Ivanhoe Mines Announces Financial Results and Review of Operations for the Third Quarter of 2011

SINGAPORE, SINGAPORE — Ivanhoe Mines (TSX:IVN)(NYSE:IVN)(NASDAQ:IVN) today announced its results for the quarter ended September 30, 2011.
All figures are in US dollars, unless otherwise stated.

HIGHLIGHTS DURING THE QUARTER AND SUBSEQUENT WEEKS

--  Overall construction at Oyu Tolgoi continues to advance on budget and
    reached a 54.4% level of completion at the end of Q3'11. Key elements of
    the project, including the concentrator complex, primary crusher and
    tailings-thickening ponds, remain ahead of schedule. Total capital
    invested in the project to the end of Q3'11 was approximately $3.2
    billion. Facilities required for first ore production in mid-2012 remain
    on schedule and commercial production is expected to commence in the
    first half of 2013. 


--  Pre-stripping for the phase-one open-pit mine on the gold-rich Southern
    Oyu deposits at Oyu Tolgoi began in August 2011. By the end of Q3'11,
    approximately 1.3 million tonnes of overburden material had been moved. 


--  The development of the first lift of the phase-two underground block-
    cave mine at the Hugo North Deposit continued successfully during Q3'11.
    Lateral mine development 1,300 metres below surface at Hugo North is on
    schedule, achieving an advance during Q3'11 of 1,187 metres, for a total
    of 9,126 metres completed since tunnelling started in 2008. 


--  Construction of Shaft #2 infrastructure is progressing well. The
    headframe and ancillary buildings were 59.9% complete at the end of
    Q3'11. Sinking of the shaft is expected to commence in the second half
    of November 2011. 


--  Oyu Tolgoi's site-based construction workforce was approximately 14,760
    at the end of Q3'11, with approximately 11,680 working on site each day
    and the balance on leave. Approximately 7,820 Mongolians were employed
    at the Oyu Tolgoi site, with an additional 3,300 Mongolians
    participating in offsite training and educational programs. These
    Mongolian employees will form the bulk of the eventual production
    workforce. 


--  In May 2011, the Oyu Tolgoi Project received the final approvals
    required to proceed with construction of a 220-kilovolt power
    transmission line from Oyu Tolgoi along a 95- kilometre route south to
    the Mongolia-China international border. Construction of the
    transmission towers was completed in October 2011 and the stringing of
    power cables is expected to commence in spring 2012. The transmission
    line is planned to be extended across the Mongolian border by Chinese
    contractors to tie into the neighbouring Inner Mongolian electrical grid
    in China. 


--  Discussions between the Mongolian and Chinese governments were held
    during Q2'11 and Q3'11 and are expected to conclude a bilateral
    agreement that would secure the supply of initial electrical power from
    China. Subject to negotiations and final agreement, the remaining
    permits, commercial arrangements and power-purchase tariffs are expected
    to be expedited to ensure that imported power will be available at the
    Oyu Tolgoi site by Q3'12. In the meantime, additional diesel-powered
    generating capacity has been approved to meet the project's requirements
    during the remaining stages of construction. 


--  During Q3'11, Ivanhoe Mines' 58%-owned subsidiary, SouthGobi Resources
    (TSX:SGQ)(HK:1878), reported coal sales of $60.5 million from its Ovoot
    Tolgoi mine in southern Mongolia, representing approximately 1.37
    million tonnes of coal sold to customers in China at an average realized
    price (before royalties and selling fees) of approximately $54 per
    tonne. 


--  Ivanhoe Mines' 59%-owned subsidiary, Ivanhoe Australia
    (TSX:IVAN)(ASX:IVA), continues to advance its copper, gold, molybdenum
    and rhenium mine development projects in the Cloncurry region of
    Queensland. The Osborne copper and gold project is scheduled to begin
    initial production in the first half of 2012; construction of the
    decline to access the Merlin molybdenum and rhenium deposit had
    progressed to 1,438 metres by the end of Q3'11. 


--  Altynalmas Gold, 50%-owned by Ivanhoe Mines, is continuing its drilling
    program designed to further delineate and upgrade resources and reserves
    to NI 43-101 standards at the Kyzyl Gold Project in Kazakhstan.
    Altynalmas Gold is proceeding to advance the development of the project
    following the completion of a pre-feasibility study in 2010. 


    --  In Q3'11, Ivanhoe Mines recorded net income of $7.3 million ($0.01
        per share), compared to a net loss of $24.9 million ($0.05 per
        share) in Q3'10, which was an increase of $32.2 million. Results for
        Q3'11 mainly were affected by $79.6 million in exploration expenses,
        $54.0 million in cost of sales, $21.4 million in general and
        administrative expenses, $35.6 million in foreign exchange losses, a
        $19.3 million share of loss of significantly influenced investees, a
        $9.1 million loss from discontinued operations and $1.9 million in
        interest expense. These amounts were offset by coal revenue of $60.5
        million, a $62.1 million change in the fair value of embedded
        derivatives, a $103.0 million gain on settlement of a long-term note
        receivable, and $5.3 million in interest income. 

MONGOLIA

OYU TOLGOI COPPER-GOLD-SILVER PROJECT (66%-owned by Ivanhoe Mines)

Construction of the Oyu Tolgoi copper-gold-silver complex advancing toward planned start of commercial production in the first half of 2013

The Oyu Tolgoi Project initially is being developed as an open-pit operation, with the first phase of mining to start at the near-surface Southern Oyu deposits, which include Southwest Oyu and Central Oyu. A copper concentrator plant, related facilities and necessary infrastructure that will support an initial throughput of 100,000 tonnes of ore per day are being constructed to process ore scheduled to be mined from the Southern Oyu open pit. Commercial production of copper-gold-silver concentrate is projected to begin in the first half of 2013.

Along with the surface activities, an 85,000-tonne-per-day underground block-cave mine also is being developed at the Hugo North Deposit, with initial production expected to begin in 2015. The throughput capacity of the concentrator plant is expected to be expanded up to approximately 160,000 tonnes of ore per day when the underground mine begins production.

Fluor Corporation is in charge of overall Oyu Tolgoi program management, as well as services related to engineering, procurement and construction management for the ore processing plant and mine-related infrastructure, such as roads, water supply, a regional airport and administration buildings.

Current operations activities related to the phase-one concentrator are focused on finalizing the operational readiness plan. Detailed commissioning, operation and maintenance plans are being developed for all the components of the concentrator circuits. Representatives of various manufacturers and engineering groups are assisting with the preparation of the operational readiness plan. Pre-stripping for the open-pit mine began in early August 2011; assembly of the mining fleet is continuing.

In early May 2011, the Oyu Tolgoi Project received the final approvals required to proceed with construction of a 220-kilovolt power transmission line from Oyu Tolgoi along a 95-kilometre route south to the Mongolia-China international border. The construction approval from Mongolia's Energy Regulatory Authority and a land-use contract from the governor of Khanbogd soum (township), which includes Oyu Tolgoi, now have been received. Both are key to the plan to import electrical power from China to operate the Oyu Tolgoi complex during its initial four years of commercial production. Contracts have been awarded to Mongolian companies for construction of the power transmission line to the border. Construction of the towers to the Mongolian border was completed in October 2011 and line stringing is expected to commence in spring 2012. The transmission line is planned to be extended across the Mongolian border by Chinese contractors to tie into the neighbouring Inner Mongolian electrical grid in China.

Discussions between the Mongolian and Chinese governments were held during Q2'11 and Q3'11 and are continuing toward the objective of concluding a bilateral agreement that would secure the supply of electrical power from China. Subject to negotiations and final agreement, the remaining permits, commercial arrangements and power-purchase tariffs are expected to be expedited to ensure that imported power will be available at the Oyu Tolgoi site by Q3'12. In the meantime, additional diesel- powered generating capacity has been approved to meet the project's requirements during the remaining stages of construction.

The long-term Investment Agreement for the development and operation of Oyu Tolgoi, signed by Ivanhoe Mines, Rio Tinto and the Government of Mongolia on October 6, 2009, recognized that the reliable supply of electrical power is critical to the project and that Ivanhoe Mines has the right to obtain electrical power from inside or outside Mongolia, including China, to meet its initial electrical power requirements. The agreement also established a) that Ivanhoe Mines has the right to build or sub- contract construction of a coal-fired power plant at an appropriate site in Mongolia's South Gobi Region to supply Oyu Tolgoi; and b) that all of the project's power requirements would be sourced from within Mongolia no later than four years after Oyu Tolgoi begins commercial production. In November 2011, the Mongolian Government passed a cabinet resolution allowing for the future construction by Oyu Tolgoi LLC of a dedicated coal-fired power plant in Mongolia for the project.

Oyu Tolgoi LLC is finalizing a study of alternative power-generation arrangements that could be implemented if it became apparent that interim imported power would not be available by Q3'12. To date, the study demonstrates that advancing the construction of a coal-fired power plant in Mongolia would be the most appropriate option.

A dedicated coal-fired power plant would require certain Mongolian Government permits, the negotiation of commercial agreements with the Mongolian Government and coal suppliers and the arrangement of financing for the accelerated construction. If necessary, such an approach would impact the Oyu Tolgoi construction schedule and adversely affect the project's ability to achieve full commercial production in 2013, as planned. Although construction of a power plant is expected as part of the Oyu Tolgoi Project's future development, there is no provision for a plant in the current capital cost estimates for 2011 and 2012 and the financing that would be required is not contemplated as part of the Company's current financing plan. The Heads of Agreement signed with Rio Tinto in December 2010 provided that if construction of a 50-megawatt or greater power plant was started before January 1, 2015, the construction would be funded by loans from Rio Tinto, with 40% of the outstanding balance to be repaid in 2015 and the remainder in 2016.

Overall construction of the Oyu Tolgoi Project was 54.4% complete at the end of Q3'11

Overall construction reached a 54.4% level of completion at the end of Q3'11. Total capital invested in the project by the end of Q3'11 was approximately $3.2 billion. Overall construction is projected to be over 70% complete by the end of 2011.

Major updates for Q3'11 and plans for Q4'11 include:

--  Pre-stripping of overburden began in August 2011 as part of the
    construction of the phase-one open-pit mine to recover ore from the
    Southern Oyu deposits. At the end of Q3'11, approximately 1.3 million
    tonnes of material had been moved. 


--  The development of the first lift of the phase-two underground block-
    cave mine at the Hugo North Deposit continued successfully during Q3'11.
    Lateral mine development 1,300 metres below surface at Hugo North is on
    schedule and achieved an advance during Q3'11 of 1,187 metres, for a
    total of 9,126 metres completed since tunnelling started in 2008. 


--  Shaft #2 construction is progressing well. The headframe and ancillary
    buildings were 59.9% complete at the end of Q3'11. Preparations are
    underway for sinking, which is expected to begin in November 2011. 


--  Oyu Tolgoi's site-based construction workforce was approximately 14,760
    at the end of Q3'11, with approximately 11,680 working on site each day
    and the balance on leave. Approximately 7,820 Mongolians were employed
    at the Oyu Tolgoi site, with an additional 3,300 Mongolians
    participating in offsite training and educational programs. These
    Mongolian employees will form the bulk of the eventual production
    workforce, particularly in the open-pit operations. 


--  Construction of the concentrator was 56.2% complete at the end of Q3'11.
    The structural steel and the cladding for the concentrator building
    reached substantial completion during Q3'11 (except where openings are
    needed for equipment installation). The shells for SAG mill #2 and for
    ball mills #3 and #4 were assembled; heads for the mills were installed;
    and trunnion bearings were installed for ball mill #3. 


--  Progress of the construction of offsite facilities and infrastructure
    reached 52.8% at the end of Q3'11, which was slightly behind the plan of
    54.1%. The cumulative shortfall was due to delays with the Oyu Tolgoi-
    Gashuun Sukhait road to the Mongolia-China border and the Khanbumbat
    permanent airport, and the decision to defer until spring 2012 the
    stringing of cables on the power line to the Mongolia-China border.
    Facilities required for the production of the first ore are on schedule.


--  A diesel management study is underway to review options for onsite and
    offsite storage of diesel fuel to ensure reliability of supply. An
    initial indication of the study proposes an additional five-million-
    litre storage facility on site. 


--  Non-binding concentrate sales memorandums of understandings with two
    large Chinese smelters and two international trading companies were
    agreed to during Q3'11. Contracts are expected to be finalized with the
    smelters and trading companies during the next several months. Most of
    the concentrate initially produced at Oyu Tolgoi is expected to be
    delivered to customers in China. 

Phase one construction on budget

In December 2010, Ivanhoe Mines announced that a $2.3 billion capital budget had been approved for 2011 - the peak year of construction activity on the first phase of the Oyu Tolgoi Project. In addition to the $2.3 billion capital budget, approval also was received for an additional $150 million budget for operation of the Ulaanbaatar office during 2011 and $100 million for the second tax prepayment that was made to the Mongolian Government in June 2011. At the end of Q3'11, $2.2 billion had been spent in 2011, which was slightly over the budget of $2.1 billion due to the strategy of bringing forward certain activities into 2011.

Capital required from January 1, 2011, through to completion of the phase-one, 100,000-tonne-per-day project and the commencement of commercial production scheduled for 2013 is expected to total approximately $4.5 billion. This estimate includes approximately $280 million in remaining contingencies; no provision has been made for foreign exchange variances or cost increases on construction commitments that may be incurred.

The Oyu Tolgoi 2012 budget is expected to be reviewed and approved in December 2011 by the Oyu Tolgoi Board of Directors and the Ivanhoe Mines Board of Directors. The 2012 budget is expected to be in line with the costs estimated for 2012 in the overall phase-one budget, taking into account some shifts in timing of certain activities.

Capital invested in phase-one construction to support future expansion

The engineering and construction stages have recognized the need to accommodate a major increase in ore-processing capacity in the future, while minimizing potential disruption to operations that will be underway at that time.

Wherever possible, Oyu Tolgoi has taken the opportunity to allow for expansion with minimal impact on operations. Oyu Tolgoi's plans call for initial production of 100,000 tonnes of ore per day, which is expected to increase up to approximately 160,000 tonnes per day when ore from the underground mine becomes available. To facilitate this expansion, Oyu Tolgoi has constructed a third ore-reclaim tunnel that will increase the capacity to feed ore to the concentrator by 50-60% over the initial rate of production. To cater to future increased production, a pipeline has been installed that, with minor modifications, could supply water for processing up to 160,000 tonnes a day. Oyu Tolgoi also has allowed for expansion in the concentrator by adding space in the flotation area and installing other equipment to handle higher production rates. Studies examining options to process additional ore are ongoing.