SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934

IVANHOE MINES LTD.

(Translation of Registrant’s Name into English)

(Address of Principal Executive Offices)

(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

Form 20-F- o     Form 40-F- þ

(Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

Yes: o     No: þ

(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-                    .)

Enclosed:

Financial Statements, Notes and MD&A to June 30, 2008
CEO Certification
CFO Certification
Press release

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SECOND QUARTER REPORT
JUNE 30, 2008

TABLE OF CONTENTS

ITEM 1. Financial Statements

Unaudited Consolidated Balance Sheets at June 30, 2008 and December 31, 2007

Unaudited Consolidated Statements of Operations for the Three and Six Month Periods ended June 30, 2008 and 2007

Unaudited Consolidated Statement of Shareholders’ Equity for the Six Month Period ended June 30, 2008

Unaudited Consolidated Statements of Cash Flows for the Three and Six Month Periods ended June 30, 2008 and 2007

Notes to the Unaudited Consolidated Financial Statements

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

IVANHOE MINES LTD.

		June 30,				December 31,
		2008				2007
(Unaudited)
ASSETS
CURRENT
Cash and cash equivalents (Note 4)		$	457,667			$	145,694
Accounts receivable			20,908				37,076
Inventories			4,434				1,996
Prepaid expenses			9,556				7,183
Other current assets			145				144
TOTAL CURRENT ASSETS			492,710				192,093
LONG-TERM INVESTMENTS (Note 5)			52,449				52,010
OTHER LONG-TERM INVESTMENTS (Note 6)			47,132				47,132
NOTE RECEIVABLE FROM RELATED PARTY (Note 5 (a))			—				7,512
PROPERTY, PLANT AND EQUIPMENT			312,709				225,623
DEFERRED INCOME TAXES			825				770
OTHER ASSETS			8,643				5,030
TOTAL ASSETS		$	914,468			$	530,170
LIABILITIES
CURRENT
Accounts payable and accrued liabilities		$	68,102			$	109,310
Amounts due under credit facilities (Note 7)			16,914				17,050
TOTAL CURRENT LIABILITIES			85,016				126,360
CONVERTIBLE CREDIT FACILITY (Note 8)			330,698				137,854
LOANS PAYABLE TO RELATED PARTIES (Note 9)			5,088				5,088
DEFERRED INCOME TAXES			2,069				1,511
ASSET RETIREMENT OBLIGATIONS			11,608				9,160
TOTAL LIABILITIES			434,479				279,973
MINORITY INTERESTS (Note 10)			24,919				—
SHAREHOLDERS’ EQUITY
SHARE CAPITAL (Note 11)
Authorized
Unlimited number of preferred shares without par value
Unlimited number of common shares without par value
Issued and outstanding
375,364,768 (2007 - 375,073,433) common shares			1,478,807				1,477,457
SHARE PURCHASE WARRANTS AND SHARE ISSUANCE COMMITMENT (Note 11 (b) and (c))			32,465				26,619
BENEFICIAL CONVERSION FEATURE (Note 8)			28,406				11,869
ADDITIONAL PAID-IN CAPITAL			177,117				52,649
ACCUMULATED OTHER COMPREHENSIVE INCOME			10,269				17,498
DEFICIT			(1,271,994	)			(1,335,895	)
TOTAL SHAREHOLDERS’ EQUITY			455,070				250,197
TOTAL LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY		$	914,468			$	530,170

APPROVED BY THE BOARD:

/s/ D. Korbin				/s/ K. Thygesen
D. Korbin, Director				K. Thygesen, Director

The accompanying notes are an integral part of these consolidated financial statements.

IVANHOE MINES LTD.

		Three months ended June 30,								Six months ended June 30,
		2008				2007				2008				2007
(Unaudited)
OPERATING EXPENSES
Exploration (Note 2 and 11 (a))		$	(67,258	)		$	(79,134	)		$	(124,555	)		$	(132,621	)
General and administrative (Note 11 (a))			(7,451	)			(5,907	)			(14,250	)			(11,103	)
Depreciation			(1,376	)			(1,228	)			(2,669	)			(2,264	)
Mining property care and maintenance			(2,722	)			(777	)			(4,447	)			(2,004	)
Accretion of convertible credit facility (Note 8)			(2,460	)			—				(4,048	)			—
Accretion of asset retirement obligations			(72	)			(125	)			(239	)			(247	)
Write-down of carrying values of property, plant and equipment			(4	)			—				(4	)			(17	)
OPERATING LOSS			(81,343	)			(87,171	)			(150,212	)			(148,256	)
OTHER INCOME (EXPENSES)
Interest income			1,756				3,673				4,666				7,847
Interest expense			(4,202	)			—				(7,849	)			—
Foreign exchange (losses) gains			(1,027	)			6,694				(2,367	)			7,508
Share of income from investment held for sale			—				—				—				427
Gain on sale of equipment			911				—				911				—
Share of loss of significantly influenced investee			(709	)			(1,857	)			(809	)			(2,590	)
Gain on sale of long-term investment and note receivable (Note 5 (a))			201,428				—				201,428				1,018
INCOME (LOSS) BEFORE INCOME TAXES AND OTHER ITEMS			116,814				(78,661	)			45,768				(134,046	)
Provision for income taxes			(760	)			(61	)			(789	)			(117	)
Minority interests (Note 10)			2,287				—				3,763				—
NET INCOME (LOSS) FROM CONTINUING OPERATIONS			118,341				(78,722	)			48,742				(134,163	)
INCOME FROM DISCONTINUED OPERATIONS (Note 3)			9,188				4,564				15,159				13,204
NET INCOME (LOSS)		$	127,529			$	(74,158	)		$	63,901			$	(120,959	)
BASIC EARNINGS (LOSS) PER SHARE FROM
CONTINUING OPERATIONS		$	0.32			$	(0.21	)		$	0.13			$	(0.36	)
DISCONTINUED OPERATIONS			0.02				0.01				0.04				0.04
		$	0.34			$	(0.20	)		$	0.17			$	(0.32	)
DILUTED EARNINGS (LOSS) PER SHARE FROM
CONTINUING OPERATIONS (Note 1 (d))		$	0.29			$	(0.21	)		$	0.12			$	(0.36	)
DISCONTINUED OPERATIONS			0.02				0.01			$	0.04				0.04
		$	0.31			$	(0.20	)		$	0.16			$	(0.32	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (000’s) (Note 1 (d))
BASIC			375,292				374,403				375,195				374,040
DILUTED			431,670				374,403				401,181				374,040

The accompanying notes are an integral part of these consolidated financial statements.

IVANHOE MINES LTD.

										Share Purchase												Accumulated
		Share Capital								Warrants and				Beneficial				Additional				Other
		Number								Share Issuance				Conversion				Paid-In				Comprehensive
		of Shares				Amount				Commitment				Feature				Capital				Income				Deficit				Total
Balances, December 31, 2007			375,073,433			$	1,477,457			$	26,619			$	11,869			$	52,649			$	17,498			$	(1,335,895	)		$	250,197
Net income			—				—				—				—				—				—				63,901				63,901
Other comprehensive loss (Note 5 (b))			—				—				—				—				—				(7,229	)			—				(7,229	)
Comprehensive income																															56,672
Shares issued for:
Exercise of stock options			272,769				1,140				—				—				(563	)			—				—				577
Share purchase plan			18,566				210				—				—				—				—				—				210
Convertible credit facility and share purchase warrants (Notes 8 and 11 (c))			—				—				5,846				16,537				—				—				—				22,383
Dilution gains			—				—				—				—				113,530				—				—				113,530
Stock compensation charged to operations			—				—				—				—				11,501				—				—				11,501
Balances, June 30, 2008			375,364,768			$	1,478,807			$	32,465			$	28,406			$	177,117			$	10,269			$	(1,271,994	)		$	455,070

The accompanying notes are an integral part of these consolidated financial statements.

IVANHOE MINES LTD.

		Three Months Ended June 30,								Six Months Ended June 30,
		2008				2007				2008				2007
(Unaudited)
OPERATING ACTIVITIES
Cash used in operating activities (Note 12)			(65,829	)			(67,111	)			(155,677	)			(101,312	)
INVESTING ACTIVITIES
Proceeds from sale of discontinued operations			10,000				1,314				28,000				20,314
Purchase of long-term investments			(12,455	)			(10,066	)			(12,928	)			(10,066	)
Loan to related party			—				(7,014	)			—				(7,014	)
Proceeds from sale of long-term investments and note receivable (Note 5 (a))			216,730				—				216,730				1,163
Expenditures on property, plant and equipment			(55,439	)			(12,116	)			(97,154	)			(27,047	)
Expenditures on other assets			(2,679	)			(875	)			(3,728	)			(812	)
Other			4				(3	)			—				—
Cash provided by (used in) investing activities			156,161				(28,760	)			130,920				(23,462	)
FINANCING ACTIVITIES
Issuance of convertible credit facility (Note 8)			100,000				—				200,000				—
Issue of share capital			356				5,817				787				8,139
Minority interests’ investment in subsidiaries			26,031				961				139,675				1,086
Cash provided by financing activities			126,387				6,778				340,462				9,225
EFFECT OF EXCHANGE RATE CHANGES ON CASH			(2,976	)			6,384				(3,732	)			7,196
NET CASH INFLOW (OUTFLOW)			213,743				(82,709	)			311,973				(108,353	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			243,924				337,928				145,694				363,572
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	457,667			$	255,219			$	457,667			$	255,219
CASH AND CASH EQUIVALENTS IS COMPRISED OF:
Cash on hand and demand deposits		$	151,909			$	30,731			$	151,909			$	30,731
Short-term money market instruments			305,758				224,488				305,758				224,488
		$	457,667			$	255,219			$	457,667			$	255,219

Supplementary cash flow information (Note 12)

The accompanying notes are an integral part of these consolidated financial statements.

IVANHOE MINES LTD.

1.

SIGNIFICANT ACCOUNTING POLICIES

	(a)		Basis of preparation
			These unaudited interim consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”). The accounting policies followed in preparing these consolidated financial statements are those used by Ivanhoe Mines Ltd. (the “Company”) as set out in the audited consolidated financial statements for the year ended December 31, 2007.
			Certain information and note disclosures normally included for annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted. These interim consolidated financial statements should be read together with the audited consolidated financial statements of the Company for the year ended December 31, 2007.
			In the opinion of management, all adjustments considered necessary (including reclassifications and normal recurring adjustments) to present fairly the financial position, results of operations and cash flows at June 30, 2008 and for all periods presented, have been included in these financial statements. The interim results are not necessarily indicative of results for the full year ending December 31, 2008, or future operating periods. For further information, see the Company’s annual consolidated financial statements, including the accounting policies and notes thereto, included in the Annual Information Form.
			The Company operates in a single reportable segment, being exploration and development of mineral properties.
			References to “Cdn$” refer to Canadian currency, “Aud$” to Australian currency, and “$” to United States currency.
	(b)		Basis of presentation
			For purposes of these consolidated financial statements, the Company, subsidiaries of the Company, and variable interest entities for which the Company is the primary beneficiary, are collectively referred to as “Ivanhoe Mines”.
	(c)		Recent accounting pronouncements
			Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“FAS 157”). In February 2008, the FASB issued a staff position that delays the effective date of SFAS 157 for all nonfinancial assets and liabilities except for those recognized or disclosed at least annually. Therefore, the Company has adopted the provision of FAS 157 with respect to its financial assets and liabilities only.  FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is defined under FAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)

1.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(c)		Recent accounting pronouncements (Continued)
			Valuation techniques used to measure fair value under FAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs.  The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The adoption of this statement did not have a material impact on the Company’s financial condition or results of operations.
			Effective January 1, 2008, the Company adopted FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”) which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The Company did not elect to adopt the fair value option under this Statement.
	(d)		Earnings (loss) per share
			The following table reconciles the numerators and the denominators of the basic and diluted earnings (loss) per share computations for net income from continuing operations:

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Earnings (loss) from continuing operations		$	118,341			$	(78,722	)		$	48,742			$	(134,163	)
Effect of dilutive securities
Convertible credit facility			6,516				—				—				—
Adjusted earnings (loss) from continuing operations		$	124,857			$	(78,722	)		$	48,742			$	(134,163	)
Basic weighted average number of shares outstanding			375,292				374,403				375,195				374,040
Effect of dilutive securities
Convertible credit facility			34,760				—				—				—
Share purchase warrants			14,341				—				17,307				—
Private placement option			7,214				—				8,330				—
Stock options			63				—				349				—
Adjusted weighted average number of shares outstanding			431,670				374,403				401,181				374,040

IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)

1.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

	(d)		Earnings (loss) per share (Continued)
			The following table lists securities that could potentially dilute basic earnings (loss) per share in the future that were not included in the computation of diluted earnings (loss) per share because to do so would have been antidilutive for the periods presented:

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Convertible credit facility			—				—				29,856				—
Share purchase warrants			35,000				92,053				—				92,053
Private placement option			—				46,304				—				46,304
Stock options			14,238				12,891				13,952				12,891
			49,238				151,248				43,808				151,248

2.		EXPLORATION EXPENSES
		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, at which time subsequent exploration costs and the costs incurred to develop a property are capitalized. Included in exploration costs are engineering and development costs associated with the Company’s Oyu Tolgoi Project located in Mongolia. It is expected that the Company will commence capitalizing costs of this nature once an Investment Agreement with the Government of Mongolia is finalized.
		During the three and six months ended June 30, 2008, the majority of the $67.3 million and $124.6 million (2007 — $79.1 million and $132.6 million) charged to exploration expenses, respectively, consisted of the following exploration and development costs on the Company’s Mongolian properties:

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Oyu Tolgoi
Concentrator and Infrastructure Engineering		$	6,651			$	19,437			$	10,218			$	28,633
Site Construction			10,190				21,088				16,511				39,788
Shaft Sinking			11,670				11,418				22,714				18,638
Exploration			3,017				1,348				8,478				5,828
Owner’s Costs (a)			8,792				9,802				19,069				17,316
			40,320				63,093				76,990				110,203
Coal Division (a)			9,403				4,598				12,964				5,825
Other Mongolia Exploration (including Energy Resources Ltd.) (a)			3,681				6,127				7,192				9,246
		$	53,404			$	73,818			$	97,146			$	125,274

(a)

Includes non-cash stock-based compensation (Note 11 (a)).

IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)

3.		DISCONTINUED OPERATIONS
		In February 2005, Ivanhoe Mines sold the Savage River Iron Ore Project (the “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.
		On March 31, 2008 Ivanhoe Mines received $18.0 million of the third annual contingent payment with an additional $10.0 million received on April 2, 2008. Subsequently, on July 2, 2008 Ivanhoe Mines received the remaining $1.2 million of the third annual contingent payment. This payment of $29.2 million includes $6.0 million of contingent income recognized in the first quarter of 2008.
		At June 30, 2008, Ivanhoe Mines has accrued $9.2 million in relation to the fourth contingent annual payment due in March 2009.
		To date, Ivanhoe Mines has received $99.2 million in proceeds from the sale of the Project.
4.		CASH AND CASH EQUIVALENTS
		Cash and cash equivalents at June 30, 2008 included SouthGobi Energy Resources Ltd.’s (Canada) (79.0% owned) (“SouthGobi”) cash and cash equivalents balance of $70.9 million (December 31, 2007 — $1.4 million) which was not available for Ivanhoe Mines’ general corporate purposes.
5.		LONG-TERM INVESTMENTS

		June 30				December 31
		2008				2007
Investment in company subject to significant influence (a)		$	—			$	5,354
Investments “available for sale” (b)			52,449				46,656
		$	52,449			$	52,010

	(a)		Investment in company subject to significant influence — Jinshan
			During the three month period ended June 30, 2008, Ivanhoe Mines completed the sale of 67.5 million shares of Jinshan Gold Mines Inc. (“Jinshan”) and the Jinshan note receivable for total proceeds of $216.7 million (Cdn$217.7 million). This transaction resulted in a gain on sale of $201.4 million being recognized.
			During the six months ended June 30, 2008, Ivanhoe Mines recorded a $0.8 million (2007 — $2.6 million) equity loss on its investment in Jinshan.

IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)

5.

LONG-TERM INVESTMENTS (Continued)

(b)

Investments “available for sale”

		June 30, 2008																December 31, 2007
		Equity				Cost				Unrealized				Fair				Equity				Cost				Unrealized				Fair
		Interest				Basis				Gain (Loss)				Value				Interest				Basis				Gain				Value
Intec Ltd. (i)			6.1	%		$	1,245			$	492			$	1,737				6.1	%		$	916			$	1,726			$	2,642
Entrée Gold Inc.			14.7	%			19,957				6,385				26,342				14.8	%			19,957				13,354				33,311
Exco Resources N.L. (ii)			19.9	%			14,643				3,276				17,919				12.0	%			6,726				2,075				8,801
Jinshan Gold Mines Inc. (iii)			0.9	%			3,776				(61	)			3,715				0.0	%			—				—				—
Redox Diamonds Ltd.			11.9	%			1,451				—				1,451				11.9	%			1,451				—				1,451
GoviEx Gold Inc. (iv)			1.8	%			1,000				—				1,000				0.0	%			—				—				—
Wind Energy Group Inc.			17.2	%			—				—				—				20.0	%			—				—				—
Asia Now Resources Corp.			1.9	%			103				177				280				1.9	%			103				343				446
Other			—				5				—				5				—				5				—				5
						$	42,180			$	10,269			$	52,449							$	29,158			$	17,498			$	46,656

	(i)		During the three month period ended June 30, 2008, Ivanhoe Mines acquired 6.9 million shares of Intec Ltd. at a cost of $328,000 (Aud$343,000).
	(ii)		During the three month period ended June 30, 2008, Ivanhoe Mines exercised its full option entitlement of 21.1 million Exco Resources N.L. (“Exco”) share purchase options to acquire 21.1 million shares of Exco at a cost of $6,926,000 (Aud$7,392,000).
			Also during the three month period ended June 30, 2008, Ivanhoe Mines acquired an additional 3.0 million shares of Exco at a cost of $990,000 (Aud$1,050,000).
	(iii)		During the three month period ended June 30, 2008, Ivanhoe Mines exercised its full warrant entitlement of 1.5 million Jinshan warrants to acquire 1.5 million shares of Jinshan at a cost of $3,776,000 (Cdn$3,750,000).
	(iv)		During the three month period ended June 30, 2008, Ivanhoe Mines acquired 1.0 million shares of GoviEx Gold Inc. in exchange for a geophysics exploration team and certain mineral exploration equipment.

6.		OTHER LONG-TERM INVESTMENTS
		At June 30, 2008, the Company held non-bank-sponsored asset-backed commercial paper (ABCP) issued by a number of trusts with an original cost of $70.7 million. This ABCP was rated by DBRS as R-1 (high) at the date of investment and met the criteria of the Company’s investment policy. An R-1 (high) rating by DBRS is the highest rating for commercial paper. These investments matured during the third quarter of 2007 but, as a result of liquidity issues in the ABCP market, did not settle on maturity.

IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)

6.		OTHER LONG-TERM INVESTMENTS (Continued)
		On August 16, 2007, it was announced that a group representing banks, asset providers and major investors had agreed to a standstill with regard to all non-bank-sponsored ABCP (the Montreal Proposal). Under the proposal, the affected ABCP will be converted into term floating-rate notes maturing no earlier than the scheduled termination dates of the underlying assets. The Montreal Proposal called for investors to continue to roll their ABCP during the standstill period. The Company is not a signatory to this agreement.
		On September 6, 2007, a pan-Canadian restructuring committee (the Committee) consisting of major investors was formed to propose a solution to the liquidity problem affecting the ABCP market. On March 17, 2008 the Committee filed an application in the Ontario Superior Court of Justice (the Court) under the Companies’ Creditors Arrangement Act asking the Court to call a meeting of the ABCP noteholders. On March 20, 2008, the Committee made available additional documents outlining the details of the proposed restructuring plan. On April 25, 2008, the plan was approved by the noteholders and was sanctioned by the Court in June 5, 2008 (the Sanction Order). On June 25 and 26, 2008, the Court of Appeal for Ontario heard motions from a group of Montreal Proposal ABCP holders seeking leave to appeal, and an appeal of, the Sanction Order (the Appeal). There currently is no certainty regarding the outcome of the Committee Restructuring Plan and the Appeal.
		Due to the disruption in the ABCP market, quoted market values of the investment have not been available. Based on the information provided by the Committee, it is estimated that, of the $70.7 million of ABCP in which the Company has invested:

	•		$4.8 million is represented by traditional securitized assets;
	•		$60.8 million is represented by a combination of leveraged collaterized debt, synthetic assets and traditional securitized assets; and
	•		$5.1 million is represented by assets that have an exposure to U.S. sub-prime mortgages.

		The Company has estimated the fair value of its investments in ABCP considering the best available public information regarding market conditions and other factors that a market participant would consider for such investments. The assumptions used in determining the estimated fair value reflect the public statements made by the Committee that it expects the ABCP will be converted into various long-term floating-rate notes with maturities matching the maturities of the underlying assets.
		The Company has used a scenario-based probability-weighted discounted cash flow approach to value its ABCP that considered expected interest rates of 3.3%, estimated restructuring fees, estimated renegotiated maturity dates of five to seven years, and estimated principal reductions ranging from 0% to 100%, depending on the nature of the underlying assets and the scenario modelled. As a result of this valuation, the Company recorded a write-down of $24.5 million in 2007, representing 34.6% of the original face value. No additional impairment has been recorded in 2008.
		Continuing uncertainties regarding the value of the assets that underlie the ABCP, the amount and timing of cash flows and the outcome of the restructuring process could give rise to a further change in the fair value of the Company’s investment in the ABCP, which would impact the Company’s results from operations.

IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)

7.		AMOUNTS DUE UNDER CREDIT FACILITIES
		In October 2007, Ivanhoe Mines obtained non-revolving bank loans which are due on demand and secured against certain of the ABCP products (Note 6).
8.		CONVERTIBLE CREDIT FACILITY

						December 31,
		June 30, 2008				2007
Principal amount of convertible credit facility		$	350,000			$	150,000
Accrued interest			12,264				2,379
			362,264				152,379
(Deduct) add
Beneficial conversion feature			(28,406	)			(11,869	)
Share purchase warrants			(9,403	)			(3,557	)
Accretion of discount			6,243				901
		$	330,698			$	137,854

		In September 2007, Ivanhoe Mines announced that Rio Tinto would provide a convertible credit facility of up to $350.0 million to finance ongoing mine development activities at the Oyu Tolgoi Project pending the finalization of an Investment Agreement between Ivanhoe Mines and the Government of Mongolia. A definitive Credit Agreement was signed in October 2007, following which Ivanhoe Mines made an initial draw against the credit facility of $150.0 million. A second draw of $100.0 million was made in January 2008. The final draw on the credit facility of $100.0 million was made on April 10, 2008.
		The proceeds of the credit facility will be used to ensure that long-lead-time orders for the manufacture of mining equipment such as trucks, tires, electric motors and ball mills, and development work on Shafts No. 1 and No. 2 at Oyu Tolgoi, remain on schedule pending a satisfactory conclusion of an Investment Agreement with the Mongolian Government. The Credit Agreement contemplates that all such development activities and expenditures will be made in accordance with an Operating Plan and Budget unanimously approved by the Ivanhoe Mines and Rio Tinto representatives on the Oyu Tolgoi Technical Committee.
		Amounts advanced under the credit facility will bear interest at a rate per annum equal to the three-month London Inter-Bank Offered Rate plus 3.3%, and will mature on September 12, 2010. The outstanding principal amount and up to $108.0 million in interest are convertible into a maximum of 45.8 million common shares of Ivanhoe Mines at a price of US$10.00 per share and will be automatically converted into common shares upon maturity.
		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 Ivanhoe Mines at a price of US$10.00 per share for a period of five years (Note 11 (c)). These warrants may be exercised on a basis proportionate to the amount of funds drawn down by Ivanhoe Mines under the credit facility, plus interest.

IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)

8.		CONVERTIBLE CREDIT FACILITY (Continued)
		Amounts drawn on the credit facility are allocated to the convertible credit facility liability and incremental exercisable share purchase warrants based on their respective fair values at the time of the draw. The existence of a beneficial conversion feature is then assessed using an effective conversion price based on the proceeds allocated to the convertible credit facility liability in accordance with EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments”. Allocating proceeds to share purchase warrants and, if necessary, a beneficial conversion feature results in discounts on the convertible credit facility liability. These discounts are recognized as accretion expense over the life of the credit facility using the effective interest rate method. Any unamortized discounts are expensed immediately upon conversion of the credit facility.
		The accounting treatment for paid-in-kind interest is the same as that described above for amounts drawn on the credit facility.
		During the three and six months ended June 30, 2008, Ivanhoe Mines capitalized $1.3 million and $2.4 million of interest expense and $0.8 million and $1.3 million of accretion expense, respectively, incurred on the convertible credit facility.
9.		LOANS PAYABLE TO RELATED PARTIES
		These loans are payable to the Chairman of the Company or a company controlled by him. They are non-interest bearing, unsecured and repayable in U.S. dollars. Repayment of these loans has been postponed until Ivanhoe Mines receives an aggregate of $111.1 million from the sale of the Savage River Project. To date, $99.2 million has been received from the sale (Note 3).
10.		MINORITY INTERESTS
		At June 30, 2008 there were minority interests in Bakyrchik Mining Venture (“BMV”) (Kazakhstan) (70% owned) and SouthGobi.
		Currently, losses applicable to the minority interests in BMV are being allocated to Ivanhoe Mines since those losses exceed the minority interests in the net assets of BMV.

		Minority Interests
		SouthGobi				BMV				Total
Balance, December 31, 2007		$	—			$	—			$	—
Increase in minority interest arising from share issuances by subsidiary			28,682				—				28,682
Minority interests’ share of loss			(3,763	)			—				(3,763	)
Balance, June 30, 2008		$	24,919			$	—			$	24,919

IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)

11.

SHARE CAPITAL

(a)

Equity Incentive Plan

		During the six months ended June 30, 2008, 445,000 options were granted. These options have a weighted average exercise price of Cdn$11.37, lives of five to seven years, and vest over periods ranging from one to four years. The weighted average grant-date fair value of stock options granted during the six months ended June 30, 2008 was Cdn$4.13. The fair value of these options was determined using the Black-Scholes option pricing model. The option valuation was based on an average expected option life of 3.3 years, a risk-free interest rate of 2.93%, an expected volatility of 54%, and a dividend yield of nil%.
		During the six months ended June 30, 2008, 348,000 options were exercised and 359,500 options were cancelled.
		Stock-based compensation charged to operations was allocated between exploration expenses and general and administrative expenses as follows:

		Three months ended June 30,								Six months ended June 30,
		2008				2007				2008				2007
Exploration		$	2,547			$	5,705			$	4,793			$	7,178
General and administrative			3,329				1,194				6,708				2,195
		$	5,876			$	6,899			$	11,501			$	9,373

	(b)		Rio Tinto Placement
			Under the terms of the Rio Tinto Agreement, Rio Tinto is committed to 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 and Rio Tinto. Rio Tinto has the option to exercise the second tranche earlier. This second tranche will consist of approximately 46.3 million shares at a subscription price of $8.38 per share, for proceeds totalling $388.0 million.
			The following share purchase warrants granted to Rio Tinto during 2006 were outstanding as at June 30, 2008:

	(i)		46,026,522 share purchase warrants with exercise prices ranging between $8.38 and $8.54 per share. These warrants are exercisable until one year after the earlier of the completion of the Investment Agreement and October 27, 2009.
	(ii)		46,026,522 share purchase warrants with exercise prices ranging between $8.38 and $9.02 per share. These warrants are exercisable until two years after the earlier of the completion of the Investment Agreement and October 27, 2009.

IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)

11.

SHARE CAPITAL (Continued)

	(c)		Rio Tinto Financing
			As part of the credit facility transaction disclosed in Note 8, Rio Tinto received share purchase warrants exercisable to purchase up to 35.0 million common shares of Ivanhoe Mines at a price of US$10.00 per share at any time on or before October 24, 2012. These warrants may be exercised on a basis proportionate to the sum of all amounts drawn down on the facility and interest added to the principal amount of the facility. As at June 30, 2008, 35.0 million share purchase warrants were exercisable.

12.		SUPPLEMENTARY CASH FLOW INFORMATION
		Reconciliation of net loss to net cash flow from operating activities

		Three Months Ended June 30,								Six Months Ended June 30,
		2008				2007				2008				2007
Net income (loss)		$	127,529			$	(74,158	)		$	63,901			$	(120,959	)
Income from discontinued operations			(9,188	)			(4,564	)			(15,159	)			(13,204	)
Items not involving use of cash
Stock-based compensation			5,876				6,899				11,501				9,373
Accretion expense			2,532				125				4,287				247
Accrued mining property care and maintenance			448				—				448				—
Depreciation			1,376				1,228				2,669				2,264
Write-down of carrying values of property, plant and equipment			4				—				4				17
Share of income from investment held for sale, net of cash distribution			—				—				—				14,575
Accrued interest expense			4,058				—				7,483				—
Unrealized foreign exchange losses (gains)			2,739				(6,415	)			3,909				(7,252	)
Share of loss of significantly influenced investees			709				1,857				809				2,590
Gain on sale of long-term investments			(201,428	)			—				(201,428	)			(1,018	)
Gain on sale of equipment			(911	)			—				(911	)			—
Deferred income taxes			512				(11	)			504				(12	)
Minority interests			(2,287	)			—				(3,763	)			—
Net change in non-cash operating working capital items:
(Increase) decrease in:
Accounts receivable			6,664				3,581				3,327				2,498
Inventories			(1,656	)			1,228				(1,552	)			1,926
Prepaid expenses			54				(3,243	)			(2,373	)			(3,025	)
Other current assets			(1	)			142				(1	)			142
(Decrease) increase in:
Accounts payable and accrued liabilities			(2,859	)			6,220				(29,332	)			10,526
Cash used in operating activities			(65,829	)			(67,111	)			(155,677	)			(101,312	)

INTRODUCTION

This discussion and analysis of the financial position and results of operations (MD&A) of Ivanhoe Mines Ltd. should be read in conjunction with the unaudited consolidated financial statements of Ivanhoe Mines Ltd. and the notes thereto for the three and six month periods ended June 30, 2008, and with the audited consolidated financial statements of Ivanhoe Mines Ltd. and the notes thereto for the year ended December 31, 2007. These financial statements have been prepared in accordance with United States of America generally accepted accounting principles (U.S. GAAP). In this MD&A, unless the context otherwise dictates, a reference to the Company refers to Ivanhoe Mines Ltd. and a reference to Ivanhoe Mines refers to Ivanhoe Mines Ltd., together with its subsidiaries. Additional information about the Company, including its Annual Information Form, is available at www.sedar.com.

References to “C$” refer to Canadian dollars, “A$” to Australian dollars, and “$” to United States dollars.

This discussion and analysis contains forward-looking statements. Please refer to the cautionary language on page 27.

The effective date of this MD&A is August 14, 2008.

OVERVIEW

IVANHOE MINES ISSUES FINANCIAL RESULTS AND REVIEW OF
OPERATIONS FOR THE SECOND QUARTER OF 2008

HIGHLIGHTS

	•		Ivanhoe Mines completed sufficient exploration work to meet the $35 million threshold spending required to form an 80%-20% joint venture with Entrée Gold on mineralized ground adjoining Ivanhoe Mines’ Oyu Tolgoi copper-gold discoveries in Mongolia.
	•		Ongoing exploration continued to expand the scope and scale of the Heruga copper-gold-molybdenum deposit that has been discovered on the Ivanhoe-Entrée JV ground south of Oyu Tolgoi. Current exploration drilling is expanding the Heruga Deposit to the north, onto ground held 100% by Ivanhoe Mines.

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

	•		SouthGobi Energy Resources (SouthGobi), Ivanhoe Mines’ 79%-owned subsidiary, began mining high-quality coal at its new Ovoot Tolgoi open-pit mine in southern Mongolia and is preparing to make its first shipment to a customer in China. SouthGobi reported a major increase in its independently verified, 43-101-compliant, Mongolian coal resource on July 31.
	•		An initial public offering of shares in subsidiary Ivanhoe Australia was completed August 1, attracting investments totalling A$125 million. Ivanhoe Australia’s stock began trading on the Australian Stock Exchange on August 6.
	•		Ivanhoe Mines recorded a gain of $201.4 million on the sale of its interest in Jinshan Gold Mines Inc. (Jinshan) in May 2008. Ivanhoe Mines’ entire 42% ownership stake in Jinshan, one of the largest foreign gold producers in China, was sold to China National Gold Group Corporation of Beijing, and its financial partners, at a price of C$3.11 per share, and the Jinshan promissory note of C$7.5 million, for proceeds of $216.7 million.
	•		Ivanhoe Mines and its Kazakh partners are continuing their efforts to create a new mining and exploration company, Altynalmas Gold Ltd., to carry out ongoing development of the Bakyrchik Gold Project and acquire additional gold assets in Kazakhstan.

MONGOLIA: Ivanhoe Mines’ Oyu Tolgoi Copper-Gold Project

Joint venture to develop adjoining ground to be formed with Entrée Gold

In June 2008, the $35 million earn-in amount was reached on the Entrée Gold-Ivanhoe Mines joint-venture agreement areas, which include the Heruga Deposit discoveries south of Ivanhoe Mines’ Southern Oyu Deposits at Oyu Tolgoi. Ivanhoe Mines now has earned a participating interest of 80% in all minerals extracted below a sub-surface depth of 560 metres on the optioned property and a 70% participating interest in all minerals extracted from surface to a depth of 560 metres. An 80%-20% Ivanhoe-Entrée joint venture is being formed. Ivanhoe Mines directly held approximately 14.7% of the issued and outstanding share capital of Entrée Gold, in addition to the earn-in rights, at June 30, 2008.

During Q2’08, Ivanhoe Mines completed 6,820 metres of drilling on the Heruga Deposit. Heruga remains open at both ends, with the latest drilling extending the mineralization north to the southern border of the Ivanhoe Mines’ Oyu Tolgoi mining licence. Possible extensions on Ivanhoe Mines’ ground are being explored.

Oyu Tolgoi underground development proceeding

The current focus at Oyu Tolgoi is the underground mine development on the 1,300-metre level off Shaft No. 1. Mining advanced a total of 342 metres during the second quarter. The two parallel access tunnels being excavated have covered a distance of 250 metres, one-third of the way toward the Hugo Dummett North high-grade copper and gold ore body. The tunnels will provide miners, drillers and technicians with access to the ore body for further exploration and geotechnical work.

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

Safety performance was very good, with no lost-time injuries during the quarter. The focus continues to be on safety awareness and job training of the Mongolian underground crews.

During Q2’08, engineering and procurement activities for the concentrator, infrastructure and underground mine continued to progress. The engineering and equipment schedules support the planned construction schedule. Engineering for the coal-fired power plant is also underway.

Completion of Oyu Tolgoi Investment Agreement expected to be priority for new Mongolian government

The negotiation of an acceptable Investment Agreement with the Government of Mongolia for the development of the Oyu Tolgoi deposit remains a continuing priority for the Company.

The June 29 national election in Mongolia resulted in a majority mandate for the governing Mongolian People’s Revolutionary Party (MPRP). Ivanhoe Mines believes that negotiation of a long–sought Investment Agreement will resume after a new cabinet is appointed and the first session of the new Parliament begins.

Various proposed revisions to the Minerals Law were introduced in Parliament earlier this year, but no vote was held before the recess of the spring session of Parliament shortly before the June general election. Consideration of possible Minerals Law amendments is expected to be on the agenda for the new Parliament sometime this fall. Ivanhoe Mines is optimistic that discussions that were held with the Prime Minister and members of the former cabinet before the general election will continue once the new Government takes office and the review of the Minerals Law is completed.

Earlier this year, Ivanhoe Mines notified the Government of potential adverse impacts on the costs and schedule for the Oyu Tolgoi Project that would result from delays in securing an approved Investment Agreement. A final Investment Agreement also remains subject to approvals by the respective Boards of Directors of Ivanhoe Mines and Rio Tinto.

MONGOLIA & INDONESIA: SouthGobi Energy Resources’ Coal Mining and Development Projects

SouthGobi ready to start deliveries from Ovoot Tolgoi open-pit coal mine in Mongolia

SouthGobi mined approximately 250,000 tonnes of coal at its new Ovoot Tolgoi mine in southern Mongolia during Q2’08. A truck transportation fleet has been assembled and is ready to start coal deliveries to customers in China during Q3’08.

The Ovoot Tolgoi mine is 45 kilometres north of Mongolia’s border with China. A Chinese consortium already has built a railway line to Ceke, on the Chinese side of the border, where a major, automated, railcar bulk-loading facility opened last year. The Mongolian Government is formally transforming the border point at Ceke into a full-time crossing, facilitating deliveries of Ovoot Tolgoi coal to customers in

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

China. SouthGobi has purchased an automated, 150-tonne scale to be set up at the border to expedite coal-truck clearances.

Major increases in coal resources at SouthGobi’s Ovoot Tolgoi Mine

On July 31, 2008, SouthGobi announced that an independent estimate compliant with National Instrument 43-101 had sharply increased resources at Ovoot Tolgoi. The new report shows that Ovoot Tolgoi’s West Field now contains measured plus indicated coal resources of 193.2 million tonnes, with an additional inferred resource of approximately 138.8 million tonnes of coal. A similar exploration and development program will be applied to the South-East Field surface and underground areas at Ovoot Tolgoi in the 2009 exploration program.

The new resource estimate for the West Field resources, combined with the previously identified resources in the South-East Field, bring total Ovoot Tolgoi surface resources to 258.9 million tonnes of measured plus indicated coal resources, an increase of 73% over the 149.6 million tonnes previously reported, with an additional inferred coal resource of approximately 145.3 million tonnes, an increase of 399% over the 29.1 million tonnes previously reported.

Sumber Project a new coal discovery near Ovoot Tolgoi

In June 2008, SouthGobi announced that it had intersected significant thicknesses in near-surface seams of high-quality coking and thermal coal, including one intercept of 51.5 metres, at the new Sumber Coal Project. The Sumber Project is comprised of N, O and E Fields. Sumber starts 16 kilometres east of Ovoot Tolgoi and stretches for approximately 18 kilometres to the east. Eleven coal seams have been identified.

Open-pit coal mine planned for Mamahak Project in Indonesia

In April 2008, SouthGobi signed a joint venture agreement with Score Resources Ltd. to explore and develop the Mamahak Coal Project in East Kalimantan, Indonesia. Through its participation in the joint venture, SouthGobi has commenced the development of a “green fields” surface coal deposit in four concessions covering 26,065 hectares. SouthGobi has a 56% interest in Mamahak with provisions to increase its interest to 100%. The Mamahak Project is ideally located to supply the Japanese, Korean, Indian and Chinese coastal markets.

The 2008 drilling program has identified direct shipping, semi-soft coking coal amenable to surface mining. While further drilling is ongoing, work to date on a 4,996-hectare portion of the MCM concession supports SouthGobi’s objective to develop an open-pit mining operation.

The intent of the drilling program is to determine down-dip continuity, thickness variations, coal quality and structure. The close proximity of the Mahakam River, within 26 kilometres of the MCM concession, has established this area as the priority location for initial project development. Future exploration is still required on the remaining three concession areas to fully assess the ultimate potential for the entire project.

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

AUSTRALIA: Ivanhoe Australia successfully completed A$125 million IPO

Financing to facilitate development of iron-oxide copper-gold discoveries in northwestern Queensland

On August 5, 2008, Ivanhoe Mines announced the completion of subsidiary Ivanhoe Australia’s A$125 million initial public offering (IPO). The offering, which was heavily supported by investors in the United States, Canada and Asia, raised capital for the ongoing exploration and development of Ivanhoe Australia’s extensive tenements that cover 2,250 square kilometres in the Mount Isa-Cloncurry mineral district in northwest Queensland – one of the world’s richest mineral-producing regions.

Ivanhoe Australia’s current focus is on the preparation of development studies for its iron-oxide copper-gold (IOCG) discoveries at three key projects: Mount Elliott, Mount Dore and the Starra Line. A high-grade IOCG zone has been delineated at the Mount Elliott Project within a major copper-gold system. An infill-drilling program at the Mount Dore project is delineating a large oxide-copper resource and evaluating its suitability for heap-leach, solvent extraction-electrowinning processing – as well as testing deeper, polymetallic and copper-gold sulfide mineralization. Re-evaluation of the previous copper-gold mines on the Starra Line is underway. Independent, JORC-compliant estimates of the mineral resources identified to date at the three projects are expected to be completed during the current, third-quarter. Significant uranium potential also has been identified in the company’s northern and central tenements, consistent with the results of previous operators, including Rio Tinto.

The IPO consisted of 62.5 million new shares at an offer price of A$2.00 per share. A A$38.4 million portion of the IPO proceeds was used to partially repay Ivanhoe Australia’s A$91.0 million inter-company loan received from Ivanhoe Mines.

Ivanhoe Australia, now 82.9% owned by Ivanhoe Mines, commenced trading on the Australian Stock Exchange on August 6 under the symbol IVA.

KAZAKHSTAN: Construction advancing on Ivanhoe Mines’ Bakyrchik Gold Project

Bakyrchik Gold Project to be vended into new gold company to be formed by Ivanhoe and Kazakh partners

Ivanhoe Mines, which currently holds a 70% interest in the Bakyrchik Gold Project in north-eastern Kazakhstan, has an agreement with several Kazakh strategic partners to consolidate 100% ownership of the project and other gold mining assets in Kazakhstan in a new mining and exploration company, Altynalmas Gold Ltd. Completion of the combination transaction is subject to various regulatory approvals in Kazakhstan.

Work is continuing on the construction of the demonstration plant, which is expected be completed by the end of Q3’08. Commissioning is scheduled to start in Q4’08. This plant is expected to process 100,000 tonnes of ore per annum, using roasting to oxidize the ore, followed by conventional grinding and cyanidation.

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

CHINA: Gain of $201 million from sale of Ivanhoe Mines’ stake in Jinshan

Ivanhoe Mines recorded a gain of $201.4 million on the sale of its interest in Jinshan in May 2008. Ivanhoe’s entire 42% ownership stake in Jinshan, one of the largest foreign gold producers in China, was sold to China National Gold Group Corporation of Beijing, and its financial partners, at a price of C$3.11 per share, and the Jinshan promissory note of C$7.5 million, for proceeds of $216.7 million.

In Q2’08, Ivanhoe Mines exercised its remaining Jinshan warrants and purchased 1.5 million common shares of Jinshan at C$2.50 for a total cost of C$3.75 million.

FINANCIAL RESULTS

Ivanhoe Mines is engaged primarily in exploration activities, although a significant portion of its expenditures relate directly to development work at its Oyu Tolgoi Project. Exploration costs are charged to operations in the period incurred and often constitute the bulk of Ivanhoe Mines’ operating loss for that period. It is expected that Ivanhoe Mines will commence capitalizing Oyu Tolgoi development costs once an Investment Agreement is finalized with the Government of Mongolia.

In Q2’08, Ivanhoe Mines recorded net income of $127.5 million (or $0.34 per share (basic)), compared to a net loss of $74.2 million (or $0.20 per share (basic)) in Q2’07, representing a $201.7 million increase. This increase was the result of the $201.4 million gain on sale of long-term investments recognized by Ivanhoe Mines on the sale of its interest in Jinshan. Offsetting this gain was $67.3 million in exploration expenses, a decrease of $11.9 million from Q2’07. Included in exploration expenses are shaft sinking and engineering and development costs for the Oyu Tolgoi Project that have been expensed and not capitalized. Results for Q2’08 also were affected by $7.5 million in general and administrative expenses, $2.5 million in accretion expense and $4.2 million in interest expense on the convertible credit facility, and $9.2 million in income from discontinued operations.

In Q2’08, Ivanhoe Mines expensed $67.3 million in exploration and development activities, compared to $79.1 million in Q2’07. In Q2’08, Ivanhoe Mines’ exploration activities were focused on the Oyu Tolgoi Project and the Cloncurry Project in Queensland, Australia. The majority of the $67.3 million was spent on the Mongolian projects ($53.4 million), as well a significant amount at Cloncurry ($10.8 million).

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

INDEX

The MD&A is comprised of the following sections:

	1.		Selected Quarterly Data
	2.		Review of Operations

	A.		Exploration Activities
	B.		Discontinued Operations
	C.		Administrative and Other

	3.		Liquidity and Capital Resources
	4.		Share Capital
	5.		Outlook
	6.		Off-Balance-Sheet Arrangements
	7.		Contractual Obligations
	8.		Changes in Accounting Policies
	9.		Critical Accounting Estimates
	10.		Recent Accounting Pronouncements
	11.		Risks and Uncertainties
	12.		Related-Party Transactions
	13.		Changes in Internal Control over Financial Reporting
	14.		Qualified Persons
	15.		Cautionary Statements
	16.		Forward-Looking Statements

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

SELECTED QUARTERLY DATA

		Quarter Ended
		Jun-30				Mar-31				Dec-31				Sep-30
($ in millions of U.S. dollars, except per share information)		2008				2008				2007				2007
Exploration expenses		$	(67.3	)		$	(57.3	)		$	(96.6	)		$	(74.8	)
General and administrative			(7.5	)			(6.8	)			(9.0	)			(7.0	)
Share of income from investment held for sale			—				—				—				—
Foreign exchange gains (losses)			(1.0	)			(1.3	)			2.3				2.1
Gain on sale of long-term investments			201.4				—				—				—
Net income (loss) from continuing operations			118.3				(69.6	)			(265.5	)			(90.0	)
Income from discontinued operations			9.2				6.0				11.9				6.8
Net income (loss)			127.5				(63.6	)			(253.6	)			(83.1	)
Net income (loss) per share — basic
Continuing operations		$	0.32			$	(0.19	)		$	(0.71	)		$	(0.24	)
Discontinued operations		$	0.02			$	0.02			$	0.04			$	0.02
Total		$	0.34			$	(0.17	)		$	(0.67	)		$	(0.22	)
Net income (loss) per share — diluted
Continuing operations		$	0.29			$	(0.19	)		$	(0.71	)		$	(0.24	)
Discontinued operations		$	0.02			$	0.02			$	0.04			$	0.02
Total		$	0.31			$	(0.17	)		$	(0.67	)		$	(0.22	)

		Quarter Ended
		Jun-30				Mar-31				Dec-31				Sep-30
		2007				2007				2006				2006
Exploration expenses		$	(79.1	)		$	(53.5	)		$	(70.4	)		$	(67.3	)
General and administrative			(5.9	)			(5.2	)			(8.9	)			(6.9	)
Share of income from investment held for sale			—				0.4				7.4				9.0
Foreign exchange gains (losses)			6.7				0.8				(3.7	)			(0.4	)
Gain on sale of long-term investments			—				1.0				2.7				—
Net (loss) from continuing operations			(78.7	)			(55.4	)			(73.5	)			(68.0	)
Income from discontinued operations			4.6				8.6				4.8				1.5
Net (loss)			(74.2	)			(46.8	)			(68.7	)			(66.5	)
Net (loss) income per share — basic
Continuing operations		$	(0.21	)		$	(0.15	)		$	(0.21	)		$	(0.20	)
Discontinued operations		$	0.01			$	0.02			$	0.01			$	0.00
Total		$	(0.20	)		$	(0.13	)		$	(0.20	)		$	(0.20	)
Net (loss) income per share — diluted
Continuing operations		$	(0.21	)		$	(0.15	)		$	(0.21	)		$	(0.20	)
Discontinued operations		$	0.01			$	0.02			$	0.01			$	0.00
Total		$	(0.20	)		$	(0.13	)		$	(0.20	)		$	(0.20	)

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

REVIEW OF OPERATIONS

Ivanhoe Mines is an international mining company with operations focussed in Central Asia and the Asia Pacific region. Ivanhoe Mines’ assets include its Oyu Tolgoi Copper and Gold Project in southern Mongolia, its Cloncurry Iron-Oxide-Copper-Gold Project in Queensland, Australia and its Bakyrchik Gold Project in Kazakhstan. Ivanhoe Mines also owns 79% of SouthGobi. SouthGobi is mining the Ovoot Tolgoi Coal Project in southern Mongolia.

Ivanhoe Mines is engaged primarily in exploration activities, although a significant portion of its expenditures relate directly to development work at its Oyu Tolgoi Project. Exploration costs are charged to operations in the period incurred and often constitute the bulk of Ivanhoe Mines’ operating loss for that period. It is expected that Ivanhoe Mines will commence capitalizing Oyu Tolgoi development costs once an Investment Agreement is finalized with the Government of Mongolia.

In Q2’08, Ivanhoe Mines recorded net income of $127.5 million (or $0.34 per share (basic)), compared to a net loss of $74.2 million (or $0.20 per share (basic)) in Q2’07, representing a $201.7 million increase. This increase was the result of the $201.4 million gain on sale of long term investments recognized by Ivanhoe Mines on the sale of its interest in Jinshan. Offsetting this gain was $67.3 million in exploration expenses, a decrease of $11.9 million from Q2’07. Included in exploration expenses are shaft sinking and engineering and development costs for the Oyu Tolgoi Project that have been expensed and not capitalized. Results for Q2’08 also were affected by $7.5 million in general and administrative expenses, $2.5 million in accretion expense and $4.2 million in interest expense on the convertible credit facility, and $9.2 million in income from discontinued operations.

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

A. EXPLORATION ACTIVITIES

In Q2’08, Ivanhoe Mines expensed $67.3 million in exploration and development activities, compared to $79.1 million in Q2’07. In Q2’08, Ivanhoe Mines exploration activities were focused on the Oyu Tolgoi Project and the Cloncurry Project in Queensland, Australia. The majority of the $67.3 million was spent on the Mongolian projects ($53.4 million) as well a significant amount at Cloncurry ($10.8 million).

MONGOLIA

Exploration expense for Mongolia in Q2’08 consisted of the following exploration and development costs:

MONGOLIA EXPLORATION EXPENSES

		Q2’08				% of Total				Q2’07				% of Total
($ in million’s)
Oyu Tolgoi
Concentrator and Infrastructure Engineering		$	6.7				12.5	%		$	19.4				26.3	%
Site Construction			10.2				19.1	%			21.1				28.6	%
Shaft Sinking			11.7				22.0	%			11.4				15.4	%
Exploration			3.0				5.6	%			1.4				1.9	%
Owner’s Costs (a)			8.8				16.5	%			9.8				13.3	%
			40.4								63.1
Coal Division (a)			9.4				17.6	%			4.6				6.2	%
Other Mongolia Exploration (including SouthGobi) (a)			3.6				6.7	%			6.1				8.3	%
		$	53.4				100.0	%		$	73.8				100.0	%

Expenditures capitalized in Q2’08 totalled $55.4 million, compared to $12.1 million in Q2’07. During Q2’08, the $55.4 million capitalized mainly related to plant and equipment acquisitions and construction by Ivanhoe Mines for Oyu Tolgoi and large equipment deposits made by SouthGobi for Ovoot Tolgoi.

OYU TOLGOI COPPER-GOLD PROJECT

The Oyu Tolgoi Project is approximately 550 kilometres south of Ulaanbaatar and 80 kilometres north of the border with China. Mineralization on the property consists of copper, gold and molybdenum contained in a porphyry system structural trend with a strike length that extends over 20 kilometres. Mineral resources have been identified in a series of deposits throughout this trend, including the Southern Oyu Deposits group, the Hugo Dummett Deposits group and the newly discovered Heruga Deposit. In March 2008, an updated Oyu Tolgoi Technical Report prepared by GRD Minproc Limited was released. The updated estimates can be found in the 2007 Annual Information Form on www.sedar.com.

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

Completion of Oyu Tolgoi Investment Agreement expected to be priority for new Mongolian government

The negotiation of an acceptable Investment Agreement with the Government of Mongolia for the development of the Oyu Tolgoi deposit remains a continuing priority for the Company.

During 2007, a draft Investment Agreement was negotiated with a Working Group established by the Government. The draft agreement was accepted by the Cabinet and presented to Parliament for approval. Last November, while the draft agreement was before the Parliament, the governing political party appointed Sanjaa Bayar as Mongolia’s new Prime Minister. In December, the new Prime Minister withdrew the draft Investment Agreement for further review and reconsideration, and announced that the Government would seek the assistance of qualified, independent, international experts to provide advice on the draft agreement. The Prime Minister subsequently determined that certain revisions to Mongolia’s Minerals Law may be needed before concluding an Investment Agreement for Oyu Tolgoi. Various proposed revisions to the Minerals Law were introduced in Parliament prior to the close of the Spring Session and before the general national election that took place on June 29, 2008, but no changes to the law have been made to this point in time.

The June 29 national election resulted in a majority mandate for the governing Mongolian People’s Revolutionary Party (MPRP). The MPRP won 39 seats outright with the Democratic Party gaining 25 seats and independent candidates holding two seats. Additionally, ten seats in Parliament currently are subject to a formal election review and may be subject to a recount.

Ivanhoe Mines believes that negotiation of a long–sought Investment Agreement will resume once the new Parliament is seated, after a new Speaker is elected and the new Prime Minister and his Cabinet are appointed. Although Parliament has not yet been formally seated because of continuing objections by the Democratic Party over the election results, there is an expectation that the process of seating Parliament will be completed within the next few weeks, which would enable Parliament to complete its post-election responsibilities in forming the new Government. The current expectation is that Prime Minister Bayar will continue to lead the next Government of Mongolia. Therefore, Ivanhoe Mines is optimistic that discussions that were commenced with Prime Minister Bayar before the national elections will continue once the new Government is installed and any further considerations related to amendments to the Minerals Law are concluded by Parliament.

Ivanhoe Mines and its strategic partner, Rio Tinto, are monitoring the deliberations of Parliament and the actions of the Government of Mongolia, and are continuing to assess the implications for the Oyu Tolgoi Project and its development schedule. Ivanhoe Mines has advised the Government of potential adverse impacts on the costs and schedule for the Oyu Tolgoi Project that would result from any further delays in securing an approved Investment Agreement and the fact that any further progress on the project will remain uncertain under the current circumstances. A final Investment Agreement also remains subject to approvals by the respective Boards of Directors of Ivanhoe Mines and Rio Tinto.

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

Oyu Tolgoi Exploration and Project Development

Joint venture to develop adjoining ground to be formed with Entrée Gold

In June 2008, the $35.0 million earn-in amount was reached on the Entrée Gold-Ivanhoe Mines joint-venture agreement areas, which include the Heruga Deposit discoveries south of Ivanhoe Mines’ Southern Oyu Deposits at Oyu Tolgoi. Ivanhoe Mines now has earned a participating interest of 80% in all minerals extracted below a sub-surface depth of 560 metres on the optioned property and a 70% participating interest in all minerals extracted from surface to a depth of 560 metres. An 80%-20% Ivanhoe Mines-Entrée Gold joint-venture is being formed. Ivanhoe Mines directly held approximately 14.7% of the issued and outstanding share capital of Entrée Gold, in addition to the earn-in rights, at June 30, 2008.

Exploration work is continuing to expand the dimensions of the Heruga Deposit and explore its extensions to the north and south. During Q2’08, Ivanhoe Mines completed 6,820 metres of drilling on the Heruga Deposit. Ivanhoe Mines currently has three rigs operating at Oyu Tolgoi and on the joint-venture properties, with the latest drilling extending the mineralization north to the southern border of the Ivanhoe Mines’ Oyu Tolgoi mining licence. Currently, one rig is drilling Heruga and the other two rigs are drilling possible extensions on Ivanhoe Mines’ ground.

Oyu Tolgoi underground development proceeding

The current focus at Oyu Tolgoi is the underground mine development on the 1,300-metre level off Shaft No. 1. Mining advanced a total of 342 metres during Q2’08. The two parallel access tunnels being excavated have covered a distance of 250 metres, one-third of the way toward the Hugo Dummett North high-grade copper and gold ore body. The tunnels will provide miners, drillers and technicians with access to the ore body for further exploration and geotechnical work.

Additional underground mobile equipment was commissioned, along with commencement of underground diamond-drilling activities. Mapping and instrumentation programs to date have confirmed the expected ground conditions. Safety performance was very good, with no lost-time injuries and one injury requiring medical treatment in Q2’08. The focus continues to be on safety awareness and job training of the Mongolian underground crews.

During Q2’08, engineering and procurement activities for the concentrator, infrastructure and underground mine continued to progress. The engineering and equipment schedules support the planned construction schedule. Engineering for the coal-fired power plant is also underway.

Limited camp construction activities continued during Q2’08. The work focused on completion and upgrades to accommodation and associated infrastructure to support the influx of workers expected when full-scale construction begins. This work will continue throughout 2008.

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

Oyu Tolgoi Strategic Planning continues

During Q2’08, the Hugo Dummett North Underground Pre-Feasibility Study work has focussed on:

	•		A rock-handling trade-off study and accompanying mine design optimization. This is a key process in the study to optimize both capital and operating expenditure for the Lift 1 cave, while also managing the construction schedule to accelerate cave production. The majority of work has been completed in this area, indicating acceleration in Lift 1 full-production rates to 85,000 tonnes per day through relocation of the underground crushers close to the ore body and incline conveying material to the shafts, thereby reducing shaft haulage distances and increasing hoisting rates.
	•		Infrastructure and logistical strategy and associated design work to ensure smooth, efficient operation of people, materials and machinery.
	•		Commencing the detailed scope for the next phase of underground development. Currently, detailed scope has been released only for the two kilometres of characterization tunnelling and associated geotechnical work under development.

During Q2’08, Strategic Production Planning focused on evaluating case scenarios to determine optimal designs and long-range production strategies. Work included the Hugo Dummett South open-pit versus underground trade-off study and development of a strategic evaluation case matrix.

The update to the Integrated Development Plan will be completed after an acceptable Investment Agreement has been negotiated with the Government of Mongolia and approved by all parties — including the Ivanhoe Mines’ Board of Directors.

MONGOLIA

COAL PROJECTS

SOUTHGOBI ENERGY RESOURCES (79% owned)

SouthGobi ready to start deliveries from Ovoot Tolgoi open-pit coal mine in Mongolia

SouthGobi mined approximately 250,000 tonnes of coal at its new Ovoot Tolgoi mine in southern Mongolia during Q2’08. A truck transportation fleet has been assembled and is ready to start coal deliveries to customers in China during Q3’08.

On June 4, 2008, SouthGobi held an official opening ceremony at Ovoot Tolgoi. More than 100 guests, including political and community leaders, key supporters, shareholders and employees attended the opening ceremony at the mine site.

The Ovoot Tolgoi mine is 45 kilometres north of Mongolia’s border with China. A Chinese consortium already has built a railway line to Ceke, on the Chinese side of the border, where a major, automated, railcar bulk-loading facility opened last year. The Mongolian Government is formally transforming the border point at Ceke into a full-time crossing, facilitating deliveries of Ovoot Tolgoi coal to customers in

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

China. SouthGobi has purchased an automated, 150-tonne scale to be set up at the border to expedite coal-truck clearances.

Major increases in coal resources at SouthGobi’s Ovoot Tolgoi Mine

On July 31, 2008, SouthGobi announced that an independent estimate compliant with National Instrument 43-101 had sharply increased resources at Ovoot Tolgoi. The new report shows that Ovoot Tolgoi’s West Field now contains measured plus indicated coal resources of 193.2 million tonnes, with an additional inferred resource of approximately 138.8 million tonnes of coal. The resource report incorporates exploration data up to December 2007 for the West Field surface area down to a depth of 250 metres. A similar exploration and development program will be applied to the South-East Field surface and underground areas at Ovoot Tolgoi in the 2009 exploration program.

The new resource estimate for the West Field resources, combined with the previously identified resources in the South-East Field, brought total Ovoot Tolgoi surface resources to 258.9 million tonnes of measured plus indicated coal resources, an increase of 73% over the 149.6 million tonnes previously reported, with an additional inferred coal resource of approximately 145.3 million tonnes, an increase of 399% over the 29.1 million tonnes previously reported.

Sumber Project a new coal discovery near Ovoot Tolgoi

In June 2008, SouthGobi announced that it had intersected significant thicknesses in near-surface seams of high-quality coking and thermal coal at the new Sumber Coal Project, including one intercept of 51.5 metres. The Sumber Project is comprised of N, O and E Fields. Sumber starts 16 kilometres east of Ovoot Tolgoi and stretches to the east for approximately 18 kilometres. Eleven coal seams have been identified.

The 2008 drilling program intends to delineate a NI 43-101-compliant resource by Q4’08. Once completed, mine planning will be initiated and an application for a mining licence will be submitted for development of this project. The exploration drilling also has been designed to connect the fields by potentially equivalent coal seams.

Open-pit coal mine planned for Mamahak Project in Indonesia

In April 2008, SouthGobi signed a joint venture agreement with Score Resources Ltd. to explore and develop the Mamahak Coal Project in East Kalimantan, Indonesia. Through its participation in the joint venture, SouthGobi has commenced the development of a “green fields” surface coal deposit in four concessions covering 26,065 hectares. SouthGobi has a 56% interest in Mamahak, with provisions to increase its interest to 100%. The Mamahak Project is ideally located to supply the Japanese, Korean, Indian and Chinese coastal markets.

In March 2008, SouthGobi commenced an integrated exploration and development program at Mamahak. The 2008 drilling program has identified direct shipping, semi-soft coking coal amenable to

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

surface mining. While further drilling is ongoing, work to date on a 4,996-hectare portion of the MCM concession supports SouthGobi’s objective to develop an open-pit mining operation.

The intent of the drilling program is to determine down-dip continuity, thickness variations, coal quality and structure. The close proximity of the Mahakam River, within 26 kilometres of the MCM concession, has established this area as the priority location for initial project development. Future exploration still is required on the remaining three concession areas to fully assess the ultimate potential for the entire project.

Initial site infrastructure studies have identified an existing 26-kilometre logging road and log pond barging area on the Mahakam River, which, with upgrading, will facilitate coal haulage and barge loading activities during wet-season periods. Required permit applications for mining, coal transportation and a barge load-out facility for the MCM concession have been filed and are in various stages of progress.

SouthGobi closes equity financings in Q1 and Q2’08

During Q1’08, SouthGobi completed three private-equity financings to raise a total of C$117.9 million.

In April 2008, SouthGobi entered into a subscription agreement with Monnis International for a private placement of 2,000,000 common shares at C$12.45 per share, representing an aggregate offering amount of C$24.9 million. The transaction was completed in May 2008.

The proceeds from these offerings will be used to finance initial development of the Ovoot Tolgoi coal project and to finance additional drilling and engineering focused on developing a potential underground coal mine at Ovoot Tolgoi. Proceeds also will be used to explore and develop SouthGobi’s other coal and mineral projects, to identify and investigate new projects and for general corporate and administrative purposes.

AUSTRALIA

Ivanhoe Australia successfully completed A$125 million IPO and began trading on the Australian Stock Exchange

On August 5, 2008, Ivanhoe Mines announced the successful completion of subsidiary Ivanhoe Australia’s A$125.0 million initial public offering (IPO).

The IPO consisted of 62.5 million new shares at an offer price of A$2.00 per share, raising gross proceeds of A$125.0 million. Ivanhoe Australia plans to use a major portion of the IPO proceeds to finance ongoing exploration and development activities on its Cloncurry Project, in northwestern Queensland. Independent, JORC-compliant estimates of resources delineated to date at the principal projects – Mount Dore, Mount Elliott and the Starra Line – will be issued during the current, third-quarter. Also, A$38.4 million of the IPO proceeds was used to partially repay a portion of the A$91.0 million intercompany loan from Ivanhoe Mines. The remaining unsecured loan balance will mature in

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

five years, with interest accruing after 18 months at the rate of BBR (Bank Bill Rate) plus 2.50% per annum.

Ivanhoe Australia, now approximately 82.9% owned by Ivanhoe Mines, began trading on the Australian Stock Exchange on August 6 under the symbol IVA.

Ivanhoe Australia has increased its ownership in Exco Resources to 19.9%

In May 2008, Ivanhoe Australia exercised 21.1 million share-purchase options in Exco at A$0.35 per share. In June 2008, Ivanhoe Australia purchased an additional 3.0 million shares at A$0.35 per share. As result of these two transactions Ivanhoe Australia increased its holding during Q2’08 in Exco’s issued and outstanding share capital from 12.0% to 19.9%. Exco is an Australian mineral exploration company listed on the Australian Stock Exchange. Exco holds extensive exploration tenements in the Cloncurry region in northwest Queensland and the White Dam gold project in South Australia.

Cloncurry IOCG Project expanding exploration

Ivanhoe Mines spent $10.8 million on the Cloncurry Project in Q2’08, compared to $4.2 million in Q2’07. The Ivanhoe Australia tenement package comprises 15 Exploration Permits for Minerals (EPMs) totalling 1,873 square kilometres, within which there are 20 mining licences totalling 45 square kilometres. Five additional EPMs totalling 636 square kilometres are under application.

Work in Q2’08 continued to focus on the Mount Elliott and Mount Dore deposits and commenced on the Starra Line Project. There also was an increase in regional exploration, with diamond drilling, reverse-circulation (RC) and air-core drilling underway on Ivanhoe Australia’s tenements and the Exco Resources joint-venture tenements. Exploration drilling in Q2’08, including work on the development projects, consisted of 16,689 metres of diamond drilling, 5,606 metres of RC drilling and 6,353 metres of air-core drilling. A total of 1,899 rock-chip samples were collected.

Mount Dore Project

Mount Dore is the most advanced project on the Cloncurry property. Significant JORC-compliant mineral resources previously have been declared at the prospect. Infill drilling, that commenced in Q3’07, has now been completed. This drilling will be included the updated JORC-compliant resource estimate that is expected in Q3’08. The drilling program on the western part of the deposit was completed this quarter, consisting of 1,991 metres of diamond drilling and 1,365 metres of RC drilling. The resource drilling program that commenced in 2007 was completed in Q2’08. It comprised 29 vertical diamond-drill holes (generally up to 400 metres each) totalling 11,434 metres and 36 RC holes totalling 4,494 metres. A program of a further four diamond-drill holes totalling 1,080 metres and 30 RC holes totalling 3,950 metres commenced recently, primarily to test the northern extensions where RC drilling previously identified mineralization. The program will be completed in Q3’08. Metallurgical testing for the project commenced in Q2’08. The commencement of a full scoping study will follow the overall review of the project in Q3’08.

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

Significant intercepts of chalcopyrite (with gold) and sphalerite (with lead and silver) have been intersected recently in the north-eastern part of the deposit, with MDQ0095 returning 112 metres @ 0.55% Cu, 0.20 g/t Au, 113 ppm Co, 12g/t Ag, 0.49% zinc and 64 ppm Mo from 284 metres down hole; 35 metres @ 0.46% Cu 0.18 g/t Au and 105 ppm Mo from 466 metres down hole; and MDQ0097 194 metres @ 0.51% Cu, 0.14g/t Au, 10g/t Ag, 0.1% Pb and 0.68% Zn from 250 metres down hole.

Shallow RC drilling along the north-western edge of the Mount Dore thrust also has found shallow high-grade secondary copper mineralization and deeper high-grade molybdenum mineralization in brecciated sediments. MDQ0153 intersected 52 metres @ 1.43% Cu, 0.18g/t Au and 13 g/t Ag from 24 metres down hole as well as 46 metres @ 0.17% Cu, and 0.29% Mo from 152 metres down hole. Twinned diamond hole MDQ00153A has visible molybdenite in it over this interval, assay results are due in Q3’08.

Mount Elliott Project

The Mount Elliott Project is comprised of the previously mined Mount Elliott and Corbould zones, as well as the exploration targets of Swan (750 metres west of Mount Elliott) and Swell (lying between Mount Elliott and Swan).

Core-drilling at the Mount Elliott project in Q2’08 totalled 9,425 metres; a total of 1,023 metres of RC pre-collar drilling was also completed. The two rigs on site mostly are drilling vertical holes required for resource modelling, as well as exploration holes testing the Swan Zone extensions. A JORC-compliant resource estimation is due in Q3’08 and will be completed using data to the end of June 30, 2008.

Swan is flat-lying at surface and dips steeply to the north. Drilling in the gap between the Swan and Swell zones has extended the Swell Zone to the northwest; Swell appears to terminate approximately 200 metres in the hanging-wall to Swan. Both Swan and Swell remain open along strike and at depth. Recent intercepts at Swan include MEQ1166: 514 metres @ 0.64% Cu and 0.41g/t Au from 260 metres down hole; and MEQ1167b: 128 metres @ 1.47% Cu and 0.79 g/t Au from 452 metres down hole and 160 metres @ 0.56% Cu and 0.28 g/t Au from 660 metres downhole.

Regional exploration on Ivanhoe Australia tenements

At the Lady Ella project, four kilometres south of Mount Elliott, a 10-hole drill program totalling 2,298 metres was completed. Drilling during this quarter totalled 1,684 metres. The program tested the depth and strike extensions of the breccia system previously mined by open-pit. Primary sulphide mineralization contained in a strong breccia continues at depth below the open-pit floor. Weak to locally strong chalcopyrite was intercepted in breccias generally from two to 10 metres thick. As at June 30, 2008, assay results have been only received for part of the first hole and include 44 metres at 0.31% Cu and 0.47 g/t Au from the clay-rich zone.

The Northern and Central leases targets occur along a 1.5-kilometre-long zone approximately two to three kilometres northwest of Mount Elliott. The area was mapped and rock-chip-sampled in 2007, when gold-copper anomalous ironstones were identified. Diamond drilling this quarter totalled 1,128 metres, with one hole at Central Leases and two holes at Northern Leases; assay results are pending.

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

Drilling intercepted locally strong calc-silicate alteration, with weak to locally strong chalcopyrite similar in style to that at Mount Elliott. Further drilling is planned during 2008.

Blitzen, 15 kilometres northwest of Mount Dore, represents the most significant gold-only prospect within the Cloncurry Project. A small JORC-compliant gold resource was previously defined on a free-gold system within the weathered, near-surface zone. Little significant drilling was conducted beneath this zone; however, one hole returned five metres @ 1.4 g/t Au within brecciated meta-sediment. During June, four diamond-drill holes were completed; totalling 1,778 metres and seven RC holes totalled 1,245 metres. Results have been returned only for portions of BLDH001 and BLDH002, with only one significant intercept from BLDH002 (6.9 metres at 1.23 g/t Au, including one metre at 7.68 g/t).

Other regional exploration has included mapping programs around Mount Dore, Mount Cobalt and various ironstone targets in the north-eastern parts of the tenements.

Work on the Exco Joint Venture

The joint-venture is comprised of 13 EPMs, including one application, that total 561 square kilometres. Under the Exco joint-venture agreement, Ivanhoe Australia was required to spend A$600,000 by the end of July 2008. Ivanhoe Australia satisfied this requirement by drilling the Wewak, East Wewak, Garnet Creek and Back Creek prospects. Ivanhoe Australia now has the right to earn an 80% interest in the Exco joint-venture tenements by spending a further A$4.4 million during the next two years.

KAZAKHSTAN

Bakyrchik Gold Mine to form part of new gold company with Ivanhoe partners

Ivanhoe Mines, which currently holds a 70% interest in the Bakyrchik Gold Project in north-eastern Kazakhstan, has an agreement with several Kazakh strategic partners to consolidate 100% ownership of the project and other gold mining assets in Kazakhstan in a new mining and exploration company, Altynalmas Gold Ltd. Completion of the combination transaction is subject to various regulatory approvals in Kazakhstan.

Work is continuing on the construction of the demonstration plant, which is expected to be completed by the end of Q3’08. Commissioning is scheduled to start in Q4’08. This plant is expected to process 100,000 tonnes of ore per annum, using roasting to oxidize the ore, followed by conventional grinding and cyanidation. Bakyrchik has a stockpile of approximately 100,000 tonnes of ore grading 8.17 grams of gold per tonne that will be run through the demonstration plant to confirm metallurgical parameters. Planning for operational start-up has commenced, with first fill commodities being highlighted and with procurement commencing during Q3’08. Recruitment plans have been completed and recruitment and operating training will commence in August 2008.

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

CHINA

Exploration continues in Northern China, focusing on high-quality projects for acquisition

Reconnaissance field exploration in central Inner Mongolia and surrounding provinces continued during Q2’08. The program is initially targeting known unlicensed and licensed gold, silver, base metal and copper occurrences and deposits. Work involves detailed data reviews, field traverses and systematic sampling of all occurrences and deposits. The program’s purpose is to identify high-quality, semi-advanced and grass-roots projects for acquisition through licence-bidding application over unlicensed targets, joint-venture formation with, or direct purchase from, the existing licence holders.

Ivanhoe Mines sells its 42% stake in Jinshan Gold Mines for C$217.7 million

On April 10, 2008, Ivanhoe Mines announced that it had agreed to sell to China National Gold Group Corporation of Beijing, and its financial partners, its entire holding of 67,520,060 common shares of Jinshan, at a price of C$3.1115 a share, and the Jinshan promissory note of C$7.5 million. Proceeds received by May 13, 2008, totalled $216.7 million (C$217.7 million). Ivanhoe Mines recorded a $201.4 gain on the sale of its interest in Jinshan in Q2’08.

In Q2’08, Ivanhoe Mines exercised its remaining Jinshan warrants and purchased 1.5 million common shares of Jinshan at C$2.50 for a total cost of C$3.75 million.

B. DISCONTINUED OPERATIONS

In February 2005, the Company sold its Savage River mining operations 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.

Ivanhoe Mines received the first contingent annual payment of $28.2 million in 2006 and the second contingent annual payment of $20.3 million was received in 2007.

On March 31, 2008, Ivanhoe Mines received an amount of $18.0 million in relation to the third annual contingent payment and accrued the remaining $11.2 million as a receivable. On April 2, 2008, Ivanhoe Mines received a further $10.0 million and the remaining $1.2 million was received on July 2, 2008.

To date, Ivanhoe Mines has received $99.2 million in proceeds from the sale of Savage River.

At June 30, 2008, Ivanhoe Mines has accrued a $9.2 million receivable in relation to the fourth contingent annual payment due in March 2009. This amount is calculated based upon the actual tonnes of iron ore sold during the three-month period ended June 30, 2008, and the escalating price formula.

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

C. ADMINISTRATIVE AND OTHER

General and administrative costs. Administrative costs in Q2’08 were $1.5 million higher than Q2’07 mainly due to $2.1 million increase in non-cash stock compensation expense.

Interest Income. The $1.9 million decrease in interest income is due to lower average cash balances and interest rates in Q2’08 compared to Q2’07.

Interest Expense. The $4.2 million in interest expense for Q2’08 represents accrued interest on the convertible credit facility with Rio Tinto.

Foreign exchange gain. The $1.0 million foreign exchange loss during Q2’08 was mainly attributable to the weakening of the Canadian dollar against the U.S. dollar during Q2’08.

Share of loss on significantly influenced investee. The $0.7 million share of loss on significant influenced investee represents Ivanhoe Mines’ share of Jinshan’s net loss for April 2008. In May 2008, Ivanhoe Mines sold its investment in Jinshan and ceased equity accounting.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow

Operating activities. The $65.8 million of cash used in operating activities from continuing operations in Q2’08 primarily was the result of $64.7 million in cash exploration expenditures and a $2.2 million change in non-operating working capital.

Investing activities. In Q2’08, $156.2 million of cash was provided largely by the $216.7 million of proceeds from the sale of Jinshan and $10.0 million received as part of the third annual payment from the sale of the Savage River operation. Also included in investing activities was $55.4 million in property, plant and equipment payments mainly relating to Oyu Tolgoi and Ovoot Tolgoi and $12.5 million spent acquiring additional shares in Intec Ltd, Exco and Jinshan.

Financing activities. Financing activities of $126.4 million in Q2’08 consisted of the final $100.0 million draw down on the convertible credit facility in April 2008 and the $26.0 million net proceeds raised by SouthGobi in its Q2’08 financing.

Liquidity and Capital Resources

At June 30, 2008, consolidated working capital was $407.7 million, including cash and cash equivalents of $457.7 million, compared with working capital of $65.7 million and cash of $145.7 million at December 31, 2007. Included in the June 30, 2008 cash and cash equivalents balance of $457.7 million is $70.9 million of SouthGobi’s cash and cash equivalents, which is not available for Ivanhoe Mines’ use.

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

The bulk of Ivanhoe Mines’ expenditures can be deferred based on the status of Ivanhoe Mines’ cash resources. Based on Ivanhoe Mines’ financial position at June 30, 2008, Ivanhoe Mines believes that its existing funds should be sufficient to fund its minimum obligations, including planned Bakyrchik obligations and general corporate activities, for at least the next 12 months.

Should Ivanhoe Mines be unable to negotiate an Investment Agreement that is acceptable to Rio Tinto, with the result that Rio Tinto elects not to proceed with the second tranche private placement, Ivanhoe Mines may delay, postpone or curtail certain of its planned activities for the remainder of 2008 and thereafter. Ivanhoe Mines will continue to assess the need for project financing relating to the development of power and other infrastructure-related activities in association with the Oyu Tolgoi Project. See “Outlook” for further details.

Asset-Backed Commercial Paper

At June 30, 2008, the Company held non-bank-sponsored asset-backed commercial paper (ABCP) issued by a number of trusts with an original cost of $70.7 million, This ABCP was rated by DBRS as R-1 (high) at the date of investment and met the criteria of the Company’s investment policy. An R-1 (high) rating by DBRS is the highest rating for commercial paper. These investments matured during Q3’07 but, as a result of liquidity issues in the ABCP market, did not settle on maturity.

On August 16, 2007, it was announced that a group representing banks, asset providers and major investors had agreed to a standstill with regard to all non-bank sponsored ABCP (the Montreal Proposal). Under the proposal, the affected ABCP will be converted into term floating-rate notes maturing no earlier than the scheduled termination dates of the underlying assets. The Montreal Proposal called for investors to continue to roll their ABCP during the standstill period. The Company is not a signatory to this agreement.

On September 6, 2007, a pan-Canadian restructuring committee (the Committee) consisting of major investors was formed to propose a solution to the liquidity problem affecting the ABCP market. On March 17, 2008, the Committee filed an application in the Ontario Superior Court of Justice (the Court) under the Companies’ Creditors Arrangement Act asking the Court to call a meeting of the ABCP noteholders. On March 20, 2008, the Committee made available additional documents outlining the details of the proposed restructuring plan. On April 25, 2008, the plan was approved by the noteholders and was sanctioned by the Court in June 5, 2008 (the Sanction Order). On June 25 and 26, 2008, the Court of Appeal for Ontario heard motions from a group of Montreal Proposal ABCP holders seeking leave to appeal, and an appeal of, the Sanction Order (the Appeal). There currently is no certainty regarding the outcome of the Committee restructuring plan and the Appeal.

Due to the disruption in the ABCP market, quoted market values of the investment have not been available. Based on the information provided by the Committee, it is estimated that, of the $70.7 million of ABCP in which the Company has invested:

	•		$4.8 million is represented by traditional securitized assets;
	•		$60.8 million is represented by a combination of leveraged collaterized debt, synthetic assets and traditional securitized assets; and

IVANHOE MINES LTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(Stated in U.S. dollars, except where noted)

•

$5.1 million is represented by assets that have an exposure to U.S. sub-prime mortgages.

The Company has estimated the fair value of its investments in ABCP considering the best available public information regarding market conditions and other factors that a market participant would consider for such investments. The assumptions used in determining the estimated fair value reflect the public statements made by the Committee that it expects the ABCP will be converted into various long-term floating-rate notes with maturities matching the maturities of the underlying assets.

The Company has used a scenario-based probability-weighted discounted cash flow approach to value its ABCP that considered expected interest rates of 3.3%, estimated restructuring fees, estimated renegotiated maturity dates of five to seven years, and estimated principal reductions ranging from 0% to 100%, depending on the nature of the underlying assets and the scenario modelled. As a result of this valuation, the Company recorded a write-down of $24.5 million in 2007, representing 34.6% of the original face value. No additional impairment has been recorded in 2008.

Continuing uncertainties regarding the value of the assets that underlie the ABCP, the amount and timing of cash flows and the outcome of the restructuring process could give rise to a further change in the fair value of the Company’s investment in the ABCP, which would impact the Company’s results from operations.

Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, other current assets, long-term investments, other long-term investments, accounts payable and accrued liabilities, amounts due under credit facilities and loans payable to related parties.

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 ABCP, 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 Ivanhoe Mines’ remaining financial instruments was estimated to approximate their carrying value, due primarily to the immediate or short-term maturity of these financial instruments.

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.

Ivanhoe Mines is exposed to interest rate risk with respect to the variable rates of interest incurred on the convertible credit facility and amounts due under credit facilities. Interest rate risk is concentrated in Canada. Ivanhoe Mines does not mitigate the balance of this risk.