Ivanhoe Mines : Consolidated financial statements as at December 31, 2021

Consolidated financial statements of

Ivanhoe Mines Ltd.

December 31, 2021

(Stated in U.S. dollars)

Ivanhoe Mines Ltd.

Management's responsibility for financial reporting

The accompanying annual consolidated financial statements of Ivanhoe Mines Ltd. (the "Company") have been prepared by management and are in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Management acknowledges its responsibility for the preparation and presentation of the annual consolidated financial statements, which includes designing and implementing internal controls to provide reasonable assurance of the fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances.

Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. The result of the inherent limitations in all control systems means design and operation of controls cannot provide absolute assurance that all control issues and instances of fraud will be detected.

The Board of Directors approves the consolidated financial statements and ensures that management discharges its financial reporting responsibilities. The Board's review is accomplished principally through the Audit Committee, which is composed of non-executive directors. The Audit Committee meets periodically with management and the auditors to review financial reporting and control matters.

(Signed) Marna Cloete	(Signed) David van Heerden
Marna Cloete,	David van Heerden
President	Chief Financial Officer
March 7, 2022

Ivanhoe Mines Ltd.

December 31, 2021

Table of contents

Independent auditor's report	4 - 9
Consolidated statements of financial position	10
Consolidated statements of comprehensive income	11
Consolidated statements of changes in equity	12
Consolidated statements of cash flows	13
Notes to the consolidated financial statements	14 - 73

Independent auditor's report

To the Shareholders of Ivanhoe Mines Ltd.

Our opinion

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Ivanhoe Mines Ltd. and its subsidiaries (together, the Company) as at December 31, 2021 and 2020, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).

What we have audited

The Company's consolidated financial statements comprise:

• the consolidated statements of financial position as at December 31, 2021 and 2020;
• the consolidated statements of comprehensive income for the years then ended;
• the consolidated statements of changes in equity for the years then ended;
• the consolidated statements of cash flows for the years then ended; and
• the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information.

Basis for opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Company in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) and the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with the IESBA Code.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2021. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

PricewaterhouseCoopers Inc., 4 Lisbon Lane, Waterfall City, Jukskei View, 2090

Private Bag X36, Sunninghill, 2157, South Africa

T: [phone], F: [phone], www.pwc.co.za

Chief Executive Officer: L S Machaba

The Company's principal place of business is at 4 Lisbon Lane, Waterfall City, Jukskei View, where a list of directors' names is available for inspection. Reg. no. 1998/012055/21, VAT reg.no. 4950174682.

Key audit matter	How our audit addressed the key audit
	matter

Accounting for convertible notes issued

As disclosed in Note 16: Convertible notes in the

consolidated financial statements, the Company concluded a private placement offering of $575 million on March 17, 2021 of 2.50% convertible senior notes maturing in 2026.

Due to the conversion feature the convertible notes have an embedded derivative liability that is measured at fair value with changes in value being recorded in profit or loss, as well as the host loan that is accounted for at amortized cost.

The key inputs and assumptions in determining the fair value of the embedded derivative liability at initial recognition and at each reporting period are as follows:

• Share price
• Credit spread
• Volatility; and
• Borrowing costs

Given that the convertible notes were issued during the current year, greater audit emphasis was required to assess the accounting treatment and disclosure thereof.

We considered the accounting for the convertible bonds to be a matter of significance to our audit for the year ended due to the judgment and estimation made by management in determining the fair value of the embedded derivative liability and the magnitude of the convertible notes to the consolidated financial statements.

Our audit procedures in respect of the accounting treatment and the valuation of the embedded derivative liability included the following:

• We read the offering memorandum relating to the convertible notes to develop an understanding of the terms and conditions associated with the convertible notes including the different conversion options which the holders have;
• We assessed management's classification of the convertible notes as a financial liability in accordance with the principles of IAS 32:
  Financial Instruments - Presentation. The host liability is accounted for at amortized cost and the embedded derivative liability is accounted for as a financial liability at fair value through profit or loss in accordance with the principles of IFRS 9: Financial Instruments.
• We made use of our internal valuation specialists to evaluate the appropriateness of the fair value of the embedded derivative liability at initial recognition on March 17, 2021 and for the year ended December 31, 2021. The fair value as calculated by management's expert is within an acceptable range when compared to the results of our internal valuation specialist;
• We recalculated the interest for the period in line with the offering memorandum and compared this to management's calculation with no material differences noted;
• We verified the validity of the transaction costs associated with the convertible notes issued and recalculated the apportionment between the embedded derivative liability which is immediately expensed in the statement of comprehensive income versus the portion which is capitalized to the host liability and amortized using the effective interest rate method. No exceptions noted;
• We have assessed the presentation and disclosure in terms of IFRS 9: Financial Instruments.

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