##### 



INTRODUCTION
   www.sedar.com
 OVERVIEW
 MONGOLIA
 OYU TOLGOI PROJECT
 Ivanhoe Mines forms a strategic partnership with Rio Tinto
     1




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##### 



Economics of high-grade starter mine at Hugo North under study
      §
    
    a reduction in the initial capital costs and technical risks associated with a large,
underground block-cave mining operation;§
    
    enhanced overall value of the Oyu Tolgoi Project by enabling mining of high-grade copper
and gold mineralization earlier than previously estimated;§
    
    generation of a significant source of near-term cash-flow that could be used to fund
development of the larger Hugo North block-cave mining operation; and,§
    
    an expected reduction of up to one year in the time required to complete the underground
exploration and development program for the starter mine as a result of expected shorter
and shallower underground drifting distances than previously projected by the 2005
Integrated Development Plan (2005 IDP).
  2




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##### 



Oyu Tolgoi updated Integrated Development Plan to be released in 2007
   
    
    The first scenario combines the open-pit reserves, as previously determined, with
high-grade, sub-level-caved material at a pre-feasibility level from the Hugo North
Deposit.
    
    The second scenario, a sensitivity analysis of the first scenario, envisages a
high-grade starter block cave instead of the sub-level cave as the initial underground
development, to be followed by the larger block caves at the Hugo North Deposit and also at
the Hugo South Deposit, as outlined in the 2005 IDP.
   Oyu Tolgoi development engineering advanced to 30% completion during 2006
   3




---



##### 



Oyu Tolgoi resources expanded with ongoing drilling program
     4




---



##### 



MONGOLIA
 COAL PROJECTS
 Ivanhoe Mines Coal Division being merged with Asia Gold
   Mine planning underway at Nariin Sukhait coal deposit
     5




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##### 



Exploration continuing at Tsagaan Tolgoi coal deposit
   2007 exploration program to target new coal licences near Tavan Tolgoi coal deposit
  AUSTRALIA
 Cloncurry IOCG Project expanding exploration
    6




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##### 



KAZAKHSTAN
 Bakyrchik Gold Project
     CHINA
 Jinshan Gold Mines planning to start production in 2007
    7




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##### 



MYANMAR
 Monywa Copper Project Joint Venture
     EXECUTIVE CHANGES
 
    
    During the third quarter of 2006, David Woodall was appointed President of the Ivanhoe
Mines gold division. His responsibilities include overseeing the advancement of the Companys
gold exploration and mine development projects, which include the Bakyrchik gold mine
development project in Kazakhstan.Mr. Woodall has more than 21 years of professional experience in mining operations. Prior to
joining Ivanhoe Mines, he acquired extensive mine management experience at underground and
open-pit mines in Canada, Australia, Fiji and China. Among numerous mine operation assignments,
he worked as Mine General Manager for Placer Dome at the Musselwhite gold mine in Ontario,
Canada, the Kanowna Belle gold mine in Western Australia and the Osborne copper and gold mine in
Australia. He also worked in senior mine management positions with Robe River, Sino Gold and WMC
Resources.
    
    In the first quarter of 2007, Peter Reeve was appointed Chief Executive Officer of Ivanhoe
Australia Pty. Limited, a wholly-owned subsidiary company. The appointment is a significant
step in the development of Ivanhoe Mines Australian mineral exploration and development
projects, particularly the discoveries of iron oxide copper gold, with associated uranium, at
the Cloncurry project in the Mount Isa District of northwestern Queensland.
 8




---



##### 




    
    Also in the first quarter of 2007, Edward Flood stepped down as Deputy Chairman of Ivanhoe
Mines to pursue personal interests. Mr. Flood will continue to serve as a member of the Board
of Directors.
 FINANCIAL RESULTS
  9




---



##### 



INDEX
  1.
    
    Selected Annual Financial Information2.
    
    Review of Operations
 A.
    
    Exploration ActivitiesB.
    
    Myanmar Assets Held for SaleC.
    
    Discontinued OperationsD.
    
    Administrative and Other Expenses
 3.
    
    Selected Quarterly Data4.
    
    Fourth Quarter5.
    
    Liquidity and Capital Resources6.
    
    Share Capital7.
    
    Outlook8.
    
    Off-Balance-Sheet Arrangements9.
    
    Contractual Obligations10.
    
    Changes in Accounting Policies11.
    
    Critical Accounting Estimates12.
    
    Recent Accounting Pronouncements13.
    
    Risks and Uncertainties14.
    
    Related-Party Transactions15.
    
    Disclosure Controls and Procedures16.
    
    Managements Report on Internal Control over Financial Reporting17.
    
    Qualified Persons18.
    
    Oversight Role of the Audit Committee19.
    
    Cautionary Statements20.
    
    Forward-Looking Statements21.
    
    Managements Report to Shareholders
 10




---



##### 



SELECTED ANNUAL FINANCIAL INFORMATION
  ($ in millions of U.S. dollars, except per share information)
 Years ended December 31,2006
    
    2005
    
    2004Exploration expenses
    
    $
    (213.0
    )
    
    $
    (133.3
    )
    
    $
    (98.2
    )General and administrative
    
    
    (28.2
    )
    
    
    (17.7
    )
    
    
    (22.2
    )Share of income from investment held for sale
    
    
    18.5
    
    
    
    23.0
    
    
    
    21.4Foreign exchange gains
    
    
    0.4
    
    
    
    7.8
    
    
    
    4.6Net (loss) from continuing operations
    
    $
    (218.3
    )
    
    $
    (125.7
    )
    
    $
    (99.0
    )Net income from discontinued operations
    
    
    19.6
    
    
    
    35.9
    
    
    
    4.5Net loss
    
    $
    (198.7
    )
    
    $
    (89.8
    )
    
    $
    (94.5
    )Net (loss) per share from continuing operations
    
    $
    (0.65
    )
    
    $
    (0.41
    )
    
    $
    (0.35
    )Net income per share from discontinued operations
    
    $
    0.06
    
    
    $
    0.12
    
    
    $
    0.01Net loss per share
    
    $
    (0.59
    )
    
    $
    (0.29
    )
    
    $
    (0.34
    )Total assets
    
    $
    703.2
    
    
    $
    396.8
    
    
    $
    376.3
 11




---



##### 



REVIEW OF OPERATIONS
  A. EXPLORATION ACTIVITIES
  Years ended December 31,2006
    
    2005
    
    2004Exploration expense ($ in millions)
    
    $
    213.0
    
    
    $
    133.3
    
    
    $
    98.2Percentage allocationMongolia
    
    
    93.1
    %
    
    
    92.0
    %
    
    
    86.9
    %China
    
    
    4.3
    %
    
    
    3.3
    %
    
    
    4.1
    %Australia
    
    
    1.0
    %
    
    
    1.1
    %
    
    
    4.9
    %Bulgaria
    
    
    0.6
    %
    
    
    1.8
    %
    
    
    1.0
    %Myanmar
    
    
    0.5
    %
    
    
    1.0
    %
    
    
    2.3
    %Other
    
    
    0.5
    %
    
    
    0.8
    %
    
    
    0.8
    %100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    12




---



##### 



MONGOLIA EXPLORATION EXPENSES
 2006
    
    
    % of Total($ in millions)Oyu TolgoiConcentrator and Infrastructure Engineering
    
    $
    28.9
    
    
    
    15
    %Site Construction
    
    
    53.2
    
    
    
    27
    %Shaft No. 1 Sinking
    
    
    35.5
    
    
    
    18
    %Exploration
    
    
    14.2
    
    
    
    7
    %Owners Costs (includes non-cash stock-based compensation)
    
    
    29.4
    
    
    
    15
    %161.2Coal Division
    
    
    10.1
    
    
    
    5
    %Other Mongolia Exploration (including Asia Gold)
    
    
    12.3
    
    
    
    6
    %UB Office
    
    
    14.6
    
    
    
    7
    %$
    198.2
    
    
    
    100
    %
  MONGOLIA
 OYU TOLGOI
  Ivanhoe Mines forms a strategic partnership with Rio Tinto
   13




---



##### 



Oyu Tolgoi development engineering advanced to 30% completion during 2006
       14




---



##### 



Economics of high-grade starter mine at Hugo North under study
      §
    
    a reduction in the initial capital costs and technical risks associated with a large,
underground block-cave mining operation;§
    
    enhanced overall value of the Oyu Tolgoi Project value by enabling mining of high-grade
copper and gold mineralization earlier than previously estimated;§
    
    generation of a significant source of near-term cash-flow that could be used to fund
development of the larger Hugo North block-cave mining operation; and,
 15




---



##### 



§
    
    an expected reduction of up to one year in the time required to complete the underground
exploration and development program for the starter mine as a result of expected shorter
and shallower underground drifting distances than previously projected by the 2005 IDP.
  Oyu Tolgoi updated Integrated Development Plan to be released in 2007
   
    
    The first scenario combines the open-pit reserves, as previously determined, with
high-grade, sub-level-caved material at a pre-feasibility level from the Hugo North
Deposit.
    
    The second scenario, a sensitivity analysis of the first scenario, envisages a
high-grade starter block cave instead of the sub-level cave as the initial underground
development, to be followed by the larger block caves at the Hugo North Deposit and also at
the Hugo South Deposit, as outlined in the 2005 IDP.
   Oyu Tolgoi resources expanded with ongoing drilling program
  16




---



##### 



Total Oyu Tolgoi Project Resources (1)(2)  (based on a 0.60% copper equivalent cut-off ) (3)
 Contained Metal(5)Resource
    
    
    
    
    
    Cu
    
    Au
    
    CuEq(4)
    
    Cu
    
    
    
    
    
    CuEq(4)Category
    
    Tonnes
    
    (%)
    
    (g/t)
    
    (%)
    
    (000 lbs)
    
    Au (ounces)
    
    (000 lbs)Measured
    
    
    101,590,000
    
    
    
    0.64
    
    
    
    1.10
    
    
    
    1.34
    
    
    
    1,430,000
    
    
    
    3,590,000
    
    
    
    3,000,000Indicated
    
    
    1,285,840,000
    
    
    
    1.38
    
    
    
    0.42
    
    
    
    1.65
    
    
    
    39,120,000
    
    
    
    17,360,000
    
    
    
    46,770,000Measured + Indicated
    
    
    1,387,430,000
    
    
    
    1.33
    
    
    
    0.47
    
    
    
    1.63
    
    
    
    40,680,000
    
    
    
    20,970,000
    
    
    
    49,860,000Inferred
    
    
    1,397,130,000
    
    
    
    0.98
    
    
    
    0.24
    
    
    
    1.13
    
    
    
    30,190,000
    
    
    
    10,780,000
    
    
    
    34,810,000
 
 Notes:(1)
    
    Mineral resources are not mineral reserves until they have demonstrated economic
viability based on a feasibility study or pre-feasibility study. Mineral resources
are reported inclusive of mineral reserves.(2)
    
    This chart includes estimated resources on the Hugo North Extension Deposits
located on the Shivee Tolgoi Property, which is owned by Entrée but subject to
earn-in rights by Ivanhoe Mines. The estimate includes indicated resources of
117,000,000 tonnes grading 1.8% copper and 0.61 g/t gold and inferred resources of
95,500,000 tonnes grading 1.15% copper and 0.31 g/t gold at a 0.6% cut-off grade on
the Hugo North Extension.(3)
    
    The 0.6% CuEq cut-off has been used to enable comparison with previous
disclosures.(4)
    
    CuEq has been calculated using assumed metal prices ($0.80/lb. for copper and
$350/oz for gold); %CuEq. = % Cu + Au (g/t) x (11.25/17.64).(5)
    
    The contained gold and copper represent estimated contained metal in the ground
and have not been adjusted for the metallurgical recoveries of gold and copper. 17




---



##### 



Southern Oyu Deposits (1)(2)
 Contained Metals(4)Resource
    
    Tonnage
    
    Cu
    
    Au
    
    CuEq
    
    Cu
    
    Au
    
    CuEq(3)Category
    
    (t)
    
    (%)
    
    (g/t)
    
    (%)(3)
    
    (000 lb)
    
    (oz)
    
    (000 lb)Measured
    
    
    126,690,000
    
    
    
    0.58
    
    
    
    0.93
    
    
    
    1.17
    
    
    
    1,620,000
    
    
    
    3,790,000
    
    
    
    3,268,000Indicated
    
    
    992,400,000
    
    
    
    0.47
    
    
    
    0.27
    
    
    
    0.64
    
    
    
    10,283,000
    
    
    
    8,610,000
    
    
    
    14,002,000Measured +
Indicated
    
    
    1,119,100,000
    
    
    
    0.48
    
    
    
    0.35
    
    
    
    0.70
    
    
    
    11,843,000
    
    
    
    12,590,000
    
    
    
    17,270,000Inferred
    
    
    266,820,000
    
    
    
    0.34
    
    
    
    0.23
    
    
    
    0.48
    
    
    
    2,000,000
    
    
    
    1,970,000
    
    
    
    2,824,000
 
 Notes:(1)
    
    Mineral resources are not mineral reserves until they have demonstrated economic
viability based on a feasibility study or pre-feasibility study. Mineral resources are
reported inclusive of mineral reserves.(2)
    
    The resources shown above at a 0.3% CuEq cut-off are inclusive of the resources
tabulated at the 0.6 CuEq cut-off in the consolidated resource statement.(3)
    
    CuEq has been calculated using assumed metal prices ($0.80/lb. for copper and
$350/oz for gold); %CuEq. = % Cu + Au (g/t) x (11.25/17.64).(4)
    
    The contained gold and copper represent estimated contained metal in the ground and
have not been adjusted for the metallurgical recoveries of gold and copper. Hugo Dummett Deposit Mineral Resources at 0.6% copper equivalent cut-off (1)
 Contained Metal(3)Tonnage
    
    Cu
    
    Au
    
    CuEq(2)
    
    Cu
    
    Au
    
    CuEq(2)Deposit
    
    (t)
    
    (%)
    
    (g/t)
    
    (%)
    
    (000 lb)
    
    (oz)
    
    (000 lb)Indicated (Hugo North)
    
    
    703,200,000
    
    
    
    1.82
    
    
    
    0.39
    
    
    
    2.07
    
    
    
    28,215,000
    
    
    
    8,820,000
    
    
    
    32,091,000Indicated (Hugo North
Extension)(4)
    
    
    117,000,000
    
    
    
    1.80
    
    
    
    0.61
    
    
    
    2.19
    
    
    
    4,643,000
    
    
    
    2,290,000
    
    
    
    5,649,000Inferred (Hugo North)
    
    
    722,800,000
    
    
    
    0.97
    
    
    
    0.30
    
    
    
    1.17
    
    
    
    15,457,000
    
    
    
    6,970,000
    
    
    
    18,644,000Inferred (Hugo North
Extension )(4)
    
    
    95,500,000
    
    
    
    1.15
    
    
    
    0.31
    
    
    
    1.35
    
    
    
    2,421,000
    
    
    
    950,000
    
    
    
    2,842,000Inferred (Hugo South)
    
    
    490,330,000
    
    
    
    1.05
    
    
    
    0.09
    
    
    
    1.11
    
    
    
    11,350,000
    
    
    
    1,420,000
    
    
    
    12,000,000TotalIndicated (Hugo North and
Hugo North Extension (4))
    
    
    820,200,000
    
    
    
    1.82
    
    
    
    0.42
    
    
    
    2.08
    
    
    
    32,910,000
    
    
    
    11,080,000
    
    
    
    37,611,000Inferred (Hugo North, Hugo South
and Hugo North
Extension (4))
    
    
    1,308,630,000
    
    
    
    1.02
    
    
    
    0.22
    
    
    
    1.16
    
    
    
    29,430,000
    
    
    
    9,260,000
    
    
    
    33,470,000
 
 Notes:(1)
    
    Mineral resources are not mineral reserves until they have demonstrated economic
viability based on a feasibility study or pre-feasibility study. Mineral resources are
reported inclusive of mineral reserves. 18




---



##### 



(2)
    
    CuEq has been calculated using assumed metal prices ($0.80/lb. for copper and $350/oz
for gold); %CuEq.= % Cu + Au (g/t) x (11.25/17.64).(3)
    
    The contained gold and copper represent estimated contained metal in the ground and
have not been adjusted for the metallurgical recoveries of gold and copper.(4)
    
    The Hugo North Extension is located on the Shivee Tolgoi Property, which property is
owned by Entrée but subject to earn-in rights in favour of Ivanhoe Mines.
  Southern Oyu Mineral Reserves  March 2007
 CuEq
    
    Recovered
    
    RecoveredNSR
    
    Copper
    
    Gold
    
    Grade
    
    Copper
    
    GoldClass
    
    Ore (tonnes)
    
    $/t
    
    (%)
    
    (g/t )
    
    (%)
    
    (000 lbs)
    
    (ounces)Proven
    
    
    127,000,000
    
    
    
    15.91
    
    
    
    0.58
    
    
    
    0.93
    
    
    
    1.18
    
    
    
    1,451,000
    
    
    
    2,833,000Probable
    
    
    803,000,000
    
    
    
    7.96
    
    
    
    0.48
    
    
    
    0.27
    
    
    
    0.66
    
    
    
    7,431,000
    
    
    
    4,768,000Total
    
    
    930,000,000
    
    
    
    9.05
    
    
    
    0.50
    
    
    
    0.36
    
    
    
    0.73
    
    
    
    8,882,000
    
    
    
    7,601,000
   MONGOLIA
 Other copper-gold exploration projects
    19




---



##### 



MONGOLIA
 COAL PROJECTS
 Ivanhoe Mines Coal Division being merged with Asia Gold
   20




---



##### 



Mine planning underway at Nariin Sukhait coal deposit
   CLASSIFICATION OF RESOURCES GEOLOGY TYPE: COMPLEX (1)
 Resources at Nariin SukhaitASTM
    
    Measured
    
    Indicated
    
    InferredResource Area
    
    Coal Rank
    
    (million tonnes)
    
    (million tonnes)
    
    (million tonnes)South-East Field
    
    hvB to hvA
    
    
    49,752,000
    
    
    
    15,987,000
    
    
    
    6,502,000West Field
    
    hvB to hvA
    
    
    55,144,000
    
    
    
    28,698,000
    
    
    
    22,601,000Total
    
    
    
    
    
    149,580,000
    
    
    29,103,000
 
 (1)
    
    Mineral resources are not mineral reserves until they have demonstrated economic
viability based on a feasibility study or pre-feasibility study. Criteria Used To Define Assurance of Existence For Coals In Complex Geology Type
 Assurance of Existence CategoryCriteria
    
    Measured
    
    Indicated
    
    InferredCross-section spacing (metres)
    
    
    150
    
    
    
    300
    
    
    
    600Minimum number of data points per section
    
    
    3
    
    
    
    3
    
    
    
    3Mean data point spacing (metres)
    
    
    100
    
    
    
    200
    
    
    
    400Maximum data point spacing (metres)
    
    
    200
    
    
    
    400
    
    
    
    800
   21




---



##### 



Recent other coal exploration in the South Gobi
   Exploration continuing at Tsagaan Tolgoi coal deposit
   2007 exploration program to target new coal licences near Tavan Tolgoi coal deposit
  Other
  22




---



##### 



AUSTRALIA
 Cloncurry IOCG Project expanding exploration
       23




---



##### 



KAZAKHSTAN
 Bakyrchik Gold Project
       24




---



##### 



ASIA GOLD (45% owned)
          25




---



##### 



CHINA
 Inner Mongolia exploration
    Jinshan (46% owned)
    26




---



##### 



B. MYANMAR ASSETS HELD FOR SALE
 Trust Arrangements
      27




---



##### 



Monywa Copper Project 2006 Operating Results
 Years ended December 31,Total Operation
    
    Companys 50% Net Share% Increase
    
    
    
    
    
    
    
    
    
    % Increase2006
    
    2005
    
    (Decrease)
    
    2006
    
    2005
    
    (Decrease)Total tonnes moved (1)
    
    Tonnes (000s)
    
    
    14,050
    
    
    
    13,527
    
    
    
    4
    %Tonnes of ore to heap
    
    Tonnes (000s)
    
    
    7,704
    
    
    
    9,544
    
    
    
    -19
    %Ore grade
    
    CuCN%
    
    
    0.36
    %
    
    
    0.49
    %
    
    
    -27
    %Strip ratio
    
    Waste/Ore
    
    
    1.25
    
    
    
    0.45
    
    
    
    178
    %Cathode production
    
    Tonnes
    
    
    19,544
    
    
    
    34,478
    
    
    
    -43
    %
    
    
    9,772
    
    
    
    17,239
    
    
    
    -43
    %Tonnes sold
    
    Tonnes
    
    
    19,202
    
    
    
    34,969
    
    
    
    -45
    %
    
    
    9,601
    
    
    
    17,485
    
    
    
    -45
    %Average sales price received
    
    US$/pound
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3.29
    
    
    $
    1.83
    
    
    
    80
    %Sales
    
    US$(000)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    58,731
    
    
    $
    54,584
    
    
    
    8
    %Cost of operations
    
    US$(000)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    15,927
    
    
    $
    17,768
    
    
    
    -10
    %Operating profit
    
    US$(000)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    37,278
    
    
    $
    30,186
    
    
    
    23
    %Unit cost of operations
    
    US$/pound
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.75
    
    
    $
    0.46
    
    
    
    63
    %
 
 (1)
    
    Includes ore and waste material     28




---



##### 



C. DISCONTINUED OPERATIONS
  Years ended December 31,($ in 000s)
    
    2006
    
    2005Book gain on sale of Savage River
    
    $
    
    
    
    $
    10,267Net income for two months ended February 2005
    
    
    
    
    
    
    5,406Contingent annual payment:Period January to March
    
    
    7,931
    
    
    
    Period April to December (accrued)
    
    
    11,691
    
    
    
    20,243$
    19,622
    
    
    $
    35,916
      D. ADMINISTRATIVE AND OTHER
 General and administrative .
 Interest Income.
 29




---



##### 



Foreign exchange gains
 Share of loss on significantly influenced investee .
 SELECTED QUARTERLY DATA
 ($ in millions of U.S. dollars, except per share information)
 QUARTER ENDED
    
    
    Year EndedMar-31
    
    Jun-30
    
    Sep-30
    
    Dec-31
    
    
    Dec-312006Exploration expenses
    
    ($
    31.6
    )
    
    ($
    43.7
    )
    
    ($
    67.3
    )
    
    ($
    70.4
    )
    
    
    ($
    213.0
    )General and administrative
    
    
    (6.4
    )
    
    
    (6.0
    )
    
    
    (6.9
    )
    
    
    (8.9
    )
    
    
    
    (28.2
    )Share of income from investment held for sale
    
    
    4.5
    
    
    
    (2.4
    )
    
    
    9.0
    
    
    
    7.4
    
    
    
    
    18.5Foreign exchange gains (losses)
    
    
    (0.2
    )
    
    
    4.7
    
    
    
    (0.4
    )
    
    
    (3.7
    )
    
    
    
    0.4Net (loss) from continuing operations
    
    
    (31.1
    )
    
    
    (45.7
    )
    
    
    (68.0
    )
    
    
    (73.5
    )
    
    
    
    (218.3
    )Net income from discontinued operations
    
    
    7.9
    
    
    
    5.4
    
    
    
    1.5
    
    
    
    4.8
    
    
    
    
    19.6Net (loss)
    
    
    (23.2
    )
    
    
    (40.3
    )
    
    
    (66.5
    )
    
    
    (68.7
    )
    
    
    
    (198.7
    )Net (loss) income per shareContinuing operations
    
    ($
    0.10
    )
    
    ($
    0.14
    )
    
    ($
    0.20
    )
    
    ($
    0.21
    )
    
    
    ($
    0.65
    )Discontinued operations
    
    $
    0.03
    
    
    $
    0.02
    
    
    $
    0.00
    
    
    $
    0.01
    
    
    
    $
    0.06Total
    
    ($
    0.07
    )
    
    ($
    0.12
    )
    
    ($
    0.20
    )
    
    ($
    0.20
    )
    
    
    ($
    0.59
    )2005Exploration expenses
    
    ($
    25.6
    )
    
    ($
    35.5
    )
    
    ($
    30.5
    )
    
    ($
    41.7
    )
    
    
    ($
    133.3
    )General and administrative
    
    
    (3.6
    )
    
    
    (4.2
    )
    
    
    (5.7
    )
    
    
    (4.2
    )
    
    
    
    (17.7
    )Share of income from investment held for sale
    
    
    7.7
    
    
    
    7.8
    
    
    
    8.0
    
    
    
    (0.5
    )
    
    
    
    23.0Foreign exchange gains (losses)
    
    
    (0.6
    )
    
    
    1.7
    
    
    
    7.1
    
    
    
    (0.4
    )
    
    
    
    7.8Net (loss) from continuing operations
    
    
    (24.2
    )
    
    
    (31.1
    )
    
    
    (20.6
    )
    
    
    (49.8
    )
    
    
    
    (125.7
    )Net income from discontinued operations
    
    
    15.7
    
    
    
    5.9
    
    
    
    6.4
    
    
    
    7.9
    
    
    
    
    35.9Net (loss)
    
    
    (8.5
    )
    
    
    (25.2
    )
    
    
    (14.3
    )
    
    
    (41.8
    )
    
    
    
    (89.8
    )Net (loss) income per shareContinuing operations
    
    ($
    0.08
    )
    
    ($
    0.10
    )
    
    ($
    0.07
    )
    
    ($
    0.16
    )
    
    
    ($
    0.41
    )Discontinued operations
    
    $
    0.05
    
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.03
    
    
    
    $
    0.12Total
    
    ($
    0.03
    )
    
    ($
    0.08
    )
    
    ($
    0.05
    )
    
    ($
    0.13
    )
    
    
    ($
    0.29
    )
 30




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##### 



FOURTH QUARTER
 Exploration .
 Administrative costs .
 Income from investment held for sale
 Net income from discontinued operations .
 Foreign exchange loss .
 LIQUIDITY AND CAPITAL RESOURCES
 Cash Flow
 Operating activities .
 Investing activities . ,
 Financing activities .
 31




---



##### 



Liquidity and Capital Resources
    Financial Instruments
      32




---



##### 



SHARE CAPITAL
  o
    
    373.9 million common shares outstanding.o
    
    13.4 million incentive stock options outstanding, with a weighted average exercise
price per share of Cdn$9.20. Each option is exercisable to purchase a common share of the
Company at prices ranging from Cdn$2.31 to Cdn$13.29 per share.o
    
    92.1 million share purchase warrants outstanding granted to Rio Tinto. The exercise
term of these warrants is determined with reference to the earlier of the following dates
(the Warrant Determination Date):
 (a)
    
    the date upon which Ivanhoe Mines enters into an Investment Agreement with
the Government of Mongolia that is mutually acceptable to Ivanhoe Mines and Rio
Tinto; or(b)
    
    October 27, 2009.
 
    
    Series A Warrants:
The Series A Warrants are non-transferable and entitle Rio Tinto to purchase up to
46,026,522 Common Shares at a price of:
 (a)
    
    US$8.38 per share for proceeds of up to US$385,702,254 during the
period commencing November 30, 2006 and ending 180 days following the
Warrant Determination Date; and(b)
    
    US$8.54 per share for proceeds of up to US$393,066,498 during the
period commencing 181 days after the Warrant Determination Date and ending
365 days after the Warrant Determination Date.
 
    
    Series B Warrants:
The Series B Warrants are non-transferable and entitle Rio Tinto to purchase up to
46,026,522 Common Shares at a price of:
 (a)
    
    US$8.38 per share for proceeds of up to US$385,702,254 during the
period commencing November 30, 2006 and ending 180 days following the
Warrant Determination Date;(b)
    
    US$8.54 per share for proceeds of up to US$393,066,498 during the
period commencing 181 days after the Warrant Determination Date and ending
365 days after the Warrant Determination Date;(c)
    
    US$8.88 per share for proceeds of up to US$408,715,515 during the
period commencing 366 days after the Warrant Determination Date and ending
545 days after the Warrant Determination Date; and(d)
    
    US$9.02 per share for proceeds of up to US$415,159,228 during the
period commencing 546 days after the Warrant Determination Date and ending
725 days after the Warrant Determination Date.
 o
    
    Under the terms of the Rio Tinto Agreement, Rio Tinto will take up the second tranche of the
private placement following the date upon which Ivanhoe Mines enters into an Investment Agreement
with the Government of Mongolia that is mutually acceptable to Ivanhoe Mines
 33




---



##### 



and Rio Tinto. Rio Tinto has the option to exercise the second tranche earlier. This
second tranche will consist of 46.3 million shares at a price of US$8.38 per share, for total
proceeds of US$388 million. Ivanhoe Mines has recorded an amount of $23.1 million in
shareholders equity, attributable to the fair value of the Rio Tinto share purchase warrants
and second tranche share issuance commitment.
 OUTLOOK
 Development of the Oyu Tolgoi Project.
 Strategic Partnership with Rio Tinto plc.
   Investment Agreement with the Government of Mongolia.
  34




---



##### 



Amendments to Minerals Law and Tax Law.
 Strategic Deposit.
 35




---



##### 



Increased royalty.
 Lower tax rates.
 Amendments to licence maturity.
 Employment requirements.
 Listing requirements.
 Amendments to the maximum duration of Investment Agreements.
 
    
    Investment between $50-$100 million  10-year term
    
    Investment between $100-$300 million  15-year term
    
    Investment greater than $300 million  30-year term.
  Other income tax amendments.
 36




---



##### 



Excess Profit Tax.
   OFF-BALANCE-SHEET ARRANGEMENTS
  CONTRACTUAL OBLIGATIONS
 ($000s of U.S. dollars)
 Payments Due by PeriodLess than 1year
    
    1 - 3 years
    
    4 - 5 years
    
    After 5 years
    
    
    TotalOperating leases (1)
    
    $
    1,290
    
    
    $
    884
    
    
    $
    9
    
    
    $
    
    
    
    
    $
    2,183Purchase obligations (1)
    
    
    116,794
    
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    
    116,884Other long-term obligations (2)
    
    
    315
    
    
    
    2,194
    
    
    
    
    
    
    
    17,333
    
    
    
    
    19,842Total
    
    $
    118,399
    
    
    $
    3,168
    
    
    $
    9
    
    
    $
    17,333
    
    
    
    $
    138,909
 (1)
    
    These amounts mainly represent various long-term contracts that include
commitments for future operating payments under contracts for drilling, engineering,
equipment purchases, rentals and other arrangements.(2)
    
    Other long-term obligations mainly consist of asset retirement obligations.
 37




---



##### 



CHANGES IN ACCOUNTING POLICIES
  CRITICAL ACCOUNTING ESTIMATES
   Ø
    
    Carrying Values of Property, Plant and Equipment;Ø
    
    Depletion and Depreciation of Property, Plant and Equipment;Ø
    
    Asset Retirement Obligations; andØ
    
    Income Taxes.
 Carrying values of Property, Plant and Equipment
   38




---



##### 



Depletion and Depreciation of Property, Plant and Equipment
     Asset Retirement Obligations
    39




---



##### 



Income Taxes
    RECENT ACCOUNTING PRONOUNCEMENTS
    40




---



##### 



RISKS AND UNCERTAINTIES
  Ivanhoe Mines may be unsuccessful in completing an Investment Agreement with the Government of
Mongolia for the Oyu Tolgoi Project or may only be able to complete the contract on terms that
effectively impair the economic viability of the project.
 41




---



##### 



Ivanhoe
Mines ability to carry on business in Mongolia is subject to
political risk.
    There can be no assurance that Ivanhoe Mines will be capable of raising the additional funding that
it needs to carry out its development and exploration objectives.
  42




---



##### 



The Hugo Dummett Deposit mineral resources and the Nariin Sukhait resources do not have
demonstrated economic viability and the feasibility of mining has not
been established.
   Lack of infrastructure in proximity to the Oyu Tolgoi Project could adversely affect mining
feasibility.
  43




---



##### 



Mining
projects are sensitive to the volatility of metal prices.
    Copper
    
    GoldYear
    
    High
    
    Low
    
    Average
    
    High
    
    Low
    
    Average2001
    
    $
    0.83
    
    
    $
    0.60
    
    
    $
    0.72
    
    
    $
    293
    
    
    $
    256
    
    
    $
    2712002
    
    $
    0.77
    
    
    $
    0.65
    
    
    $
    0.71
    
    
    $
    349
    
    
    $
    278
    
    
    $
    3102003
    
    $
    1.05
    
    
    $
    0.71
    
    
    $
    0.81
    
    
    $
    416
    
    
    $
    320
    
    
    $
    3632004
    
    $
    1.49
    
    
    $
    1.06
    
    
    $
    1.30
    
    
    $
    454
    
    
    $
    375
    
    
    $
    4092005
    
    $
    2.11
    
    
    $
    1.39
    
    
    $
    1.67
    
    
    $
    536
    
    
    $
    411
    
    
    $
    4442006
    
    $
    3.99
    
    
    $
    2.06
    
    
    $
    3.05
    
    
    $
    725
    
    
    $
    524
    
    
    $
    604
 Ivanhoe Mines business in Mongolia may be harmed if the country fails to complete its transition
from state socialism and a planned economy to political democracy and
a free market economy.
  44




---



##### 



Recent and future amendments to Mongolian laws could adversely affect Ivanhoe Mines mining rights
in the Oyu Tolgoi Project or make it more difficult or expensive to develop the project and carry
out mining.
    Ivanhoe Mines may experience difficulties with its joint venture partners.
  Ivanhoe Mines may be unable to enforce its legal rights in certain circumstances.
  The Trust may not be able to sell the interest in the Myanmar Assets on a timely basis or for its
fair value
  45




---



##### 



Changes in, or more aggressive enforcement of, laws and regulations could adversely impact Ivanhoe
Mines business.
   Ivanhoe Mines is subject to substantial environmental and other regulatory requirements and such
regulations are becoming more stringent. Non-compliance with such regulations, either through
current or future operations or a pre-existing condition could materially adversely affect Ivanhoe
Mines.
    46




---



##### 



Previous mining operations may have caused environmental damage at Ivanhoe Mines mining sites, and
if Ivanhoe Mines cannot prove that such damage was caused by such prior operators, its indemnities
and exemptions from liability may not be effective.
  The actual cost of developing the Oyu Tolgoi Project may differ significantly from Ivanhoe Mines
estimates and involve unexpected problems or delays.
  
    
    anticipated tonnage, grades and metallurgical characteristics of ore to be mined and processed;
    
    anticipated recovery rates of copper and gold from the ore;
    
    cash operating costs of comparable facilities and equipment; and
    
    anticipated climatic conditions.
   
    
    the timing and cost, which can be considerable, of the construction of mining and
processing facilities;
    
    the availability and cost of skilled labour, power, water and transportation;
    
    the availability and cost of appropriate smelting and refining arrangements;
 47




---



##### 




    
    the need to obtain necessary environmental and other government permits, and the
timing of those permits; and
    
    the availability of funds to finance construction and development activities.
  Ivanhoe Mines ability to obtain dividends or other distributions from our subsidiaries may be
subject to restrictions imposed by law, foreign currency exchange regulations and our financing
arrangements.
  There can be no assurance that the interest held by Ivanhoe Mines in its exploration, development
and mining properties is free from defects or that material contractual arrangements between
Ivanhoe Mines and entities owned or controlled by foreign governments will not be unilaterally
altered or revoked.
  The proceeds from the sale of the Savage River Project are dependent on iron ore prices and the
remaining supply of ore at the Savage River Project.
  48




---



##### 



Competition for new mining properties by larger, more established companies may prevent Ivanhoe
Mines from acquiring interests in additional properties or mining operations.
  Ivanhoe Mines has a limited operating history, and there is no assurance that it will be capable of
consistently producing positive cash flows.
   A substantial portion of Ivanhoe Mines operations involve exploration and development and there is
no guarantee that any such activity will result in commercial production of mineral deposits.
  49




---



##### 



Ivanhoe Mines cannot insure against all of the risks associated with mining.
  
    
    rock bursts, slides, fires, earthquakes or other adverse environmental occurrences;
    
    industrial accidents;
    
    labour disputes;
    
    political and social instability;
    
    technical difficulties due to unusual or unexpected geological formations;
    
    failures of pit walls; and
    
    flooding and periodic interruptions due to inclement or hazardous weather condition.
  
    
    damage to, and destruction of, mineral properties or production facilities;
    
    personal injury;
    
    environmental damage;
    
    delays in mining;
    
    monetary losses; and
    
    legal liability.
  As a result of the rights to acquire common shares and other rights granted to Rio Tinto pursuant
to the Rio Tinto Transaction, Rio Tinto has the ability to significantly influence the business and
affairs of Ivanhoe Mines.
  50




---



##### 



Ivanhoe Mines is exposed to risks of changing political stability and government regulation in the
countries in which it operates.
    51




---



##### 



Ivanhoe Mines prospects depend on its ability to attract and retain key personnel.
  Certain directors of Ivanhoe Mines are directors or officers of, or have significant shareholdings,
in other mineral resource companies and there is the potential that such directors will encounter
conflicts of interest with Ivanhoe Mines.
  52




---



##### 



RELATED-PARTY TRANSACTIONS
  Years ended December 31,2006
    
    
    2005Global Mining Management Corporation (a)
    
    $
    7,015
    
    
    $
    4,169Ivanhoe Capital Aviation LLC (b)
    
    
    3,840
    
    
    
    3,421Fognani & Faught, PLLC (c)
    
    
    1,394
    
    
    
    823Jinshan Gold Mines Inc. (d)
    
    
    
    
    
    
    1,122Ivanhoe Capital Pte. Ltd. (e)
    
    
    78
    
    
    
    60Ivanhoe Capital Services Ltd. (f)
    
    
    743
    
    
    
    755Ivanhoe Energy Inc. (g)
    
    
    
    
    
    
    175$
    13,070
    
    
    $
    10,525
 Years ended December 31,2006
    
    
    2005Exploration
    
    $
    
    
    
    $
    1,122Legal
    
    
    1,394
    
    
    
    823Office and administrative
    
    
    2,306
    
    
    
    2,216Salaries and benefits
    
    
    5,530
    
    
    
    2,943Travel (including aircraft rental)
    
    
    3,840
    
    
    
    3,421$
    13,070
    
    
    $
    10,525
   (a)
    
    Global Mining Management Corporation (Global) is a private company based in Vancouver owned
equally by seven companies, one of which is Ivanhoe Mines. Global has a director in common
with the Company. Global provides administration, accounting, and other office services to the
Company on a cost-recovery basis.
 53




---



##### 



(b)
    
    Ivanhoe Capital Aviation LLC (Aviation) is a private company 100% owned by the Companys
Chairman. Aviation operates an aircraft which is rented by the Company on a cost-recovery
basis.(c)
    
    An officer of a subsidiary of Ivanhoe Mines is a partner with Fognani & Faught, PLLC, a legal
firm which provides legal services to Ivanhoe Mines.(d)
    
    During 2005, the Company incurred exploration expenditures as part of several joint venture
agreements with Jinshan.(e)
    
    Ivanhoe Capital Pte. Ltd. (Ivanhoe Capital) is a private company 100% owned by the Companys
Chairman. Ivanhoe Capital provides for administration, accounting, and other office services
in Singapore and London on a cost-recovery basis.(f)
    
    Ivanhoe Capital Services Ltd. (Services) is a private company 100% owned by the Companys
Chairman. Services provides for salaries associated with certain employees of the Company
located in Singapore on a cost-recovery basis.(g)
    
    Ivanhoe Energy Inc. (Ivanhoe Energy) is a public company in which the Companys Chairman has
a significant interest and holds the position of Deputy Chairman. During 2005, Ivanhoe Energy
provided for administration and other office services in Beijing on a cost-recovery basis.
  DISCLOSURE CONTROLS AND PROCEDURES
   54




---



##### 



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
   55




---



##### 



Changes in internal control over financial reporting
  QUALIFIED PERSONS
  Relationship toProperty
    
       Qualified Person
    
    Ivanhoe MinesOyu Tolgoi Project
    
    Bernard Peters, GRD Minproc Limited
    
    Independent consultantNariin Sukhait Project
    
    Richard D. Tifft and Patrick P. Riley,
Norwest Corporation
    
    Independent consultant
 OVERSIGHT ROLE OF THE AUDIT COMMITTEE
  56




---



##### 



CAUTIONARY
STATEMENTS
 LANGUAGE REGARDING RESERVES AND RESOURCES
 Standards of Disclosure for Mineral Projects www.sedar.com
 NOTE TO UNITED STATES INVESTORS CONCERNING ESTIMATES OF MEASURED, INDICATED AND INFERRED RESOURCES
 Standards of Disclosure for Mineral Projects
 57




---



##### 



FORWARD-LOOKING STATEMENTS
 United States Private
Securities Litigation Reform Act of 1995
  
 58




---



##### 



MANAGEMENTS REPORT TO THE SHAREHOLDERS
     John Macken
    
    Tony GiardiniPresident and CEO
    
    Chief Financial OfficerMarch 30, 2007Vancouver, BC, Canada