##### 



|                                                                                                |  |                                                                 |  |                           
|----------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------- |  | --------------------------
|Deloitte & Touche LLP
    P.O. Box 49279                                                        |  |                                                                 |  |                           
|Four Bentall Centre
    2800  1055 Dunsmuir Street
    Vancouver, British Columbia
    V7X 1P4 |  | Tel: (604) 669 4466
    Fax: (604) 685 0395
    www.deloitte.ca |  | (DELOITTE AND TOUCHE LOGO)




INDEPENDENT
AUDITORS REPORT

To the Shareholders of 
 Ivanhoe Mines Ltd.

We have audited the consolidated balance sheets
of Ivanhoe Mines Ltd. as at December 31, 2003 and 2002 and
the consolidated statements of operations, shareholders
equity and cash flows for each of the years then ended. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with
Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial
statements present fairly, in all material respects, the
financial position of the Company as at December 31, 2003
and 2002 and the results of its operations, changes in its
shareholders equity and its cash flows for each of the
years then ended in accordance with Canadian generally accepted
accounting principles.

(DELOITTE AND TOUCHE LLP SIG)

Chartered Accountants

Vancouver, British Columbia


March 29, 2004


Comments by Independent Auditors on
Canada  United States of America Reporting Differences

In the United States of America, reporting
standards for auditors require the addition of an explanatory
paragraph (following the opinion paragraph) when there are
changes in accounting principles that have a material effect on
the comparability of the Companys financial statements,
such as the changes described in Note 3 to the consolidated
financial statements. Our report to the Shareholders dated
March 29, 2004 is expressed in accordance with Canadian
reporting standards which do not require a reference to such
changes in accounting principles in the auditors report
when the changes are properly accounted for and adequately
disclosed in the financial statements.

In the United States of America, reporting
standards for auditors also require the addition of an
explanatory paragraph (following the opinion paragraph) when the
financial statements are affected by conditions and events such
as those described in Note 4 to the consolidated financial
statements. Our report to the Shareholders dated March 29,
2004 is expressed in accordance with Canadian reporting
standards which do not permit a reference to such conditions and
events in the auditors report when these are adequately
disclosed in the financial statements.

(DELOITTE AND TOUCHE LLP SIG)

Chartered Accountants

Vancouver, British Columbia


March 29, 2004


(DELOITTE TOUCHE TOHMATSU LOGO)



25






---



##### 






Consolidated
Balance Sheets

(Stated in thousands of U.S. dollars)


|                                                   |                                                                  |                                                            |          |              |         |   |          |         |         | 
|-------------------------------------------------- | ---------------------------------------------------------------- | ---------------------------------------------------------- | -------- | ------------ | ------- | - | -------- | ------- | ------- | 
|                                                   |                                                                  |                                                           
|                                                   |                                                                  | December 31,                                              
|                                                   |                                                                  |                                                           
|                                                   |                                                                  | 2003                                                       |          | 2002        
|                                                   |                                                                  |                                                            |          |             
|                                                   |                                                                  |                                                            |          | (Note 3 (a))
|ASSETS                                             |                                                                  |                                                            |          |              |         |   |          |        
|CURRENT                                            |                                                                  |                                                            |          |              |         |   |          |        
|                                                   | Cash (Note 6)                                                    |                                                            | $        | 108,177      |         |   | $        | 35,445  |        
|                                                   | Investments (Note 7)                                             |                                                            |          | 50,000       |         |   |          |        |        
|                                                   | Accounts receivable (Note 8)                                     |                                                            |          | 6,790        |         |   |          | 3,425   |        
|                                                   | Broken ore on leach pads                                         |                                                            |          | 6,181        |         |   |          | 6,424   |        
|                                                   | Inventories (Note 9)                                             |                                                            |          | 21,289       |         |   |          | 16,511  |        
|                                                   | Prepaid expenses                                                 |                                                            |          | 3,406        |         |   |          | 1,971   |        
|                                                  
|                                                   |                                                                  |                                                            | 195,843  |              |         |   | 63,776   |        
|LONG-TERM INVESTMENTS (Note 10)                    |                                                                  |                                                            | 14,716   |              |         |   | 15,537   |        
|MINING PROPERTY, PLANT AND EQUIPMENT
    (Note 11) |                                                                  |                                                            | 154,922  |              |         |   | 160,226  |        
|OTHER MINERAL PROPERTY INTERESTS (Note 12)         |                                                                  |                                                            | 49,796   |              |         |   | 6,833    |        
|OTHER CAPITAL ASSETS (Note 13)                     |                                                                  |                                                            | 7,990    |              |         |   | 3,481    |        
|FUTURE INCOME TAXES (Note 17)                      |                                                                  |                                                            | 1,781    |              |         |   | 1,041    |        
|OTHER ASSETS (Note 14)                             |                                                                  |                                                            | 30,674   |              |         |   | 25,172   |        
|                                                  
|                                                   |                                                                  |                                                            | $        | 455,722      |         |   | $        | 276,066 |        
|                                                  
|LIABILITIES                                        |                                                                  |                                                            |          |              |         |   |          |        
|CURRENT                                            |                                                                  |                                                            |          |              |         |   |          |        
|                                                   | Accounts payable and accrued liabilities
    (Note 12 (a))       |                                                            | $        | 53,272       |         |   | $        | 29,174  |        
|                                                   | Current portion of asset retirement obligations
    (Note 18(b)) |                                                            |          | 388          |         |   |          |        |        
|                                                   | Current portion of long-term debt (Note 16)                      |                                                            |          | 15,301       |         |   |          | 23,766  |        
|                                                  
|                                                   |                                                                  |                                                            | 68,961   |              |         |   | 52,940   |        
|LOANS PAYABLE TO RELATED PARTIES (Note 15)         |                                                                  |                                                            | 5,088    |              |         |   | 5,088    |        
|LONG-TERM DEBT (Note 16)                           |                                                                  |                                                            | 6,878    |              |         |   | 5,534    |        
|FUTURE INCOME TAXES (Note 17)                      |                                                                  |                                                            | 14,309   |              |         |   | 12,642   |        
|OTHER LIABILITIES (Note 18)                        |                                                                  |                                                            | 19,423   |              |         |   | 13,596   |        
|NON-CONTROLLING INTEREST (Note 19)                 |                                                                  |                                                            | 5,816    |              |         |   |         |        
|                                                  
|                                                   |                                                                  |                                                            | 120,475  |              |         |   | 89,800   |        
|                                                  
|SHAREHOLDERS EQUITY                               |                                                                  |                                                            |          |              |         |   |          |        
|SHARE CAPITAL (Note 20)                            |                                                                  |                                                            |          |              |         |   |          |        
|                                                   | Authorized                                                       |                                                            |          |              |         |   |          |         |        
|                                                   |                                                                  | Unlimited number of preferred shares without par
    value |          |              |         |   |          |         |         | 
|                                                   |                                                                  | Unlimited number of common shares without par
    value    |          |              |         |   |          |         |         | 
|                                                   | Issued and outstanding                                           |                                                            |          |              |         |   |          |         |        
|                                                   |                                                                  | 265,440,052 (2002  205,163,382) common
    shares         |          |              | 719,289 |   |          |         | 522,199 | 
|SPECIAL WARRANTS (Note 28(a))                      |                                                                  |                                                            | 49,975   |              |         |   | 26,516   |        
|ADDITIONAL PAID-IN CAPITAL                         |                                                                  |                                                            | 404      |              |         |   | 1,508    |        
|CONTRIBUTED SURPLUS                                |                                                                  |                                                            | 6,044    |              |         |   | 3,520    |        
|DEFICIT                                            |                                                                  |                                                            | (440,465 | )            |         |   | (367,477 | )      
|                                                  
|                                                   |                                                                  |                                                            | 335,247  |              |         |   | 186,266  |        
|                                                  
|                                                   |                                                                  | $                                                          | 455,722  |              |         | $ | 276,066  |        
|                                                  

COMMITMENTS (Note 25)

APPROVED BY THE BOARD:

|                        |  |                      
|----------------------- |  | ---------------------
|(-s- J. Weatherall)     |  | (-s- K. Thygesen)    
|                        |  |                      
|J. Weatherall, Director |  | K. Thygesen, Director



26






---



##### 






Consolidated
Statements of Operations

(Stated in thousands of U.S. dollars, except
per share amounts)


|                                                                      |                                                                                |                          |         |             |   |   |         |         |  
|--------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------ | ------- | ----------- | - | - | ------- | ------- | -
|                                                                      |                                                                                |                         
|                                                                      |                                                                                | Years ended December 31,
|                                                                      |                                                                                |                         
|                                                                      |                                                                                | 2003                     |         | 2002       
|                                                                      |                                                                                |                          |         |            
|                                                                      |                                                                                |                          |         | (Note 3(a))
|REVENUE                                                               |                                                                                | $                        | 89,699  |             |   | $ | 87,121  |        
|COST OF OPERATIONS                                                    |                                                                                |                          | (75,908 | )           |   |   | (63,292 | )      
|WRITE-DOWN OF INVENTORIES                                             |                                                                                |                          |        |             |   |   | (1,049  | )      
|DEPRECIATION AND DEPLETION                                            |                                                                                |                          | (10,789 | )           |   |   | (12,216 | )      
|                                                                     
|OPERATING PROFIT                                                      |                                                                                |                          | 3,002   |             |   |   | 10,564  |        
|EXPENSES                                                              |                                                                                |                          |         |             |   |   |         |        
|                                                                      | General and administrative                                                     |                          |         | (17,496     | ) |   |         | (12,424 | )
|                                                                      | Interest on long-term debt                                                     |                          |         | (2,435      | ) |   |         | (4,516  | )
|                                                                      | Exploration                                                                    |                          |         | (67,989     | ) |   |         | (33,934 | )
|                                                                      | Depreciation                                                                   |                          |         | (1,501      | ) |   |         | (860    | )
|                                                                     
|LOSS BEFORE THE FOLLOWING                                             |                                                                                |                          | (86,419 | )           |   |   | (41,170 | )      
|                                                                     
|OTHER INCOME (EXPENSES)                                               |                                                                                |                          |         |             |   |   |         |        
|                                                                      | Interest income                                                                |                          |         | 1,824       |   |   |         | 1,101   |  
|                                                                      | Foreign exchange gains                                                         |                          |         | 10,469      |   |   |         | 1,958   |  
|                                                                      | Mining property shut-down costs (Note 11)                                      |                          |         | (3,356      | ) |   |         | (2,995  | )
|                                                                      | Share of loss of significantly influenced
    investees (Note 10)              |                          |         | (2,423      | ) |   |         | (847    | )
|                                                                      | Gain on sale of long-term investments                                          |                          |         | 4,625       |   |   |         | 508     |  
|                                                                      | Gain on settlement of debt (Note 16(d))                                        |                          |         |            |   |   |         | 32,466  |  
|                                                                      | Write-down of carrying values of other assets
    (Note 21)                    |                          |         | (1,213      | ) |   |         | (19,890 | )
|                                                                      | Dilution gain on investment in subsidiary                                      |                          |         | 4,210       |   |   |         |        |  
|                                                                      | Dilution loss on long-term investment in
    significantly influenced investee |                          |         | (237        | ) |   |         |        |  
|                                                                      | Other                                                                          |                          |         | 993         |   |   |         | 2,133   |  
|                                                                     
|                                                                      |                                                                                |                          | 14,892  |             |   |   | 14,434  |        
|                                                                     
|LOSS BEFORE INCOME AND CAPITAL TAXES AND
    NON-CONTROLLING INTEREST |                                                                                |                          | (71,527 | )           |   |   | (26,736 | )      
|                                                                      | Provision for income and capital taxes
    (Note 17)                           |                          |         | (2,007      | ) |   |         | (4,259  | )
|                                                                     
|LOSS BEFORE NON-CONTROLLING INTEREST                                  |                                                                                |                          | (73,534 | )           |   |   | (30,995 | )      
|                                                                      | Non-controlling interest                                                       |                          |         | 546         |   |   |         |        |  
|                                                                     
|NET LOSS                                                              |                                                                                | $                        | (72,988 | )           |   | $ | (30,995 | )      
|                                                                     
|BASIC AND DILUTED LOSS PER SHARE                                      |                                                                                | $                        | (0.30   | )           |   | $ | (0.16   | )      
|                                                                     
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
    (000s)             |                                                                                |                          | 243,814 |             |   |   | 194,551 |        
|                                                                     



27






---



##### 






Consolidated
Statements of Shareholders Equity

(Stated in thousands of U.S. dollars)


|                                                    |                                                    |                       |             |            |           |            |         |         |       |             |         |             |   |       |       |        |   |   |       |        |   |   |          |   |   |   |         |         |       | 
|--------------------------------------------------- | -------------------------------------------------- | --------------------- | ----------- | ---------- | --------- | ---------- | ------- | ------- | ----- | ----------- | ------- | ----------- | - | ----- | ----- | ------ | - | - | ----- | ------ | - | - | -------- | - | - | - | ------- | ------- | ----- | 
|                                                    |                                                    |                       |             |            |           |            |         |         |       |             |         |            
|                                                    |                                                    | Share Capital         |             |            |           |            |         |         |       |             |         |            
|                                                    |                                                    |                       |             |            |           | Additional |         |         |       |             |         |            
|                                                    |                                                    | Number                |             |            |           | Special    |         | Paid-In |       | Contributed |         |             |   |      
|                                                    |                                                    | of Shares             |             | Amount     |           | Warrants   |         | Capital |       | Surplus     |         | Deficit     |   | Total
|                                                    |                                                    |                       |             |            |           |            |         |         |       |             |         |             |   |      
|                                                    |                                                    |                       |             |            |           |            |         |         |       |             |         | (Note 3(a)) |   |      
|Balances, December 31, 2001                         |                                                    |                       | 171,158,484 |            |           | $          | 460,389 |         |       | $           |        |             |   | $     | 1,697 |        |   | $ |      |        |   | $ | (331,915 | ) |   | $ | 130,171 |        
|Effect of accounting change (Note 3(a) and
    (b)) |                                                    |                       |            |            |           |            |        |         |       |             |        |             |   |       |      |        |   |   | 2,603 |        |   |   | (4,567   | ) |   |   | (1,964  | )      
|Shares issued for:                                  |                                                    |                       |             |            |           |            |         |         |       |             |         |             |   |       |       |        |   |   |       |        |   |   |          |   |   |   |         |        
|                                                    | Private placements                                 |                       |             | 29,385,164 |           |            |         | 53,811  |       |             |         |            |   |       |       |       |   |   |       |       |   |   |          |  |   |   |         | 53,811  |      
|                                                    | Exercise of stock options                          |                       |             | 1,906,775  |           |            |         | 2,491   |       |             |         |            |   |       |       | (189   | ) |   |       | (698   | ) |   |          |  |   |   |         | 1,604   |      
|                                                    | Share purchase plan                                |                       |             | 50,321     |           |            |         | 91      |       |             |         |            |   |       |       |       |   |   |       |       |   |   |          |  |   |   |         | 91      |      
|                                                    | Acquisition of long-term investments
    (Note 10) |                       |             |            |           |            |         |         |       |             |         |             |   |       |       |        |   |   |       |        |   |   |          |   |   |   |         |         |      
|                                                    |                                                    | Pacific Minerals Inc. |             |            | 2,374,960 |            |         |         | 4,818 |             |         |             |  |       |       |        |  |   |       |        |  |   |          |   |  |   |         |         | 4,818 | 
|                                                    |                                                    | Intec Ltd.            |             |            | 287,678   |            |         |         | 599   |             |         |             |  |       |       |        |  |   |       |        |  |   |          |   |  |   |         |         | 599   | 
|Special Warrants issued                             |                                                    |                       |            |            |           |            |        |         |       |             | 26,516  |             |   |       |      |        |   |   |      |        |   |   |         |   |   |   | 26,516  |        
|Stock compensation charged to operations            |                                                    |                       |            |            |           |            |        |         |       |             |        |             |   |       |      |        |   |   | 1,615 |        |   |   |         |   |   |   | 1,615   |        
|Net loss                                            |                                                    |                       |            |            |           |            |        |         |       |             |        |             |   |       |      |        |   |   |      |        |   |   | (30,995  | ) |   |   | (30,995 | )      
|                                                   
|Balances, December 31, 2002                         |                                                    |                       | 205,163,382 |            |           |            | 522,199 |         |       |             | 26,516  |             |   |       | 1,508 |        |   |   | 3,520 |        |   |   | (367,477 | ) |   |   | 186,266 |        
|Special Warrants issued                             |                                                    |                       |             |            |           |            |         |         |       |             | 109,234 |             |   |       |      |        |   |   |      |        |   |   |         |   |   |   | 109,234 |        
|Shares issued for:                                  |                                                    |                       |             |            |           |            |         |         |       |             |         |             |   |       |       |        |   |   |       |        |   |   |          |   |   |   |         |        
|                                                    | Private placements                                 |                       |             | 14,300,000 |           |            |         | 105,475 |       |             |         |            |   |       |       |       |   |   |       |       |   |   |          |  |   |   |         | 105,475 |      
|                                                    | Exercise of special warrants                       |                       |             | 41,296,080 |           |            |         | 85,775  |       |             |         | (85,775     | ) |       |       |       |   |   |       |       |   |   |          |  |   |   |         |        |      
|                                                    | Exercise of stock options                          |                       |             | 4,407,815  |           |            |         | 5,158   |       |             |         |            |   |       |       | (1,104 | ) |   |       | (1,156 | ) |   |          |  |   |   |         | 2,898   |      
|                                                    | Share purchase plan                                |                       |             | 49,745     |           |            |         | 113     |       |             |         |            |   |       |       |       |   |   |       |       |   |   |          |  |   |   |         | 113     |      
|                                                    | Bonus shares                                       |                       |             | 125,000    |           |            |         | 263     |       |             |         |            |   |       |       |       |   |   |       |       |   |   |          |  |   |   |         | 263     |      
|                                                    | Consulting fees                                    |                       |             | 98,030     |           |            |         | 306     |       |             |         |            |   |       |       |       |   |   |       |       |   |   |          |  |   |   |         | 306     |      
|Stock compensation charged to operations            |                                                    |                       |            |            |           |            |        |         |       |             |        |             |   |       |      |        |   |   | 3,680 |        |   |   |         |   |   |   | 3,680   |        
|Net loss                                            |                                                    |                       |            |            |           |            |        |         |       |             |        |             |   |       |      |        |   |   |      |        |   |   | (72,988  | ) |   |   | (72,988 | )      
|                                                   
|Balances, December 31, 2003                         |                                                    |                       | 265,440,052 |            |           | $          | 719,289 |         |       | $           | 49,975  |             |   | $     | 404   |        |   | $ | 6,044 |        |   | $ | (440,465 | ) |   | $ | 335,247 |        
|                                                   



28






---



##### 






Consolidated
Statements of Cash Flows

(Stated in thousands of U.S. dollars)


|                                                    |                                                          |                                                                                |         |              |         |   |         |         |         |  
|--------------------------------------------------- | -------------------------------------------------------- | ------------------------------------------------------------------------------ | ------- | ------------ | ------- | - | ------- | ------- | ------- | -
|                                                    |                                                          |                                                                               
|                                                    |                                                          | Years ended December 31,                                                      
|                                                    |                                                          |                                                                               
|                                                    |                                                          | 2003                                                                           |         | 2002        
|                                                    |                                                          |                                                                                |         |             
|                                                    |                                                          |                                                                                |         | (Note 3 (a))
|OPERATING ACTIVITIES                                |                                                          |                                                                                |         |              |         |   |         |        
|                                                    | Net loss                                                 |                                                                                | $       | (72,988      | )       |   | $       | (30,995 | )      
|                                                    | Items not involving use of cash                          |                                                                                |         |              |         |   |         |         |        
|                                                    |                                                          | Depreciation and depletion                                                     |         |              | 12,290  |   |         |         | 13,076  |  
|                                                    |                                                          | Non-cash stock based compensation                                              |         |              | 3,680   |   |         |         | 1,615   |  
|                                                    |                                                          | Non-cash interest expense                                                      |         |              | 967     |   |         |         | 682     |  
|                                                    |                                                          | Write-down of inventories                                                      |         |              |        |   |         |         | 1,049   |  
|                                                    |                                                          | Unrealized foreign exchange (gains) losses                                     |         |              | (10,748 | ) |         |         | (8,584  | )
|                                                    |                                                          | Expenditures on deferred stripping costs                                       |         |              | (9,596  | ) |         |         | (13,192 | )
|                                                    |                                                          | Amortization of deferred stripping costs                                       |         |              | 785     |   |         |         | 690     |  
|                                                    |                                                          | Share of loss of significantly influenced
    investees                        |         |              | 2,423   |   |         |         | 847     |  
|                                                    |                                                          | Gain on settlement of debt                                                     |         |              |        |   |         |         | (32,466 | )
|                                                    |                                                          | Write-down of carrying values of other assets                                  |         |              | 1,213   |   |         |         | 19,890  |  
|                                                    |                                                          | Dilution gain on investment in subsidiary                                      |         |              | (4,210  | ) |         |         |        |  
|                                                    |                                                          | Dilution loss on long-term investment in
    significantly influenced investee |         |              | 237     |   |         |         |        |  
|                                                    |                                                          | Gain on sale of long-term investments                                          |         |              | (4,625  | ) |         |         | (508    | )
|                                                    |                                                          | Provision for income taxes                                                     |         |              | 667     |   |         |         |         |  
|                                                    |                                                          | Future income taxes                                                            |         |              | 927     |   |         |         | 3,951   |  
|                                                    |                                                          | Non-controlling interest                                                       |         |              | (546    | ) |         |         |        |  
|                                                    |                                                          | Non-cash recovery of bad debt                                                  |         |              |        |   |         |         | (1,248  | )
|                                                    |                                                          | Increase in non-current portion of royalty payable                             |         |              | 461     |   |         |         | 418     |  
|                                                    |                                                          | Provision for employee entitlements                                            |         |              | 1,398   |   |         |         | 959     |  
|                                                    |                                                          | Net change in non-cash operating working capital
    items (Note 23 (a))       |         |              | (1,459  | ) |         |         | 6,671   |  
|                                                   
|                                                    |                                                          |                                                                                |         | (79,124      | )       |   |         | (37,145 | )      
|                                                   
|INVESTING ACTIVITIES                                |                                                          |                                                                                |         |              |         |   |         |        
|                                                    | Purchase of investments                                  |                                                                                |         | (50,000      | )       |   |         |        |        
|                                                    | Purchase of long-term investments                        |                                                                                |         | (3,923       | )       |   |         | (6,288  | )      
|                                                    | Proceeds from sale of long-term investments              |                                                                                |         | 6,709        |         |   |         | 10      |        
|                                                    | Restricted cash                                          |                                                                                |         | 6,064        |         |   |         | (4,617  | )      
|                                                    | Expenditures on mining property, plant and
    equipment |                                                                                |         | (5,485       | )       |   |         | (6,844  | )      
|                                                    | Expenditures on other mineral property interests         |                                                                                |         | (26,067      | )       |   |         | (1,142  | )      
|                                                    | Expenditures on other capital assets                     |                                                                                |         | (6,034       | )       |   |         | (3,557  | )      
|                                                    | Expenditures on other assets                             |                                                                                |         | (2,757       | )       |   |         | (62     | )      
|                                                   
|                                                    |                                                          |                                                                                | (81,493 | )            |         |   | (22,500 | )      
|                                                   
|FINANCING ACTIVITIES                                |                                                          |                                                                                |         |              |         |   |         |        
|                                                    | Issue of share capital and special warrants              |                                                                                |         | 218,026      |         |   |         | 82,022  |        
|                                                    | Non-controlling interests investment in
    subsidiary  |                                                                                |         | 10,572       |         |   |         |        |        
|                                                    | Proceeds from long-term debt                             |                                                                                |         |             |         |   |         | 10,306  |        
|                                                    | Repayment of long-term debt                              |                                                                                |         | (9,353       | )       |   |         | (16,900 | )      
|                                                   
|                                                    |                                                          |                                                                                |         | 219,245      |         |   |         | 75,428  |        
|                                                   
|                                                   
|EFFECT OF EXCHANGE RATE CHANGES ON CASH             |                                                          |                                                                                | 14,104  |              |         |   | 707     |        
|                                                   
|NET CASH INFLOW                                     |                                                          |                                                                                | 72,732  |              |         |   | 16,490  |        
|CASH, BEGINNING OF YEAR                             |                                                          |                                                                                | 35,445  |              |         |   | 18,955  |        
|                                                   
|CASH, END OF YEAR                                   |                                                          | $                                                                              | 108,177 |              |         | $ | 35,445  |        
|                                                   
|CASH IS COMPRISED OF:                               |                                                          |                                                                                |         |              |         |   |         |        
|                                                    | Cash on hand and demand deposits                         |                                                                                | $       | 33,634       |         |   | $       | 11,870  |        
|                                                    | Short-term money market instruments                      |                                                                                |         | 74,543       |         |   |         | 23,575  |        
|                                                   
|                                                    |                                                          | $                                                                              | 108,177 |              |         | $ | 35,445  |        
|                                                   
|SUPPLEMENTARY INFORMATION (Note 23 (b) and
    (c)) |                                                          |                                                                                |         |              |         |   |         |        



29






---



##### 






Notes to the
Consolidated Financial Statements

(Stated in U.S. dollars; tabular amounts in
thousands)


1.      NATURE
OF OPERATIONS



| |                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Ivanhoe Mines Ltd. (the Company),
    together with its subsidiaries and joint venture (collectively
    referred to as Ivanhoe Mines), is an international
    mineral exploration and development company holding interests in
    and conducting operations on mineral resource properties
    principally in Southeast and Central Asia and Australia.

2.      SIGNIFICANT
ACCOUNTING POLICIES



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | These consolidated financial statements have been
    prepared in accordance with Canadian generally accepted
    accounting principles (Canadian GAAP). In the case
    of the Company, Canadian GAAP differs in certain respects from
    accounting principles generally accepted in the United States
    (U.S. GAAP) as explained in Note 27. The
    significant accounting policies used in these consolidated
    financial statements are as follows:
|
| | (a)         Principles
    of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                       



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | These consolidated financial statements include
    the accounts of the Company and all of its subsidiaries. The
    principal subsidiaries of the Company are ABM Mining Limited
    (Yukon, Canada), Ivanhoe Mines Mongolia Inc. (B.V.I.), Ivanhoe
    Myanmar Holdings Limited (Myanmar), Asia Gold Corp. (B.C.,
    Canada) (51% owned) and their respective subsidiaries, and
    Bakyrchik Mining Venture (Kazakhstan) (70% owned). ABM Mining
    Limited and its subsidiaries are individually and collectively
    referred to in these financial statements as ABM.
|
| | Ivanhoe Mines investment in Myanmar Ivanhoe
    Copper Company Limited (JVCo) (Myanmar) (50% owned),
    which is subject to joint control, is consolidated on a
    proportionate basis whereby the Company includes in these
    consolidated financial statements its proportionate share of the
    assets, liabilities, revenues and expenses of JVCo.                                                                                                                                                                                                                 
|
| | All intercompany transactions and balances have
    been eliminated, where appropriate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



| |                                     
| | ------------------------------------
| | (b)         Accounting
    estimates



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Generally accepted accounting principles require
    management to make assumptions and estimates that affect the
    reported amounts and other disclosures in these consolidated
    financial statements. Actual results may differ from those
    estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | Significant estimates used in the preparation of
    these consolidated financial statements include, amongst other
    things, the recoverability of accounts receivable, future income
    tax assets and investments, the quantities of copper on leach
    pads and in circuit, the proven and probable ore reserves, the
    estimated tonnes of waste material to be mined and the estimated
    recoverable tonnes of ore from each mine area, the estimated net
    realizable value of metals inventories, the expected economic
    lives of and the estimated future operating results and net cash
    flows from mining property, plant and equipment, and the
    anticipated costs of asset retirement obligations including the
    reclamation of mine sites.



| |                                   
| | ----------------------------------
| | (c)         Foreign
    currencies



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company considers the U.S. dollar to be
    its functional currency as it is the currency of the primary
    economic environment in which the Company and its foreign
    subsidiaries operate. Accordingly, monetary assets and
    liabilities denominated in foreign currencies are translated
    into U.S. dollars at the exchange rate in effect at the
    balance sheet date and non-monetary assets and liabilities at
    the exchange rates in effect at the time of acquisition or
    issue. Revenues and expenses are translated at rates
    approximating the exchange rates in effect at the time of the
    transactions. All exchange gains and losses are included in
    operations.



30






---



##### 








2.      SIGNIFICANT
ACCOUNTING POLICIES (Continued)




| |                 
| | ----------------
| | (d)         Cash



| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | Cash includes short-term money market instruments
    with terms to maturity, at the date of acquisition, not
    exceeding ninety days.



| |                        
| | -----------------------
| | (e)         Investments



| |                                                                    
| | -------------------------------------------------------------------
| | Investments are recorded at the lower of cost and
    market value.



| |                                         
| | ----------------------------------------
| | (f)         Broken
    ore on leach pads



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The broken ore on leach pads comprises copper in
    process on heap leach pads that is valued at the lower of the
    weighted average cost of production and net realizable value.
    All of this ore has been classified as a current asset since,
    based on historical leaching data, the copper is expected to be
    recovered within the next twelve months. The estimated units of
    copper on the leach pads are based on the amount of ore placed
    on the pads, the expected recovery rates and actual production.
|
| | Ivanhoe Mines reviews the estimated units of
    copper on the heap leach pads on a regular basis and, where
    appropriate, revises its estimates of those quantities to
    recognize changes in the expected recovery rates based on actual
    recoveries.                                                                                                                                                                                                                                                                      



| |                        
| | -----------------------
| | (g)         Inventories



| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | Metals inventories are valued at the lower of the
    weighted average cost of production and net realizable value.                           
|
| | Mine stores and supplies are valued at the lower
    of the weighted average cost, less allowances for obsolescence,
    and replacement cost.



| |                                      
| | -------------------------------------
| | (h)         Long-term
    investments



| |                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Long-term investments in companies 20% to 50%
    owned and/or where Ivanhoe Mines has the ability to exercise
    significant influence are accounted for using the equity method.
    Under this method, Ivanhoe Mines share of their earnings
    and losses is included in operations and its investments therein
    are adjusted by a like amount. Dividends received are credited
    to the investment accounts.
|
| | The remaining long-term investments are accounted
    for using the cost method, whereby income is included in
    operations when received or receivable.                                                                                                                                                                                                                                                               
|
| | Provisions for impairment of long-term
    investments are made, where necessary, to recognize other than
    temporary declines in value.                                                                                                                                                                                                                                                                               



| |                                                                               
| | ------------------------------------------------------------------------------
| | (i)          Mining
    property, plant and equipment and other capital assets



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Mining property, plant and equipment and other
    capital assets are carried at cost (including development and
    preproduction costs, capitalized interest, other financing costs
    and all direct administrative support costs incurred during the
    construction period, net of cost recoveries and incidental
    revenues) less accumulated depletion and depreciation including
    write-downs. Following the construction period, interest, other
    financing costs and administrative costs are expensed as
    incurred.
|
| | 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 (over two to fifteen years), as appropriate.                          



31






---



##### 








2.      SIGNIFICANT
ACCOUNTING POLICIES (Continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Capital projects in progress are not depreciated
    until the capital asset has been put into operation.                                                                                                                                                                                                                                                                                                                                                                                             
|
| | Ivanhoe Mines reviews the carrying values of its
    mining property, plant and equipment and other capital assets
    whenever events or changes in circumstances indicate that their
    carrying values may exceed their estimated net recoverable
    amounts determined by reference to estimated future operating
    results and undiscounted net cash flows. An impairment loss is
    recognized when the carrying value of those assets is not
    recoverable and exceeds their fair value.



| |                                                  
| | -------------------------------------------------
| | (j)          Other
    mineral property interests



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All direct costs related to the acquisition of
    other mineral property interests are capitalized by property.
    Exploration costs are charged to operations in the period
    incurred until such time as it has been determined that a
    property has economically recoverable reserves, in which case
    subsequent exploration costs and the costs incurred to develop a
    property are capitalized. Exploration costs include value-added
    taxes incurred in foreign jurisdictions when recoverability of
    those taxes is uncertain.
|
| | Ivanhoe Mines reviews the carrying values of its
    other mineral property interests whenever events or changes in
    circumstances indicate that their carrying values may exceed
    their estimated net recoverable amounts. An impairment loss is
    recognized when the carrying value of those assets is not
    recoverable and exceeds their fair value.                                                                                                                                                                                     
|
| | Certain of Ivanhoe Mines exploration
    activities are conducted jointly with others. These consolidated
    financial statements reflect only Ivanhoe Mines interests
    in such activities.                                                                                                                                                                                                                                                                                                                                                       



| |                                
| | -------------------------------
| | (k)         Stripping
    costs



| |                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Mining costs associated with waste rock removal
    are deferred or accrued, as appropriate, and charged to
    operations on the basis of the average stripping ratio for each
    mine area. The average stripping ratio is calculated as the
    ratio of the tonnes of waste material estimated to be mined to
    the estimated recoverable tonnes of metals from that mine area.



| |                                              
| | ---------------------------------------------
| | (l)          Asset
    retirement obligations



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Ivanhoe Mines recognizes liabilities for
    statutory, contractual or legal obligations associated with the
    retirement of mining 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 the related
    asset and the cost is amortized as an expense over the economic
    life of the asset using either the unit-of-production method or
    the straight-line method, as appropriate. 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.
|
| | Environmental obligations for the mining
    activities of ABM at Savage River have been specifically
    addressed in the Goldamere Act passed by the Tasmanian
    Parliament. Under this Act, the Tasmanian Government covenants
    to indemnify Ivanhoe Mines from any environmental claims arising
    out of operations of the Savage River Project prior to
    acquisition by ABM.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          



| |                                   
| | ----------------------------------
| | (m)        Revenue
    recognition



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Revenue from the sale of metals is recognized,
    net of related royalties and sales commissions, when:
    (i) persuasive evidence of an arrangement exists;
    (ii) the risks and rewards of ownership pass to the
    purchaser including delivery of the product; (iii) the
    selling price is fixed or



32






---



##### 








2.      SIGNIFICANT
ACCOUNTING POLICIES (Continued)




| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | determinable, and (iv) collectibility is
    reasonably assured. Settlement adjustments, if any, are
    reflected in revenue when the amounts are known.



| |                                         
| | ----------------------------------------
| | (n)         Stock-based
    compensation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has an Employees and
    Directors Equity Incentive Plan which is disclosed in
    Note 20. The Company accounts for its grants under that
    Plan using the fair value based method of accounting for
    stock-based compensation. Accordingly, the fair value of the
    options at the date of grant is charged to operations, with an
    offsetting credit to contributed surplus, on a straight-line
    basis over the vesting period. In situations where Ivanhoe Mines
    grants stock options in connection with a business acquisition,
    the fair value of the options at the date of grant is included
    in the cost of the acquisition, with an offsetting credit to
    additional paid-in capital. If and when the stock options are
    ultimately exercised, the applicable amounts of additional
    paid-in capital and contributed surplus are transferred to share
    capital.



| |                                                         
| | --------------------------------------------------------
| | (o)         Commodity
    and foreign exchange contracts



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Ivanhoe Mines uses, from time to time, forward
    sales and option contracts to effectively provide a minimum
    sales price for a portion of metals inventories and future
    production. Gains or losses on these contracts are recognized in
    revenues when the related product is sold.
|
| | Ivanhoe Mines also uses, from time to time,
    forward currency contracts that are not designated as a hedge.
    Unrealized gains and losses on these contracts are included in
    operations.                                                                                                



| |                             
| | ----------------------------
| | (p)         Income
    taxes



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Future income tax assets and liabilities are
    computed based on differences between the carrying amounts of
    assets and liabilities on the balance sheet and their
    corresponding tax values, using the enacted or substantially
    enacted, as applicable, income tax rates at each balance sheet
    date. Future income tax assets also result from unused loss
    carry-forwards and other deductions. The valuation of future
    income tax assets is reviewed quarterly and adjusted, if
    necessary, by use of a valuation allowance to reflect the
    estimated realizable amount.



| |                               
| | ------------------------------
| | (q)         Loss
    per share



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The basic loss per share is computed by dividing
    the net loss by the weighted average number of common shares and
    Special Warrants outstanding during the year. The diluted loss
    per share reflects the potential dilution of common share
    equivalents, such as outstanding stock options and share
    purchase warrants, in the weighted average number of common
    shares outstanding during the year, if dilutive. For this
    purpose, the treasury stock method is used for the
    assumed proceeds upon the exercise of outstanding stock options
    and share purchase warrants that are used to purchase common
    shares at the average market price during the year.



| |                                    
| | -----------------------------------
| | (r)         Comparative
    figures



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Certain of the comparative figures have been
    reclassified to conform with the presentation as at and for the
    year ended December 31, 2003. In particular, restricted
    cash, previously included in cash, and deferred stripping costs,
    previously included in mining property, plant and equipment, are
    now classified as part of other assets (Note 14). In
    addition, the broken ore on leach pads, previously included in
    inventories, is now disclosed separately in current assets.



33






---



##### 








3.      ACCOUNTING
CHANGES



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | In 2003, the Company adopted the new accounting
    recommendations of The Canadian Institute of Chartered
    Accountants (the CICA) with respect to asset
    retirement obligations, as described in Note 2(l). In prior
    years, future mine reclamation costs were accrued and charged to
    operations over the estimated life of each mine. This change has
    been applied on a retroactive basis. The effect of this change
    was to increase, as at December 31, 2002, the carrying
    values of mining property, plant and equipment by $4,426,000,
    other mineral property interests by $85,000 and other
    liabilities by $7,239,000, to increase the deficit by
    $2,728,000, and to increase the net loss for the years ended
    December 31, 2003 and 2002 by $1,806,000 ($0.01 per share)
    and by $763,000 ($0.00 per share), respectively.                                                                                                                        
|
| | (b) | In 2002, the Company adopted the new accounting
    recommendations of the CICA with respect to stock-based
    compensation and other stock-based payments. These
    recommendations established standards for the recognition,
    measurement and disclosure of stock-based compensation and other
    stock-based payments in exchange for goods and services. In 2001
    and prior years, no stock-based compensation expense was
    recognized when share options were granted to employees and
    directors. The Company has adopted the fair value based method
    of accounting for stock-based compensation, as described in
    Note 2(n). This change has been applied retroactively;
    however, financial statement amounts for 2001 and prior years
    were not restated. The effect of this change was to increase the
    deficit as at January 1, 2002 by $2,603,000 and to increase
    the net loss for the year ended December 31, 2002 by
    $1,615,000 ($0.01 per share).

4.      INVESTMENT
IN ABM



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During 2003, ABM advised Ivanhoe Mines that ABM
    would require additional capital in order to supplement its
    anticipated cash flow from project operations to cover budgeted
    operating costs. The funding shortfall was accentuated by the
    rapid appreciation of the Australian dollar (A$) against the
    U.S. dollar and included deferred stripping costs and
    capital expenditures of $9.1 million and $3.6 million,
    respectively (Note 24). During the year, Ivanhoe Mines made
    a $7.5 million working capital credit facility available to
    enable ABM to meet any such shortfalls. At December 31,
    2003, the working capital credit facility was fully drawn down.
    In March 2004, Ivanhoe Mines advanced a further
    $2.2 million under a new working capital facility, which is
    also fully drawn down.
|
| | In 2004, ABM will likely need to supplement its
    anticipated cash flow from the Savage River operations with
    additional capital from external sources in order to cover
    expected operating costs. The extent of the funding shortfall
    will largely depend upon fluctuations in foreign currency
    exchange rates, iron ore prices and ABMs ability to retain
    its existing customers. ABM management has advised Ivanhoe Mines
    that it plans to continue exploring suitable alternatives for
    obtaining any future credit facilities it requires from external
    sources, but that there is no assurance that it will be
    successful in doing so. However, a failure to do so may have an
    adverse effect on ABMs ability to continue as a going
    concern.                                                        



34






---



##### 








4.      INVESTMENT
IN ABM (Continued)




| |                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following is a summary of the carrying values
    of the Savage River operations assets and liabilities
    which are included in these financial statements:

|                                                                   |                                          |              |        |        |  |   |        |        | 
|------------------------------------------------------------------ | ---------------------------------------- | ------------ | ------ | ------ |  | - | ------ | ------ | 
|                                                                   |                                          |             
|                                                                   |                                          | December 31,
|                                                                   |                                          |             
|                                                                   |                                          | 2003         |        | 2002  
|                                                                   |                                          |              |        |       
|ASSETS                                                             |                                          |              |        |        |  |   |        |       
|Current                                                            |                                          |              |        |        |  |   |        |       
|                                                                   | Cash                                     |              | $      | 4,480  |  |   | $      | 5,979  | 
|                                                                   | Accounts receivable                      |              |        | 2,350  |  |   |        | 1,778  | 
|                                                                   | Inventories                              |              |        | 18,718 |  |   |        | 14,562 | 
|                                                                   | Prepaid expenses                         |              |        | 876    |  |   |        | 556    | 
|                                                                  
|                                                                   |                                          |              | 26,424 |        |  |   | 22,875 |       
|Mining property, plant and equipment
    (Note 11)                 |                                          |              | 25,734 |        |  |   | 27,481 |       
|Other assets (deferred stripping costs)                            |                                          |              | 19,026 |        |  |   | 10,701 |       
|                                                                  
|                                                                   |                                          | $            | 71,184 |        |  | $ | 61,057 |       
|                                                                  
|LIABILITIES                                                        |                                          |              |        |        |  |   |        |       
|Current                                                            |                                          |              |        |        |  |   |        |       
|                                                                   | Accounts payable and accrued liabilities |              | $      | 14,334 |  |   | $      | 10,545 | 
|                                                                   | Current portion of long-term debt        |              |        | 301    |  |   |        | 1,266  | 
|                                                                  
|                                                                   |                                          |              | 14,635 |        |  |   | 11,811 |       
|Loans payable to related parties (non-recourse to
    the Company) |                                          |              | 5,088  |        |  |   | 5,088  |       
|Long-term debt (non-recourse to the Company)                       |                                          |              | 6,878  |        |  |   | 5,534  |       
|Future income taxes                                                |                                          |              | 1,217  |        |  |   | 978    |       
|Other liabilities                                                  |                                          |              | 9,235  |        |  |   | 6,080  |       
|                                                                  
|                                                                   |                                          |              | 37,053 |        |  |   | 29,491 |       
|                                                                  
|INVESTMENT IN ABM ELIMINATED ON
    CONSOLIDATION                  |                                          | $            | 34,131 |        |  | $ | 31,566 |       
|                                                                  



| |                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ABM management, in the fourth quarter of 2003,
    tested for impairment of ABMs mining property, plant and
    equipment and deferred stripping costs included in other assets.
    This test, which was based on estimated future cash flows over
    the expected remaining mine life of 5 years, indicates that
    the carrying value of those assets as at December 31, 2003
    will be recoverable.

5.      JOINT
VENTURE



| |                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Ivanhoe Mines has a 50% interest in JVCo, a joint
    venture formed to develop open-pit copper mining operations at
    Monywa in the Union of Myanmar. JVCo has a term, with respect to
    each deposit, of twenty years from the date of commercial
    production, which is renewable in certain circumstances for an
    additional five years.
|
| | JVCo completed construction of a mining complex
    in 1998 to develop the Sabetaung and Kyisintaung
    (S&K) deposits within the Monywa Copper Project.
    Commercial production from these deposits commenced during the
    first quarter of 1999.                                                                                            



35






---



##### 








5.      JOINT
VENTURE (Continued)




| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | These consolidated financial statements include
    Ivanhoe Mines proportionate share of JVCos assets,
    liabilities, revenues, expenses, net income and cash flows as
    follows:

|                                               |  |              |         |      |  |   |         |  
|---------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                               |  |             
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 2003         |         | 2002
|                                               |  |              |         |     
|Current assets                                 |  | $            | 11,608  |      |  | $ | 12,902  |  
|Capital assets                                 |  |              | 127,349 |      |  |   | 132,744 |  
|Other assets                                   |  |              | 3,914   |      |  |   | 3,202   |  
|Current liabilities                            |  |              | (20,120 | )    |  |   | (27,309 | )
|Other liabilities                              |  |              | (16,756 | )    |  |   | (17,453 | )
|Retained earnings                              |  |              | (13,522 | )    |  |   | (11,413 | )
|                                              
|Investment in JVCo eliminated on consolidation |  | $            | 92,473  |      |  | $ | 92,673  |  
|                                              

|           |                           |                          |         |        |   |   |         |        |  
|---------- | ------------------------- | ------------------------ | ------- | ------ | - | - | ------- | ------ | -
|           |                           |                         
|           |                           | Years ended December 31,
|           |                           |                         
|           |                           | 2003                     |         | 2002  
|           |                           |                          |         |       
|Revenues   |                           | $                        | 22,865  |        |   | $ | 20,227  |       
|Expenses   |                           |                          | (20,756 | )      |   |   | (17,589 | )     
|          
|Net income |                           | $                        | 2,109   |        |   | $ | 2,638   |       
|          
|Cash flows |                           |                          |         |        |   |   |         |       
|           | From operating activities |                          | $       | 6,881  |   |   | $       | 7,388  |  
|           | For investing activities  |                          |         | (1,777 | ) |   |         | (3,410 | )
|           | For financing activities  |                          |         | (7,500 | ) |   |         | (7,500 | )
|          
|           |                           | $                        | (2,396  | )      |   | $ | (3,522  | )     
|          



| |                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Ivanhoe Mines investment in JVCo includes costs
    incurred with respect to JVCos Monywa Copper Project in
    Myanmar in excess of its equity contribution of $28,001,000 to
    JVCo. These costs have been allocated to capital assets.

6.      CASH



| |                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash at December 31, 2003 and 2002 included
    Ivanhoe Mines share of JVCos cash balances of
    approximately $1,478,000 and $3,874,000, respectively, which
    were not available for Ivanhoe Mines general corporate
    purposes.

7.      INVESTMENTS



| |                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In December 2003, Ivanhoe Mines purchased a
    $50.0 million one-year treasury bill from the Government of
    Mongolia. This bill, which is denominated in U.S. dollars,
    bears interest at 3% per annum and matures on December 31,
    2004.

8.      ACCOUNTS
RECEIVABLE

|                 |  |              |       |      |  |   |       | 
|---------------- |  | ------------ | ----- | ---- |  | - | ----- | 
|                 |  |             
|                 |  | December 31,
|                 |  |             
|                 |  | 2003         |       | 2002
|                 |  |              |       |     
|Trade            |  | $            | 2,286 |      |  | $ | 2,091 | 
|Refundable taxes |  |              | 2,836 |      |  |   | 267   | 
|Accrued interest |  |              | 56    |      |  |   | 142   | 
|Other            |  |              | 1,612 |      |  |   | 925   | 
|                
|                 |  | $            | 6,790 |      |  | $ | 3,425 | 
|                



36






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##### 








9.      INVENTORIES

|                                |                  |              |        |       |  |   |        |       | 
|------------------------------- | ---------------- | ------------ | ------ | ----- |  | - | ------ | ----- | 
|                                |                  |             
|                                |                  | December 31,
|                                |                  |             
|                                |                  | 2003         |        | 2002 
|                                |                  |              |        |      
|Metals                          |                  |              |        |       |  |   |        |      
|                                | Finished goods   |              | $      | 8,804 |  |   | $      | 6,370 | 
|                                | Work in progress |              |        | 3,561 |  |   |        | 3,226 | 
|Mine stores, supplies and other |                  |              | 8,924  |       |  |   | 6,915  |      
|                               
|                                |                  | $            | 21,289 |       |  | $ | 16,511 |      
|                               

10.     LONG-TERM
INVESTMENTS

|                                                              |                                                            |                                           |  |                   |      |        |        |          |       |          |        |        |        |  |  |      |      |   |        |       |       |   |        |       |        | 
|------------------------------------------------------------- | ---------------------------------------------------------- | ----------------------------------------- |  | ----------------- | ---- | ------ | ------ | -------- | ----- | -------- | ------ | ------ | ------ |  |  | ---- | ---- | - | ------ | ----- | ----- | - | ------ | ----- | ------ | 
|                                                              |                                                            |                                           |  |                  
|                                                              |                                                            | December 31, 2003                         |  | December 31, 2002
|                                                              |                                                            |                                           |  |                  
|                                                              |                                                            |                                           |  | Quoted            |      |        |        | Quoted  
|                                                              |                                                            | Equity                                    |  | Carrying          |      | Market |        | Equity   |       | Carrying |        | Market
|                                                              |                                                            | Interest                                  |  | Value             |      | Value  |        | Interest |       | Value    |        | Value 
|                                                              |                                                            |                                           |  |                   |      |        |        |          |       |          |        |       
|Investment in companies subject to significant
    influence: |                                                            |                                           |  |                   |      |        |        |          |       |          |        |        |        |  |  |      |      |   |        |       |       |   |        |      
|                                                              |                                                            | Pacific Minerals Inc.
    (Pacific) (a) |  |                   | 35.5 | %      |        | $        | 9,027 |          |        | $      | 39,712 |  |  |      | 38.2 | % |        | $     | 8,270 |   |        | $     | 13,943 | 
|                                                              |                                                            | Intec Ltd. (Intec) (b)                  |  |                   | 23.2 | %      |        |          | 1,787 |          |        |        | 4,479  |  |  |      | 19.9 | % |        |       | 1,384 |   |        |       | 1,384  | 
|Portfolio investments:                                        |                                                            |                                           |  |                   |      |        |        |          |       |          |        |        |        |  |  |      |      |   |        |       |       |   |        |      
|                                                              | Emperor Mines Limited
    (Emperor) (c)                  |                                           |  |                  | %    |        |        |         |       |          |        |       |        |  |  | 13.7 | %    |   |        | 2,084 |       |   |        | 6,568 |       
|                                                              | Olympus Pacific Minerals Inc.
    (Olympus) (Note 28(b)) |                                           |  | 10.8              | %    |        |        | 2,587    |       |          |        | 3,342  |        |  |  | 17.6 | %    |   |        | 2,587 |       |   |        | 2,813 |       
|                                                              | Resource Investment Trust (RIT)
    (Note 28(c))         |                                           |  | 6.2               | %    |        |        | 1,212    |       |          |        | 2,237  |        |  |  | 6.2  | %    |   |        | 1,212 |       |   |        | 1,212 |       
|                                                              | Other                                                      |                                           |  |                  |      |        |        | 103      |       |          |        |       |        |  |  |     |      |   |        |      |       |   |        | N/a   |       
|                                                             
|                                                              |                                                            |                                           |  |                   |      | $      | 14,716 |          |       | $        | 49,770 |        |        |  |  |      |      | $ | 15,537 |       |       | $ | 25,920 |      
|                                                             



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | This investment was initially acquired during
    2002 for cash of $4,299,000 and 2,374,960 shares of the Company
    with a fair value of $4,818,000. The cost of the Companys
    investment in Pacific exceeded its share of the underlying book
    value of Pacifics net assets at September 30, 2002,
    the deemed date of acquisition for accounting purposes, by
    approximately $6,989,000. This excess is attributable to mineral
    properties and will be amortized, on a unit-of-production basis,
    against the Companys share of Pacifics post
    acquisition net income or losses in accordance with the
    accounting policy described in Note 2(i).
|
| |     | In December 2003, the Company acquired
    2.5 million units of Pacific at a price of Canadian
    (Cdn) $1.75 per unit, for a cost of
    Cdn$4.4 million ($3.3 million). Each unit consisted of
    one common share and one common share purchase warrant. Each
    warrant is exercisable for one common share at a price of
    Cdn$2.20 per share for two years from the closing date. During
    2003, Ivanhoe recorded a $2,333,000 (2002  $847,000)
    equity loss on this investment. At March 26, 2004, the
    quoted market value of the Companys investment was
    $25,801,000.                                                                               
|
| | (b) | This investment was initially acquired during
    2002 for cash of $1,989,000 and 287,678 shares of the Company
    with a fair value of $599,000. The equity market conditions for
    Intec deteriorated during the second half of 2002 with the
    result that the quoted market value of Ivanhoe Mines
    investment in Intec decreased significantly below its carrying
    value. Accordingly, the Company made an impairment provision of
    $1,204,000 against this investment.                                                                                                                                                                                       
|
| |     | In September 2003, the Company acquired
    25,141,586 shares of Intec for cash of $493,000. This
    acquisition increased the Companys holding in Intec from
    19.9% to 23.2%. Accordingly, the Company commenced equity
    accounting for its investment in Intec in October 2003.                                                                                                                                                                                                                                                                                                                                                                                         



37






---



##### 








10.     LONG-TERM
INVESTMENTS (Continued)




| |     |                                                                                                                                                                       
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | During 2003, Ivanhoe recorded a $90,000 equity
    loss on this investment. At March 26, 2004, the quoted
    market value of the Companys investment was $4,650,000.
|
| | (c) | In January 2003, the Company sold its entire
    investment in Emperor for $6,709,000. This transaction resulted
    in a pre-tax gain of $4,625,000.                 

11.     MINING
PROPERTY, PLANT AND EQUIPMENT

|                                                                     |  |              |         |               |  |          |          |          |  |   |         |  |  |   |         | 
|-------------------------------------------------------------------- |  | ------------ | ------- | ------------- |  | -------- | -------- | -------- |  | - | ------- |  |  | - | ------- | 
|                                                                     |  |             
|                                                                     |  | December 31,
|                                                                     |  |             
|                                                                     |  |              |         |              
|                                                                     |  | 2003         |         | 2002         
|                                                                     |  |              |         |              
|                                                                     |  |              |         | Accumulated   |  |          |          |         
|                                                                     |  |              |         | Depletion and |  |          |          |         
|                                                                     |  |              |         | Depreciation, |  |          |          |         
|                                                                     |  |              |         | Including     |  | Net Book |          | Net Book
|                                                                     |  | Cost         |         | Write-downs   |  | Value    |          | Value   
|                                                                     |  |              |         |               |  |          |          |         
|Mining properties, including development and
    preproduction costs |  | $            | 139,412 |               |  | $        | (37,122  | )        |  | $ | 102,290 |  |  | $ | 102,859 | 
|Mine buildings                                                       |  |              | 18,499  |               |  |          | (11,313  | )        |  |   | 7,186   |  |  |   | 7,842   | 
|Plant and equipment                                                  |  |              | 134,792 |               |  |          | (89,346  | )        |  |   | 45,446  |  |  |   | 49,525  | 
|                                                                    
|                                                                     |  | $            | 292,703 |               |  | $        | (137,781 | )        |  | $ | 154,922 |  |  | $ | 160,226 | 
|                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Capital projects in progress amounted to $633,000
    at December 31, 2003 and $1,490,000 at December 31,
    2002.                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | In 2002, Ivanhoe Mines revised its mine plan at
    the Savage River Project and completed an updated review of the
    carrying values of the Projects mining property, plant and
    equipment, with the result that an impairment provision of
    $18,000,000 was made in the third quarter of 2002.                                                                                                                                                                                                                              
|
| | The Company continues to review the carrying
    value of these assets on a regular basis for indications of
    further impairment (Note 4). The economics of the Savage
    River Mine Project are particularly sensitive to changes in
    selling prices, operating costs and foreign currency exchange
    rate fluctuations. As a consequence, any adverse changes in
    those selling prices, operating costs and/or exchange rates
    would result in further impairment provisions and those
    provisions may be material.
|
| | Ivanhoe Mines placed the Bakyrchik Mining Venture
    on a care and maintenance basis in prior years. This project,
    which had an original cost, including asset retirement
    obligations, of $92,369,000 as at December 31, 2003 and
    2002, is carried at a nominal value.                                                                                                                                                                                                                                                    

12.     OTHER MINERAL
PROPERTY INTERESTS

|                   |                |              |       |        |  |  |     |       | 
|------------------ | -------------- | ------------ | ----- | ------ |  |  | --- | ----- | 
|                   |                |             
|                   |                | December 31,
|                   |                |             
|                   |                | 2003         |       | 2002  
|                   |                |              |       |       
|Mongolia:          |                |              |       |        |  |  |     |      
|                   | Oyu Tolgoi (a) |              | $     | 42,997 |  |  | $   | 5,967 | 
|                   | Other (b)      |              |       | 159    |  |  |     |      | 
|Australia (c)      |                |              | 6,210 |        |  |  |    |      
|Inner Mongolia (d) |                |              | 255   |        |  |  |    |      
|South Korea (e)    |                |              | 175   |        |  |  | 866 |      
|                  
|                   |                |              | $     | 49,796 |  |  | $   | 6,833 | 
|                  



| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | The foregoing table reflects the application of
    Ivanhoe Mines accounting policy discussed in Note 2
    (j).



| |     |                                                                                                                         
| | --- | ------------------------------------------------------------------------------------------------------------------------
| | (a) | Mongolia  Ivanhoe Mines has a 100%
    interest in the Turquoise Hill (Oyu Tolgoi) copper/gold project
    in Mongolia.



38






---



##### 








12.     OTHER MINERAL
PROPERTY INTERESTS (Continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In November 2003, Ivanhoe Mines entered into an
    agreement with BHP Minerals International Exploration Inc.
    (BHP) to purchase for $37 million BHPs 2%
    net smelter return royalty interest in the Turquoise Hill
    project. Ivanhoe Mines paid BHP $17 million in November
    2003 and the remaining $20 million instalment was paid in
    February 2004. At December 31, 2003, the final
    $20 million instalment was included in accounts payable and
    accrued liabilities.
|
| | In December 2003, Ivanhoe Mines converted its 4
    exploration licences on the Turquoise Hill project into
    60 year mining licences, which are renewable for an
    additional 40 years.                                                                                                                                                                                                                                                                                                       



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | Ivanhoe Mines has also acquired interests in
    additional mineral exploration licenses in the same geological
    province as the Turquoise Hill project and elsewhere in
    Mongolia. Mineral exploration licenses are valid for a period of
    three years and, through renewals, can be extended to a maximum
    of seven years. These rights are maintained in good standing
    through the payment of an annual license fee.
|
| | (c) | Australia  In 2003, Ivanhoe Mines purchased
    certain copper-gold mining and exploration leases in Queensland,
    Australia.                                                                                                                                                                                                                                                                                                       
|
| | (d) | Inner Mongolia  Ivanhoe Mines has
    entered into an agreement with a Chinese government agency which
    contemplates the negotiation of definitive joint venture
    agreements whereby Ivanhoe Mines would conduct exploration
    activities in order to earn an 80% interest in certain
    properties.                                                                                                                         



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 2003, Ivanhoe Mines entered into an agreement,
    subject to due diligence, Chinese government approvals and
    certain other conditions, to purchase a small-scale mining
    property located in Inner Mongolia for an acquisition cost of
    approximately Cdn$1,800,000.                                                                                                                                                                                                                                                                                                                    
|
| | Also in 2003, Ivanhoe Mines entered into a joint
    venture agreement which provides that Ivanhoe Mines can earn an
    80% interest in a joint venture by contributing
    $2.8 million over a three-year period, with a minimum
    contribution of $250,000. The agreement is subject to Chinese
    government approval. The joint venture has also agreed, subject
    to due diligence, Chinese government approvals and certain other
    conditions, to purchase the leasehold rights to a small scale
    mine and related assets at an acquisition cost of approximately
    Cdn$2,300,000.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (e) | South Korea  Ivanhoe Mines has a 90%
    interest in an exploration project in the Cholla-namdo Province
    of South Korea. Ivanhoe Mines is required to fund all of the
    exploration costs and land rents, both of which are reimbursable
    to Ivanhoe Mines from the revenues from the project. Ivanhoe
    Mines has also acquired the mining rights to certain other
    mining prospects.



| |                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In view of the unsuccessful exploration results
    in 2003 and the anticipated limited project life in 2004,
    Ivanhoe Mines reviewed the carrying values of the mineral
    property interests and related other capital assets with the
    result that an impairment provision aggregating $1,213,000 was
    made in the fourth quarter of 2003.



39






---



##### 








13.     OTHER CAPITAL
ASSETS

|                                         |  |              |        |               |  |            |        |            |  |   |       |  |  |   |       | 
|---------------------------------------- |  | ------------ | ------ | ------------- |  | ---------- | ------ | ---------- |  | - | ----- |  |  | - | ----- | 
|                                         |  |             
|                                         |  | December 31,
|                                         |  |             
|                                         |  |              |        |              
|                                         |  | 2003         |        | 2002         
|                                         |  |              |        |              
|                                         |  |              |        | Accumulated   |  |            |        |           
|                                         |  |              |        | Depreciation, |  |            |        |           
|                                         |  |              |        | Including     |  | Net        |        | Net       
|                                         |  | Cost         |        | Write-downs   |  | Book Value |        | Book Value
|                                         |  |              |        |               |  |            |        |           
|Non-producing mining plant and equipment |  | $            | 8,665  |               |  | $          | (1,905 | )          |  | $ | 6,760 |  |  | $ | 2,727 | 
|Furniture and fixtures                   |  |              | 1,798  |               |  |            | (568   | )          |  |   | 1,230 |  |  |   | 754   | 
|                                        
|                                         |  | $            | 10,463 |               |  | $          | (2,473 | )          |  | $ | 7,990 |  |  | $ | 3,481 | 
|                                        



| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The non-producing mining plant and equipment are
    primarily for other mineral property interest projects in
    Mongolia, Australia, South Korea (Note 12 (e)),
    Myanmar and Inner Mongolia.

14.     OTHER
ASSETS

|                         |  |              |        |      |  |   |        | 
|------------------------ |  | ------------ | ------ | ---- |  | - | ------ | 
|                         |  |             
|                         |  | December 31,
|                         |  |             
|                         |  | 2003         |        | 2002
|                         |  |              |        |     
|Restricted cash          |  | $            | 5,403  |      |  | $ | 11,467 | 
|Due from JVCo            |  |              | 1,532  |      |  |   | 1,482  | 
|Environmental bond       |  |              | 2,704  |      |  |   |       | 
|Deferred stripping costs |  |              | 21,035 |      |  |   | 12,223 | 
|                        
|                         |  | $            | 30,674 |      |  | $ | 25,172 | 
|                        



| |                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The restricted cash has been lodged as support
    for outstanding letters of credit discussed in Notes 16(b)
    and 25(a).                                                                                                                            
|
| | The amount due from the joint venture is
    unsecured with no fixed terms of repayment and bears interest at
    LIBOR plus 2%. Ivanhoe Mines charged interest of $50,000 in 2003
    and $60,000 in 2002, which is included in the balance receivable.

15.     LOANS PAYABLE
TO RELATED PARTIES

|                                                                                                                                                       |  |              |       |      |  |   |       | 
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ----- | ---- |  | - | ----- | 
|                                                                                                                                                       |  |             
|                                                                                                                                                       |  | December 31,
|                                                                                                                                                       |  |             
|                                                                                                                                                       |  | 2003         |       | 2002
|                                                                                                                                                       |  |              |       |     
|Loans payable to the chairman of the Company or a
    company controlled by him, with interest at Bank of Montreal
    U.S. prime rate plus 2.5% to 3% |  | $            | 5,088 |      |  | $ | 5,088 | 
|                                                                                                                                                      



| |                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | These loans are all unsecured, repayable in
    U.S. dollars and are non-recourse to the Company. These
    related parties have, amongst other things, postponed the
    repayment of their loans and accrued interest until ABM and its
    subsidiaries begin to generate positive cash flow, as defined in
    an agreement entered into on November 6, 2000 (the
    Amending Agreement).
|
| | These related parties waived the interest charges
    for the years ended December 31, 2003 and 2002.                                                                                                                                                                                                                                                                                           
|
| | It is unlikely that ABM and its subsidiaries will
    achieve positive cash flow (as defined in the Amending
    Agreement) prior to January 1, 2005. These loans are
    therefore classified as a non-current liability.                                                                                                                                                                      



40






---



##### 








16.     LONG-TERM
DEBT

|                                                     |                                  |              |         |        |  |   |         |        | 
|---------------------------------------------------- | -------------------------------- | ------------ | ------- | ------ |  | - | ------- | ------ | 
|                                                     |                                  |             
|                                                     |                                  | December 31,
|                                                     |                                  |             
|                                                     |                                  | 2003         |         | 2002  
|                                                     |                                  |              |         |       
|JVCo (Note 2 (a)):                                   |                                  |              |         |        |  |   |         |       
|                                                     | Share of loan payable (a)        |              | $       | 15,000 |  |   | $       | 22,500 | 
|ABM (Note 2 (a)):                                    |                                  |              |         |        |  |   |         |       
|                                                     | Deferred purchase obligation (b) |              |         | 6,878  |  |   |         | 5,130  | 
|                                                     | Equipment purchase loans (c)     |              |         | 301    |  |   |         | 1,670  | 
|                                                    
|                                                     |                                  |              | 22,179  |        |  |   | 29,300  |       
|Less: Amount included in current
    liabilities (a) |                                  |              | (15,301 | )      |  |   | (23,766 | )     
|                                                    
|                                                     |                                  | $            | 6,878   |        |  | $ | 5,534   |       
|                                                    



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | All of the long-term debt is non-recourse to the
    Company.                                           
|
| | The future principal repayments required on the
    debt outstanding at December 31, 2003 is as follows:

|                                                                                               |  |   |        | 
|---------------------------------------------------------------------------------------------- |  | - | ------ | 
|2004                                                                                           |  | $ | 15,301 | 
|Deferred purchase obligation to be settled
    through future remediation work to be performed |  |   | 6,878  | 
|                                                                                              
|                                                                                               |  | $ | 22,179 | 
|                                                                                              



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | JVCos loan of $15,000,000 at
    December 31, 2003 bears interest at a rate equal to LIBOR
    plus 2.5%, subject to certain adjustments, and is repayable in
    minimum semi-annual instalments of $7,500,000 (of which
    $3,750,000 is attributable to Ivanhoe Mines) until maturity in
    August 2005. JVCo will also be required to make additional
    principal repayments in certain circumstances based on certain
    financial ratios and the level of cash flow above specified
    levels. The credit agreement requires that JVCo maintain working
    capital of not less than $5,000,000. In addition, the credit
    agreement contains certain restrictions regarding, amongst other
    things, the ability of JVCo to incur additional indebtedness and
    the payment of cash dividends in certain circumstances. The loan
    facility is secured by, amongst other things, a fixed charge on
    the Monywa Copper Mine Project assets, an assignment of
    JVCos operating and restricted cash balances, and a
    floating charge on all other assets of JVCo.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At December 31, 2003 and December 31,
    2002, JVCo was not in compliance with the minimum working
    capital requirement in its credit agreement, and had not
    received a waiver from its lenders with respect to this
    requirement and also with respect to the non-compliance with
    certain other financial covenants in the credit agreement.
    Accordingly, as required by GAAP, the entire amount of the
    Companys share of JVCos loan payable aggregating
    $15,000,000 at December 31, 2003 and $22,500,000 at
    December 31, 2002 has been included in current liabilities.
    Management of the JVCo is of the opinion that the lenders will
    not demand repayment of the loan, notwithstanding the foregoing.
|
| | JVCo is required to pay a non-refundable
    management fee of 0.75% per annum on the amounts drawn-down.
    This amount is included in interest on long-term debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | The effective interest rate on the loan facility
    was 4.47% at December 31, 2003 and 5.05% at
    December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | Ivanhoe Mines share of the interest
    incurred on this loan during the year ended December 31,
    2003 and 2002 amounted to $979,000 and $1,389,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



| |     |                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | A subsidiary of ABM has an agreement with the
    Tasmanian Parliament to defer the payment for the purchase of
    the assets of the Savage River Project. This deferred
    obligation, which amounted to A$14,549,000 at December 31,
    2003 and A$14,342,000 at December 31, 2002, is non-interest
    bearing, is secured in part by a bank letter of credit for
    A$2,800,000 and is



41






---



##### 








16.     LONG-TERM
DEBT (Continued)




| |  |                                                                                                                                                                                                              
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | repayable by December 24, 2014, primarily by
    carrying out remediation work for the purpose of rehabilitating
    areas disturbed by operations prior to ABMs acquisition of
    an interest in the site.



| |                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The U.S. equivalent of this obligation
    amounted to $10,759,000 at December 31, 2003 and $8,093,000
    at December 31, 2002. For accounting purposes, this
    obligation has been discounted using an interest rate of 10% to
    its present value of $6,878,000 at December 31, 2003 and
    $5,130,000 at December 31, 2002.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | These equipment purchase loans of A$406,000 at
    December 31, 2003 and A$2,958,000 at December 31, 2002
    bear interest at rates between 6.5% and 8.0%, and mature in June
    2003. These loans are secured by the related equipment.                                                                                                                                                                
|
| | (d) | In 2002, the Company completed debt restructuring
    negotiations which resulted in the Company acquiring, for cash
    of approximately $8,100,000, the Savage River Projects
    bank term loan and an outstanding foreign currency exchange
    contract obligation aggregating approximately $41 million.
    This transaction resulted in a non-cash gain of $32,466,000 on
    settlement of debt.

17.     INCOME
TAXES

Ivanhoe Mines provision for income and
capital taxes consists of the following:

|                     |  |                          |       |      |  |   |       | 
|-------------------- |  | ------------------------ | ----- | ---- |  | - | ----- | 
|                     |  |                         
|                     |  | Years ended December 31,
|                     |  |                         
|                     |  | 2003                     |       | 2002
|                     |  |                          |       |     
|Current income taxes |  | $                        | 667   |      |  | $ |      | 
|Future income taxes  |  |                          | 927   |      |  |   | 3,951 | 
|Capital taxes        |  |                          | 413   |      |  |   | 308   | 
|                    
|                     |  | $                        | 2,007 |      |  | $ | 4,259 | 
|                    



42






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##### 








17.     INCOME
TAXES (Continued)




| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Future income tax assets and liabilities at
    December 31, 2003 and 2002 arise from the following:

|                                                 |                                      |      |         |          |   |   |        |         |  
|------------------------------------------------ | ------------------------------------ | ---- | ------- | -------- | - | - | ------ | ------- | -
|                                                 |                                      | 2003 |         | 2002    
|                                                 |                                      |      |         |         
|Future income tax assets                         |                                      |      |         |          |   |   |        |        
|                                                 | Long-term investments                |      | $       | 1,711    |   |   | $      | 3,419   |  
|                                                 | Mining property, plant and equipment |      |         | 2,855    |   |   |        |        |  
|                                                 | Loss carry-forwards                  |      |         | 84,451   |   |   |        | 43,650  |  
|                                                 | Other                                |      |         | 13,879   |   |   |        | 3,967   |  
|                                                
|                                                 |                                      |      | 102,896 |          |   |   | 51,036 |        
|                                                 | Valuation allowance                  |      |         | (101,115 | ) |   |        | (49,995 | )
|                                                
|                                                 | Net future income tax assets         |      |         | 1,781    |   |   |        | 1,041   |  
|                                                
|Future income tax liabilities                    |                                      |      |         |          |   |   |        |        
|                                                 | Mining property, plant and equipment |      |         | 12,304   |   |   |        | 11,664  |  
|                                                 | Long-term debt                       |      |         | 1,213    |   |   |        | 978     |  
|                                                 | Other                                |      |         | 792      |   |   |        |        |  
|                                                
|                                                 |                                      |      | 14,309  |          |   |   | 12,642 |        
|                                                
|Future income tax liabilities, net               |                                      | $    | 12,528  |          |   | $ | 11,601 |        
|                                                
|Disclosed on the Consolidated Balance Sheets as: |                                      |      |         |          |   |   |        |        
|                                                 | Future income tax assets             |      | $       | 1,781    |   |   | $      | 1,041   |  
|                                                 | Future income tax liabilities        |      |         | 14,309   |   |   |        | 12,642  |  
|                                                
|Future income tax liabilities, net               |                                      | $    | 12,528  |          |   | $ | 11,601 |        
|                                                



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | A reconciliation of the provision for income and
    capital taxes is as follows:

|                                                                                                                                                                                                                                          |                                                                |                          |        |         |   |   |        |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------ | ------ | ------- | - | - | ------ | ------ | -
|                                                                                                                                                                                                                                          |                                                                |                         
|                                                                                                                                                                                                                                          |                                                                | Years ended December 31,
|                                                                                                                                                                                                                                          |                                                                |                         
|                                                                                                                                                                                                                                          |                                                                | 2003                     |        | 2002   
|                                                                                                                                                                                                                                          |                                                                |                          |        |        
|Provision for recovery of income taxes based on
    the combined Canadian federal and provincial statutory tax rates
    of 37.6% in 2003 and 39.6% in 2002 applied to the loss before
    income and capital taxes and minority interest |                                                                | $                        | 26,894 |         |   | $ | 10,588 |       
|Add (deduct)                                                                                                                                                                                                                              |                                                                |                          |        |         |   |   |        |       
|                                                                                                                                                                                                                                          | JVCos relief from income taxes                                |                          |        |        |   |   |        | 395    |  
|                                                                                                                                                                                                                                          | Lower foreign tax rates                                        |                          |        | (5,417  | ) |   |        | (5,836 | )
|                                                                                                                                                                                                                                          | Tax effect of losses not recognized                            |                          |        | (21,315 | ) |   |        | (2,423 | )
|                                                                                                                                                                                                                                          | Change in valuation allowance for future income
    tax assets |                          |        | (408    | ) |   |        | (6,035 | )
|                                                                                                                                                                                                                                          | Capital taxes                                                  |                          |        | (377    | ) |   |        | (308   | )
|                                                                                                                                                                                                                                          | Other                                                          |                          |        | (1,384  | ) |   |        | (640   | )
|                                                                                                                                                                                                                                         
|Provision for income and capital taxes                                                                                                                                                                                                    |                                                                | $                        | (2,007 | )       |   | $ | (4,259 | )     
|                                                                                                                                                                                                                                         



43






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##### 








17.     INCOME
TAXES (Continued)




| |                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At December 31, 2003, Ivanhoe Mines had
    deductible temporary differences aggregating approximately
    $21,410,000 and the following unused tax losses, for which no
    future income tax assets had been recognized:

|                    |           |  |       |          |  |             |  |        |   |        |  |  |              |    |  
|------------------- | --------- |  | ----- | -------- |  | ----------- |  | ------ | - | ------ |  |  | ------------ | -- | -
|                    |           |  |       | Local    |  | U.S. Dollar |  | Expiry
|In Thousands        |           |  |       | Currency |  | Equivalent  |  | Dates 
|                    |           |  |       |          |  |             |  |       
|Non-capital losses: |           |  |       |          |  |             |  |        |   |        |  |  |              |   
|                    | Canada    |  | Cdn.$ |          |  | 58,720      |  |        | $ | 45,274 |  |  | 2004 to 2010
|                    | Australia |  | A$    |          |  | 114,328     |  |        | $ | 85,975 |  |  |              | (a | )
|                    | Korea     |  | Krw   |          |  | 9,100,430   |  |        | $ | 7,114  |  |  | 2004 to 2008
|                    | Mongolia  |  | Mnt   |          |  | 101,245,760 |  |        | $ | 90,398 |  |  |              | (b | )
|Capital losses:     |           |  |       |          |  |             |  |        |   |        |  |  |              |   
|                    | Canada    |  | Cdn.$ |          |  | 83,751      |  |        | $ | 64,573 |  |  |              | (c | )



| |     |                                                                                                                                                                                                       
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | These losses are carried forward indefinitely,
    subject to continuity of ownership and business tests.                                                                                             
|
| | (b) | These losses are carried forward indefinitely
    until such time as production from a mine commences; thereafter,
    they can be amortized on a straight-line basis over a period of
    five years.
|
| | (c) | These losses are carried forward indefinitely for
    utilization against any future net realized capital gains.                                                                                      



| |                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Ivanhoe Mines also has deductible temporary
    differences and unused tax losses in certain other foreign
    jurisdictions that are not disclosed above, as it is currently
    highly unlikely that these items will be utilized.

18.     OTHER
LIABILITIES

|                                    |  |              |        |      |  |   |        | 
|----------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                    |  |             
|                                    |  | December 31,
|                                    |  |             
|                                    |  | 2003         |        | 2002
|                                    |  |              |        |     
|Royalty payable                     |  | $            | 2,160  |      |  | $ | 1,699  | 
|Provision for employee entitlements |  |              | 3,540  |      |  |   | 2,143  | 
|Asset retirement obligations        |  |              | 13,723 |      |  |   | 9,754  | 
|                                   
|                                    |  | $            | 19,423 |      |  | $ | 13,596 | 
|                                   

(a)         Royalty
payable



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | JVCo is required to pay a royalty to the Ministry
    of Mines of the Union of Myanmar on the value of Copper Cathode
    sold. However, during the first five years following the
    commencement of sales of Copper Cathode, payment of one-half of
    the royalty is deferred and is payable in equal instalments over
    the next five years. Ivanhoe Mines share of the amount of
    the royalty payable due within one year is included in accounts
    payable and accrued liabilities. The balance of the royalty is
    payable as to $540,000 in each of 2005 though 2008.



44






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##### 








18.     OTHER
LIABILITIES (Continued)


(b)      Asset
retirement obligations

|                                             |                                                                  |              |        |       |  |   |       |     | 
|-------------------------------------------- | ---------------------------------------------------------------- | ------------ | ------ | ----- |  | - | ----- | --- | 
|                                             |                                                                  |             
|                                             |                                                                  | December 31,
|                                             |                                                                  |             
|                                             |                                                                  | 2003         |        | 2002 
|                                             |                                                                  |              |        |      
|Balance, beginning of year                   |                                                                  | $            | 9,754  |       |  | $ | 8,644 |    
|Increase in obligations for:                 |                                                                  |              |        |       |  |   |       |    
|                                             | Amounts incurred                                                 |              |        | 1,836 |  |   |       | 356 | 
|                                             | Amounts arising on acquisition of mineral
    property interests |              |        | 1,731 |  |   |       | 106 | 
|                                             | Accretion expense                                                |              |        | 790   |  |   |       | 648 | 
|                                            
|Balance, end of year                         |                                                                  |              | 14,111 |       |  |   | 9,754 |    
|Less: Amount included in current liabilities |                                                                  |              | (388   | )     |  |   |      |    
|                                            
|                                             |                                                                  | $            | 13,723 |       |  | $ | 9,754 |    
|                                            



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The total undiscounted amount of estimated cash
    flows required to settle the obligations is $22,805,000
    (2002  $18,149,000), which has been discounted using
    a credit adjusted risk free rate ranging from 5.6% to 8.4%.
    Reclamation obligations at the Eunsan mine are expected to be
    paid in 2004 and will be funded from cash on hand. All other
    reclamation obligations are not expected to be paid for several
    years in the future and will be funded from Ivanhoe Mines
    cash at the time of mine closures.

19.     NON-CONTROLLING
INTEREST



| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the year ended December 31, 2003,
    Asia Gold Corp (AGC) completed an initial public
    offering resulting in a 49% interest in AGC not being owned by
    Ivanhoe Mines.

20.     SHARE
CAPITAL



| |                                      
| | -------------------------------------
| | (a)         Equity
    Incentive Plan



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has an Employees and
    Directors Equity Incentive Plan (the Equity
    Incentive Plan), which includes three components:
    (i) a Share Option Plan; (ii) a Share Bonus Plan; and
    (iii) a Share Purchase Plan.                                                                                                                                                                                                                                                                                                      
|
| | The Share Option Plan authorizes the Board of
    Directors of the Company to grant options, which vest over a
    period of years, to directors and employees of Ivanhoe Mines to
    acquire Common Shares of the Company at a price based on the
    weighted average trading price of the Common Shares for the five
    days preceding the date of the grant. The Share Option Plan also
    provides that these options may, upon approval of the Board of
    Directors, be converted into stock appreciation rights.               
|
| | The Share Bonus Plan permits the Board of
    Directors of the Company to authorize the issuance, from time to
    time, of Common Shares of the Company to employees of the
    Company and its affiliates.                                                                                                                                                                                                                                                                                                                               
|
| | The Share Purchase Plan entitles each eligible
    employee of Ivanhoe Mines to contribute a percentage of his or
    her annual basic salary in semi-monthly instalments. Each
    participant is, at the end of each calendar quarter during which
    he or she participates in the Share Purchase Plan, issued Common
    Shares of the Company equal to 1.5 times the aggregate amount
    contributed by the participant, based on the weighted average
    trading price of the Common Shares during the preceding three
    months.



45






---



##### 








20.     SHARE
CAPITAL (Continued)




(a)         Equity
Incentive Plan (Continued)




| |                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company is authorized to issue a maximum of
    20,000,000 Common Shares pursuant to the Equity Incentive Plan.
    At December 31, 2003, an aggregate of 3,215,126 Common
    Shares are available for future grants of awards under the plan.
|
| | A summary of share option activity and
    information concerning outstanding and exercisable options at
    December 31, 2003 is as follows:                                                                                                      

|                            |                                         |                     |           |            |   |                |            |            |   |   |      |      | 
|--------------------------- | --------------------------------------- | ------------------- | --------- | ---------- | - | -------------- | ---------- | ---------- | - | - | ---- | ---- | 
|                            |                                         |                     |           |           
|                            |                                         | Options Outstanding |           |           
|                            |                                         |                     |           |           
|                            |                                         | Options             |           | Number of  |   | Weighted      
|                            |                                         | Available           |           | Common     |   | Average       
|                            |                                         | for Grant           |           | Shares     |   | Exercise Price
|                            |                                         |                     |           |            |   |               
|                            |                                         |                     |           |            |   | (Expressed in 
|                            |                                         |                     |           |            |   | Canadian      
|                            |                                         |                     |           |            |   | dollars)      
|Balances, December 31, 2001 |                                         |                     | 219,330   |            |   |                | 13,594,244 |            |   | $ | 1.40 |     
|                            | Increase in amount authorized           |                     |           | 5,000,000  |   |                |            |           |   |   |      |     | 
|                            | Options granted                         |                     |           | (2,234,500 | ) |                |            | 2,234,500  |   |   |      | 3.23 | 
|                            | Options exercised                       |                     |           |           |   |                |            | (1,906,775 | ) |   |      | 1.32 | 
|                            | Options cancelled                       |                     |           | 1,612,875  |   |                |            | (1,612,875 | ) |   |      | 2.26 | 
|                            | Shares issued under share purchase plan |                     |           | (50,321    | ) |                |            |           |   |   |      |     | 
|                           
|Balances, December 31, 2002 |                                         |                     | 4,547,384 |            |   |                | 12,309,094 |            |   |   | 1.64 |     
|                            | Options granted                         |                     |           | (1,730,000 | ) |                |            | 1,730,000  |   |   |      | 9.30 | 
|                            | Options exercised                       |                     |           |            |   |                |            | (4,780,683 | ) |   |      | 1.38 | 
|                            | Options cancelled                       |                     |           | 670,517    |   |                |            | (670,517   | ) |   |      | 2.46 | 
|                            | Shares issued for bonus shares          |                     |           | (125,000   | ) |                |            |           |   |   |      |     | 
|                            | Shares issued for consulting fees       |                     |           | (98,030    | ) |                |            |           |   |   |      |     | 
|                            | Shares issued under share purchase plan |                     |           | (49,745    | ) |                |            |           |   |   |      |     | 
|                           
|Balances, December 31, 2003 |                                         |                     | 3,215,126 |            |   |                | 8,587,894  |            |   | $ | 3.26 |     
|                           



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | At December 31, 2003, the U.S. dollar
    equivalent of the weighted average exercise price was $2.52.



46






---



##### 








20.     SHARE
CAPITAL (Continued)




(a)         Equity
Incentive Plan (Continued)




| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | The following table summarizes information
    concerning outstanding and exercisable options at
    December 31, 2003:

|                    |           |                     |  |                |      |             |  |                |       |  |  |  |           |  |  |   |       | 
|------------------- | --------- | ------------------- |  | -------------- | ---- | ----------- |  | -------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                    |           |                    
|Options Outstanding |           | Options Exercisable
|                    |           |                    
|                    |           | Weighted            |  |                |      |            
|                    |           | Average             |  | Weighted       |      |             |  | Weighted      
|                    |           | Remaining           |  | Average        |      |             |  | Average       
|Number              |           | Contractual         |  | Exercise Price |      | Number      |  | Exercise Price
|Outstanding         |           | Life (in years)     |  | Per Share      |      | Exercisable |  | Per Share     
|                    |           |                     |  |                |      |             |  |               
|                    |           |                     |  | (Expressed in  |      |             |  | (Expressed in 
|                    |           |                     |  | Canadian       |      |             |  | Canadian      
|                    |           |                     |  | dollars)       |      |             |  | dollars)      
|                    | 98,333    |                     |  |                | 2.09 |             |  | $              | 1.08  |  |  |  | 94,333    |  |  | $ | 1.08  | 
|                    | 3,775,561 |                     |  |                | 2.10 |             |  |                | 1.20  |  |  |  | 3,020,449 |  |  |   | 1.20  | 
|                    | 1,000,000 |                     |  |                | 2.73 |             |  |                | 1.60  |  |  |  | 800,000   |  |  |   | 1.60  | 
|                    | 33,750    |                     |  |                | 2.25 |             |  |                | 1.61  |  |  |  | 27,000    |  |  |   | 1.61  | 
|                    | 82,500    |                     |  |                | 2.15 |             |  |                | 1.70  |  |  |  | 78,000    |  |  |   | 1.70  | 
|                    | 350,000   |                     |  |                | 2.07 |             |  |                | 1.85  |  |  |  |          |  |  |   | 1.85  | 
|                    | 40,000    |                     |  |                | 4.36 |             |  |                | 2.12  |  |  |  | 40,000    |  |  |   | 2.12  | 
|                    | 120,250   |                     |  |                | 2.89 |             |  |                | 2.31  |  |  |  | 66,138    |  |  |   | 2.31  | 
|                    | 100,000   |                     |  |                | 3.10 |             |  |                | 3.05  |  |  |  | 55,000    |  |  |   | 3.05  | 
|                    | 1,362,500 |                     |  |                | 3.81 |             |  |                | 3.25  |  |  |  | 577,050   |  |  |   | 3.25  | 
|                    | 325,000   |                     |  |                | 3.48 |             |  |                | 3.50  |  |  |  | 235,000   |  |  |   | 3.50  | 
|                    | 20,000    |                     |  |                | 3.77 |             |  |                | 6.74  |  |  |  | 20,000    |  |  |   | 6.74  | 
|                    | 280,000   |                     |  |                | 4.72 |             |  |                | 6.75  |  |  |  | 56,000    |  |  |   | 6.75  | 
|                    | 1,000,000 |                     |  |                | 9.84 |             |  |                | 12.70 |  |  |  | 250,000   |  |  |   | 12.70 | 
|                   
|                    | 8,587,894 |                     |  |                | 3.52 |             |  | $              | 3.26  |  |  |  | 5,318,970 |  |  | $ | 2.25  | 
|                   



| |                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The weighted average grant-date fair value of
    stock options granted during 2003 and 2002 was Cdn$6.78 and
    Cdn$1.93, respectively. The fair values of these options were
    determined using a Black-Scholes option pricing model,
    recognizing forfeitures as they occur, using the following
    weighted average assumptions:

|                        |  |           |  |          
|----------------------- |  | --------- |  | ---------
|                        |  | 2003      |  | 2002     
|                        |  |           |  |          
|Risk-free interest rate |  | 4.71%     |  | 4.76%    
|Expected life           |  | 7.8 years |  | 5.0 years
|Expected volatility     |  | 64.59%    |  | 71.25%   
|Expected dividends      |  | $Nil      |  | $Nil     



| |                                        
| | ---------------------------------------
| | (b)         Share
    Purchase Warrants



| |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the year ended December 31, 2003,
    and in connection with a private placement financing, the
    Company issued 7,150,000 share purchase warrants. Each warrant
    entitles the holder to acquire one common share at any time on
    or before December 19, 2005, at a price of Cdn$12.00 during
    the first year following the closing of the financing and
    Cdn$12.50 during the second year.



47






---



##### 








21.     WRITE-DOWN OF
CARRYING VALUES OF OTHER ASSETS

|                                                                                      |       |                          |       |      |  |   |        |       | 
|------------------------------------------------------------------------------------- | ----- | ------------------------ | ----- | ---- |  | - | ------ | ----- | 
|                                                                                      |       |                         
|                                                                                      |       | Years ended December 31,
|                                                                                      |       |                         
|                                                                                      |       | 2003                     |       | 2002
|                                                                                      |       |                          |       |     
|Investments (Note 10):                                                                |       |                          |       |      |  |   |        |      
|                                                                                      | Intec |                          | $     |     |  |   | $      | 1,204 | 
|                                                                                      | RIT   |                          |       |     |  |   |        | 686   | 
|Savage River Mine Project (Note 11)                                                   |       |                          |      |      |  |   | 18,000 |      
|South Korea mineral property interests and other
    capital assets (Notes 12 and 13) |       |                          | 1,213 |      |  |   |       |      
|                                                                                     
|                                                                                      |       | $                        | 1,213 |      |  | $ | 19,890 |      
|                                                                                     

22.     OTHER RELATED
PARTY TRANSACTIONS



| |     |                                                                                                                                                                                                                
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Ivanhoe Mines incurred the following expenses, on
    a cost recovery basis, with a company subject to significant
    influence, and with companies related by way of directors or
    shareholders in common:

|                                   |  |                          |       |      |  |   |       | 
|---------------------------------- |  | ------------------------ | ----- | ---- |  | - | ----- | 
|                                   |  |                         
|                                   |  | Years ended December 31,
|                                   |  |                         
|                                   |  | 2003                     |       | 2002
|                                   |  |                          |       |     
|Consulting                         |  | $                        |      |      |  | $ | 75    | 
|Exploration                        |  |                          | 1,768 |      |  |   | 261   | 
|Management fees                    |  |                          | 223   |      |  |   | 294   | 
|Office and administrative          |  |                          | 1,834 |      |  |   | 1,234 | 
|Salaries and benefits              |  |                          | 1,372 |      |  |   | 1,095 | 
|Travel (including aircraft rental) |  |                          | 2,636 |      |  |   | 2,184 | 
|                                  
|                                   |  | $                        | 7,833 |      |  | $ | 5,143 | 
|                                  



| |     |                                                                                                                                                                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | Accounts receivable and accounts payable at
    December 31, 2003 included $347,000 and $777,000,
    respectively, (December 31, 2002  $107,000 and
    $2,003,000, respectively) which were due from/to a company under
    common control or companies related by way of directors in
    common.

23.     CASH FLOW
INFORMATION

(a)         Net
change in non-cash operating working capital items

|                        |                                          |                          |        |        |   |   |       |        |  
|----------------------- | ---------------------------------------- | ------------------------ | ------ | ------ | - | - | ----- | ------ | -
|                        |                                          |                         
|                        |                                          | Years ended December 31,
|                        |                                          |                         
|                        |                                          | 2003                     |        | 2002  
|                        |                                          |                          |        |       
|(Increase) decrease in: |                                          |                          |        |        |   |   |       |       
|                        | Accounts receivable                      |                          | $      | (3,365 | ) |   | $     | (1,002 | )
|                        | Broken ore on leach pads                 |                          |        | 243    |   |   |       | (2,890 | )
|                        | Inventories                              |                          |        | (4,778 | ) |   |       | 1,434  |  
|                        | Prepaid expenses                         |                          |        | (1,435 | ) |   |       | (638   | )
|Increase in:            |                                          |                          |        |        |   |   |       |       
|                        | Accounts payable and accrued liabilities |                          |        | 7,876  |   |   |       | 9,767  |  
|                       
|                        |                                          | $                        | (1,459 | )      |   | $ | 6,671 |       
|                       



48






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##### 








23.     CASH FLOW
INFORMATION (Continued)




| |                                                                                
| | -------------------------------------------------------------------------------
| | (b)         Supplementary
    information regarding other non-cash transactions

|                      |                                                                      |                          |   |         |   |  |   |        |  
|--------------------- | -------------------------------------------------------------------- | ------------------------ | - | ------- | - |  | - | ------ | -
|                      |                                                                      |                         
|                      |                                                                      | Years ended December 31,
|                      |                                                                      |                         
|                      |                                                                      | 2003                     |   | 2002   
|                      |                                                                      |                          |   |        
|Investing activities: |                                                                      |                          |   |         |   |  |   |       
|                      | Purchase of long-term investments                                    |                          | $ |        |   |  | $ | (7,315 | )
|                      | Sale of long-term investment                                         |                          |   |        |   |  |   | 1,898  |  
|                      | Acquisition of other mineral property interest                       |                          |   | (20,000 | ) |  |   | (4,000 | )
|                      | Expenditures on mining property, plant and
    equipment             |                          |   |        |   |  |   | (2,799 | )
|                      | Expenditures on other mineral property interests                     |                          |   | (2,085  | ) |  |   | (106   | )
|Financing activities: |                                                                      |                          |   |         |   |  |   |       
|                      | Amount payable on acquisition of other mineral
    property interest |                          |   | 20,000  |   |  |   | 4,000  |  
|                      | Asset retirement obligations                                         |                          |   | 2,085   |   |  |   | 6,371  |  
|                      | Divesture of long-term debt                                          |                          |   |        |   |  |   | (3,466 | )
|                      | Issue of share capital                                               |                          |   | 2,260   |   |  |   | 6,304  |  
|                      | (Transfers from) additional paid-in capital                          |                          |   | (1,104  | ) |  |   | (189   | )
|                      | (Transfers from) contributed surplus                                 |                          |   | (1,156  | ) |  |   | (698   | )



| |                                                
| | -----------------------------------------------
| | (c)         Other
    supplementary information

|                  |  |                          |       |      |  |   |       | 
|----------------- |  | ------------------------ | ----- | ---- |  | - | ----- | 
|                  |  |                         
|                  |  | Years ended December 31,
|                  |  |                         
|                  |  | 2003                     |       | 2002
|                  |  |                          |       |     
|Interest paid     |  | $                        | 1,467 |      |  | $ | 3,934 | 
|                 
|Income taxes paid |  | $                        | 378   |      |  | $ | 309   | 
|                 



49






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##### 








24.     SEGMENT
DISCLOSURES



| |                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Ivanhoe Mines has three operating segments, its
    copper division, its iron ore division and its exploration
    division. Capital assets consist of mining property, plant and
    equipment, other mineral property interests and other capital
    assets.

|                                                                               |                                                                                 |                    |         |          |   |             |         |           |   |              |         |         |   |   |         |         |   |   |         |         |  
|------------------------------------------------------------------------------ | ------------------------------------------------------------------------------- | ------------------ | ------- | -------- | - | ----------- | ------- | --------- | - | ------------ | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                               |                                                                                 |                    |         |          |   |            
|                                                                               |                                                                                 | Operating Segments |         |          |   |            
|                                                                               |                                                                                 |                    |         |          |   |            
|                                                                               |                                                                                 | Copper             |         | Iron Ore |   | Exploration |         |           |   |             
|Year ended  December 31, 2003                                                  |                                                                                 | Division           |         | Division |   | Division    |         | Corporate |   | Consolidated
|                                                                               |                                                                                 |                    |         |          |   |             |         |           |   |             
|Revenue                                                                        |                                                                                 | $                  | 22,866  |          |   | $           | 66,833  |           |   | $            |        |         |   | $ |        |         |   | $ | 89,699  |        
|Cost of operations                                                             |                                                                                 |                    | (12,428 | )        |   |             | (63,480 | )         |   |              |        |         |   |   |        |         |   |   | (75,908 | )      
|Depreciation and depletion                                                     |                                                                                 |                    | (5,484  | )        |   |             | (5,305  | )         |   |              |        |         |   |   |        |         |   |   | (10,789 | )      
|                                                                              
|Operating profit                                                               |                                                                                 |                    | 4,954   |          |   |             | (1,952  | )         |   |              |        |         |   |   |        |         |   |   | 3,002   |        
|Expenses                                                                       |                                                                                 |                    |         |          |   |             |         |           |   |              |         |         |   |   |         |         |   |   |         |        
|                                                                               | General and administrative                                                      |                    |         | (683     | ) |             |         | (103      | ) |              |         |        |   |   |         | (16,710 | ) |   |         | (17,496 | )
|                                                                               | Interest on long-term debt                                                      |                    |         | (1,224   | ) |             |         | (991      | ) |              |         | (57     | ) |   |         | (163    | ) |   |         | (2,435  | )
|                                                                               | Exploration                                                                     |                    |         |         |   |             |         |          |   |              |         | (67,989 | ) |   |         |        |   |   |         | (67,989 | )
|                                                                               | Depreciation                                                                    |                    |         |         |   |             |         |          |   |              |         | (1,481  | ) |   |         | (20     | ) |   |         | (1,501  | )
|                                                                              
|Income (loss) before the following                                             |                                                                                 |                    | 3,047   |          |   |             | (3,046  | )         |   |              | (69,527 | )       |   |   | (16,893 | )       |   |   | (86,419 | )      
|Other income (expenses) Interest income                                        |                                                                                 |                    | 11      |          |   |             | 211     |           |   |              | 49      |         |   |   | 1,553   |         |   |   | 1,824   |        
|                                                                               | Foreign exchange gains (losses)                                                 |                    |         | (264     | ) |             |         | (1,907    | ) |              |         | 990     |   |   |         | 11,650  |   |   |         | 10,469  |  
|                                                                               | Mining property shut down costs                                                 |                    |         |         |   |             |         |          |   |              |         |        |   |   |         | (3,356  | ) |   |         | (3,356  | )
|                                                                               | Share of loss of significantly influenced
    investees                         |                    |         |         |   |             |         |          |   |              |         |        |   |   |         | (2,423  | ) |   |         | (2,423  | )
|                                                                               | Gain on sale of long-term investments                                           |                    |         |         |   |             |         |          |   |              |         |        |   |   |         | 4,625   |   |   |         | 4,625   |  
|                                                                               | Write-down of carrying values of assets                                         |                    |         |         |   |             |         |          |   |              |         | (1,213  | ) |   |         |        |   |   |         | (1,213  | )
|                                                                               | Dilution gain on investment in subsidiary                                       |                    |         |         |   |             |         |          |   |              |         | 4,210   |   |   |         |        |   |   |         | 4,210   |  
|                                                                               | Dilution loss on long-term investment in
    significantly influenced investees |                    |         |         |   |             |         |          |   |              |         |        |   |   |         | (237    | ) |   |         | (237    | )
|                                                                               | Other                                                                           |                    |         | 6        |   |             |         | 308       |   |              |         | 230     |   |   |         | 449     |   |   |         | 993     |  
|                                                                              
|Income (loss) before income and capital taxes and
    non-controlling interest |                                                                                 |                    | 2,800   |          |   |             | (4,434  | )         |   |              | (65,261 | )       |   |   | (4,632  | )       |   |   | (71,527 | )      
|Income and capital taxes                                                       |                                                                                 |                    | (691    | )        |   |             | (251    | )         |   |              | (159    | )       |   |   | (906    | )       |   |   | (2,007  | )      
|                                                                              
|Income (loss) before non-controlling interest                                  |                                                                                 |                    | 2,109   |          |   |             | (4,685  | )         |   |              | (65,420 | )       |   |   | (5,538  | )       |   |   | (73,534 | )      
|Non-controlling interest                                                       |                                                                                 |                    |        |          |   |             |        |           |   |              | 546     |         |   |   |        |         |   |   | 546     |        
|                                                                              
|Net income (loss)                                                              |                                                                                 | $                  | 2,109   |          |   | $           | (4,685  | )         |   | $            | (64,874 | )       |   | $ | (5,538  | )       |   | $ | (72,988 | )      
|                                                                              
|Expenditures on capital assets                                                 |                                                                                 | $                  | 1,853   |          |   | $           | 3,557   |           |   | $            | 8,527   |         |   | $ | 39,649  |         |   | $ | 53,586  |        
|                                                                              
|Expenditures on deferred stripping costs                                       |                                                                                 | $                  | 486     |          |   | $           | 9,110   |           |   | $            |        |         |   | $ |        |         |   | $ | 9,596   |        
|                                                                              
|Total assets                                                                   |                                                                                 | $                  | 143,108 |          |   | $           | 69,550  |           |   | $            | 85,703  |         |   | $ | 157,361 |         |   | $ | 455,722 |        
|                                                                              



50






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##### 








24.     SEGMENT
DISCLOSURES (Continued)


|                                              |                                                    |                    |         |          |   |             |         |           |   |              |         |         |   |   |         |         |   |   |         |         |  
|--------------------------------------------- | -------------------------------------------------- | ------------------ | ------- | -------- | - | ----------- | ------- | --------- | - | ------------ | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                              |                                                    |                    |         |          |   |            
|                                              |                                                    | Operating Segments |         |          |   |            
|                                              |                                                    |                    |         |          |   |            
|                                              |                                                    | Copper             |         | Iron Ore |   | Exploration |         |           |   |             
|Year ended  December 31, 2002                 |                                                    | Division           |         | Division |   | Division    |         | Corporate |   | Consolidated
|                                              |                                                    |                    |         |          |   |             |         |           |   |             
|Revenue                                       |                                                    | $                  | 20,227  |          |   | $           | 66,894  |           |   | $            |        |         |   | $ |        |         |   | $ | 87,121  |        
|Cost of operations                            |                                                    |                    | (10,539 | )        |   |             | (52,753 | )         |   |              |        |         |   |   |        |         |   |   | (63,292 | )      
|Write-down of inventories                     |                                                    |                    |        |          |   |             | (1,049  | )         |   |              |        |         |   |   |        |         |   |   | (1,049  | )      
|Depreciation and depletion                    |                                                    |                    | (4,976  | )        |   |             | (7,240  | )         |   |              |        |         |   |   |        |         |   |   | (12,216 | )      
|                                             
|Operating profit                              |                                                    |                    | 4,712   |          |   |             | 5,852   |           |   |              |        |         |   |   |        |         |   |   | 10,564  |        
|Expenses                                      |                                                    |                    |         |          |   |             |         |           |   |              |         |         |   |   |         |         |   |   |         |        
|                                              | General and administrative                         |                    |         | (492     | ) |             |         | (144      | ) |              |         |        |   |   |         | (11,788 | ) |   |         | (12,424 | )
|                                              | Interest on long-term debt                         |                    |         | (1,821   | ) |             |         | (2,535    | ) |              |         | (8      | ) |   |         | (152    | ) |   |         | (4,516  | )
|                                              | Exploration                                        |                    |         |         |   |             |         |          |   |              |         | (33,934 | ) |   |         |        |   |   |         | (33,934 | )
|                                              | Depreciation                                       |                    |         |         |   |             |         |          |   |              |         | (810    | ) |   |         | (50     | ) |   |         | (860    | )
|                                             
|Income (loss) before the following            |                                                    |                    | 2,399   |          |   |             | 3,173   |           |   |              | (34,752 | )       |   |   | (11,990 | )       |   |   | (41,170 | )      
|Other income (expenses)                       |                                                    |                    |         |          |   |             |         |           |   |              |         |         |   |   |         |         |   |   |         |        
|                                              | Interest income                                    |                    |         | 80       |   |             |         | 147       |   |              |         | 26      |   |   |         | 848     |   |   |         | 1,101   |  
|                                              | Foreign exchange gains (losses)                    |                    |         | (33      | ) |             |         | 1,672     |   |              |         | 80      |   |   |         | 239     |   |   |         | 1,958   |  
|                                              | Mining property shut down costs                    |                    |         |         |   |             |         |          |   |              |         |        |   |   |         | (2,995  | ) |   |         | (2,995  | )
|                                              | Share of loss of significantly influenced investee |                    |         |         |   |             |         |          |   |              |         |        |   |   |         | (847    | ) |   |         | (847    | )
|                                              | Gain on sale of long-term investments              |                    |         |         |   |             |         |          |   |              |         |        |   |   |         | 508     |   |   |         | 508     |  
|                                              | Gain on settlement of debt                         |                    |         |         |   |             |         | 32,466    |   |              |         |        |   |   |         |        |   |   |         | 32,466  |  
|                                              | Write-down of carrying values of other assets      |                    |         |         |   |             |         | (18,000   | ) |              |         |        |   |   |         | (1,890  | ) |   |         | (19,890 | )
|                                              | Other                                              |                    |         | 21       |   |             |         | (513      | ) |              |         | 60      |   |   |         | 2,565   |   |   |         | 2,133   |  
|                                             
|Income (loss) before income and capital taxes |                                                    |                    | 2,467   |          |   |             | 18,945  |           |   |              | (34,586 | )       |   |   | (13,562 | )       |   |   | (26,736 | )      
|Income and capital taxes                      |                                                    |                    | 171     |          |   |             | (3,483  | )         |   |              | (1,199  | )       |   |   | 252     |         |   |   | (4,259  | )      
|                                             
|Net income (loss)                             |                                                    | $                  | 2,638   |          |   | $           | 15,462  |           |   | $            | (35,785 | )       |   | $ | (13,310 | )       |   | $ | (30,995 | )      
|                                             
|Expenditures on capital assets                |                                                    | $                  | 3,408   |          |   | $           | 3,427   |           |   | $            | 8,655   |         |   | $ | 53      |         |   | $ | 15,543  |        
|                                             
|Expenditures on deferred stripping costs      |                                                    | $                  | 1,072   |          |   | $           | 12,120  |           |   | $            |        |         |   | $ |        |         |   | $ | 13,192  |        
|                                             
|Total assets                                  |                                                    | $                  | 147,366 |          |   | $           | 59,423  |           |   | $            | 12,649  |         |   | $ | 56,628  |         |   | $ | 276,066 |        
|                                             



51






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##### 








24.     SEGMENT
DISCLOSURES (Continued)


|                                       |             |              |         |         |  |   |         |         | 
|-------------------------------------- | ----------- | ------------ | ------- | ------- |  | - | ------- | ------- | 
|                                       |             |             
|                                       |             | December 31,
|                                       |             |             
|                                       |             | 2003         |         | 2002   
|                                       |             |              |         |        
|Capital assets at the end of the year: |             |              |         |         |  |   |         |        
|                                       | Australia   |              | $       | 33,098  |  |   | $       | 27,482  | 
|                                       | Mongolia    |              |         | 46,584  |  |   |         | 7,867   | 
|                                       | Myanmar     |              |         | 129,183 |  |   |         | 132,913 | 
|                                       | South Korea |              |         | 806     |  |   |         | 2,122   | 
|                                       | Canada      |              |         | 2,502   |  |   |         | 44      | 
|                                       | Other       |              |         | 535     |  |   |         | 112     | 
|                                      
|                                       |             | $            | 212,708 |         |  | $ | 170,540 |        
|                                      



| |                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the years ended December 31, 2003 and
    2002, substantially all of the revenue of the Copper Division
    and the Iron Ore Division arose from sales made to the major
    customers referred to in Notes 25(b) and (c).

25.     COMMITMENTS



| |     |                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Ivanhoe Mines has commitments in the ordinary
    course of business to expend funds towards retaining its
    interests in certain mineral property interests (Note 12).
    In that regard, Ivanhoe Mines has lodged letters of credit
    aggregating $2,000,000 at December 31, 2003 and $6,000,000
    at December 31, 2002 in support of certain of these
    commitments.                    
|
| | (b) | JVCo has entered into an agreement for the sale
    of a guaranteed quantity of Grade A Product (as defined in the
    agreement) from the Monywa Copper Mine Project to a company (the
    Major Customer) affiliated with one of the lenders
    of the project financing. This agreement terminates no later
    than December 31, 2006, but may terminate earlier if
    certain events occur.
|
| | (c) | ABM has entered into contracts with two of its
    major customers for the sale of a guaranteed quantity of iron
    ore. The sales price of iron ore specified in these agreements
    is renegotiated annually.                                                                                                                                                                                   
|
| | (d) | Ivanhoe Mines has, in the normal course of its
    business, entered into various long-term contracts which include
    commitments for future operating payments under contracts for
    natural gas, power, port operations, equipment rentals and other
    arrangements as follows:                                                                                                             

|           |  |   |        | 
|---------- |  | - | ------ | 
|2004       |  | $ | 39,383 | 
|2005       |  |   | 20,279 | 
|2006       |  |   | 12,592 | 
|2007       |  |   | 6,773  | 
|2008       |  |   |       | 
|Thereafter |  |   |       | 
|          
|           |  | $ | 79,027 | 
|          



| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Approximately $70.4 million of these
    commitments relate to the Savage River operations, comprising
    mainly natural gas, power and a mining contract commitments.



52






---



##### 








26.     DISCLOSURES
REGARDING FINANCIAL INSTRUMENTS



| |     |                                                                                     
| | --- | ------------------------------------------------------------------------------------
| | (a) | The estimated fair value of Ivanhoe Mines
    financial instruments was as follows:

|                                         |  |              |         |       |  |          |         |       |  |   |        |  |  |   |        | 
|---------------------------------------- |  | ------------ | ------- | ----- |  | -------- | ------- | ----- |  | - | ------ |  |  | - | ------ | 
|                                         |  |             
|                                         |  | December 31,
|                                         |  |             
|                                         |  |              |         |      
|                                         |  | 2003         |         | 2002 
|                                         |  |              |         |      
|                                         |  | Carrying     |         | Fair  |  | Carrying |         | Fair 
|                                         |  | Amount       |         | Value |  | Amount   |         | Value
|                                         |  |              |         |       |  |          |         |      
|Cash                                     |  | $            | 108,177 |       |  | $        | 108,177 |       |  | $ | 35,445 |  |  | $ | 35,445 | 
|Investments                              |  |              | 50,000  |       |  |          | 50,000  |       |  |   |       |  |  |   |       | 
|Accounts receivable                      |  |              | 6,790   |       |  |          | 6,790   |       |  |   | 3,425  |  |  |   | 3,425  | 
|Long-term investments                    |  |              | 14,716  |       |  |          | 49,770  |       |  |   | 15,537 |  |  |   | 25,920 | 
|Restricted cash                          |  |              | 5,403   |       |  |          | 5,403   |       |  |   | 11,467 |  |  |   | 11,467 | 
|Due from joint venture                   |  |              | 1,532   |       |  |          | 1,532   |       |  |   | 1,482  |  |  |   | 1,482  | 
|Accounts payable and accrued liabilities |  |              | 53,272  |       |  |          | 53,272  |       |  |   | 29,174 |  |  |   | 29,174 | 
|Loans payable to related parties         |  |              | 5,088   |       |  |          | 5,088   |       |  |   | 5,088  |  |  |   | 5,088  | 
|Long-term debt                           |  |              | 22,179  |       |  |          | 22,179  |       |  |   | 29,300 |  |  |   | 29,300 | 
|Royalty payable                          |  |              | 2,160   |       |  |          |        |       |  |   | 1,699  |  |  |   |       | 



| |                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.                                                                                                 
|
| | Ivanhoe Mines investments, amount due from
    the joint venture, loan payable to related parties and long-term
    debt bear effective interest rates principally at current market
    rates and accordingly, their fair value approximates their
    carrying value.
|
| | The fair value of the royalty payable is not
    readily determinable.                                                                                                                                                                                                  
|
| | 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.                                                    



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | Ivanhoe Mines is exposed to credit risk with
    respect to its accounts receivable. The significant
    concentrations of credit risk are situated in Myanmar and
    Australia. JVCo does not mitigate this risk in light of the
    credit worthiness of its major customer. ABM mitigates this risk
    by obtaining letters of credit in advance of the shipment of
    iron ore.                                                                                                                                                                                                                                        
|
| | (c) | The credit agreement discussed in
    Note 16(a) provides that JVCo shall, at the request of
    the lenders, from time to time maintain one or more swaps, caps,
    collars or similar hedge products commonly used to hedge against
    interest rate fluctuations, to protect itself against the LIBOR
    interest rate rising more than 2% per annum above that in effect
    on January 13, 1998 and as to a notional principal amount
    equal to 75% of the principal amount outstanding from time to
    time. JVCo will, however, be subject to interest rate cash flow
    risk on the remaining unhedged amount.



| |                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Ivanhoe Mines is also subject to interest rate
    cash flow risk on its loans payable to related parties and its
    other long-term debt since a significant portion of these
    liabilities bear interest at floating rates.



| |     |                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (d) | Ivanhoe Mines is subject to market risk arising
    from revenues from the sale of metals, which are subject to
    price fluctuations beyond its control. Management of Ivanhoe
    Mines attempts to reduce its exposure to this market risk
    through the use of sale contracts designed to fix the sales
    prices of metals on a monthly or annual basis.



53






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26.     DISCLOSURES
REGARDING FINANCIAL INSTRUMENTS (Continued)




| |     |                                                                                                                                                                                                                                                         
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (e) | Ivanhoe Mines earns its revenues in
    U.S. dollars, but incurs certain of its expenses in
    currencies other than the U.S. dollar. As such, Ivanhoe
    Mines is subject to foreign exchange risk as a result of
    fluctuations in exchange rates.



|    |                                                                                            
|--- | -------------------------------------------------------------------------------------------
|27. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES



| |                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As indicated in Note 2, these consolidated
    financial statements have been prepared in accordance with
    Canadian GAAP, which, in the case of the Company, conforms in
    all material respects with U.S. GAAP, except as set forth
    below.
|
| | Consolidated Statements of
    Operations(a)                                                                                                                                                                                                        
| | (in thousands, except per share amounts)                                                                                                                                                                                                            

|                                                                                 |                                                                  |              |         |        |   |   |         |        |  
|-------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------------ | ------- | ------ | - | - | ------- | ------ | -
|                                                                                 |                                                                  |             
|                                                                                 |                                                                  | December 31,
|                                                                                 |                                                                  |             
|                                                                                 |                                                                  | 2003         |         | 2002  
|                                                                                 |                                                                  |              |         |       
|Net loss in accordance with Canadian GAAP                                        |                                                                  | $            | (72,988 | )      |   | $ | (30,995 | )     
|                                                                                 | Amortization of deferred stock
    compensation (b)              |              |         | (202   | ) |   |         | (251   | )
|                                                                                 | Adjustment to write-down of the Savage River
    Project (c)     |              |         | 2,235  |   |   |         | 9,693  |  
|                                                                                 | Amortization of other mineral property
    interests (d)         |              |         | (2,698 | ) |   |         | (2,941 | )
|                                                                                 | Reversal of retroactive application of accounting
    change (e) |              |         |       |   |   |         | 763    |  
|                                                                                 | Cumulative effect of accounting change (e)                       |              |         | (2,728 | ) |   |         |       |  
|                                                                                
|Net loss in accordance with U.S. GAAP                                            |                                                                  | $            | (76,381 | )      |   | $ | (23,731 | )     
|                                                                                
|Weighted-average number of shares outstanding
    under U.S. GAAP (in thousands) |                                                                  |              | 243,814 |        |   |   | 194,551 |       
|                                                                                
|Basic and diluted loss per share in accordance
    with U.S. GAAP                |                                                                  | $            | (0.31   | )      |   | $ | (0.12   | )     
|                                                                                
|Net loss under U.S. GAAP                                                         |                                                                  | $            | (76,381 | )      |   | $ | (23,731 | )     
|Unrealized gain (loss) on portfolio investments,
    net of income taxes (f)     |                                                                  |              | (2,350  | )      |   |   | 1,668   |       
|                                                                                
|Comprehensive loss under U.S. GAAP (g)                                           |                                                                  | $            | (78,731 | )      |   | $ | (22,063 | )     
|                                                                                



54






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|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|27. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
    GENERALLY ACCEPTED ACCOUNTING
    PRINCIPLES (Continued)

Consolidated Balance Sheets

|                                                                |                                                                             |                                                                  |         |         |         |   |         |         |         |  
|--------------------------------------------------------------- | --------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                                |                                                                             |                                                                 
|                                                                |                                                                             | December 31,                                                    
|                                                                |                                                                             |                                                                 
|                                                                |                                                                             | 2003                                                             |         | 2002   
|                                                                |                                                                             |                                                                  |         |        
|Total assets in accordance with Canadian GAAP                   |                                                                             | $                                                                | 455,722 |         |         | $ | 276,066 |        
|                                                                | Reduction in fair value of the Savage River
    Project assets acquired (b) |                                                                  |         | (5,634  | )       |   |         | (5,634  | )      
|                                                                | Adjustment to write-down of the Savage River
    Project (c)                |                                                                  |         | (27,733 | )       |   |         | (29,968 | )      
|                                                                | Amortization of other mineral property
    interests (d)                    |                                                                  |         | (6,521  | )       |   |         | (2,941  | )      
|                                                                | Reversal of retroactive application of accounting
    change (e)            |                                                                  |         |        |         |   |         | (4,511  | )      
|                                                                | Adjustment to carrying value of long-term
    investments (f)               |                                                                  |         | 1,780   |         |   |         | 4,710   |        
|                                                               
|Total assets in accordance with U.S. GAAP                       |                                                                             | $                                                                | 417,614 |         |         | $ | 237,722 |        
|                                                               
|Total liabilities in accordance with
    Canadian GAAP          |                                                                             | $                                                                | 120,475 |         |         | $ | 89,800  |        
|                                                                | Reversal of retroactive application of accounting
    change (e)            |                                                                  |         |        |         |   |         | (7,239  | )      
|                                                                | Income tax effect of U.S. GAAP adjustments
    for:                         |                                                                  |         |         |         |   |         |         |        
|                                                                |                                                                             | Amortization of other mineral property
    interests (d)         |         |         | (882    | ) |         |         |        |  
|                                                                |                                                                             | Adjustment to carrying value of long-term
    investments (f)    |         |         | 193     |   |         |         | 773     |  
|                                                               
|Total liabilities in accordance with
    U.S. GAAP              |                                                                             | $                                                                | 119,786 |         |         | $ | 83,334  |        
|                                                               
|Total shareholders equity in accordance
    with Canadian GAAP |                                                                             | $                                                                | 335,247 |         |         | $ | 186,266 |        
|                                                                | Reduction in fair value of shares issued to
    acquire ABM (b)             |                                                                  |         | (4,930  | )       |   |         | (4,930  | )      
|                                                                | Deferred stock compensation arising on
    acquisition of ABM (b)           |                                                                  |         |        |         |   |         | (202    | )      
|                                                                | (Increase) decrease in the deficit for:                                     |                                                                  |         |         |         |   |         |         |        
|                                                                |                                                                             | Amortization of deferred stock
    compensation (b)              |         |         | (704    | ) |         |         | (502    | )
|                                                                |                                                                             | Adjustment to write-down of the Savage River
    Project (c)     |         |         | (27,733 | ) |         |         | (29,968 | )
|                                                                |                                                                             | Amortization of other mineral property
    interests (d)         |         |         | (5,639  | ) |         |         | (2,941  | )
|                                                                |                                                                             | Reversal of retroactive application of accounting
    change (e) |         |         |        |   |         |         | 2,728   |  
|                                                                | Other comprehensive income (f)                                              |                                                                  |         | 1,587   |         |   |         | 3,937   |        
|                                                               
|Total shareholders equity in accordance
    with U.S. GAAP     |                                                                             | $                                                                | 297,828 |         |         | $ | 154,388 |        
|                                                               



| |                                                                                 
| | --------------------------------------------------------------------------------
| | Under U.S. GAAP, the components of
    shareholders equity would be as follows:

|                           |  |      |          |      |  |   |          |  
|-------------------------- |  | ---- | -------- | ---- |  | - | -------- | -
|                           |  | 2003 |          | 2002
|                           |  |      |          |     
|Share capital              |  | $    | 714,359  |      |  | $ | 517,269  |  
|Special warrants           |  |      | 49,975   |      |  |   | 26,516   |  
|Additional paid-in capital |  |      | 6,448    |      |  |   | 4,826    |  
|Other comprehensive income |  |      | 1,587    |      |  |   | 3,937    |  
|Deficit                    |  |      | (474,541 | )    |  |   | (398,160 | )
|                          
|                           |  | $    | 297,828  |      |  | $ | 154,388  |  
|                          



55






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##### 








|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|27. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
    GENERALLY ACCEPTED ACCOUNTING
    PRINCIPLES (Continued)



| |                                          
| | -----------------------------------------
| | Consolidated Statements of Cash
    Flows

|                                                                                        |                                                                        |                                                           |         |      |      |   |         |       |        |  
|--------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | --------------------------------------------------------- | ------- | ---- | ---- | - | ------- | ----- | ------ | -
|                                                                                        |                                                                        |                                                          
|                                                                                        |                                                                        | Years ended December 31,                                 
|                                                                                        |                                                                        |                                                          
|                                                                                        |                                                                        | 2003                                                      |         | 2002
|                                                                                        |                                                                        |                                                           |         |     
|Net cash used in operating activities in
    accordance with Canadian GAAP              |                                                                        | $                                                         | (79,124 | )    |      | $ | (37,145 | )    
|                                                                                        | Adjustments to net loss involving use of cash:                         |                                                           |         |      |      |   |         |       |       
|                                                                                        |                                                                        | Write off expenditures on other mineral
    interests (d) |         |      | (255 | ) |         |       | (1,142 | )
|                                                                                       
|Net cash used in operating activities in
    accordance with U.S. GAAP                  |                                                                        |                                                           | (79,379 | )    |      |   | (38,287 | )    
|                                                                                       
|Net cash used in investing activities in
    accordance with Canadian GAAP              |                                                                        |                                                           | (81,493 | )    |      |   | (22,500 | )    
|                                                                                        | Reclassification of expenditures on mineral
    property interests (d) |                                                           |         | 255  |      |   |         | 1,142 |       
|                                                                                       
|Net cash used in investing activities in
    accordance with U.S. GAAP                  |                                                                        |                                                           | (81,238 | )    |      |   | (21,358 | )    
|                                                                                       
|Net cash flows from financing activities in
    accordance with Canadian and U.S. GAAP  |                                                                        |                                                           | 219,245 |      |      |   | 75,428  |      
|                                                                                       
|Effect of exchange rate changes on cash                                                 |                                                                        |                                                           | 14,104  |      |      |   | 707     |      
|                                                                                       
|Net increase in cash and cash equivalents in
    accordance with Canadian and U.S. GAAP |                                                                        |                                                           | 72,732  |      |      |   | 16,490  |      
|Cash, beginning of year in accordance with
    Canadian and U.S. GAAP                   |                                                                        |                                                           | 35,445  |      |      |   | 18,955  |      
|                                                                                       
|Cash, end of year in accordance Canadian and
    U.S. GAAP                              |                                                                        | $                                                         | 108,177 |      |      | $ | 35,445  |      
|                                                                                       

(a)         Statements
of operations



| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under U.S. GAAP, the loss before other
    income (expenses) would include mining property shut-down costs
    and the write-down of carrying values of other assets.



| |                                   
| | ----------------------------------
| | (b)         Acquisition
    of ABM



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under Canadian GAAP, the fair value of the shares
    issued in 2000 to effect the acquisition of ABM were measured at
    the transaction date whereas, under U.S. GAAP, the shares
    issued would be measured at the date the acquisition is
    announced and the terms agreed to. This difference would have
    resulted in the cost of the acquisition under U.S. GAAP
    being $4,930,000 lower than under Canadian GAAP.                                                                                                                                                                                                                                                                                                                          
|
| | Under Canadian GAAP, the Company included in the
    cost of the acquisition of ABM $1,750,000 for the fair value of
    stock options granted by the Company in 2000 as consideration
    for the acquisition of all of the outstanding stock options of
    ABM. Under U.S. GAAP, the intrinsic value of the unvested
    options granted by the Company would be allocated to deferred
    stock compensation included in shareholders equity. This
    difference would have resulted in the cost of the acquisition
    under U.S. GAAP being $704,000 lower than under Canadian
    GAAP. Under U.S. GAAP, the deferred stock compensation
    would be recognized as a compensation cost over the remaining
    future vesting period of the options.



| |                                                
| | -----------------------------------------------
| | (c)         Impairment
    of long-lived assets



| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under Canadian GAAP, impairment charges on
    long-lived assets in 2002 and prior years were recorded as the
    excess of the carrying amount over the recoverable amount, which
    was



56






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|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|27. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
    GENERALLY ACCEPTED ACCOUNTING
    PRINCIPLES (Continued)



(c)      Impairment
of long-lived assets (Continued)




| |                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | determined based on the undiscounted estimated
    future net cash flows, whereas under U.S. GAAP impairment
    charges are recorded based on the discounted estimated future
    net cash flows.                                                                                                                                                         
|
| | Under U.S. GAAP, the Savage River Project
    would have been fully written off as at December 31, 2001.
    In 2002, additional amounts capitalized under Canadian GAAP
    would also be written off under U.S. GAAP and the related
    depreciation and depletion would be reversed. The differences
    between Canadian and U.S. GAAP are as follows:

|                                                                        |  |      |        |      |  |   |         |  
|----------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------- | -
|                                                                        |  | 2003 |        | 2002
|                                                                        |  |      |        |     
|Impairment of amounts capitalized under
    Canadian GAAP               |  | $    | (2,580 | )    |  | $ | (15,240 | )
|Reversal of impairment charge recorded under
    Canadian GAAP          |  |      |       |      |  |   | 18,000  |  
|Reversal of depreciation and depletion recorded
    under Canadian GAAP |  |      | 4,815  |      |  |   | 6,933   |  
|                                                                       
|                                                                        |  | $    | 2,235  |      |  | $ | 9,693   |  
|                                                                       



| |                                                 
| | ------------------------------------------------
| | (d)         Other
    mineral property interests



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under Canadian GAAP, the costs of acquisition of
    mineral property interests are capitalized. Under
    U.S. GAAP, where the interests are without, at the date of
    acquisition, economically recoverable reserves, these costs are
    generally considered to be exploration costs, which are expensed
    as incurred. However, the costs of acquisition of the
    Companys mineral exploration licenses would be classified
    as intangible assets under U.S. GAAP and, since the
    properties are without proven and probable reserves, amortized
    over the term of the licenses. As a result, for U.S. GAAP
    purposes, the Company has recorded $2,698,000 and $2,941,000,
    net of deferred income taxes of $882,000 and $Nil in
    amortization or write-offs of other mineral property interests
    for each of the years ended December 31, 2003 and 2002,
    respectively. For purposes of the Consolidated Statements of
    Cash Flows, the acquisition costs that are written-off for
    U.S. GAAP purposes are classified as cash used in operating
    activities.



| |                                  
| | ---------------------------------
| | (e)         Accounting
    change



| |                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under Canadian GAAP, the accounting change with
    respect to asset retirement obligations discussed in Note 3
    (a) has been applied on a retroactive basis. Under
    U.S. GAAP, this accounting change would be applied as of
    the beginning of 2003 and the cumulative effect of the initial
    application accounted for as part of the result of operations
    for 2003.



| |                                      
| | -------------------------------------
| | (f)         Long-term
    investments



| |                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Portfolio investments are carried at their
    original cost less provisions for impairment under Canadian
    GAAP. Under U.S. GAAP, these investments would be
    classified as available-for-sale securities, which are carried
    at market value. The resulting unrealized gains or losses would
    be included in the determination of comprehensive income, net of
    income taxes.



| |                                           
| | ------------------------------------------
| | (g)         Other
    comprehensive income



| |                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | U.S. GAAP requires that a statement of
    comprehensive income be displayed with the same prominence as
    other financial statements and that the aggregate amount of
    comprehensive income excluding the deficit be disclosed
    separately in shareholders equity. Comprehensive income,
    which incorporates the net loss, includes all changes in
    shareholders equity during a



57






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|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|27. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
    GENERALLY ACCEPTED ACCOUNTING
    PRINCIPLES (Continued)



(g)         Other
comprehensive income (Continued)




| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | period except those resulting from investments by
    and distributions to owners. There is currently no requirement
    to disclose comprehensive income under Canadian GAAP.



| |                             
| | ----------------------------
| | (h)         Income
    taxes



| |                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under Canadian GAAP, future income taxes are
    calculated based on enacted or substantially enacted tax rates
    applicable to future years. Under U.S. GAAP, only enacted
    rates are used in the calculation of deferred income taxes. This
    difference in GAAP did not have any effect on the financial
    position or results of operations of the Company for the years
    ended December 31, 2003 and 2002.



| |                                         
| | ----------------------------------------
| | (i)         Stock-based
    compensation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During 2002, the Company adopted the fair-value
    based method of accounting under Canadian GAAP for stock-based
    compensation, as described in Notes 2(m) and 3(b), with
    retroactive application without restatement of prior years
    financial statements. This approach, the modified
    prospective method, is permissible under Statement of
    Financial Accounting Standard (SFAS) No. 148,
    Accounting for Stock-Based Compensation 
    Transition and Disclosure, issued by the United States
    Financial Accounting Standards Board (FASB), which
    provides alternative methods of transition for entities that
    voluntarily change to the fair value based method of accounting
    and amends the disclosure provisions of SFAS No. 123,
    Accounting for Stock-Based Compensation.
|
| | Under Canadian GAAP, the measurement of the
    recorded stock-based compensation, as well as the assumptions
    and methodology, are consistent with those prescribed by SFAS
    No. 123.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



| |                              
| | -----------------------------
| | (j)         Joint
    venture



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under Canadian GAAP, the Company has accounted
    for its joint venture interest in JVCo (Note 5) on a
    proportionate consolidation basis. Under U.S. GAAP,
    interests in joint ventures are accounted for using the equity
    method. However, in accordance with practices prescribed by the
    United States Securities and Exchange Commission
    (SEC) for foreign filing companies, if JVCo meets
    certain conditions, the Company is exempt from applying the
    equity method to its investment therein. JVCo satisfies the SEC
    conditions and, accordingly, there is no adjustment required for
    U.S. GAAP purposes.



| |                                                         
| | --------------------------------------------------------
| | (k)         Commodity
    and foreign exchange contracts



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As stated in Note 2 (o), from time to time
    the Company uses forward sales and options contracts to hedge
    its metals inventories and future production, recognizing the
    gains or losses at the settlement date of the transaction. Under
    U.S. GAAP, unless the Company has formal documentation
    designating the derivative instruments as a hedge of a specific
    transaction, any unrealized gain or loss on such transactions at
    the balance sheet date should be recognized in operations. This
    GAAP difference did not have any effect on the financial
    position or results of operations of the Company for the years
    ended December 31, 2003 and 2002.



| |                                                       
| | ------------------------------------------------------
| | (l)         Recently
    released accounting standards



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In January 2003, the FASB issued FIN No. 46,
    Consolidation of Variable Interest Entities,
    (FIN 46), an interpretation of Accounting
    Research Bulletin No. 51. FIN 46 requires certain
    variable interest entities to be consolidated by the primary
    beneficiary of the entity if the equity investors in the entity
    do not have the characteristics of a controlling financial
    interest or do not have sufficient equity at risk for the entity
    to finance its activities without additional subordinated
    financial support from other parties. FIN 46, as it relates
    to the Company, is effective immediately for all variable
    interest entities created after January 31, 2003 and for the



58






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##### 








|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|27. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
    GENERALLY ACCEPTED ACCOUNTING
    PRINCIPLES (Continued)



(l)         Recently
released accounting standards (Continued)




| |                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | first annual reporting period ending after
    December 31, 2003 for variable interests entities created
    before February 1, 2003. It is expected that the adoption
    of FIN 46 will not have a material effect on the Companys
    financial position or results of operations.

28.     OTHER
SUBSEQUENT EVENTS



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | In January 2004, the 5,760,000 Special Warrants
    outstanding at December 31, 2003 were converted into
    5,760,000 Common Shares of the Company and 5,760,000 share
    purchase warrants. Each 10 warrants entitled the holder to
    acquire one common share at a price of $8.68 at any time on or
    before February 15, 2004. In February 2004, the Company
    extended the expiry date of the warrants to February 15,
    2005.                                                                          
|
| | (b) | In February 2004, Ivanhoe Mines reached an
    agreement with Olympus to sell its 32.64% interest in the Phouc
    Son Gold Project joint venture in Vietnam to Olympus. Under the
    agreement, Ivanhoe Mines will receive 10,277,646 million
    common shares of Olympus at a deemed price of Cdn$0.67 per
    share. The closing is subject to regulatory and Olympus
    shareholder approval. Upon completion of the transaction,
    Ivanhoe Mines equity interest in Olympus will be approximately
    19.9%.
|
| | (c) | In February 2004, the Company sold its entire
    investment in Resource Investment Trust (Note 10),
    generating proceeds of $2,460,000. This transaction resulted in
    a pre-tax gain of $1,248,000.                                                                                                                                                                                                                                                                                                            



59