaanbaatar and within 45 kilometres of the border with China.
The  mining   licence  for  Ovoot  Tolgoi  covers  an  area  of  9,308  hectares
encompassing  the West and  Southeast  pits,  as well as the airport.  A 30-year
Mining Licence Certificate, dated September 20, 2007, was received on October 1,
2007. SouthGobi is expecting to receive the Permit to Mine in Q2'08.

Capital costs to start production at Ovoot Tolgoi are estimated at approximately
C$45  million.  The  engineering  and design for a permanent  camp,  maintenance
facilities and offices has been completed and  construction is expected to start
in Q2'08.

Regularly scheduled flights to Ovoot Tolgoi's airport from Ulaanbaatar commenced
in December 2007. The flights allow for crew rotation and replenishing supplies.

A new Ovoot Tolgoi  Technical  Report,  dated June 21, 2007 entitled  "Technical
Report - Coal Geology and  Resources - Ovoot Tolgoi  Property - Omnogovi  Aimag,
Mongolia",  containing  the latest  resource  estimate is now available on SEDAR
(www.sedar.com) and SouthGobi's website (www.southgobi.com).


                                      22
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                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


OVOOT TOLGOI UPDATED IN-PLACE COAL RESOURCES SUMMARY(1)

---------------------------------|---------------------------------------------|
       AREA       |   ASTM       |              IN-PLACE RESOURCES (TONNES)    |
                  |   GROUP      |-------------|-----------------|-------------|
                  |              |  MEASURED   |      INDICATED  |   INFERRED  |
-------------------------------------------------------------------------------
 South-East Field | hvB to hvA   | 49,752,000  |    15,987,000   |  6,502,000
-------------------------------------------------------------------------------
    West Field    | hvB to hvA   | 55,144,000  |    28,698,000   | 22,601,000
-------------------------------------------------------------------------------
       TOTAL      |              |          149,580,000          | 29,103,000
--------------------------------------------------------------------------------

1.   Resource  classifications conform to CIM Standards on Mineral Resources and
     Reserves referred to in National Instrument 43-101.  Mineral Resources that
     are not Reserves do not have demonstrated economic viability.  Measured and
     Indicated  Resources are that part of a mineral resource for which quantity
     and grade can be estimated  with a level of confidence  sufficient to allow
     the  application  of  technical  and  economic  parameters  to support mine
     planning  and  evaluation  of the economic  viability  of the  project.  An
     Inferred Resource is that part of a mineral resource for which quantity and
     grade can be  estimated  on the basis of  geological  evidence  and limited
     sampling and  reasonably  assumed,  but not verified,  geological and grade
     continuity.

OVOOT TOLGOI  UNDERGROUND  PROJECT -- THICK SEAMS OF COKING AND SEMI-SOFT  COALS
IDENTIFIED AT DEPTH  PROVIDE  POTENTIAL FOR THE  DEVELOPMENT  OF AN  UNDERGROUND
MINING OPERATION

Preliminary-level  studies to determine the potential for underground  mining of
the Ovoot Tolgoi No. 5 Seam were prepared in 2007.  These studies  addressed the
selection  of an  underground  mining  method,  economics,  and the  geological,
geotechnical,  methane, hydrological, and coal-quality data required to evaluate
development  of detailed mine planning of the No. 5 Seam  resources at intercept
depths of between  250 and 650  metres.  Two  potential  underground  areas were
identified.  Both areas,  the West Field and the Southeast  Field, are contained
within SouthGobi's existing mine license.  The potential  underground mine areas
are  adjacent to the proposed  surface mine for the No. 5 Seam in the  Southeast
and West fields where drilling information was prevalent.

Very  encouraging   initial  geologic  and  analytical  results  from  the  2007
deep-drilling   exploration   program  were   announced  for  the  Ovoot  Tolgoi
underground  coal  project.  The 2007 drill results  identified  direct-shipping
coking and semi-soft coals at depth, beneath the lower boundaries of the planned
open pits at the  Southeast  and West  fields.  The intent of the 2007  drilling
program was to further delineate the structure, quantity and quality of the coal
at depth.

For 2008,  SouthGobi has scheduled an extensive  drill program for the West Area
of the  underground  deposit.  The  drilling  planned  for 2008 will be aimed at
delineating  additional surface resources and providing the basis for an initial
NI  43-101-compliant  resource estimate of the underground coal resource and the
potential  for the  development  of an  underground  mining  operation  at Ovoot
Tolgoi.


                                      23
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                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


INITIAL RESOURCE ESTIMATE FOR SOUTHGOBI'S TSAGAAN TOLGOI COAL PROJECT IDENTIFIES
A POTENTIAL SOURCE OF COAL FOR A COAL-FIRED POWER PLANT AT OYU TOLGOI

In  February  2008,  SouthGobi  announced  that  it  had  received  an  initial,
independent NI  43-101-compliant  resource  estimate for its Tsagaan Tolgoi coal
project in  southern  Mongolia.  The  project  contains  initial  measured  plus
indicated coal  resources of 36.4 million  tonnes,  with an additional  inferred
coal resource of approximately nine million tonnes.

The  exploration  work  supporting  the Tsagaan  Tolgoi  resource  estimate  has
successfully  achieved its limited  objective of  identifying  coal resources of
sufficient  quality and quantity  (approximately  25 million  tonnes) to support
power  generation for the Oyu Tolgoi Project,  115 kilometres  distant.  Further
exploration is planned in 2008.

BEST MONGOLIAN EXPLORATION COMPANY OF 2007

The Mongolian  Government's  Mineral Resources and Petroleum Authority announced
in  January  2008  that  SouthGobi  Sands  LLC,  a  wholly-owned  subsidiary  of
SouthGobi,  was  selected  as  Mongolia's  "Best  Exploration  Company of 2007."
SouthGobi  Sands  received  an  honorary  diploma  citing the  company  "for its
contribution  to the  economy of Mongolia  and the  outstanding  achievement  in
geology and (the) minerals industry".

SOUTHGOBI ENERGY RESOURCES CLOSES EQUITY FINANCINGS THAT HAVE RAISED C$117.9
MILLION IN 2008

SouthGobi has completed three private-equity financings in 2008 to raise a total
of C$117.9  million.  The proceeds from these  offerings will be used to finance
initial  development  of an open-pit  coal mine at the Ovoot Tolgoi coal project
and to finance  additional  drilling  and  engineering  focused on  developing a
potential  underground coal mine at Ovoot Tolgoi.  Proceeds also will be used to
explore and develop SouthGobi's other coal and mineral projects, to identify and
investigate new projects and for general corporate and administrative purposes.

The first placement was for 10,000,000  common shares at C$8.00 per share with a
German  Institutional  Investor.  The second  placement was for 3,500,000 common
shares at C$9.00 per share with two institutional investors. The third placement
was for 711,111 common shares at C$9.00 per share with CEF (Capital Markets).

Concurrent  with the closing of the first and second  placements,  Ivanhoe Mines
converted its 25.6 million  preferred  shares and  convertible  debt into common
shares  of  SouthGobi.  Ivanhoe  Mines  currently  owns  approximately  80.5% of
SouthGobi's issued and outstanding share capital.


                                      24
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                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


MONGOLIA

OTHER COPPER-GOLD EXPLORATION PROJECTS

During 2007 a total of 8,500 metres of  diamond-drilling  was completed on three
projects.  This included 5,150 metres on the Kharmagtai project, 2,250 metres on
Chandman  Uul,  and  1,100  metres on Oyut  Ulaan.  Additionally  a 4,156  metre
trenching program was completed on Chandman Uul.

An extensive  program of IP using a  dipole-dipole  system was also conducted in
2007 on five of the exploration  tenements.  A total of 235 kilometres of IP was
surveyed,  which  included 170 kilometres on the  Kharmagtai  project.  Magnetic
surveys were conducted on four tenements totalling 2,086 line kilometres.

A short program of  re-sampling  core from drill holes  completed in 2002 on the
Southwest  Trench area of Kharmagtai was undertaken in Q4'07.  Eleven samples of
drill core over 1 metre lengths were collected  from the  previously  split core
and  submitted to SGS Mongolia for bottle roll,  cyanide  leach testing on their
gold content. It was found that gold recoveries ranged from 60% to 90% from both
oxidized  and  fresh,  un-weathered  crushed  and  pulverized  core.  In 2002 an
extensive  area of low-grade  gold in the 0.5 to 0.8 g/t range was delineated by
trenching and shallow drilling.  This zone will be evaluated further in 2008 for
its open pit, heap leach potential and a NI 43-101-complaint  resource estimate.
Historical  data from the previous  seven years of drilling on Kharmagtai is now
being  compiled and validated  for a NI  43-101-compliant  resource  estimate on
previously defined deposits.

AUSTRALIA

CLONCURRY IOCG PROJECT EXPANDING EXPLORATION

Ivanhoe Mines in 2007 spent $22.1 million on the Cloncurry  Project (compared to
$2.2 million in 2006),  having  steadily  increased  exploration  efforts at the
Cloncurry  Project  during  the  year.  Ivanhoe  Mines is  continuing  to assess
financing alternatives for Cloncurry.

Styles of mineralization on the Cloncurry Project include iron-oxide-copper-gold
(IOCG) at Mt. Elliott;  IOCG  mineralization with associated uranium at Amethyst
Castle;  and copper is hosted in shales and  siltstones  at Mt.  Dore.  Results,
particularly at Mt. Dore and Mt. Elliott, are very encouraging.  Recent drilling
has  indicated  that  mineralization  at the  Swan  and  Swell  zones,  and  the
previously  mined  Mt.  Elliott  and  Corbould  zones  are all  part of the same
mineralized system now referred to as the Mt. Elliott system.

In late 2007 there was an increase in regional  exploration  on both the Ivanhoe
Mines' tenements and those in joint venture with Exco Resources NL (Exco).  Work
in Q1'08  focussed on the Mt. Elliott and Mt. Dore deposits as well as increased


                                      25
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


regional  exploration.  The Ivanhoe Mines  tenement  package  comprises 15 EPM's
totalling 2,102 km(2) and 20 ML's totalling 45 km(2). There are 3 ML's and 1 EPM
under application, further EPM applications to be lodged shortly.

THE MT. DORE PROJECT

Mt. Dore is the most advanced  project on the property and provides the earliest
opportunity for copper production.  Significant non NI 43-101-compliant  mineral
resources  have been  previously  declared at the prospect  and vertical  infill
drilling to  re-establish  a valid NI  43-101-compliant  resource  commenced  in
Q3'07.  This drilling program initially was planned to comprise 19 holes, but in
Q4'07 was extended to 27 holes totalling  9,750 metres.  A total of 4,290 metres
(11  holes)  was  completed  by the end of 2007.  Two drill  rigs are  currently
drilling vertical infill holes, generally from 200 to 400 metres deep.

Secondary  copper  within this system is hosted within  east-dipping  shales and
siltstones overlain by granites. The sediments are locally brecciated. Copper is
mostly in the form of chalcocite  and  chrysocolla.  The zone of  mineralization
(defined  using a 0.25%  copper  cut-off)  has a strike  length  of at least 600
metres and dips to the east at  approximately  40(0).  The  central  part of the
mineralized zone is thicker, wider and defined for at least 400 metres down-dip.
The  mineralized  zone at surface in the central part is generally from 25 to 50
metres  thick,  thickening  to more than 100  metres  at  depth.  Mineralization
remains open along strike and at depth.

THE MT. ELLIOTT PROJECT

A total of 67 diamond drill-holes totalling 59,029 metres, were completed on the
Mt.  Elliott IOCG project in 2007.  Drilling in Q1'07  focused on extending  the
mineralization  at the Swan Zone.  By Q2'07 there were six rigs at Mt.  Elliott;
work  during  this  quarter  included  testing  the  Swell  Zone  with a view to
establishing  its  relationships  to the  Swan  and  Elliott  zones.  There  are
currently four rigs on site.

The copper-gold  mineralization  at the Swan and Swell zones is primarily hosted
in   banded   and   brecciated    calc-silicates    and   is   associated   with
albite-pyroxene-magnetite-chalcopyrite-pyrite alteration.

Extensive  modelling  of the Mt.  Elliott  drill data was  carried out in Q4'07,
constructing  shells using 0.25%,  0.5%, 1% and 2%  copper-equivalent  cut-offs.
This   work   indicated   that  the   Swell   Zone  is  a   relatively   planar,
northwest-striking  zone that dips steeply to the northeast.  It is sub-parallel
to, and located  immediately  southwest of, the Mt. Elliott Zone. The Swan Zone,
west of Swell and about 750 metres west of the Mt.  Elliott  Zone, is flat-lying
at surface and dips steeply to the north. The deeper, steeply-dipping section of
the Swan Zone is  northwest  of,  and along the  projected  strike of, the Swell
Zone.  Recent  drilling in the gap between the Swan and Swell Zones has extended
the Swell zone to the northwest and the gap between them narrowed to 150 metres.
It is expected  that this gap will be closed in 2008.  Swell remains open to the
southeast, while the steep-dipping Swan zone remains open to the northwest. Both
zones are open at depth. Drilling at the Swan Zone has indicated that the system
extends to at least 1,200 metres below  surface.  The Mt.  Elliott  system has a
strike of at least 1.3  kilometres  and  covers an area of more than one  square
kilometre.


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                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


In  October  2007,  Ivanhoe  Mines  announced  the  discovery  of a  significant
high-grade  (above  2%  copper-equivalent  cut-offs)  zone of  copper  and  gold
mineralization  on the western margin of the Swan Zone. More recent drilling and
modelling  indicates  the Swan  high-grade-zone  (SHGZ) is an  L-shaped  feature
comprising an eastern  upper  vertical  zone  connected to a larger,  flat-lying
section of the  high-grade  zone.  The  flat-lying  part of the SHGZ is over 300
metres long (from west to east), 40 metres high in the central part and up to 70
metres across (north to south).  The top of the flat-lying section is located at
about 550 metres below surface.

The tenor and thickness of the high-grade  mineralization  at Swan appears to be
superior to that  previously  mined at the former Mt.  Elliott Mine and there is
potential for further large,  high-grade mineralized zones in and around the Mt.
Elliott system.  Ivanhoe Mines is conducting an aggressive  drilling campaign to
explore  the  immediate  area  around  the SHGZ to expand the size and to better
understand the structural  controls of the  mineralization.  A pattern of infill
vertical  drilling  to achieve a mineral  resource on this zone is underway as a
priority undertaking and will be completed in 2008.

NORTHERN GOSSANS, CENTRAL LEASES AND NORTHERN LEASES

The area from  Northern  Gossans to Northern  Leases  comprises a 4 km long zone
extending  north-northwest  from  Mt.  Elliott  and  may  represent  the  strike
extension of the latter system.

Work  by  Ivanhoe  Mines  in  2007  included  one  six-kilometre-long   line  of
dipole-dipole IP close to the North Gossans area and detailed geological mapping
and sampling  over the 25 km(2) area.  Assay results for the first 89 of the 467
rock-chip  samples  have been  received  with many of the samples  from  Central
Leases (from ironstones,  ironstone  breccias,  jasper veins and dolerite) being
strongly anomalous in gold and copper.  Drill targets have been defined and work
is expected to commence in 2008.

AMETHYST CASTLE

Copper, gold and uranium are hosted in a widespread, large-scale classic breccia
body in the Amethyst  Castle area.  Ivanhoe Mines has identified the presence of
uranium  and   IOCG-style   mineralization   and  has   carried  out   magnetic,
conductivity,  IP and gravity  surveys.  Ivanhoe  Mines work in 2006 included 14
reverse  circulation drill holes and six diamond drill holes. In January 2007, a
further three diamond drill holes (totalling 1,550 metres) tested  intersections
discovered in Holes 6 and 3 in 2006. The drill results  indicate a large breccia
structure  containing pods of high-grade gold,  copper and uranium that requires
further investigation.


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                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


URANIUM PROSPECTS

Ivanhoe  Mines'  Cloncurry  Project  hosts  a  significant   number  of  uranium
exploration  prospects,  including  Robert Heg,  Elizabeth Anne,  Great Wall and
Dairy Bore. The airborne  survey  completed in November 2006 defined  additional
targets that require follow-up  field-work,  however, only limited work was done
in 2007. More detailed work,  including  reconnaissance  mapping, is planned for
2008.

EXCO RESOURCES SHAREHOLDING AND JOINT VENTURE AGREEMENT

In May 2007,  Ivanhoe Australia entered into a private placement  investment in,
and  a  joint-venture  agreement  with,  Exco.  Exco  is an  Australian  mineral
exploration  company  listed  on  the  Australian  Stock  Exchange.  Exco  holds
extensive exploration tenements in the Cloncurry copper, uranium and gold region
in  northwest  Queensland  and the White Dam gold  project  in South  Australia.
Ivanhoe Australia's  involvement with Exco significantly  expands Ivanhoe Mines'
exploration  presence in the highly prospective  Cloncurry region in the Mt. Isa
District.

Ivanhoe  Australia  held  directly   approximately   12.0%  of  the  issued  and
outstanding  share capital of Exco at December 31, 2007.  Ivanhoe Australia also
holds 21.1 million share  purchase  options in Exco,  exercisable  at A$0.35 per
share before June 1, 2008. If  exercised,  Ivanhoe  Australia's  holding in Exco
would increase to approximately 19.6%.


KAZAKHSTAN

PROGRESS ON LARGE-SCALE ROTARY-KILN TECHNOLOGY  DEMONSTRATION PLANT AT BAKYRCHIK
GOLD PROJECT

Ivanhoe Mines,  which acquired a majority interest in the Bakyrchik Gold Project
in Kazakhstan in 1996, has reached  agreement with Kazakh  partners,  subject to
government approval, to acquire additional gold assets in Kazakhstan and advance
the mine to  full-scale  production.  Ivanhoe  Mines  is  continuing  to  assess
financing alternatives for the Bakyrchik Project.

Construction of a rotary-kiln  technology  demonstration plant began in 2007 and
is scheduled for completion early in Q3'08. The  commercial-scale  demonstration
plant will be capable of  processing  100,000  tonnes of ore per annum,  using a
40-metre-long  rotary-kiln to oxidize the ore, followed by conventional grinding
and cyanidation.  Bakyrchik has a stockpile of  approximately  100,000 tonnes of
ore  grading  8.17  grams  of  gold  per  tonne  that  will be run  through  the
demonstration plant to confirm metallurgical parameters.

Construction of the plant currently involves seven major on-site contractors and
10 off-site equipment fabricators. Construction activities have commenced on all
major areas and  infrastructure.  Most purchase orders for the major  mechanical


                                      28
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


equipment have been placed. It is expected that the demonstration  plant will be
completed at the end of Q2'08, with  commissioning  commencing in Q3'08. This is
due largely to the competition for  contracting  resources in Kazakhstan,  which
reflects  economic  growth  and  high  levels  of  construction  activity  being
experienced  throughout  Kazakhstan.  The work plan was revised and submitted to
the Ministry of Energy and Mineral Resources in December for approval;  the plan
requested an  additional  year to achieve the goal of a  900,000-tonne-per-annum
industrial plant.

Discussions  were  initiated with a contractor  that  specializes in underground
mining.  It is expected that the  discussions  will continue to analyze the most
cost-effective and efficient way to commence mining activities in 2008.

During  2007,  Ivanhoe  Mines'  geologists  completed  a major audit of existing
exploration data and compiled a new resource  database for the project.  Ivanhoe
Mines is currently  reviewing the results and will be proposing  additional work
in 2008 to move the project to pre-feasibility level.

CHINA

EXPLORATION  RESUMED IN NORTHERN CHINA,  FOCUSING ON  HIGH-QUALITY  PROJECTS FOR
ACQUISITION

Reconnaissance  field  exploration  re-commenced  in March 2007,  focused on the
western Gobi region of China's Inner Mongolia  Autonomous Region and surrounding
provinces,  and continued until the end of Q4'07.  The program  consisted of the
field  geological  assessment  of more than 50  licensed  intrusive-related  and
breccia-hosted  gold,  silver and copper  deposits  and involved  detailed  data
reviews,  field traverses and systematic  rock chip and channel  sampling of all
properties.

The aim of the program has been to identify high-quality, semi-advanced projects
for acquisition  through  joint-venture  formation with, or direct purchase from
the existing license holders.

JINSHAN GOLD MINES (42.0% OWNED) - GOLD PRODUCTION  COMMENCED IN 2007 AT CSH 217
MINE

In July 2007, Jinshan announced the pouring of the first 500-ounce gold dore bar
at the CSH 217 Gold Mine in Inner Mongolia,  China. The pouring marked the start
of pre-commercial production at the mine.

Gold production  totalled 29,900 gold ounces from the start-up on July 31, 2007,
to the end of  February  2008.  During this  period  gold sales  totalled  $22.3
million,  at an average  unhedged price of $798 per ounce. The mine is operating
at approximately 50% of its design capacity with leaching slowed during start-up
and through the first winter of operation.


                                      29
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


In January 2008,  Jinshan announced an initial NI  43-101-compliant  independent
resource  estimate at its Dadiangou gold project in Gansu  Province,  China.  An
Inferred  Resource of 26.3  million  tonnes  grading  0.92 grams per tonne (g/t)
gold, totalling 778,000 ounces of contained gold, was calculated using a cut-off
grade  of 0.4  g/t  gold.  Within  this  global  resource,  a 1.9  million-tonne
higher-grade  core was delineated that grades 2.48 g/t gold and contains 152,000
ounces at the same 0.4 g/t cut-off.

In February 2008, Jinshan announced a new NI 43-101-compliant  resource estimate
at its CSH 217 gold  mine in  Inner  Mongolia,  China.  Measured  and  Indicated
Resources,  at a 0.35 g/t cut-off grade,  now total 171.3 million tonnes at 0.71
g/t gold for 3.92  million  ounces of  contained  gold.  In  addition,  Inferred
Resources are now estimated at 1.33 million ounces of gold contained within 64.2
million tonnes grading 0.65 g/t gold at a 0.35 g/t cut-off.

Total gold  resources at Jinshan's  China projects are now 3.9 million ounces in
the  Measured and  Indicated  categories  and 2.1 million  ounces of gold in the
Inferred category.  Details of the resource estimates are contained in Jinshan's
news releases dated January 31, 2008 and February 14, 2008.


     MEASURED AND INDICATED RESOURCES:

                         CUT-OFF    MILLION      GRADE           CONTAINED GOLD
         PROJECT       (G/T GOLD)   TONNES    (G/T GOLD)          (MILLION OZS)

       CSH 217             0.35      171.3       0.71                 3.92
                                                                 ==============
                                                          TOTAL       3.92
     INFERRED RESOURCES:
       CSH 217             0.35       64.2       0.65                 1.33
       Dadiangou           0.40       26.3       0.92                 0.78
                                                                 ==============
                                                          TOTAL       2.11

1.   The contained gold represents  estimated  contained metal in the ground and
     has not been adjusted for mining or metallurgical recoveries.
2.   Resource  classifications conform to CIM Standards on Mineral Resources and
     Reserves referred to in National Instrument 43-101.  Mineral Resources that
     are not Reserves do not have demonstrated economic viability.  Measured and
     Indicated  Resources are that part of a mineral resource for which quantity
     and grade can be estimated  with a level of confidence  sufficient to allow
     the  application  of  technical  and  economic  parameters  to support mine
     planning  and  evaluation  of the economic  viability  of the  project.  An
     Inferred Resource is that part of a mineral resource for which quantity and
     grade can be  estimated  on the basis of  geological  evidence  and limited
     sampling and  reasonably  assumed,  but not verified,  geological and grade
     continuity.

IVANHOE MINES PARTICIPATES IN JINSHAN NOTE OFFERING

On June 26, 2007, Jinshan announced the closing of a private placement of senior
unsecured  promissory notes,  which consisted of 20,000 units for gross proceeds
of $18.7 million (C$20  million).  Ivanhoe Mines  purchased  $7.0 million (C$7.5
million)  of the  units.  Each  unit  consists  of one  promissory  note and 200
transferable share purchase  warrants.  Each note has a par value of C$1,000 and
will pay 12% interest per annum, paid quarterly for three years. Each warrant is


                                      30
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


exercisable into one common share for 24 months from the date of closing and has
an exercise  price of C$2.50 per share.  Jinshan has the right to accelerate the
expiry date of the  warrants  after 18 months from the issue date,  if Jinshan's
common shares trade at or above a volume weighted  average share price of C$4.25
for 20 consecutive trading days. Jinshan also can elect to repay the notes after
six months  from the date of issue with no  penalty.  Ivanhoe  Mines'  notes are
subordinate to the other notes issued by Jinshan.

B.   INVESTMENT HELD FOR SALE

As part of the agreement that  established the Rio Tinto  strategic  partnership
announced in October  2006,  Ivanhoe  Mines agreed to divest all of its business
interests and assets in Myanmar - including its indirect  interest in the Monywa
Copper Project - that were held through its Monywa  subsidiary.  On February 27,
2007, Ivanhoe Mines transferred  ownership of the Monywa subsidiary to a company
owned by an independent  third-party  trust (the Trust) in  consideration  for a
promissory  note.  The sole  purpose  of the Trust is to sell the  shares of the
Monywa subsidiary to one or more arm's-length third parties. The promissory note
will be  repaid  in full upon the  completion  of the sale of the  shares of the
Monywa subsidiary.  The company owned by the Trust (Trust Holdco) that now holds
the shares of the Monywa  subsidiary  for sale also must use the proceeds of any
dividends or other  distributions  it receives from the Monywa Copper Project to
partially repay the promissory  note.  Other than the promissory  note,  Ivanhoe
Mines retains no interest in the Monywa subsidiary or any of its assets.

In March 2007,  Trust Holdco  engaged a third party (the Sale Service  Provider)
who is responsible for identifying potential third-party purchasers,  soliciting
expressions of interest from such potential  purchasers,  negotiating sale terms
and facilitating  the sale of the Myanmar assets on behalf of the Trust.  During
2007,  the Sale  Service  Provider  was engaged in  discussions  with  potential
purchasers. These discussions are ongoing.

Ivanhoe Mines  regularly  reviews the carrying value of its assets.  At December
31, 2007,  Ivanhoe Mines  reviewed the carrying  value of the Myanmar assets and
determined  that it was  prudent to record a $134.3  million  write-down  on the
Investment Held for Sale thereby  reducing the value to $nil.  Although  Ivanhoe
Mines is  hopeful  that a sale may  occur at some  point in the  future,  it was
determined that Ivanhoe Mines' non-involvement in the project's operations since
it was  transferred  to the  Trust,  Ivanhoe  Mines'  lack of  knowledge  of the
project's  current  activities -- and the fact that no sale had been achieved in
almost a year since the asset was transferred to the Trust -- all indicated that
the carrying value of the investment was impaired.

C.   DISCONTINUED OPERATIONS

In February  2005,  the  Company  sold its Savage  River  mining  operations  in
Tasmania,  Australia,  for two initial  payments  totalling $21.5 million ($15.0
million  received in 2005 and $6.5  million  received in January  2006),  plus a
series of five contingent, annual payments that commenced on March 31, 2006.


                                      31
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


In 2006,  Ivanhoe Mines  received the first  contingent  annual payment of $28.2
million.

On March 30, 2007,  Ivanhoe Mines received the second annual contingent  payment
of $19.0 million with an  additional  $1.3 million  adjustment  received in June
2007.

To date,  Ivanhoe Mines has received  $70.0 million in proceeds from the sale of
Savage River.

At December 31, 2007,  Ivanhoe Mines had accrued a $23.3  million  receivable in
relation to the third  contingent  annual payment due in March 2008. This amount
is  calculated  based  upon  the  actual  tonnes  of iron ore  sold  during  the
nine-month period ended December 31, 2007 and the escalating price formula.

D.   ADMINISTRATIVE AND OTHER

GENERAL AND ADMINISTRATIVE  COSTS.  Administrative costs in 2007 were consistent
with 2006.

INTEREST  INCOME.  The $4.7 million increase in interest income is due to higher
average  cash  balances  in 2007,  coupled  with higher  interest  rates in 2007
compared to 2006.

FOREIGN  EXCHANGE GAIN. The $11.9 million foreign  exchange gain during the 2007
was mainly  attributable to the strengthening of the Canadian dollar against the
U.S. dollar.

SHARE OF LOSS ON SIGNIFICANTLY  INFLUENCED  INVESTEE.  The $9.2 million share of
loss on  significant  influenced  investee  represents  Ivanhoe  Mines' share of
Jinshan's net loss for 2007.



                                      32
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


--------------------------------------------------------------------------------
SELECTED QUARTERLY DATA
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
($ IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE INFORMATION)
                                                                         Quarter Ended                    Year Ended
                                                           ------------------------------------------------------------
                                                            Dec-31     Sep-30      Jun-30       Mar-31         Dec-31
                                                             2007       2007        2007         2007           2007
-----------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>         <C>         <C>         <C>             <C>
   Exploration expenses                                       ($96.6)     ($74.8)  ($79.1)     ($53.5)         ($304.0)
   General and administrative                                   (9.0)       (7.0)    (5.9)       (5.2)           (27.1)
   Share of income from investment held for sale                   -           -        -         0.4              0.4
   Foreign exchange gains (losses)                               2.3         2.1      6.7         0.8             11.9
   Net (loss) from continuing operations                      (265.5)      (90.0)   (78.7)      (55.4)          (489.6)
   Income from discontinued operations                          11.9         6.8      4.6         8.6             31.9
   Net (loss)                                                 (253.6)      (83.1)   (74.2)      (46.8)          (457.7)
   Net (loss) income per share
     Continuing operations                                    ($0.71)     ($0.24)  ($0.21)     ($0.15)          ($1.31)
     Discontinued operations                                   $0.04       $0.02    $0.01       $0.02            $0.09
     Total                                                    ($0.67)     ($0.22)  ($0.20)     ($0.13)          ($1.22)
=======================================================================================================================

<CAPTION>
                                                                         Quarter Ended                    Year Ended
                                                           ------------------------------------------------------------
                                                            Dec-31     Sep-30     Jun-30       Mar-31       Dec-31
                                                             2006       2006       2006         2006         2006
----------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>         <C>         <C>         <C>             <C>
   Exploration expenses                                       ($70.4)     ($67.3)  ($43.7)     ($31.6)         ($213.0)
   General and administrative                                   (8.9)       (6.9)    (6.0)       (6.4)           (28.2)
   Share of income (loss) from investment held for sale          7.4         9.0     (2.4)        4.5             18.5
   Foreign exchange gains (losses)                              (3.7)       (0.4)     4.7        (0.2)             0.4
   Net (loss) from continuing operations                       (73.5)      (68.0)   (45.7)      (31.1)          (218.3)
   Income from discontinued operations                           4.8         1.5      5.4         7.9             19.6
   Net (loss)                                                  (68.7)      (66.5)   (40.3)      (23.2)          (198.7)
   Net (loss) income per share
     Continuing operations                                    ($0.21)     ($0.20)  ($0.14)     ($0.10)          ($0.65)
     Discontinued operations                                   $0.01       $0.00    $0.02       $0.03            $0.06
     Total                                                    ($0.20)     ($0.20)  ($0.12)     ($0.07)          ($0.59)
=======================================================================================================================
</TABLE>


                                      33
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


--------------------------------------------------------------------------------
FOURTH QUARTER
--------------------------------------------------------------------------------

EXPLORATION.  In Q4'07,  Ivanhoe Mines expensed $96.6 million in exploration and
development activities,  compared to $70.4 million in Q4'06. The majority of the
$96.6 million was spent on Ivanhoe Mines' Mongolian properties ($85.7 million in
2007, compared to $65.6 million in 2006).  Approximately $77.9 million was spent
on the Oyu Tolgoi Project.

ADMINISTRATIVE COSTS. Administrative costs in Q4'07 were consistent with Q4'06.

NET INCOME  FROM  DISCONTINUED  OPERATIONS.  Income  from the Savage  River mine
operations  totalled $11.9 million in Q4'07,  compared to $4.8 million in Q4'06.
The increase was due to 912,000  tonnes sold in Q4'07 versus 424,000 tonnes sold
in Q4'06, as well as an increase in the pellet premium being achieved in 2007.

FOREIGN  EXCHANGE GAIN. The $2.3 million foreign  exchange gain during Q4'07 was
mainly attributable to the strengthening of the Canadian dollar against the U.S.
dollar.

--------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------

CASH FLOW

OPERATING  ACTIVITIES.  The $238.8 million of cash used in operating  activities
from continuing operations in 2007 primarily was the result of $291.4 million in
cash exploration expenditures, offset by a $41.8 million change in non-operating
working capital

INVESTING  ACTIVITIES.  In 2007,  $167.4  million of cash was used in  investing
activities,  consisting  largely  of a $93.6  million  in  property,  plant  and
equipment  acquisitions  and  construction  mainly  relating to Oyu Tolgoi and a
$70.7 million  reclassification  of Asset-Backed  Commercial Paper from Cash and
Cash Equivalents to Other Long-term Investments.

FINANCING ACTIVITIES. Financing activities of $179.9 million in 2007 was largely
due to the initial $150 million draw down of the Rio Tinto credit facility. Also
included  in  financing  activities  was $17.2  million  drawn down from  credit
facilities and $9.9 million received from the exercise of stock options.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2007, consolidated working capital was $65.7 million,  including
cash of $145.7 million, compared with working capital of $364.7 million and cash
of $363.6 million at December 31, 2006.

The bulk of Ivanhoe Mines'  expenditures  can be deferred based on the status of
Ivanhoe Mines' cash  resources.  Based on Ivanhoe Mines'  financial  position at


                                      34
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


December 31, 2007, the  additional  $100 million  drawdown from the  convertible
credit  facility  in  January  2008  and  the  remaining  $100  million  in  the
convertible  credit facility,  Ivanhoe Mines believes that existing funds should
be sufficient to fund its minimum obligations,  including planned Australian and
Bakyrchik obligations and general corporate activities, for at least the next 12
months. Should Ivanhoe Mines be unable to negotiate an Investment Agreement that
is acceptable to Rio Tinto, with the result that Rio Tinto elects not to proceed
with the second tranche private placement,  Ivanhoe Mines may delay, postpone or
curtail  certain  of its  planned  activities  for the  remainder  of  2008  and
thereafter. Ivanhoe Mines will continue to assess the need for project financing
relating to the development of power and other infrastructure-related activities
in association with the Oyu Tolgoi Project. See "Outlook" for further details.

ASSET-BACKED COMMERCIAL PAPER

At  December  31,  2007,  the  Company  held  non-bank  sponsored   asset-backed
commercial  paper (ABCP)  issued by a number of trusts with an original  cost of
$70.7  million,  This  ABCP  was  rated  by DBRS as R-1  (high)  at the  date of
investment  and met the  criteria of the  Company's  investment  policy.  An R-1
(high)  rating  by  DBRS is the  highest  rating  for  commercial  paper.  These
investments  matured  during  the  third  quarter  of 2007  but,  as a result of
liquidity issues in the ABCP market, did not settle on maturity.

On August 16,  2007 it was  announced  that a group  representing  banks,  asset
providers,  and major  investors  had agreed to a standstill  with regard to all
non-bank  sponsored  ABCP  (the  Montreal  Proposal).  Under the  proposal,  the
affected  ABCP will be  converted  into term  floating  rate notes  maturing  no
earlier than the  scheduled  termination  dates of the  underlying  assets.  The
Montreal Proposal called for investors to continue to roll their ABCP during the
standstill period. The Company is not a signatory to this agreement.

On September 6, 2007, a pan-Canadian  restructuring  committee  (the  Committee)
consisting of major  investors was formed to propose a solution to the liquidity
problem affecting the ABCP market.

The ABCP in which the Company has  invested  has not traded in an active  market
since  mid-August 2007 and there are currently no market  quotations  available.
The ABCP in which the Company has invested continues to be rated R1 (High, Under
Review with Developing Implications) by DBRS.

It is expected  that the  restructuring  of the ABCP will occur in April 2008 if
approval by investors is obtained to do so. This approval will be requested on a
trust-by-trust basis, most likely during April 2008.

On December 23, 2007, the Committee  provided certain details about the expected
restructuring.  Based on this  information  it is estimated  that,  of the $70.7
million of ABCP in which the Company has invested:

   o  $4.8 million is represented by traditional securitized assets;


                                      35
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


   o  $60.8 million is represented  by a combination  of leveraged  collaterized
      debt, synthetic assets and traditional securitized; and

   o  $5.1  million  is  represented  by assets  that have an  exposure  to U.S.
      sub-prime mortgages.

The Company has estimated the fair value of its investments in ABCP  considering
the best available  public  information  regarding  market  conditions and other
factors  that a market  participant  would  consider for such  investments.  The
assumptions  used in  determining  the  estimated  fair value reflect the public
statements made by the Committee that it expects the ABCP will be converted into
various long-term floating rate notes with maturities matching the maturities of
the underlying assets.

The Company has used a scenario-based  probability-weighted discounted cash flow
approach  to value its ABCP at  December  31,  2007  which  considered  expected
interest rates of 3.3%,  estimated  restructuring fees,  estimated  renegotiated
maturity dates of 5 to 7 years, and estimated principal  reductions ranging from
0% to 100%,  depending on the nature of the  underlying  assets and the scenario
modelled.  As a result of this valuation,  the Company has recorded a write-down
of $24.5 million, representing 34.6% of the original face value.

Continuing  uncertainties  regarding  the value of the assets that  underlie the
ABCP,  the amount and timing of cash flows and the outcome of the  restructuring
process  could give rise to a further  change in the fair value of the Company's
investment  in  the  ABCP,  which  would  impact  the  Company's   results  from
operations.

The  Company  has  classified  its ABCP as other  long-term  investments  on the
Consolidated  Balance Sheet at December 31, 2007 and as an investing activity in
the Consolidated Statement of Cash Flows.

FINANCIAL INSTRUMENTS

The  Company's  financial  instruments  consist  of cash and  cash  equivalents,
accounts  receivable,   other  current  assets,  long-term  investments,   other
long-term investments,  note receivable from related party, accounts payable and
accrued  liabilities,  amounts due under credit  facilities and loans payable to
related parties.

The fair  value of  Ivanhoe  Mines'  long-term  investments  was  determined  by
reference to published market quotations,  which may not be reflective of future
values.

The fair value of Ivanhoe Mines' other long-term investments,  consisting of the
ABCP,  was determined by  considering  the best available data regarding  market
conditions  for  such  investments  at  December  31,  2007,  which  may  not be
reflective of future values.

The fair value of Ivanhoe  Mines' loan payable to related  parties was estimated
by discounting future payments to their present value.


                                      36
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


The fair value of Ivanhoe Mines' remaining  financial  instruments was estimated
to  approximate  their  carrying  value,  due  primarily  to  the  immediate  or
short-term maturity of these financial instruments.

Ivanhoe Mines is exposed to credit risk with respect to its accounts receivable.
The  significant  concentrations  of credit risk are  situated  in Mongolia  and
Australia.  Ivanhoe Mines does not mitigate the balance of this risk in light of
the credit worthiness of its major debtors.

Ivanhoe  Mines is exposed to  interest  rate risk with  respect to the  variable
rates of interest  incurred on the  convertible  credit facility and amounts due
under credit facilities.  Interest rate risk is concentrated in Canada.  Ivanhoe
Mines does not mitigate the balance of this risk.


--------------------------------------------------------------------------------
SHARE CAPITAL
--------------------------------------------------------------------------------

At March 28, 2008, the Company had a total of:

   o  375.1 million common shares outstanding.

   o  14.6 million incentive stock options outstanding,  with a weighted average
      exercise  price of  Cdn$10.06  per share.  Each option is  exercisable  to
      purchase a common share of the Company at prices  ranging from Cdn$3.25 to
      Cdn$16.79 per share.

   o  92.1 million share  purchase  warrants  outstanding  granted to Rio Tinto,
      with exercise prices ranging between US$8.38 and US$9.02 per share (Series
      A and B warrants).  These warrants are  exercisable  until two years after
      the earlier of  completion  of the  Investment  Agreement  and October 27,
      2009.

   o  35.0 million Series C share purchase warrants  outstanding  granted to Rio
      Tinto as part of the $350  credit  facility  agreement,  with an  exercise
      price of US$10.00 per share. These warrants have a life of 5 years and may
      be  exercised  pro rata based on the amount of funds drawn down by Ivanhoe
      Mines,  plus  interest.  Currently,  25.7  million of these  warrants  are
      exercisable.

--------------------------------------------------------------------------------
OUTLOOK
--------------------------------------------------------------------------------

The Company is continuing to focus its efforts and  activities on negotiating an
acceptable Investment Agreement with the Government of Mongolia.  During 2007, a
draft agreement was reached with a working group  established by the Government.
The agreement required approval by the Parliament of Mongolia.  However,  before
the  agreement  could be  approved  by  Parliament,  a new  Prime  Minister  was
appointed   to  lead  the   Government.   The  Prime   Minister   reviewed   the
recommendations  by a  different  working  group  and  subsequently  decided  to
withdraw the draft Oyu Tolgoi agreement from Parliament.  The Prime Minister has
advocated a new process to advance the conclusion of the  Investment  Agreement.
This ongoing process is expected to continue in 2008.


                                      37
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


The Company remains  optimistic that an acceptable  Investment  Agreement can be
reached.  However,  recent  events in Mongolia,  including  the  possibility  of
further changes to the Minerals Law governing strategic deposits,  are viewed by
the Company as  troubling.  As a result,  the Company will need to determine the
level of activities  that it will perform at the Oyu Tolgoi  project if proposed
legislation  is  enacted  and the  Company  is  unable  to reach  an  acceptable
Investment  Agreement.  This may result in the  activation of a work  suspension
plan that will lead to the Oyu Tolgoi Project being put on care and maintenance,
possibly for a period extending past the scheduled June 2008 scheduled Mongolian
elections.  If this were to occur, it is likely that the Company would be unable
to resume activities at Oyu Tolgoi until sometime in 2009,  pending  discussions
with the newly elected Government.

The Company is updating the 2005 IDP project plan to reflect  changes to several
key areas. The main changes from the 2005 IDP are expected to be:

   o  Increasing  mill  throughput  to a nominal  100,000 tpd from the  original
      85,000 tpd outlined in the 2005 IDP.
   o  The  construction of a 3-x-150 MW coal fired power station in Mongolia for
      the project.  The 2005 IDP  envisioned  that power could be imported  from
      China's Inner  Mongolian power grid at an expected price of $0.0426 c/kWh.
      The current  plan sees a power plant  constructed  at the site  delivering
      power  at a  long  term  average  of  $0.0233  c/kWh.
   o  Optimisation   of  underground   production  to  prioritize   higher-grade
      material.
   o  Updating of all major  capital and  operating  estimates to reflect  scope
      changes and escalation.
   o  A review of all economic  drivers,  including  metal  prices,  recoveries,
      selling assumptions etc.
   o  The impact of changes in Mongolian laws.
   o  The conclusion of an Investment  Agreement  similar to the draft agreement
      that was negotiated with a government-appointed working group in 2007.

The  draft  2008 IDP  cannot  be  finalized  until an  Investment  Agreement  is
concluded as the  economics  presented in the study are  materially  affected by
changes to the draft Investment  Agreement that had been negotiated in 2007. The
draft 2008 IDP also assumes that full-scale construction will commence in summer
2008; this  construction date may not be met due to the status of the Investment
Agreement  negotiations.  In  addition,  work has been  prepared  assuming  that
Ivanhoe Mines will continue to retain  equipment  previously  purchased and that
Ivanhoe  Mines will  purchase  other  long-lead-time  equipment  as noted in the
development  plan.  This assumption  depends on a tentative  commitment with Rio
Tinto  regarding the funding of equipment  purchases while Ivanhoe Mines and Rio
Tinto  continue  to engage the  Government  of  Mongolia  in  discussions  on an
Investment Agreement.

In the event that an agreement  is not reached with Rio Tinto,  the Company will
assess whether it is able to acquire and maintain existing  equipment  purchases
without Rio Tinto's  support.  Should  Ivanhoe Mines be unable to, or decide not
to, acquire or continue to hold long-lead-time equipment that has been purchased
or  committed  to, the draft 2008 IDP will need to be  modified  to reflect  the
corresponding  changes to the mine plan and the impact on the Oyu Tolgoi project
economics.


                                      38
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


The Company is actively  involved in advancing  several  other  projects.  These
activities  are expected to continue in 2008,  with a focus on SouthGobi and its
plans to initiate  the mining of coal,  Ivanhoe  Australia  and its  exploration
activities on its Cloncurry  tenements,  and the Bakyrchik  operation,  which is
completing construction of its rotary-kiln technology demonstration plant.

The Company,  subject to the status of its Oyu Tolgoi project,  may draw down on
the remaining  $100 million  convertible  credit  facility with Rio Tinto during
2008.

--------------------------------------------------------------------------------
OFF-BALANCE-SHEET ARRANGEMENTS
--------------------------------------------------------------------------------

During the year ended  December 31, 2007,  Ivanhoe  Mines was not a party to any
off-balance-sheet  arrangements  that have, or are reasonably  likely to have, a
current or future  effect on the  results of  operations,  financial  condition,
revenues or expenses,  liquidity,  capital  expenditures or capital resources of
the Company.


--------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
($000'S OF U.S. DOLLARS)
                                             PAYMENTS DUE BY PERIOD
                                     -----------------------------------------------------------------------------
                                     Less than
                                     1 year         1 - 3 years      4 - 5 years     After 5 years        Total
---------------------------------------------------------------------------------------------------|--------------
<S>                                 <C>            <C>             <C>             <C>                <C>
Operating leases (1)                $   1,779        $     553          $   246       $     92     |    $   2,670
Purchase obligations (1)              100,854                -                -              -     |      100,854
Debt obligations (2)                   17,050          150,000                -              -     |      167,050
Other long-term obligations (3)         2,794                -            3,484         27,807     |       34,085
---------------------------------------------------------------------------------------------------|--------------
Total                               $ 122,477        $ 150,553          $ 3,730       $ 27,899     |    $ 304,659
===================================================================================================|==============
</TABLE>

(1)  These amounts mainly  represent  various  long-term  contracts that include
     commitments  for future  operating  payments under  contracts for drilling,
     engineering, equipment purchases, rentals and other arrangements.

(2)  Debt  obligations  consists  of amounts  due under  credit  facilities  and
     long-term convertible credit facility, excluding interest.

(3)  Other long-term obligations consists of asset retirement obligations.


                                      39
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


--------------------------------------------------------------------------------
CHANGES IN ACCOUNTING POLICIES
--------------------------------------------------------------------------------

On January 1, 2007,  the  Company  adopted  the  provisions  of the FASB  issued
Interpretation  No.  48,  "Accounting  for  Uncertainty  in  Income  Taxes  - an
interpretation  of  FASB  Statement  No.  109"  (FIN  48).  This  interpretation
clarifies the  recognition  threshold and measurement of a tax position taken or
expected to be taken on a tax return,  and  requires  expanded  disclosure  with
respect to the  uncertainty  in income taxes.  FIN 48 also provides  guidance on
derecognition,  classification,  interest and  penalties,  accounting in interim
periods,  disclosures  and  transition.  FIN 48 is  effective  for fiscal  years
beginning after December 15, 2006. The adoption of FIN 48 did not have an impact
on the Company's consolidated financial condition or results of operations.

--------------------------------------------------------------------------------
CRITICAL ACCOUNTING ESTIMATES
--------------------------------------------------------------------------------

The preparation of financial  statements in conformity  with generally  accepted
accounting  principles  in the United  States  requires the Company to establish
accounting policies and to make estimates that affect both the amount and timing
of the recording of assets,  liabilities,  revenues and expenses.  Some of these
estimates require judgments about matters that are inherently uncertain.

A detailed summary of all of the Company's  significant  accounting policies and
the estimates derived therefrom is included in Note 2 to the annual Consolidated
Financial  Statements  for the year ended  December 31,  2007.  While all of the
significant  accounting  policies are  important to the  Company's  consolidated
financial  statements,  the  following  accounting  policies  and the  estimates
derived therefrom have been identified as being critical:

>>  Carrying Values of Property, Plant and Equipment;

>>  Depletion and Depreciation of Property, Plant and Equipment;

>>  Asset Retirement Obligations; and

>>  Income Taxes.

CARRYING VALUES OF PROPERTY, PLANT AND EQUIPMENT

Ivanhoe Mines reviews the carrying  values of its property,  plant and equipment
whenever events or changes in circumstances  indicate that their carrying values
may not be recoverable.  An impairment is considered to exist if total estimated
future cash flows, or probability-weighted  cash flows on an undiscounted basis,
are less than the carrying value of the assets.  An impairment  loss is measured
and recorded based on discounted  estimated  future cash flows  associated  with
values beyond proven and probable  reserves and resources.  In estimating future
cash  flows,  assets  are  grouped  at the  lowest  level  for  which  there  is
identifiable  future cash flows that are largely  independent of cash flows from
other asset groups.  Generally,  in estimating future cash flows, all assets are
grouped at a particular mine for which there is identifiable cash flows.


                                      40
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


The estimates used by management are subject to various risks and uncertainties.
It is reasonably possible that changes in estimates could occur which may affect
the expected recoverability of the Company's investments in property,  plant and
equipment.

DEPLETION AND DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT

Property,  plant and equipment comprise one of the largest components of Ivanhoe
Mines' assets and, as such, the  amortization  of these assets has a significant
effect on the Company's financial statements.

On the commencement of commercial production,  depletion of each mining property
is provided on the unit-of-production  basis using estimated proven and probable
reserves  as the  depletion  basis.  The mining  plant and  equipment  and other
capital  assets  are  depreciated,  following  the  commencement  of  commercial
production,    over   their   expected   economic   lives   using   either   the
unit-of-production method or the straight-line method.

Capital  projects in progress are not  depreciated  until the capital  asset has
been put into operation.

The  proven  and  probable  reserves  are  determined  based  on a  professional
evaluation using accepted international  standards for the assessment of mineral
reserves.  The  assessment  involves the study of  geological,  geophysical  and
economic data and the reliance on a number of assumptions.  The estimates of the
reserves may change,  based on  additional  knowledge  gained  subsequent to the
initial  assessment.  This may include additional data available from continuing
exploration,  results from the  reconciliation  of actual mining production data
against the original reserve  estimates,  or the impact of economic factors such
as changes in the price of  commodities or the cost of components of production.
A change in the  original  estimate of reserves  would result in a change in the
rate of depletion and depreciation of the related mining assets, or could result
in impairment, resulting in a write-down of the assets.

ASSET RETIREMENT OBLIGATIONS

The Company has obligations for site restoration and decommissioning  related to
its mining  properties.  The Company,  using mine closure plans or other similar
studies that outline the requirements  planned to be carried out,  estimates the
future  obligations  for mine closure  activities.  Because the  obligations are
dependent  on the laws and  regulations  of the  countries  in which  the  mines
operate,  the  requirements  could change -- resulting from  amendments in those
laws and regulations relating to environmental  protection and other legislation
affecting resource companies.

Ivanhoe  Mines  recognizes  liabilities  for  statutory,  contractual  or  legal
obligations  associated  with the  retirement of property,  plant and equipment,
when those obligations result from the acquisition, construction, development or
normal operation of the assets.  Initially,  a liability for an asset retirement
obligation  is  recognized  at its  fair  value  in the  period  in  which it is
incurred.  Upon initial  recognition of the liability,  the corresponding  asset
retirement  cost is added to the  carrying  amount of that asset and the cost is


                                      41
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


amortized as an expense over the economic life of the related  asset.  Following
the initial recognition of the asset retirement obligation,  the carrying amount
of the  liability is increased  for the passage of time and adjusted for changes
to the  amount or timing  of the  underlying  cash  flows  needed to settle  the
obligation.

Because  the  estimate of  obligations  is based on future  expectations  in the
determination  of closure  provisions,  management makes a number of assumptions
and  judgments.  The closure  provisions are more uncertain the further into the
future the mine closure  activities are to be carried out. Actual costs incurred
in future periods in relation to the  remediation of Company's  existing  assets
could differ  materially  from the $34.1  million  undiscounted  future value of
Ivanhoe Mines' estimated asset retirement obligations at December 31, 2007.

INCOME TAXES

The Company  must make  significant  estimates in respect of the  provision  for
income taxes and the  composition of its deferred income tax assets and deferred
income tax  liabilities.  Ivanhoe  Mines'  operations  are, in part,  subject to
foreign tax laws where interpretations,  regulations and legislation are complex
and  continually  changing.  As a result,  there are usually some tax matters in
question  which may, on resolution in the future,  result in  adjustments to the
amount of deferred  income tax assets and deferred income tax  liabilities,  and
those  adjustments may be material to the Ivanhoe Mines' financial  position and
results of operations.

The Company computes the provision for deferred income taxes under the liability
method.  Deferred taxes arise from the  recognition of the tax  consequences  of
temporary differences by applying statutory tax rates applicable to future years
to differences  between the financial  statement's  carrying amounts and the tax
bases of  certain  assets  and  liabilities.  The  Company  records a  valuation
allowance  against  any  portion  of  those  deferred  income  tax  assets  that
management believes will, more likely than not, fail to be realized.

The   determination   of  the  ability  of  the  Company  to  utilize  tax  loss
carry-forwards  to offset deferred income taxes payable  requires  management to
exercise  judgment  and make  assumptions  about the future  performance  of the
Company.  Management  is required to assess  whether the Company is "more likely
than not" to be able to benefit  from  these tax  losses.  Changes  in  economic
conditions,  metal  prices and other  factors  could  result in revisions to the
estimates of the benefits to be realized or the timing of utilizing the losses.

--------------------------------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------------------------------------------------------

Recently  issued  United  States  accounting  pronouncements  have been outlined
below.

In September 2006, the FASB issued Statement of Financial  Accounting  Standards
No. 157,  "Fair Value  Measurements"  (SFAS 157).  This  Statement  defines fair


                                      42
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


value,  establishes  guidelines for measuring fair value and expands disclosures
regarding fair value measurements.  SFAS 157 does not require any new fair value
measurements but rather eliminates  inconsistencies in guidance found in various
prior  accounting  pronouncements.  SFAS  157  is  effective  for  fiscal  years
beginning after November 15, 2007. The Company expects that adoption of SFAS 157
will not have a  material  impact  on its  financial  condition  or  results  of
operations.

In February 2007, the FASB issued  Statement of Financial  Accounting  Standards
No.  159,   "The  Fair  Value  Option  for   Financial   Assets  and   Financial
Liabilities--Including  an amendment of FASB Statement No. 115" (SFAS 159). This
statement  gives  entities the option to measure  certain  financial  assets and
liabilities at fair value, with changes in fair value recorded in earnings. SFAS
159 is effective for fiscal years beginning after November 15, 2007. The Company
expects  that  adoption  of SFAS  159 will not  have a  material  impact  on its
financial condition or results of operations.

In December 2007, the FASB issued  Statement of Financial  Accounting  Standards
No. 141 (revised  2007),  "BUSINESS  COMBINATIONS"  (SFAS  141(R)).  SFAS 141(R)
changes   accounting  for  acquisitions  that  close  beginning  in  2009.  More
transactions  and events  will  qualify  as  business  combinations  and will be
accounted for at fair value under the new standard. SFAS 141(R) promotes greater
use of fair values in financial  reporting.  Some of the changes will  introduce
more  volatility  into  earnings.  SFAS  141(R) is  effective  for fiscal  years
beginning on or after December 15, 2008. The Company is currently  assessing the
impact  that  SFAS  141(R)  may  have  on its  financial  position,  results  of
operations, and cash flows.

In December 2007, the FASB issued  Statement of Financial  Accounting  Standards
No. 160,  "NONCONTROLLING  INTERESTS IN CONSOLIDATED FINANCIAL STATEMENTS" (SFAS
160),  an  amendment  of ARB No. 51.  SFAS 160 will  change the  accounting  and
reporting for minority interests which will be recharacterized as noncontrolling
interests  and  classified  as a component of equity.  SFAS 160 is effective for
fiscal  years  beginning  on or after  December  15,  2008.  SFAS  160  requires
retroactive  adoption  of  the  presentation  and  disclosure  requirements  for
existing minority interests.  The Company is currently assessing the impact that
SFAS 160 may have on its financial  position,  results of  operations,  and cash
flows.

--------------------------------------------------------------------------------
RISKS AND UNCERTAINTIES
--------------------------------------------------------------------------------

Material  risks and  uncertainties  affecting  Ivanhoe  Mines,  their  potential
impact, and the Company's principal risk management strategies, are as follows:


IVANHOE MINES MAY BE UNSUCCESSFUL IN COMPLETING AN INVESTMENT AGREEMENT WITH THE
GOVERNMENT  OF  MONGOLIA  FOR  THE OYU  TOLGOI  PROJECT  OR MAY  ONLY BE ABLE TO
COMPLETE THE CONTRACT ON TERMS THAT EFFECTIVELY IMPAIR THE ECONOMIC VIABILITY OF
THE  PROJECT.
The Investment Agreement with the Government of Mongolia is expected to address
a broad range of matters relevant to the Oyu Tolgoi Project, and the nature and


                                      43
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


scope of the Investment Agreement is of fundamental importance to the viability
of the  Oyu  Tolgoi  Project.  The  amendments  to the  Mining  Law  that  were
implemented in the Spring of 2006 establish a broad framework for an Investment
Agreement, and a substantial portion of the terms are subject to the discretion
and mutual  agreement  of the  Government  and the  applicable  mining  license
holder. The Mongolian Government can, within the discretionary  mandate imposed
by the Mining Law,  propose to complete the Agreement  only on terms that would
severely impact the economic viability of the Oyu Tolgoi Project or effectively
prevent the Company  from coming to an  agreement  with the  Government  on the
Investment  Agreement.  In June 2007, the Government of Mongolia  completed the
draft  Investment  Agreement,  but this  draft  has not been  presented  to the
Mongolian  Parliament for approval and political  developments  since that date
have  meant  that the scope of the  Investment  Agreement  could be  subject to
further amendments.  In addition, there is the potential for additional changes
to the Mining Law that could result in further  amendments  to the scope of the
Investment  Agreement.  Any such result could have a significant adverse effect
on the development of the Oyu Tolgoi Project and Ivanhoe Mines itself.

IVANHOE  MINES' ABILITY TO CARRY ON BUSINESS IN MONGOLIA IS SUBJECT TO POLITICAL
RISK.
Ivanhoe  Mines holds its interest in the Oyu Tolgoi  Project,  the Ovoot Tolgoi
Project,  through its  interest in  SouthGobi,  and its  Mongolian  exploration
properties  through mining licences and exploration  licences that enable it to
conduct operations or development and exploration  activities.  Notwithstanding
these arrangements, Ivanhoe Mines' ability to conduct operations or exploration
and  development  activities is subject to changes in legislation or government
regulations or shifts in political attitudes beyond Ivanhoe Mines' control.

Government policy may change to discourage foreign  investment,  nationalization
of mining industries may occur or other government limitations,  restrictions or
requirements  not  currently  foreseen  may  be  implemented.  There  can  be no
assurance  that Ivanhoe  Mines'  assets will not be subject to  nationalization,
requisition  or  confiscation,  whether  legitimate  or not, by any authority or
body.

There is no assurance that provisions  under Mongolian law for  compensation and
reimbursement of losses to investors under such circumstances would be effective
to restore the value of Ivanhoe Mines' original investment.  Similarly,  Ivanhoe
Mines'  operations may be affected in varying degrees by government  regulations
with respect to restrictions on production,  price  controls,  export  controls,
income taxes, environmental legislation, mine safety and annual fees to maintain
mineral licences in good standing. There can be no assurance that Mongolian laws
protecting foreign investments will not be amended or abolished or that existing
laws will be enforced or interpreted to provide adequate  protection against any
or all of the risks described above.

THERE CAN BE NO  ASSURANCE  THAT  IVANHOE  MINES WILL BE CAPABLE OF RAISING  THE
ADDITIONAL  FUNDING THAT IT NEEDS TO CARRY OUT ITS  DEVELOPMENT  AND EXPLORATION
OBJECTIVES.
The  further  development  and  exploration  of the Oyu Tolgoi  Project and the
various  other  mineral  properties  in which it holds  interests  depends upon
Ivanhoe Mines' ability to obtain financing  through capital  markets,  sales of
non-core  assets or other means.  Ivanhoe Mines will be able to meet short-term
cash  requirements for the development of the Oyu Tolgoi Project as a result of
the Rio Tinto Credit Agreement,  but these funds will not be sufficient to meet
all development  needs. The share purchase  entitlements and obligations of Rio


                                      44
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


Tinto  pursuant  to the Rio Tinto  Transaction  may,  if  consummated  in their
entirety,  account for a substantial portion of the development cost of the Oyu
Tolgoi  Project,  there  is no  assurance  that  Ivanhoe  Mines  will  meet the
conditions  necessary to trigger Rio Tinto's  purchase  obligations or that Rio
Tinto will  exercise  its  entitlement  to  subscribe  for more  share  capital
pursuant  to  its  warrants  and  other  rights.  In  particular,  Rio  Tinto's
obligation to complete the second tranche  private  placement is subject to the
Company  obtaining an  Investment  Agreement on terms  acceptable to Rio Tinto.
Until an  Investment  Agreement  with the  Government  of  Mongolia is actually
finalized  and  approved,  it is not  possible  to predict  to what  extent the
Company will be successful in negotiating and obtaining terms and conditions in
an Investment Agreement that is acceptable to Rio Tinto. Meanwhile, Rio Tinto's
warrants are exercisable at the discretion of Rio Tinto,  and Ivanhoe Mines has
no control over the decision to exercise those warrants.  If the second tranche
private placement is not completed and/or the warrants are not exercised by Rio
Tinto,  there is no assurance  that the Company will be successful in obtaining
financing  from  other  sources  necessary  for  development  of the Oyu Tolgoi
Project,  on favourable  terms or at all. Even if Rio Tinto does  subscribe for
the maximum amount contemplated in the Rio Tinto Transaction, such amount would
not  necessarily be sufficient to cover all  contingencies  relating to the Oyu
Tolgoi  Project or to advance  the  development  of other  mineral  properties.
Depressed  markets  for  precious  and base  metals  may make it  difficult  or
impossible  for Ivanhoe  Mines to obtain debt  financing  or equity  financing.
Ivanhoe  Mines  operates in a region of the world that is prone to economic and
political  upheaval  and  instability,  which  may make it more  difficult  for
Ivanhoe Mines to obtain debt financing from project lenders.  Failure to obtain
additional  financing on a timely basis may cause Ivanhoe Mines to postpone its
development  plans,  forfeit  rights in some or all of its  properties or joint
ventures or reduce or terminate some or all of its operations.


LACK OF  INFRASTRUCTURE  IN PROXIMITY TO THE OYU TOLGOI PROJECT COULD  ADVERSELY
AFFECT  MINING  FEASIBILITY.
The Oyu Tolgoi Project is located in an extremely  remote area which  currently
lacks  basic  infrastructure,  including  sources  of  electric  power,  water,
housing,  food and  transport,  necessary to develop and operate a major mining
project.  While  Ivanhoe  Mines  has  established  the  limited  infrastructure
necessary  to conduct  its  current  exploration  and  development  activities,
substantially  greater  sources of power,  water,  physical plant and transport
infrastructure in the area will need to be established before Ivanhoe Mines can
conduct  mining  operations.  Lack of  availability  of the  means  and  inputs
necessary  to  establish  such   infrastructure  may  adversely  affect  mining
feasibility.  Establishing  such  infrastructure  will,  in any event,  require
significant financing,  identification of adequate sources of raw materials and
supplies and necessary approvals from national and regional  governments,  none
of which can be assured.  The Ovoot Tolgoi  Project is  similarly  located in a
remote area.

MINING  PROJECTS ARE SENSITIVE TO THE VOLATILITY OF METAL PRICES.
The  long-term  viability of Ivanhoe  Mines  depends in large part on the world
market  prices of copper  and gold.  The  market  prices  for these  metals are
volatile and are affected by numerous  factors beyond  Ivanhoe Mines'  control.
These factors include international economic and political trends, expectations
of  inflation,  global and regional  demand,  currency  exchange  fluctuations,


                                      45
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


interest  rates  and  global  or  regional  consumption  patterns,  speculative
activities,  increased production due to improved mining and production methods
and economic events, including the performance of Asia's economies.

The aggregate effect of these factors on metals prices is impossible for Ivanhoe
Mines to predict.  Should prevailing metal prices fall and remain below variable
production  costs of Ivanhoe Mines' current and planned mining  operations for a
sustained  period,  losses may be sustained  and,  under certain  circumstances,
there  may be a  curtailment  or  suspension  of some or all of  Ivanhoe  Mines'
mining, development and exploration activities. Ivanhoe Mines would also have to
assess the economic impact of any sustained lower metal prices on recoverability
and,  therefore,  the cut-off  grade and level of Ivanhoe  Mines'  reserves  and
resources.  These factors could have an adverse  impact on Ivanhoe Mines' future
cash flows,  earnings,  results of  operations,  stated  reserves and  financial
condition.

The following  table sets forth for the periods  indicated (1) the London Metals
Exchange's  high, low and average  settlement  prices for copper in U.S. dollars
per pound and (2) the high, low and average London  afternoon  fixing prices for
gold.

   -----------------------------------------------------------------------------
                        COPPER                     GOLD
              ------------------------------------------------------------------
   YEAR       HIGH     LOW      AVERAGE   HIGH     LOW       AVERAGE
   -----------------------------------------------------------------------------
   2002       $0.77    $0.65    $0.71     $349     $278      $310
   2003       $1.05    $0.71    $0.81     $416     $320      $363
   2004       $1.49    $1.06    $1.30     $454     $375      $409
   2005       $2.11    $1.39    $1.67     $536     $411      $444
   2006       $3.99    $2.06    $3.05     $725     $524      $604
   2007       $3.77    $2.37    $3.23     $841     $604      $695
   -----------------------------------------------------------------------------


IVANHOE  MINES'  BUSINESS MAY BE SUBJECT TO LEGAL RISK.
The legal framework in Mongolia is, in many instances, based on recent political
reforms  or  newly  enacted  legislation,  which  may  not  be  consistent  with
long-standing  local  conventions  and  customs.  As  a  result,  there  may  be
ambiguities, inconsistencies and anomalies in the agreements, licenses and title
documents  upon which  Ivanhoe  Mines holds its  interests in  Mongolia,  or the
underlying  legislation upon which those interests are based, which are atypical
of more  developed  legal  systems and which may affect the  interpretation  and
enforcement of Ivanhoe Mines' rights and  obligations.  Local  institutions  and
bureaucracies   responsible   for   administrating   laws   may  lack  a  proper
understanding of the laws or the experience  necessary to apply them in a modern
business  context.  Many laws have been enacted,  but in many instances they are
neither understood nor enforced and may be applied in an inconsistent, arbitrary
and  unfair  manner,   while  legal  remedies  may  be  uncertain,   delayed  or
unavailable.  For decades  Mongolians have looked to politicians and bureaucrats
as the  sources of the  "law".  This has  changed  in  theory,  but often not in
practice.  With respect to most  day-to-day  activities  in Mongolia  government
civil servants interpret, and often effectively make, the law. This situation is
gradually  changing but at a relatively  slow pace.  Accordingly,  while Ivanhoe


                                      46
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


Mines  believes  that it has taken the legal steps  necessary to obtain and hold
its property and other interest in Mongolia, there can be no guarantee that such
steps will be sufficient to preserve those interests.

RECENT AND FUTURE  AMENDMENTS TO MONGOLIAN LAWS COULD  ADVERSELY  AFFECT IVANHOE
MINES'  MINING  RIGHTS IN THE OYU TOLGOI  PROJECT OR MAKE IT MORE  DIFFICULT  OR
EXPENSIVE  TO  DEVELOP  THE  PROJECT  AND CARRY OUT  MINING.
In 2006,  Mongolia  implemented  revisions to the Minerals Law. These  revisions
continue to preserve  the  substance  of the original  Minerals  Law,  which was
drafted with the  assistance of Western legal experts and is widely  regarded as
progressive,  internally consistent and effective legislation, but the revisions
have also  increased the potential for political  interference  and weakened the
rights of mineral  holders in Mongolia.  A number of the provisions will require
further  clarification  from the  Government  about  the  manner  in  which  the
Government  intends to interpret and apply the relevant law,  which could have a
significant  effect on Ivanhoe Mines'  Mongolian  properties,  including the Oyu
Tolgoi  Project  in  particular.  In  addition,  representatives  of  the  newly
installed   government  in  Mongolia   have   recently   stated  that  they  are
contemplating further amendments to the Mining Law.

The  Mongolian  Government  has,  in the past,  expressed  its strong  desire to
foster,  and has to date protected the development  of, an enabling  environment
for foreign  investment.  However,  there are  political  constituencies  within
Mongolia  that  have   espoused   ideas  that  would  not  be  regarded  by  the
international mining industry as conducive to foreign investment if they were to
become law or official government policy. Ivanhoe Mines has no reason to believe
that the Government of Mongolia intends to sponsor or that Parliament intends to
enact  amendments  to the  Minerals  Law or  other  legislation  that  would  be
materially  adverse to the  interests of  international  investors in Mongolia's
mining sector,  including those of Ivanhoe Mines.  Nevertheless,  the Oyu Tolgoi
Project has a high profile  among the citizens of Mongolia  and, as a burgeoning
democracy,  Mongolia has recently demonstrated a degree of political volatility.
Accordingly,  until these issues are  addressed and  clarified,  there can be no
assurance that the present  government or a future  government will refrain from
enacting legislation or adopting government policies that are adverse to Ivanhoe
Mines'  interests or that impair  Ivanhoe  Mines' ability to develop and operate
the Oyu Tolgoi Project on the basis presently contemplated.

IVANHOE MINES MAY EXPERIENCE DIFFICULTIES WITH ITS JOINT VENTURE PARTNERS.
A portion of the Oyu Tolgoi  Project  property is held  through a joint  venture
with Entree,  and Ivanhoe Mines  currently  holds and  entitlement to 60% of the
joint  venture  interest.  Ivanhoe  Mines  is  subject  to  the  risks  normally
associated with the conduct of joint ventures, which include disagreements as to
how to develop,  operate and finance a project and possible  litigation  between
the  participants  regarding  joint venture  matters.  These matters may have an
adverse effect on Ivanhoe Mines' ability to realize the full economic benefit of
its interest in the  property  that is the subject of the joint  venture,  which
could affect its results of operations and financial condition.

IVANHOE   MINES  MAY  BE  UNABLE  TO  ENFORCE   ITS  LEGAL   RIGHTS  IN  CERTAIN
CIRCUMSTANCES.
In the event of a dispute  arising at or in respect of,  Ivanhoe  Mines' foreign
operations,  including the Oyu Tolgoi  Project,  Ivanhoe Mines may be subject to
the  exclusive  jurisdiction  of  foreign  courts  or may not be  successful  in


                                      47
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


subjecting  foreign  persons  to the  jurisdiction  of courts in Canada or other
jurisdictions.  Ivanhoe Mines may also be hindered or prevented  from  enforcing
its rights with respect to a governmental  entity or instrumentality  because of
the doctrine of sovereign immunity.

THE MONWYA TRUST MAY NOT BE ABLE TO SELL THE INTEREST IN THE MYANMAR ASSETS ON A
TIMELY BASIS OR FOR ITS FAIR VALUE
Pursuant  to the  transaction  establishing  the  Monwya  Trust,  the  Trust  is
obligated  to sell its interest in the Myanmar  Assets to a third  party.  Until
such time as that sale occurs,  Ivanhoe Mines will not receive the consideration
that it is seeking for the project.  There are numerous contingencies that could
constrain  the sale price or otherwise  prevent the sale of the Myanmar  assets,
including  operational problems on the Monywa Copper Project,  disputes with the
government-controlled  joint venture partner and a severe decrease in the market
price for copper. In addition, there are international sanctions directed at the
Government of Myanmar by several  constituencies,  including the United  States,
European  Union and Canada.  While the  sanctions  in their  current form do not
affect Ivanhoe Mines' investments in Myanmar, they effectively reduce the number
of potential  purchasers for the Monywa Copper Project interest and have, in the
past, hindered the orderly conduct of commercial operations. Accordingly, it may
be  difficult  for the Monwya  Trust to arrange a sale of the Myanmar  Assets on
reasonable commercial terms or at all.

IVANHOE MINES VALUATION OF ITS INVESTMENT IN ACBP MAY NOT REFLECT ACTUAL AMOUNTS
RECOVERED IN THE FUTURE
Ivanhoe  Mines has  valued its  investment  in ABCP  using  information  that is
publicly available at this time. Continuing uncertainties regarding the value of
the assets that  underlie the ABCP,  the amount and timing of cash flows and the
outcome of the restructuring  process could give rise to a further change in the
fair value of Ivanhoe Mines' investment.  There can be no assurance that Ivanhoe
Mines' investment will be recoverable in whole, in part or at all.

CHANGES  IN, OR MORE  AGGRESSIVE  ENFORCEMENT  OF,  LAWS AND  REGULATIONS  COULD
ADVERSELY IMPACT IVANHOE MINES' BUSINESS.
Mining  operations and exploration  activities are subject to extensive laws and
regulations.  These relate to  production,  development,  exploration,  exports,
imports,  taxes and royalties,  labour  standards,  occupational  health,  waste
disposal,  protection and remediation of the environment,  mine  decommissioning
and  reclamation,  mine  safety,  toxic  substances,  transportation  safety and
emergency response and other matters.

Compliance  with these laws and  regulations  increases  the costs of exploring,
drilling,  developing,  constructing,  operating  and  closing  mines  and other
facilities.  It is possible that the costs,  delays and other effects associated
with these laws and regulations may impact Ivanhoe Mines' decision as to whether
to continue to operate in a particular  jurisdiction  or whether to proceed with
exploration  or  development  of  properties.  Since legal  requirements  change
frequently, are subject to interpretation and may be enforced to varying degrees
in practice,  Ivanhoe Mines is unable to predict the ultimate cost of compliance
with these requirements or their effect on operations.  Furthermore,  changes in
governments, regulations and policies and practices could have an adverse impact
on Ivanhoe  Mines'  future  cash  flows,  earnings,  results of  operations  and
financial condition.


                                      48
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


IVANHOE  MINES IS  SUBJECT TO  SUBSTANTIAL  ENVIRONMENTAL  AND OTHER  REGULATORY
REQUIREMENTS  AND SUCH  REGULATIONS ARE BECOMING MORE STRINGENT.  NON-COMPLIANCE
WITH  SUCH  REGULATIONS,  EITHER  THROUGH  CURRENT  OR  FUTURE  OPERATIONS  OR A
PRE-EXISTING CONDITION COULD MATERIALLY ADVERSELY AFFECT IVANHOE MINES.
All phases of Ivanhoe Mines' operations are subject to environmental regulations
in the various  jurisdictions in which it operates.  For example, the Oyu Tolgoi
Project  is  subject  to  a  requirement  to  develop  an  environmental  impact
assessment, as well as other environmental protection obligations. Environmental
legislation is evolving in a manner which will likely require stricter standards
and  enforcement,  increased  fines  and  penalties  for  non-compliance,   more
stringent environmental assessments of proposed projects and a heightened degree
of  responsibility  for companies and their  officers,  directors and employees.
There is no assurance that future changes in environmental  regulation,  if any,
will not adversely affect Ivanhoe Mines' operations.  Environmental  hazards may
exist on the  properties  in which  Ivanhoe  Mines  holds  interests  which  are
presently  unknown to Ivanhoe  Mines and which have been  caused by  previous or
existing third party owners or operators of the properties.

Government  approvals  and permits are  sometimes  required in  connection  with
Ivanhoe  Mines'  operations.  To the extent such  approvals are required and not
obtained,  Ivanhoe  Mines may be  delayed or  prohibited  from  proceeding  with
planned exploration or development of its mineral properties.

Failure to comply with applicable laws, regulations and permitting  requirements
may  result  in  enforcement  actions  thereunder,  including  orders  issued by
regulatory or judicial  authorities causing operations to cease or be curtailed,
and may include corrective measures requiring capital expenditures, installation
of  additional  equipment,  or  remedial  actions.  Parties  engaged  in  mining
operations  may be  required to  compensate  those  suffering  loss or damage by
reason  of the  mining  activities  and may  have  civil  or  criminal  fines or
penalties imposed for violations of applicable laws or regulations.

Amendments to current laws,  regulations  and permits  governing  operations and
activities of mining companies, or more stringent  implementation thereof, could
have a material  adverse impact on Ivanhoe Mines and cause  increases in capital
expenditures  or  production  costs or  reductions  in levels of  production  at
producing  properties or require abandonment or delays in the development of new
mining properties.

PREVIOUS MINING OPERATIONS MAY HAVE CAUSED ENVIRONMENTAL DAMAGE AT IVANHOE MINES
MINING  SITES,  AND IF IVANHOE MINES CANNOT PROVE THAT SUCH DAMAGE WAS CAUSED BY
SUCH PRIOR  OPERATORS,  ITS INDEMNITIES AND EXEMPTIONS FROM LIABILITY MAY NOT BE
EFFECTIVE.
Ivanhoe Mines has received exemptions from liability from relevant  governmental
authorities for  environmental  damage caused by previous  mining  operations at
current and former projects,  including at the Monywa Copper Project in Myanmar,
the Bakyrchik gold project in Kazakhstan and the Cloncurry Project in Australia.
There is a risk, however,  that, if an environmental  accident occurred at those


                                      49
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


sites,  it may be  difficult  or  impossible  to  assess  the  extent  to  which
environmental  damage was caused by Ivanhoe Mines'  activities or the activities
of  previous  operators.  In that  event,  the  liability  exemptions  could  be
ineffective and possibly worthless.

THE ACTUAL COST OF DEVELOPING  THE OYU TOLGOI  PROJECT MAY DIFFER  SIGNIFICANTLY
FROM IVANHOE MINES' ESTIMATES AND INVOLVE UNEXPECTED PROBLEMS OR DELAYS.
The estimates  regarding the development and operation of the Oyu Tolgoi Project
are based on the 2005 IDP.  This study  establishes  estimates  of reserves  and
resources and operating costs and projects economic returns. These estimates are
based, in part, on assumptions about future metal prices and future cost inputs,
and  variances in these  inputs,  as well as other inputs that form the basis of
the 2005 IDP, may result in operating costs, construction and development costs,
production and economic returns that differ significantly from those anticipated
by the 2005 IDP and future development  reports. In the case of operating costs,
the 2005 IDP derives estimates of average cash operating costs based upon, among
other things:

   o  anticipated tonnage, grades and metallurgical characteristics of ore to be
      mined and processed;

   o  anticipated recovery rates of copper and gold from the ore;

   o  cash operating costs of comparable facilities and equipment; and

   o  anticipated climatic conditions.

There  are  also a number  of  uncertainties  inherent  in the  development  and
construction  of  any  new  mine  including  the  Oyu  Tolgoi   Project.   These
uncertainties include:

   o  the timing and cost,  which can be  considerable,  of the  construction of
      mining and processing facilities;

   o  the   availability   and  cost  of  skilled  labour,   power,   water  and
      transportation;

   o  the   availability   and  cost  of   appropriate   smelting  and  refining
      arrangements;

   o  the need to obtain necessary  environmental and other government  permits,
      and the timing of those permits; and

   o  the  availability  of  funds  to  finance   construction  and  development
      activities.

The cost,  timing and  complexities  of mine  construction  and  development are
increased by the remote  location of a property such as the Oyu Tolgoi  Project.
It is common in new mining  operations  to  experience  unexpected  problems and
delays during development,  construction and mine start-up. In addition,  delays
in the commencement of mineral production often occur. Accordingly,  there is no
assurance  that Ivanhoe  Mines'  future  development  activities  will result in
profitable mining operations.


                                      50
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


IVANHOE  MINES  ABILITY  TO OBTAIN  DIVIDENDS  OR OTHER  DISTRIBUTIONS  FROM ITS
SUBSIDIARIES  MAY BE SUBJECT TO RESTRICTIONS  IMPOSED BY LAW,  FOREIGN  CURRENCY
EXCHANGE REGULATIONS AND FINANCING ARRANGEMENTS.
Ivanhoe  Mines  conducts its  operations  through  subsidiaries.  Its ability to
obtain dividends or other  distributions from its subsidiaries may be subject to
restrictions  on dividends or repatriation  of earnings under  applicable  local
law, monetary transfer restrictions and foreign currency exchange regulations in
the jurisdictions in which the subsidiaries  operate. The subsidiaries'  ability
to pay dividends or make other distributions to Ivanhoe Mines is also subject to
their having  sufficient  funds to do so. If the  subsidiaries are unable to pay
dividends  or make other  distributions,  Ivanhoe  Mines growth may be inhibited
unless it is able to obtain  additional  equity or debt  financing on acceptable
terms. In the event of a subsidiary's liquidation, Ivanhoe Mines may lose all or
a portion of its investment in that subsidiary.

THERE  CAN BE NO  ASSURANCE  THAT  THE  INTEREST  HELD BY  IVANHOE  MINES IN ITS
EXPLORATION,  DEVELOPMENT  AND MINING  PROPERTIES  IS FREE FROM  DEFECTS OR THAT
MATERIAL  CONTRACTUAL  ARRANGEMENTS  BETWEEN IVANHOE MINES AND ENTITIES OWNED OR
CONTROLLED BY FOREIGN GOVERNMENTS WILL NOT BE UNILATERALLY ALTERED OR REVOKED.
Ivanhoe  Mines has  investigated  its rights to explore  and exploit its various
properties and, to the best of its knowledge,  those rights are in good standing
but no  assurance  can be  given  that  such  rights  will  not be  revoked,  or
significantly  altered,  to the detriment of Ivanhoe Mines. There can also be no
assurance that Ivanhoe Mines' rights will not be challenged or impugned by third
parties.  Ivanhoe Mines has also applied for rights to explore, develop and mine
various  properties,  but  there  is no  certainty  that  such  rights,  or  any
additional rights applied for, will be granted on terms  satisfactory to Ivanhoe
Mines or at all.

THE PROCEEDS FROM THE SALE OF THE SAVAGE RIVER PROJECT ARE DEPENDENT ON IRON ORE
PRICES AND THE REMAINING SUPPLY OF ORE AT THE SAVAGE RIVER PROJECT.
The remaining  portion of the proceeds payable to Ivanhoe Mines from the sale of
the Savage  River  Project are  deferred,  and the amount of such  payments  are
dependent on prevailing  prices for iron ore (as represented by the Nibrasco/JSM
pellet price) in the year that the compensation is paid and the total tonnage of
iron ore pellets  sold from the Savage River  Project in that year.  Such prices
are very  volatile and in the past prices have  suffered  significant  declines.
Lower prices means lower  corresponding  payments to Ivanhoe Mines. In addition,
while  current  reserve and resource  estimates  indicate  that the mine will be
capable  of  producing  sufficient  ore to meet the  1,800,000  tonnes  per year
threshold for the term of deferred  payments,  there is no assurance  that these
estimates will actually bear  themselves  out. If  insufficient  ore is actually
present to produce the maximum  threshold amount of ore, then the  corresponding
payments to Ivanhoe Mines will be lower.

COMPETITION FOR NEW MINING PROPERTIES BY LARGER, MORE ESTABLISHED  COMPANIES MAY
PREVENT  IVANHOE  MINES FROM  ACQUIRING  INTERESTS IN  ADDITIONAL  PROPERTIES OR
MINING OPERATIONS.
Significant   and  increasing   competition   exists  for  mineral   acquisition
opportunities  throughout the world.  As a result of this  competition,  some of
which is with  large,  better  established  mining  companies  with  substantial
capabilities and greater financial and technical resources, Ivanhoe Mines may be


                                      51
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


unable to acquire rights to exploit  additional  attractive mining properties on
terms it  considers  acceptable.  Accordingly,  there can be no  assurance  that
Ivanhoe  Mines will acquire any  interest in  additional  operations  that would
yield reserves or result in commercial mining operations.

THERE IS NO  ASSURANCE  THAT  IVANHOE  MINES  WILL BE  CAPABLE  OF  CONSISTENTLY
PRODUCING POSITIVE CASH FLOWS.
Ivanhoe Mines has paid no dividends on its Common Shares since incorporation and
does not anticipate doing so in the foreseeable  future.  Ivanhoe Mines has not,
to date,  produced  positive  cash  flows from  operations,  and there can be no
assurance of its ability to operate its projects profitably. While Ivanhoe Mines
may in the future  generate  additional  working  capital through the operation,
development,  sale  or  possible  syndication  of its  properties,  there  is no
assurance that Ivanhoe Mines will be capable of producing  positive cash flow on
a consistent  basis or that any such funds will be available for exploration and
development programs.

A SUBSTANTIAL  PORTION OF IVANHOE  MINES'  OPERATIONS  INVOLVE  EXPLORATION  AND
DEVELOPMENT  AND THERE IS NO  GUARANTEE  THAT ANY SUCH  ACTIVITY  WILL RESULT IN
COMMERCIAL PRODUCTION OF MINERAL DEPOSITS.
Development of Ivanhoe Mines'  mineral  properties is contingent  upon obtaining
satisfactory  exploration results.  Mineral exploration and development involves
substantial  expenses  and a high degree of risk,  which even a  combination  of
experience,  knowledge  and  careful  evaluation  may not be able to  adequately
mitigate.  There is no assurance that  additional  commercial  quantities of ore
will be discovered on any of Ivanhoe  Mines'  exploration  properties.  There is
also no assurance that, even if commercial  quantities of ore are discovered,  a
mineral  property will be brought into commercial  production.  The discovery of
mineral  deposits is dependent upon a number of factors,  not the least of which
is the technical skill of the  exploration  personnel  involved.  The commercial
viability of a mineral deposit, once discovered, is also dependent upon a number
of factors,  some of which are the particular attributes of the deposit, such as
size,  grade and  proximity  to  infrastructure,  metal  prices  and  government
regulations,  including regulations relating to royalties, allowable production,
importing and exporting of minerals, and environmental  protection. In addition,
assuming  discovery  of a commercial  ore body,  depending on the type of mining
operation involved,  several years can elapse from the initial phase of drilling
until commercial operations are commenced.  Most of the above factors are beyond
the control of Ivanhoe Mines.

IVANHOE MINES CANNOT INSURE AGAINST ALL OF THE RISKS ASSOCIATED WITH MINING.
Exploration, development and production operations on mineral properties involve
numerous risks and hazards, including:

   o  rock bursts,  slides,  fires,  earthquakes or other adverse  environmental
      occurrences;

   o  industrial accidents;

   o  labour disputes;

   o  political and social instability;


                                      52
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


   o  technical difficulties due to unusual or unexpected geological formations;

   o  failures of pit walls; and

   o  flooding and periodic  interruptions due to inclement or hazardous weather
      condition.

These risks can result in, among other things:

   o  damage  to,  and   destruction   of,  mineral   properties  or  production
      facilities;

   o  personal injury;

   o  environmental damage;

   o  delays in mining;

   o  monetary losses; and

   o  legal liability.

It is not always possible to obtain insurance against all such risks and Ivanhoe
Mines  may  decide  not to  insure  against  certain  risks as a result  of high
premiums or other reasons. The incurrence of an event that is not fully covered,
or covered at all, by insurance, could have a material adverse effect on Ivanhoe
Mines' financial conditions, results of operations and cash flows and could lead
to a decline in the value of the securities of Ivanhoe Mines. Ivanhoe Mines does
not maintain insurance against political or environmental risks.

AS A RESULT OF THE RIGHTS TO ACQUIRE  COMMON SHARES AND OTHER RIGHTS  GRANTED TO
RIO  TINTO  PURSUANT  TO THE RIO  TINTO  TRANSACTION  AND THE RIO  TINTO  CREDIT
AGREEMENT, RIO TINTO HAS THE ABILITY TO SIGNIFICANTLY INFLUENCE THE BUSINESS AND
AFFAIRS OF IVANHOE MINES.
Rio  Tinto's  original  subscription  for  Common  Shares,   together  with  the
additional  rights  granted  to Rio Tinto to obtain  additional  Common  Shares,
pursuant to a second tranche private  placement and the exercise of the warrants
from the Rio Tinto  Transaction  and  pursuant to  conversion  rights on amounts
owing under the Rio Tinto Credit  Agreement and the exercise of warrants granted
in connection with the creation of the Rio Tinto Credit Agreement, will give Rio
Tinto the voting power to  significantly  influence the  policies,  business and
affairs  of  Ivanhoe  Mines  and  the  outcome  of  any  significant   corporate
transaction or other matter,  including a merger, business combination or a sale
of all, or substantially  all, of the Ivanhoe Mines' assets.  Subject to certain
limited exceptions,  Rio Tinto also has a right of first refusal with respect to
any  proposed  disposition  by Ivanhoe  Mines of an  interest  in the Oyu Tolgoi
Project.  Rio Tinto's  share  position  in Ivanhoe  Mines and its right of first
refusal with respect to the Oyu Tolgoi  Project may have the effect of delaying,
deterring or preventing a  transaction  involving a change of control of Ivanhoe
Mines in favour of a third party that otherwise could result in a premium in the
market price of the Common Shares in the future.

Rio  Tinto  will  also  be  able  to  significantly  influence  the  management,
development and operation of the Oyu Tolgoi Project through its  representatives
on the OT Technical  Committee,  established  to manage the Oyu Tolgoi  Project.
Provided Rio Tinto maintains a minimum level of shareholding in the Company, Rio
Tinto's  appointees to the OT Technical  Committee will have a veto over certain


                                      53
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


specified  material  decisions during the five year period following  closing of
the first tranche private placement and,  thereafter,  Rio Tinto appointees will
represent  a majority  of the  members of the OT  Technical  Committee  and will
thereby be entitled to control the ongoing  decisions  made by the OT  Technical
Committee. In addition,  pursuant to the Credit Agreement, Rio Tinto now has the
right to appoint the Chairman of the Technical Committee overseeing  development
and  operation  of the Oyu Tolgoi  project in 2009  rather  than in 2011 and Rio
Tinto's maximum permitted shareholding in Ivanhoe Mines increased to 46.65% from
40%.

IVANHOE MINES IS EXPOSED TO RISKS OF CHANGING POLITICAL STABILITY AND GOVERNMENT
REGULATION IN THE COUNTRIES IN WHICH IT OPERATES.
Ivanhoe  Mines holds  mineral  interests in  countries  which may be affected in
varying degrees by political stability,  government  regulations relating to the
mining  industry  and  foreign  investment  therein,  and the  policies of other
nations in respect of these  countries.  Any changes in regulations or shifts in
political  conditions  are beyond the control of Ivanhoe Mines and may adversely
affect its  business.  Ivanhoe  Mines'  operations  may be  affected  in varying
degrees by government regulations,  including those with respect to restrictions
on production,  price controls, export controls, income taxes,  expropriation of
property,  employment,  land use, water use, environmental  legislation and mine
safety.  Ivanhoe Mines'  operations  may also be affected in varying  degrees by
political and economic instability, economic or other sanctions imposed by other
nations, terrorism, military repression, crime, extreme fluctuations in currency
exchange rates and high inflation.

In certain areas where Ivanhoe Mines is active, the regulatory environment is in
a state of continuing change, and new laws,  regulations and requirements may be
retroactive  in  their  effect  and  implementation.  The  laws  of  many of the
countries in which  Ivanhoe  Mines  operates  also contain  inconsistencies  and
contradictions.  Many of them are structured to bestow on government bureaucrats
substantial  administrative discretion in their application and enforcement with
the result that the laws are subject to changing and different  interpretations.
As such, even Ivanhoe Mines' best efforts to comply with the laws may not result
in effective compliance in the determination of government bureaucrats.

Ivanhoe Mines conducts  certain of its  operations  through  co-operative  joint
ventures with government  controlled  entities.  While this connection  benefits
Ivanhoe Mines in some respects,  there is a substantial  inequality with respect
to the influence of the parties with the applicable  government.  Governments in
these  countries  hold a  substantial  degree  of  subjective  control  over the
application and enforcement of laws and the conduct of business. This inequality
would become particularly detrimental if a business dispute arises between joint
venture  parties.  Ivanhoe  Mines  seeks to  minimize  this  issue by  including
international  arbitration  clauses in relevant agreements whenever possible and
by maintaining positive relations with both its joint venture partners and local
governments,  but  there  can  be no  guarantee  that  these  measures  will  be
sufficient to protect Ivanhoe Mines' interest in these countries.


                                      54
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


IVANHOE  MINES'  PROSPECTS  DEPEND ON ITS  ABILITY  TO  ATTRACT  AND  RETAIN KEY
PERSONNEL.
Recruiting  and  retaining  qualified  personnel  is critical to Ivanhoe  Mines'
success.  The number of  persons  skilled in the  acquisition,  exploration  and
development of mining  properties is limited and competition for such persons is
intense.  Ivanhoe  Mines  believes  that it has been  successful  in  recruiting
excellent  personnel to meet its  corporate  objectives  but, as Ivanhoe  Mines'
business   activity   grows,   it  will  require   additional   key   financial,
administrative,  mining,  marketing  and public  relations  personnel as well as
additional staff on the operations side. Although Ivanhoe Mines believes that it
will be successful in attracting and retaining qualified personnel, there can be
no assurance of such success.

CERTAIN  DIRECTORS  OF  IVANHOE  MINES ARE  DIRECTORS  OR  OFFICERS  OF, OR HAVE
SIGNIFICANT SHAREHOLDINGS,  IN OTHER MINERAL RESOURCE COMPANIES AND THERE IS THE
POTENTIAL THAT SUCH DIRECTORS WILL ENCOUNTER  CONFLICTS OF INTEREST WITH IVANHOE
MINES.
Certain of the  directors  of the Company are  directors or officers of, or have
significant  shareholdings  in, other  mineral  resource  companies  and, to the
extent that such other  companies may  participate  in ventures in which Ivanhoe
Mines may  participate,  the  directors of Ivanhoe  Mines may have a conflict of
interest in  negotiating  and  concluding  terms  respecting  the extent of such
participation.  This  includes the  nominees of Rio Tinto,  which is entitled to
nominate directors to the board of directors of the Company in proportion to its
holdings of the  Company's  issued and  outstanding  common  shares from time to
time.  Certain of these nominees are or may be directors or officers of, or have
significant  shareholdings  in, Rio Tinto  companies or other  mineral  resource
companies  and,  to the  extent  that such  companies  may  engage  in  business
relationships  with the Company,  the directors of the Company  appointed by Rio
Tinto may have conflicts of interest in negotiating and concluding terms of such
relationships.  In all case where  directors  and  officers  have an interest in
another  resource  company,  such other  companies may also compete with Ivanhoe
Mines for the acquisition of mineral property rights. In the event that any such
conflict of interest  arises,  a director who has such a conflict  will disclose
the conflict to a meeting of the  directors of the Company and will abstain from
voting for or against the  approval of such a  participation  or such terms.  In
appropriate  cases,   Ivanhoe  Mines  will  establish  a  special  committee  of
independent  directors  to  review  a  matter  in which  several  directors,  or
management,  may have a  conflict.  From  time to time,  several  companies  may
participate in the acquisition,  exploration and development of natural resource
properties thereby allowing their  participation in larger programs,  permitting
involvement in a greater number of programs and reducing  financial  exposure in
respect of any one  program.  It may also occur that a  particular  company will
assign all or a portion of its  interest in a  particular  program to another of
these  companies  due to  the  financial  position  of the  company  making  the
assignment.  In accordance with the laws of the Yukon Business Corporations Act,
the directors of the Company are required to act honestly,  in good faith and in
the best interests of the Company.  In determining  whether or not Ivanhoe Mines
will participate in a particular program and the interest therein to be acquired
by it, the directors will primarily  consider the potential  benefits to Ivanhoe
Mines,  the  degree  of risk to  which  Ivanhoe  Mines  may be  exposed  and its
financial position at that time.


                                      55
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


--------------------------------------------------------------------------------
RELATED-PARTY TRANSACTIONS
--------------------------------------------------------------------------------

The following tables summarize related party expenses incurred by Ivanhoe Mines,
primarily on a cost recovery  basis,  with an officer of a subsidiary of Ivanhoe
Mines, a company  subject to  significant  influence by Ivanhoe Mines, a company
affiliated with Ivanhoe Mines, or with companies  related by way of directors or
shareholders in common. The tables below summarize the transactions with related
parties and the types of expenditures incurred with related parties:

                                                  Years ended December 31,
                                              --------------------------------
                                                     2007                2006
                                              ------------       -------------

Global Mining Management Corporation (a)          $ 8,577             $ 7,015
Ivanhoe Capital Aviation LLC (b)                    3,840               3,840
Fognani & Faught, PLLC (c)                          1,583               1,394
Rio Tinto plc (d)                                   1,330                   -
Ivanhoe Capital Pte. Ltd. (e)                          10                  78
Ivanhoe Capital Services Ltd. (f)                     958                 743
------------------------------------------------------------------------------
                                                 $ 16,298            $ 13,070
==============================================================================

                                                  Years ended December 31,
                                             ---------------------------------
                                                     2007                2006
                                             -------------       -------------

Exploration                                       $ 1,330             $     -
Legal                                               1,583               1,394
Office and administrative                           2,756               2,306
Salaries and benefits                               6,789               5,530
Travel (including aircraft rental)                  3,840               3,840
------------------------------------------------------------------------------
                                                 $ 16,298            $ 13,070
==============================================================================

The above noted  transactions  were in the normal course of operations  and were
measured  at  the  exchange  amount,   which  is  the  amount  of  consideration
established and agreed to by the related parties.

Accounts  receivable  and accounts  payable at December 31, 2007,  included $0.2
million and $4.0  million,  respectively  (December  31, 2006 - $0.3 million and
$1.4  million,  respectively),  which were due  from/to a company  under  common
control, a company affiliated with Ivanhoe Mines, or companies related by way of
directors in common.


                                      56
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


(a)  Global Mining Management Corporation (Global) is a private company based in
     Vancouver owned equally by seven companies,  one of which is Ivanhoe Mines.
     Global  has  a  director  in  common  with  the  Company.  Global  provides
     administration,  accounting,  and other office services to the Company on a
     cost-recovery basis.

(b)  Ivanhoe Capital  Aviation LLC (Aviation) is a private company 100% owned by
     the Company's  Chairman.  Aviation  operates an aircraft which is rented by
     the Company on a cost-recovery basis.

(c)  An officer of a  subsidiary  of Ivanhoe  Mines is a partner  with Fognani &
     Faught, PLLC, a legal firm which provides legal services to Ivanhoe Mines.

(d)  Rio Tinto  owns 9.9% of  Ivanhoe  Mines.  Rio  Tinto  provides  engineering
     related services for the Oyu Tolgoi Project on a cost recovery basis.

(e)  Ivanhoe  Capital Pte.  Ltd.  (ICPL) is a private  company 100% owned by the
     Company's Chairman.  ICPL provides  administration,  accounting,  and other
     office services in Singapore and London on a cost-recovery basis.

(f)  Ivanhoe Capital  Services Ltd. (ICS) is a private company 100% owned by the
     Company's Chairman.  ICS provides management services out of Singapore on a
     cost-recovery basis.

At the end of 2007 and 2006, Ivanhoe Mines' discontinued Savage River operations
owed approximately $5.1 million to the Company's Chairman.  This debt originated
as a result of the December 2000  acquisition,  by Ivanhoe Mines,  of the Savage
River  operation.  Following the sale of the Savage River operations in February
2005,  repayment of this balance is  contingent  upon  Ivanhoe  Mines  receiving
proceeds in excess of  approximately  $111.1 million from the sale of the Savage
River operations. To date, $70.0 million has been received from the sale with an
additional $28.2 million expected to be received on March 31, 2008.

--------------------------------------------------------------------------------
DISCLOSURE CONTROLS AND PROCEDURES
--------------------------------------------------------------------------------

Disclosure controls and procedures are designed to provide reasonable  assurance
that all relevant  information  is gathered  and reported to senior  management,
including  the Company's  principal  executive  officer and principal  financial
officer,  on a timely basis so that appropriate  decisions can be made regarding
public disclosure.

As of the  end of  the  Company's  fiscal  year  ended  December  31,  2007,  an
evaluation  of the  effectiveness  of the  Company's  "disclosure  controls  and
procedures"  (as such term is defined in Rules  13a-15(e)  and  15d-15(e) of the
Securities  Exchange Act of 1934, as amended (the Exchange Act)) was carried out
by the Company's  management with the  participation of the principal  executive


                                      57
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


officer  and  principal  financial  officer.  Based  upon that  evaluation,  the
Company's  principal  executive  officer and  principal  financial  officer have
concluded  that as of the end of that  fiscal  year,  the  Company's  disclosure
controls and procedures are effective to ensure that information  required to be
disclosed by the Company in reports that it files or submits  under the Exchange
Act is (i) recorded, processed,  summarized and reported within the time periods
specified  in  Securities  and  Exchange  Commission  rules  and  forms and (ii)
accumulated  and  communicated  to  the  Company's  management,   including  its
principal  executive officer and principal  financial  officer,  to allow timely
decisions regarding required disclosure.

It should be noted that while the  Company's  principal  executive  officer  and
principal  financial officer believe that the Company's  disclosure controls and
procedures provide a reasonable level of assurance that they are effective, they
do not expect that the Company's  disclosure controls and procedures or internal
control over  financial  reporting  will prevent all errors and fraud. A control
system,  no matter how well conceived or operated,  can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.

--------------------------------------------------------------------------------
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
--------------------------------------------------------------------------------

Management is responsible for  establishing  and maintaining  adequate  internal
control over the Company's financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) of the Exchange  Act).  Internal  control over financial
reporting is designed to provide reasonable  assurance regarding the reliability
of financial reporting and the preparation of financial statements in accordance
with United States generally accepted accounting principles and the requirements
of the Securities and Exchange  Commission in the United States,  as applicable.
The Company's  principal  executive officer and principal financial officer have
assessed the  effectiveness  of the Company's  internal  control over  financial
reporting  as at  December  31,  2007 in  accordance  with  Internal  Control  -
Integrated Framework issued by the Committee of Sponsoring  Organizations of the
Treadway  Commission (COSO).  Based on this assessment,  the Company's principal
executive  officer and  principal  financial  officer have  determined  that the
Company's internal control over financial reporting was effective as of December
31,  2007  and  have  certified  Ivanhoe  Mines'  annual  filings  with the U.S.
Securities and Exchange Commission on Form 40-F as required by the United States
Sarbanes-Oxley Act and with Canadian securities regulatory authorities.

Management  reviewed  the  results  of  management's  assessment  with the Audit
Committee  of  the  Company's  Board  of  Directors.   Deloitte  &  Touche  LLP,
independent registered chartered accountants, was engaged, as approved by a vote
of the Company's shareholders,  to audit and provide independent opinions on the
Company's  consolidated  financial  statements  and  the  effectiveness  of  the
Company's  internal  control over  financial  reporting as of December 31, 2007.
Deloitte & Touche LLP has provided such opinions.


                                      58
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the year ended  December 31, 2007 there were no changes in the  Company's
internal control over financial reporting that have materially affected,  or are
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.

--------------------------------------------------------------------------------
QUALIFIED PERSONS
--------------------------------------------------------------------------------

Disclosures of a scientific or technical  nature in this MD&A in respect of each
of Ivanhoe Mines'  material  mineral  resource  properties  were prepared by, or
under the supervision of, the "qualified persons" (as that term is defined in NI
43-101) listed below:

PROJECT                   QUALIFIED PERSON         RELATIONSHIP TO IVANHOE MINES
--------------------------------------------------------------------------------
Oyu Tolgoi Project        Stephen Torr, P.Geo,     Employee of the Company
                          Ivanhoe Mines

Ovoot Tolgoi Project      Gene Wusaty, P.Eng,      Officer of SouthGobi
                          SouthGobi


--------------------------------------------------------------------------------
OVERSIGHT ROLE OF THE AUDIT COMMITTEE
--------------------------------------------------------------------------------

The Audit  Committee  reviews,  with management and the external  auditors,  the
Company's MD&A and related  consolidated  financial  statements and approves the
release of such information to shareholders. For each audit or quarterly review,
the  external  auditors  prepare a report  for  members  of the Audit  Committee
summarizing  key  areas,   significant  issues  and  material  internal  control
weaknesses encountered, if any.

--------------------------------------------------------------------------------
CAUTIONARY STATEMENTS
--------------------------------------------------------------------------------

LANGUAGE REGARDING RESERVES AND RESOURCES
Readers are advised that National  Instrument 43-101 STANDARDS OF DISCLOSURE FOR
MINERAL PROJECTS (NI 43-101) of the Canadian Securities  Administrators requires
that each  category  of mineral  reserves  and  mineral  resources  be  reported
separately.  For detailed information related to Company resources and reserves,
readers should refer to the Annual  Information Form of the Company for the year
ended December 31, 2007, and other continuous  disclosure documents filed by the
Company since January 1, 2008, at WWW.SEDAR.COM.



                                      59
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


NOTE TO UNITED STATES INVESTORS CONCERNING ESTIMATES OF MEASURED,  INDICATED AND
INFERRED RESOURCES
This document,  including the documents  incorporated by reference  herein,  has
been prepared in accordance  with the  requirements of securities laws in effect
in Canada,  which differ from the requirements of United States securities laws.
Without  limiting  the  foregoing,   this  document,   including  the  documents
incorporated by reference  herein,  uses the terms  "measured",  "indicated" and
"inferred" resources. United States investors are advised that, while such terms
are  recognized  and  required by  Canadian  securities  laws,  the SEC does not
recognize  them.  Under  United  States  standards,  mineralization  may  not be
classified  as a  "reserve"  unless  the  determination  has been  made that the
mineralization  could be economically  and legally  produced or extracted at the
time the reserve  determination  is made.  United States investors are cautioned
not to assume that all or any part of measured or indicated  resources will ever
be converted into reserves. Further, "inferred resources" have a great amount of
uncertainty as to their existence and as to whether they can be mined legally or
economically.  It  cannot  be  assumed  that  all or any  part of the  "inferred
resources" will ever be upgraded to a higher category.  Therefore, United States
investors are also  cautioned not to assume that all or any part of the inferred
resources exist, or that they can be mined legally or  economically.  Disclosure
of "contained  ounces" is a permitted  disclosure  under  Canadian  regulations;
however,  the SEC only permits issuers to report "resources" as in place tonnage
and  grade  without  reference  to  unit  measures.   Accordingly,   information
concerning  descriptions  of  mineralization  and  resources  contained  in this
document, or in the documents  incorporated by reference,  may not be comparable
to information made public by United States  companies  subject to the reporting
and disclosure  requirements of the SEC. National Instrument 43-101 STANDARDS OF
DISCLOSURE FOR MINERAL  PROJECTS (NI 43-101) is a rule developed by the Canadian
Securities  Administrators that establishes  standards for all public disclosure
an issuer makes of  scientific  and  technical  information  concerning  mineral
projects.  Unless  otherwise  indicated,  all  reserve  and  resource  estimates
contained in or incorporated by reference in this document have been prepared in
accordance  with NI  43-101.  These  standards  differ  significantly  from  the
requirements of the SEC, and reserve and resource  information  contained herein
and   incorporated  by  reference  herein  may  not  be  comparable  to  similar
information disclosed by U.S. companies. NI 43-101 permits a historical estimate
made prior to the  adoption  of NI 43-101 that does not comply with NI 43-101 to
be disclosed using the historical terminology if the disclosure:  (a) identifies
the source and date of the  historical  estimate;  (b) comments on the relevance
and  reliability of the historical  estimate;  (c) states whether the historical
estimate  uses  categories  other than those  prescribed  by NI 43-101;  and (d)
includes any more recent estimates or data available.

--------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
--------------------------------------------------------------------------------

Certain statements made herein,  including  statements  relating to matters that
are  not  historical  facts  and  statements  of  our  beliefs,  intentions  and
expectations about  developments,  results and events which will or may occur in
the future, which constitute "forward-looking information" within the meaning of
applicable  Canadian  securities  legislation and  "forward-looking  statements"
within the meaning of the "safe harbor"  provisions of the United States Private
Securities  Litigation  Reform  Act of  1995.  Forward-looking  information  and


                                      60
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


statements  are  typically  identified by words such as  "anticipate,"  "could,"
"should,"   "expect,"   "seek,"  "may,"  "intend,"   "likely,"  "plan,"  "will",
"estimate,"  "believe" and similar  expressions  suggesting  future  outcomes or
statements  regarding  an  outlook.  These  include,  but  are not  limited  to,
statements  respecting  anticipated business activities;  planned  expenditures;
corporate   strategies;   proposed  acquisitions  and  dispositions  of  assets;
discussions  with third parties  respecting  material  agreements;  the expected
timing and outcome of Ivanhoe Mines'  discussions  with  representatives  of the
Government of Mongolia for an Investment  Agreement in respect of the Oyu Tolgoi
Project;  the estimated  timing and cost of bringing the Oyu Tolgoi Project into
commercial  production;  anticipated  future  production and cash flows;  target
milling  rates;  the  impact of  amendments  to the laws of  Mongolia  and other
countries in which Ivanhoe Mines carries on business;  the timing for completion
of the 2008 IDP and changes in mine plan contemplated thereunder;  the timing of
commencement of full  construction of the Oyu Tolgoi Project;  the completion of
an updated mine plan for the Ovoot Tolgoi  Project;  the  potential  sale of the
Monywa  Copper  Project by the Monwya Trust to a third party;  the  potential of
plans to make non-core projects self-funding,  and other statements that are not
historical facts.

All such  forward-looking  information  and  statements  are  based  on  certain
assumptions  and analyses  made by Ivanhoe  Mines'  management in light of their
experience and perception of historical trends,  current conditions and expected
future   developments,   as  well  as  other  factors  management  believes  are
appropriate in the circumstances.  These statements,  however,  are subject to a
variety of risks and  uncertainties  and other  factors  that could cause actual
events  or  results  to  differ   materially   from  those   projected   in  the
forward-looking  information or statements.  Important  factors that could cause
actual  results to differ from these  forward-looking  statements  include those
described  under the heading "Risks and  Uncertainties"  elsewhere in this MD&A.
The  reader  is  cautioned  not  to  place  undue  reliance  on  forward-looking
information or statements.

This MD&A also contains  references to estimates of mineral reserves and mineral
resources.  The estimation of reserves and resources is inherently uncertain and
involves subjective  judgments about many relevant factors.  The accuracy of any
such estimates is a function of the quantity and quality of available  data, and
of the  assumptions  made  and  judgments  used in  engineering  and  geological
interpretation, which may prove to be unreliable. There can be no assurance that
these  estimates  will be accurate  or that such  mineral  reserves  and mineral
resources can be mined or processed  profitably.  Mineral resources that are not
mineral reserves do not have demonstrated economic viability. Except as required
by law,  the Company  does not assume the  obligation  to revise or update these
forward-looking  statements after the date of this document or to revise them to
reflect the occurrence of future unanticipated events.


                                      61
<PAGE>

                               IVANHOE MINES LTD.
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

                   (Stated in U.S. dollars except where noted)


--------------------------------------------------------------------------------
MANAGEMENT'S REPORT TO THE SHAREHOLDERS
--------------------------------------------------------------------------------

The  Consolidated  Financial  Statements  and the  management's  discussion  and
analysis  of  financial  condition  and  results  of  operations  (MD&A) are the
responsibility   of  the  management  of  Ivanhoe  Mines  Ltd.  These  financial
statements  and the MD&A have been prepared by  management  in  accordance  with
accounting  principles  generally  accepted in the United States and  regulatory
requirements,  respectively,  using  management's best estimates and judgment of
all information available up to March 28, 2008.

The  Board  of  Directors  has  approved  the   information   contained  in  the
consolidated  financial  statements  and the  MD&A.  The Board of  Directors  is
responsible  for ensuring  that  management  fulfills its  responsibilities  for
financial  reporting and internal controls.  The Audit Committee of the Board of
Directors,  consisting solely of outside  directors,  meets regularly during the
year with financial officers of the Company and the external auditors to satisfy
itself  that  management  is  properly   discharging  its  financial   reporting
responsibilities  to  the  Directors  who  approve  the  consolidated  financial
statements.

These financial statements have, in management's opinion, been properly prepared
within  reasonable  limits  of  materiality  and  within  the  framework  of the
accounting  policies  summarized  in  Note  2  to  the  Consolidated   Financial
Statements.

The  consolidated  financial  statements  have been audited by Deloitte & Touche
LLP, independent registered chartered  accountants,  in accordance with Canadian
generally  accepted  auditing  standards and the standards of the Public Company
Accounting  Oversight  Board (United  States).  They have full and  unrestricted
access to the Audit Committee.



/s/ John Macken                            /s/ Tony Giardini
-----------------------------              ------------------------------
John Macken                                Tony Giardini
President and CEO                          Chief Financial Officer



March 28, 2008

Vancouver, BC, Canada




                                      62