Oyu Tolgoi Copper-Gold-Silver Project on Track to Start Initial Production
in Third Quarter of 2012

OYU TOLGOI COPPER-GOLD PROJECT (66% owned)

The Oyu Tolgoi Project
is approximately 550 kilometres south of Ulaanbaatar, Mongolia”s capital city, and
80 kilometres north of the Mongolia-China border. Mineralization on the
property consists of porphyry-style copper, gold, silver and molybdenum
contained in a linear structural trend (the Oyu Tolgoi Trend) that has a strike
length extending over 23 kilometres. Mineral resources have been identified in
a series of deposits throughout this trend. They include, from south to north,
the Heruga Deposit, the Southern Oyu deposits (Southwest Oyu, South Oyu, Wedge
and Central Oyu) and the Hugo Dummett deposits (Hugo South, Hugo North and Hugo
North Extension).

Ivanhoe Mines began capitalizing Oyu Tolgoi development costs on April 1, 2010.
During 2011, additions to property, plant and equipment for the Oyu Tolgoi
Project totalled $2.8 billion, which included development costs. In 2011,
Ivanhoe Mines incurred exploration expenses of $31.8 million at Oyu Tolgoi,
compared to $83.4 million incurred in 2010.

Construction of the Oyu Tolgoi copper-gold complex is advancing toward its
planned start-up in 2012 and 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, with related facilities and necessary infrastructure to
support an initial throughput of 100,000 tonnes of ore per day, is being
constructed to process ore scheduled to be mined from the Southern Oyu open
pit. Initial production of copper-gold-silver concentrate is expected in Q3″12
and commercial production is projected to begin in the first half of 2013.

In conjunction with the surface activities, an 85,000-tonne-per-day
underground block-cave mine also is being developed at the Hugo North Deposit.
The throughput capacity of the concentrator plant is expected to be between
150,000 and 160,000 tonnes of ore per day when the underground mine begins
production.

Fluor Corporation is in charge of overall Oyu Tolgoi construction 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.

Progress continuing to be made on supply of interim electrical power

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. The agreement also confirmed that Ivanhoe Mines has
the right to obtain electrical power from inside or outside Mongolia, including
China, to meet its initial electrical power requirements for up to four years
after Oyu Tolgoi begins commercial production. The agreement established that
a) 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) all of the project”s power requirements would be
sourced from within Mongolia no later than four years after the start of
commercial production.

Oyu Tolgoi LLC is proceeding with arrangements to ensure that electrical
power from China will be available for the start of initial production that is
expected in Q3″12. In early March 2012, Chinese contractors began construction
of the power line and switching station as part of the 87-kilometre,
220-kilovolt power transmission line to be built from the electrical
distribution grid in Inner Mongolia, China, to the China-Mongolia border. The
construction of the transmission towers along the 95-kilometre section of the
power line from the Oyu Tolgoi mine site to the Mongolia-China border was
completed in October 2011.

A separate power-purchase agreement establishing a supply arrangement
between Mongolian and Chinese authorities is required before Chinese electrical
power can be imported into Mongolia. Oyu Tolgoi LLC will be a party to any
agreement for the purchase and supply of electrical power.

Subject to negotiations and final agreement, 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 is being provided, with expansion
planned for April 2012 to meet the project”s more immediate requirements during
the remaining stages of construction.

In November 2011, the Mongolian government provided Oyu Tolgoi LLC with a
cabinet resolution allowing for the future construction by Oyu Tolgoi LLC of a
coal-fired power plant in Mongolia dedicated to the Oyu Tolgoi Project. Such a
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 the establishment
of a dedicated power plant is required for the early production at Oyu Tolgoi,
the required revisions to the construction schedule for the Oyu Tolgoi Project
could adversely affect the project”s ability to achieve the planned start of
commercial production in 2013. 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 2012 and the
financing that would be required for such a plant 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 70% complete at the end of
2011

Overall construction of Oyu Tolgoi”s first phase of development reached
70.0% completion at the end of 2011 and had advanced to 72.7% completion at the
end of February 2012. Total capital invested in the construction of the first
phase of the Oyu Tolgoi Project to the end of 2011 was approximately $4.0
billion.

SOUTHGOBI RESOURCES (58% owned)

Ongoing expansion of SouthGobi”s Ovoot Tolgoi coal mine

SouthGobi continues to mine and sell coal produced at its Ovoot Tolgoi Mine
in Mongolia”s South Gobi Region, approximately 40 kilometres north of the
Shivee Khuren-Ceke crossing at the Mongolia-China border.

Sales and operations

In 2011, SouthGobi had sales of approximately 4.0 million tonnes of coal at
an average realized selling price, before royalties and selling fees, of
approximately $54 per tonne. This was an improvement over the sale of
approximately 2.5 million tonnes in 2010 at an average realized selling price,
before royalties and selling fees, of $35 per tonne. Revenue, net of royalties
and selling fees, increased from $79.8 million in 2010 to $179.0 million in
2011 due to the increased sales volumes and increased selling prices for
individual coal types – a 52% increase for raw, semi-soft coking coal and a 47%
increase for raw, higher-ash coal.

In 2011, SouthGobi produced 4.6 million tonnes of raw coal with a strip
ratio of 3.63 compared to 2.8 million tonnes of raw coal produced in 2010 with
a strip ratio of 3.47. Mining capacity increased in 2011 due to the
commissioning of additional mining equipment. Mining activities also commenced
in the Sunrise Pit during Q3″11. In 2010, production also was negatively impacted
by the Sunset Pit realignment in the first half of 2010, which required
substantial, above-trend waste removal that resulted in lower production
volumes.

SouthGobi is subject to a 5% royalty on all coal sold based on a set
reference price per tonne published monthly by the Government of Mongolia.
Effective January 1, 2011, SouthGobi also became subject to a sliding-scale
additional royalty of up to 5% based on the set reference price of coal. Based
on the reference prices over 2011, SouthGobi was subject to an average 8%
royalty, based on a weighted average reference price of $99 per tonne.
SouthGobi”s effective royalty rate for 2011, based on its average realized
sales price of $54 per tonne, was 15%.

Cost of sales was $168.2 million in 2011, compared to $94.8 million in 2010.
Cost of sales is comprised of the cost of the product sold, inventory
write-downs, mine administration costs, equipment depreciation, depletion of
pre-production stripping costs and stock-based compensation costs. The increase
from 2010 was due to higher sales volumes and higher unit costs.

Coal processing

In February 2012, SouthGobi successfully commissioned and started up the
dry-coal handling facility (DCHF) at the Ovoot Tolgoi Mine. The DCHF has the
capacity to process nine million tonnes of run-of-mine (ROM) coal per year. The
facility includes a 300-tonne-capacity dump hopper, which receives ROM coal to
feed a rotary breaker, and screens that size coal to a maximum of 50
millimetres and reject oversize ash. The DCHF will be upgraded during 2012 to
include dry-air separation, as well as covered load-out conveyors with fan
stackers to transfer processed coals to stockpiles that will enable blending.

In July 2011, SouthGobi entered into an agreement with Ejinaqi Jinda Coal
Industry Co. Ltd. (Ejin Jinda), a subsidiary of China Mongolia Coal Co. Ltd.,
to toll-wash coal from the Ovoot Tolgoi Mine. The five-year agreement, expected
to begin in Q2″12, provides for an annual washing capacity of approximately 3.5
million tonnes of raw coal.

Ejin Jinda”s washing facility is approximately 10 kilometres inside China
from the Mongolia-China border crossing, approximately 50 kilometres from the
Ovoot Tolgoi Mine. Medium- and higher-ash coals processed through the DCHF will
be transported from the Ovoot Tolgoi Mine to the washing facility. Based on
preliminary samples, SouthGobi expects that the washed coal generally will meet
semi-soft coking coal specifications.

Sale of Tsagaan Tolgoi property

On March 5, 2012, SouthGobi announced an agreement to sell its Mongolian
thermal coal property, the Tsagaan Tolgoi Deposit, to Modun Resources Limited
(Modun), a company listed on the Australian Stock Exchange. Under the
transaction, SouthGobi expects to receive $30 million of total consideration, comprising
$7.5 million up-front in cash, $12.5 million up-front in Modun shares and
deferred consideration of an additional $10.0 million also payable in Modun
shares.