Ivanhoe Mines Ltd. - Management Reports 2020

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MANAGEMENT’S DISCUSSION AND ANALYSIS

FOR THE YEAR ENDED DECEMBER 31, 2019

DATED: MARCH 5, 2020

INTRODUCTION

This management’s discussion and analysis (MD&A) should be read in conjunction with the audited consolidated financial statements of Ivanhoe Mines Ltd. (“Ivanhoe”, “Ivanhoe Mines” or the “Company”) for the years ended December 31, 2019 and 2018, which have been prepared in accordance with International Financial Reporting Standards (IFRS). All dollar figures stated herein are in U.S. dollars, unless otherwise specified. References to “C$” mean Canadian dollars and references to “R” mean South African Rands.

The effective date of this MD&A is March 5, 2020 . Additional information relating to the Company is available on SEDAR at www.sedar.com. Certain statements contained in the MD&A are forward-looking statements that involve risks and uncertainties. See “ Forward-Looking Statements ” and “ Risk Factors ”.

FORWARD-LOOKING STATEMENTS

Certain statements in this MD&A constitute “forward-looking statements” or “forward-looking information” within the meaning of applicable securities laws. Such statements and information involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, its projects, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or information. Such statements can be identified by the use of words such as “may”, “would”, “could”, “will”, “intend”, “expect”, “believe”, “plan”, “anticipate”, “estimate”, “scheduled”, “forecast”, “predict” and other similar terminology, or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. These statements reflect the Company’s current expectations regarding future events, performance and results and speak only as of the date of this MD&A.

Such statements include without limitation, the timing and results of: (i) statements regarding first copper concentrate production at the Kakula Mine in Q3 2021; (ii) statements regarding the expansion in initial plant capacity of Kakula’s processing plant modules from 3.0 Mtpa to 3.8 Mtpa; (iii) statements regarding the updated estimate of Kakula’s initial capital costs is approximately $1.3 billion as of January 1, 2019, which assumes commissioning of the processing plant in Q3 2021 and includes expanded plant capacity and pre-production ore stockpiles; (iv) statements regarding the expected completion of Platreef’s Shaft 1 to a final depth of approximately 1,000 metres is planned for mid-2020; (v) statements regarding Platreef’s Shaft 2 will have an internal diameter of 10 metres and will be equipped with two Koepe winding plants, one equipped with 40-tonne rock-hoisting skips with a capacity to hoist a total of six million tonnes of ore per year; (vi) statements regarding Ivanhoe’s investigation of a phased development production plan for the Platreef Project, targeting significantly lower initial capital, to accelerate first production by using Shaft 1 as the mine’s initial production shaft, followed by expansions to the production rate as outlined in the definitive feasibility study (DFS); (vii) statements regarding the three development stations in Platreef’s Shaft 1 will provide initial, underground access to the high-grade orebody, enabling mine development to proceed concurrently with the construction of Shaft 2; (viii) statements regarding the planned mining methods at Platreef will use highly productive, mechanized methods, including long-hole stoping and drift-and-fill mining, and that each method will utilize cemented backfill for maximum ore extraction; (ix) statements regarding an independent DFS for the Kakula Mine is underway with an expected completion date of Q3 2020, and at the same time, Ivanhoe expects to issue an updated preliminary economic assessment for the expanded Kamoa-Kakula combined production scenario that will include an updated Mineral Resource estimate for Kamoa North, including the initial Mineral Resource estimate for the Kamoa North Bonanza Zone; (x) statements regarding the forthcoming Kakula DFS will incorporate detailed design, engineering and procurement, with the plans to increase the initial processing plant ore capacity by approximately 26% from 3.0 Mtpa to 3.8 Mtpa; (xi) statements that based on the results of the February 2019 pre-feasibility study (PFS), Kakula’s average feed grade over the first five years of operations is projected to be 6.8% copper, and 5.5% copper on average over a 25-year mine life, and an increase in the initial processing plant throughput is expected to result in improved cash flows, which may be used to accelerate subsequent expansions; (xii) statements regarding Ivanhoe’s

expectation that it will continue to have sufficient cash resources or project-related financing options available to cover its share of the potential increase in initial capital costs; (xiii) statements regarding the progressive re-commissioning of the turbines at the Mwadingusha hydropower plant in the DRC, fully refurbished and modernized with state-of-the-art control and instrumentation, is underway and is expected to be completed in Q3 2020, and that the refurbished plant is projected to deliver approximately 72 megawatts of power to the national power grid; (xiv) statements regarding the Company’s COVID-19 Response Plan (including the review of purchase orders and its supply chain to minimize disruption to its projects); and (xv) statements regarding the expected expenditure for 2020 of $60 million on further development at the Platreef Project; $40 million at the Kipushi Project; $16 million on regional exploration in the DRC; and $30 million on corporate overheads for 2020 – as well as its proportionate funding of the Kamoa-Kakula Project, expected to be $400 million for 2020.

As well, all of the results of the pre-feasibility study for the Kakula copper mine and the updated and expanded Kamoa-Kakula Project preliminary economic assessment, the feasibility study of the Platreef Project and the pre-feasibility study of the Kipushi Project, constitute forward-looking statements or information, and include future estimates of internal rates of return, net present value, future production, estimates of cash cost, proposed mining plans and methods, mine life estimates, cash flow forecasts, metal recoveries, estimates of capital and operating costs and the size and timing of phased development of the projects. Furthermore, with respect to this specific forward-looking information concerning the development of the Kamoa-Kakula, Platreef and Kipushi projects, the Company has based its assumptions and analysis on certain factors that are inherently uncertain. Uncertainties include: (i) the adequacy of infrastructure; (ii) geological characteristics; (iii) metallurgical characteristics of the mineralization; (iv) the ability to develop adequate processing capacity; (v) the price of copper, nickel, zinc, platinum, palladium, rhodium and gold; (vi) the availability of equipment and facilities necessary to complete development; (vii) the cost of consumables and mining and processing equipment; (viii) unforeseen technological and engineering problems; (ix) accidents or acts of sabotage or terrorism; (x) currency fluctuations; (xi) changes in regulations; (xii) the compliance by joint venture partners with terms of agreements; (xiii) the availability and productivity of skilled labour; (xiv) the regulation of the mining industry by various governmental agencies; (xv) the ability to raise sufficient capital to develop such projects; (xiv) changes in project scope or design, and (xv) political factors.

This MD&A also contains references to estimates of Mineral Resources and Mineral Reserves. The estimation of Mineral Resources is inherently uncertain and involves subjective judgments about many relevant factors. Estimates of Mineral Reserves provide more certainty but still involve similar subjective judgments. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. The accuracy of any such estimates is a function of the quantity and quality of available data, and of the assumptions made and judgments used in engineering and geological interpretation (including estimated future production from the Company’s projects, the anticipated tonnages and grades that will be mined and the estimated level of recovery that will be realized), which may prove to be unreliable and depend, to a certain extent, upon the analysis of drilling results and statistical inferences that ultimately may prove to be inaccurate. Mineral Resource or Mineral Reserve estimates may have to be re-estimated based on: (i) fluctuations in copper, nickel, zinc, platinum group elements (PGE), gold or other mineral prices; (ii) results of drilling; (iii) metallurgical testing and other studies; (iv) proposed mining operations, including dilution; (v) the evaluation of mine plans subsequent to the date of any estimates and/or changes in mine plans; (vi) the possible failure to receive required permits, approvals and licences; and (vii) changes in law or regulation.

Forward-looking statements and information involve significant risks and uncertainties, should not be read as guarantees of future performance or results and will not necessarily be accurate indicators of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements or information, including, but not limited to, the factors discussed below and under “Risk Factors”, and elsewhere in this MD&A, as well as unexpected changes in laws, rules or regulations, or their enforcement by applicable authorities; the failure of parties to contracts with the Company to perform as agreed; social or labour unrest; changes

in commodity prices; and the failure of exploration programs or studies to deliver anticipated results or results that would justify and support continued exploration, studies, development or operations.

Although the forward-looking statements contained in this MD&A are based upon what management of the Company believes are reasonable assumptions, the Company cannot assure investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this MD&A and are expressly qualified in their entirety by this cautionary statement. Subject to applicable securities laws, the Company does not assume any obligation to update or revise the forward-looking statements contained herein to reflect events or circumstances occurring after the date of this MD&A.

The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of the factors set forth below in the “Risk Factors” section beginning on page 49 and elsewhere in this MD&A.

REVIEW OF OPERATIONS

Ivanhoe Mines is a mineral exploration and development company. The Company’s financial performance is primarily affected by ongoing exploration and development activities being conducted at its three material properties. The Company has no producing properties and does not have operating revenues. The Company expects to fund all of its exploration and development activities through debt and equity financing until operating revenues are generated. The Company’s material properties consist of:

The Platreef Project. Construction of the planned Platreef Mine is now underway on the Company’s discovery of platinum, palladium, nickel, copper, gold and rhodium on the Northern Limb of South Africa’s Bushveld Igneous Complex. Ivanhoe Mines holds a 64% interest in Platreef, the South African beneficiaries of a broad-based, black economic empowerment structure have a combined 26% stake in the Platreef Project and the remaining 10% is owned by a Japanese consortium of ITOCHU Corporation, Japan Oil, Gas and Metals National Corporation; and Japan Gas Corporation. (See “ Platreef Project ”)
The Kipushi Project. The existing Kipushi Mine is located on the Central African Copperbelt in the Democratic Republic of Congo’s (DRC) southern Haut-Katanga province, one of Africa’s major mining hubs. The mine, which operated between 1924 and 1993, is approximately 30 kilometres southwest of the provincial capital, Lubumbashi, and less than one kilometre from the DRC-Zambia border. Ivanhoe Mines holds a 68% interest in Kipushi; the state-owned mining company, La Générale des Carrières et des Mines (Gécamines), holds the remaining 32% interest. (See “ Kipushi Project ”)
The Kamoa-Kakula Project. A joint venture between Ivanhoe Mines and Zijin Mining Group Co., Ltd., (“Zijin” or “Zijin Mining”) within the Central African Copperbelt in the DRC’s southern Lualaba province. Following the signing of an agreement with the DRC government in November 2016 to transfer an additional 15% interest in the Kamoa-Kakula Project to the government of the DRC, Ivanhoe Mines and Zijin Mining each hold an indirect 39.6% interest in the Kamoa-Kakula Project, Crystal River Global Limited (Crystal River) holds an indirect 0.8% interest and the DRC government holds a direct 20% interest. The Kamoa-Kakula Project is independently ranked as the world’s fourth largest copper deposit by international mining consultant Wood Mackenzie. (See “ Kamoa-Kakula Project ”)

COVID-19 Response Plan

Ivanhoe Mines is closely monitoring the impact of the COVID-19 virus and is prepared for potential shortterm impacts on its projects and operations worldwide. The Company has appointed a team with overall responsibility for COVID-19 response planning, which includes senior Ivanhoe Mines representatives with expertise in health and safety, operations, law, human resources, and communications as well as outside counsel from world-leading epidemiologists. As part of its COVID-19 Response Plan, the Company is putting particular focus on the health and safety of all its employees and contractors as well as its host communities. In addition, the Company is conducting a careful review of purchase orders and its supply chain to minimize disruption to its projects.

PLATREEF PROJECT

The Platreef Project is owned by Ivanplats (Pty) Ltd (Ivanplats), which is 64%-owned by Ivanhoe Mines. A 26% interest is held by Ivanplats’ historically-disadvantaged, broad-based, black economic empowerment (B-BBEE) partners, which include 20 local host communities with approximately 150,000 people, project employees and local entrepreneurs. In Q2 2019, Ivanplats reached Level 2 contributor status in its verification assessment on the B-BBEE scorecard. A Japanese consortium of ITOCHU Corporation, Japan Oil, Gas and Metals National Corporation; and Japan Gas Corporation, owns a 10% interest in Ivanplats, which it acquired in two tranches for a total investment of $290 million.

Photo: Aerial view of the Platreef Project, with Shaft 1’s headframe and the boxcut and concrete shaft collar foundation for Shaft 2. Ivanhoe is looking into accelerating first production by using Shaft 1 as the mine’s initial production shaft.

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The Platreef Project hosts an underground deposit of thick, platinum-group metals, nickel, copper and gold mineralization on the Northern Limb of the Bushveld Igneous Complex in Limpopo Province, approximately 280 kilometres northeast of Johannesburg and eight kilometres from the town of Mokopane.

On the Northern Limb, platinum-group metals mineralization is hosted primarily within the Platreef, a mineralized sequence that is traced more than 30 kilometres along strike. Ivanhoe’s Platreef Project, within the Platreef’s southern sector, is comprised of two contiguous properties: Turfspruit and Macalacaskop. Turfspruit, the northernmost property, is contiguous with, and along strike from, Anglo Platinum’s Mogalakwena group of mining operations and properties.

Since 2007, Ivanhoe has focused its exploration and development activities on defining and advancing the down-dip extension of its original discovery at Platreef, now known as the Flatreef Deposit, which is amenable to highly mechanized, underground mining methods. The Flatreef area lies entirely on the Turfspruit and Macalacaskop properties, which form part of the Company’s mining right.

Health and safety at Platreef

At the end of 2019, the Platreef Project reached a total of 171,525 lost-time, injury-free hours worked in accordance with South Africa’s Mine Health and Safety Act, and Occupational Health and Safety Act. Unfortunately a lost-time injury (LTI) occurred in November 2019. The Platreef Project continues to strive toward its workplace objective of an environment that causes zero harm to employees, contractors, subcontractors and consultants.

Positive independent, definitive feasibility study; Platreef projected to be Africa’s lowest-cost producer of platinum-group metals

In July 2017, Ivanhoe Mines announced the results of an independent, definitive feasibility study (DFS) for the then planned first phase of the Platreef Project’s palladium-platinum-nickel-copper-gold-rhodium mine in South Africa.

The Platreef DFS covered a four million tonnes per annum first phase of development that would include construction of a state-of-the-art underground mine, concentrator and other associated infrastructure to support initial production of concentrate. As Phase 1 is being developed and commissioned, there would be opportunities to refine the timing and scope of subsequent phases of expanded production.

The 2017 DFS highlights include:

Indicated Mineral Resources containing an estimated 41.9 million ounces of platinum, palladium, rhodium and gold, with an additional 52.8 million ounces of platinum, palladium, rhodium and gold in Inferred Resources.
Mineral Reserves containing 17.6 million ounces of platinum, palladium, rhodium and gold following stope optimization and mine sequencing work.
Development of a large, safe, mechanized, underground mine, with an initial four-Mtpa concentrator and associated infrastructure.
Planned initial average annual production rate of 476,000 ounces of platinum, palladium, rhodium and gold (3PE+Au), plus 21 million pounds of nickel and 13 million pounds of copper.
Estimated pre-production capital requirement of approximately $1.5 billion, at a ZAR:USD exchange rate of 13 to 1.
Platreef would rank at the bottom of the cash-cost curve, at an estimated $351 per ounce of 3PE+Au produced, net of by-products and including sustaining capital costs, and $326 per ounce before sustaining capital costs.

After-tax net present value (NPV) of $916 million, at an 8% discount rate.
After-tax internal rate of return (IRR) of 14.2%.

All figures are on a 100%-project basis unless otherwise stated. The DFS was prepared for Ivanhoe Mines by principal consultant DRA Global, with economic analysis led by OreWin, and specialized subconsultants including Amec Foster Wheeler E&C Services, Stantec Consulting, Murray & Roberts Cementation, SRK Consulting, Golder Associates and Digby Wells Environmental.

Platreef phased development production plan

During 2019 and early 2020, palladium prices have continued to surge to new record highs, recently topping $2,800 an ounce as stricter air-quality rules boost demand for the metal used in vehicle pollutioncontrol devices, while the price of rhodium hit a record high of more than $12,700 an ounce. The price increases have propelled Ivanhoe’s Platreef Project ‘metals-price basket’ to a new, multi-year high.

Given the recent surge in Platreef’s ‘metals-price basket’, Ivanhoe Mines is investigating a phased development production plan for the Platreef Project, targeting significantly lower initial capital, to accelerate first production by using Shaft 1 as the mine’s initial production shaft. This plan will focus on initially targeting the development of mining zones accessible from Shaft 1 and maximizing the hoisting capacity of this shaft, followed by expansions to the production rate as outlined in the DFS.

Figure 1: Led by the surge in prices of palladium and rhodium, Platreef’s ‘metals-price basket’ revenue per tonne of probable reserves recently reached a new, all-time high of more than $300.

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Platreef’s Revenue Per Tonne of Probable
$350 Reserves (US$/t ore)
$300
$250
$200
$150
$100
Total Cash Cost (Mine Site + Realization)
$50
Mine Site Cash Cost
--
Platinum Palladium Rhodium Gold Copper Nickel
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Platreef Mineral Resources

The Platreef Project’s Mineral Resource estimate was prepared for Ivanhoe Mines under the direction of Dr. Harry Parker, RM SME, of Amec Foster Wheeler. Dr. Parker and Timothy Kuhl, RM SME, also of Amec Foster Wheeler, have independently confirmed the Mineral Resource estimate and are the Qualified Persons for the estimate, which has an effective date of April 22, 2016.

The Flatreef Mineral Resource, with a strike length of 6.5 kilometres, lies predominantly within a flat-togently-dipping portion of the Platreef mineralized belt at relatively shallow depths of approximately 500 metres to 1,350 metres below the surface. The Flatreef Deposit is characterized by its very large vertical thicknesses of high-grade mineralization.

The Platreef Indicated Mineral Resources for all mineralized zones are 346 million tonnes at a grade of 3.77 grams per tonne (g/t) 3PE+gold (1.68 g/t platinum, 1.70 g/t palladium, 0.11 g/t rhodium, 0.28 g/t gold), 0.32% nickel and 0.16% copper at a 2.0 g/t 3PE+gold cut-off. The average thickness of the 2.0 g/t 3PE+gold grade shell used to constrain the T2MZ resources for the indicated area is 19 metres.

Inferred mineral resources for all mineralized zones are 506 million tonnes at a grade of 3.24 g/t 3PE+gold (1.42 g/t platinum, 1.46 g/t palladium, 0.10 g/t rhodium, 0.26 g/t gold), 0.31% nickel and 0.16% copper. The average thickness of the 2.0 g/t 3PE+gold grade shell used to constrain the T2MZ resources for the inferred area is 12.7 metres.

Shaft 1 now extends to a depth of more than 957 metres below surface

Shaft 1 reached the top of the high-grade Flatreef Deposit (T1 mineralized zone) at a depth of 780.2 metres below surface in Q3 2018 and has since been extended to a depth of more than 957 metres below surface. The thickness of the mineralized orebody (T1 and T2 mineralized zones) at Shaft 1 is 29 metres, with grades of platinum-group metals ranging up to 11 grams per tonne (g/t) 3PE (platinum, palladium and rhodium) plus gold, as well as significant quantities of nickel and copper. The 29-metre intersection yielded approximately 3,000 tonnes of ore, estimated to contain more than 400 ounces of platinum-group metals. The ore is stockpiled on surface for further metallurgical sampling.

The 750-metre-level and 850-metre-level stations have both been completed with the 950-metre-level station currently in development and approximately 80% completed. Development is being carried out on the east drift of the 950-metre-level with the north drift and temporary refuge bay completed.

The final shaft bottom depth has been revised to 1,000 metres below surface in order to cater for a longterm life of mine spillage arrangement. This projected final depth is expected to be reached in mid-2020. The three development stations will provide initial, underground access to the high-grade orebody, enabling mine development to proceed concurrently with the construction of Shaft 2. Shaft 1 changeover detailed designs have commenced and will enable Shaft 1 to be configured for permanent rock hoisting.

Shaft 2 box cut and concrete foundation completed in July 2019

Shaft 2, located approximately 100 metres northeast of Shaft 1, will have an internal diameter of 10 metres. It will be lined with concrete and sunk to a planned, final depth of more than 1,104 metres below surface. It will be equipped with two Koepe winding plants, one equipped with 40-tonne rock-hoisting skips capable of hoisting a total of six million tonnes of ore a year – the single largest hoisting capacity at any mine in Africa.

The headgear for the permanent hoisting facility was designed by South Africa-based Murray & Roberts Cementation. The box-cut excavation to a depth of approximately 29 metres below surface, including the concrete foundation, has been successfully completed and will form the foundation of the 103-metre-tall concrete headgear that will house the shaft’s permanent hoisting facilities and support the shaft collar.

Work on Shaft 2 has been temporarily deferred while the Company completes its review of the phased development production plan using Shaft 1 as the mine’s initial production shaft.

Underground mining to incorporate highly productive, mechanized methods

The mining zones in the current Platreef mine plan occur at depths ranging from approximately 700 metres to 1,200 metres below surface. Shaft 2 will provide primary access to the mining zones; secondary access will be via Shaft 1. During mine production, both shafts also will serve as ventilation intakes. Three additional ventilation exhaust raises are planned to achieve steady-state production.

Planned mining methods will use highly productive, mechanized methods, including long-hole stoping and drift-and-fill mining. Each method will utilize cemented backfill for maximum ore extraction. The ore will be hauled from the stopes to a series of internal ore passes and fed to the bottom of Shaft 2, where it will be crushed and hoisted to surface.

Photo: Members of the sinking crew at the Platreef Project’s Shaft 1.

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Long-term supply of bulk water secured for the Platreef Mine

On May 7, 2018, Ivanhoe announced the signing of a new agreement to receive local, treated water to supply most of the bulk water needed for the first phase of production at Platreef. The Mogalakwena Local Municipality has agreed to supply a minimum of five million litres of treated water a day for 32 years, beginning in 2022, from the town of Mokopane’s new Masodi Treatment Works. Initial supply will be used in Platreef’s ongoing underground mine development and surface infrastructure construction.

Under the terms of the agreement, which is subject to certain suspensive conditions, Ivanplats will provide financial assistance to the municipality for certified costs of up to a maximum of R248 million

(approximately $16 million) to complete the Masodi treatment plant. Ivanplats will purchase the treated wastewater at a reduced rate of R5 per thousand litres for the first 10 million litres per day to offset a portion of the initial capital contributed.

Ivanplats received its Integrated Water Use Licence in January 2019, which is valid for 30 years and enables the Platreef Project to make use of water as planned in the 2017 DFS.

Photo: Ivanhoe has prioritized an increase in the number of female employees at all three of our mine development projects. At Platreef, females now make up more than 31% of the project’s employees. From left to right: Raisibe Ntini (Geology Intern); Vongani Nkuna (Group Manager, Metallurgy); Maenetja Lebea (Intermediate Life Support Practitioner); Ayakha Mbongonya (Geotechnical Engineer); Sinah Tjale (Safety Officer).

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Development of human resources and job skills

The Platreef Project’s first Social and Labour Plan (SLP), towards which it pledged a total of R160 million ($11 million) during the past five years, ended in November 2019. That approved plan included R67 million ($4 million) for the development of job skills among local residents and R88 million ($6 million) for local economic development projects. Consultation regarding the project’s second SLP is in the final stages.

KIPUSHI PROJECT

The Kipushi copper-zinc-germanium-lead mine, in the DRC, is adjacent to the town of Kipushi and approximately 30 kilometres southwest of Lubumbashi. It is located on the Central African Copperbelt, approximately 250 kilometres southeast of the Kamoa-Kakula Project and less than one kilometre from the Zambian border. Ivanhoe acquired its 68% interest in the Kipushi Project in November 2011; the balance of 32% is held by the state-owned mining company, Gécamines.

Health, safety and community development

At the end of 2019, the Kipushi Project reached a total of 1,887,093 work hours free of a lost-time injury.

The Kipushi Project operates a potable-water station to supply the municipality of Kipushi with water. This includes power supply, disinfectant chemicals, routine maintenance, security and emergency repair of leaks to the primary reticulation. The Kipushi Project also installed and commissioned new overhead powerlines to the pump station. Other community development projects continued during 2019 included the Kipushi women’s literacy project, the sewing training centre project and the upgrading of the Mungoti School in Kipushi.

Photo: Ivanhoe Mines and its joint-venture partners have committed to bringing clean water solutions to local communities near all of its mining projects. A potable water storage tank at a small village near the Kipushi Mine, where 700 families collect their daily water.

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Photo: Ivanhoe also funds an adult literacy program as part of its community skills development initiative at Kipushi. The program is a partnership with Alfa Congo, a Kinshasa-based non-profit NGO dedicated to improving literacy levels among vulnerable social groups.

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Kipushi Mineral Resources

The Kipushi Project’s current Mineral Resource estimate was updated with an effective date of June 14, 2018, and was prepared by the MSA Group of Johannesburg, South Africa, in compliance with 2014 CIM Definition Standards. Ivanhoe filed an updated National Instrument 43-101 (NI 43-101) technical report for the Kipushi Project covering the June 2018 Mineral Resource in March 2019. The technical report is filed on the Company’s website and under the Company’s SEDAR profile at www.sedar.com.

Zinc rich Measured and Indicated Mineral Resources, primarily in the Big Zinc Zone total 11.78 million tonnes at grades of 35.34% zinc, 0.80% copper, 23 g/t silver and 64 g/t germanium, at a 7% zinc cut-off – containing an estimated 9.2 billion pounds of zinc. Zinc-rich Inferred Mineral Resources total an additional 1.14 million tonnes at grades of 33.77% zinc, 1.24% copper, 12 g/t silver and 62 g/t germanium. The Inferred Mineral Resources are contained partly in the Big Zinc Zone and partly in the Southern Zinc Zone.

Copper-rich Measured and Indicated Mineral Resources contained in the adjacent Fault Zone, Fault Zone Splay and Série Récurrente Zone total an additional 2.29 million tonnes at grades of 4.03% copper, 2.85% zinc, 21 g/t silver and 19 g/t germanium, at a 1.5% copper cut-off – containing 204 million pounds of copper. Copper-rich Inferred Mineral Resources in these zones total an additional 0.44 million tonnes at grades of 3.89% copper, 10.77% zinc, 19 g/t silver and 55 g/t germanium.

Photo: Kipushi’s construction team assisting in civil works for the new 850-metre-level pumping station that will significantly reduce power consumption and electricity costs during production. From left to right: K. Mudikike, M. Kalula, K. Mukendi, G. Graham, P. Dikwenda, K. Nyandwe, M. Ngoyi, M. Mutomb, E. Ditend.

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Definitive feasibility study in final stages of completion

The Kipushi Project’s PFS, announced by Ivanhoe Mines on December 13, 2017, anticipated annual production of an average of 381,000 tonnes of zinc concentrate over an 11-year, initial mine life at a total cash cost of approximately $0.48 per pound (lb) of zinc.

Highlights of the PFS, based on a long-term zinc price of $1.10/lb include:

After-tax net present value (NPV) at an 8% real discount rate of $683 million.
After-tax real internal rate of return (IRR) of 35.3%.
After-tax project payback period of 2.2 years.
Pre-production capital costs, including contingency, estimated at $337 million.
Existing surface and underground infrastructure allows for significantly lower capital costs than comparable greenfield development projects.
Life-of-mine average planned zinc concentrate production of 381,000 dry tonnes per annum, with a concentrate grade of 59% zinc, is expected to rank Kipushi, once in production, among the world’s largest zinc mines.

All figures are on a 100%-project basis unless otherwise stated. Estimated life-of-mine average cash cost of $0.48/lb of zinc is expected to rank Kipushi, once in production, in the bottom quartile of the cash-cost curve for zinc producers internationally.

The project team continues to work towards the completion of the Kipushi Project’s definitive feasibility study (DFS).

Photo: Alfons Molepo, Senior Electrical Foreman (left), discussing the electrical drawings with Tshilay Pascal, Electrician (right), at the newly installed, medium voltage switchgear at the 850metre-level pump station.

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Photo: Prince Kaomba, Electrician (left), and Paul Dikwenda, Mining Manager (right), inspecting diagrams of the 17.5-megawatt variable speed drives for the five high-volume water pumps installed on Kipushi’s 1,200-metre level.

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Geology and exploration

Geological work in Q1 2019 was focused on obtaining additional information required for the DFS, as well as planning the geological delineation-drilling and grade-control program for underground mine development. The design criteria for the delineation drilling will target areas along the edge of the Big Zinc, which presently are inaccessible from the historic workings. No new geological and exploration work was conducted during the remainder of the year.

Project development and infrastructure

Significant progress has been made in modernizing the Kipushi Mine’s underground infrastructure as part of preparations for the mine to resume commercial production, including upgrading a series of vertical mine shafts to various depths, with associated head frames, as well as underground mine excavations and infrastructure. A series of crosscuts and ventilation infrastructure still is in working condition and have been cleared of old materials and equipment to facilitate modern, bulk mechanized mining. The underground infrastructure also includes a series of pumps to manage the mine’s water levels, which now are easily maintained at the bottom of the mine.

Shaft 5 is eight metres in diameter and 1,240 metres deep. It now has been upgraded and recommissioned. The main personnel and material winder has been upgraded and modernized to meet international industry standards and safety criteria. The Shaft 5 rock-hoisting winder now is fully operational with new rock skips, new head- and tail-ropes, and attachments installed. The two newly manufactured rock conveyances (skips) and the supporting frames (bridles) have been installed in the shaft to facilitate the hoisting of rock from the main ore and waste storage silos feeding rock on the 1,200metre level.

The main haulage way on the 1,150-metre level, between the Big Zinc access decline and Shaft 5 rock load-out facilities, has been resurfaced with concrete so the mine now can use modern, trackless, mobile machinery. A new truck-tipping bin, which feeds into the large-capacity rock crusher located directly below, has been installed on this level. The old winder at P2 Shaft has been removed and construction of the new foundation, along with assembly and installation of the new modern winder, has been completed and fully commissioned after passing safety inspection and testing procedures.

KAMOA-KAKULA PROJECT

The Kamoa-Kakula Project, a joint venture between Ivanhoe Mines and Zijin Mining, has been independently ranked as the world’s fourth largest copper deposit by international mining consultant Wood Mackenzie. The project is approximately 25 kilometres west of the town of Kolwezi and about 270 kilometres west of Lubumbashi.

Ivanhoe sold a 49.5% share interest in Kamoa Holding Limited (Kamoa Holding) to Zijin Mining in December 2015 for an aggregate consideration of $412 million. In addition, Ivanhoe sold a 1% share interest in Kamoa Holding to privately-owned Crystal River for $8.32 million - which Crystal River will pay through a non-interest-bearing, 10-year promissory note. Since the conclusion of the Zijin transaction in December 2015, each shareholder has been required to fund expenditures at the Kamoa-Kakula Project in an amount equivalent to its proportionate shareholding interest in Kamoa Holding.

A 5%, non-dilutable interest in the Kamoa-Kakula Project was transferred to the DRC government on September 11, 2012 for no consideration, pursuant to the 2002 DRC mining code. Following the signing of an agreement with the DRC government in November 2016, in which an additional 15% interest in the Kamoa-Kakula Project was transferred to the DRC government, Ivanhoe and Zijin Mining now each hold an indirect 39.6% interest in the Kamoa-Kakula Project, Crystal River holds an indirect 0.8% interest and the DRC government holds a direct 20% interest. Kamoa Holding holds an 80% interest in the project.

Photo: Wide-angle, aerial view of Kakula’s main declines (centre), ore stockpiles (right), Kakula workshops under construction(left) and the first phase of accommodations for 1,000 employees and contractors (upper centre).

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Health and safety at Kamoa-Kakula

At the end of 2019, the Kamoa-Kakula Project reached 2,629,889 work hours free of a lost-time injury. Regrettably a fatality occurred in September 2019 and on February 7, 2020, the Company reported that a contractor's employee passed away due to fat embolism syndrome causing severe brain damage following a broken bone incurred in a workplace accident on January 21, 2020 at the Kamoa-Kakula Project. These two incidents occurred after the project had gone more than 7.5 years without a lost-time

injury. The Kamoa-Kakula Project continues to strive toward its workplace objective of an environment that causes zero harm to all employees and contractors.

Photo: Approximately 90% of Kamoa-Kakula’s more than 4,400 current employees and contractors are Congolese nationals. A training program is in place to increase the number of local employees in management positions.

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Definitive Feasibility Study underway for the Kakula Mine

An independent definitive feasibility study (DFS) for the Kakula Mine is underway with an expected completion date of Q3 2020. At the same time, Ivanhoe expects to issue an updated preliminary economic assessment for the expanded Kamoa-Kakula combined production scenario that will include an updated Mineral Resource estimate for Kamoa North, including the initial Mineral Resource estimate for the Kamoa North Bonanza Zone.

The forthcoming Kakula DFS will incorporate detailed design, engineering and procurement, which is largely complete, with plans to increase the initial processing plant ore capacity by approximately 26% from 3.0 Mtpa to 3.8 Mtpa.

Based on the results of the February 2019 PFS, Kakula’s average feed grade over the first five years of operations is projected to be 6.8% copper, and 5.5% copper on average over a 25-year mine life. An increase in the initial processing plant throughput is expected to result in improved cash flows, which may be used to accelerate subsequent expansions.

Additional mining crews being added at Kakula to increase pre-production ore stockpiles and to position the mine to accelerate commencement of the second phase of development

The expansion in initial plant capacity from 3.0 Mtpa to 3.8 Mtpa would require increasing the underground mining crews in 2020 from 11 to 14 to ensure sufficient mining operations to feed the expanded plant throughput. This would have the benefit of producing a larger surface stockpile of ore

prior to the scheduled commissioning of the processing plant, as well as accelerating the mine development schedule, providing the opportunity to bring forward the commencement of the second phase of development at Kakula. The second 3.8 Mtpa plant module will be fed from the Kakula Mine at a planned full production rate of 6 Mtpa. Further study work will determine the amount of tonnes to be sourced from the Kansoko Mine, or elsewhere, to maximize the full milling capacity of 7.6 Mtpa. Any plans to accelerate the second module of Kakula’s processing plant would be subject to securing the necessary project-level financing.

Kakula’s original 3.0 Mtpa first processing plant module has already been redesigned during the basic engineering phase to a nameplate capacity of 3.8 Mtpa. Purchase orders have been placed for all major long-lead time mechanical equipment, and plant civil works have started. The contract for the SMPP (structural, mechanical, piping and platework) supply and erection portion of the plant construction has been awarded and steel fabrication is underway. The capital cost estimate related to the construction of the processing plant has been estimated to a basic engineering level of accuracy and is thus well defined.

Photo: The first oversize loads of equipment for Kakula’s initial 3.8 Mtpa processing plant module being transported from Kolwezi to Kamoa-Kakula on the newly constructed road. The equipment, which has been delivered to site, is two low-entrainment flotation cells (Jamison cells) that will be used as cleaner cells to produce a final copper concentrate, before thickening and filtration.

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The current updated estimate of the project’s initial capital costs is approximately $1.3 billion as of January 1, 2019, which assumes commissioning of the first processing plant module in Q3 2021 and includes expanded plant capacity and pre-production ore stockpiles.

The capital costs incurred by the Kamoa-Kakula joint venture in 2019 amounted to $309.1 million, of which $125.2 million was spent on the Kakula declines and mine development.

Ivanhoe will fund its share of approximately 40% of the initial capital costs, plus it will fund its share of capital associated with the 20% carried interest owned by the Government of the DRC, a portion which will be repaid through future cash flows from the project. Ivanhoe expects that it will continue to have sufficient cash resources or project-related financing options available to cover its share of the potential increase in initial capital costs.

Kamoa-Kakula Mineral Resources increased again

Ivanhoe announced the completion of an independently-verified, updated Mineral Resource estimate for the Kamoa-Kakula Project on February 5, 2020. The new Mineral Resource estimate is the culmination of an infill drilling program designed to better define higher-grade copper zones within the existing Kamoa Deposit.

At a 1% cut-off, Kamoa’s Indicated Mineral Resources now total 760 million tonnes grading 2.73% copper, containing 45.8 billion pounds of copper. At the same 1% cut-off, Kamoa’s Inferred Mineral Resources now total 235 million tonnes grading 1.70% copper, containing 8.8 billion pounds of copper. At a 3% cut-off, the new Mineral Resource estimate boosts the Kamoa Deposit’s Indicated Mineral Resource tonnages by 15% and contained copper by 15.5%, to a total of 256 million tonnes at a grade of 4.15% copper. At the same 3% cut-off, Kamoa’s Inferred Mineral Resources now total 13 million tonnes at a grade of 3.51% copper.

The entire Kamoa Deposit was updated in the new Mineral Resource estimate. The majority of recent drilling, however, targeted the ultra-high-grade Bonanza Zone at Kamoa North, and an approximated north-south corridor of elevated copper grades in the far north of the mining licence area (the Far North Zone).

The new Kamoa Mineral Resource estimate covers approximately 600 metres of strike length in the deeper western portions of the Bonanza Zone (west of the West Scarp Fault), and 1,500 metres of strike length in the shallower eastern portions of the Bonanza Zone, defined by drill sections spaced 50 metres apart on strike in the central section, and 100 metres apart on strike elsewhere.

At a 1% cut-off, the current, combined Indicated Mineral Resources for the Kamoa-Kakula Project now totals 1.387 billion tonnes grading 2.74% copper, containing 83.7 billion pounds of copper. At the same 1% cut-off, Kamoa-Kakula’s combined Inferred Mineral Resources now total 339 million tonnes grading 1.68% copper, containing 12.5 billion pounds of copper.

At a higher 3% cut-off, the current, combined Indicated Mineral Resources for the Kamoa-Kakula Project now totals 423 million tonnes grading 4.68% copper, containing 43.7 billion pounds of copper. At the same 3% cut-off, Kamoa-Kakula’s combined Inferred Mineral Resources now total 17 million tonnes grading 3.51% copper, containing 1.3 billion pounds of copper.

The new Kamoa Indicated and Inferred Mineral Resource estimate was prepared by George Gilchrist, Ivanhoe Mines’ Vice President, Resources, under the direction of Gordon Seibel, RM SME, of the Wood Group (formerly Amec Foster Wheeler E&C Services Inc.) of Reno, USA, and is reported in accordance with the 2014 CIM Definition Standards for Mineral Resources and Mineral Reserves. Mr. Seibel is the Qualified Person for the estimate. The effective date of the estimate is January 30, 2020, and the cut-off date for drill data is January 20, 2020. There has been no change to the Mineral Reserve estimate at Kamoa-Kakula.

Approximately eight kilometres of underground development was completed in 2019 as the project tracks towards first production in Q3 2021

The underground development work at Kakula is being performed by mining crews operating largecapacity, semi-autonomous mining equipment, such as jumbo drilling rigs and 50-tonne trucks. A total of 7.8 kilometres of underground development was completed during 2019, which was 1.7 kilometres ahead of plan.

Mine access drives 1 and 2 (interconnected, parallel tunnels that will provide access to ore zones) continue to progress, with both access drives currently in the high-grade zone.

The number of underground mining crews has increased from six at the start of the fourth quarter, to eight working at Kakula at the end of 2019, including one owner crew. The project will continue to add additional crews over the next 12 months to further accelerate development. By the end of 2019, approximately 900 metres of development had been completed at the southern ventilation decline, which will facilitate the acceleration of critical early mine development.

Engineering, procurement and construction advancing well

Project engineering and procurement activities are advancing well. The current primary construction focus that runs through the project’s critical path is the installation of the underground rock handling system, the processing plant and the electrical high-voltage infrastructure installation.

Construction progress on the underground rock handling system is progressing well with an expected commissioning date of early April 2020. The reaming of Ventilation Shaft 2 is underway and once complete, the raise bore machine will be moved to Ventilation Shaft 3. Ventilation Shaft 1 was fully commissioned earlier in 2019.

The plant earthworks is complete and civil construction is underway. Initial civil construction has prioritized the run of mine stockpile, the high pressure grinding roll stockpile and mill foundation, and concrete is in the process of being poured in these areas. The process plant long lead items will start to arrive on site from April 2020, with the mills scheduled for arrival in June 2020.

The Kamoa-Kakula Project sources a number of infrastructure items and equipment from Chinese based companies, whose operations have been impacted by the COVID-19 virus (Novel Coronavirus), and which has and can continue to be expected to, result in delays in obtaining such equipment for the continuing development of the project.

The contract for the 220 kilovolt overhead power line, as well as the contract for the new electrical substation, has been awarded. Bush clearing for the overhead line has started and earthworks for the electrical substation is underway.

Construction of the new road linking Kamoa-Kakula with the Kolwezi airport is operational with only minor items outstanding. The bulk of the accommodation at the Kakula village is complete and occupied, while the kitchen, mess area and laundry still is being constructed.

Photo: A Kamoa transport bus, used for carrying Kamoa-Kakula employees to the mine site from the city of Kolwezi, along a recently-completed section of the permanent new highway linking the Kakula Mine with the Kolwezi airport.

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Photo: Housing units are being constructed at Kamoa-Kakula to provide on-site accommodations for employees and contractors.

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Exploration success leads to discovery of shallow thick ultra-high grade Kamoa North Bonanza Zone

Most of the drilling in 2019 focused on the extension and definition of the Kamoa North Bonanza Zone, however some holes were drilled to target the typical K1.1.1 mineralized horizon and the Far North trend. In total, 51,187 metres were completed in 182 holes, of which 6,453 metres were completed in Q4 2019.

Ultra-high-grade mineralization previously identified over an approximately 350 metre strike length, and an implied 2.7 km potential, was further defined on 50-metre east-west spaced sections at 20-metre to 25-metre spaced centres, approximately 300 metres east and west of the discovery hole DD1450 (13.05% copper over 22.3 metres (true thickness)).

Beyond the central core of the Bonanza Zone, drilling was done on wider 100-metre spaced section lines to fully define the limits of the system. This drilling constrains the shallow portion of the Central Bonanza Zone, however the zone remains untested along considerable strike length on the western side of the West Scarp Fault.

Figure 2: On February 6, 2020, Ivanhoe announced an updated Mineral Resource estimate for the extensive Kamoa deposit, including the recent high-grade discoveries at the Kamoa North Bonanza Zone and Kamoa Far North (circled in red).

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Assay results of holes from the Kamoa North Bonanza Zone were included in the updated Mineral Resource estimate announced on February 5, 2020.

Several geophysical studies such as ground gravity, ground magnetics and “Excalibur” airborne were conducted in the Kamoa North area to better understand the controls of the ultra-high-grade mineralization which is hoped will assist in locating additional targets. Additional geological studies are planned for 2020. Packer testing has been completed in the Kamoa North Bonanza Zone and the report is expected in Q1 2020.

In the Kakula area, 2,362 metres were completed in five holes to test the extension of the Kakula West Deposit.