Exhibit
99.2
 Report of Independent Registered Chartered Accountants and Consolidated Financial Statements of
 IVANHOE MINES LTD.
 December 31, 2010 and 2009




---



##### 



Report of Independent Registered Chartered Accountants
   Managements Responsibility for the Consolidated Financial Statements
  Auditors Responsibility
    Opinion
  Other Matter
 Internal Control  Integrated Framework
 (signed) Deloitte & Touche LLP




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##### 



Report of Independent Registered Chartered Accountants
  Internal
Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission
    Internal Control
 Integrated Framework
  (signed) Deloitte & Touche LLP




---



##### 



IVANHOE MINES LTD.
Consolidated Balance Sheets
(Stated in thousands of U.S. dollars)
 December 31,2010
    
    
    2009ASSETSCURRENTCash and cash equivalents (Note 5)
    
    $
    1,264,031
    
    
    $
    965,823Short-term investments (Note 6)
    
    
    98,373
    
    
    
    14,999Accounts receivable (Note 7)
    
    
    65,741
    
    
    
    39,349Inventories (Note 8)
    
    
    40,564
    
    
    
    18,015Prepaid expenses
    
    
    23,338
    
    
    
    15,988TOTAL CURRENT ASSETS
    
    
    1,492,047
    
    
    
    1,054,174LONG-TERM INVESTMENTS (Note 9)
    
    
    151,191
    
    
    
    93,511OTHER LONG-TERM INVESTMENTS (Note 10)
    
    
    191,816
    
    
    
    145,035PROPERTY, PLANT AND EQUIPMENT (Note 11)
    
    
    1,332,648
    
    
    
    218,781DEFERRED INCOME TAXES (Note 16)
    
    
    16,889
    
    
    
    6,953OTHER ASSETS (Note 12)
    
    
    33,883
    
    
    
    16,227TOTAL ASSETS
    
    $
    3,218,474
    
    
    $
    1,534,681LIABILITIESCURRENTAccounts payable and accrued liabilities (Note 13)
    
    $
    260,528
    
    
    $
    55,128Amounts due under credit facilities (Note 14)
    
    
    14,615
    
    
    
    17,544Interest payable on long-term debt (Note 15 (b))
    
    
    6,312
    
    
    
    4,712Convertible credit facility (Note 15 (a))
    
    
    
    
    
    
    378,916Rights offering derivative liability (Note 18 (d))
    
    
    766,238
    
    
    
    TOTAL CURRENT LIABILITIES
    
    
    1,047,693
    
    
    
    456,300CONVERTIBLE CREDIT FACILITY (Note 15 (b))
    
    
    248,284
    
    
    
    544,990AMOUNTS DUE UNDER CREDIT FACILITIES (Note 14)
    
    
    40,080
    
    
    
    37,979PAYABLES TO RELATED PARTY (Note 22 (a))
    
    
    14,013
    
    
    
    DEFERRED INCOME TAXES (Note 16)
    
    
    11,123
    
    
    
    10,888ASSET RETIREMENT OBLIGATIONS (Note 17)
    
    
    40,838
    
    
    
    5,436TOTAL LIABILITIES
    
    
    1,402,031
    
    
    
    1,055,593COMMITMENTS AND CONTINGENCIES (Note 24)EQUITYSHARE CAPITAL (Note 18)AuthorizedUnlimited number of preferred shares without par valueUnlimited number of common shares without par valueIssued and outstanding568,560,669 (2009  425,447,552) common shares
    
    
    3,378,921
    
    
    
    1,886,789SHARE PURCHASE WARRANTS (Note 18 (b) and (c))
    
    
    11,832
    
    
    
    27,386BENEFICIAL CONVERSION FEATURE (Note 15 (a))
    
    
    
    
    
    
    30,250ADDITIONAL PAID-IN CAPITAL
    
    
    1,303,581
    
    
    
    348,468ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Note 19)
    
    
    33,075
    
    
    
    (14,578
    )DEFICIT
    
    
    (2,913,576
    )
    
    
    (1,800,179
    )TOTAL IVANHOE MINES LTD. SHAREHOLDERS EQUITY
    
    
    1,813,833
    
    
    
    478,136NONCONTROLLING INTERESTS (Note 20)
    
    
    2,610
    
    
    
    952TOTAL EQUITY
    
    
    1,816,443
    
    
    
    479,088TOTAL LIABILITIES AND EQUITY
    
    $
    3,218,474
    
    
    $
    1,534,681
  /s/ D. Korbin

D. Korbin, Director
    
    
    
    /s/ L. Mahler

L. Mahler, Director




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##### 



IVANHOE MINES LTD.
Consolidated Statements of Operations
(Stated in thousands of U.S. dollars, except for share and per share amounts)
 Year Ended December 31,2010
    
    
    2009REVENUE
    
    $
    79,777
    
    
    $
    36,038COST OF SALESProduction and delivery
    
    
    (66,738
    )
    
    
    (23,611
    )Depreciation and depletion
    
    
    (13,306
    )
    
    
    (5,814
    )Write-down of carrying value of inventory
    
    
    (14,729
    )
    
    
    COST OF SALES
    
    
    (94,773
    )
    
    
    (29,425
    )EXPENSESExploration (Note 3 and 18 (a))
    
    
    (218,626
    )
    
    
    (177,062
    )General and administrative (Note 18 (a))
    
    
    (84,427
    )
    
    
    (45,750
    )Depreciation
    
    
    (2,096
    )
    
    
    (4,326
    )Accretion of asset retirement obligations
    
    
    (199
    )
    
    
    (141
    )Gain on sale of other mineral property rights
    
    
    
    
    
    
    3,000Write-down of carrying values of property, plant and equipment
    
    
    (2,338
    )
    
    
    (1,243
    )TOTAL EXPENSES
    
    
    (402,459
    )
    
    
    (254,947
    )OPERATING LOSS
    
    
    (322,682
    )
    
    
    (218,909
    )OTHER INCOME (EXPENSES)Interest income
    
    
    16,567
    
    
    
    3,587Interest expense
    
    
    (32,827
    )
    
    
    (21,601
    )Accretion of convertible credit facilities (Note 15)
    
    
    (11,709
    )
    
    
    (14,345
    )Foreign exchange gains
    
    
    8,700
    
    
    
    34,070Unrealized gains on long-term investments (Note 9 (d))
    
    
    360
    
    
    
    1,099Unrealized gains on other long-term investments
    
    
    4,508
    
    
    
    438Realized gain on redemption of other long-term investments
(Note 10 (a))
    
    
    151
    
    
    
    1,458Change in fair value of derivative (Note 18 (d))
    
    
    135,680
    
    
    
    Change in fair value of embedded derivatives (Note 15 (b))
    
    
    100,637
    
    
    
    (44,980
    )Loss on conversion of convertible credit facility (Note 15 (b))
    
    
    (154,316
    )
    
    
    Transaction costs on issuance of convertible debenture (Note
15 (b))
    
    
    
    
    
    
    (9,399
    )Write-down of carrying value of long-term investments (Note 9
(c))
    
    
    (485
    )
    
    
    Gain on sale of long-term investment
    
    
    
    
    
    
    1,424SouthGobi Hong Kong listing fees
    
    
    
    
    
    
    (2,470
    )LOSS BEFORE INCOME TAXES AND OTHER ITEMS
    
    
    (255,416
    )
    
    
    (269,628
    )Recovery of income taxes (Note 16)
    
    
    13,118
    
    
    
    13,465Share of loss of significantly influenced investees (Note 9)
    
    
    (42,718
    )
    
    
    (45,898
    )NET LOSS FROM CONTINUING OPERATIONS
    
    
    (285,016
    )
    
    
    (302,061
    )INCOME (LOSS) FROM DISCONTINUED OPERATIONS (Note 4)
    
    
    6,585
    
    
    
    (3,645
    )NET LOSS
    
    
    (278,431
    )
    
    
    (305,706
    )NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS (Note 20)
    
    
    66,952
    
    
    
    25,535NET LOSS ATTRIBUTABLE TO IVANHOE MINES LTD.
    
    $
    (211,479
    )
    
    $
    (280,171
    )BASIC AND DILUTED (LOSS) EARNINGS PER SHAREATTRIBUTABLE TO IVANHOE MINES LTD. FROMCONTINUING OPERATIONS
    
    $
    (0.43
    )
    
    $
    (0.68
    )DISCONTINUED OPERATIONS
    
    
    0.01
    
    
    
    (0.01
    )$
    (0.42
    )
    
    $
    (0.69
    )WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (000s)
    
    
    502,550
    
    
    
    407,811




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##### 



IVANHOE MINES LTD.
Consolidated Statements of Equity
(Stated in thousands of U.S. dollars, except for share amounts)
 AccumulatedShare Capital
    
    
    
    
    
    
    Beneficial
    
    
    Additional
    
    
    OtherNumber
    
    
    
    
    
    
    Share Purchase
    
    
    Conversion
    
    
    Paid-In
    
    
    Comprehensive
    
    
    
    
    
    
    Noncontrollingof Shares
    
    
    Amount
    
    
    Warrants
    
    
    Feature
    
    
    Capital
    
    
    Income (Loss)
    
    
    Deficit
    
    
    Interests
    
    
    TotalBalances, December 31, 2008
    
    
    378,046,013
    
    
    $
    1,485,864
    
    
    $
    32,560
    
    
    $
    28,883
    
    
    $
    293,485
    
    
    $
    (24,222
    )
    
    $
    (1,520,008
    )
    
    $
    20,692
    
    
    $
    317,254Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (280,171
    )
    
    
    (25,535
    )
    
    
    (305,706
    )Other comprehensive income (Note 19)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,644
    
    
    
    
    
    
    
    1,547
    
    
    
    11,191Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (294,515
    )Shares issued for:Exercise of stock options
    
    
    867,500
    
    
    
    8,661
    
    
    
    
    
    
    
    
    
    
    
    (2,560
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,101Private placement (Note 18 (b)), net of
issue costs of $3,032
    
    
    46,304,473
    
    
    
    390,173
    
    
    
    (5,174
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    384,999Bonus shares
    
    
    125,000
    
    
    
    1,622
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,622Share purchase plan
    
    
    104,566
    
    
    
    469
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    469Convertible credit facility (Note 15 (a))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,367
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,367Other increase in noncontrolling
interests
(Note 20)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,248
    
    
    
    4,248Dilution gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,368
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,368Stock compensation charged to operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,175
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,175Balances, December 31, 2009
    
    
    425,447,552
    
    
    $
    1,886,789
    
    
    $
    27,386
    
    
    $
    30,250
    
    
    $
    348,468
    
    
    $
    (14,578
    )
    
    $
    (1,800,179
    )
    
    $
    952
    
    
    $
    479,088Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (211,479
    )
    
    
    (66,952
    )
    
    
    (278,431
    )Other comprehensive income (Note 19)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,653
    
    
    
    
    
    
    
    7,145
    
    
    
    54,798Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (223,633
    )Shares issued for:Exercise of stock options
    
    
    5,619,080
    
    
    
    67,431
    
    
    
    
    
    
    
    
    
    
    
    (20,259
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,172Exercise of share purchase warrants
(Note 18 (b)), net of issue costs of $9,730
    
    
    80,530,509
    
    
    
    701,120
    
    
    
    (15,554
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    685,566Conversion of Rio Tinto convertible
credit
facility (Note 15 (a))
    
    
    40,083,206
    
    
    
    437,146
    
    
    
    
    
    
    
    (36,314
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400,832Private placement (Note 18 (b)), net of
issue costs of $167
    
    
    15,000,000
    
    
    
    240,749
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    240,749Consulting services
    
    
    261,900
    
    
    
    3,421
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,421Bonus shares
    
    
    1,581,578
    
    
    
    41,700
    
    
    
    
    
    
    
    
    
    
    
    1,265
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,965Share purchase plan
    
    
    36,844
    
    
    
    565
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    565Convertible credit facility (Note 15 (a))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,064
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,064Other increase in noncontrolling
interests
(Note 20)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,465
    
    
    
    61,465Rights offering (Note 18 (d))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (901,918
    )
    
    
    
    
    
    
    (901,918
    )Dilution gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    931,979
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    931,979Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,128
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,128Balances, December 31, 2010
    
    
    568,560,669
    
    
    $
    3,378,921
    
    
    $
    11,832
    
    
    $
    
    
    
    $
    1,303,581
    
    
    $
    33,075
    
    
    $
    (2,913,576
    )
    
    $
    2,610
    
    
    $
    1,816,443




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##### 



IVANHOE MINES LTD.
Consolidated Statements of Cash Flows
(Stated in thousands of U.S. dollars)
 Year Ended December 31,2010
    
    
    2009OPERATING ACTIVITIESCash used in operating activities (Note 21)
    
    $
    (294,276
    )
    
    $
    (183,259
    )INVESTING ACTIVITIESProceeds from sale of discontinued operations
    
    
    6,442
    
    
    
    38,725Purchase of short-term investments
    
    
    (80,844
    )
    
    
    (14,999
    )Purchase of long-term investments
    
    
    (53,109
    )
    
    
    (30,391
    )Purchase of other long-term investments
    
    
    (94,999
    )
    
    
    (147,449
    )Proceeds from sale of other mineral property rights
    
    
    
    
    
    
    3,000Proceeds from redemption of short-term investments
    
    
    15,000
    
    
    
    Proceeds from sale of long-term investments
    
    
    3,900
    
    
    
    3,844Proceeds from redemption of other long-term investments
    
    
    30,254
    
    
    
    2,236Expenditures on property, plant and equipment
    
    
    (675,198
    )
    
    
    (38,975
    )Increase in environmental bonds
    
    
    (18,889
    )
    
    
    Proceeds from other assets
    
    
    1,027
    
    
    
    172Cash used in investing activities of continued operations
    
    
    (866,416
    )
    
    
    (183,837
    )Cash used in investing activities of discontinued operations
    
    
    
    
    
    
    (6,511
    )Cash used in investing activities
    
    
    (866,416
    )
    
    
    (190,348
    )FINANCING ACTIVITIESIssue of share capital
    
    
    785,203
    
    
    
    392,877Proceeds from convertible credit facility (Note 15)
    
    
    
    
    
    
    485,000Proceeds from credit facilities
    
    
    
    
    
    
    37,575Repayment of credit facilities
    
    
    (3,244
    )
    
    
    (2,193
    )Increase to deferred charges
    
    
    
    
    
    
    (4,565
    )Noncontrolling interests reduction of investment in subsidiaries
    
    
    (10,387
    )
    
    
    Noncontrolling interests investment in subsidiaries
    
    
    655,417
    
    
    
    3,897Cash provided by financing activities
    
    
    1,426,989
    
    
    
    912,591EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    31,911
    
    
    
    42,729NET CASH INFLOW
    
    
    298,208
    
    
    
    581,713CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    965,823
    
    
    
    384,110CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    1,264,031
    
    
    $
    965,823CASH AND CASH EQUIVALENTS IS COMPRISED OF:Cash on hand and demand deposits
    
    $
    790,202
    
    
    $
    277,103Short-term money market instruments
    
    
    473,829
    
    
    
    688,720$
    1,264,031
    
    
    $
    965,823




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##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 1.
    
    NATURE OF OPERATIONSIvanhoe Mines Ltd. (the Company), together with its subsidiaries (collectively referred to
as Ivanhoe Mines), is an international mineral exploration, development and production
company holding interests in and conducting operations on mineral resource properties
principally located in Central Asia and Australia.
 2.
    
    SIGNIFICANT ACCOUNTING POLICIESThese consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (U.S. GAAP). The significant
accounting policies used in these consolidated financial statements are as follows:
 (a)
    
    Principles of consolidationThese consolidated financial statements include the accounts of the Company and those
entities in which the Company has a controlling financial interest either through
voting rights or means other than voting rights. For these entities, the Company
records 100% of the revenues, expenses, cash flows, assets and liabilities in the
consolidated financial statements. For entities that the Company controls but holds
less than a 100% ownership interest, a noncontrolling interest is recorded in the
consolidated statement of operations and balance sheet to reflect the noncontrolling
interests share of the net income (loss) and net assets of the entity, respectively.The Company has assessed all entities, including those entities that hold economic
interests in projects that are in the exploration or development stage, in which the
Company holds an economic interest, to determine if they are variable interest entities
(VIEs). If they are determined to be VIEs, the Company assesses on an ongoing basis
who the primary beneficiary is based on who has the power to direct matters that most
significantly impact the VIEs economic performance and who has the obligation to
absorb losses or the right to receive benefits of the VIE that could potentially be
significant to the VIE. Matters that may have a significant impact on the VIEs
economic performance include, but are not limited to, approval of budgets and programs,
financing decisions, construction decisions and delegation of certain responsibilities
to the operator of the project. For VIEs where the Company is the primary beneficiary,
the Company consolidates the entity and records a noncontrolling interest, measured
initially at its estimated fair value, for the interest held by other equity owners.
For VIEs where the Company has shared power with unrelated parties over the
aforementioned matters that most significantly impact the VIEs economic performance,
the Company uses the equity method of accounting to report their results.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 2.
    
    SIGNIFICANT ACCOUNTING POLICIES (Continued)
 (a)
    
    Principles of consolidation (Continued)The following table illustrates the Companys policy used to account for its interests
in significant entities where the Company holds less than a 100% economic interest.
The Company consolidates all entities where it holds a 100% economic interest.
 Economic interestat December 31, 2010
    
    
    MethodIvanhoe Australia Limited (i)
    
    
    62.0%
    
    
    ConsolidationSouthGobi Resources Ltd. (ii)
    
    
    57.1%
    
    
    ConsolidationOyu Tolgoi LLC (iii)
    
    
    66.0%
    
    
    ConsolidationAltynalmas Gold Ltd. (iv)
    
    
    50.0%
    
    
    Equity Method
 
 (i)
    
    The Company holds a 62.0% interest in Ivanhoe Australia Limited (Ivanhoe
Australia), which is developing its copper-gold discoveries in the Cloncurry
region of Queensland, Australia, and also is planning the development of its
wholly-owned Merlin Project, a high-grade molybdenum and rhenium deposit.(ii)
    
    The Company holds a 57.1% interest in SouthGobi Resources Ltd.
(SouthGobi), which is selling coal produced at its Ovoot Tolgoi mine in southern
Mongolia to customers in China and is conducting ongoing exploration and
development programs at several other Mongolian coal prospects.(iii)
    
    Wholly-owned subsidiaries of the Company together hold a 66.0%
interest in Oyu Tolgoi LLC (Oyu Tolgoi), a VIE whose principal asset is the Oyu
Tolgoi copper and gold project under construction in southern Mongolia.On May 31, 2010, pursuant to the terms of the Oyu Tolgoi Shareholders Agreement,
the Mongolian Government obtained a 34% interest in Oyu Tolgoi. The Company has
determined that no individual party has both: (a) the unilateral power to direct
the activities that most significantly impact Oyu Tolgois economic performance and
(b) the obligation to absorb losses or the right to receive benefits that could
potentially be significant to Oyu Tolgoi. The Company has continued to consolidate
its 66% interest in Oyu Tolgoi as it remains a member of a related party group with
such attributes and is the entity within the group that is most closely associated
with Oyu Tolgoi.The Company has historically funded 100% of the Oyu Tolgoi copper and gold
projects exploration and development costs via equity and debt investments in Oyu
Tolgoi. At December 31, 2010, the consolidated carrying amounts (100%) of Oyu
Tolgois assets and liabilities were $1.4 billion and $0.2 billion, respectively.
The maximum exposure to loss related to this VIE is $2.4 billion, calculated as the
aggregate of the carrying amounts of the Companys common share interest, preferred
share interest, shareholder loan interests and certain obligations of Oyu Tolgoi
guaranteed by the Company.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 2.
    
    SIGNIFICANT ACCOUNTING POLICIES (Continued)
 (a)
    
    Principles of consolidation (Continued)
 (iv)
    
    The Company holds a 50.0% interest in Altynalmas Gold Ltd.
(Altynalmas), which owns the Kyzyl Gold Project that hosts the Bakyrchik and
Bolshevik gold deposits in Kazakhstan. The Company accounts for its interest in
this VIE using the equity method. The maximum exposure related to this VIE is
limited to the carrying amount of the shareholder loan due from Altynalmas (Note
9(a)).
 (b)
    
    Measurement uncertaintiesGenerally 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, among other things, the recoverability of accounts receivable and
investments, the proven and probable ore reserves, the estimated recoverable tonnes of
ore from each mine area, the estimated net realizable value of inventories, the
provision for income taxes and composition of deferred income tax assets and deferred
income tax liabilities, the expected economic lives of and the estimated future
operating results and net cash flows from property, plant and equipment, depreciation
and depletion, stock-based compensation, beneficial conversion feature, estimated fair
value of share purchase warrants, estimated fair value of derivatives and embedded
derivatives, and the anticipated costs and timing of asset retirement obligations.(c)
    
    Foreign currenciesThe Company has determined 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 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 are translated 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.For foreign subsidiaries whose functional currency is the local currency, assets and
liabilities are translated into U.S. dollars at the exchange rate in effect at the
balance sheet date, while revenues and expenses are translated at average rates in
effect for the period. The related translation gains and losses are included in
accumulated other comprehensive income (loss) within shareholders equity.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 2.
    
    SIGNIFICANT ACCOUNTING POLICIES (Continued)
 (d)
    
    Revenue recognitionSales revenues are recognized when the risks and rewards of ownership pass to the
customer, collection is reasonably assured and the price is reasonably determinable.
This occurs when coal is either loaded onto a train or truck or when it is unloaded at
the final destination, depending on the terms of the sales contract.(e)
    
    Cash and cash equivalentsCash and cash equivalents include short-term money market instruments with terms to
maturity, at the date of acquisition, not exceeding 90 days.(f)
    
    Short-term investmentsShort-term investments include money market instruments with terms to maturity, at the
date of acquisition, exceeding 90 days and with remaining terms at December 31, 2010 of
less than one year.(g)
    
    InventoriesStockpiles are valued at the lower of production cost and net realizable value.
Production cost includes direct and indirect labour, operating materials and supplies,
transportation costs, and an applicable portion of operating overhead, including
depreciation and depletion. Net realizable value is the expected average selling price
of the finished product less the costs to get the product into saleable form and to the
selling location.Mine stores and supplies are valued at the lower of the weighted average cost, less
allowances for obsolescence, and replacement cost.(h)
    
    Long-term investmentsLong-term investments in companies in which Ivanhoe Mines has voting interests between
20% and 50%, 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
the investees 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.Long-term investments in equity securities that have readily determinable fair values
and are not subject to significant influence are classified as either
available-for-sale or held-for-trading. Available-for-sale investments are
measured at fair value with unrealized gains and losses recognized in accumulated other
comprehensive income as a separate component of shareholders equity, unless the
declines in market value are judged to be other than temporary, in which case the
losses are recognized in income for the period. Held-for-trading investments are
measured at fair value with changes in those fair values recognized in income for the
period.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 2.
    
    SIGNIFICANT ACCOUNTING POLICIES (Continued)
 (h)
    
    Long-term investments (Continued)The cost method is used to account for long-term investments in equity securities that
are not accounted for using the equity method or classified as either
available-for-sale or held-for-trading.(i)
    
    Exploration and developmentAll direct costs related to the acquisition of mineral property interests are
capitalized in the period incurred.Generally, 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.(j)
    
    Property, plant and equipmentProperty, plant and equipment 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.Property, plant and equipment 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 one to twenty years).Capital works in progress are not depreciated until the capital asset has been put into
operation.Ivanhoe Mines reviews the carrying values of its property, plant and equipment whenever
events or changes in circumstances indicate that their carrying values may not be
recoverable. An impairment is considered to exist if total estimated future cash
flows, or probability-weighted cash flows on an undiscounted basis, are less than the
carrying value of the assets. An impairment loss is measured and recorded based on
discounted estimated future cash flows associated with values beyond proven and
probable reserves and resources. In estimating future cash flows, assets are grouped
at the lowest level for which there is identifiable future cash flows that are largely
independent of cash flows from other asset groups. Generally, in estimating future
cash flows, all assets are grouped at a
particular mine for which there is identifiable cash flows.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 2.
    
    SIGNIFICANT ACCOUNTING POLICIES (Continued)
 (k)
    
    Stripping costsStripping costs incurred during the production phase of a mine are variable production
costs that are included in the costs of inventory produced during the period that the
stripping costs are incurred.(l)
    
    Asset retirement obligationsIvanhoe Mines recognizes liabilities for statutory, contractual or legal obligations
associated with the retirement of property, plant and equipment, when those obligations
result from the acquisition, construction, development or normal operation of the
assets. Initially, a liability for an asset retirement obligation is recognized at its
fair value in the period in which it is incurred. Upon initial recognition of the
liability, the corresponding asset retirement cost is added to the carrying amount of
that asset and the cost is amortized as an expense over the economic life of the
related asset. Following the initial recognition of the asset retirement obligation,
the carrying amount of the liability is increased for the passage of time and adjusted
for changes to the amount or timing of the underlying cash flows needed to settle the
obligation.(m)
    
    Stock-based compensationThe Company has an Employees and Directors Equity Incentive Plan which is disclosed
in Note 18. The fair value of stock options at the date of grant is amortized to
operations, with an offsetting credit to additional paid-in capital, on a straight-line
basis over the vesting period. If and when the stock options are ultimately exercised,
the applicable amounts of additional paid-in capital are transferred to share capital.(n)
    
    Deferred income taxesThe provision for deferred income taxes is based on the liability method. Deferred
taxes arise from the recognition of the tax consequences of temporary differences by
applying statutory tax rates applicable to future years to differences between the
financial statements carrying amounts and the tax bases of certain assets and
liabilities. The Company records a valuation allowance against any portion of those
deferred income tax assets that management believes will, more likely than not, fail to
be realized.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 2.
    
    SIGNIFICANT ACCOUNTING POLICIES (Continued)
 (o)
    
    Loss per shareThe basic loss per share is computed by dividing the net loss attributable to common
stock by the weighted average number of common shares outstanding during the year. All
stock options and share purchase warrants outstanding at each period end have been
excluded from the weighted average share calculation. The effect of potentially
dilutive stock options, share purchase warrants and the Rio Tinto convertible credit
facility was antidilutive in the years ending December 31, 2010 and 2009.The potentially dilutive shares excluded from the loss per share calculation due to
antidilution are as follows:
 December 31,2010
    
    
    2009Options
    
    
    16,712,070
    
    
    
    21,158,270Share purchase warrants
    
    
    47,962,941
    
    
    
    128,493,450Convertible credit facility
    
    
    
    
    
    
    39,067,775Total potentially dilutive shares
    
    
    64,675,011
    
    
    
    188,719,495
 In February 2011, the Company completed a rights offering which was open to all
shareholders on a dilution free, equal participation basis at a subscription price less
than the fair value of a common share of the Company (Note 18 (d)). In accordance with
the Financial Accounting Standards Board Accounting Standards Codification (ASC)
guidance for earnings per share, basic and diluted loss per share for all periods
presented have been adjusted retroactively for a bonus element contained in the rights
offering. Specifically, the weighted average number of common shares outstanding used
to compute basic and diluted loss per share for the years ended December 31, 2010 and
2009 have been multiplied by a factor of 1.06.(p)
    
    Segmented reportingThe Company has three operating segments, its development division located in Mongolia,
its coal division located in Mongolia, and its exploration division with projects
located primarily in Australia and Mongolia.(q)
    
    Comparative figuresCertain of the comparative figures have been adjusted retroactively for a bonus element
contained in the rights offering (Note 2 (o)). In particular, the Company has adjusted
the weighted average number of common shares outstanding and loss per share in the
prior period.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 2.
    
    SIGNIFICANT ACCOUNTING POLICIES (Continued)
 (r)
    
    Accounting changes
 
    
    In January 2010, the ASC guidance for fair value measurements and disclosures
was updated to require additional disclosures related to transfers in and out of
level 1 and 2 fair value measurements and enhanced detail in the level 3
reconciliation. The updated guidance clarified the level of disaggregation
required for assets and liabilities and the disclosures required for inputs and
valuation techniques used to measure the fair value of assets and liabilities that
fall in either level 2 or level 3. The updated guidance was effective for the
Companys fiscal year beginning January 1, 2010, except for the level 3
disaggregation which is effective for the Companys fiscal year beginning January
1, 2011. The adoption of the updated guidance had no impact on the Companys
consolidated financial position, results of operations or cash flows.
    
    In June 2009, the ASC guidance for consolidation accounting was updated to
require an entity to perform a qualitative analysis to determine whether the
enterprises variable interest gives it a controlling financial interest in a VIE.
This qualitative analysis identifies the primary beneficiary of a VIE as the
entity that has both of the following characteristics: (i) the power to direct the
activities of a VIE that most significantly impact the entitys economic
performance and (ii) the obligation to absorb losses or receive benefits from the
entity that could potentially be significant to the VIE. The updated guidance was
effective for the Companys fiscal year beginning January 1, 2010. The adoption
of the updated guidance had no impact on the Companys consolidated financial
position, results of operations or cash flows.
 (s)
    
    Recent accounting pronouncements
 
    
    In December 2010, the ASC guidance for business combinations was updated to
clarify existing guidance requiring a public entity to disclose pro forma revenue
and earnings of the combined entity as though the business combination(s) that
occurred during the current year had occurred as of the beginning of the
comparable prior annual period only. The update also expands the supplemental pro
forma disclosures required to include a description of the nature and amount of
material, nonrecurring pro forma adjustments directly attributable to the business
combination included in the reported pro forma revenue and earnings. The updated
guidance is effective for the Companys fiscal year beginning January 1, 2011.
The Company does not expect the updated guidance to have a material impact on its
financial position or results of operations.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 3.
    
    EXPLORATION EXPENSES
 Generally, exploration costs are charged to operations in the period incurred until it has
been determined that a property has economically recoverable reserves, at which time
subsequent exploration costs and the costs incurred to develop a property are capitalized.Summary of exploration expenditures by location:
 Years EndedDecember 31,2010
    
    
    2009MongoliaOyu Tolgoi (1)
    
    $
    83,358
    
    
    $
    107,381Coal Division
    
    
    49,175
    
    
    
    21,499Other Mongolia Exploration
    
    
    2,007
    
    
    
    2,004134,540
    
    
    
    130,884Australia
    
    
    73,844
    
    
    
    41,465Indonesia
    
    
    4,594
    
    
    
    3,145Other
    
    
    5,648
    
    
    
    1,568$
    218,626
    
    
    $
    177,062
 (1)
    
    Until March 31, 2010, exploration costs charged to operations included
development costs associated with the Oyu Tolgoi Project in Mongolia. On April 1, 2010,
Ivanhoe Mines commenced capitalizing Oyu Tolgoi Project development costs. As of this
date, reserve estimates for the Oyu Tolgoi Project had been announced and the procedural
and administrative conditions contained in the Investment Agreement were satisfied.
During the year ended December 31, 2010, additions to property, plant and equipment for
the Oyu Tolgoi Project totalled $911.0 million, which included development costs. 4.
    
    DISCONTINUED OPERATIONS
 Years Ended December 31,2010
    
    
    2009Savage River (a)
    
    $
    6,585
    
    
    $
    26,816Indonesia Coal Division (b)
    
    
    
    
    
    
    (30,461
    )$
    6,585
    
    
    $
    (3,645
    )
 (a)
    
    In February 2005, Ivanhoe Mines sold the Savage River Iron Ore Project in
Tasmania, Australia for two initial payments totalling $21.5 million, plus a series of
five contingent, annual payments that commenced on March 31, 2006. The annual payments
are based on annual iron ore pellet tonnes sold and an escalating price formula based on
the prevailing annual Nibrasco/JSM pellet price.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 4.
    
    DISCONTINUED OPERATIONS (Continued)
 (a)
    
    (Continued)In 2010, Ivanhoe Mines received two payments totalling $6.4 million in relation to the
fifth annual contingent payment. The original purchaser of the Savage River Project
has disputed the estimated $22.1 million remaining balance of the fifth annual
contingent payment. Ivanhoe Mines is committed to collecting this amount in full and
has included the $22.1 million in accounts receivable as at December 31, 2010 (Note 7).
In 2010, Ivanhoe Mines initiated arbitration proceedings by filing a Request for
Arbitration with the ICC International Court of Arbitration (ICC). In January 2011, the
ICC determined that the location of arbitration is Sydney, Australia and that the
matter will be submitted to a sole arbitrator. The provisional timetable is yet to be
finalized between the parties and the sole arbitrator.To date, Ivanhoe Mines has received $144.4 million in proceeds from the sale.(b)
    
    During December 2009, Ivanhoe Mines sold the Indonesia Coal Division, which was
composed entirely of the Mamahak Coal Project (Mamahak). Ivanhoe Mines divested its
85.0% interest in Mamahak to Kangaroo Resources Limited (Kangaroo) for consideration
comprising of $1.0 million cash and 50.0 million shares of Kangaroo possessing a fair
value of $8.8 million. Ivanhoe Mines incurred transaction costs of $1.0 million related
to the disposition of Mamahak. 5.
    
    CASH AND CASH EQUIVALENTS
 Cash and cash equivalents at December 31, 2010 included SouthGobis balance of $492.0 million
(December 31, 2009  $357.3 million) and Ivanhoe Australias balance of $59.3 million
(December 31, 2009  $10.6 million), which were not available for Ivanhoe Mines general
corporate purposes.
 6.
    
    SHORT-TERM INVESTMENTS
 Short-term investments at December 31, 2010 included SouthGobis balance of $17.5 million
(December 31, 2009  $15.0 million) and Ivanhoe Australias balance of $80.8 million
(December 31, 2009  $nil), which were not available for Ivanhoe Mines general corporate
purposes.
 7.
    
    ACCOUNTS RECEIVABLE
 December 31,2010
    
    
    2009Contingent income (Note 4 (a))
    
    $
    22,105
    
    
    $
    20,868Refundable taxes
    
    
    20,338
    
    
    
    11,787Trade receivables
    
    
    15,297
    
    
    
    5,201Accrued interest
    
    
    2,321
    
    
    
    133Related parties (Note 22)
    
    
    2,127
    
    
    
    676Other
    
    
    3,553
    
    
    
    684$
    65,741
    
    
    $
    39,349




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 8.
    
    INVENTORIES
 December 31,2010
    
    
    2009Stockpiles
    
    $
    3,637
    
    
    $
    9,553Materials and supplies
    
    
    36,927
    
    
    
    8,462$
    40,564
    
    
    $
    18,015
 9.
    
    LONG-TERM INVESTMENTS
 December 31,2010
    
    
    2009Investments in companies subject to significant influence:Altynalmas Gold Ltd. (a)
    
    $
    
    
    
    $
    9,860Exco Resources N.L. (b)
    
    
    16,991
    
    
    
    10,499Available-for-sale equity securities (c)
    
    
    103,431
    
    
    
    43,304Held-for-trading equity securities (d)
    
    
    10,235
    
    
    
    9,876Other equity securities, cost method (e)
    
    
    20,534
    
    
    
    19,972$
    151,191
    
    
    $
    93,511
 (a)
    
    On October 3, 2008, Ivanhoe Mines closed an agreement with several strategic
partners whereby Altynalmas issued shares to acquire a 100% participating interest in
BMV and a 100% participating interest in Intergold Capital LLP (IGC). Both IGC and
BMV are limited liability partnerships established under the laws of Kazakhstan that are
engaged in the exploration and development of minerals in Kazakhstan. As a result of
this transaction, Ivanhoe Mines investment in Altynalmas was diluted to 49%. Ivanhoe
Mines ceased consolidating Altynalmas on October 3, 2008 and commenced equity accounting
for its investment.On March 8, 2010, all of the parties to the original agreement agreed to put themselves
into the position they would be in as if a certain entity was not a party to the
original agreement. The corresponding amendments made to the original agreement
resulted in Ivanhoe Mines interest in Altynalmas increasing from 49% to 50%. December 31,2010
    
    
    2009Amount due from Altynalmas
    
    $
    100,545
    
    
    $
    68,533Carrying amount of equity method investment
    
    
    (100,545
    )
    
    
    (58,673
    )Net investment in Altynalmas
    
    $
    
    
    
    $
    9,860




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 9.
    
    LONG-TERM INVESTMENTS (Continued)
 (a)
    
    (Continued)Amounts advanced to Altynalmas bear interest compounded monthly at a rate per annum
equal to the one month London Inter-bank Offered Rate plus 3.0% and are due on demand.During 2010, Ivanhoe Mines recorded a $41.9 million (2009  $44.7 million) equity loss
on this investment.(b)
    
    During 2010, Ivanhoe Mines acquired 13.5 million shares of Exco Resources N.L.
(Exco) at a cost of $5.3 million (Aud$5.9 million).During 2009, Ivanhoe Mines acquired 1.8 million shares of Exco at a cost of $0.1
million (Aud$0.2 million) on the open market.During 2009, Ivanhoe Mines acquired an additional 5.1 million shares of Exco at a cost
of $1.0 million (Aud$1.2 million) by way of a private placement. In a subsequent
private placement, also during 2009, Ivanhoe Mines acquired an additional 8.3 million
shares of Exco at a cost of $1.9 million (Aud$2.0 million).During 2010, Ivanhoe Mines recorded a $0.8 million (2009  $1.2 million) equity loss on
this investment.At December 31, 2010, the market value of Ivanhoe Mines 22.9% investment in Exco was
$45.4 million (Aud$44.4 million).(c)
    
    Available-for-sale equity securities December 31, 2010
    
    
    December 31, 2009Equity
    
    
    Cost
    
    
    Unrealized
    
    
    Fair
    
    
    Equity
    
    
    Cost
    
    
    Unrealized
    
    
    FairInterest
    
    
    Basis
    
    
    Gain (Loss)
    
    
    Value
    
    
    Interest
    
    
    Basis
    
    
    Gain (Loss)
    
    
    ValueEntrée Gold Inc.
    
    
    12.1
    %
    
    $
    19,957
    
    
    $
    27,746
    
    
    $
    47,703
    
    
    
    14.3
    %
    
    $
    19,957
    
    
    $
    12,799
    
    
    $
    32,756Aspire Mining Limited (i)
    
    
    19.8
    %
    
    
    20,280
    
    
    
    31,727
    
    
    
    52,007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Emmerson Resources Limited
    
    
    10.0
    %
    
    
    3,636
    
    
    
    (304
    )
    
    
    3,332
    
    
    
    10.0
    %
    
    
    3,107
    
    
    
    6,637
    
    
    
    9,744Intec Ltd. (ii)
    
    
    1.9
    %
    
    
    36
    
    
    
    91
    
    
    
    127
    
    
    
    4.8
    %
    
    
    521
    
    
    
    (3
    )
    
    
    518Other
    
    
    
    
    
    
    60
    
    
    
    202
    
    
    
    262
    
    
    
    
    
    
    
    60
    
    
    
    226
    
    
    
    286$
    43,969
    
    
    $
    59,462
    
    
    $
    103,431
    
    
    
    
    
    
    $
    23,645
    
    
    $
    19,659
    
    
    $
    43,304
 (i)
    
    During December 2010, Ivanhoe Mines acquired 105.9 million common
shares of Aspire Mining Limited at a cost of $20.3 million (Aud$20.1 million) by
way of a private placement.(ii)
    
    During 2010, Ivanhoe Mines recorded an impairment provision of $0.5
million against the investment in Intec Ltd. (Intec) based on an assessment of
the fair value of Intec.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 9.
    
    LONG-TERM INVESTMENTS (Continued)
 (d)
    
    Held-for-trading equity securitiesAs at December 31, 2010, the market value of Ivanhoe Mines 4.8% investment in Kangaroo
Resources Limited was $10.2 million, resulting in an unrealized gain of $0.4 million
during the year ended December 31, 2010.(e)
    
    Other equity securities, cost method December 31, 2010
    
    
    December 31, 2009Equity
    
    
    Cost
    
    
    Equity
    
    
    CostInterest
    
    
    Basis
    
    
    Interest
    
    
    BasisIvanhoe Nickel & Platinum Ltd. (i)
    
    
    7.9
    %
    
    $
    19,491
    
    
    
    6.1
    %
    
    $
    18,929GoviEx Gold Inc.
    
    
    1.5
    %
    
    
    1,043
    
    
    
    1.5
    %
    
    
    1,043$
    20,534
    
    
    
    
    
    
    $
    19,972
 (i)
    
    During 2010, Ivanhoe Mines acquired 125,665 common shares of Ivanhoe
Nickel and Platinum Ltd. (Ivanplats), a private company, at a cost of $0.6
million.During 2009, Ivanhoe Mines acquired 1.2 million common shares of Ivanplats from
third parties at a cost of $1.8 million. In addition, during December 2009,
Ivanhoe Mines purchased 220,000 common shares of Ivanplats at a cost of $1.3
million and 250,000 Ivanplats special warrants, convertible into 250,000 common
shares of Ivanplats, at a cost of $1.5 million from certain directors of the
Company.During November 2009, Ivanhoe Mines acquired 1.1 million units of Ivanplats at a
cost of $9.9 million. Each unit is comprised of one common share, one liquidity
right and one-half of one initial public offering (IPO) warrant. Each liquidity
right is convertible into 0.1 of an Ivanplats common share for no additional
consideration in the event that a liquidity event does not occur on or before
December 31, 2010. The 550,000 IPO warrants vest upon closing of an IPO. If an
IPO occurs prior to December 31, 2010, each IPO warrant entitles the holder to
purchase one Ivanplats common share at the IPO price up until two years after the
closing of the IPO. If an IPO occurs after December 31, 2010, each IPO warrant
entitles the holder to purchase 1.1 common shares of Ivanplats at the IPO price up
until two years after the closing of the IPO. Neither a liquidity event or an IPO
occurred on or before December 31, 2010. Therefore, on December 31, 2010, Ivanhoe
Mines acquired 110,000 common shares of Ivanplats upon the conversion of all the
liquidity rights.As at December 31, 2010, Ivanhoe Mines held a 9.8% equity interest in Ivanplats on
a fully diluted basis.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 10.
    
    OTHER LONG-TERM INVESTMENTS
 December 31,2010
    
    
    2009Long-Term Notes (a)
    
    $
    29,763
    
    
    $
    24,689Government of Mongolia Treasury Bill (b)
    
    
    80,394
    
    
    
    73,152Government of Mongolia tax prepayment (b)
    
    
    36,486
    
    
    
    Money Market investments (c)
    
    
    45,173
    
    
    
    47,194$
    191,816
    
    
    $
    145,035
 (a)
    
    Long-Term NotesAs at December 31, 2010, the Company held $65.0 million principal amount of Long-Term
Notes (received in 2009 upon completion of the Asset-Backed Commercial Paper
restructuring) which was recorded at a fair value of $29.8 million. The decrease from
December 2009 in principal of $0.2 million was due to principal redemptions ($3.2
million), offset by the strengthening of the Canadian dollar ($3.0 million). The
Company has designated the Long-Term Notes as held-for-trading. The Long-Term Notes are
recorded at fair value with unrealized holding gains and losses included in earnings.There is a significant amount of uncertainty in estimating the amount and timing of
cash flows associated with the Long-Term Notes. The Company has estimated the fair
value of the Long-Term Notes considering information provided on the restructuring, the
best available public information regarding market conditions and other factors that a
market participant would consider for such investments.The Company is aware of a limited number of trades in the Long-Term Notes that occurred
prior to December 31, 2010, but does not consider them to be of sufficient volume or
value to constitute an active market. Accordingly, the Company has not used these
trades to determine the fair value of its notes.The Company has used a discounted cash flow approach to value the Long-Term Notes at
December 31, 2010 incorporating the following assumptions: Bankers Acceptance Rate:
    
    
    1.12
    %Discount Rates:
    
    9% to 25
    %Maturity Dates:
    
    6.0 yearsExpected Return of Principal:A-1 Notes
    
    
    100
    %A-2 Notes
    
    
    100
    %B Notes
    
    
    10
    %C Notes
    
    
    0
    %IA Notes
    
    
    0
    %TA Notes
    
    
    100
    %




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 10.
    
    OTHER LONG-TERM INVESTMENTS (Continued)
 (a)
    
    Long-Term Notes (Continued)Based on the discounted cash flow model as at December 31, 2010, the fair value of the
Long-Term Notes was estimated at $29.8 million. As a result of this valuation, the
Company recorded an unrealized trading gain of $4.0 million for the year ended December
31, 2010.Continuing uncertainties regarding the value of the assets that underlie the Long-Term
Notes, the amount and timing of cash flows and changes in general economic conditions
could give rise to a further change in the fair value of the Companys investment in
the Long-Term Notes, which would impact the Companys results from operations. A 1.0%
increase, representing 100 basis points, in the discount rate will decrease the fair
value of the Long-Term Notes by approximately $1.5 million.(b)
    
    Government of Mongolia Treasury Bill and Tax PrepaymentOn October 6, 2009, Ivanhoe Mines agreed to purchase three Treasury Bills (T-Bills)
from the Mongolian Government, having an aggregate face value of $287.5 million, for
the aggregate sum of $250.0 million. The annual rate of interest on the T-Bills was set
at 3.0%. The initial T-Bill, with a face-value of $115.0 million, was purchased by
Ivanhoe Mines on October 20, 2009 for $100.0 million and will mature on October 20,
2014.However, on March 31, 2010 Ivanhoe Mines agreed to an alternative arrangement for the
advancement of funds that would not involve the purchase of the remaining two T-Bills.
Specifically, rather than purchasing the second and third remaining T-Bills, with face
values of $57.5 million and $115.0 million respectively, Ivanhoe Mines has agreed to
make a series of tax prepayments. 
    
    The first tax prepayment of $50.0 million was made pursuant to this
arrangement on April 7, 2010.
    
    The second tax prepayment of $100.0 million will be made within 14 days of
Oyu Tolgoi LLC fully drawing down the financing necessary to enable the
complete construction of the Oyu Tolgoi Project, or on June 30, 2011,
whichever date is earlier.
 The annual rate of interest on the tax prepayments is 1.75% compounding quarterly from
the date on which such prepayments are made to the Mongolian Government by Ivanhoe
Mines. Unless already off-set fully against Mongolian taxes, the Mongolian Government
must immediately repay any remaining tax prepayment balance, including accrued
interest, on the fifth anniversary of the date the tax prepayment was made.The Company has designated the T-Bill and first tax prepayment as available-for-sale
investments because they were not purchased with the intent of selling them in the near
term and the Companys intention to hold them to maturity is uncertain. The fair
values of the T-Bill and first tax prepayment are estimated based on available public
information regarding what market participants would consider for such investments.
Changes in the fair value of available-for-sale investments are recognized in
accumulated other comprehensive income.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 10.
    
    OTHER LONG-TERM INVESTMENTS (Continued)
 (b)
    
    Government of Mongolia Treasury Bill and Tax Prepayment (Continued)The Company has used a discounted cash flow approach to value the T-Bill at December
31, 2010 incorporating the following assumptions: T-BillFace Value:
    
    $
    115,000,000Discount Rates:
    
    
    9.9
    %Term to Maturity
    
    3.8 years
 Based on the discounted cash flow model as at December 31, 2010, the fair value of the
T-Bill was estimated at $80.4 million. As a result of this valuation, Ivanhoe Mines
recorded an unrealized gain of $4.4 million in accumulated other comprehensive income
for the year ended December 31, 2010.The Company has used a discounted cash flow approach to value the first tax prepayment
at December 31, 2010 incorporating the following assumptions: First TaxPrepaymentFace Value:
    
    $
    50,000,000Discount Rates:
    
    
    9.9
    %Term to Maturity
    
    4.3 years
 Based on the discounted cash flow model as at December 31, 2010, the fair value of the
first tax prepayment was estimated at $36.5 million. As a result of this valuation,
Ivanhoe Mines recorded an unrealized loss of $14.2 million in accumulated other
comprehensive income for the year ended December 31, 2010.(c)
    
    Money Market InvestmentsAs at December 31, 2010, Ivanhoe Mines held $45.2 million of money market investments
with remaining maturities in excess of one year.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 11.
    
    PROPERTY, PLANT AND EQUIPMENT
 December 31,2010
    
    
    2009Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedDepletion and
    
    
    
    
    
    
    
    
    
    
    Depletion andDepreciation,
    
    
    
    
    
    
    
    
    
    
    Depreciation,Including
    
    
    Net Book
    
    
    
    
    
    
    Including
    
    
    Net BookCost
    
    
    Write-downs
    
    
    Value
    
    
    Cost
    
    
    Write-downs
    
    
    ValueMining plant and equipmentOvoot Tolgoi, Mongolia (b)
    
    $
    10,647
    
    
    $
    (1,428
    )
    
    $
    9,219
    
    
    $
    9,991
    
    
    $
    (359
    )
    
    $
    9,632Other mineral property interestsOyu Tolgoi, Mongolia (a)
    
    $
    48,120
    
    
    $
    (6,316
    )
    
    $
    41,804
    
    
    $
    43,792
    
    
    $
    (6,296
    )
    
    $
    37,496Ovoot Tolgoi, Mongolia (b)
    
    
    26,831
    
    
    
    (766
    )
    
    
    26,065
    
    
    
    16,264
    
    
    
    (83
    )
    
    
    16,181Australia (c)
    
    
    25,470
    
    
    
    (126
    )
    
    
    25,344
    
    
    
    24,403
    
    
    
    (126
    )
    
    
    24,277Other exploration projects
    
    
    1,252
    
    
    
    (1,244
    )
    
    
    8
    
    
    
    1,335
    
    
    
    (1,306
    )
    
    
    29$
    101,673
    
    
    $
    (8,452
    )
    
    $
    93,221
    
    
    $
    85,794
    
    
    $
    (7,811
    )
    
    $
    77,983Other capital assetsOyu Tolgoi, Mongolia (a)
    
    $
    24,203
    
    
    $
    (14,471
    )
    
    $
    9,732
    
    
    $
    16,119
    
    
    $
    (11,756
    )
    
    $
    4,363Ovoot Tolgoi, Mongolia (b)
    
    
    228,241
    
    
    
    (24,154
    )
    
    
    204,087
    
    
    
    74,469
    
    
    
    (8,323
    )
    
    
    66,146Australia (c)
    
    
    46,785
    
    
    
    (2,723
    )
    
    
    44,062
    
    
    
    5,724
    
    
    
    (1,557
    )
    
    
    4,167Other exploration projects
    
    
    3,351
    
    
    
    (2,573
    )
    
    
    778
    
    
    
    2,657
    
    
    
    (2,128
    )
    
    
    529$
    302,580
    
    
    $
    (43,921
    )
    
    $
    258,659
    
    
    $
    98,969
    
    
    $
    (23,764
    )
    
    $
    75,205Capital works in progressOyu Tolgoi, Mongolia (a) (d)
    
    $
    953,581
    
    
    $
    
    
    
    $
    953,581
    
    
    $
    54,991
    
    
    $
    
    
    
    $
    54,991Ovoot Tolgoi, Mongolia (b)
    
    
    16,364
    
    
    
    
    
    
    
    16,364
    
    
    
    970
    
    
    
    
    
    
    
    970Australia (c)
    
    
    1,604
    
    
    
    
    
    
    
    1,604
    
    
    
    
    
    
    
    
    
    
    
    $
    971,549
    
    
    $
    
    
    
    $
    971,549
    
    
    $
    55,961
    
    
    $
    
    
    
    $
    55,961$
    1,386,449
    
    
    $
    (53,801
    )
    
    $
    1,332,648
    
    
    $
    250,715
    
    
    $
    (31,934
    )
    
    $
    218,781
 (a)
    
    Ivanhoe Mines has a 66% interest in the Oyu Tolgoi copper-gold project located
in Mongolia. On April 1, 2010, Ivanhoe Mines commenced capitalizing Oyu Tolgoi Project
development costs. As of this date, reserve estimates for the Oyu Tolgoi Project had
been announced and the procedural and administrative conditions contained in the
Investment Agreement were satisfied. During the year ended December 31, 2010,
additions to property, plant and equipment for the Oyu Tolgoi Project totalled $911.0
million, which included development costs.A significant portion of exploration expenses incurred prior to April 1, 2010 relate
directly to the development of Oyu Tolgoi. Included in exploration expenses were
shaft sinking, engineering, and development costs that have been expensed and not
capitalized (Note 3).Certain costs incurred prior to April 1, 2010 to construct surface assets at Oyu
Tolgoi have been capitalized. Ivanhoe Mines determined that these costs met the
definition of an asset and that they were recoverable through salvage value or
transfer of the assets to other locations. These costs were tested for impairment
using estimated future cash flows based on reserves and resources beyond proven and
probable reserves, in accordance with accounting policy Note 2 (j) for property,
plant and equipment.(b)
    
    SouthGobi holds a 100% interest in the Ovoot Tolgoi coal project located in
Mongolia. In 2008, SouthGobi began open pit operations at Ovoot Tolgoi.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 11.
    
    PROPERTY, PLANT AND EQUIPMENT (Continued)
 (c)
    
    Ivanhoe Mines through its majority owned subsidiary, Ivanhoe Australia, owns
certain mining and exploration leases in Queensland, Australia, which contain
prospective molybdenum, rhenium, copper, gold, zinc, silver and uranium occurrences.On September 30, 2010, Ivanhoe Mines completed its acquisition of the Osborne Copper
and Gold complex (Osborne) located in Australia. The assets acquired include a
concentrator, infrastructure and tenements.(d)
    
    In March 2010, Ivanhoe Mines and Rio Tinto completed an agreement whereby the
Company issued 15 million common shares to Rio Tinto for net proceeds of $241.1 million
(Cdn$244.7 million). Ivanhoe Mines used $195.4 million of the proceeds to purchase from
Rio Tinto key mining and milling equipment to be installed during the construction of
the Oyu Tolgoi Project (Note 21 (b)).Much of the equipment originally was ordered by Ivanhoe Mines from various
manufacturers while it was waiting for an Investment Agreement with the Government
of Mongolia. Ivanhoe Mines sold the equipment for $121.5 million to Rio Tinto in
August 2008 under an agreement between the companies. Additional equipment also was
acquired by Rio Tinto directly from suppliers. 12.
    
    OTHER ASSETS
 December 31,2010
    
    
    2009Environmental bond
    
    $
    22,555
    
    
    $
    3,427Deferred rights offering fees
    
    
    4,404
    
    
    
    Deferred SouthGobi Hong Kong listing fees
    
    
    
    
    
    
    4,565Transaction costs (Note 15 (b))
    
    
    2,800
    
    
    
    5,601Advances
    
    
    1,253
    
    
    
    1,187Restricted cash
    
    
    965
    
    
    
    852Other
    
    
    1,906
    
    
    
    595$
    33,883
    
    
    $
    16,227
 13.
    
    ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 December 31,2010
    
    
    2009Accounts payable
    
    $
    68,646
    
    
    $
    36,454Accrued construction costs
    
    
    183,030
    
    
    
    11,737Payroll and other employee related payables
    
    
    126
    
    
    
    2,097Amounts payable to related parties (Note 22)
    
    
    8,726
    
    
    
    4,840$
    260,528
    
    
    $
    55,128




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 14.
    
    AMOUNTS DUE UNDER CREDIT FACILITIES
 December 31,2010
    
    
    2009CurrentNon-revolving bank loans (a)
    
    $
    14,615
    
    
    $
    14,544Revolving line of credit facility (b)
    
    
    
    
    
    
    3,000$
    14,615
    
    
    $
    17,544Non-CurrentTwo-year extendible loan facility (c)
    
    $
    40,080
    
    
    $
    37,979
 (a)
    
    In October 2007, Ivanhoe Mines obtained non-revolving bank loans which are due on
demand and secured against certain securities and other investments.(b)
    
    In December 2009, Ivanhoe Mines obtained a one year revolving line of credit
facility, which is secured against certain equipment in Mongolia.(c)
    
    In April 2009, Ivanhoe Mines obtained a non-revolving, two-year extendible loan
facility, which is secured against certain securities and other investments. 15.
    
    CONVERTIBLE CREDIT FACILITIES
 (a)
    
    Rio Tinto
 December 31,2010
    
    
    2009Principal amount of convertible credit facility
    
    $
    350,000
    
    
    $
    350,000Accrued paid-in-kind interest
    
    
    50,832
    
    
    
    40,678400,832
    
    
    
    390,678(Deduct) add:Beneficial conversion feature
    
    
    (36,314
    )
    
    
    (30,250
    )Share purchase warrants
    
    
    (9,403
    )
    
    
    (9,403
    )Accretion of discount
    
    
    45,717
    
    
    
    27,891400,832
    
    
    
    378,916Credited to share capital upon conversion
    
    
    (400,832
    )
    
    
    $
    
    
    
    $
    378,916
 In September 2007, Rio Tinto provided the Company with a $350.0 million convertible
credit facility to finance ongoing mine development activities at the Oyu Tolgoi
Project. In 2007, the Company made an initial draw against the credit facility of
$150.0 million and further draws totalling $200.0 million were made in 2008.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 15.
    
    CONVERTIBLE CREDIT FACILITIES (Continued)
 (a)
    
    Rio Tinto (Continued)Amounts advanced under the credit facility bore interest at a rate per annum equal to
the three-month London Inter-Bank Offered Rate plus 3.3%, and matured on September 12,
2010. In September 2010, the Company issued 40.1 million common shares to Rio Tinto
upon the automatic conversion of the maturing convertible credit facility. The $350.0
million outstanding principal and $50.8 million accrued interest were converted at a
price of $10.00 per common share.On the date of conversion, the $437.1 million aggregate carrying amount of the
convertible credit facility liability ($400.8 million) and associated beneficial
conversion feature ($36.3 million) was credited to share capital to reflect the common
 shares issued.As part of the credit facility transaction, Rio Tinto also received share purchase
warrants exercisable to purchase up to 35.0 million common shares of the Company at a
price of $10.00 per share for a period of five years (Note 18 (c)).During 2010, Ivanhoe Mines capitalized $2.7 million of interest expense and $6.2
million of accretion expense incurred on the convertible credit facility.(b)
    
    China Investment Corporation
 December 31,2010
    
    
    2009Principal amount of convertible debenture
    
    $
    500,000
    
    
    $
    500,000(Deduct) add:Bifurcation of embedded derivative liability
    
    
    (313,292
    )
    
    
    (313,292
    )Accretion of discount
    
    
    69
    
    
    
    10Reduction of carrying amount upon
partial conversion
    
    
    (93,370
    )
    
    
    Carrying amount of debt host contract
    
    
    93,407
    
    
    
    186,718Embedded derivative liability
    
    
    154,877
    
    
    
    358,272Convertible credit facility
    
    
    248,284
    
    
    
    544,990Accrued interest
    
    
    6,312
    
    
    
    4,712Transaction costs allocated to deferred charges
    
    
    (2,800
    )
    
    
    (5,601
    )Net carrying amount of convertible debenture
    
    $
    251,796
    
    
    $
    544,101




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 15.
    
    CONVERTIBLE CREDIT FACILITIES (Continued)
 (b)
    
    China Investment Corporation (Continued)On November 19, 2009, SouthGobi issued a convertible debenture to a wholly owned
subsidiary of China Investment Corporation (CIC) for $500.0 million. The convertible
debenture is secured, bears interest at 8.0% and has a term of 30 years. The financing
primarily will support an accelerated investment program in Mongolia and up to $120.0
million of the financing may also be used for working capital, repayment of debt due on
funding, general and administrative expense and other general corporate purposes.Key financial terms of the convertible debenture include:
 
    
    Interest  6.4% payable semi-annually in cash and 1.6% payable annually in
 shares of SouthGobi. The number of SouthGobi shares issued upon the settlement of
interest is calculated using the 50-day volume-weighted average price (VWAP).
    
    Term  30 years.
    
    Security  First charge over SouthGobis assets, including shares of its
material subsidiaries.
    
    Conversion price  Lower of Cdn$11.88 or the 50-day VWAP at the date of
conversion, subject to a floor price of Cdn$8.88 per share.
    
    Investors conversion option  CIC has the right to convert the debenture, in
whole or in part, into common shares of SouthGobi from November 19, 2010 onwards.
    
    Issuers conversion option  SouthGobi has the right to convert up to $250.0
million of the debenture on the earlier of November 19, 2011 or upon achieving a
public float of 25.0% of its common shares under certain agreed circumstances if
the conversion price is at least Cdn$10.66. After November 19, 2014, SouthGobi is
entitled to convert the debenture, in whole or in part, into its common shares at
the conversion price if the conversion price is at least Cdn$10.66.
 The convertible debenture is a hybrid instrument containing a debt host contract and
three embedded derivatives: the investors conversion option, issuers conversion
option and share-based interest payment provision. These embedded derivatives were
bifurcated from the debt host contract, measured at fair value and bundled together as
a single compound embedded derivative liability. Each reporting period the embedded
derivative liability is remeasured at fair value with changes in fair value being
recognized in earnings.The initial $186.7 million carrying amount of the debt host contract is the residual
principal amount after bifurcating the $313.3 million fair value of the embedded
derivative liability. A debt discount arises due to the difference between the initial
carrying amount of the debt host contract and the amount payable at maturity.Transaction costs of $15.0 million were allocated between the embedded derivative
liability and debt host contract in proportion to the allocation of the total proceeds
between the two components. The $9.4 million allocated to the embedded derivative
liability was expensed immediately. Whereas, the $5.6 million allocated to the debt
host contract is reported in the balance sheet as a deferred charge.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 15.
    
    CONVERTIBLE CREDIT FACILITIES (Continued)
 (b)
    
    China Investment Corporation (Continued)Both the debt discount and deferred charge are amortized as accretion expense over the
30 year contractual life of the convertible debenture using the interest method.Pursuant to the convertible debentures terms, SouthGobi had the right to call for the
conversion of up to $250.0 million of the convertible debenture upon SouthGobi
achieving a public float of 25.0% of its common shares under certain agreed
circumstances. On March 29, 2010, SouthGobi exercised this right and completed the
conversion of $250.0 million of the convertible debenture into 21.5 million shares at a
conversion price of $11.64 (Cdn$11.88). Also on March 29, 2010, SouthGobi settled the
$1.4 million accrued interest payable in shares on the $250.0 million converted by
issuing 0.1 million shares at the 50-day VWAP conversion price of $15.97 (Cdn$16.29).
On April 1, 2010, SouthGobi settled the outstanding accrued interest payable in cash on
the $250.0 million converted with a cash payment of $5.7 million.As at March 29, 2010, the fair value of the embedded derivative liability
associated with the $250.0 million converted was $102.8 million, a decrease of $9.4
million compared to its fair value at December 31, 2009. The $347.6 million fair value
of the SouthGobi shares issued upon conversion exceeded the $193.3 million aggregate
carrying value of the debt host contract, embedded derivative liability and deferred
charges. The difference of $154.3 million was recorded as a loss on conversion of the
convertible debenture.The embedded derivative liability was valued using a Monte Carlo simulation valuation
model. A Monte Carlo simulation model is a valuation model that relies on random
sampling and is often used when modeling systems with a large number of inputs and
where there is significant uncertainty in the future value of inputs and where the
movement in the inputs can be independent of each other. Some of the key inputs used
by the Monte Carlo simulation include: floor and ceiling conversion prices, risk-free
rate of return, expected volatility of SouthGobis share price, forward Cdn$ exchange
rate curves and spot Cdn$ exchange rates.As at December 31, 2010, the fair value of the embedded derivative liability was
determined to be $154.9 million (December 31, 2009  $358.3 million).




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 15.
    
    CONVERTIBLE CREDIT FACILITIES (Continued)
 (b)
    
    China Investment Corporation (Continued)Assumptions used in the Monte Carlo valuation model are as follows:
 December 31,
    
    
    December 31,2010
    
    
    2009Floor conversion price
    
    Cdn$8.88
    
    
    Cdn$8.88Ceiling conversion price
    
    Cdn$11.88
    
    
    Cdn$11.88Expected volatility
    
    
    73
    %
    
    
    75
    %Risk-free rate of return
    
    
    3.48
    %
    
    
    4.09
    %Spot Cdn$ exchange rate
    
    
    1.01
    
    
    
    0.96Forward Cdn$ exchange rate curve
    
    
    0.97 - 1.14
    
    
    
    0.90 - 0.95
 16.
    
    INCOME TAXES
 As referred to in Note 2(b), Ivanhoe Mines must make significant estimates in respect of its
provision for income taxes and the composition of its deferred income tax assets and
liabilities. Ivanhoe Mines operations are, in part, subject to foreign tax laws where
interpretations, regulations and legislation are complex and continually changing. As a
result, there are usually some tax matters in question that may, upon resolution in the
future, result in adjustments to the amount of deferred income tax assets and liabilities,
and those adjustments may be material to Ivanhoe Mines financial position and results of
operations.Ivanhoe Mines (recovery) provision for income and capital taxes for continuing operations
consists of the following:
 Years ended December 31,2010
    
    
    2009Deferred income taxes
    
    $
    (15,124
    )
    
    $
    (14,520
    )Capital taxes
    
    
    2,006
    
    
    
    1,055$
    (13,118
    )
    
    $
    (13,465
    )




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 16.
    
    INCOME TAXES (Continued)
 Deferred income tax assets and liabilities for continuing operations at December 31, 2010 and
2009 arise from the following:
 December 31,2010
    
    
    2009Deferred income tax assetsLong-term investments
    
    $
    60,380
    
    
    $
    42,642Loss carry-forwards
    
    
    401,271
    
    
    
    281,308Other
    
    
    21,052
    
    
    
    13,290482,703
    
    
    
    337,240Valuation allowance
    
    
    (465,814
    )
    
    
    (330,287
    )Net deferred income tax assets
    
    
    16,889
    
    
    
    6,953Deferred income tax liabilitiesProperty, plant and equipment
    
    
    11,123
    
    
    
    10,88811,123
    
    
    
    10,888Deferred income tax assets (liabilities), net
    
    $
    5,766
    
    
    $
    (3,935
    )
 A reconciliation of the provision for income and capital taxes for continuing operations is
as follows:
 Years ended December 31,2010
    
    
    2009Recovery of income taxes based on the combined
Canadian federal and provincial statutory tax
rates of 28.5% in 2010 and 30.0% in 2009
applied to the net loss from continuing operations
    
    $
    65,887
    
    
    $
    86,997DeductLower foreign tax rates
    
    
    2,705
    
    
    
    (3,696
    )Tax benefit of losses not recognized
    
    
    (72,969
    )
    
    
    (60,189
    )Capital taxes
    
    
    (2,006
    )
    
    
    (1,055
    )Foreign exchange and other
    
    
    19,501
    
    
    
    (8,592
    )Recovery for income and capital taxes
    
    $
    13,118
    
    
    $
    13,465




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 16.
    
    INCOME TAXES (Continued)
 At December 31, 2010, Ivanhoe Mines had the following unused tax losses from continuing
operations:
 Local
    
    
    U.S. Dollar
    
    
    ExpiryCurrency
    
    
    Equivalent (i)
    
    
    DatesNon-capital losses:Canada
    
    Canadian
    
    $
    249,258
    
    
    $
    249,757
    
    
    
    2011 to 2030Australia
    
    Australian
    
    $
    207,869
    
    
    $
    212,712
    
    
    
    (a)Mongolia
    
    Mongolian Tugrik
    
    
    2,457,256,318
    
    
    $
    1,951,752
    
    
    
    (b)Mongolia
    
    Mongolian Tugrik
    
    
    42,793,003
    
    
    $
    33,990
    
    
    
    2011 to 2020Mongolia
    
    Mongolian Tugrik
    
    
    61,570,681
    
    
    $
    48,904
    
    
    
    2011 to 2018Indonesia
    
    Indonesian Rupiah
    
    
    101,038,528
    
    
    $
    11,231
    
    
    
    2011 to 2015Hong Kong
    
    Hong Kong
    
    $
    46,272
    
    
    $
    5,953
    
    
    
    (c)Capital losses:Canada
    
    Canadian
    
    $
    26,970
    
    
    $
    27,024
    
    
    
    (d)
 (i)
    
    Translated using the year-end exchange rate.(a)
    
    These losses are carried forward indefinitely, subject to continuity of ownership
and business tests.(b)
    
    These losses are carried forward until production from a mine commences;
thereafter, they can be amortized on a straight-line basis.(c)
    
    These losses are carried forward indefinitely.(d)
    
    These losses are carried forward indefinitely for utilization against 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.Ivanhoe Mines had no unrecognized tax benefits as of December 31, 2010 and 2009. Under
current conditions and expectations, management does not foresee any significant changes in
unrecognized tax benefits that would have a material impact on the Companys financial
statements.During 2010 and 2009, Ivanhoe Mines did not recognize any accrued interest or penalties
related to unrecognized tax benefits within the statement of operations or balance sheet.Ivanhoe Mines is subject to taxes in Canada, Mongolia, Australia and various foreign
countries. The tax years of major tax jurisdictions which remain subject to examination as
of December 31, 2010 are as follows:
 Canada
    
    
    2003 to 2010Mongolia
    
    
    2005 to 2010Australia
    
    
    2006 to 2010




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 17.
    
    ASSET RETIREMENT OBLIGATIONS
 December 31,2010
    
    
    2009Balance, beginning of year
    
    $
    5,436
    
    
    $
    3,922Increase in obligations for:Changes in estimates
    
    
    5,957
    
    
    
    706Unrealized foreign exchange
    
    
    2,049
    
    
    
    667Accretion expense
    
    
    199
    
    
    
    141Acquisition of Osborne (Note 11 (c))
    
    
    27,197
    
    
    
    Balance, end of year
    
    $
    40,838
    
    
    $
    5,436
 The total undiscounted amount of estimated cash flows required to settle the obligations is
$90.6 million (December 31, 2009  $21.9 million), which has been discounted using credit
adjusted risk free rates ranging from 5.6% to 10.8%. The majority of reclamation obligations
are not expected to be paid for several years and will be funded from Ivanhoe Mines cash
balances and environmental bonds restricted for the purpose of settling asset retirement
obligations.
 18.
    
    SHARE CAPITAL
 (a)
    
    Equity Incentive PlanThe 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.
 (i)
    
    The Share Option Plan authorizes the Board of Directors of the
Company to grant options 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.
Options vest over four years and have seven year contractual terms unless
otherwise determined from time to time by the Board of Directors, on the
recommendation of the Compensation and Benefits Committee. The Share Option Plan
also provides that these options may, upon approval of the Board of Directors, be
converted into stock appreciation rights.(ii)
    
    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.(iii)
    
    The Share Purchase Plan entitles each eligible employee of Ivanhoe
Mines to contribute up to seven percent of each employees annual basic salary in
semi-monthly instalments. At the end of each calendar quarter, each employee
participating in the
Share Purchase Plan is 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.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 18.
    
    SHARE CAPITAL (Continued)
 (a)
    
    Equity Incentive Plan (Continued)The Company is authorized to issue a maximum of 6.5% of the issued and outstanding
Common Shares (December 31, 2010  36,956,443) pursuant to the Equity Incentive Plan.
At December 31, 2010, an aggregate of 20,244,373 Common Shares were available for
future grants of awards under the plan.The fair value of each option award is estimated on the date of grant using the
Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the
input of subjective assumptions, including the expected term of the option award and
stock price volatility. The expected term of options granted is derived from historical
data on employee exercise and post-vesting employment termination behaviour. Expected
volatility is based on the historical volatility of the Companys stock. These
estimates involve inherent uncertainties and the application of management judgment. In
addition, the Company is required to estimate the expected forfeiture rate and only
recognize expense for those options expected to vest. As a result, if other assumptions
had been used, the recorded stock-based compensation expense could have been materially
different from that reported.The weighted average grant-date fair value of stock options granted during 2010 and
2009 was Cdn$9.08 and Cdn$5.08, respectively. The fair value of these options was
determined using a Black-Scholes option pricing model, recognizing forfeitures as they
occur, using the following weighted average assumptions:
 2010
    
    
    2009Risk-free interest rate
    
    
    2.42
    %
    
    
    2.10
    %Expected life
    
    3.6 years
    
    
    3.7 yearsExpected volatility
    
    
    77
    %
    
    
    74
    %Expected dividends
    
    $
    Nil
    
    
    $
    Nil




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 18.
    
    SHARE CAPITAL (Continued)
 (a)
    
    Equity Incentive Plan (Continued)A summary of stock option activity and information concerning outstanding and
exercisable options at December 31, 2010 is as follows:
 Options
    
    
    
    
    
    
    WeightedAvailable
    
    
    Options
    
    
    Averagefor Grant
    
    
    Outstanding
    
    
    Exercise Price(Expressed inCanadian dollars)Balances, December 31, 2008
    
    
    439,893
    
    
    
    18,810,470
    
    
    $
    9.04Increase in amount authorized
    
    
    9,500,794
    
    
    
    
    
    
    
    Options granted
    
    
    (9,400,500
    )
    
    
    9,400,500
    
    
    
    9.59Options exercised
    
    
    
    
    
    
    (867,500
    )
    
    
    7.47Options cancelled
    
    
    6,185,200
    
    
    
    (6,185,200
    )
    
    
    10.77Bonus shares
    
    
    (125,000
    )
    
    
    
    
    
    
    Shares issued under share
purchase plan
    
    
    (104,566
    )
    
    
    
    
    
    
    Balances, December 31, 2009
    
    
    6,495,821
    
    
    
    21,158,270
    
    
    $
    8.84Increase in amount authorized
    
    
    16,560,424
    
    
    
    
    
    
    
    Options granted
    
    
    (1,337,500
    )
    
    
    1,337,500
    
    
    
    15.70Options exercised
    
    
    
    
    
    
    (5,639,650
    )
    
    
    8.63Options cancelled
    
    
    144,050
    
    
    
    (144,050
    )
    
    
    8.99Bonus shares
    
    
    (1,581,578
    )
    
    
    
    
    
    
    Shares issued under share
purchase plan
    
    
    (36,844
    )
    
    
    
    
    
    
    Balances, December 31, 2010
    
    
    20,244,373
    
    
    
    16,712,070
    
    
    $
    9.45
 At December 31, 2010, the U.S. dollar equivalent of the weighted average exercise price
was $9.47 (December 31, 2009  $8.39).The total intrinsic value of options exercised during the years ended December 31, 2010
and 2009 was $71.7 million and $4.7 million, respectively.As at December 31, 2010, options vested and expected to vest totalled 16,712,070
(December 31, 2009  21,158,270) and had an aggregate intrinsic value of $226.9
million (December 31, 2009  $132.1 million).




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 18.
    
    SHARE CAPITAL (Continued)
 (a)
    
    Equity Incentive Plan (Continued)The following table summarizes information concerning outstanding and exercisable
options at December 31, 2010:
 Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedRange of
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    Number
    
    
    Remaining
    
    
    Exercise Price
    
    
    Number
    
    
    Exercise PricePrices
    
    Outstanding
    
    
    Life (in years)
    
    
    Per Share
    
    
    Exercisable
    
    
    Per Share(Expressed in
    
    
    
    
    
    
    
    
    
    (Expressed in
    
    
    
    
    
    
    (Expressed inCanadian
    
    
    
    
    
    
    
    
    
    Canadian
    
    
    
    
    
    
    Canadiandollars)
    
    
    
    
    
    
    
    
    
    dollars)
    
    
    
    
    
    
    dollars)$2.82 to $7.03
    
    
    2,575,345
    
    
    
    4.82
    
    
    $
    3.29
    
    
    
    631,810
    
    
    $
    3.12$7.04 to $8.20
    
    
    4,502,625
    
    
    
    4.79
    
    
    
    8.10
    
    
    
    2,347,500
    
    
    
    8.01$8.21 to $8.96
    
    
    2,214,100
    
    
    
    3.48
    
    
    
    8.46
    
    
    
    470,350
    
    
    
    8.41$8.97 to $12.62
    
    
    2,789,300
    
    
    
    2.36
    
    
    
    10.02
    
    
    
    2,298,100
    
    
    
    9.92$12.63 to $26.04
    
    
    4,630,700
    
    
    
    5.44
    
    
    
    14.33
    
    
    
    730,700
    
    
    
    13.7216,712,070
    
    
    
    4.40
    
    
    $
    9.45
    
    
    
    6,478,460
    
    
    $
    8.88
 As at December 31, 2010 there was $37.1 million of total unrecognized compensation cost
related to unvested stock options. This cost is expected to be recognized over a
weighted-average period of approximately 1.3 years.As at December 31, 2010 the aggregate intrinsic value for fully vested stock options
was $91.6 million (December 31, 2009  $48.1 million).Upon the closing of the rights offering (Note 18 (d)), the outstanding stock options
were adjusted. Specifically, the number of stock options outstanding was increased to
19,206,493.Stock-based compensation charged to operations was allocated between exploration
expenses and general and administrative expenses as follows:
 Year ended December 31,2010
    
    
    2009Exploration (i)
    
    $
    33,019
    
    
    $
    21,937General and administrative
    
    
    31,936
    
    
    
    13,898$
    64,955
    
    
    $
    35,835
 (i)
    
    During 2010, stock-based compensation of $17.1 million (2009  $nil)
relating to the development of the Oyu Tolgoi Project was capitalized as property,
plant and equipment.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 18.
    
    SHARE CAPITAL (Continued)
 (a)
    
    Equity Incentive Plan (Continued)Stock-based compensation charged to operations was incurred by Ivanhoe Mines as follows:
 Year ended December 31,2010
    
    
    2009Ivanhoe Mines Ltd. (i)
    
    $
    42,855
    
    
    $
    21,507SouthGobi Resources Ltd.
    
    
    12,062
    
    
    
    7,019Ivanhoe Australia Ltd.
    
    
    10,038
    
    
    
    7,309$
    64,955
    
    
    $
    35,835
 (i)
    
    During 2010, stock-based compensation of $17.1 million (2009  $nil)
relating to the development of the Oyu Tolgoi Project was capitalized as property,
plant and equipment. (b)
    
    Rio Tinto PlacementsIn 2006, the Company and Rio Tinto formed a strategic partnership and entered into a
private placement agreement whereby Rio Tinto would invest in Ivanhoe Mines. In
October 2006, Rio Tinto completed the first private placement tranche by purchasing
approximately 37.1 million shares at a price of $8.18 per share for total proceeds of
$303.4 million. The second private placement tranche was completed in October 2009,
whereby Rio Tinto purchased 46.3 million shares at a price of $8.38 per share for total
proceeds of $388.0 million. As a result of completing the second tranche, the $5.2
million carrying amount of the share issuance commitment was reclassified to share
capital.In addition to the first and second private placement tranches, Rio Tinto was granted
92.1 million warrants in 2006, divided into two series (Series A and Series B). In
June 2010, Rio Tinto exercised its entire allotment of Series A Warrants. Pursuant to
the exercise of the Series A Warrants, the Company issued 46.0 million shares to Rio
Tinto at $8.54 per share for total proceeds of $393.1 million. As a result, the $8.9
million carrying value of the Series A Warrants was reclassified from share purchase
warrants to share capital.In December 2010, Rio Tinto exercised 33.8 million Series B Warrants. Pursuant to the
partial exercise of the Series B Warrants, the Company issued 33.8 million shares to
Rio Tinto at $8.88 per share for total proceeds of $300.0 million. As a result, $6.6
million of the carrying value of the Series B Warrants was reclassified from share
purchase warrants to
share capital.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 18.
    
    SHARE CAPITAL (Continued)
 (b)
    
    Rio Tinto Placements (Continued)As at December 31, 2010, 12.2 million Series B Warrants were outstanding. Each warrant
is non-transferable and entitles Rio Tinto to purchase one common share of the Company
at a price of:
 (i)
    
    $8.88 during the period commencing 366 days after the warrant
determination date and ending 545 days after the warrant determination date; and(ii)
    
    $9.02 during the period commencing 546 days after the warrant
determination date and ending 725 days after the warrant determination date.
 The warrant determination date is the earlier of the date an approved Investment
Agreement is reached or October 27, 2009.Upon the closing of the rights offering (Note 18 (d)), the outstanding Series B
Warrants were adjusted. Specifically, the number of Series B Warrants outstanding was
increased to 14.1 million, the minimum exercise price was reduced from $8.88 to $8.37
and the maximum exercise price was reduced from $9.02 to $8.51.During 2008, Rio Tinto received 243,772 shares and 1.4 million additional share
purchase warrants (the Anti-Dilution Warrants), divided into two series. In October
2010, Rio Tinto exercised 720,203 of its Anti-Dilution Warrants. Pursuant to the
exercise of the Anti-Dilution Warrants, the Company issued 720,203 shares to Rio Tinto
at Cdn$3.15 per share for total proceeds of $2.2 million (Cdn$2.3 million).As at December 31, 2010, 720,203 Anti-Dilution Warrants were outstanding. The life of
the remaining Anti-Dilution Warrants is identical to the Series B Warrants. Each
Anti-Dilution Warrant entitles Rio Tinto to purchase one Common Share of the Company at
a price of Cdn$3.15. Upon the closing of the rights offering (Note 18 (d)), the
outstanding Anti-Dilution Warrants were adjusted. Specifically, the number of
Anti-Dilution Warrants outstanding was increased to 827,706 and the exercise price
reduced to Cdn$2.97.Rio Tinto, as part of the Heads of Agreement between Ivanhoe Mines and Rio Tinto dated
December 8, 2010, committed to complete the exercise of its remaining Series B Warrants
and Anti-Dilution Warrants by their scheduled October 2011 expiry.In March 2010, the Company issued 15.0 million shares to Rio Tinto at Cdn$16.31 per
share for total proceeds of $241.1 million (Cdn$244.7 million) (Note 21 (b)).In September 2010, the Company issued 40.1 million shares to Rio Tinto upon the
conversion of Rio Tintos maturing convertible credit facility (Note 15 (a) and 21
(b)).As at December 31, 2010, Rio Tintos equity ownership in the Company was 40.3%
(December 31, 2009  19.7%).




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 18.
    
    SHARE CAPITAL (Continued)
 (c)
    
    Rio Tinto FinancingAs part of the credit facility transaction disclosed in Note 15 (a), Rio Tinto received
Series C Warrants exercisable to purchase up to 35.0 million common shares of Ivanhoe
Mines at a price of $10.00 per share at any time on or before October 24, 2012. As at
December 31, 2010, 35.0 million Series C Warrants were exercisable.Rio Tinto, as part of the Heads of Agreement between Ivanhoe Mines and Rio Tinto dated
December 8, 2010, committed to complete the exercise of its entire allotment of Series
C Warrants, progressively as required, by January 18, 2012.Upon the closing of the rights offering (Note 18 (d)), the outstanding Series C
Warrants were adjusted. Specifically, the number of Series C Warrants outstanding was
increased to 40.2 million and the exercise price reduced to $9.43.(d)
    
    Rights OfferingIn December 2010, the Company filed a final short form prospectus for a rights offering
open to all shareholders on a dilution-free, equal participation basis. In accordance
with the terms of the rights offering, each shareholder of record as at December 31,
2010 received one right for each common share held. Every 100 rights held entitled the
holder thereof to purchase 15 common shares of the Company at $13.88 per share or
Cdn$13.93 per share, at the election of the holder. The rights traded on the TSX, NYSE
and NASDAQ and expired on January 26, 2011.Upon the closing of the rights offering, the Company issued a total of 84,867,671
common shares for gross proceeds of $1.18 billion. Expenses and fees relating to the
rights offering totalled approximately $27.1 million.Under the terms of the rights offering, the monetary amount to be received by the
Company upon the exercise of rights was not fixed. Each holder of rights could elect
either the $13.88 or Cdn$13.93 subscription price. Furthermore, the Cdn$13.93
subscription price is not denominated in the Companys U.S. dollar functional currency.
Therefore, the pro rata distribution of rights to the Companys shareholders was
accounted for as a derivative financial liability measured at fair value.On December 23, 2010, rights to be issued under the rights offering began trading on a
when issued basis. On this date, the Company recognized a derivative financial
liability of $901.9 million associated with the Companys legal obligation to carry out
the rights offering. Deficit was adjusted by a corresponding amount. Each reporting
period the derivative financial liability is remeasured at fair value with changes
being recognized in earnings. During 2010, Ivanhoe Mines recognized a derivative gain
of $135.7 million.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 18.
    
    SHARE CAPITAL (Continued)
 (d)
    
    Rights Offering (Continued)The derivative financial liability is settled as rights are exercised or expire
unexercised. The fair value of rights exercised shall be reclassified from the
derivative financial liability to share capital at the time of exercise. The fair value
of rights that expire unexercised shall be reclassified from the derivative financial
liability to additional paid-in capital at the time of expiry.The fair value of the derivative financial liability was determined by reference to
published market quotations for the rights.
 19.
    
    ACCUMULATED OTHER COMPREHENSIVE INCOME
 December 31,2010
    
    
    2009Accumulated OCI at beginning of year:Long-term investments, net of tax of $1,896, $nil
    
    $
    17,763
    
    
    $
    (8,635
    )Other long-term investments, net of tax of $nil, $nil
    
    
    (27,448
    )
    
    
    Currency translation adjustment, net of tax of $nil, $nil
    
    
    (6,015
    )
    
    
    (18,256
    )Noncontrolling interests
    
    
    1,122
    
    
    
    2,669$
    (14,578
    )
    
    $
    (24,222
    )Other comprehensive income (loss) for the year:Changes in fair value of long-term investments
    
    $
    39,801
    
    
    $
    29,718Changes in fair value of other long-term investments
    
    
    (9,732
    )
    
    
    (27,448
    )Currency translation adjustments
    
    
    29,054
    
    
    
    12,241Noncontrolling interests (Note 20)
    
    
    (7,145
    )
    
    
    (1,547
    )Less: reclassification adjustments for (gains) losses recorded in earnings:Investments:Other than temporary impairment charges
    
    
    3
    
    
    
    Gains realized on sale
    
    
    
    
    
    
    (1,424
    )Other comprehensive income, before tax
    
    
    51,981
    
    
    
    11,540Income tax expense related to OCI
    
    
    (4,328
    )
    
    
    (1,896
    )Other comprehensive income, net of tax
    
    $
    47,653
    
    
    $
    9,644Accumulated OCI at end of year:Long-term investments, net of tax of $6,224, $1,896
    
    $
    53,239
    
    
    $
    17,763Other long-term investments, net of tax of $nil, $nil
    
    
    (37,180
    )
    
    
    (27,448
    )Currency translation adjustment, net of tax of $nil, $nil
    
    
    23,039
    
    
    
    (6,015
    )Noncontrolling interests (Note 20)
    
    
    (6,023
    )
    
    
    1,122$
    33,075
    
    
    $
    (14,578
    )




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 20.
    
    NONCONTROLLING INTERESTS
 At December 31, 2010 there were noncontrolling interests in SouthGobi, Ivanhoe Australia and
Oyu Tolgoi:
 Noncontrolling InterestsIvanhoe
    
    
    Oyu TolgoiSouthGobi
    
    
    Australia
    
    
    (a)
    
    
    TotalBalance, December 31, 2008
    
    $
    17,623
    
    
    $
    3,069
    
    
    $
    
    
    
    $
    20,692Noncontrolling interests share of loss
    
    
    (19,515
    )
    
    
    (6,020
    )
    
    
    
    
    
    
    (25,535
    )Noncontrolling interests share of other
comprehensive loss
    
    
    
    
    
    
    1,547
    
    
    
    
    
    
    
    1,547Changes in noncontrolling interests arising
from changes in ownership interests
    
    
    1,258
    
    
    
    (122
    )
    
    
    
    
    
    
    1,136Derivative contract
    
    
    2,594
    
    
    
    
    
    
    
    
    
    
    
    2,594Purchase Metals division from subsidiary
    
    
    518
    
    
    
    
    
    
    
    
    
    
    
    518Balance, December 31, 2009
    
    $
    2,478
    
    
    $
    (1,526
    )
    
    $
    
    
    
    $
    952Noncontrolling interests share of loss
    
    
    (33,193
    )
    
    
    (17,056
    )
    
    
    (16,703
    )
    
    
    (66,952
    )Noncontrolling interests share of other
comprehensive income
    
    
    11,868
    
    
    
    7,918
    
    
    
    1,382
    
    
    
    21,168Changes in noncontrolling interests arising
from changes in ownership interests
    
    
    305,766
    
    
    
    79,756
    
    
    
    (338,080
    )
    
    
    47,442Balance, December 31, 2010
    
    $
    286,919
    
    
    $
    69,092
    
    
    $
    (353,401
    )
    
    $
    2,610
 
 (a)
    
    The Oyu Tolgoi Shareholders Agreement, which was signed and approved on October 6,
2009, established the basis upon which the Mongolian Government would, in accordance with
Mongolian law, through its wholly-state-owned company, Erdenes MGL LLC, obtain and hold
an initial 34% equity interest in Oyu Tolgoi and provides for the respective rights and
obligations of the shareholders of Oyu Tolgoi. On May 31, 2010, pursuant to the terms of the Oyu Tolgoi Shareholders Agreement, the
Mongolian Government obtained a 34% interest in Oyu Tolgoi upon the receipt of fully
registered shares of Oyu Tolgoi. In accordance with the ASC guidance for consolidation
accounting, the Company continued to consolidate its remaining 66% interest in Oyu
Tolgoi. No value was assigned to the consideration received by the Company as the fair
value of neither the consideration received nor the asset relinquished was determinable
within reasonable limits. Accordingly, on May 31, 2010, the Company recognized a deficit
noncontrolling interest balance of $338.1 million associated with the noncontrolling
interests share of the carrying amount of Oyu Tolgois net deficit. Accumulated other
comprehensive income and additional paid-in capital were adjusted by $14.0 million and
$324.1 million, respectively.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 21.
    
    CASH FLOW INFORMATION
 (a)
    
    Reconciliation of net loss to net cash flow used in operating activities
 Year Ended December 31,2010
    
    
    2009Net loss
    
    $
    (278,431
    )
    
    $
    (305,706
    )(Income) loss from discontinued operations
    
    
    (6,585
    )
    
    
    3,645Items not involving use of cashStock-based compensation
    
    
    37,203
    
    
    
    35,835Accretion expense
    
    
    11,908
    
    
    
    14,486General and administrative expenses
    
    
    6,525
    
    
    
    1,978Depreciation
    
    
    15,402
    
    
    
    10,140Gain on sale of other mineral property rights
    
    
    
    
    
    
    (3,000
    )Write-down of carrying values of property, plant and equipment
    
    
    2,338
    
    
    
    1,243Accrued interest income
    
    
    (10,600
    )
    
    
    (600
    )Accrued interest expense
    
    
    9,664
    
    
    
    20,885Unrealized gain on long-term investments
    
    
    (360
    )
    
    
    (1,099
    )Unrealized gains on other long-term investments
    
    
    (4,508
    )
    
    
    (438
    )Realized gain on redemption of other long-term investments
    
    
    (151
    )
    
    
    (1,458
    )Change in fair value of derivative
    
    
    (135,680
    )
    
    
    Change in fair value of embedded derivatives
    
    
    (100,637
    )
    
    
    44,980Loss on conversion of convertible debenture
    
    
    154,316
    
    
    
    Transaction costs on issuance of convertible debenture
    
    
    
    
    
    
    9,399Unrealized foreign exchange gains
    
    
    (9,498
    )
    
    
    (33,394
    )Share of loss of significantly influenced investees
    
    
    42,718
    
    
    
    45,898Write-down of carrying value of inventory
    
    
    14,729
    
    
    
    Gain on sale of long-term investments
    
    
    
    
    
    
    (1,424
    )Write-down of carrying value of long-term investments
    
    
    485
    
    
    
    Deferred income taxes
    
    
    (15,124
    )
    
    
    (14,520
    )Bonus shares
    
    
    27,752
    
    
    
    1,622Net change in non-cash operating working capital items:Increase in:Accounts receivable
    
    
    (20,999
    )
    
    
    (875
    )Inventories
    
    
    (32,425
    )
    
    
    (2,301
    )Prepaid expenses
    
    
    (6,982
    )
    
    
    (4,816
    )Increase in:Accounts payable and accrued liabilities
    
    
    4,664
    
    
    
    15,488Cash used in operating activities of continuing operations
    
    
    (294,276
    )
    
    
    (164,032
    )Cash used in operating activities of discontinued operations
    
    
    
    
    
    
    (19,227
    )Cash used in operating activities
    
    $
    (294,276
    )
    
    $
    (183,259
    )




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 21.
    
    CASH FLOW INFORMATION (Continued)
 (b)
    
    Supplementary information regarding other non-cash transactionsThe non-cash investing and financing activities relating to continuing operations
not already disclosed in the Consolidated Statements of Cash Flows were as follows:
 Years Ended December 31,2010
    
    
    2009Investing activities:Acquisition of property, plant and equipment (i)
    
    $
    (195,357
    )
    
    $
    Financing activites:Conversion of convertible credit facility (Note 15 (a))
    
    
    (400,832
    )
    
    
    Partial conversion of convertible debenture (Note 15 (b))
    
    
    (349,079
    )
    
    
    $
    (945,268
    )
    
    $
    
 (i)
    
    In March 2010, the Company and Rio Tinto completed an agreement whereby
the Company issued 15.0 million common shares to Rio Tinto for net proceeds of
$241.1 million (Cdn$244.7 million) (Note 18 (b)). The Company used $195.4 million
of the proceeds to purchase from Rio Tinto key mining and milling equipment to be
installed during the construction of the Oyu Tolgoi Project. (c)
    
    Other supplementary information
 Years Ended December 31,2010
    
    
    2009Interest paid
    
    $
    23,163
    
    
    $
    717Income taxes paid
    
    $
    400
    
    
    $
    1,055




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 22.
    
    RELATED PARTY TRANSACTIONS
 The following tables summarize transactions with related parties which were primarily incurred
on a cost-recovery basis with a company affiliated with Ivanhoe Mines, companies related by
way of directors or shareholders in common or a legal firm which an officer of a subsidiary of
the Company is a partner of. The tables summarize related party transactions by related party
and by type:
 Years Ended December 31,2010
    
    
    2009Rio Tinto plc (a)
    
    $
    23,836
    
    
    $
    8,588Global Mining Management Corporation (b)
    
    
    13,627
    
    
    
    8,982Ivanhoe Capital Aviation LLC (c)
    
    
    6,465
    
    
    
    5,940Fognani & Faught, PLLC (d)
    
    
    476
    
    
    
    60Ivanhoe Capital Corporation (e)
    
    
    434
    
    
    
    211Ivanhoe Capital Services Ltd. (f)
    
    
    752
    
    
    
    618$
    45,590
    
    
    $
    24,399
 Years Ended December 31,2010
    
    
    2009Exploration and development
    
    $
    23,836
    
    
    $
    8,588Salaries and benefits
    
    
    11,437
    
    
    
    7,379Travel (including aircraft rental)
    
    
    6,465
    
    
    
    5,940Office and administrative
    
    
    3,376
    
    
    
    2,432Legal
    
    
    476
    
    
    
    60$
    45,590
    
    
    $
    24,399
 The above noted transactions were in the normal course of operations and were measured at the
exchange amount, which is the amount of consideration established and agreed to by the related
parties.
 Accounts receivable and accounts payable at December 31, 2010, included $2.1 million and $8.7
million, respectively (December 31, 2009  $0.7 million and $4.8 million, respectively), which
were due from/to a company affiliated with Ivanhoe Mines, companies related by way of
directors or shareholders in common, or a legal firm which an officer of a subsidiary of the
Company is a partner of.
 (a)
    
    In 2010 and 2009, Rio Tinto completed certain equity transactions with the Company
(Note 18 (b)), which increased Rio Tintos equity ownership in the Company to 40.3%
(December 31, 2009  19.7%). Rio Tinto provides services for the Oyu Tolgoi Project on
a cost-recovery basis. At December 31, 2010, $14.0 million (December 31, 2009  $nil) in
payables to Rio Tinto have been classified as non-current. Payment of these amounts have
been deferred until Ivanhoe Mines reaches certain production milestones at the Oyu Tolgoi
Project.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 22.
    
    RELATED PARTY TRANSACTIONS (Continued)
 (b)
    
    Global Mining Management Corporation (Global) is a private company based in
Vancouver owned equally by seven companies, one of which is Ivanhoe Mines. Global has a
director in common with the Company. Global provides administration, accounting, and
other office services to the Company on a cost-recovery basis.(c)
    
    Ivanhoe Capital Aviation LLC (Aviation) is a private company 100% owned by the
Companys Chairman and Chief Executive Officer. Aviation operates an aircraft which is
rented by the Company on a cost-recovery basis.(d)
    
    An officer of a subsidiary of the Company is a partner with Fognani & Faught, PLLC,
a legal firm which provides legal services to Ivanhoe Mines.(e)
    
    Ivanhoe Capital Corporation (ICC) is a private company 100% owned by the
Companys Chairman and Chief Executive Officer. ICC provides administration and other
office services in London on a cost-recovery basis.(f)
    
    Ivanhoe Capital Services Ltd. (ICS) is a private company 100% owned by the
Companys Chairman and Chief Executive Officer. ICS provides management services out of
Singapore and London on a cost-recovery basis.
 Ivanplats is a private company 38% owned by the Companys Chairman and Chief Executive
Officer. During 2010, Ivanhoe Mines purchased common shares of Ivanplats (Note 9 (e)(i)). In
January 2011, Ivanhoe Mines sold 1.4 million common shares of Ivanplats for proceeds of $14.0
million.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 23.
    
    SEGMENT DISCLOSURES
 Year Ended December 31, 2010Development
    
    
    Exploration
    
    
    Coal
    
    
    Corporate
    
    
    ConsolidatedREVENUE
    
    $
    
    
    
    $
    
    
    
    $
    79,777
    
    
    $
    
    
    
    $
    79,777COST OF SALESProduction and delivery
    
    
    
    
    
    
    
    
    
    
    (66,738
    )
    
    
    
    
    
    
    (66,738
    )Depreciation and depletion
    
    
    
    
    
    
    
    
    
    
    (13,306
    )
    
    
    
    
    
    
    (13,306
    )Write-down of carrying value of inventory
    
    
    
    
    
    
    
    
    
    
    (14,729
    )
    
    
    
    
    
    
    (14,729
    )COST OF SALES
    
    
    
    
    
    
    
    
    
    
    (94,773
    )
    
    
    
    
    
    
    (94,773
    )EXPENSESExploration
    
    
    (83,358
    )
    
    
    (86,093
    )
    
    
    (49,175
    )
    
    
    
    
    
    
    (218,626
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (84,427
    )
    
    
    (84,427
    )Depreciation
    
    
    (645
    )
    
    
    (1,226
    )
    
    
    (79
    )
    
    
    (146
    )
    
    
    (2,096
    )Accretion of asset retirement obligations
    
    
    (89
    )
    
    
    
    
    
    
    (110
    )
    
    
    
    
    
    
    (199
    )Gain on sale of other mineral property rights
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Write-down of carrying values of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    (2,338
    )
    
    
    
    
    
    
    (2,338
    )TOTAL EXPENSES
    
    
    (84,092
    )
    
    
    (87,319
    )
    
    
    (146,475
    )
    
    
    (84,573
    )
    
    
    (402,459
    )OPERATING LOSS
    
    
    (84,092
    )
    
    
    (87,319
    )
    
    
    (66,698
    )
    
    
    (84,573
    )
    
    
    (322,682
    )OTHER INCOME (EXPENSES)Interest income
    
    
    3,731
    
    
    
    3,928
    
    
    
    2,441
    
    
    
    6,467
    
    
    
    16,567Interest expense
    
    
    
    
    
    
    
    
    
    
    (24,125
    )
    
    
    (8,702
    )
    
    
    (32,827
    )Accretion of convertible credit facilities
    
    
    
    
    
    
    
    
    
    
    (59
    )
    
    
    (11,650
    )
    
    
    (11,709
    )Foreign exchange gains
    
    
    995
    
    
    
    606
    
    
    
    1,611
    
    
    
    5,488
    
    
    
    8,700Unrealized gains on long-term investments
    
    
    
    
    
    
    
    
    
    
    360
    
    
    
    
    
    
    
    360Unrealized gains on other long-term investments
    
    
    
    
    
    
    
    
    
    
    510
    
    
    
    3,998
    
    
    
    4,508Realized gain on redemption of other long-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    151
    
    
    
    151Change in fair value of derivative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135,680
    
    
    
    135,680Change in fair value of embedded derivatives
    
    
    
    
    
    
    
    
    
    
    100,637
    
    
    
    
    
    
    
    100,637Loss on conversion of convertible credit facility
    
    
    
    
    
    
    
    
    
    
    (154,316
    )
    
    
    
    
    
    
    (154,316
    )Transaction costs on issuance of convertible debenture
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Write-down of carrying value of long-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (485
    )
    
    
    (485
    )Gain on sale of long-term investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    SouthGobi Hong Kong listing fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    LOSS BEFORE INCOME TAXES AND OTHER ITEMS
    
    
    (79,366
    )
    
    
    (82,785
    )
    
    
    (139,639
    )
    
    
    46,374
    
    
    
    (255,416
    )Recovery (provision) for income taxes
    
    
    89
    
    
    
    (1,157
    )
    
    
    11,919
    
    
    
    2,267
    
    
    
    13,118Share of loss of significantly influenced investees
    
    
    
    
    
    
    (846
    )
    
    
    
    
    
    
    (41,872
    )
    
    
    (42,718
    )NET LOSS FROM CONTINUING OPERATIONS
    
    
    (79,277
    )
    
    
    (84,788
    )
    
    
    (127,720
    )
    
    
    6,769
    
    
    
    (285,016
    )INCOME FROM DISCONTINUED OPERATIONS
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,585
    
    
    
    6,585NET LOSS
    
    
    (79,277
    )
    
    
    (84,788
    )
    
    
    (127,720
    )
    
    
    13,354
    
    
    
    (278,431
    )NET LOSS ATTRIBUTABLE TO NONCONTROLLING
INTERESTS
    
    
    16,703
    
    
    
    17,056
    
    
    
    33,193
    
    
    
    
    
    
    
    66,952NET LOSS ATTRIBUTABLE TO IVANHOE MINES LTD.
    
    $
    (62,574
    )
    
    $
    (67,732
    )
    
    $
    (94,527
    )
    
    $
    13,354
    
    
    $
    (211,479
    )CAPITAL EXPENDITURES
    
    $
    479,575
    
    
    $
    19,965
    
    
    $
    175,566
    
    
    $
    92
    
    
    $
    675,198TOTAL ASSETS
    
    $
    1,404,329
    
    
    $
    318,611
    
    
    $
    960,204
    
    
    $
    535,330
    
    
    $
    3,218,474




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 23.
    
    SEGMENT DISCLOSURES (Continued)
 Year Ended December 31, 2009Development
    
    
    Exploration
    
    
    Coal
    
    
    Corporate
    
    
    ConsolidatedREVENUE
    
    $
    
    
    
    $
    
    
    
    $
    36,038
    
    
    $
    
    
    
    $
    36,038COST OF SALESProduction and delivery
    
    
    
    
    
    
    
    
    
    
    (23,611
    )
    
    
    
    
    
    
    (23,611
    )Depreciation and depletion
    
    
    
    
    
    
    
    
    
    
    (5,814
    )
    
    
    
    
    
    
    (5,814
    )Write-down of carrying value of inventory
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    COST OF SALES
    
    
    
    
    
    
    
    
    
    
    (29,425
    )
    
    
    
    
    
    
    (29,425
    )EXPENSESExploration
    
    
    (107,381
    )
    
    
    (48,182
    )
    
    
    (21,499
    )
    
    
    
    
    
    
    (177,062
    )General and administrative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,750
    )
    
    
    (45,750
    )Depreciation
    
    
    (2,865
    )
    
    
    (1,321
    )
    
    
    (20
    )
    
    
    (120
    )
    
    
    (4,326
    )Accretion of asset retirement obligations
    
    
    (88
    )
    
    
    
    
    
    
    (53
    )
    
    
    
    
    
    
    (141
    )Gain on sale of other mineral property rights
    
    
    
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    3,000Write-down of carrying values of property, plant and equipment
    
    
    
    
    
    
    (266
    )
    
    
    
    
    
    
    (977
    )
    
    
    (1,243
    )TOTAL EXPENSES
    
    
    (110,334
    )
    
    
    (46,769
    )
    
    
    (50,997
    )
    
    
    (46,847
    )
    
    
    (254,947
    )OPERATING LOSS
    
    
    (110,334
    )
    
    
    (46,769
    )
    
    
    (14,959
    )
    
    
    (46,847
    )
    
    
    (218,909
    )OTHER INCOME (EXPENSES)Interest income
    
    
    622
    
    
    
    1,199
    
    
    
    77
    
    
    
    1,689
    
    
    
    3,587Interest expense
    
    
    
    
    
    
    
    
    
    
    (4,721
    )
    
    
    (16,880
    )
    
    
    (21,601
    )Accretion of convertible credit facilities
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    (14,335
    )
    
    
    (14,345
    )Foreign exchange gains
    
    
    (233
    )
    
    
    (55
    )
    
    
    (1,070
    )
    
    
    35,428
    
    
    
    34,070Unrealized gains on long-term investments
    
    
    
    
    
    
    
    
    
    
    1,099
    
    
    
    
    
    
    
    1,099Unrealized gains on other long-term investments
    
    
    
    
    
    
    
    
    
    
    (255
    )
    
    
    693
    
    
    
    438Realized gain on redemption of other long-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,458
    
    
    
    1,458Change in fair value of derivative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in fair value of embedded derivatives
    
    
    
    
    
    
    
    
    
    
    (44,980
    )
    
    
    
    
    
    
    (44,980
    )Loss on conversion of convertible credit facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Transaction costs on issuance of convertible debenture
    
    
    
    
    
    
    
    
    
    
    (9,399
    )
    
    
    
    
    
    
    (9,399
    )Write-down of carrying value of long-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on sale of long-term investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,424
    
    
    
    1,424SouthGobi Hong Kong listing fees
    
    
    
    
    
    
    
    
    
    
    (2,470
    )
    
    
    
    
    
    
    (2,470
    )LOSS BEFORE INCOME TAXES AND OTHER ITEMS
    
    
    (109,945
    )
    
    
    (45,625
    )
    
    
    (76,688
    )
    
    
    (37,370
    )
    
    
    (269,628
    )Recovery (provision) for income taxes
    
    
    (27
    )
    
    
    1,254
    
    
    
    6,337
    
    
    
    5,901
    
    
    
    13,465Share of loss of significantly influenced investees
    
    
    
    
    
    
    (1,191
    )
    
    
    
    
    
    
    (44,707
    )
    
    
    (45,898
    )NET LOSS FROM CONTINUING OPERATIONS
    
    
    (109,972
    )
    
    
    (45,562
    )
    
    
    (70,351
    )
    
    
    (76,176
    )
    
    
    (302,061
    )INCOME FROM DISCONTINUED OPERATIONS
    
    
    
    
    
    
    
    
    
    
    (30,461
    )
    
    
    26,816
    
    
    
    (3,645
    )NET LOSS
    
    
    (109,972
    )
    
    
    (45,562
    )
    
    
    (100,812
    )
    
    
    (49,360
    )
    
    
    (305,706
    )NET LOSS ATTRIBUTABLE TO NONCONTROLLING
INTERESTS
    
    
    
    
    
    
    6,019
    
    
    
    19,516
    
    
    
    
    
    
    
    25,535NET LOSS ATTRIBUTABLE TO IVANHOE MINES LTD.
    
    $
    (109,972
    )
    
    $
    (39,543
    )
    
    $
    (81,296
    )
    
    $
    (49,360
    )
    
    $
    (280,171
    )CAPITAL EXPENDITURES
    
    $
    1,315
    
    
    $
    1,446
    
    
    $
    36,175
    
    
    $
    39
    
    
    $
    38,975TOTAL ASSETS
    
    $
    160,613
    
    
    $
    110,899
    
    
    $
    576,568
    
    
    $
    686,601
    
    
    $
    1,534,681




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 23.
    
    SEGMENT DISCLOSURES (Continued)
 December 31,2010
    
    
    2009Property, plant and equipment at the end of the year:Mongolia
    
    $
    1,259,764
    
    
    $
    189,837Australia
    
    
    71,010
    
    
    
    28,444Canada
    
    
    935
    
    
    
    168Other
    
    
    939
    
    
    
    332$
    1,332,648
    
    
    $
    218,781
 24.
    
    COMMITMENTS AND CONTINGENCIES
 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
drilling, engineering, equipment rentals and other arrangements as follows:
 2011
    
    $
    864,8482012
    
    
    210,7402013
    
    
    4,0292014
    
    
    1,2892015 onwards
    
    
    620$
    1,081,526
 Due to the size, complexity and nature of the Companys operations, various legal and tax
matters arise in the ordinary course of business. The Company accrues for such items when a
liability is both probable and the amount can be reasonably estimated. In the opinion of
management, these matters will not have a material effect on the consolidated financial
statements of the Company.
 25.
    
    FAIR VALUE ACCOUNTING
 The ASC establishes a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities and the lowest priority to
unobservable inputs. The three levels of the fair value hierarchy are as follows:
 Level 1:
    
    Quoted prices in active markets for identical assets or liabilities
that the reporting entity has the ability to access at the measurement date.Level 2:
    
    Quoted prices in markets that are not active, or inputs that are
observable, either directly or indirectly, for substantially the full term of the
asset or liability.Level 3:
    
    Prices or valuation techniques that require inputs that are both
significant to the fair value measurement and unobservable.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 25.
    
    FAIR VALUE ACCOUNTING (Continued)
 The following table sets forth the Companys assets and liabilities measured at fair value on
a recurring basis by level within the fair value hierarchy. Assets and liabilities are
classified in their entirety based on the lowest level of input that is significant to the
fair value measurement.
 Fair Value at December 31, 2010Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Short-term investments
    
    $
    98,373
    
    
    $
    98,373
    
    
    $
    
    
    
    $
    Long-term investments
    
    
    113,666
    
    
    
    113,458
    
    
    
    208
    
    
    
    Other long-term investments
    
    
    191,816
    
    
    
    45,173
    
    
    
    
    
    
    
    146,643$
    403,855
    
    
    $
    257,004
    
    
    $
    208
    
    
    $
    146,643Liabilities:Rights offering derivative liability
    
    $
    766,238
    
    
    $
    766,238
    
    
    
    
    
    
    $
    Embedded derivative liability
    
    
    154,877
    
    
    
    
    
    
    
    154,877
    
    
    
    $
    921,115
    
    
    $
    766,238
    
    
    $
    154,877
    
    
    $
    
 Fair Value at December 31, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Short-term investments
    
    $
    14,999
    
    
    $
    14,999
    
    
    $
    
    
    
    $
    Long-term investments
    
    
    53,180
    
    
    
    49,119
    
    
    
    4,061
    
    
    
    Other long-term investments
    
    
    145,035
    
    
    
    47,194
    
    
    
    
    
    
    
    97,841$
    213,214
    
    
    $
    111,312
    
    
    $
    4,061
    
    
    $
    97,841Liabilities:Rights offering derivative liability
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Embedded derivative liability
    
    
    358,272
    
    
    
    
    
    
    
    358,272
    
    
    
    $
    358,272
    
    
    $
    
    
    
    $
    358,272
    
    
    $
    
 The Companys short-term and long-term investments are classified within Level 1 and 2 of the
fair value hierarchy as they are valued using quoted market prices of certain investments, as
well as quoted prices for similar investments.
 The Companys other long-term investments are classified within Level 1 and 3 of the fair
value hierarchy and consist of Long-Term Notes, T-Bill, first tax prepayment and Money Market
investments.
 The Companys rights offering derivative liability is classified within Level 1 of the fair
value hierarchy as it is valued using quoted market prices for the rights.




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 25.
    
    FAIR VALUE ACCOUNTING (Continued)
 The Companys embedded derivative liability, included within convertible credit facilities
(Note 15 (b)), is classified within Level 2 of the fair value hierarchy as it is determined
using a Monte Carlo simulation valuation model, which uses readily observable market inputs.
 The table below sets forth a summary of changes in the fair value of the Companys Level 3
financial assets (other long-term investments) for the year ended December 31, 2010.
 Long-Term
    
    
    
    
    
    
    TaxNotes
    
    
    T-Bills
    
    
    Prepayment
    
    
    TotalsBalance, December 31, 2008
    
    $
    22,301
    
    
    $
    
    
    
    $
    
    
    
    $
    22,301Additions
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    100,000Accrued interest
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    600Foreign exchange gains
    
    
    2,473
    
    
    
    
    
    
    
    
    
    
    
    2,473Fair value redeemed
    
    
    (778
    )
    
    
    
    
    
    
    
    
    
    
    (778
    )Unrealized gain (loss)
    
    
    693
    
    
    
    (27,448
    )
    
    
    
    
    
    
    (26,755
    )Balance, December 31, 2009
    
    $
    24,689
    
    
    $
    73,152
    
    
    $
    
    
    
    $
    97,841Additions
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    50,000Accrued interest
    
    
    
    
    
    
    2,818
    
    
    
    645
    
    
    
    3,463Foreign exchange gains
    
    
    1,180
    
    
    
    
    
    
    
    
    
    
    
    1,180Fair value redeemed
    
    
    (104
    )
    
    
    
    
    
    
    
    
    
    
    (104
    )Unrealized gain (loss)
    
    
    3,998
    
    
    
    4,424
    
    
    
    (14,159
    )
    
    
    (5,737
    )Balance, December 31, 2010
    
    $
    29,763
    
    
    $
    80,394
    
    
    $
    36,486
    
    
    $
    146,643
 26.
    
    DISCLOSURES REGARDING FINANCIAL INSTRUMENTS
 (a)
    
    The estimated fair value of Ivanhoe Mines financial instruments was as follows:
 December 31,2010
    
    
    2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueCash and cash equivalents
    
    $
    1,264,031
    
    
    $
    1,264,031
    
    
    $
    965,823
    
    
    $
    965,823Short-term investments
    
    
    98,373
    
    
    
    98,373
    
    
    
    14,999
    
    
    
    14,999Accounts receivable
    
    
    65,741
    
    
    
    65,741
    
    
    
    39,349
    
    
    
    39,349Long-term investments
    
    
    151,191
    
    
    
    280,181
    
    
    
    93,511
    
    
    
    154,976Other long-term investments
    
    
    191,816
    
    
    
    191,816
    
    
    
    145,035
    
    
    
    145,035Accounts payable and
accrued liabilities
    
    
    260,528
    
    
    
    260,528
    
    
    
    55,128
    
    
    
    55,128Amounts due under credit facilities
    
    
    54,695
    
    
    
    54,695
    
    
    
    55,523
    
    
    
    55,523Rights offering derivative liability
    
    
    766,238
    
    
    
    766,238
    
    
    
    
    
    
    
    Convertible credit facilities
    
    
    254,596
    
    
    
    254,596
    
    
    
    928,618
    
    
    
    940,380




---



##### 



IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
 26.
    
    DISCLOSURES REGARDING FINANCIAL INSTRUMENTS (Continued)
 (a)
    
    (Continued)The fair value of Ivanhoe Mines long-term investments was determined by reference to
published market quotations, which may not be reflective of future values.The fair value of Ivanhoe Mines other long-term investments, consisting of the Long-Term
Notes, T-Bill, first tax prepayment and Money Market investments, was determined by
considering the best available data regarding market conditions for such investments,
which may not be reflective of future values.The fair value of the rights offering derivative liability was determined by reference to
published market quotations, which may not be reflective of future value.The fair value of the Rio Tinto convertible credit facility was estimated to approximate
the balance of principal and interest outstanding, due primarily to the short-term
maturity of this facility.The fair value of the CIC convertible debenture was estimated to approximate the
aggregate carrying amount of the CIC convertible credit facility liability and interest
payable. This aggregate carrying amount includes the estimated fair value of the
embedded derivative liability which was determined using a Monte Carlo simulation
valuation model.The fair values of Ivanhoe Mines remaining financial instruments were estimated to
approximate their carrying values, 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 Mongolia and Australia.
Ivanhoe Mines does not mitigate the balance of this risk in light of the credit
worthiness of its major debtors.(c)
    
    Ivanhoe Mines is exposed to interest rate risk with respect to the variable rates
of interest incurred on the amounts due under credit facilities (Note 14). Interest rate
risk is concentrated in Canada. Ivanhoe Mines does not mitigate the balance of this
risk.