Report
    of Independent Registered Chartered Accountants and Consolidated
    Financial Statements of
  IVANHOE
    MINES LTD.
  December 31,
    2009 and 2008




---



##### 



Report of
    Independent Registered Chartered Accountants
   Ivanhoe Mines
    Ltd.
        Internal Control  Integrated Framework
       Comments
    by Independent Registered Chartered Accountants on Canada-United
    States
 of America Reporting
    Difference
        1




---



##### 



Report of
    Independent Registered Chartered Accountants
   Ivanhoe Mines
    Ltd.
  Internal Control  Integrated Framework
        Internal Control  Integrated Framework
        2




---



##### 



IVANHOE
    MINES LTD.
  Consolidated
    Balance Sheets
 (Stated in thousands of U.S. dollars)
 December 31,2009


2008(Note 2 (q))ASSETSCURRENTCash and cash equivalents (Note 5)

$
965,823


$
384,110Short-term investments


14,999



Accounts receivable (Note 6)


39,349



47,520Inventories (Note 7)


18,015



16,136Prepaid expenses


15,988



11,160TOTAL CURRENT ASSETS


1,054,174



458,926LONG-TERM INVESTMENTS (Note 8)


93,511



55,945OTHER LONG-TERM INVESTMENTS (Note 9)


145,035



22,301PROPERTY, PLANT AND EQUIPMENT (Note 10)


218,781



199,281DEFERRED INCOME TAXES (Note 16)


6,953



OTHER ASSETS (Note 11)


16,227



5,749TOTAL ASSETS

$
1,534,681


$
742,202LIABILITIESCURRENTAccounts payable and accrued liabilities (Note 12)

$
55,128


$
41,103Amounts due under credit facilities (Note 13)


17,544



15,963Interest payable on long-term debt (Note 14 (b))


4,712



Convertible credit facility (Note 14 (a))


378,916



TOTAL CURRENT LIABILITIES


456,300



57,066CONVERTIBLE CREDIT FACILITIES (Note 14)


544,990



349,128AMOUNTS DUE UNDER CREDIT FACILITIES (Note 13)


37,979



DERIVATIVE CONTRACT (Note 15)






5,320DEFERRED INCOME TAXES (Note 16)


10,888



9,512ASSET RETIREMENT OBLIGATIONS (Note 17)


5,436



3,922TOTAL LIABILITIES


1,055,593



424,948COMMITMENTS AND CONTINGENCIES (Note 25)SHAREHOLDERS EQUITYSHARE CAPITAL (Note 18)AuthorizedUnlimited number of preferred shares without par valueUnlimited number of common shares without par valueIssued and outstanding425,447,552 (2008  378,046,013) common shares


1,886,789



1,485,864SHARE PURCHASE WARRANTS AND SHARE ISSUANCE COMMITMENT
    (Note 18 (b) and (c))


27,386



32,560BENEFICIAL CONVERSION FEATURE (Note 14 (a))


30,250



28,883ADDITIONAL PAID-IN CAPITAL


348,468



293,485ACCUMULATED OTHER COMPREHENSIVE INCOME (Note 19)


(14,578
)


(24,222
)DEFICIT


(1,800,179
)


(1,520,008
)TOTAL IVANHOE MINES LTD. SHAREHOLDERS EQUITY


478,136



296,562NONCONTROLLING INTERESTS (Note 20)


952



20,692TOTAL SHAREHOLDERS EQUITY


479,088



317,254TOTAL LIABILITIES AND SHAREHOLDERS EQUITY

$
1,534,681


$
742,202APPROVED BY THE BOARD:   /s/  D.
    KorbinD.
    Korbin, Director

/s/  K.
    ThygesenK.
    Thygesen, Director    3




---



##### 



IVANHOE
    MINES LTD.
  Consolidated Statements of Operations
 (Stated in thousands of U.S. dollars, except for share
    and per share amounts)
  Year Ended December 31,2009


2008REVENUE

$
36,038


$
3,126COST OF SALESProduction and delivery


(23,611
)


(1,931
)Depreciation and depletion


(5,814
)


(314
)COST OF SALES


(29,425
)


(2,245
)EXPENSESExploration (Note 3 and 18 (a))


(177,062
)


(250,591
)General and administrative (Note 18 (a))


(45,750
)


(27,453
)Depreciation


(4,326
)


(4,957
)Mining property care and maintenance






(10,342
)Accretion of convertible credit facilities (Note 14)


(14,345
)


(9,658
)Accretion of asset retirement obligations (Note 17)


(141
)


(429
)Gain on sale of other mineral property rights


3,000



Write-down of carrying values of property, plant and equipment


(1,243
)


(515
)TOTAL EXPENSES


(269,292
)


(306,190
)OPERATING LOSS


(233,254
)


(303,064
)OTHER INCOME (EXPENSES)Interest income


3,587



13,182Interest expense


(21,601
)


(17,599
)Foreign exchange gains (losses)


34,070



(62,946
)Unrealized gain on long-term investments (Note 8 (d))


1,099



Unrealized gain on other long-term investments


438



Realized gain on redemption of other long-term investments
    (Note 9 (a))


1,458



Change in fair value of embedded derivatives (Note 14 (b))


(44,980
)


Write-down of carrying value of long-term investments






(7,103
)Write-down of carrying value of other long-term investments
    (Note 9 (a))






(18,009
)Gain on sale of long-term investment and note receivable
    (Note 8 (c))


1,424



201,428Other (expense) income (Note 21)


(11,869
)


(14,171
)LOSS BEFORE INCOME TAXES AND OTHER ITEMS


(269,628
)


(208,282
)Recovery (provision) for income taxes (Note 16)


13,465



(4,314
)Share of loss of significantly influenced investees (Note 8)


(45,898
)


(10,092
)NET LOSS FROM CONTINUING OPERATIONS


(302,061
)


(222,688
)(LOSS) INCOME FROM DISCONTINUED OPERATIONS (Note 4)


(3,645
)


24,305NET LOSS


(305,706
)


(198,383
)NET LOSS ATTRIBUTABLE TO NONCONTROLLINGINTERESTS (Note 20)


25,535



14,270NET LOSS ATTRIBUTABLE TO IVANHOE MINES LTD.

$
(280,171
)

$
(184,113
)BASIC AND DILUTED (LOSS) EARNINGS PER SHARE ATTRIBUTABLE TO
    IVANHOE MINES LTD. FROMCONTINUING OPERATIONS

$
(0.71
)

$
(0.55
)DISCONTINUED OPERATIONS


(0.01
)


0.06$
(0.72
)

$
(0.49
)WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (000s)


386,536



375,801    4




---



##### 



IVANHOE
    MINES LTD.
  Consolidated Statements of Shareholders Equity
 (Stated in thousands of U.S. dollars, except for share
    amounts)
  Share Purchase








AccumulatedShare Capital


Warrants and


Beneficial


Additional


OtherNumber





Share Issuance


Conversion


Paid-In


Comprehensive


Noncontrollingof Shares


Amount


Commitment


Feature


Capital


(Loss) Income


Interests


Deficit


TotalBalances, December 31, 2007


375,073,433


$
1,477,457


$
26,619


$
11,869


$
52,649


$
17,498


$



$
(1,335,895
)

$
250,197Net loss






























(184,113
)


(184,113
)Other comprehensive loss (Note 19)






















(41,720
)










(41,720
)Comprehensive loss


































(225,833
)Shares issued for:Acquisition of investment (Note 8 (c)(v)), net of issue
    costs of $31


2,224,698



4,339



























4,339Exercise of stock options


463,127



3,022











(1,663
)














1,359Private placement (Note 18 (b))


243,772



612



























612Share purchase plan


40,983



434



























434Share purchase warrants (Note 18 (b))










94























94Convertible credit facility and share purchase warrants
    (Notes 14 (a) and 18 (c))










5,847



17,014



















22,861Movement in noncontrolling interests (Note 20)


























20,692







20,692Dilution gains


















213,285















213,285Stock compensation charged to operations


















29,214















29,214Balances, December 31, 2008


378,046,013


$
1,485,864


$
32,560


$
28,883


$
293,485


$
(24,222
)

$
20,692


$
(1,520,008
)

$
317,254Net loss






























(280,171
)


(280,171
)Other comprehensive income (Note 19)






















9,644











9,644Comprehensive loss


































(270,527
)Shares issued for:Exercise of stock options


867,500



8,661











(2,560
)














6,101Private placement (Note 18 (b)), net of issue costs of
    $3,032


46,304,473



390,173



(5,174
)






















384,999Bonus shares


125,000



1,622



























1,622Share purchase plan


104,566



469



























469Convertible credit facility (Note 14 (a))














1,367



















1,367Movement in noncontrolling interests (Note 20)


























(19,740
)






(19,740
)Dilution gains


















21,368















21,368Stock compensation charged to operations


















36,175















36,175Balances, December 31, 2009


425,447,552


$
1,886,789


$
27,386


$
30,250


$
348,468


$
(14,578
)

$
952


$
(1,800,179
)

$
479,088    5




---



##### 



IVANHOE
    MINES LTD.
  Consolidated Statements of Cash Flows
 (Stated in thousands of U.S. dollars)
  Year Ended December 31,2009


2008OPERATING ACTIVITIESCash used in operating activities (Note 22)

$
(183,259
)

$
(318,749
)INVESTING ACTIVITIESProceeds from sale of discontinued operations


38,725



29,230Purchase of short-term investments


(14,999
)


Purchase of long-term investments


(30,391
)


(39,497
)Purchase of other long-term investments


(147,449
)


Proceeds from sale of other mineral property rights


3,000



Proceeds from sale of long-term investments and note receivable


3,844



216,730Proceeds from redemption of other long-term investments


2,236



Cash reduction on commencement of equity accounting (Note 8
    (a))






(2,865
)Expenditures on property, plant and equipment


(38,975
)


(135,376
)Proceeds from sale of property, plant and equipment
    (Note 10 (e))






121,498Proceeds from (expenditures on) other assets


172



(1,113
)Cash (used in) provided by investing activities of continued
    operations


(183,837
)


188,607Cash used in investing activities of discontinued operations


(6,511
)


(8,521
)Cash (used in) provided by investing activities


(190,348
)


180,086FINANCING ACTIVITIESIssue of share capital


392,877



2,374Proceeds from convertible credit facility (Note 14)


485,000



200,000Proceeds from credit facilities (Note 13)


37,575



Repayment of credit facilities (Note 13)


(2,193
)


Increase to deferred charges


(4,565
)


Repayment of loan payable to related party






(4,250
)Noncontrolling interests investment in subsidiaries


3,897



246,293Cash provided by financing activities


912,591



444,417EFFECT OF EXCHANGE RATE CHANGES ON CASH


42,729



(67,338
)NET CASH INFLOW


581,713



238,416CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR


384,110



145,694CASH AND CASH EQUIVALENTS, END OF YEAR

$
965,823


$
384,110CASH AND CASH EQUIVALENTS IS COMPRISED OF:Cash on hand and demand deposits

$
277,103


$
119,458Short-term money market instruments


688,720



264,652$
965,823


$
384,110Supplementary cash flow information (Note 22)    6




---



##### 



IVANHOE
    MINES LTD.
  Notes
    to the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
  1.
    NATURE OF
    OPERATIONS    2.
    SIGNIFICANT
    ACCOUNTING POLICIES    (a)  Principles
    of consolidation
        and/or
  (b)  Measurement
    uncertainties
      (c)  Foreign
    currencies
   7




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   2.
    SIGNIFICANT
    ACCOUNTING POLICIES (Continued)  
 (c)  Foreign
    currencies (Continued)
    (d)  Revenue
    recognition
    (e)  Cash
    and cash equivalents
    (f)  Short-term
    investments
    (g)  Inventories
      (h)  Long-term
    investments
    available-for-sale held-for-trading. Available-for-sale Held-for-trading
  (i)  Exploration
    and development
     8




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   2.
    SIGNIFICANT
    ACCOUNTING POLICIES (Continued)  
 (i)  Exploration
    and development (Continued)
     (j)  Property,
    plant and equipment
    unit-of-production
  unit-of-production
      (k)  Stripping
    costs
    (l)  Asset
    retirement obligations
    (m)  Stock-based
    compensation
   9




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   2.
    SIGNIFICANT
    ACCOUNTING POLICIES (Continued)  
 (m)  Stock-based
    compensation (Continued)
    (n)  Deferred
    income taxes
      (o)  Loss
    per share
      December 31,2009


2008Options


21,158,270



18,810,470Share purchase warrants


128,493,450



128,493,450Convertible credit facility


39,067,775



37,416,459Total potentially dilutive shares


188,719,495



184,720,379   (p)  Segmented
    reporting
    (q)  Comparative
    figures
    (r)  Accounting
    changes
  
    The Company adopted the FASB Accounting Standards Codification
    (ASC) on July 1, 2009. The ASC is the source of
    authoritative U.S. GAAP to be applied by nongovernmental
    entities. Rules and interpretive releases of the Securities and
    Exchange Commission (SEC) under authority of federal
    securities laws are also sources of authoritative GAAP for SEC
    registrants. The ASC supersedes all non-SEC accounting and
    reporting standards. All other nongrandfathered non-SEC
    accounting literature not included in the ASC is 10




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   2.
    SIGNIFICANT
    ACCOUNTING POLICIES (Continued)  
 (r)  Accounting
    changes (Continued)
  nonauthoritative. The adoption of the ASC had no impact on the
    Companys consolidated financial position, results of
    operations or cash flows.  
    In December 2007, the ASC guidance for noncontrolling interests
    was updated to establish accounting and reporting standards
    pertaining to (i) the nature and classification of the
    noncontrolling interest in the Consolidated Statement of
    Financial Position, (ii) attributing net income and
    comprehensive income to the parent and the noncontrolling
    interest, (iii) changes in a parents ownership
    interest in a subsidiary, and (iv) deconsolidation of a
    subsidiary. For presentation and disclosure purposes, the
    updated guidance requires noncontrolling interests to be
    classified as a separate component of shareholders equity.
    The Company adopted the provisions of the updated guidance on
    January 1, 2009. Except for presentation changes, the
    adoption of the updated guidance had no impact on the
    Companys consolidated financial position, results of
    operations or cash flows.
    In December 2007, the ASC guidance for business combinations was
    updated. The updated guidance 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. The updated
    guidance promotes greater use of fair values in financial
    reporting. Some of the changes will introduce more volatility
    into earnings. The updated guidance was effective for the
    Companys fiscal year beginning on January 1, 2009.
    The adoption of the updated guidance had no impact on the
    Companys consolidated financial position, results of
    operations or cash flows.
    In May 2008, the ASC guidance for convertible debt instruments
    was updated. The updated guidance applies to convertible debt
    instruments that, by their stated terms, may be settled in cash
    (or other assets) upon conversion, including partial cash
    settlement, unless the embedded conversion option is required to
    be separately accounted for as a derivative. The updated
    guidance requires that the liability and equity components of
    convertible debt instruments within its scope be separately
    accounted for in a manner that reflects the entitys
    nonconvertible borrowing rate. This requires an allocation of
    the convertible debt proceeds between the liability component
    and the embedded conversion option (i.e., the equity component).
    The difference between the principal amount of the debt and the
    amount of the proceeds allocated to the liability component will
    be reported as a debt discount and subsequently amortized to
    earnings over the instruments expected life using the
    effective interest method. The updated guidance was effective
    for the Companys fiscal year beginning on January 1,
    2009 and has been applied retrospectively to all periods
    presented. The adoption of the updated guidance had no impact on
    the Companys consolidated financial position, results of
    operations or cash flows.
    In October 2008, the ASC guidance for an instrument (or embedded
    feature) with a settlement amount that is based on the stock of
    an entitys consolidated subsidiary was updated to clarify
    whether such an instrument (or embedded feature) qualifies for
    the scope exemption from derivative accounting. For purposes of
    applying the scope exemption from derivative accounting,
    freestanding financial instruments (and embedded features) for
    which the payoff to the counterparty is based, in whole or in
    part, on the stock of a consolidated subsidiary are not
    precluded from being considered indexed to the entitys own
    stock in the consolidated financial statements of the parent. An
    equity-classified instrument (including an embedded feature that
    is separately recorded in equity under applicable GAAP) within
    the scope of the updated guidance shall be presented as a
    component of noncontrolling interest in the consolidated
    financial statements whether the instrument was entered into by
    the parent or the subsidiary. The updated guidance was effective
    for the Companys fiscal year beginning on January 1,
    2009 and has been applied prospectively. The adoption of the
    updated guidance resulted in the reclassification of the fair
    value of the derivative 11




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   2.
    SIGNIFICANT
    ACCOUNTING POLICIES (Continued)  
 (r)  Accounting
    changes (Continued)
  contract to noncontrolling interests on January 1, 2009 and
    any subsequent changes to the fair value of the derivative
    contract will no longer be recorded through earnings.  
    In November 2008, the ASC guidance for equity method investment
    accounting was updated. The updated guidance clarifies the
    accounting for certain transactions and impairment
    considerations involving equity method investments. The updated
    guidance provides guidance on a number of factors, including,
    determination of the initial carrying value of an equity method
    investment, performing an impairment assessment of an underlying
    indefinite-lived intangible asset of an equity method
    investment, accounting for an equity method investees
    issuance of shares, and accounting for a change in an investment
    from the equity method to the cost method. The updated guidance
    was effective for the Companys fiscal year beginning on
    January 1, 2009 and has been applied prospectively. The
    adoption of the updated guidance had no impact on the
    Companys consolidated financial position, results of
    operations or cash flows.
    In April 2009, the ASC guidance was updated to provide
    additional guidance on determining fair value when the volume
    and level of activity for an asset or liability have
    significantly decreased and includes guidance on identifying
    circumstances that indicate when a transaction is not orderly.
    The updated guidance is effective for interim and annual
    reporting periods ending on or after June 15, 2009, and
    shall be applied prospectively. The Company adopted the
    provisions of the updated guidance for the year ended
    December 31, 2009. The adoption of the updated guidance had
    no impact on the Companys consolidated financial position,
    results of operations or cash flows.
    In April 2009, the ASC guidance for interim disclosures about
    fair value was updated to require disclosures about the fair
    value of financial instruments for interim reporting periods of
    publicly traded companies as well as in annual financial
    statements. The updated guidance is effective for interim and
    annual reporting periods ending on or after June 15, 2009.
    The Company adopted the provisions of the updated guidance for
    the year ended December 31, 2009. The adoption of the
    updated guidance had no impact on the Companys
    consolidated financial position, results of operations or cash
    flows.
    In May 2009, the ASC guidance for subsequent events was updated.
    The updated guidance establishes accounting and reporting
    standards for events that occur after the balance sheet date but
    before financial statements are issued or are available to be
    issued. The updated guidance sets forth (i) the period
    after the balance sheet date during which management of a
    reporting entity should evaluate events or transactions that may
    occur for potential recognition or disclosure in the financial
    statements, (ii) the circumstances under which an entity
    should recognize events or transactions occurring after the
    balance sheet in its financial statements, and (iii) the
    disclosures that an entity should make about events or
    transactions occurring after the balance sheet date in its
    financial statements. The Company adopted the provisions of the
    updated guidance for the year ended December 31, 2009. The
    adoption of the updated guidance had no impact on the
    Companys consolidated financial position, results of
    operations or cash flows.  3.
    EXPLORATION
    EXPENSES   12




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   3.
    EXPLORATION
    EXPENSES (Continued)     Years Ended December 31,2009


2008MongoliaOyu Tolgoi

$
107,381


$
155,999Coal Division


21,499



35,006Other Mongolia Exploration


2,004



6,560130,884



197,565Australia


41,465



46,457Indonesia


3,145



4,547Other


1,568



2,022$
177,062


$
250,591   4.
    DISCONTINUED
    OPERATIONS  Years Ended December 31,2009


2008Savage River (a)

$
26,816


$
33,995Indonesia Coal Division (b)


(30,461
)


(9,690
)$
(3,645
)

$
24,305     (a)
    
    In February 2005, Ivanhoe Mines sold the Savage River Iron Ore
    Project in Tasmania, Australia for two initial payments
    totalling $21.5 million, plus a series of five contingent,
    annual payments that commenced on March 31, 2006. The
    annual payments are based on annual iron ore pellet tonnes sold
    and an escalating price formula based on the prevailing annual
    Nibrasco/JSM pellet price.In 2009, Ivanhoe Mines received the fourth annual contingent
    payment of $38.7 million. At December 31, 2009 Ivanhoe
    Mines has accrued $20.9 million in relation to the fifth
    contingent annual payment due in March 2010.To date, Ivanhoe Mines has received $137.9 million in
    proceeds from the sale.(b)
    
    During December 2009, Ivanhoe Mines sold the Indonesia Coal
    Division, which was composed entirely of the Mamahak Coal
    Project (Mamahak). Ivanhoe Mines divested its 85.0%
    interest in Mamahak to Kangaroo Resources Limited
    (Kangaroo) for consideration comprising of
    $1.0 million cash and 50.0 million shares of Kangaroo
    possessing a fair value of $8.8 million. Ivanhoe Mines
    incurred transaction costs of $1.0 million related to the
    disposition of Mamahak. As a result of this transaction, Ivanhoe
    Mines held 6.7% of the issued and outstanding shares of Kangaroo
    on December 23, 2009, the closing date, and those shares
    are subject to a one year hold period.   13




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   5.
    CASH AND
    CASH EQUIVALENTS    6.
    ACCOUNTS
    RECEIVABLE  December 31,2009


2008Contingent income (Note 4 (a))

$
20,868


$
28,045Trade receivables


5,201



1,743Refundable taxes


11,787



13,988Related parties (Note 23)


676



142Accrued interest


133



3,090Other


684



512$
39,349


$
47,520   7.
    INVENTORIES  December 31,2009

2008Stockpiles

$
9,553


$
13,158Materials and supplies


8,462



2,978$
18,015


$
16,136   8.
    LONG-TERM
    INVESTMENTS  December 31,2009


2008Investments in companies subject to significant influence:Altynalmas Gold Ltd. (a)

$
9,860


$
31,290Exco Resources N.L. (b)


10,499



6,785Investments
    available-for-sale
    (c)


63,276



17,870Investments
    held-for-trading
    (d)


9,876



$
93,511


$
55,945     (a)
    
    On October 3, 2008, Ivanhoe Mines closed an agreement with
    several strategic partners whereby Altynalmas issued shares to
    acquire a 100% participating interest in BMV and a 100%
    participating interest in Intergold Capital LLP
    (IGC). Both IGC and BMV are limited liability
    partnerships established under the laws of Kazakhstan that are
    engaged in the exploration and development of minerals in
    Kazakhstan. As a result of this transaction, Ivanhoe Mines
    investment in Altynalmas was diluted to 49%. Ivanhoe Mines
    ceased consolidating Altynalmas on October 3, 2008 and
    commenced equity accounting for its investment.  14




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   8.
    LONG-TERM
    INVESTMENTS (Continued)   (a)
    Continued  December 31,2009


2008Amount due from Altynalmas

$
68,533


$
57,997Carrying amount of equity method investment


(58,673
)


(26,707
)Net investment in Altynalmas

$
9,860


$
31,290   Amounts advanced to Altynalmas bear interest compounded monthly
    at a rate per annum equal to the one month London Inter-bank
    Offered Rate plus 3.0% and are due on demand.During 2009, Ivanhoe Mines recorded a $44,707,000
    (2008  $6,268,000) equity loss on this investment.(b)
    
    During the first quarter of 2009, Ivanhoe Mines acquired
    1.8 million shares of Exco Resources N.L.
    (Exco) at a cost of $113,000 (Aud$169,000) on the
    open market.During June 2009, Ivanhoe Mines acquired an additional
    5.1 million shares of Exco at a cost of $965,000
    (Aud$1,199,000) by way of a private placement. In a subsequent
    private placement, during October 2009, Ivanhoe Mines acquired
    an additional 8.3 million shares of Exco at a cost of
    $1,888,000 (Aud$2,041,000).During May 2008, Ivanhoe Mines exercised its full option
    entitlement of 21.1 million Exco share purchase options to
    acquire 21.1 million shares of Exco at a cost of $6,926,000
    (Aud$7,392,000). Also during June 2008, Ivanhoe Mines acquired
    an additional 3.0 million shares of Exco at a cost of
    $990,000 (Aud$1,050,000). As a result of these purchases and the
    subsequent appointment of an Ivanhoe Mines representative
    to the Board of Directors of Exco, Ivanhoe Mines commenced
    equity accounting for its investment in Exco on July 1,
    2008.During 2009, Ivanhoe Mines recorded a $1,191,000
    (2008  $3,015,000) equity loss on this investment.At December 31, 2008, the carrying value of Ivanhoe
    Mines investment in Exco was greater than its share of the
    underlying book value of Excos net assets by approximately
    $1,662,000 (Aud$2,572,000). This difference resulted in an
    other-than-temporary
    impairment charge on Ivanhoe Mines investment in Exco of
    $1,662,000.At December 31, 2009, the market value of Ivanhoe
    Mines 20.2% investment in Exco was $13,291,000
    (Aud$14,806,000).(c)
    
    Investments
    available-for-sale  December 31, 2009


December 31, 2008Equity


Cost


Unrealized


Fair


Equity


Cost


Unrealized


FairInterest


Basis


Gain (Loss)


Value


Interest


Basis


Loss


ValueEntrée Gold Inc.


14.3
%

$
19,957


$
12,799


$
32,756



14.6
%

$
19,957


$
(8,635
)

$
11,322Emmerson Resources Limited (i)


10.0
%


3,107



6,637



9,744















Jinshan Gold Mines Inc. (ii)


















0.9
%


554







554Intec Ltd. (iii)


4.8
%


521



(3
)


518



6.1
%


521







521GoviEx Gold Inc. (iv)


1.5
%


1,043







1,043



1.5
%


1,043







1,043Ivanhoe Nickel & Platinum Ltd. (v)


6.1
%


18,929







18,929



1.9
%


4,370







4,370Other (vi)






60



226



286







60







60$
43,617


$
19,659


$
63,276






$
26,505


$
(8,635
)

$
17,870
     (i)
    
    During 2009, Ivanhoe Mines acquired 22.6 million common
    shares of Emmerson Resources Limited (Emmerson) and
    27.9 million Emmerson share purchase options for a total
    cost of $2,141,000 (Aud$2,939,000). Each Emmerson share purchase
    option is exercisable until June 1, 2011 to purchase an
    additional Emmerson common share at a price of Aud$0.20. 15




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   8.
    LONG-TERM
    INVESTMENTS (Continued)  
 (c) Investments
    available-for-sale
    (Continued)
   (ii)
    
    During 2009, Ivanhoe Mines disposed its remaining
    1.5 million common shares of Jinshan Gold Mines Inc.
    (Jinshan) for $1,978,000. This transaction resulted
    in a gain of $1,424,000 being recognized.During 2008, Ivanhoe Mines exercised its full warrant
    entitlement of 1.5 million Jinshan warrants to acquire
    1.5 million shares of Jinshan at a cost of $3,776,000
    (Cdn$3,750,000).Also during 2008, Ivanhoe Mines recorded an
    other-than-temporary
    impairment of $3,223,000 against this investment based on an
    assessment of the fair value of Jinshan.In May 2008, Ivanhoe Mines ceased equity accounting for its
    investment in Jinshan following the sale of 67.5 million
    shares of Jinshan and the Jinshan note receivable for total
    proceeds of $216,730,000 (Cdn $217,662,000). This
    transaction resulted in a gain on sale of $201,428,000 being
    recognized.During 2008, Ivanhoe Mines recorded a $809,000 equity loss on
    its investment in Jinshan.(iii)
    
    During 2008, Ivanhoe Mines acquired 6.9 million shares of
    Intec Ltd. (Intec) at a cost of $328,000
    (Aud$343,000).Also during 2008, Ivanhoe Mines recorded an
    other-than-temporary
    impairment of $724,000 against this investment based on an
    assessment of the fair value of Intec.(iv)
    
    During 2008, Ivanhoe Mines acquired 1.0 million shares of
    GoviEx Gold Inc. (GoviEx) in exchange for a
    geophysics exploration team and certain mineral exploration
    equipment.Also during 2008, Ivanhoe Mines acquired an additional
    42,500 shares of GoviEx at a cost of $43,000.(v)
    
    During 2009, Ivanhoe Mines acquired 1.2 million common
    shares of Ivanhoe Nickel and Platinum Ltd.
    (Ivanplats) from third parties at a cost of
    $1,842,000. In addition, during December 2009, Ivanhoe Mines
    purchased 220,000 common shares of Ivanplats at a cost of
    $1,320,000 and 250,000 Ivanplats special warrants, convertible
    into 250,000 common shares of Ivanplats, at a cost of $1,500,000
    from certain directors of the Company.During November 2009, Ivanhoe Mines acquired 1.1 million
    units of Ivanplats at a cost of $9,900,000. Each unit is
    comprised of one common share, one liquidity right and one-half
    of one initial public offering (IPO) warrant. Each
    liquidity right is convertible into 0.1 of an Ivanplats common
    share for no additional consideration in the event that a
    liquidity event does not occur on or before December 31,
    2010. The 550,000 IPO warrants vest upon closing of an IPO. If
    an IPO occurs prior to December 31, 2010, each IPO warrant
    entitles the holder to purchase one Ivanplats common share at
    the IPO price up until two years after the closing of the IPO.
    If an IPO occurs after December 31, 2010, each IPO warrant
    entitles the holder to purchase 1.1 common shares of Ivanplats
    at the IPO price up until two years after the closing of the IPO.During 2008, Ivanhoe Mines acquired 1.0 million common
    shares of Ivanplats and 3.4 million Ivanplats special
    warrants in exchange for 2.2 million common shares of
    Ivanhoe Mines.As at December 31, 2009, Ivanhoe Mines held a 10.3% equity
    interest in Ivanplats on a fully diluted basis.(vi)
    
    During 2008, Ivanhoe Mines recorded an
    other-than-temporary
    impairment of $1,494,000 against other investments based on an
    assessment of their fair values.  (d)
    
    Investments
    held-for-trading   16




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   9.
    OTHER
    LONG-TERM INVESTMENTS  December 31,2009


2008Long-Term Notes (a)

$
24,689


$
22,301Government of Mongolia Treasury Bills (b)


73,152



Money market investments (c)


47,194



$
145,035


$
22,301   (a)  Long-Term
    Notes
      
    $22.7 million of MAV2
    Class A-1
    Notes;
    $22.7 million of MAV2
    Class A-2
    Notes;
    $4.1 million of MAV2 Class B Notes;
    $1.5 million of MAV2 Class C Notes;
    $1.3 million of MAV2 IA Class 1 Notes;
    $1.0 million of MAV2 IA Class 2 Notes;
    $0.9 million of MAV2 IA Class 3 Notes;
    $1.2 million of MAV2 IA Class 13 Notes;
    $1.6 million of MAV3 TA Class 14 Notes; and
    $3.2 million of MAV3 TA Class 25 Notes.  held-for-trading.
     17




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   9.
    OTHER
    LONG-TERM INVESTMENTS (Continued)  
 (a)  Long-Term
    Notes (Continued)
    Bankers Acceptance Rate:

0.31%Discount Rates:

9% to 25%Maturity Dates:

7.0 yearsExpected Return of Principal:A-1 Notes

100%A-2 Notes

100%B Notes

10%C Notes

0%IA Notes

0%TA Notes

100%       (b)  Government
    of Mongolia Treasury Bills
    i.
    The initial T-Bill, with a face value of $115 million, was
    purchased on October 20, 2009. The purchase price was
    $100 million.ii.
    A second T-Bill, with a face value of $57.5 million, will
    be purchased for $50 million within 14 days of the
    satisfying of all conditions precedent to the Investment
    Agreement.iii.
    The final T-Bill, having a face value of $115 million, will
    be purchased for $100 million within 14 days of Oyu
    Tolgoi LLC fully drawing down the financing necessary to enable
    the complete construction of the Oyu Tolgoi Project, or
    June 30, 2011, whichever date is earlier.  available-for-sale
 18




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   9.
    OTHER
    LONG-TERM INVESTMENTS (Continued)  
 (b)  Government
    of Mongolia Treasury Bills (Continued)
    Face Value:

$
115,000,000Discount Rates:


9.9%Term


5.0 years     (c)  Money
    Market Investments
    10.
    PROPERTY,
    PLANT AND EQUIPMENT  December 31,2009


2008Accumulated








AccumulatedDepletion and








Depletion andDepreciation,








Depreciation,Including


Net Book





Including


Net BookCost


Write-downs


Value


Cost


Write-downs


ValueMining plant and equipmentOvoot Tolgoi, Mongolia (b)

$
9,991


$
(359
)

$
9,632


$



$



$
Other mineral property interestsOyu Tolgoi, Mongolia (a)

$
43,792


$
(6,296
)

$
37,496


$
43,860


$
(6,274
)

$
37,586Ovoot Tolgoi, Mongolia (b)


16,264



(83
)


16,181



13,969



(64
)


13,905Cloncurry, Australia (c)


24,403



(126
)


24,277



20,291



(126
)


20,165Mamahak, Indonesia (d)














13,182







13,182Other exploration projects


1,335



(1,306
)


29



1,270



(62
)


1,208$
85,794


$
(7,811
)

$
77,983


$
92,572


$
(6,526
)

$
86,046Other capital assetsOyu Tolgoi, Mongolia (a)

$
16,119


$
(11,756
)

$
4,363


$
17,925


$
(10,736
)

$
7,189Ovoot Tolgoi, Mongolia (b)


74,469



(8,323
)


66,146



42,833



(437
)


42,396Cloncurry, Australia (c)


5,724



(1,557
)


4,167



3,364



(706
)


2,658Other exploration projects


2,657



(2,128
)


529



6,547



(5,825
)


722$
98,969


$
(23,764
)

$
75,205


$
70,669


$
(17,704
)

$
52,965Capital works in progressOyu Tolgoi, Mongolia (a) (e)

$
54,991


$



$
54,991


$
53,466


$



$
53,466Ovoot Tolgoi, Mongolia (b)


970







970



6,804







6,804$
55,961


$



$
55,961


$
60,270


$



$
60,270$
250,715


$
(31,934
)

$
218,781


$
223,511


$
(24,230
)

$
199,281  19




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   10.
    PROPERTY,
    PLANT AND EQUIPMENT (Continued)    (a)
    
    Ivanhoe Mines has a 100% interest in the Oyu Tolgoi copper-gold
    project located in Mongolia. In 2007, the Projects four
    mining licenses were re-issued as Special Permits for Mining,
    which are each valid for 30 years and may be extended two
    times for 20 years per extension.Capital works in progress at December 31, 2009 consisted
    mainly of surface assets being constructed at Oyu Tolgoi for
    Shaft No. 1, Shaft No. 2, and the concentrator.A significant portion of exploration expenses incurred during
    the year relate directly to the development of Oyu Tolgoi.
    Included in exploration expenses are shaft sinking, engineering,
    and development costs that have been expensed and not
    capitalized (Note 3).(b)
    
    SouthGobi holds a 100% interest in the Ovoot Tolgoi coal project
    located in Mongolia. In 2008, SouthGobi began open pit
    operations at Ovoot Tolgoi.(c)
    
    Ivanhoe Mines through its majority owned subsidiary, Ivanhoe
    Australia, owns certain mining and exploration leases in
    Queensland, Australia, which contain prospective molybdenum,
    rhenium, copper, gold, zinc, silver and uranium occurrences.(d)
    
    For the year ended December 31, 2008, SouthGobi held a 85%
    working interest in the Mamahak coal project located in
    Indonesia. The Mamahak coal project was written-off in the third
    quarter of 2009 and subsequently sold in the fourth quarter
    (Note 4 (b)).(e)
    
    In March 2010, Ivanhoe Mines and Rio Tinto completed an
    agreement whereby the Company issued 15 million common
    shares to Rio Tinto for net proceeds of $241.1 million
    (Cdn$244.7 million). Ivanhoe Mines used $195.4 million
    of the proceeds to purchase from Rio Tinto key mining and
    milling equipment to be installed during the construction of the
    Oyu Tolgoi Project (Note 25 (a)).Much of the equipment originally was ordered by Ivanhoe Mines
    from various manufacturers while it was waiting for an
    Investment Agreement with the Government of Mongolia. Ivanhoe
    Mines sold the equipment for $121.5 million to Rio Tinto in
    August 2008 under an agreement between the companies. Additional
    equipment also was acquired by Rio Tinto directly from suppliers.  11.
    OTHER
    ASSETS  December 31,2009

2008Environmental bond

$
3,427


$
2,272Deferred SouthGobi Hong Kong listing fees


4,565



Transaction costs (Note 14 (b))


5,601



Restricted cash


852



Advances


1,187



3,333Other


595



144$
16,227


$
5,749    20




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   12.
    ACCOUNTS
    PAYABLE AND ACCRUED LIABILITIES  December 31,2009


2008Accounts payable

$
36,454


$
24,449Payroll and other employee related payables


2,097



617Accrued construction costs


11,737



12,820Amounts payable to related parties (Note 23)


4,840



3,217$
55,128


$
41,103   13.
    AMOUNTS
    DUE UNDER CREDIT FACILITIES  December 31,2009


2008CurrentNon-revolving bank loans (a)

$
14,544


$
15,963Revolving line of credit facility (b)


3,000



$
17,544


$
15,963Non-CurrentTwo-year extendible loan facility (c)

$
37,979


$
     (a)
    
    In October 2007, Ivanhoe Mines obtained non-revolving bank loans
    which are due on demand and secured against certain securities
    and other investments.(b)
    
    In December 2009, Ivanhoe Mines obtained a one year revolving
    line of credit facility, which is secured against certain
    equipment in Mongolia.(c)
    
    In April 2009, Ivanhoe Mines obtained a non-revolving, two-year
    extendible loan facility, which is secured against certain
    securities and other investments.  14.
    CONVERTIBLE
    CREDIT FACILITIES  (a)  Rio
    Tinto
  December 31,2009


2008Principal amount of convertible credit facility

$
350,000


$
350,000Accrued
    paid-in-kind
    interest


40,678



24,165390,678



374,165(Deduct) add:Beneficial conversion feature


(30,250
)


(28,883
)Share purchase warrants


(9,403
)


(9,403
)Accretion of discount


27,891



13,249$
378,916


$
349,128  21




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   14.
    CONVERTIBLE
    CREDIT FACILITIES (Continued)  
 (a)  Rio
    Tinto (Continued)
            paid-in-kind
    (b)
    China
    Investment Corporation  December 31,2009


2008Principal amount of convertible debenture

$
500,000


$
(Deduct) add:Bifurcation of embedded derivative liability


(313,292
)


Accretion of discount


10



Carrying amount of debt host contract


186,718



Embedded derivative liability


358,272



Convertible credit facility


544,990Accrued interest


4,712



Transaction costs allocated to deferred charges


(5,601
)


Net carrying amount of convertible debenture

$
544,101


$
    22




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   14.
    CONVERTIBLE
    CREDIT FACILITIES (Continued)  
 (b)
    China
    Investment Corporation (Continued)      
    Interest  6.4% payable semi-annually in cash and 1.6%
    payable annually in shares of SouthGobi. The number of SouthGobi
    shares issued upon the settlement of interest is calculated
    using the
    50-day
    volume-weighted average price (VWAP).
    Term  30 years.
    Security  First charge over SouthGobis assets,
    including shares of its material subsidiaries.
    Conversion price  Lower of Cdn$11.88 or the
    50-day VWAP
    at the date of conversion, subject to a floor price of Cdn$8.88
    per share.
    Investors conversion option  CIC has the right
    to convert the debenture, in whole or in part, into common
    shares of SouthGobi from November 19, 2010 onwards.
    Issuers conversion option  SouthGobi has the
    right to convert up to $250.0 million of the debenture on
    the earlier of November 19, 2011 or upon achieving a public
    float of 25.0% of its common shares under certain agreed
    circumstances if the conversion price is at least Cdn$10.66.
    After November 19, 2014, SouthGobi is entitled to convert
    the debenture, in whole or in part, into its common shares at
    the conversion price if the conversion price is at least
    Cdn$10.66.             23




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   14.
    CONVERTIBLE
    CREDIT FACILITIES (Continued)  
 (b)
    China
    Investment Corporation (Continued)    December 31,


November 19,2009


2009Floor conversion price

Cdn$
8.88


Cdn$
8.88Ceiling conversion price

Cdn$
11.88


Cdn$
11.88Expected volatility


75%



80%Risk-free rate of return


4.09%



3.92%Spot Cdn$ exchange rate


0.96



0.94Forward Cdn$ exchange rate curve


0.90 - 0.95



0.90 - 0.94   15.
    DERIVATIVE
    CONTRACT        2008Risk-free interest rate


1.05%Expected life


1.4 yearsExpected volatility


84%Expected dividends

$
Nil         16.
    INCOME
    TAXES   24




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   16.
    INCOME
    TAXES (Continued)      Years Ended December 31,2009


2008Deferred income taxes

$
(14,520
)

$
4,003Capital taxes


1,055



311$
(13,465
)

$
4,314     December 31,2009


2008Deferred income tax assetsLong-term investments

$
42,642


$
35,375Loss carry-forwards


281,308



250,429Other


13,290



12,792337,240



298,596Valuation allowance


(330,287
)


(298,596
)Net deferred income tax assets


6,953



Deferred income tax liabilitiesProperty, plant and equipment


10,888



9,51210,888



9,512Deferred income tax liabilities, net

$
3,935


$
9,512     Years Ended December 31,2009


2008Recovery of income taxes based on the combined Canadian federal
    and provincial statutory tax rates of 30.0% in 2009 and 31.0% in
    2008 applied to the net loss from continuing operations

$
86,997


$
63,272DeductLower foreign tax rates


(3,696
)


(13,593
)Tax benefit of losses not recognized


(60,189
)


(54,372
)Non-taxable portion of realized capital gains






24,714Capital taxes


(1,055
)


(311
)Foreign exchange and other


(8,592
)


(24,024
)Recovery (provision) for income and capital taxes

$
13,465


$
(4,314
)  25




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   16.
    INCOME
    TAXES (Continued)    Local


U.S. Dollar


ExpiryCurrency


Equivalent(i)


DatesNon-capital losses:Canada

Canadian

$
191,927


$
182,233



2010 to 2029Australia

Australian

$
137,510


$
123,443



(a)Mongolia

Mongolian Tugrik


1,136,177,959


$
786,282



(b)Mongolia

Mongolian Tugrik


31,697,485


$
21,936



2010 to 2019Mongolia

Mongolian Tugrik


31,940,035


$
22,104



2010 to 2011Indonesia

Indonesian Rupiah


77,407,871


$
8,231



2011 to 2014Capital losses:Canada

Canadian

$
35,246


$
33,466



(c)     (i)
    
    Translated using the year-end exchange rate.(a)
    
    These losses are carried forward indefinitely, subject to
    continuity of ownership and business tests.(b)
    
    These losses are carried forward until production from a mine
    commences; thereafter, they can be amortized on a straight-line
    basis.(c)
    
    These losses are carried forward indefinitely for utilization
    against future net realized capital gains.          Canada


2003 to 2009Mongolia


2000 to 2009Australia


2003 to 2009   26




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   17.
    ASSET
    RETIREMENT OBLIGATIONS  December 31,2009


2008Balance, beginning of year

$
3,922


$
9,160Increase (decrease) in obligations for:Changes in estimates


706



2,582Amounts incurred






(11
)Unrealized foreign exchange


667



(546
)Accretion expense


141



429Reduction on commencement of equity accounting (Note 8 (a))






(7,692
)Balance, end of year

$
5,436


$
3,922     18.
    SHARE
    CAPITAL  (a)
    Equity
    Incentive Plan             27




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   18.  SHARE
    CAPITAL (Continued)
  
 (a)
    Equity
    Incentive Plan (Continued)      2009


2008Risk-free interest rate


2.10%



2.86%Expected life


3.7 years



3.6 yearsExpected volatility


74%



57%Expected dividends

$
Nil


$
Nil     Options OutstandingOptions


Number of


WeightedAvailable


Common


Averagefor Grant


Shares


Exercise Price(Expressed inCanadian dollars)Balances, December 31, 2007


5,435,246



14,563,900


$
10.10Options granted


(5,604,070
)


5,604,070



5.68Options exercised






(707,800
)


5.70Options cancelled


649,700



(649,700
)


7.49Shares issued under share purchase plan


(40,983
)






Balances, December 31, 2008


439,893



18,810,470


$
9.04Increase in amount authorized


9,500,794







Options granted


(9,400,500
)


9,400,500



9.59Options exercised






(867,500
)


7.47Options cancelled


6,185,200



(6,185,200
)


10.77Bonus shares


(125,000
)






Shares issued under share purchase plan


(104,566
)






Balances, December 31, 2009


6,495,821



21,158,270


$
8.84        28




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   18.  SHARE
    CAPITAL (Continued)
  
 (a)
    Equity
    Incentive Plan (Continued)    Options Outstanding


Options ExercisableWeighted


Weighted





WeightedAverage


Average





AverageNumber


Remaining


Exercise Price


Number


Exercise PriceRange of Exercise Prices

Outstanding


Life (in years)


per Share


Exercisable


per Share(Expressed in Canadian dollars)







(Expressed in





(Expressed inCanadian





Canadiandollars)





dollars)$ 2.82 to $ 3.47


3,095,620



5.92


$
2.98



552,068


$
2.97$ 3.48 to $ 7.03


677,100



3.67



6.39



303,300



6.78$ 7.04 to $ 8.20


5,885,500



5.75



8.12



2,173,500



7.98$ 8.21 to $ 8.96


3,356,450



4.08



8.46



752,200



8.42$ 8.97 to $10.27


3,306,700



3.11



9.72



2,861,700



9.72$10.28 to $12.62


664,900



3.08



11.62



397,500



11.33$12.63 to $16.79


4,172,000



5.98



13.76



628,500



13.6821,158,270



4.99


$
8.84



7,668,768


$
8.91        Year Ended December 31,2009


2008Exploration (i)

$
21,937


$
20,440General and administrative


13,898



8,672$
35,835


$
29,112     (i)
    
    Stock-based compensation of $340,000 (2008  $102,000)
    has been excluded as amounts relate to discontinued operations.    Year Ended December 31,2009


2008Ivanhoe Mines Ltd.

$
21,507


$
13,106SouthGobi Energy Resources Ltd. (i)


7,019



7,404Ivanhoe Australia Ltd.


7,309



8,602$
35,835


$
29,112     (i)
    
    Stock-based compensation of $340,000 (2008  $102,000)
    has been excluded as amounts relate to discontinued operations.  29




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   18.  SHARE
    CAPITAL (Continued)
  (b)
    Rio
    Tinto Placement                                30




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   18.  SHARE
    CAPITAL (Continued)
  (c)
    Rio
    Tinto Financing    19.
    ACCUMULATED
    OTHER COMPREHENSIVE INCOME  December 31,2009


2008Accumulated OCI at beginning of yearLong-term investments, net of tax of $nil, $nil

$
(8,635
)

$
17,498Other long-term investments, net of tax of $nil, $nil






Currency translation adjustment, net of tax of $nil, $nil


(18,256
)


Noncontrolling interests


2,669



$
(24,222
)

$
17,498Other comprehensive income (loss) for the year:Changes in fair value of long-term investments

$
29,718


$
(35,703
)Changes in fair value of other long-term investments


(27,448
)


Currency translation adjustments


12,241



(18,256
)Noncontrolling interests (Note 20)


(1,547
)


2,669Less: reclassification adjustments for gains/losses recorded in
    earnings:Investments:Other than temporary impairment charges






3,990Gains realized on sale


(1,424
)


Less: reclassification on commencement of equity accounting:Exco Resources N.L. (Note 8(b))






5,580Other comprehensive income (loss), before tax


11,540



(41,720
)Income tax expense related to OCI


(1,896
)


Other comprehensive income (loss), net of tax

$
9,644


$
(41,720
)Accumulated OCI at end of yearLong-term investments, net of tax of $1,896, $nil

$
17,763


$
(8,635
)Other long-term investments, net of tax of $nil, $nil


(27,448
)


Currency translation adjustment, net of tax of $nil, $nil


(6,015
)


(18,256
)Noncontrolling interests (Note 20)


1,122



2,669$
(14,578
)

$
(24,222
)   31




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   20.
    NONCONTROLLING
    INTERESTS    Noncontrolling InterestsSouthGobi


Ivanhoe Australia


TotalBalance, December 31, 2007

$



$



$
Increase in noncontrolling interests arising from share
    issuances by subsidiaries


28,847



8,784



37,631Noncontrolling interests share of loss


(11,224
)


(3,046
)


(14,270
)Noncontrolling interests share of other comprehensive loss
    (Note 19)






(2,669
)


(2,669
)Balance, December 31, 2008


17,623



3,069



20,692Changes in noncontrolling interests arising from changes in
    ownership interests


1,258



(122
)


1,136Noncontrolling interests share of loss


(19,515
)


(6,020
)


(25,535
)Derivative contract (Note 15)


2,594







2,594Purchase Metals division from subsidiary


518







518Noncontrolling interests share of other comprehensive loss
    (Note 19)






1,547



1,547Balance, December 31, 2009

$
2,478


$
(1,526
)

$
952   21.
    OTHER
    INCOME/EXPENSE  Year Ended December 31,2009


2008Transaction costs on issuance of convertible debenture
    (Note 14(b))

$
(9,399
)

$
SouthGobi Hong Kong listing fees


(2,470
)


(6,715
)Gain on sale of equipment (Note 8 (c)(iv))






911Loss on sale of equipment (Note 10 (e))






(5,996
)Loss on derivative contract (Note 15)






(3,209
)Gain on settlement of debt (i)






838$
(11,869
)

$
(14,171
)     (i)
    
    During 2008, Ivanhoe Mines recorded a $838,000 gain upon the
    settlement of loans payable to the Chairman of the Company or a
    company controlled by him.  32




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   22.
    CASH FLOW
    INFORMATION  (a)
    Reconciliation
    of net loss to net cash flow used in operating
    activities  Year Ended December 31,2009


2008Net loss

$
(305,706
)

$
(198,383
)Loss (Income) from discontinued operations


3,645



(24,305
)Items not involving use of cashStock-based compensation


35,835



29,112Accretion expense


14,486



10,087General and administrative expenses


1,978



Accrued mining property care and maintenance






448Depreciation


10,140



5,271Gain on sale of other mineral property rights


(3,000
)


Write-down of carrying values of property, plant and equipment


1,243



6,080Accrued interest income


(600
)


(3,646
)Accrued interest expense


20,885



17,054Unrealized gain on long-term investments


(1,099
)


Unrealized gain on other long-term investments


(438
)


Realized gain on redemption of other long-term investments


(1,458
)


Change in fair value of embedded derivatives


44,980



Transaction costs on issuance of convertible debenture


9,399



Unrealized foreign exchange (gains) losses


(33,394
)


57,790Share of loss of significantly influenced investees


45,898



10,092Write-down of carrying value of other long-term investments






18,009Gain on sale of long-term investments and note receivable


(1,424
)


(201,428
)Write-down of carrying value of long-term investments






7,103Loss on derivative contract






3,209Gain on settlement of debt






(838
)Gain on sale of equipment






(911
)Loss on sale of equipment






5,996Deferred income taxes


(14,520
)


4,003Bonus shares


1,622



Net change in non-cash operating working capital items:Decrease (increase) in:Accounts receivable


(875
)


(2,323
)Inventories


(2,301
)


(11,616
)Prepaid expenses


(4,816
)


(4,597
)Increase (decrease) in:Accounts payable and accrued liabilities


15,488



(35,787
)Cash used in operating activities of continuing operations


(164,032
)


(309,580
)Cash used in operating activities of discontinued operations


(19,227
)


(9,169
)Cash used in operating activities

$
(183,259
)

$
(318,749
)  33




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   22.
    CASH FLOW
    INFORMATION (Continued)  (b)
    Other
    supplementary information  Years Ended December 31,2009

2008Interest paid

$
717


$
470Income taxes paid

$
1,055


$
311   23.
    RELATED
    PARTY TRANSACTIONS    Years Ended December 31,2009


2008Global Mining Management Corporation (a)

$
8,982


$
8,147Ivanhoe Capital Aviation LLC (b)


5,940



3,840Fognani & Faught, PLLC (c)


60



621Ivanhoe Capital Corporation (d)


211



Ivanhoe Capital Services Ltd. (e)


618



601Rio Tinto plc (f)


8,588



4,783$
24,399


$
17,992   Years Ended December 31,2009


2008Exploration

$
8,588


$
4,783Legal


60



621Office and administrative


2,432



2,451Salaries and benefits


7,379



6,297Travel (including aircraft rental)


5,940



3,840$
24,399


$
17,992      34




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   23.
    RELATED
    PARTY TRANSACTIONS (Continued)                35




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   24.
    SEGMENT
    DISCLOSURES  Year Ended December 31, 2009Exploration


Coal


Corporate


ConsolidatedREVENUE

$



$
36,038


$



$
36,038COST OF SALESProduction and delivery






(23,611
)






(23,611
)Depreciation and depletion






(5,814
)






(5,814
)COST OF SALES






(29,425
)






(29,425
)EXPENSESExploration


(155,563
)


(21,499
)






(177,062
)General and administrative










(45,750
)


(45,750
)Depreciation


(4,186
)


(20
)


(120
)


(4,326
)Mining property care and maintenance














Accretion of convertible credit facilities






(10
)


(14,335
)


(14,345
)Accretion of asset retirement obligations


(88
)


(53
)






(141
)Gain on sale of other mineral property rights


3,000











3,000Write-down of carrying values of property, plant and equipment


(266
)






(977
)


(1,243
)TOTAL EXPENSES


(157,103
)


(51,007
)


(61,182
)


(269,292
)OPERATING LOSS


(157,103
)


(14,969
)


(61,182
)


(233,254
)OTHER INCOME (EXPENSES)Interest income


1,821



77



1,689



3,587Interest expense






(4,721
)


(16,880
)


(21,601
)Foreign exchange gains (losses)


(288
)


(1,070
)


35,428



34,070Unrealized gain on long-term investments






1,099







1,099Unrealized gain (loss) on other long-term investments






(255
)


693



438Realized gain on redemption of other long-term investments










1,458



1,458Change in fair value of embedded derivatives






(44,980
)






(44,980
)Write-down of carrying value of long-term investments














Write-down of carrying value of other long-term investments














Gain on sale of long-term investment and note receivable










1,424



1,424Other (expense) income






(11,869
)






(11,869
)LOSS BEFORE INCOME TAXES AND OTHER ITEMS


(155,570
)


(76,688
)


(37,370
)


(269,628
)Recovery (provision) for income taxes


1,227



6,337



5,901



13,465Share of loss of significantly influenced investees


(1,191
)






(44,707
)


(45,898
)NET LOSS FROM CONTINUING OPERATIONS


(155,534
)


(70,351
)


(76,176
)


(302,061
)(LOSS) INCOME FROM DISCONTINUED OPERATIONS






(30,461
)


26,816



(3,645
)NET LOSS


(155,534
)


(100,812
)


(49,360
)


(305,706
)NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS


6,019







19,516



25,535NET LOSS ATTRIBUTABLE TO IVANHOE MINES LTD.

$
(149,515
)

$
(100,812
)

$
(29,844
)

$
(280,171
)CAPITAL EXPENDITURES

$
2,761


$
36,175


$
39


$
38,975TOTAL ASSETS

$
271,512


$
576,568


$
686,601


$
1,534,681    36




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   24.
    SEGMENT
    DISCLOSURES (Continued)  Year Ended December 31, 2008Exploration


Coal


Corporate


ConsolidatedREVENUE

$



$
3,126


$



$
3,126COST OF SALESProduction and delivery






(1,931
)






(1,931
)Depreciation and depletion






(314
)






(314
)COST OF SALES






(2,245
)






(2,245
)EXPENSESExploration


(207,673
)


(42,918
)






(250,591
)General and administrative










(27,453
)


(27,453
)Depreciation


(4,133
)


(244
)


(580
)


(4,957
)Mining property care and maintenance










(10,342
)


(10,342
)Accretion of convertible credit facilities










(9,658
)


(9,658
)Accretion of asset retirement obligations


(75
)


(10
)


(344
)


(429
)Gain on sale of other mineral property rights














Write-down of carrying values of property, plant and equipment


(7
)


(504
)


(4
)


(515
)TOTAL EXPENSES


(211,888
)


(45,921
)


(48,381
)


(306,190
)OPERATING LOSS


(211,888
)


(42,795
)


(48,381
)


(303,064
)OTHER INCOME (EXPENSES)Interest income


1,396



1,857



9,929



13,182Interest expense










(17,599
)


(17,599
)Foreign exchange gains (losses)


(1,483
)


(4,630
)


(56,833
)


(62,946
)Unrealized gain on long-term investments














Unrealized gain (loss) on other long-term investments














Realized gain on redemption of other long-term investments














Change in fair value of embedded derivatives














Write-down of carrying value of long-term investments


(1,662
)






(5,441
)


(7,103
)Write-down of carrying value of other long-term investments










(18,009
)


(18,009
)Gain on sale of long-term investment and note receivable










201,428



201,428Other (expense) income


(5,996
)


(6,715
)


(1,460
)


(14,171
)LOSS BEFORE INCOME TAXES AND OTHER ITEMS


(219,633
)


(52,283
)


63,634



(208,282
)Recovery (provision) for income taxes


(88
)


(121
)


(4,105
)


(4,314
)Share of loss of significantly influenced investees


(3,015
)






(7,077
)


(10,092
)NET LOSS FROM CONTINUING OPERATIONS


(222,736
)


(52,404
)


52,452



(222,688
)(LOSS) INCOME FROM DISCONTINUED OPERATIONS






(9,690
)


33,995



24,305NET LOSS


(222,736
)


(62,094
)


86,447



(198,383
)NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS


14,270











14,270NET LOSS ATTRIBUTABLE TO IVANHOE MINES LTD.

$
(208,466
)

$
(62,094
)

$
86,447


$
(184,113
)CAPITAL EXPENDITURES

$
63,947


$
53,975


$
17,454


$
135,376TOTAL ASSETS

$
206,349


$
110,523


$
425,330


$
742,202     37




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   24.
    SEGMENT
    DISCLOSURES (Continued)  December 31,2009


2008Property, plant and equipment at the end of the year:Mongolia

$
189,837


$
161,346Australia


28,444



22,823Indonesia


26



13,182Canada


168



341Other


306



1,589$
218,781


$
199,281   25.
    COMMITMENTS
    AND CONTINGENCIES    2010

$
36,0262011


3,7472012


3,0802013


2,1942014 onwards


$
45,047     (a)
    
    In March 2010, Ivanhoe Mines used $195.4 million of the
    $241.1 million of proceeds received from the issue of
    15 million common shares to purchase from Rio Tinto key
    mining and milling equipment to be installed during the
    construction of the Oyu Tolgoi Project.(b)
    
    On October 6, 2009, Ivanhoe Mines agreed to purchase three
    T-Bills from the Government of Mongolia having an aggregate face
    value of $287.5 million, for the aggregate sum of
    $250 million. Ivanhoe Mines purchased the initial
    $100 million T-Bill on October 20, 2009 and is
    committed to purchase the second $50 million T-Bill within
    14 days of the conditions precedent to the Investment
    Agreement having been addressed and purchase the final
    $100 million T-Bill within 14 days of having fully
    drawn the financing necessary to enable the full and complete
    construction of the Oyu Tolgoi Project or June 30, 2011,
    whichever date is earlier.  26.
    FAIR
    VALUE ACCOUNTING    Level 1:
  Level 2:
 38




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   26.
    FAIR
    VALUE ACCOUNTING (Continued)  Level 3:
    Fair Value at December 31, 2009Total


Level 1


Level 2


Level 3Assets:Short-term investments

$
14,999


$
14,999


$



$
Long-term investments


86,443



62,410



24,033



Other long-term investments


145,035



47,194







97,841$
246,477


$
124,603


$
24,033


$
97,841Liabilities:Embedded derivative liability

$
358,272


$



$
358,272


$
$
358,272


$



$
358,272


$
Fair Value at December 31, 2008Total


Level 1


Level 2


Level 3Assets:Long-term investments

$
20,430


$
15,017


$
5,413


$
Other long-term investments


22,301











22,301$
42,731


$
15,017


$
5,413


$
22,301Liabilities:Derivative contract

$
5,320


$



$
5,320


$
$
5,320


$



$
5,320


$
        39




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   26.
    FAIR
    VALUE ACCOUNTING (Continued)    Long-Term Notes


T-Bills


TotalsBalance, December 31, 2007

$
47,132


$



$
47,132Foreign exchange losses


(6,822
)






(6,822
)Write-down of carrying value


(18,009
)






(18,009
)Balance, December 31, 2008

$
22,301


$



$
22,301Additions






100,000



100,000Accrued interest






600



600Foreign exchange gains


2,473







2,473Fair value redeemed


(778
)






(778
)Unrealized gain (loss)


693



(27,448
)


(26,755
)Balance, December 31, 2009

$
24,689


$
73,152


$
97,841    27.
    DISCLOSURES
    REGARDING FINANCIAL INSTRUMENTS    December 31,2009


2008Carrying


Fair


Carrying


FairAmount


Value


Amount


ValueCash and cash equivalents

$
965,823


$
965,823


$
384,110


$
384,110Short-term investments


14,999



14,999







Accounts receivable


39,349



39,349



47,520



47,520Long-term investments


93,511



154,976



55,945



78,427Other long-term investments


145,035



145,035



22,301



22,301Accounts payable and accrued liabilities


55,128



55,128



41,103



41,103Amounts due under credit facilities


55,523



55,523



15,963



15,963Convertible credit facilities


928,618



940,380



349,128



374,165Derivative contract










5,320



5,320          40




---



##### 



IVANHOE
    MINES LTD.
  Notes to
    the Consolidated Financial Statements
 (Stated
    in U.S. dollars unless otherwise noted; tabular amounts in
    thousands)
   27.
    DISCLOSURES
    REGARDING FINANCIAL INSTRUMENTS (Continued)          28.
    SUBSEQUENT
    EVENTS     41