HIGHLIGHTS

- During Q2'09, a comprehensive and balanced draft Investment Agreement for the development of the Oyu Tolgoi mining complex in southern Mongolia continued its progress through the review and approval process established by Mongolia's national Parliament, the State Great Khural. During the week of August 9, 2009, Ivanhoe Mines and its strategic partner, Rio Tinto, completed negotiations with the Government of Mongolia for an Investment Agreement. The revised draft agreement complies with existing Mongolian laws and legislation, as required by a resolution of Parliament. On August 11, Mongolia's National Security Council agreed to endorse the revised Investment Agreement. The Government has announced that it will present proposed legislative changes in support of the agreement to a special session of Parliament that is expected to begin discussing Oyu Tolgoi on August 19.

- Oyu Tolgoi exploration continued during the quarter on the area between the Southwest Oyu and Heruga deposits and work began on an Induced Polarization survey utilizing the advanced, deep-probing Zeus(TM) technology.

- Ivanhoe's 80%-owned subsidiary, SouthGobi Energy Resources (TSX VENTURE: SGQ), reported coal sales in Q2'09 of approximately 384,000 tonnes from its Ovoot Tolgoi mine in southern Mongolia, a significant increase from the Q1'09 coal sales of 127,000 tonnes. SouthGobi recognized revenue of $10.7 million in Q2'09 at an average realized selling price of approximately $30 per tonne.

- During the quarter, Ivanhoe Mines' 83%-owned subsidiary, Ivanhoe Australia (ASX: IVA), commenced preliminary development project studies for the high-grade molybdenum and rhenium deposit at its Merlin Project in Australia to evaluate suitable mining and processing alternatives. A resource estimate compliant with National Instrument 43-101 is expected to be completed in the second half of 2009.

- In Q2'09, Ivanhoe Mines expensed $38.1 million in exploration and development activities, compared to $67.3 million in Q2'08. In Q2'09, Ivanhoe Mines' exploration activities were largely focused in Mongolia and Australia.

MONGOLIA: OYU TOLGOI COPPER-GOLD PROJECT

Extraordinary session of Mongolian Parliament to consider legislative changes to support revised Oyu Tolgoi Investment Agreement endorsed by Mongolia's National Security Council

There were significant achievements during the second quarter and early third quarter of 2009 in the five-year-long quest by Ivanhoe Mines to conclude an acceptable Investment Agreement with the Government of Mongolia for the development of the Oyu Tolgoi Project. Such an agreement, under Mongolian law, provides for the long-term stabilization of taxation and other fiscal policies and a stable operating environment necessary for the commitment of large-scale capital funding for new mine developments.

In January 2009, Ivanhoe Mines and Rio Tinto re-started negotiations with a newly formed Government Working Group for an Investment Agreement that would recognize the realities of the then current international investment and commodities environment and the economic benefits inherent in the development of the Oyu Tolgoi Project.

In February 2009, the negotiators reached agreement on an Investment Agreement and a companion Shareholders' Agreement. The agreements were reviewed and approved in principle by the Cabinet and the National Security Council and presented to Parliament in March 2009 as part of what was expected to be the final approval process. During the review process, Parliament mandated that final approval of an Oyu Tolgoi Investment Agreement would be the responsibility of the Government.

Negotiations produced revised Investment Agreement this week

After the end of the second quarter, on July 16, 2009, Parliament issued a resolution that authorized the Government of Mongolia, through the Prime Minister, to conclude an Investment Agreement for Oyu Tolgoi with Ivanhoe Mines and Rio Tinto. The parliamentary resolution contained certain conditions, one of which required the Government to conclude an Investment Agreement for the Oyu Tolgoi project in compliance with existing Mongolian laws and legislation.

In a letter dated July 20, Prime Minister Sanjaa Bayar invited Ivanhoe Mines and Rio Tinto to resume negotiations on the Investment Agreement in accordance with Parliament's July 16 resolution. The Prime Minister pledged to work with the companies to reach an agreement that is, "mutually beneficial, fair and sustainable." Representatives of Ivanhoe Mines and Rio Tinto duly conducted intensive negotiations with a governmental Working Group throughout the last week of July and the first 10 days of August.

The negotiators for Ivanhoe Mines, Rio Tinto and the Government of Mongolia subsequently reached general agreement on a revised Investment Agreement during the week of August 9 that is consistent with the parliamentary resolution's directive on legislative compliance. It is the third such draft agreement to be produced in the past two years.

Parliament expected to begin considering Oyu Tolgoi August 19

The August draft agreement was accepted by the Government's Cabinet. On August 11, Mongolia's National Security Council - consisting of the Prime Minister, the President and Speaker of the State Great Khural (the national Parliament) - agreed to support the agreement. The National Security Council also agreed to support changes to some existing laws to give effect to the Oyu Tolgoi Investment Agreement. The Government announced that one of the proposed changes would involve cancellation of the three-year-old, 68% windfall profits tax on copper and gold effective January 1, 2011. In accordance with provisions of the 2006 Minerals Law, the August agreement also provided the Government of Mongolia with a 34% equity interest in Ivanhoe Mines Mongolia Inc. LLC, which holds the Oyu Tolgoi mining licences.

On August 13, the Government formally submitted draft bills to amend certain laws, along with the approved draft of the Oyu Tolgoi Investment Agreement, to the Speaker of Parliament and asked the Speaker to convene a special session of Parliament, which currently is on summer recess. The parliamentary session is expected to open on August 17 and is expected to begin discussing Oyu Tolgoi on August 19. The Government will ask Parliament to enact a series of proposed legislative changes to support the Investment Agreement. Material developments will be reported during the balance of Q3'09.

Engineering and development advancing in readiness for mine construction

During Q2'09, the engineering and development team remained focused on maintaining the Oyu Tolgoi Project in a position to commence construction once an Investment Agreement is finalized.

The main activity at site was the preparation for the first ventilation raise (a vertical connection from underground to surface), to supply fresh air from surface to the underground workings. A level was established mid-shaft, 512 metres from the surface, which will facilitate the proposal to develop the ventilation shaft, with a raise drill, in two sections and will also allow for localized ground support in an area immediately below the 512-metre level. This development was completed and tunnelling has since recommenced on the 1,300-metre level.

Ivanhoe Mines has continued to advance mine planning and engineering. The Oyu Tolgoi Project's Integrated Development Plan will be updated following the completion of an acceptable Investment Agreement.

Oyu Tolgoi exploration continues on the area between Southwest Oyu and Heruga; IP survey using Zeus(TM) technology begins

During Q2'09, Ivanhoe Mines completed 2,950 metres of drilling on the Oyu Tolgoi Project, entirely in the area between Southwest Oyu and Heruga, within Ivanhoe Mines' 100%-owned Oyu Tolgoi Mining Licence. Two holes were drilled with the one drill rig available. Drill hole OTD1493A was lost at a depth of 1,299 metres in the conglomerate that caps the mineralization. This hole is 500 metres north of the previously reported thick intersection in OTD1487A. Another hole, 500 metres to the north-northeast, is currently at 1,780 metres in siltstones that overlie the conglomerate.

In the second quarter, Ivanhoe Mines and GoviEx Gold entered into an agreement to inaugurate the proprietary Zeus(TM) technology at Oyu Tolgoi in an expanded induced polarization (IP) survey to test the full extent, on strike and at depth, of the Oyu Tolgoi copper and gold mineralized trend. The Zeus IP transmitter has been designed to increase the effectiveness and productivity of exploration surveys through improved resolution of targets and host geology, enabling real-time investigation of mineralized targets to extended depths. The Zeus IP survey is being conducted in the same area as the drilling. The multiple A-B electrode spacings, up to 20 kilometres wide, will allow a greater understanding of the deep mineralization in this area.

GoviEx Gold is an Asia-based mineral exploration company that utilizes proprietary geophysical technology and expertise to conduct exploration activities at the regional, district and mine scale.

MONGOLIA: COAL PROJECTS

SOUTHGOBI ENERGY RESOURCES (80% owned)

SouthGobi's Ovoot Tolgoi coal mine achieves record coal sales

SouthGobi is producing and selling coal at its Ovoot Tolgoi Project in southern Mongolia's Gobi region, 45 kilometres north of Mongolia's border with China.

During Q2'09, SouthGobi remained in the production shut down that was initiated in February 2009 as a result of difficulties in expediting coal shipments across the Mongolia-China border due to sporadic openings at the Ceke crossing. Coal sales during Q2'09 were made from inventory to reduce costs and stockpiles.