Mr. David Klingner reports

IVANHOE MINES ANNOUNCES FINANCIAL RESULTS AND REVIEW OF OPERATIONS FOR THE FIRST QUARTER OF 2012

Ivanhoe Mines Ltd. is releasing its financial results for the quarter ended March 31, 2012. All figures are in U.S. dollars unless otherwise stated.

Highlights

Overall construction of the first phase of the Oyu Tolgoi copper-gold mining complex was 77.8 per cent complete at the end of the first quarter of 2012, and had advanced to 82.2 per cent complete at the end of April, 2012. Construction remains on track to meet the mine's targeted start of initial production in the second half of 2012. Commercial production is projected to begin in the first half of 2013.

Mining and stockpiling of the first ore from Oyu Tolgoi's phase 1 open-pit mine began in late April, 2012, as prestripping of the open pit progressed ahead of schedule during the first quarter.

Arrangements are proceeding to ensure that electrical power from China will be available for the start of initial production. In early March, 2012, Chinese contractors began construction of the power line and switching station as part of the 87-kilometre, 220-kilovolt power transmission line to be built from the electrical distribution grid in Inner Mongolia, China, to the Mongolia-China border. Stringing of transmission cables along the 95-kilometre section of the power line from the Oyu Tolgoi mine site to the Mongolia-China border began in April, 2012. It is currently anticipated that the physical construction of all transmission infrastructure necessary to import power from China will be completed by July, 2012.

Installation of the two ore processing production lines in the concentrator and precommissioning works are progressing on track. The concentrator, which will have an initial capacity of 100,000 tonnes of ore per day, was 84.7 per cent complete at the end of the first quarter of 2012, ahead of the planned completion of 83.6 per cent.

Construction of shaft No. 2 at the Hugo North underground mine is progressing well. The headframe has now reached a height of 78.5 metres above surface, approaching its planned final height of 97 metres. Shaft sinking activities began in December, 2011, and the bottom had reached 224 metres below surface on May 12, 2012.

Long-term sales contracts have been signed on a substantial portion of Oyu Tolgoi's total concentrate production. Most of the concentrate initially produced at Oyu Tolgoi is expected to be delivered to customers in China.

On April 18, 2012, Ivanhoe Mines announced that the company had signed a binding memorandum of agreement, subject to certain terms and conditions, with majority shareholder Rio Tinto, that established Rio Tinto's support for a series of financing measures expected to cover the projected capital requirements for Ivanhoe Mines' flagship Oyu Tolgoi project in southern Mongolia for the next several years.

The financing measures are expected to be sufficient to complete both the phase 1 and phase 2 development programs at Oyu Tolgoi, delivering a 160,000-tonne-per-day concentrator fed from an open-pit mine and an underground mine, and operating on power generated by a dedicated power station within Mongolia. Highlights of the comprehensive financing plan include the following:

• Rio Tinto will provide an additional bridge financing facility of up to $1.5-billion to help ensure uninterrupted progress on the completion of construction of the first phase of Oyu Tolgoi's development.
• Rio Tinto will support an Ivanhoe Mines equity financing with a goal of $1.8-billion in gross proceeds, subject to certain terms and conditions.
• Rio Tinto will provide full support for completion of an Oyu Tolgoi project finance package of $3-billion to $4-billion to be provided by third party lenders.
• A member of the Rio Tinto group will enter into a completion support agreement with Ivanhoe Mines and the project finance lenders to cover the Oyu Tolgoi project finance package now under negotiation, subject to lenders responding with improvements to the terms of the Oyu Tolgoi project financing.

The company and Rio Tinto are currently engaged in discussions with respect to certain existing terms of the memorandum of agreement, including the standby commitment and the Series D warrants, with a view to amending certain terms to address conditions of regulatory approval and to more closely align the terms of the proposed equity financing with current market conditions.

In paving the way for Oyu Tolgoi's transition to a producing mine, Ivanhoe Mines and Rio Tinto reached amicable agreement on the following corporate governance and management changes:

• The Ivanhoe Mines board presently consists of nine members, including four new directors nominated by Rio Tinto and appointed on May 7, 2012, namely Jill Gardiner, Peter Gillin, Isabelle Hudon and David Klingner, and Livia Mahler, who was reappointed as a director on May 10, 2012, as one of Robert Friedland's two nominees. They joined existing directors Andrew Harding, Dan Larsen, Kay Priestly and Peter Meredith, Mr. Friedland's other nominee. David Klingner was appointed as the chairman of the board on May 10, 2012. A further four directors will be nominated by Rio Tinto for appointment at the 2012 annual general meeting.
• Seven directors, Marc Faber, Edward Flood, Robert Friedland, David Korbin, Livia Mahler, Tracy Stevenson and Dan Westbrook, resigned from the Ivanhoe Mines board on April 17, 2012. Three directors, Michael Gordon, David Huberman and Bob Holland, resigned from the Ivanhoe Mines board on May 7, 2012.
• A majority of the new Ivanhoe Mines board will be independent directors until at least the earlier of Jan. 18, 2014, or the date on which Ivanhoe Mines ceases to be a reporting issuer under Canadian securities laws. Two directors, at least one an independent, will be nominated by Mr. Friedland until Jan. 18, 2014, as long as he continues to own at least 10 per cent of Ivanhoe Mines' outstanding shares.
• A new Ivanhoe Mines senior management team was appointed on May 1, 2012. It includes Ms. Priestly as chief executive officer, Chris Bateman as chief financial officer, Brett Salt as senior vice-president, strategy and development, Stewart Beckman as senior vice-president, operations and technical development, and Neville Henwood as senior vice-president, legal. The new appointees replace Mr. Friedland, former CEO, Tony Giardini, former CFO, John Macke, former president, Mr. Meredith, former deputy chairman, and Sam Riggall, former executive vice-president, all of whom resigned on April 17, 2012, as part of the agreement between Ivanhoe Mines and Rio Tinto.

During the first quarter of 2012, Ivanhoe Mines' 57.6-per-cent-owned subsidiary, SouthGobi Resources Ltd., had sales of approximately 840,000 tonnes of coal at an average realized selling price of $56.79 per tonne. Revenue increased from $20.2-million in the first quarter of 2011, to $40.2-million in the first quarter of 2012, due to the increased sales volumes and higher average realized selling prices.

On April 1, 2012, Ivanhoe Mines received notice that Aluminum Corp. of China Ltd. (Chalco) intends to make a proportional takeover bid for up to 60 per cent, but not less than 56 per cent, of the common shares of SouthGobi Resources at $8.48 (Canadian) per share. Ivanhoe Mines entered into a lock-up agreement with Chalco and has agreed to tender all of its SouthGobi shares, on a pro rata basis, to Chalco. The proportional offer by Chalco is subject to all statutory and regulatory approvals.

On March 8, 2012, Ivanhoe Mines' 58.9-per-cent-owned subsidiary, Ivanhoe Australia Ltd., began initial production of copper and gold at its Osborne mine, in northwestern Queensland. Milling rates ramped up to target levels of up to 5,200 tonnes of ore per day in March, 2012.

Ivanhoe Mines, through its 50-per-cent interest in Altynalmas Gold Ltd., is advancing the Kyzyl gold project in Kazakhstan. On Feb. 27, 2012, Ivanhoe Mines and Altynalmas released the results of an independent feasibility study.

Ivanhoe Mines' cash position on a consolidated basis at March 31, 2012, was $895.1-million. As at May 15, 2012, Ivanhoe Mines' consolidated cash position was approximately $750-million.

Oyu Tolgoi copper-gold project (66 per cent owned)

Construction of the Oyu Tolgoi copper-gold complex is advancing toward its planned start-up in the second half of 2012, and commercial production in the first half of 2013

The Oyu Tolgoi project initially is being developed as an open-pit operation, with the first phase of mining now under way at the near-surface Southern Oyu deposits. A copper concentrator plant, with related facilities and necessary infrastructure to support an initial throughput of 100,000 tonnes of ore per day, is being constructed to process ore mined from the Southern Oyu open pit. Initial production of copper-gold-silver concentrate is expected in the second half of 2012, and commercial production is projected to begin in the first half of 2013.

In conjunction with the surface activities, an 85,000-tonne-per-day underground block-cave mine also is being developed at the Hugo North deposit. The throughput capacity of the concentrator plant is expected to be expanded to 160,000 tonnes of ore per day to process available ore from both the open-pit and underground mines. The underground mine is scheduled to commence operations in 2016, and the concentrator expansion will need to be in place by 2018, to meet the increasing tonnage available from underground production.

Progress continuing to be made on supply of interim electrical power

The long-term investment agreement for the development and operation of Oyu Tolgoi, signed by Ivanhoe Mines, Rio Tinto and the government of Mongolia on Oct. 6, 2009, recognized that the reliable supply of electrical power is critical to the project. The agreement also confirmed that Ivanhoe Mines has the right to obtain electrical power from inside or outside Mongolia, including China, to meet its initial electrical power requirements for up to four years after Oyu Tolgoi begins commercial production. The agreement established the following:

• Ivanhoe Mines has the right to build or subcontract construction of a coal-fired power plant at an appropriate site in Mongolia's South Gobi region to supply Oyu Tolgoi.
• All of the project's power requirements would be sourced from within Mongolia no later than four years after the start of commercial production.

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

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

Subject to negotiations and final agreement, commercial arrangements and power purchase tariffs are expected to be expedited to ensure that imported power will be available at the Oyu Tolgoi project site in the third quarter of 2012. In the meantime, additional diesel-powered generating capacity has been installed to meet the project's more immediate requirements during the remaining phases of construction. If those negotiations are not able to be successfully concluded, and the establishment of a dedicated power plant is required for the early production at Oyu Tolgoi, that would adversely affect the project's ability to achieve the planned start of commercial production in 2013.

In November, 2011, the government of Mongolia provided Oyu Tolgoi LLC with a cabinet resolution allowing for the future construction by Oyu Tolgoi LLC of a dedicated coal-fired power plant in Mongolia. Such a plant requires certain government of Mongolia permits, and the negotiation of commercial agreements with the government of Mongolia and coal suppliers. Although construction of a dedicated coal-fired power plant in Mongolia was expected as part of the Oyu Tolgoi project's future development, the current phase 1 budget does not contain a provision for the plant. However, the recent comprehensive financing plan developed by the Ivanhoe Mines board and Rio Tinto provides for the financial capacity to undertake such a project.

In April, 2012, the Oyu Tolgoi LLC board of directors acknowledged and supported the construction of a dedicated coal-fired power plant at the Oyu Tolgoi project site, subject to the receipt of all of the necessary approvals from the government of Mongolia. The Oyu Tolgoi LLC board of directors also approved an increase in the 2012 budget of $52-million for early works to be undertaken in mid-2012, for the dedicated coal-fired power plant.

The increase in the 2012 budget of $52-million for early works was also approved in April, 2012, by the Ivanhoe Mines board of directors. In the coming months, the Ivanhoe Mines board is expected to consider for approval the budget for the construction of the coal-fired power plant.

Overall phase 1 construction of the Oyu Tolgoi project 77.8 per cent complete at the end of the first quarter of 2012

Overall construction of Oyu Tolgoi's first phase of development reached completion of 77.8 per cent at the end of the first quarter of 2012, and had advanced to completion of 82.2 per cent at the end of April, 2012. Total capital invested in the construction of the first phase of the Oyu Tolgoi project, to the end of the first quarter of 2012, was approximately $4.6-billion.

Among major updates for the 2012 first quarter and plans for the 2012 second quarter:

• Prestripping of overburden continued in the first quarter of 2012, as part of the construction of the phase 1 open-pit mine to recover ore from the Southern Oyu deposits; prestripping has progressed ahead of schedule and the mining and stockpiling of the first open-pit ore began in April, 2012; precommissioning of the primary crusher, overland conveyor and coarse-ore stockpile circuits are progressing on schedule.
• Construction of the concentrator, which will have an initial capacity of 100,000 tonnes per day, was 84.7 per cent complete at the end of the first quarter of 2012, ahead of the planned completion of 83.6 per cent;
• Line No. 1 of the concentrator is on track to be completed and precommissioned by Aug. 15, 2012; line No. 2 is on track to be completed and precommissioned by Oct. 31, 2012; commissioning of the concentrator with ore will depend on the availability of electrical power from China;
• Underground lateral development at the Hugo North deposit was suspended in February, 2012, as planned to enable the upgrading of hoisting equipment at shaft No. 1, which is expected to continue until August, 2012; underground lateral development is scheduled to resume in September, 2012;
• Construction of shaft No. 2 at the Hugo North deposit is progressing well and the headframe has now reached a height of 78.5 metres above surface; the final height of the shaft will be 97 metres; the headframe and ancillary buildings were 87.4 per cent complete at the end of the first quarter of 2012, and ahead of schedule; shaft sinking activities began in December, 2011, and the bottom had reached 224 metres below surface on May 12, 2012;
• Construction of off-site facilities and infrastructure reached completion of 72.4 per cent at the end of the first quarter of 2012, behind the planned rate of 83.2 per cent; the cumulative shortfall was due to delays during the building of the Oyu Tolgoi-Gashuun Sukhait road to the Mongolia-China border and the Khanbumbat permanent airport, near Oyu Tolgoi, and the prior deferral of the stringing of transmission cables on the power line to the Mongolia-China border until spring of 2012; the road and airport contractors remobilized in March, 2012, and work is progressing; facilities required for the production of first ore are on schedule.
• Long-term sales contracts have been signed on a substantial portion of Oyu Tolgoi's total concentrate production; most of the concentrate initially produced at Oyu Tolgoi is expected to be delivered to customers in China.

Phase 1 construction budget

The scope of work for the phase 1 project is to bring the initial, 100,000-tonne-per-day concentrator into production, with the required infrastructure and operational team to begin commercial production in the first half of 2013. The phase 1 project also includes underground lateral development until June, 2012, and the completion of shaft No. 2, which are essential to the continued development of the high-value underground mine at Oyu Tolgoi. The phase 1 control budget was $5,998-million and had no provision for foreign exchange variances; as of the end of the first quarter of 2012, the calculated, actual foreign exchange exposure was approximately $100-million. The forecast total foreign exchange exposure on phase 1 is in the range of $170-million to $200-million. With approved scope changes of $40.5-million to date, the phase 1 current budget is $6,039-million.

A definitive forecast final cost was completed in March, 2012, and indicated that the final cost for the phase 1 capital project would be approximately $6.2-billion, or 2.7 per cent over budget, excluding foreign exchange exposures but including $90-million in project contingencies to mitigate the remaining risks on the project.

Prestripping of open-pit mine continuing

Prestripping of overburden to gain access to ore in the phase 1 open-pit mine continued in the first quarter of 2012. Deliveries, assembly and commissioning of heavy mobile equipment are continuing, and all operational readiness activities are on schedule. The full fleet of 28 trucks is expected to be in operation in August, 2012.

During the first quarter of 2012, a total of 16.0 million tonnes of overburden had been moved, approximately 75,000 metres had been drilled and more than 2,300 tonnes of explosives had been used in blasting. Mining activities continued to focus on phase 1 development and infrastructure requirements, including the run-of-mine (ROM) pad, low-grade-ore stockpile pad and road development.

Underground development of Hugo North mine proceeding on schedule

The development of the first lift of the phase 2 underground block-cave mine at the Hugo North deposit continued successfully during the first quarter of 2012. Lateral mine development 1,300 metres below surface at Hugo North advanced a total of 10,914 metres since tunnelling started in 2008, until February, 2012. Underground lateral development was suspended in February, 2012, as planned, to permit the upgrading of hoisting equipment at shaft No. 1, which is expected to continue until August, 2012. Underground lateral development is scheduled to resume in September, 2012.

The underground development from shaft No. 1 is expected to connect with the bottom of shaft No. 2 in 2013, to enable the installation of the ore handling system and production from the first lift of the Hugo North block-cave mine.

Work to establish the first and second ventilation raise holes to provide a flow of fresh air from surface to the underground workings will continue from surface while shaft No. 1 is being upgraded.

Ivanhoe Mines drawing down on Rio Tinto interim financing facility

In December, 2010, Rio Tinto committed to provide Ivanhoe Mines with an initial, non-revolving, interim financing facility of $1.8-billion to assist in sustaining Oyu Tolgoi construction during the negotiation of a project finance package. The interim financing facility is required to be repaid with funds to be provided under the project finance package. The interim facility is on arm's-length terms, with funds to be advanced to the project on a month-to-month basis, if and when required.

In December, 2011, Ivanhoe Mines made its first draw on the facility. A total of $1.1-billion had been drawn down by March 31, 2012, which increased to $1.4-billion as at May 15, 2012.

Rio Tinto and Ivanhoe Mines working to complete international project finance package

Ivanhoe Mines has been negotiating project financing with a consortium of national and international institutions and banks since 2010. Under their April, 2012, memorandum of agreement, Ivanhoe Mines and Rio Tinto agreed that the negotiating team for the $3-billion to $4-billion Oyu Tolgoi project finance package will comprise Ivanhoe Mines personnel selected by the Ivanhoe Mines CEO and board, and designated Rio Tinto resources as determined by the Rio Tinto treasurer. In addition, it was agreed that the Rio Tinto treasurer has the exclusive authority to direct all aspects of the negotiation of the day-to-day management of the Oyu Tolgoi project financing.

Since the signing of the memorandum of agreement, the project finance team has been focused on transitioning control of the project finance process to Rio Tinto. This includes developing the way forward on overall process and governance, the financing plan, and the term sheet. It is the goal of Ivanhoe Mines and Rio Tinto to have the Oyu Tolgoi project financing in place by Dec. 31, 2012.

A member of the Rio Tinto group will enter into a completion support agreement with Ivanhoe Mines and the project finance lenders, subject to lenders responding with improvements to the terms of the Oyu Tolgoi project financing, to cover the Oyu Tolgoi project finance package now under negotiation. This measure is expected to provide significantly greater certainty that funds will be received. In exchange, Ivanhoe Mines will pay Rio Tinto an annual fee of 2.5 per cent, in advance, on the amount of debt that is projected as the total average of the debt that will be outstanding under the project financing at the end of each calendar month during the ensuing 12-month period.

Rio Tinto may choose to advance senior loans to Oyu Tolgoi LLC as an alternative to, or in addition to, the project finance package, on terms no less favourable than those available through the international financial institutions or commercial banks.

Skills training programs preparing Mongolians for jobs

The Oyu Tolgoi project's staffing strategy for the start of initial production in the second half of 2012 continues to rely heavily on the use of Mongolian men and women whose skills are being developed and who are receiving training throughout the construction phase. As of the end of March, 2012, the Oyu Tolgoi project was providing jobs for 9,054 Mongolians, including more than 7,150 Mongolians who were working for 72 Oyu Tolgoi contractors. A further 372 trainees are enrolled at four selected Mongolian technical and vocational education training schools, and in apprenticeship training with two major vendors, Transwest and Wagner Asia, and an additional 3,300 Mongolians are participating in a special government employee training program, financed by Oyu Tolgoi, which is adding to Mongolia's overall skills development pool.

2012 integrated development and operations plan (IDOP) technical report released

The company released the 2012 IDOP technical report in March, 2012, updating the company's integrated development plan issued in May, 2010 (IDP10).

The 2012 IDOP technical report is an update of the Oyu Tolgoi reserve case that was contained in the IDP10 report. The 2012 IDOP technical report is based on a prefeasibility-quality-level study complying with Canadian National Instrument 43-101 standards of disclosure for mineral projects and the United States Securities and Exchange Commission industry guide 7 requirements for reporting mineral reserves.

The 2012 IDOP technical report was prepared for Ivanhoe Mines by AMC Consultants Pty. Ltd. in March, 2012, based on the technical, production and cost information contained in the Oyu Tolgoi LLC study titled integrated development and operations plan (IDOP). The IDOP was completed by the Rio Tinto-appointed management of Oyu Tolgoi LLC in March, 2011, as the basis for the Oyu Tolgoi project finance package currently under negotiation.

The IDOP technical report represents the views of the Oyu Tolgoi project by the company and by AMC Consultants, and not the views of the Rio Tinto-appointed management of Oyu Tolgoi LLC or Rio Tinto.

The next phase in the project planning process after IDOP is the preparation of a detailed integrated development and operating plan (DIDOP) by Oyu Tolgoi LLC. The DIDOP will integrate a number of detailed capital expansion studies into an overall project report. The key additional work to be assessed in the DIDOP includes the phase 2 project expansion, infrastructure, power supply, water permitting, concentrate marketing, the underground feasibility study, and further work on the mine closure and reclamation plan.

Highlights of the 2012 IDOP technical report:

• The phase 1 project economics have a net present value of $11.4-billion, using an discount rate of 8 per cent, and assuming long-term metals prices of $2.85 per pound of copper, $1,200 per ounce of gold and $16.60 per ounce of silver.
• Estimated operating costs are 65 cents per pound of copper in the first 10 years and 81 cents per pound of copper for the reserve case's 27-year mine life, net of byproduct credits.
• The expected phase 2 expansion includes a significant change in scope that has occurred in the underground development schedule.
• The current scope now incorporates underground development through to 2019, when underground production would reach a projected rate of 54,000 tonnes per day. The previously projected rate was 34,000 tonnes per day of production by 2017.
• Phase 2 costs now include all government fees and taxes (previously allocated as sustaining capital).

Development diamond drilling the first quarter of 2012

During the first quarter of 2012, Oyu Tolgoi LLC completed a total of 7,459 metres of development drilling. Surface development drilling totalled 1,865 metres for the first quarter of 2012, including characterization drilling for shaft No. 5 and the pilot hole for vent raise No. 3. Surface resource definition infill drilling in the Hugo North initial cave area continued with 4,043 metres completed.

A total of 1,551 metres of underground geotechnical drilling was completed at the Hugo North deposit before the rigs were removed in February, 2012, for the planned temporary shutdown of shaft No. 1.

Exploration drilling continued in the first quarter of 2012

In the first quarter of 2012, Ivanhoe Mines incurred exploration expenses of $13.8-million at Oyu Tolgoi, compared with $5.1-million incurred in the first quarter of 2011.

Ivanhoe Mines continued its exploration drilling program on the Oyu Tolgoi project during the first quarter of 2012, completing 9,300 metres of surface exploration diamond drilling, including 5,412 metres of diamond drilling on the Oyu Tolgoi mining licence and 3,888 metres on Entree Gold's Javkhlant mining licence.

Five exploration drill rigs are in operation, including rigs that are delineating an initial resource for the Heruga North deposit, a 2.5-kilometre mineralized extension of the Heruga deposit that extends northward to the Southern Oyu deposits. Drilling in the first quarter of 2012 focused on the southern one-kilometre-long section of this zone, where the deposit is closer to surface.

First quarter 2012 drilling also was conducted on two adjacent sections that will fill in the gap between the Heruga resource and Heruga North, and possibly add to the inferred resource. Testing the eastern flank of the Heruga and Heruga North deposits is in progress.

Further drilling was conducted on the Javkhlant mining licence at the southwestern end of the Oyu Tolgoi mineralization trend.

Prior to the signing of the memorandum of agreement in April, 2012, Ivanhoe Mines conducted certain exploration activities at the Oyu Tolgoi project. As part of the agreement, all rights and responsibilities for conducting exploration activities for the Oyu Tolgoi project now are held by the Rio Tinto affiliate that manages the Oyu Tolgoi project.

SouthGobi Resources (57.6 per cent owned)

Chalco announced its intention to make a proportional bid for up to 60 per cent of SouthGobi.

On April 1, 2012, Ivanhoe Mines received notice that Chalco intends to make a proportional takeover bid for up to 60 per cent, but not less than 56 per cent, of the common shares of SouthGobi at $8.48 (Canadian) per share. Ivanhoe Mines currently owns 104,807,155 shares of SouthGobi, representing approximately 57.6 per cent of SouthGobi's issued and outstanding shares. Ivanhoe Mines has entered into a lock-up agreement with Chalco and has agreed to tender all of its SouthGobi shares, on a pro rata basis, to Chalco.

Depending upon the uptake of the offer by other SouthGobi shareholders, Ivanhoe Mines could receive up to approximately $889-million (Canadian) ($886-million) from the sale of all of its shares in SouthGobi. A sale of 60 per cent of its current holding would realize proceeds of approximately $533-million (Canadian) ($532-million). Ivanhoe Mines plans to use the proceeds from the sale of its shares in SouthGobi primarily to finance the continued development of the Oyu Tolgoi project.

The offer price for SouthGobi's shares represented a 28-per-cent premium over the closing price on the Toronto Stock Exchange of $6.62 (Canadian) on March 30, 2012, and a 32-per-cent premium over the volume-weighted average price on the TSX of $6.41 (Canadian) during the 10 trading days prior to April 1, 2012.

The proportional offer from Chalco will be made by way of a takeover bid circular under British Columbia law and will be made to all SouthGobi shareholders. If individual shareholders elect to tender more than 60 per cent of their common shares of SouthGobi to the takeover bid and if Chalco receives less than 60 per cent of the outstanding common shares of SouthGobi as a result of the offer, a proportional amount of shares will be taken up, on a pro rata basis, from each shareholder who has elected to tender those additional shares.

The proportional offer by Chalco is subject to all statutory and regulatory approvals, including Investment Canada Act and Competition Act approvals, Chinese regulatory approvals, regulatory approvals from the government of Mongolia, as may be required, and Chalco shareholder approval. Chalco's bid also is subject to confirmation by China Investment Corp. SouthGobi's second-largest shareholder, that it does not intend to exercise its right of first offer over Ivanhoe Mines' SouthGobi shares.

Sales and operations at SouthGobi's Ovoot Tolgoi coal mine

SouthGobi's Ovoot Tolgoi mine is in Mongolia's South Gobi region, approximately 40 kilometres north of the Shivee Khuren-Ceke crossing at the Mongolia-China border.

SouthGobi achieved sales of 840,000 tonnes in the first quarter of 2012, an increase of 84 per cent, from 450,000 tonnes in the first quarter of 2011. SouthGobi recognized revenue of $40.2-million in the first quarter of 2012, an increase of 99 per cent from $20.2-million in the first quarter of 2011, due to increased sales volumes and higher average realized selling prices. Sales volumes and revenue decreased from the fourth quarter of 2011, due to the extended closure of the Shivee Khuren border crossing for the Chinese New Year and Mongolian Tsagaan Sar public holidays.

SouthGobi's average realized selling price increased to a record $56.79 per tonne in the first quarter of 2012, an increase of 13 per cent from the first quarter 2011 average realized selling price of $50.29.

In the first quarter of 2012, SouthGobi produced 1.07 million tonnes of raw coal with a strip ratio of 2.07, compared with production of 1.11 million tonnes of raw coal in the first quarter of 2011, with a strip ratio of 3.47. The lower strip ratio for the first quarter of 2012 is a function of the mine plan and will be normalized over the life of mine.

Cost of sales was $30.4-million for the first quarter of 2012, compared with $20.3-million for the first quarter of 2011. Cost of sales comprise the direct cash costs of product sold, mine administration cash costs of product sold, equipment depreciation, depletion of mineral properties, share-based compensation and inventory writedowns, if any. Cost of sales increased in the first quarter of 2012, compared with the first quarter of 2011, due to higher sales volumes, which were partially offset by lower unit costs.

On Feb. 13, 2012, SouthGobi successfully commissioned the dry coal handling facility (DCHF) at the Ovoot Tolgoi mine. The DCHF has the capacity to process nine million tonnes of ROM coal per year. The facility includes a 300-tonne-capacity dump hopper, which receives ROM coal to feed a rotary breaker, and screens that size coal to a maximum of 50 millimetres and reject oversize ash. The DCHF will be upgraded during 2012, to include dry air separation, as well as covered load-out conveyors with fan stackers to transfer processed coals to stockpiles that will enable more efficient blending.

Potential suspension of licences

On April 16, 2012, SouthGobi announced that the Mineral Resources Authority of Mongolia (MRAM) held a news conference announcing a request to suspend exploration and mining activity on licences owned by SouthGobi Sands LLC, a wholly owned subsidiary of SouthGobi. As at May 15, 2012, SouthGobi had not received any official notification from MRAM and Ivanhoe Mines has no reason to believe SouthGobi's licences were not in good standing. However, Ivanhoe Mines cautions at this time that receipt of any such official notification would require a suspension of operations.

Ivanhoe Australia (58.9 per cent owned)

Ivanhoe Australia is continuing to make progress on its four main projects, achieving a significant milestone during the first quarter of 2012, with the start of production of copper-gold concentrate at the Osborne processing complex in northwestern Queensland. The other three projects, the Merlin molybdenum and rhenium project, the Mount Elliott copper-gold project and the Mount Dore cathode copper project, are in various stages of development and study. All the projects are on granted mining leases.

During the first quarter of 2012, work focused on beginning production from the Osborne processing complex, and completing the Merlin feasibility study and Mount Elliott scoping study. The Mount Elliott preliminary economic assessment, an NI 43-101-compliant report, was filed on SEDAR in May, 2012.

Ivanhoe Australia incurred expenses of $47.6-million in the first quarter of 2012, compared with $30.4-million in the first quarter of 2011. The $17.2-million increase was a combination of development expenditures on the Merlin decline, production expenditures on the Osborne copper-gold project and exploration expenditures.

Osborne copper-gold project

The start of production at the Osborne complex was an important strategic step for Ivanhoe Australia, elevating the company to the status of a producer. The Osborne copper-gold study (preliminary economic assessment, a Canadian NI 43-101-compliant technical report), released in October, 2011, evaluated mill feed sources only for an initial four-year period. Mill feed included in the initial mine plan is to be sourced from the Osborne and Kulthor underground mines, the Osborne open pit and the Starra 276 underground mine. Ivanhoe Australia is targeting a mine life of approximately 15 to 20 years, with a number of prospects identified as potential ore sources across Ivanhoe Australia's Cloncurry tenements.

Processing operations began in early March, 2012. All processing plant components and systems were tested and commissioned with no significant issues. Commissioning has proceeded well, with milling rates achieving target levels and recoveries and copper concentrate grades steadily improving to target rates. Production during March, 2012, achieved throughput rates of up to 5,200 tonnes per day.

Production ramp-up is on target to achieve mill throughput for 2012, of between 700,000 and 900,000 tonnes of ore.

Merlin molybdenum and rhenium project

The phase 1 decline development at the Merlin project was completed on time and on budget in January, 2012. At completion, the north decline face had progressed to 1,682 metres, while the south decline progressed to 531 metres. Phase 2 decline development is expected to recommence following project approval from Ivanhoe Australia's board.

Regional exploration

Ivanhoe Australia has 43 granted exploration permits for minerals (EPMs) covering a total of 4,687 square kilometres, including joint ventures, and 14 EPM applications with a total area of 2,115 square kilometres. The granted EPMs include 12 EPMs in the Ivanhoe Australia/Exco joint venture (525 square kilometres) and one EPM in the Goldminco/Ivanhoe (Osborne) joint venture (16 square kilometres).

Exploration in the first quarter of 2012 focused on copper-gold targets around the Osborne area and Houdini, and exploration targets along the Mount Dore-Mount Elliott trend and Starra Line.

Strategic partnership process

In January, 2012, Ivanhoe Australia engaged UBS Investment Bank to assist in securing a strategic corporate partner to provide financing for the development of its projects. The strategic partnership process is progressing. Indicative, non-binding proposals have been received from several international parties.

Kyzyl gold project (50 per cent owned)

Altynalmas Gold, a private company, holds 100-per-cent ownership of the Kyzyl gold project in northeastern Kazakhstan. The Kyzyl gold project contains the Bakyrchik and Bolshevik gold deposits, as well as a number of satellite deposits.

Exploration continuing, 34,000 metres of drilling planned for 2012

Drilling activities recommenced at the Kyzyl gold project on March 15, 2012. A total of 3,385 metres was drilled during March, 2012, all on Bakyrchik exploration licence No. 27. Exploration drilling in 2012 is budgeted to total 34,000 metres.

Completion of an NI 43-101 technical report

On Feb. 27, 2012, Ivanhoe Mines and Altynalmas released the results of an independent feasibility study of the Kyzyl gold project. Roscoe Postle Associates completed an independent, NI 43-101-compliant technical report on the Kyzyl gold project, based on a feasibility-study-level report completed by Fluor Canada and subsequent optimization studies undertaken by Hatch Mining and Metals Canada.

The project encompasses the redevelopment of the Bakyrchik underground mine, the construction of a new processing plant incorporating fluidized bed ore roasting technology and supporting mine infrastructure.

Update of developments with Rio Tinto

Rio Tinto's stake in Ivanhoe Mines increased to 51.0 per cent in January, 2012

On Jan. 24, 2012, Rio Tinto announced that it had increased its stake in Ivanhoe Mines to 51.0 per cent, from 49.0 per cent, by purchasing an additional 15.1 million common shares of Ivanhoe Mines from two sellers in a privately negotiated transaction. The shares were purchased at a price of $20 (Canadian) per share.

Rio Tinto had been restricted to a 49.0-per-cent ownership stake in Ivanhoe Mines until Jan. 18, 2012, under the December, 2010, heads of agreement between the two companies.

Ivanhoe Mines and Rio Tinto signed an agreement to ensure financing through to commercial production and additional expansion at Oyu Tolgoi,

On April 18, 2012, Ivanhoe Mines announced that the company had signed a binding memorandum of agreement, subject to certain terms and conditions, with majority shareholder Rio Tinto that established Rio Tinto's support for a series of financing measures expected to cover the projected capital requirements for the Oyu Tolgoi project for the next several years.

The financing measures are expected to be sufficient to complete both the phase 1 and phase 2 development programs at Oyu Tolgoi, delivering a 160,000-tonne-per-day concentrator fed from an open-pit mine and an underground mine, and operating on electrical power generated by a dedicated power station within Mongolia.

The agreement, negotiated by a committee of Ivanhoe Mines' independent directors, contained a comprehensive financing plan structured to secure Rio Tinto's direct participation in, and support for, financing for planned developments at Oyu Tolgoi.

Rio Tinto's commitments will support:

• The scheduled start of initial production from the open-pit mine during the second half of this year;
• The ramp-up to commercial production during the first half of 2013, as part of Oyu Tolgoi's first phase of development; phase 1 work includes operation of the open-pit mine, and a 100,000-tonne-per-day nameplate capacity concentrator, infrastructure and a $900-million investment in underground development at the Hugo North deposit in preparation for phase 2 production;
• The construction of a dedicated, coal-fired electrical power plant in Mongolia; the Oyu Tolgoi investment agreement requires the project to source all of its power requirements from within Mongolia within four years of the start of commercial production; the project plans to use power imported from China during its initial years of operation;
• Continuing development of Oyu Tolgoi's second phase, including expansion of the concentrator's nameplate capacity to 160,000 tonnes per day and a start of production of high-grade ore from the Hugo Dummett underground block-cave mine in 2016, which is forecast to increase to 54,000 tonnes per day by 2019, with subsequent increases to full production of 85,000 tonnes per day.

Rio Tinto is committed to the following steps:

• Rio Tinto will provide an additional bridge financing facility of up to $1.5-billion to help ensure uninterrupted progress on the completion of construction of the first phase of Oyu Tolgoi's development. As part of an earlier financing agreement in December, 2010, Rio Tinto provided an interim financing facility of $1.8-billion, which Ivanhoe Mines has drawn down by approximately $1.4-billion as at May 15, 2012. Ivanhoe Mines is required to repay the interim financing facility and the bridge financing facility from the proceeds of the planned Oyu Tolgoi project finance package of $3-billion to $4-billion.
• Rio Tinto will support the Ivanhoe Mines equity financing, with a goal of generating $1.8-billion in gross proceeds, subject to certain terms and conditions.
• Rio Tinto will provide full support for completion of an Oyu Tolgoi project finance package of $3-billion to $4-billion that remains under negotiation with third party lenders. The package is the core component of the new comprehensive financing plan. Ivanhoe Mines has been negotiating project financing with a consortium of national and international institutions and banks since 2010. Ivanhoe Mines and Rio Tinto have set a goal of completing a project finance arrangement by the end of 2012. Rio Tinto may choose to advance senior loans to Oyu Tolgoi LLC as an alternative to, or in addition to, the project finance package, on terms no less favourable than those available through the international financial institutions or commercial banks.
• A member of the Rio Tinto group will enter into a completion support agreement with Ivanhoe Mines and the project finance lenders to cover the Oyu Tolgoi project finance package now under negotiation, subject to lenders responding with improvements to the terms of the Oyu Tolgoi project financing. This measure is expected to provide significantly greater certainty that funds will be received. In exchange, Ivanhoe Mines will pay Rio Tinto an annual fee of 2.5 per cent, in advance, on the amount of debt that is projected as the total average of the debt that will be outstanding under the project financing at the end of each calendar month during the ensuing 12-month period.

In conjunction with the equity financing and the overall package of extending interim lines of credit and completion guarantees of support, Ivanhoe Mines has agreed to issue, subject to regulatory approval, 55 million Series D share purchase warrants to Rio Tinto. Each warrant would be exercisable to purchase one Ivanhoe Mines share at $12.79 at any time during a three-year period. The exercise price of the warrants was based on the volume-weighted average price of the Ivanhoe Mines shares on the New York Stock Exchange on the five trading days preceding the date of the companies' memorandum of agreement.

The company and Rio Tinto are currently engaged in discussions with respect to certain existing terms of the memorandum of agreement, including the standby commitment and the Series D warrants, with a view to amending certain terms to address conditions of regulatory approval and to more closely align the terms of the proposed equity financing with current market conditions.

Transition included restructuring of the Ivanhoe Mines board of directors and appointment of a new senior management team

In paving the way for Oyu Tolgoi's transition to a producing mine, Ivanhoe Mines and Rio Tinto reached amicable agreement on the following corporate governance and management changes, as discussed earlier.

Name change

At the 2012 annual general meeting of Ivanhoe Mines shareholders, scheduled for June 28, 2012, the company will propose, and recommend that shareholders approve, a resolution to change the company's name from Ivanhoe Mines to Turquoise Hill Resources Ltd. The record date for the 2012 annual general meeting is May 25, 2012.

Review of operations

In the first quarter of 2012, Ivanhoe Mines recorded a net loss of $80.6-million (11 cents per share), compared with a net loss of $492.5-million (79 cents per share) in the first quarter of 2011, which was a decrease of $411.9-million. The decrease is largely due to first quarter 2011 results including a $432.5-million change in fair value of the derivative realized on the 2011 rights offering. Results for the first quarter of 2012 included $76.8-million in exploration expenses, $30.4-million in cost of sales, $31.5-million in general and administrative expenses, $700,000 in interest expense, a $800,000 change in the fair value of SouthGobi's embedded derivatives, an $18.3-million share of loss of significantly influenced investees, and a $3.9-million writedown of carrying value of long-term investments. These amounts were offset by $40.2-million in coal revenue, $9.9-million in foreign exchange gains, an $8.9-million gain on other long-term investments and $5.9-million in interest income.

Exploration expenses of $76.8-million in the first quarter of 2012 increased by $30.6-million, from $46.2-million in the first quarter of 2011. Exploration expenses included $25.1-million spent in Mongolia ($13.5-million in the first quarter of 2011), primarily for Oyu Tolgoi, and SouthGobi's Ovoot Tolgoi and Soumber deposits, and $47.6-million incurred by Ivanhoe Australia ($30.4-million in the first quarter of 2011). Exploration costs are charged to operations in the period incurred and often represent the bulk of Ivanhoe Mines' operating loss for that period.

During the first quarter of 2012, additions to property, plant and equipment for the Oyu Tolgoi project totalled $608.0-million, which included development costs.

Ivanhoe Mines' cash position, on a consolidated basis at March 31, 2012, was $895.1-million. As at May 15, 2012, Ivanhoe Mines' consolidated cash position was approximately $750-million.

Qualified person

Disclosure of a scientific or technical nature in this release, and the company's management discussion and analysis (MD&A), in respect of the Oyu Tolgoi project, was prepared under the supervision of Stephen Torr, PGeo, an employee of Ivanhoe Mines and a qualified person as that term is defined in NI 43-101.

                         SELECTED QUARTERLY DATA
        (in millions of U.S. dollars, except per-share information)                   
                                                                           
                                                                         Quarter ended
                                           March 31,    Dec. 31,  Sept. 30,    June 30,
                                               2012        2011       2011        2011

Revenue                                     $  40.2     $  51.0    $  60.5     $  47.3
Cost of sales                                 (30.4)      (44.2)     (54.0)      (49.7)
Exploration expenses                          (76.8)      (88.2)     (79.6)      (68.6)
General and administrative                    (31.5)      (34.6)     (21.4)      (19.5)
Foreign exchange gains (losses)                 9.9        13.3     (35.6)         2.3
Change in fair value of embedded
derivatives                                    (0.8)       10.8       62.1        70.4
Gain on settlement of note receivable             -           -      103.0           -
Net income (loss) from continuing
operations                                    (80.6)      (85.8)      16.4         0.6
Income (loss) from discontinued operations        -           -       (9.1)          -
Net income (loss)                             (80.6)      (85.8)       7.3         0.6
Net income (loss) per share, basic
Continuing operations                       $ (0.11)    $ (0.05)   $  0.02     $  0.00
Discontinued operations                     $  0.00     $  0.00    $ (0.01)    $  0.00
Total                                       $ (0.11)    $ (0.05)   $  0.01     $  0.00
Net income (loss) per share, diluted
Continuing operations                       $ (0.11)    $ (0.05)   $  0.02     $  0.00
Discontinued operations                     $  0.00     $  0.00    $ (0.01)    $  0.00
Total                                       $ (0.11)    $ (0.05)   $  0.01     $  0.00

                                                                         Quarter ended
                                           March 31,    Dec. 31,  Sept. 30,    June 30,
                                               2011        2010       2010        2010

Revenue                                     $  20.2     $  41.6    $   6.6     $  17.7
Cost of sales                                 (20.3)      (46.4)     (14.9)      (13.2)
Exploration expenses                          (46.2)      (59.6)     (48.1)      (39.5)
General and administrative                    (25.3)      (46.4)     (15.0)      (14.7)
Foreign exchange gains (losses)                 3.2         6.6        5.3        (4.9)
Change in fair value of derivative           (432.5)      135.7          -           -
Change in fair value of embedded
derivatives                                   (36.8)      (20.0)      49.8        72.2
Net income (loss) from continuing
operations                                   (492.5)       37.3      (24.9)      (30.0)
Income (loss) from discontinued operations        -           -          -           -
Net income (loss)                            (492.5)       37.3      (24.9)      (30.0)
Net income (loss) per share, basic
Continuing operations                       $ (0.79)    $  0.07    $ (0.05)    $ (0.06)
Discontinued operations                     $  0.00     $  0.00    $  0.00     $  0.00
Total                                       $ (0.79)    $  0.07    $ (0.05)    $ (0.06)
Net income (loss) per share, diluted
Continuing operations                       $ (0.79)    $  0.06    $ (0.05)    $ (0.06)
Discontinued operations                     $  0.00     $  0.00    $  0.00     $  0.00
Total                                       $ (0.79)    $  0.06    $ (0.05)    $ (0.06)

Ivanhoe Mines' results for the three months ended March 31, 2012, are contained in the unaudited consolidated financial statements, and MD&A of financial condition and results of operations, available on SEDAR and the company's website.

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