Yukon, Canada		1000		Not Applicable
(Province or other Jurisdiction of Incorporation or Organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number, if applicable)

Suite 654, 999 Canada Place, Vancouver, British Columbia, Canada V6C 3E1, (604) 688-5755
(Address and telephone number of Registrant’s principal executive offices)

CT Corporation System
111 Eighth Avenue, New York, NY 10011, (212) 894-8700
(Name, address (including zip code) and telephone number (including area code) of agent for service in the United States)

Beverly A. Bartlett		Paul L. Goldman		Edwin S. Maynard
Ivanhoe Mines Ltd.		Goodmans LLP		Paul, Weiss, Rifkind,
654-999 Canada Place		355 Burrard Street		Wharton & Garrison LLP
Vancouver, B.C.		Suite 1900		1285 Avenue of the
Canada V6C 3E1		Vancouver, B.C.		Americas
(604) 688-5755		V6C 2G8		New York, New York
		(604) 682-7737		10019-6064
				(212) 373-3000

Approximate date of commencement of proposed sale of the securities to the public:
As soon as practicable after this Registration Statement becomes effective

Province of British Columbia, Canada
(Principal jurisdiction regulating this offering)

It is proposed that this filing shall become effective (check appropriate box below):

A.		þ upon filing with the Commission, pursuant to Rule 467(a) (if in connection with an offering being made contemporaneously in the United States and Canada).
B.		o at some future date (check the appropriate box below)

	1.		o pursuant to Rule 467(b) on (     ) at (     ) (designate a time not sooner than 7 calendar days after filing).
	2.		o pursuant to Rule 467(b) on (     ) at (     ) (designate a time 7 calendar days or sooner after filing) because the securities regulatory authority in the review jurisdiction has issued a receipt or notification of clearance on (     ).
	3.		o pursuant to Rule 467(b) as soon as practicable after notification of the Commission by the Registrant or the Canadian securities regulatory authority of the review jurisdiction that a receipt or notification of clearance has been issued with respect hereto.
	4.		o after the filing of the next amendment to this Form (if preliminary material is being filed).

     If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to the home jurisdiction’s shelf prospectus offering procedures, check the following box. o

Title of each class of

securities to be

Proposed maximum

Proposed maximum aggregate

Amount of registration

registered

Amount to be registered

offering price per unit

offering price(1)

fee(2)

Rights

U.S. $1,200,000,000

U.S. $85,560

Common Shares

(1)		Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457 of the Securities Act of 1933.
(2)		U.S. $71,300 of such fee was previously paid upon the initial filing of this registration statement. The additional registration fee of U.S. $14,260 is paid herewith.

     If, as a result of stock splits, stock dividends or similar transactions, the number of securities purported to be registered on this registration statement changes, the provisions of Rule 416 shall apply to this registration statement.

 

 

PART I

INFORMATION REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS

 

IF YOU ARE A REGISTERED SHAREHOLDER AND RESIDENT IN A PROSPECTUS JURISDICTION, YOUR RIGHTS CERTIFICATE IS ENCLOSED.

 

PLEASE READ THIS MATERIAL CAREFULLY AS YOU ARE REQUIRED TO MAKE A DECISION PRIOR TO 5:00 P.M. (TORONTO TIME) ON JANUARY 26, 2011.

 

This short form prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

Information has been incorporated by reference in this short form prospectus from documents filed with securities commissions or similar authorities in Canada. Copies of the documents incorporated herein by reference may be obtained on request without charge from the secretary of Ivanhoe Mines Ltd. at 654 – 999 Canada Place, Vancouver, British Columbia, V6C 3E1 (telephone (604) 681-6799), and are also available electronically at www.sedar.com.

 

Final Short Form Prospectus

 

 

 

IVANHOE MINES LTD.

 

Rights to Subscribe for Common Shares

 

at a Price of US$13.88 per Common Share or Cdn$13.93

per Common Share

 

Ivanhoe Mines Ltd. (“IVN”, “Ivanhoe”, “we”, “us”, “our”, or the “Company”) is issuing to all holders (“Shareholders”) of its outstanding common shares (“Common Shares”) as at 5:00 p.m. (Toronto time) on December 31, 2010 (the “Record Date”) rights (“Rights”) to subscribe for Common Shares (the “Rights Offering”). A Shareholder is entitled to receive one Right for each Common Share held on the Record Date. As of the date of this Prospectus, there are 566,245,476 Common Shares outstanding. If all Rights issued based on the number of Common Shares outstanding as of the date of this Prospectus are exercised, an additional 84,936,821 Common Shares will be issued following the Expiry Date (as defined below). Additional Rights will be issued, and additional Common Shares will become issuable pursuant to the exercise of such Rights, if the number of Common Shares outstanding on the Record Date is greater than the number of Common Shares outstanding on the date of this Prospectus. The Rights are transferable and will be represented by rights certificates (“Rights Certificates”). Except as described below, only a holder of Rights with an address of record in any province or territory of Canada or the United States (a “Prospectus Holder”) or a Qualified Holder (as defined below) is entitled to exercise Rights. For every 100 Rights held, a Prospectus Holder or a Qualified Holder will be entitled to subscribe for 15 Common Shares from January 5, 2011 (the “Commencement Date”) until 5:00 p.m. (Toronto time) (the “Expiry Time”) on January 26, 2011 (the “Expiry Date”), at a price of, at the holder’s choice, subject to any restrictions a Participant (as defined below) may impose, either US$13.88 per Common Share or Cdn$13.93 per Common Share (whether in United States dollars or Canadian dollars, the “Subscription Price”). The United States dollar denominated Subscription Price was determined by reference to the 20 day volume weighted closing price of the Common Shares on the New York Stock Exchange (the “NYSE”), and such a price is equal to approximately a 43% discount to the weighted average closing price per Common Share on the NYSE over the 5 trading days prior to December 16, 2010, and the Canadian dollar denominated Subscription Price is a price equal to the Canadian dollar equivalent of the United States dollar Subscription Price based on the Bank of Canada noon buying rate (the “Noon Buying Rate”) on December 15, 2010. No fractional Common Shares or cash in lieu thereof will be issued. Where the exercise of Rights would otherwise entitle a holder thereof (each, a “Subscriber” and, collectively, “Subscribers”) to fractional Common Shares, the Subscriber’s entitlement will be reduced to the next lowest whole number of Common Shares.

 

 

 

 

The Lead Dealer Manager for the Rights Offering is:

 

Citi

 

 

 

 

The Co-Dealer Managers for the Rights Offering are:

 

 

 

 

 

 

If the Rights Offering does not proceed, the aggregate Subscription Price paid for the Rights exercised (the “Subscription Payments” and, with respect to each Subscriber, the “Subscription Payment”) will be returned promptly to the Subscribers by the Subscription Agent without interest or deduction.

 

There is no standby commitment or additional subscription privilege with respect to Common Shares underlying unsubscribed Rights as part of this Rights Offering.

 

The Rights Offering is not subject to any minimum subscription level.

 

Rights not exercised by the Expiry Time on the Expiry Date will be void, of no value and no longer exercisable for any Common Shares. If the Rights Offering is completed, a Shareholder’s percentage interest in IVN will be substantially diluted upon the exercise of Rights by other Shareholders unless such Shareholder exercises its Rights. See “RISK FACTORS — Risks Related to the Rights Offering — Dilution”. Any subscription for Common Shares will be irrevocable once submitted, subject to Canadian statutory withdrawal rights arising in certain limited circumstances, such as the filing of an amendment to the Prospectus.

 

The Company has received conditional approval from the Toronto Stock Exchange (the “TSX”) for the listing on the TSX of the Rights and the Common Shares issuable upon the exercise of the Rights. Similar approvals have been received from the NYSE and the Nasdaq Stock Market (“NASDAQ”) to admit the Rights for trading and list the Common Shares issuable upon the exercise of Rights. Listing of the Rights and the Common Shares underlying the Rights on the TSX, NYSE and NASDAQ is subject to IVN fulfilling all of the listing requirements of the TSX, NYSE and NASDAQ, respectively. Provided IVN fulfills all such requirements, the Rights will be listed or admitted for trading, as applicable, on the TSX on January 4, 2011, and on the NYSE and NASDAQ on January 6, 2011. The Rights will cease trading on the TSX at noon (Toronto time) on the Expiry Date, and on the NYSE and NASDAQ at the close of trading (New York time) on the day immediately preceding the Expiry Date.

 

Under applicable Canadian securities laws, the Company may be considered a connected issuer of the Lead Dealer manager.  The Lead Dealer Manager and certain of its affiliates have provided, currently are providing and may in the future provide various investment banking, financial advisory, commercial lending and other services to the Company and/or its affiliates. These include certain loans to and related transactions with Mr. Robert Friedland under the Friedland Agreements (as defined herein) and certain advisory services to the Company for which Citigroup Global Markets Inc. will receive an amount equal to a minimum of 1.5% and a maximum of 2.0%, subject to the aggregate level of participation of Prospectus Holders and Qualified Holders in the Rights Offering, of the Subscription Payments received by the Company pursuant to the Rights Offering (payable in U.S. dollars), less the US$3,000,000 Lead Dealer Manager Fee. See “PLAN OF DISTRIBUTION” and “RELATIONSHIPS BETWEEN THE COMPANY AND THE DEALER MANAGERS” for more details on the relationship between the Lead Dealer Manager and the Company.

 

This Prospectus qualifies the distribution of the Rights and the Common Shares issuable upon the exercise of the Rights (together, the “Offered Securities”). This Prospectus also covers the offer and sale of the Offered Securities within the United States under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”).

 

Subscription Price: US$13.88 per Common Share or Cdn$13.93 per Common Share

 

 

 

 

IVN’s head office is located at 654 — 999 Canada Place, Vancouver, British Columbia, Canada, V6C 3E1 and its registered office is located at 300 — 204 Black Street, Whitehorse, Yukon, Canada, Y1A 2M9.

 

If the Rights are listed on the TSX and admitted for trading on the NYSE and NASDAQ, there can be no assurance that an active trading market will develop in the Rights. To the extent an active trading market does not develop, the pricing of the Rights in the secondary market, the transparency and availability of trading prices and the liquidity of the Rights may be adversely affected. See “RISK FACTORS — Risks Related to the Rights Offering — No prior trading market for Rights”. The outstanding Common Shares are listed on the TSX, NYSE and NASDAQ, under the symbol “IVN”. The closing price for the Common Shares on the TSX on December 15, 2010 was Cdn$24.62 per Common Share (US$24.53, based on the Noon Buying Rate on December 15, 2010), and the closing price for the Common Shares on the NYSE and NASDAQ on December 15, 2010 was US$24.36 per Common Share (Cdn$24.45, based on the Noon Buying Rate on December 15, 2010).

 

IVN has been informed by Mr. Robert Friedland that he and entities controlled by him, who collectively hold 86,881,622 Common Shares representing 15.34% of the issued and outstanding Common Shares, intend to fully exercise all of the Rights issued to each of them, subject to financing and an absence of any material adverse change to the Company. Mr. Robert Friedland has entered into a loan agreement (the “Loan Agreement”), subject to certain conditions precedent, with Citibank, N.A. (“Citibank”), an affiliate of the Lead Dealer Manager. Concurrently with entering into the Loan Agreement, Mr. Friedland has entered into a cash-settled contract (the “Cash-Settled Contract”) with Citibank which provides a collar with reference to approximately 12 million Common Shares, subject to certain adjustments pursuant to the Cash-Settled Contract (together, the Loan Agreement and the Cash-Settled Contract are hereinafter referred to as the “Friedland Agreements”). Each of the Friedland Agreements is a separate transaction from the Rights Offering, entered into by Citibank and Mr. Friedland. The Friedland Agreements will facilitate the participation of Mr. Friedland in the Rights Offering. See “RISK FACTORS — Risks Related to this Offering — Hedging transactions undertaken by Citibank in connection with the Cash-Settled Contract may affect the trading price of our Common Shares”.

 

The Company, after reasonable inquiry, believes that certain insiders of the Company, other than Mr. Robert Friedland and Rio Tinto International Holdings Limited (“Rio Tinto”), intend to exercise Rights to purchase an aggregate of approximately 576,188 Common Shares. See “INTENTION OF INSIDERS TO EXERCISE RIGHTS”.

 

CIBC Mellon Trust Company (the “Subscription Agent”), an affiliate of one of the Co-Dealer Managers, at its principal office in the City of Toronto (the “Subscription Office”), is the subscription agent and depository for this Rights Offering. See “DETAILS OF THE RIGHTS OFFERING — Subscription Agent and Depository”.

 

The Company will mail or cause to be mailed to each Shareholder holding Common Shares in registered form (a “Registered Shareholder” and, collectively, the “Registered Shareholders”) that resides in any province or territory of Canada or the United States (collectively referred to as “Prospectus Jurisdictions”) a Rights Certificate evidencing the number of Rights issued to the holder thereof, together with a copy of this Prospectus. Registered Shareholders will be presumed to be resident in the place of their address of record, unless the contrary is shown to the Company’s satisfaction. In order to exercise the Rights represented by the Rights Certificate, a Prospectus Holder or a Qualified Holder must complete and deliver Form 1 of the Rights Certificate to the Subscription Agent in the manner and upon the terms set out in this Prospectus. See “DETAILS OF THE RIGHTS OFFERING — Common Shares Held in Registered Form”. For Registered Shareholders that reside in any jurisdiction other than the Prospectus Jurisdictions (each other jurisdiction, a “Non-Prospectus Jurisdiction”), the Company will mail or cause to be mailed a copy of this Prospectus together with a letter advising them that their Rights Certificates will be held by the Subscription Agent as agent for the benefit of all such Registered Shareholders. Registered Shareholders that wish to be recognized as Qualified Holders (as such term is defined below) must contact the Subscription Agent at the earliest possible time, but in no event after 4:30 p.m. (Toronto time) on January 14, 2011, in order to satisfy the Company that such holders are Qualified Holders. From and after January 17, 2011, the Subscription Agent will attempt to sell the Rights of registered Non-Prospectus Holders that have not demonstrated that they are Qualified Holders, on such date or dates and at such price or prices and in such markets as the Subscription

Agent determines in its sole discretion. See “DETAILS OF THE RIGHTS OFFERING — Non-Prospectus Holders”.

 

For Common Shares held through a securities broker or dealer, bank or trust company or other custodian (each, a “Participant”) that participates directly or indirectly in the book-based system administered by CDS Clearing and Depository Services Inc. (“CDS”) or in the book-based system administered by the Depository Trust Company (“DTC”), a Prospectus Holder or a Qualified Holder may exercise the Rights issued in respect of such Common Shares by: (a) instructing the Participant holding such Rights to exercise all or a specified number of such Rights, and (b) forwarding to such Participant the Subscription Price for each Common Share that such holder wishes to subscribe for in accordance with the terms of this Rights Offering. We refer to Participants in CDS as “CDS Participants” and to Participants in DTC as “DTC Participants”.

 

Holders that wish to exercise Rights issued in respect of Common Shares held through a Participant should contact such Participant to determine how Rights may be exercised. The entire Subscription Price for any Rights exercised must be paid at the time of subscription and must be received by the Subscription Agent at the Subscription Office prior to the Expiry Time on the Expiry Date. Accordingly, Subscribers must provide the Participant holding their Rights with instructions and the required payment sufficiently in advance of the Expiry Date to permit proper exercise of their Rights. Participants will have an earlier deadline for receipt of instructions and payment. See “DETAILS OF THE RIGHTS OFFERING — Common Shares Held In Book-Entry Form”.

 

If your Rights are held of record through DTC, you may exercise these Rights through the DTC’s “PSOP” function by instructing DTC to charge your applicable DTC account for the Subscription Payment for the Common Shares and deliver such amount to the Subscription Agent. We note, however, that if Rights are held through a DTC Participant, the holder of such Rights may not be able to exercise such Rights in Canadian dollars and such holder should contact its DTC Participant if it wishes to submit any Subscription Payment in Canadian dollars. The Subscription Agent must receive the required subscription documents, including the Subscription Payment for the Common Shares sufficiently in advance of the Expiry Time on the Expiry Date to permit proper exercise of Rights. See “DETAILS OF THE RIGHTS OFFERING — Common Shares Held In Book-Entry Form — DTC”.

 

The Offered Securities are not qualified under the securities laws of any Non-Prospectus Jurisdiction and Rights may not be exercised by or on behalf of a holder of Rights resident in a Non-Prospectus Jurisdiction (a “Non-Prospectus Holder”), except under the circumstances where the Company determines, in its sole discretion, that the offering to and subscription by such person (each, a “Qualified Holder”) is lawful and in compliance with all securities and other laws applicable in the Non-Prospectus Jurisdiction where such person is resident. See “DETAILS OF THE RIGHTS OFFERING — Non-Prospectus Holders”.

 

As a condition to a purchase of any Common Shares in the Rights Offering, each Subscriber other than a Qualified Holder will be deemed to have represented and warranted that it is resident in a Prospectus Jurisdiction, and this representation and warranty will be relied upon by us, the Lead Dealer Manager and its affiliates, the Co-Dealer Managers and the Subscription Agent.

 

We reserve the right to treat as invalid any exercise or purported exercise of any Rights in the Rights Offering that appears to us to have been exercised, effected or dispatched in a manner which may involve a breach of the laws or regulations of any jurisdiction or if we believe, or our agents believe, that the same may violate or be inconsistent with the procedures and terms set out in this Prospectus or in breach of the representation and warranty that a holder exercising its Rights is resident in a Prospectus Jurisdiction, as described herein.

 

Holders of Rights that reside outside of Canada or the United States and any persons (including any Participants) that have a contractual or legal obligation to forward this document to a jurisdiction outside a Prospectus Jurisdiction should read the section entitled “DETAILS OF THE RIGHTS OFFERING — Non-Prospectus Holders”.

 

This Rights Offering is made by a Canadian issuer that is permitted, under a multijurisdictional disclosure system adopted by the United States, to prepare this Prospectus in accordance with the disclosure requirements of Canada. Prospective investors should be aware that those requirements are different from those of the United States.

The enforcement by investors of civil liabilities under United States federal securities laws may be affected adversely by the fact that the Company is organized under the laws of the Yukon Territory, Canada, that many of our directors and officers, and some or all of the experts named in this Prospectus, are residents of Canada or otherwise reside outside the United States, and that a substantial portion of the assets of the Company and of said persons are located outside the United States. See “Enforcement of Civil Liabilities”.

 

THE OFFERED SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.

 

Prospective investors should be aware that the acquisition or disposition of the securities described in this Prospectus and the expiry of an unexercised Right may have tax consequences in Canada, the United States, or elsewhere, depending on each particular prospective investor’s specific circumstances. Such consequences for investors that are resident in, or citizens of, the United States may not be described fully herein. Prospective investors should consult their own tax advisors with respect to such tax considerations.

 

Certain legal matters relating to Canadian law in connection with the Rights Offering will be passed upon on our behalf by Goodmans, Vancouver, British Columbia and Goodmans LLP, Toronto, Ontario, and on behalf of the Dealer Managers by McMillan LLP, and certain legal matters relating to United States law will be passed upon on our behalf by Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York and on behalf of the Dealer Managers by Cleary Gottlieb Steen & Hamilton LLP, New York, New York.

 

Investments in Rights and Common Shares underlying such Rights are subject to a number of risks. The risk factors outlined herein and incorporated by reference in this Prospectus should be carefully reviewed and considered by prospective purchasers in connection with an investment in Rights or the Common Shares underlying such Rights. See “RISK FACTORS”.

 

TABLE OF CONTENTS

 

 

We have filed with the SEC under the U.S. Securities Act a registration statement on Form F-10 relating to the Offered Securities being offered hereunder and of which this Prospectus forms a part. This Prospectus, which constitutes part of the registration statement, does not contain all of the information set forth in such registration statement, certain items of which are contained in the exhibits to the registration statement as permitted or required by the rules and regulations of the SEC. Items of information omitted from this Prospectus but contained in the registration statement will be available on the SEC’s website at www.sec.gov.

 

We file with the securities commissions or similar authorities in each of the provinces and territories of Canada (the “Canadian Securities Authorities”) material change, annual and quarterly reports and other information. We are subject to the informational requirements of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, in accordance with the Exchange Act, we also file certain reports with and furnish other information to the SEC. You may read any document we file with or furnish to the SEC at the SEC’s public reference room at Room 1580, 100 F Street N.E., Washington, D.C. 20549. You may also obtain copies of the same documents from the public reference room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 by paying a fee. Please call the SEC at 1-800-SEC-0330 or contact them at www.sec.gov for further information on the public reference rooms.

You may also access our disclosure documents and any reports, statements or other information that we file with the Canadian Securities Authorities through the Internet on the Canadian System for Electronic Document Analysis and Retrieval, which is commonly known by the acronym SEDAR and which may be accessed at www.sedar.com. SEDAR is the Canadian equivalent of the SEC’s Electronic Document Gathering Analysis and Retrieval System, which is commonly known by the acronym EDGAR and which may be accessed at www.sec.gov.

 

The Company is a corporation existing under the Business Corporations Act (Yukon). Many of the Company’s directors and officers, and some of the experts named in this Prospectus, are residents of Canada or otherwise reside outside the United States and all or a substantial portion of their assets, as well as a substantial portion of the Company’s assets, are located outside the United States. The Company will appoint an agent for service of process in the United States, but it may be difficult for holders of Common Shares that reside in the United States to effect service within the United States upon those directors, officers and experts that are not residents of the United States. It may also be difficult for holders of Common Shares that reside in the United States to realize in the United States upon judgments of courts of the United States predicated upon the Company’s civil liability and the civil liability of its directors, officers and experts under the U.S. federal securities laws. The Company has been advised by its Canadian counsel, Goodmans, that a judgment of a U.S. court predicated solely upon civil liability under U.S. federal securities laws or the securities or “blue sky” laws of any state within the United States, would probably be enforceable in Canada if the U.S. court in which the judgment was obtained assumed jurisdiction on the same basis that a court in Canada would assume jurisdiction. The Company has also been advised by Goodmans, however, that there is substantial doubt whether an action could be maintained in Canada in the first instance on the basis of liability predicated solely upon U.S. federal securities laws.

 

The Company has filed with the SEC, concurrently with its registration statement on Form F-10 of which this Prospectus is a part, an appointment of agent for service of process on Form F-X. Under the Form F-X, the Company has appointed CT Corporation System as its agent for service of process in the United States in connection with any investigation or administrative proceeding conducted by the SEC, and any civil suit or action brought against or involving the Company in a U.S. court arising out of or related to or concerning the offering of the securities under this Prospectus.

 

This Prospectus has been prepared in accordance with the requirements of Canadian securities laws, which differ from the requirements of United States securities laws. Unless otherwise indicated, all reserve and resource estimates included or incorporated by reference in this Prospectus have been prepared in accordance with Canadian National Instrument 43-101, Standards of Disclosure for Mineral Projects (“NI 43-101”), and the Canadian Institute of Mining, Metallurgy and Petroleum Definition Standards for Mineral Resources and Mineral Reserves (“CIM Definition Standards”). NI 43-101 is a rule developed by the Canadian Securities Administrators which establishes standards for public disclosure an issuer makes of scientific and technical information concerning mineral projects. NI 43-101 permits the disclosure of a historical estimate made prior to the adoption of NI 43-101 that does not comply with NI 43-101 using the historical terminology if the disclosure: (a) identifies the source and date of the historical estimate; (b) comments on the relevance and reliability of the historical estimate; (c) states whether the historical estimate uses categories other than those prescribed by NI 43-101 and, if so, includes an explanation of the differences; and (d) includes any more recent estimates or data available.

 

Canadian standards, including NI 43-101, differ significantly from the requirements of the SEC, and reserve and resource information contained or incorporated by reference in this Prospectus may not be comparable to similar information disclosed by U.S. companies. In particular, and without limiting the generality of the foregoing, the term “resource” does not equate to the term “reserves”. Under U.S. standards, mineralization may not be classified as a “reserve” unless the determination has been made that the

mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SEC’s disclosure standards normally do not permit the inclusion of information concerning “measured mineral resources”, “indicated mineral resources” or “inferred mineral resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by U.S. standards in documents filed with the SEC. U.S. investors should also understand that “inferred mineral resources” have a great amount of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an “inferred mineral resource” will ever be upgraded to a higher category. Under Canadian rules, estimated “inferred mineral resources” may not form the basis of feasibility or pre-feasibility studies except in rare cases. Investors are cautioned not to assume that all or any part of an “inferred mineral resource” exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in-place tonnage and grade without reference to unit measures. The requirements of NI 43-101 for identification of “reserves” are also not the same as those of the SEC, and reserves reported by Ivanhoe in compliance with NI 43-101 may not qualify as “reserves” under SEC standards. Accordingly, information concerning mineral deposits set forth herein and in the documents incorporated herein by reference may not be comparable with information made public by companies that report in accordance with U.S. standards.

 

See pages 5 to 8 of the Company’s AIF (as defined herein) for the year ended December 31, 2009 filed on SEDAR at www.sedar.com and filed on EDGAR at www.sec.com for a description of certain mining terms used in this Prospectus and the documents incorporated by reference herein.

 

In this Prospectus, all funds are quoted in United States dollars unless otherwise indicated. References to “$” and “US$” are to United States dollars and references to “Cdn$” are to Canadian dollars. The Noon Buying Rate for the purchase of one United States dollar using Canadian dollars was as follows during the indicated periods:

 

 

The Noon Buying Rate on December 15, 2010 for the purchase of one United States dollar using Canadian dollars was Cdn$1.0035 (one Canadian dollar on that date equalled US$0.9965).

 

You should read this Prospectus along with the documents incorporated by reference herein. We have prepared the information contained in this Prospectus, any free writing prospectus and the documents incorporated by reference herein. Neither we, the Lead Dealer Manager, any of its affiliates nor the Co-Dealer Managers have authorized anyone to provide you with any other information and we take no responsibility for other information others may give you. Neither we, the Lead Dealer Manager, any of its affiliates nor the Co-Dealer Managers are making an offer to sell the Offered Securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this Prospectus, any free writing prospectus or the documents incorporated by reference herein is accurate as of any date other than their respective dates.

 

Information has been incorporated by reference in this Prospectus from documents filed with the Canadian Securities Administrators. Under the multijurisdictional disclosure system adopted by the

United States and Canada, the SEC and the Canadian Securities Authorities allow us to “incorporate by reference” certain information we file with them, which means that we can disclose important information to you by referring you to those documents. Information that is incorporated by reference is an important part of this Prospectus. We incorporate by reference the documents listed below, which were filed with the Canadian Securities Authorities under applicable Canadian securities laws and, subject to certain exceptions, with the SEC.

 

The following documents are specifically incorporated by reference in and form an integral part of this Prospectus:

 

(a) our annual information form for the year ended December 31, 2009, dated March 31, 2010 (the “AIF”);

 

(b) our audited comparative consolidated financial statements for the years ended December 31, 2009 and 2008, together with the notes thereto and the auditor’s reports thereon (the “Annual Financial Statements”);

 

(c) our unaudited interim comparative consolidated financial statements for the nine-month period ended September 30, 2010, together with the notes thereto (the “Interim Financial Statements”);

 

(d) management’s discussion and analysis of financial condition and operations of IVN for the year ended December 31, 2009;

 

(e) management’s discussion and analysis of financial condition and operations of IVN for the nine-month period ended September 30, 2010;

 

(f) our management information circular dated September 21, 2009 prepared in connection with a special meeting of Shareholders scheduled to be held on October 20, 2009, which was subsequently cancelled;

 

(g) our management information circular dated April 5, 2010 prepared in connection with the annual and special meeting of Shareholders held on May 7, 2010;

 

(h) our material change report dated April 6, 2010 respecting our adoption of a shareholders’ rights plan, as filed on SEDAR on April 6, 2010;

 

(i) our material change report dated April 9, 2010 respecting the fulfillment of all conditions precedent under the Investment Agreement (as defined therein), as filed on SEDAR on April 9, 2010;

 

(j) our material change report dated April 22, 2010 respecting the amendment and restatement of the shareholders’ rights plan, as filed on SEDAR on April 23, 2010;

 

(k) our material change report dated May 21, 2010 respecting the development of a new Integrated Development Plan for the Company’s copper and gold exploration and development project at Oyu Tolgoi in Mongolia (the “Oyu Tolgoi Project”), as filed on SEDAR on May 21, 2010;

 

(l) our material change report dated October 22, 2010 respecting the announcement of the Rights Offering, as filed on SEDAR on October 22, 2010;

 

(m) our material change report dated December 13, 2010 respecting the announcement of a heads of agreement (the “Heads of Agreement”) with Rio Tinto dated December 8, 2010 providing for, inter alia, Rio Tinto’s support of the Rights Offering and a comprehensive series of transactions intended to, among other things, provide funding for the Oyu Tolgoi Project, as filed on SEDAR on December 13, 2010; and

 

(n) our material change report dated December 14, 2010 respecting the announcement of the 2011 capital budget for the Oyu Tolgoi Project, as filed on SEDAR on December 14, 2010.

 

Any document of the types referred to above (excluding confidential material change reports) filed by us with a securities commission or similar authority in Canada after the date of this Prospectus and prior to the closing of the Rights Offering hereunder, and any other document required to be incorporated by reference pursuant to Item 11.2 of Form 44-101F1 — Short Form Prospectus, will be deemed to be incorporated by

reference in this Prospectus. In addition, to the extent that any document or information incorporated by reference in this Prospectus is included in any report on Form 6-K, Form 40-F, Form 20-F, Form 10-K, Form 10-Q or Form 8-K (or any respective successor form) that is filed with or furnished to the SEC after the date of this Prospectus, such document or information shall be deemed to be incorporated by reference as an exhibit to the registration statement of which this Prospectus forms a part. In addition, we may incorporate by reference into this Prospectus information from documents that we file with or furnish to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act.

 

Any statement contained in this Prospectus or in a document incorporated, or deemed to be incorporated, by reference in this Prospectus shall be deemed to be modified or superseded, for purposes of this Prospectus, to the extent that a statement contained in the Prospectus or in any other subsequently filed document that also is, or is deemed to be, incorporated by reference in this Prospectus modifies, replaces or supersedes such statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document which it modifies or supersedes. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute part of this Prospectus.

 

Copies of the documents incorporated in this Prospectus by reference may be obtained on request without charge from the Vice President and Corporate Secretary of Ivanhoe at Suite 654, 999 Canada Place, Vancouver, British Columbia, V6C 3E1, Telephone: (604) 331-9803.

 

Certain statements made in this Prospectus and in the documents incorporated herein by reference, including statements relating to matters that are not historical facts and statements of our beliefs, intentions and expectations about developments, results and events which will or may occur in the future, constitute “forward-looking information” within the meaning of applicable Canadian securities legislation and “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking information and statements are typically identified by words such as “anticipate”, “could”, “should”, “expect”, “seek”, “may”, “intend”, “likely”, “plan”, “estimate”, “will”, “believe” and similar expressions suggesting future outcomes or statements regarding an outlook. These include, but are not limited to, statements respecting:

 

 

 

All such forward-looking information and statements are based on certain assumptions and analyses made by the Company’s management in light of their experience and perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. These statements, however, are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information or statements. Important factors that could cause actual results to differ from these forward-looking statements are included in the section “RISK FACTORS” of this Prospectus.

 

The reader is cautioned not to place undue reliance on forward-looking information or statements. By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility that the predicted outcomes will not occur. Events or circumstances could cause our actual results to differ materially from those estimated or projected and expressed in, or implied by, these forward-looking statements. You should carefully consider the matters discussed under “RISK FACTORS” included and incorporated by reference in this Prospectus.

 

This Prospectus also contains references to estimates of mineral reserves and mineral resources. The estimation of reserves and resources is inherently uncertain and involves subjective judgments about many relevant factors. 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, which may prove to be unreliable. There can be no assurance that these estimates will be accurate or that such mineral reserves and mineral resources can be mined or processed profitably. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

 

Readers are cautioned that the foregoing list of factors that may affect future results is not exhaustive. When relying on our forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Furthermore, the forward-looking statements contained in this Prospectus are made as of the date of this document and the Company does not undertake any obligation to update or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. The forward-looking statements contained in this Prospectus, including the documents incorporated by reference herein, are expressly qualified by this cautionary statement.

 

The following are examples of what we anticipate will be common questions about the Rights Offering. The following questions and answers do not contain all of the information that may be important to you and may not address all of the questions that you may have about the Rights Offering. This Prospectus and the documents incorporated by reference in this Prospectus contain more detailed descriptions of the terms and conditions of the Rights Offering and provide additional information about us and our business, including potential risks related to our business, the Rights Offering, the Rights and the Common Shares issuable upon the exercise of the Rights.

 

What is this Rights Offering?

 

The Company is issuing to Shareholders as of the close of business, Toronto time, on December 31, 2010, which we refer to as the “Record Date”, at no charge, one Right for each Common Share held by such holder on that date. The Rights will be evidenced by Rights Certificates, and such certificates will be mailed to all Registered Shareholders that reside in any Prospectus Jurisdiction. The Subscription Agent will hold any remaining Rights Certificates as agent for the benefit of all Registered Shareholders that reside in a Non-Prospectus Jurisdiction.

 

Why is the Company engaging in the Rights Offering?

 

The Company is engaging in the Rights Offering in order to raise capital to advance development of the Oyu Tolgoi Project and for general and administrative expenses. The Rights Offering is intended to:

 

 

The board of directors of the Company (the “Board of Directors”) has unanimously approved the Rights Offering and the Company believes that the proceeds raised by the Rights Offering will place it in a much stronger position to fund ongoing development of the Oyu Tolgoi Project.

 

What are Rights and what are they exercisable for?

 

Every 100 Rights held will entitle a Prospectus Holder or a Qualified Holder to purchase 15 Common Shares with a Subscription Price of US$13.88 per Common Share or Cdn$13.93 per Common Share, upon delivery of the required documents and payment of the Subscription Price. Subject to any further restrictions a Participant may impose, determination of the Subscription Price currency will be at the Subscriber’s sole discretion. Where the exercise of Rights would otherwise entitle a Subscriber to fractional Common Shares, the Subscriber’s entitlement will be reduced to the next lowest whole number of Common Shares. We will not issue fractional Common Shares or pay cash in lieu thereof.

 

Subscriptions for Common Shares will be irrevocable, subject to Canadian statutory withdrawal rights that arise in certain limited circumstances, such as the filing of an amendment to the Prospectus, and Subscribers will be unable to withdraw their subscriptions for Common Shares once submitted.

Am I required to exercise any or all of the Rights I receive in the Rights Offering?

 

No. You may choose to exercise any number of your Rights (in increments of 100), or you may choose not to exercise any Rights. If you do not exercise any Rights prior to the Expiry Time on the Expiry Date, such Rights will be void and of no value and will no longer be exercisable for Common Shares. However, your percentage ownership interest in the Company will be diluted to the extent that others exercise their Rights and you do not.

 

What should I do if I receive a Rights Certificate and want to exercise some of my Rights now while retaining the ability to exercise more of my Rights at a later point but before the Expiry Time on the Expiry Date?

 

If you want to exercise some but not all of the Rights represented by a Rights Certificate and retain the ability to exercise the balance of the unexercised Rights represented by a Rights Certificate, you must first complete and submit to the Subscription Agent Form 3 on the Rights Certificate in order to divide the Rights and be issued two separate Right Certificates: one certificate representing the number of Rights that you wish to exercise in the first instance (which should then be completed and delivered to the Subscription Agent) and a second certificate representing the balance of unexercised Rights available for future exercise prior to the Expiry Time on the Expiry Date.

 

Is there a minimum amount of proceeds that must be raised in order for the Rights Offering to be completed?

 

No. The Rights Offering is not subject to any minimum subscription level.

 

How soon must I act to exercise my Rights?

 

The Rights may be exercised from the Commencement Date until the Expiry Time on the Expiry Date. If you elect to exercise any Rights, the Subscription Agent must actually receive all required documents and payments from you or your broker or nominee, or the guaranteed delivery procedures described under “DETAILS OF THE RIGHTS OFFERING — Guaranteed Delivery Procedures,” must be followed, at or before the Expiry Time on the Expiry Date. See “DETAILS OF THE OFFERING — Common Shares Held in Book-Entry Form” and “DETAILS OF THE OFFERING — Common Shares Held in Registered Form”).

 

When will I receive my Rights Certificate?

 

Promptly after the first business day after the Record Date, the Company will mail or caused to be mailed to each Registered Shareholder that resides in any of the Prospectus Jurisdictions a Rights Certificate evidencing the number of Rights issued to the holder thereof, together with a copy of the Prospectus. For Registered Shareholders that reside in a Non-Prospectus Jurisdiction, the Company will mail or caused to be mailed a copy of the Prospectus together with a letter advising them that their Rights Certificates will be held by the Subscription Agent as agent for the benefit of all such Registered Shareholders.

 

However, if you hold your Common Shares through a securities broker or dealer, bank or trust company or other custodian, you will not receive an actual Rights Certificate. Instead, as described in this Prospectus, you must instruct such Participant whether or not to exercise Rights on your behalf through a Beneficial Owner Election Form that such Participant has been instructed to provide to you. See “DETAILS OF THE RIGHTS OFFERING — Common Shares Held in Book-Entry Form”.

 

Will I be able to exercise my Rights if I live in a Non-Prospectus Jurisdiction?

 

Exercise of Rights will only be accepted from holders of Rights resident in a Prospectus Jurisdiction, except where the Company determines that the subscription by a holder of Rights in a Non-Prospectus Jurisdiction is lawfully made by a Qualified Holder in compliance with all securities and other laws applicable in the Non-Prospectus Jurisdiction where such holder is resident. Rights will be issued to Non-Prospectus Holders, but Rights Certificates will not be mailed to Non-Prospectus Holders. Registered Shareholders that

wish to be recognized as Qualified Holders must contact the Subscription Agent at the earliest possible time, but in no event after 4:30 p.m. (Toronto time) on January 14, 2011, in order to satisfy the Company that such holders are Qualified Holders. From and after January 17, 2011, the Subscription Agent will attempt to sell the Rights of registered Non-Prospectus Holders that have not demonstrated that they are Qualified Holders, on such date or dates and at such price or prices and in such markets as the Subscription Agent determines in its sole discretion. The Subscription Agent will convert or cause to be converted any proceeds denominated in Canadian dollars into U.S. dollars at the prevailing exchange rate on the date of distribution and, after deducting any expenses incurred by the Subscription Agent in connection with such conversion, distribute all proceeds in U.S. dollars to the registered Non-Prospectus Holders on a pro rata basis. See “DETAILS OF THE RIGHTS OFFERING — Non-Prospectus Holders”.

 

May I transfer my Rights?

 

The Company has received conditional approval from the TSX for the listing on the TSX of the Rights and the Common Shares issuable upon the exercise of the Rights. Similar approvals have been received from NYSE and NASDAQ to admit the Rights for trading and list the Common Shares issuable upon the exercise of Rights. Holders of Rights that do not wish to exercise their Rights may sell or transfer their Rights through usual investment channels, such as investment dealers and brokers, at the expense of the holder. In addition, Registered Shareholders may transfer their Rights through the Subscription Agent as described in this Prospectus. See “DETAILS OF THE RIGHTS OFFERING — Sale or Transfer of Rights”. Holders of Rights may elect to exercise only some of their Rights and dispose of the remainder of them. See “DETAILS OF THE RIGHTS OFFERING — Sale or Transfer of Rights”.

 

How do I exercise my Rights? What forms and payment are required to purchase the Common Shares?

 

If you are a Registered Shareholder and you wish to participate in the Rights Offering, you must take the following steps:

 

 

If you do not indicate the number of Rights being exercised, or do not forward the full Subscription Payment for the number of Rights that you indicate are being exercised, then you will be deemed to have exercised the maximum number of Rights that may be exercised with the Subscription Payment you delivered to the Subscription Agent. If the delivered Subscription Payment is greater than the amount you owe for your subscription, the Subscription Agent will return the excess amount to you by mail, without interest or deduction, promptly after the closing date of the Rights Offering (the “Closing Date”), which is anticipated to occur on or about February 2, 2011.

 

What should I do if I want to participate in the Rights Offering, but my Common Shares are held in the name of a Participant?

 

If you hold your Common Shares in the name of a Participant, such as a securities broker or dealer, bank or trust company or other custodian, then such Participant is the record holder of the shares you own. The Participant must exercise the Rights on your behalf.

 

If you wish to participate in the Rights Offering and purchase Common Shares underlying the Rights, please promptly contact your Participant. You should complete and return to your Participant any form required by your Participant to effect the exercise of your Rights, together with the applicable Subscription Payment. You should receive such a form from your Participant with the other Rights Offering materials. You should contact your Participant if you do not receive this form, but you believe you are entitled to participate in this Rights Offering. We are not responsible if you do not receive the form from your Participant or if you receive it without sufficient time to respond.

When will I receive my Common Shares?

 

If you exercise your Rights and purchase Common Shares pursuant to this Rights Offering, we will deliver your Common Shares to you as soon as practicable after the Closing Date. We expect that such Common Shares will be delivered on or after February 2, 2011.

 

Are there risks in exercising my Rights?

 

Yes. The exercise of your Rights involves risks. Exercising your Rights means buying our Common Shares, and should be considered as carefully as you would consider any other equity investment.

 

You should carefully read the section entitled “RISK FACTORS” in this Prospectus, and all of the other information incorporated by reference in this Prospectus in its entirety before you decide whether to exercise your Rights.

 

If the Rights Offering is not completed, will my Subscription Payment be refunded to me?

 

Yes. The Subscription Agent will hold all funds it receives in a segregated bank account for the benefit of Subscribers until completion of the Rights Offering. If the Rights Offering is not completed for any reason, all Subscription Payments received by the Subscription Agent will be returned promptly, without interest or deduction.

 

Will the Rights trade on a stock exchange?

 

The Company has received conditional approval from the TSX for the listing on the TSX of the Rights and the Common Shares issuable upon the exercise of the Rights. Similar approvals have been received from NYSE and NASDAQ to admit the Rights for trading and list the Common Shares issuable upon the exercise of Rights. Listing of the Rights on the TSX, NYSE and NASDAQ is subject to IVN fulfilling all of the listing requirements of each of the TSX, NYSE and NASDAQ, respectively. Provided IVN fulfills all such requirements, the Rights will be listed or admitted for trading, as applicable, on the TSX on January 4, 2011, and on the NYSE and the NASDAQ on January 6, 2011. The Rights will be listed for trading on the TSX under the symbol “IVN.RT”, and admitted for trading on the NYSE and NASDAQ, under the symbols “IVN RT” and “IVN.R”, respectively.

 

During the Rights Offering, the Common Shares will continue to trade on the TSX, NYSE and NASDAQ under the symbol “IVN”, and the Common Shares issuable upon the exercise of the Rights will be eligible for trading on the TSX, NYSE and NASDAQ. The Rights will cease trading on the TSX at noon (Toronto time) on the Expiry Date, and on the NYSE and NASDAQ at the close of trading (New York time) on the day immediately preceding the Expiry Date.

 

Have any shareholders indicated that they intend to exercise their Rights?

 

Yes. The Company has been informed by Mr. Robert Friedland that he and entities controlled by him, who collectively hold 86,881,622 Common Shares representing 15.34% of the issued and outstanding Common Shares, intend to fully exercise all of the Rights issued to each of them, subject to financing and an absence of any material adverse change to the Company.

 

Mr. Friedland has entered into the Friedland Agreements with Citibank, an affiliate of the Lead Dealer Manager, to finance his participation in the Rights Offering. See “RISK FACTORS - Risks Related to this Offering — Hedging transactions undertaken by Citibank in connection with the Cash-Settled Contract may affect the trading price of our Common Shares”.

 

In addition, under the Heads of Agreement, Rio Tinto, a holder of 229,251,843 Common Shares representing 40.49% of the issued and outstanding Common Shares, has also agreed to exercise all of the Rights issued to it.

 

The Company, after reasonable inquiry, believes that certain insiders of the Company, other than Mr. Robert Friedland and Rio Tinto, intend to exercise Rights to purchase an aggregate of approximately

576,188 Common Shares. See “DETAILS OF THE RIGHTS OFFERING — Intention of Insiders and Others to Exercise Rights”.

 

How many Common Shares will be outstanding after the Rights Offering?

 

566,245,476 Common Shares were outstanding as of December 15, 2010, the most recent practicable date prior to the date of this Prospectus. Assuming the Rights Offering is fully subscribed, we expect approximately 651,182,297 Common Shares will be issued and outstanding upon completion of this Rights Offering, assuming that the maximum number of Common Shares issuable pursuant to the Rights Offering are issued, but not including any Common Shares issuable under the Company’s options or warrants currently outstanding. Additional rights will be issued and additional Common Shares will become issuable pursuant to the exercise of such Rights, if the number of Common Shares outstanding on the Record Date is greater than the number of Common Shares outstanding on the date of this Prospectus. See “CONSOLIDATED CAPITALIZATION”.

 

What fees or charges will I have to pay if I exercise Rights to purchase Common Shares?

 

Apart from the Subscription Payment payable in connection with the exercise of your Rights, neither the Company nor the Subscription Agent is charging you any fee or sales commission to issue Rights to you or to issue Common Shares underlying exercised Rights. Notwithstanding the foregoing, payment of any service charge, commission or other fee payable (including those of brokers) in connection with the purchase or sale of Rights (other than the fees for the services to be performed by the Subscription Agent described herein) will be the responsibility of the Subscriber. Subscribers must also pay all stamp, issue, registration or other similar taxes or duties contingent upon the issue or delivery of Common Shares to or for the order of a third party.

 

What are the Canadian and United States federal income tax consequences of receiving or exercising Rights?

 

You should consult your tax advisor as to the particular consequences to you of the Rights Offering. A summary of certain material Canadian and United States federal income tax consequences of receiving or exercising the Rights is contained in the sections of this Prospectus entitled “CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS” and “CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS”.

 

To whom should I send my forms and payment?

 

If you are a Registered Shareholder, then you should send your properly completed Rights Certificate and Subscription Payment to the Subscription Agent by hand delivery, registered mail or courier service to:

 

CIBC Mellon Trust Company

199 Bay Street

Commerce Court West, Securities Level

Toronto, Ontario M5L 1G9

 

If your Common Shares are held in the name of a Participant, then you should send a properly completed Beneficial Owner Election Form and Subscription Payment to such Participant in accordance with the instructions you receive from them.

 

Whom should I contact if I have other questions?

 

If you have any questions, you should contact the Subscription Agent, CIBC Mellon Trust Company, toll-free at 1-800-387-0825 (in North America) or 1-416-643-5500 (outside North America), or by email at inquiries@cibcmellon.com. For a more complete description of the Rights Offering, see “DETAILS OF THE RIGHTS OFFERING”.

 

SUMMARY

Issuer:		Ivanhoe Mines Ltd.
The Offering:		Rights to subscribe for Common Shares. Each Shareholder on the Record Date will receive one Right for each Common Share held. Every 100 Rights held entitle the holder thereof to subscribe for 15 Common Shares at the Subscription Price.
		The Rights Offering is not subject to any minimum subscription level.
Record Date:		December 31, 2010 (as at 5:00 p.m. (Toronto time)).
Commencement Date:		January 5, 2011.
Expiry Date:		January 26, 2011.
Expiry Time:		5:00 p.m. (Toronto time) on the Expiry Date. Rights not exercised at or before the Expiry Time on the Expiry Date will be void and of no value and no longer exercisable for any Common Shares.
Subscription Price:		US$13.88 per Common Share or Cdn$13.93 per Common Share, at the election of the Subscriber.
Rights:		Every 100 Rights held entitle the holder thereof to subscribe for 15 Common Shares from the Commencement Date until the Expiry Time on the Expiry Date, upon payment of the Subscription Price. The United States dollar denominated Subscription Price is a price equal to an approximate 46% discount to the weighted average closing price per Common Share on the NYSE over the 20 trading days prior to December 8, 2010, being the date of the Heads of Agreement, and the Canadian dollar denominated Subscription Price is a price equal to the Canadian dollar equivalent of the United States dollar Subscription Price based on the Noon Buying Rate on December 15, 2010. No fractional Common Shares will be issued. See “DETAILS OF THE RIGHTS OFFERING — Issue of Rights and Record Date”.
Standby Commitment or Additional Subscription Privilege:		There is no standby commitment or additional subscription privilege with respect to Common Shares underlying unsubscribed Rights as part of this Rights Offering.
Net Proceeds:		The net proceeds from the issuance of the Common Shares under the Rights Offering are expected to be approximately US$1,154,335,226, assuming exercise of all the Rights based on the number of Common Shares outstanding as of the date of this Prospectus, after payment of the Dealer Manager Fees and deducting expenses and fees payable relating to the Rights Offering, estimated to be approximately US$21,100,000, which is payable by the Company. The proceeds to the Company were calculated using the United States dollar Subscription Price. Actual

		proceeds to the Company will vary depending on the relative amounts of Subscription Payments received by the Company in United States dollars and Canadian dollars, the exchange rate between United States dollars and Canadian dollars and the number of Common Shares outstanding on the Record Date. See “PLAN OF DISTRIBUTION”.
Use of Proceeds:		Under the Heads of Agreement, the Company is obligated to use (other than US$180 million in the aggregate) the proceeds from the Rights Offering and the proceeds from the exercise of the Outstanding Warrants and the sale of Common Shares underlying the Subscription Right, any other sale of Common Shares or convertible securities to Rio Tinto and the net-after tax proceeds from the sale of the 2% net smelter returns entitlement in respect of the Oyu Tolgoi Project by Oyu Tolgoi LLC (“OT Payment”), to continue to advance development of the Oyu Tolgoi Project. See “USE OF PROCEEDS” and “HEADS OF AGREEMENT WITH RIO TINTO”.
Rationale for the Offering:		The Company is engaging in the Rights Offering in order to raise capital to advance development of the Oyu Tolgoi Project and for general and administrative expenses. The Rights Offering is intended to:
		• provide the capital necessary for the Company to maintain its current pace of development at the Oyu Tolgoi Project, which is ahead of the schedule contemplated by the IDP, with initial production expected to commence as early as the fourth quarter of 2012;
		• provide a sufficient equity base to permit the Company to raise project financing to reduce the Oyu Tolgoi Project’s risk profile and bring the project to commercial production;
		• strengthen the Company’s financial position and, consequently, its ability to protect and enhance value for all Shareholders;
		• ensure that each Shareholder, subject to applicable laws, has the opportunity to participate in the Rights Offering pro rata to its existing ownership interest in the Company; and
		• enable the Company to honour its commitment to the Government of Mongolia to continue moving the Oyu Tolgoi Project forward.
		The Board of Directors has unanimously approved the Rights Offering and the Company believes that the proceeds raised by the Rights Offering will place it in a much stronger position to fund ongoing development of the Oyu Tolgoi Project.
Exercise of Rights:		For each Registered Shareholder in a Prospectus Jurisdiction, we will mail or cause to be mailed to such Shareholder a Rights Certificate evidencing the number of Rights issued to the holder thereof, together with a copy of this Prospectus. In order to exercise the Rights represented by the Rights Certificate, a Prospectus Holder or a Qualified Holder must complete and deliver Form 1 of the Rights Certificate to the Subscription Agent, or follow the

		guaranteed delivery procedures, in the manner and upon the terms set out in this Prospectus. See “DETAILS OF THE RIGHTS OFFERING — Common Shares Held in Registered Form — How to Complete the Rights Certificate”.
		For Common Shares held through a Participant in the book-based system administered by CDS or in the book-based system administered by DTC, a Prospectus Holder or a Qualified Holder may exercise the Rights issued in respect of such Common Shares by: (a) instructing the Participant holding such Rights to exercise all or a specified number of such Rights, and (b) forwarding to such Participant the Subscription Price for each Common Share that such holder wishes to subscribe for in accordance with the terms of this Rights Offering.
		Holders that wish to exercise Rights issued in respect of Common Shares held through a Participant should contact such Participant to determine how Rights may be exercised. The entire Subscription Price for any Rights exercised must be paid at the time of subscription and must be received by the Subscription Agent at the Subscription Office prior to the Expiry Time on the Expiry Date. Accordingly, Subscribers must provide the Participant holding their Rights with instructions and the required payment sufficiently in advance of the Expiry Date to permit proper exercise of their Rights. Participants will have an earlier deadline for receipt of instructions and payment. See “DETAILS OF THE RIGHTS OFFERING — Common Shares Held In Book-Entry Form”.
		If your Rights are held of record through DTC, you may exercise these Rights through the DTC’s “PSOP” function by instructing DTC to charge your applicable DTC account for the Subscription Payment for the Common Shares and deliver such amount to the Subscription Agent. If Rights are held through a DTC Participant, the holder of such Rights may not be able to exercise such Rights in Canadian dollars and such holder should contact its DTC Participant if it wishes to submit any Subscription Payment in Canadian dollars. The Subscription Agent must receive the required subscription documents, including the Subscription Payment for the Common Shares sufficiently in advance of the Expiry Time on the Expiry Date to permit proper exercise of Rights. See “DETAILS OF THE RIGHTS OFFERING — Common Shares Held In Book-Entry Form — DTC”.
		Subscriptions for Common Shares will be irrevocable, subject to Canadian statutory withdrawal rights that arise in certain limited circumstances, such as the filing of an amendment to the Prospectus, and Subscribers will be unable to withdraw their subscriptions for Common Shares once submitted.
Holders in Non-Prospectus Jurisdictions:		Exercise of Rights will be accepted only from holders of Rights resident in a Prospectus Jurisdiction, except where the Company determines that the offering to, and subscription by, a Non-Prospectus Holder is lawful and made in compliance with all securities and other laws applicable in the Non-Prospectus Jurisdiction where

		such Non-Prospectus Holder is resident. We refer to such Non-Prospectus Holder as a “Qualified Holder”. Registered Shareholders that wish to be recognized as Qualified Holders must contact the Subscription Agent at the earliest possible time, but in no event after 4:30 p.m. (Toronto time) on January 14, 2011, in order to satisfy the Company that such holders are Qualified Holders. From and after January 17, 2011, the Subscription Agent will attempt to sell the Rights of registered Non-Prospectus Holders that have not demonstrated that they are Qualified Holders, on such date or dates and at such price or prices and in such markets as the Subscription Agent determines in its sole discretion. The Subscription Agent will convert or cause to be converted any proceeds denominated in Canadian dollars into U.S. dollars at the prevailing exchange rate on the date of distribution and, after deducting any expenses incurred by the Subscription Agent in connection with such conversion, distribute all proceeds in U.S. dollars to the registered Non-Prospectus Holders on a pro rata basis. See “DETAILS OF THE RIGHTS OFFERING — Non-Prospectus Holders”.
		As a condition to a purchase of any Common Shares in the Rights Offering, each Subscriber other than a Qualified Holder will be deemed to have represented and warranted that it is resident in a Prospectus Jurisdiction, and this representation and warranty will be relied upon by us, the Lead Dealer Manager and its affiliates, the Co-Dealer Managers and the Subscription Agent.
		We reserve the right to treat as invalid any exercise or purported exercise of any Rights in the Rights Offering that appears to us to have been exercised, effected or dispatched in a manner which may involve a breach of the laws or regulations of any jurisdiction or if we believe, or our agents believe, that the same may violate or be inconsistent with the procedures and terms set out in this Prospectus or in breach of the representation and warranty that a holder exercising its Rights is resident in a Prospectus Jurisdiction, as described herein.
		Holders of Rights that reside outside of Canada or the United States and any persons (including any Participants) that have a contractual or legal obligation to forward this document to a jurisdiction outside a Prospectus Jurisdiction should read the section entitled “DETAILS OF THE RIGHTS OFFERING — Non-Prospectus Holders”.
Intention of Insiders to Exercise Rights:		The Company has been informed by Mr. Robert Friedland that he and entities controlled by him, who collectively hold 86,881,622 Common Shares representing 15.34% of the issued and outstanding Common Shares, intend to fully exercise all of the Rights issued to each of them, subject to financing and an absence of any material adverse change to the Company. Mr. Friedland has entered into the Friedland Agreements with Citibank, an affiliate of the Lead Dealer Manager, to finance his participation in the Rights Offering. See “RISK FACTORS — Risks Related to this Offering — Hedging transactions undertaken by Citibank in connection with the Cash-Settled Contract may affect the trading price of our Common Shares”.

		In addition, under the Heads of Agreement, Rio Tinto, a holder of 229,251,843 Common Shares representing 40.49% of the issued and outstanding Common Shares, has also agreed to exercise all of the Rights issued to it.
		The Company, after reasonable inquiry, believes that certain insiders of the Company, other than Mr. Robert Friedland and Rio Tinto, intend to exercise Rights to purchase an aggregate of approximately 576,188 Common Shares. See “DETAILS OF THE RIGHTS OFFERING — Intention of Insiders and Others to Exercise Rights” and “PLAN OF DISTRIBUTION”.
Dealer Managers:		The Company has engaged Citigroup Global Markets Inc. as the Lead Dealer Manager and each of BMO Nesbitt Burns Inc. and CIBC World Markets Inc. as the Co-Dealer Managers to organize and participate in the solicitation in certain jurisdictions of the exercise of Rights. Affiliates of the Lead Dealer Manager, including Citigroup Global Markets Canada Inc., will solicit the exercise of Rights in certain jurisdictions. The Company has agreed to pay the Lead Dealer Manager the Lead Dealer Manager Fee of US$3,000,000 for acting as Lead Dealer Manager in connection with the Rights Offering and each of the Co-Dealer Managers a fee of $250,000 for acting as Co-Dealer Managers in the Rights Offering. The Dealer Manager Fees are payable at the Closing Date. See “PLAN OF DISTRIBUTION”.
Listing and Trading:		The Company has received conditional approval from the TSX for the listing on the TSX of the Rights and the Common Shares issuable upon the exercise of the Rights. Similar approvals have been received from the NYSE and NASDAQ to admit the Rights for trading and list the Common Shares issuable upon the exercise of Rights. Listing of the Rights and the Common Shares underlying the Rights on the TSX, NYSE and NASDAQ is subject to IVN fulfilling all of the listing requirements of the TSX, NYSE and NASDAQ, respectively. Provided IVN fulfills all such requirements, the Rights will be listed or admitted for trading, as applicable, on the TSX on January 4, 2011, and on the NYSE and NASDAQ on January 6, 2011.
		Holders of Rights that do not wish to exercise their Rights may sell or transfer their Rights through usual investment channels, such as investment dealers and brokers, at the expense of the holder. Holders of Rights may elect to exercise only some of their Rights and dispose of the remainder of them. The Subscription Agent will facilitate subdivisions of the Rights until 5:00 p.m. (Toronto time) on January 21, 2011, five days before the scheduled Expiry Date. See “— Common Shares Held in Registered Form — How to Complete the Rights Certificate — Form 3”.
		The Rights will be listed for trading on the TSX under the symbol “IVN.RT”, and admitted for trading on the NYSE and NASDAQ under the symbols “IVN RT” and “IVN.R”, respectively.
Risk Factors:		An investment in the Rights and Common Shares is subject to a number of risks, including, among others, the following risks related to the Rights Offering:

		• a Shareholder may suffer significant dilution;
		• hedging transactions undertaken by Citibank in connection with the Cash-Settled Contract may affect the trading price of our Common Shares;
		• no prior trading market for Rights;
		• exercises of Rights may not be revoked;
		• a large number of Common Shares may be issued and subsequently sold upon the exercise of Rights;
		• the sale of Common Shares issued upon exercise of the Rights could encourage short sales by third parties, which could further depress the price of the Common Shares;
		• the Subscription Price is not necessarily an indication of value;
		• a decline in the market price of the Common Shares may occur;
		• holders that wish to exercise Rights need to act promptly and follow subscription instructions; and
		• if you elect to exercise your Rights, your proposed acquisition of Common Shares may be subject to notification obligations under the Hart-Scott-Rodino Act.
		See “RISK FACTORS” for more details on the risk factors listed above and for those risk factors applicable to the business of the Company.
Subscription Agent and Depository:		CIBC Mellon Trust Company, in its role as Subscription Agent, has been appointed the agent of the Company to receive subscriptions and payments from holders of Rights, to act as depository and to perform certain services relating to the exercise and transfer of Rights. The Subscription Agent can be reached by telephone toll-free at 1-800-387-0825 (in North America), or 1-416-643-5500 (outside North America), or by email at inquiries@cibcmellon.com.
		See “DETAILS OF THE RIGHTS OFFERING — Subscription Agent and Depository”.

 

KEY DATES AND TIMES OF THE RIGHTS OFFERING

		Date
Record Date for participation in the Rights Offering		December 31, 2010
Rights will be listed for trading on the TSX		January 4, 2011
Mailing Date of Prospectus and Rights Certificates		January 5, 2011
Commencement Date of Rights Offering		January 6, 2011
Rights will be admitted for trading on the NYSE and NASDAQ		January 6, 2011
Expected Dates of Sale of Rights of Non-Prospectus Holders by Subscription Agent		From January 17, 2010 to Expiry Date
Rights will cease trading on the NYSE and NASDAQ		Close of trading (New York time) on January 25, 2011
Rights will cease trading on the TSX		noon (Toronto time) on January 26, 2011
Expiry Time and Expiry Date		5:00 p.m. (Toronto time) on January 26, 2011
Expected Closing Date of the Rights Offering		February 2, 2011

 

IVN was incorporated under the Company Act (British Columbia) on January 25, 1994 under the name 463212 B.C. Ltd. In February 1994, IVN changed its name to Indochina Goldfields Ltd. In March 1994, IVN increased its authorized capital from 10,000 Common Shares without par value to 100,000,000 Common Shares without par value and altered its authorized capital to create 100,000,000 Preferred Shares without par value. In February 1995, IVN was continued under the Business Corporations Act (Yukon). In July 1997, IVN increased its authorized capital to an unlimited number of Common Shares without par value and an unlimited number of Preferred Shares without par value. In June 1999, IVN changed its name to Ivanhoe Mines Ltd.

 

IVN’s head office is located at 654 — 999 Canada Place, Vancouver, British Columbia, Canada, V6C 3E1 and its registered office is located at 300 — 204 Black Street, Whitehorse, Yukon, Canada, Y1A 2M9.

 

The following corporate chart sets forth the name and jurisdiction of incorporation of IVN’s principal subsidiaries and the ownership interest of IVN in each of them.

 

Our Business

 

IVN is an international mineral exploration and development company. The Company’s principal mineral resource property is a 66% interest in the Oyu Tolgoi Project, located in Mongolia. The Oyu Tolgoi Project is located in the Aimag (province) of Omnogovi, approximately 550 kilometres south of the capital city of Ulaanbaatar and 80 kilometres north of the border with China. Mineralization on the property consists of porphyry style copper, gold and molybdenum contained in a linear structural trend, termed the OT Trend, with a strike length that extends over 20 kilometres. Mineral resources have been identified in a series of deposits throughout this trend, which from south to north include the Heruga deposit, the Southern Oyu Deposit group, consisting of the Southwest Oyu, South Oyu, Wedge and Central Oyu deposits, and the Hugo Dummett Deposits group, consisting of the Hugo South, Hugo North and Hugo North Extension deposits.

 

The Company also has two publicly traded subsidiaries: SouthGobi Resources Ltd. (“SGQ”), the shares of which are listed on the TSX and The Hong Kong Stock Exchange, which owns and operates the Ovoot Tolgoi Coal Project in Mongolia, and Ivanhoe Australia Ltd., the shares of which are listed on the Australian Stock Exchange and the TSX, which owns the Cloncurry molybdenum, rhenium, copper, gold and uranium resource properties located in Queensland, Australia. The Company also holds interests in several other mineral resource projects in Asia, including a 50% interest in a gold exploration and development project in Kazakhstan.

 

Further particulars with respect to our business and mineral resource projects are disclosed under the headings “General Development of the Business” and “Description of the Business” in the AIF and in the other documents incorporated by reference herein.

 

Recent Developments

 

The following is a summary of material developments respecting the Company and its business since March 31, 2010, the date of the AIF, including, in particular, the Heads of Agreement entered into by the Company and Rio Tinto.

 

Shareholder Rights Plan

 

On April 5, 2010, the Company adopted a shareholder rights plan (the “Shareholder Rights Plan”), which was subsequently amended and restated on April 21, 2010 and approved by the Company’s shareholders on May 7, 2010. The Shareholder Rights Plan is intended to allow shareholders to properly evaluate and assess a takeover bid without facing undue pressure or coercion. Reference is made to the Company’s material change reports dated April 6, 2010 and April 22, 2010, which are incorporated by reference in this Prospectus.

 

Integrated Development Plan

 

On May 11, 2010, the Company released a new Integrated Development Plan (the “IDP”) in respect of its Oyu Tolgoi Project. The new IDP is a comprehensive update of the original 2005 Integrated Development Plan and reflects independent analyses of project economics, increased mineral resources and reserves and revised valuation estimates modelled on the basis of the terms of the Oyu Tolgoi Investment Agreement (the “Investment Agreement”) with the Government of Mongolia, which was entered into in October 2009 and took full legal effect on March 31, 2010, following the fulfillment of all conditions precedent to its effectiveness. The IDP contains the first published declaration of underground reserves for the planned Hugo Dummett block-cave mine and estimates average annual production at the Oyu Tolgoi Project should exceed 1.2 billion pounds of copper and 650,000 ounces of gold for the first 10 years. Reference is made to the Company’s material change report dated May 21, 2010, which is incorporated by reference in this Prospectus. The IDP estimated that the initial capital cost to achieve first production from the Oyu Tolgoi Project was US$4.6 billion. In December, 2010, the Board of Directors approved an Oyu Tolgoi Project budget for 2011 based on a revised capital cost estimate to first production of US$5.9 billion.

 

The fundamental elements of the IDP were completed prior to Rio Tinto having assumed control of the technical committee through which Ivanhoe and Rio Tinto collectively oversee and supervise the development,

operation and management of the Oyu Tolgoi Project (the “Technical Committee”). The Technical Committee is comprised of members appointed by each of Ivanhoe and Rio Tinto. In October 2009, Rio Tinto assumed effective control of the Technical Committee through its right under the terms of the Private Placement Agreement to appoint the Technical Committee Chair and the right to appoint two other members of the five-member Technical Committee. Accordingly, Rio Tinto’s members have the right to cast the deciding vote on Technical Committee decisions concerning the development of the Oyu Tolgoi Project.

 

Although the Technical Committee oversees and supervises the development, operation and management of the Oyu Tolgoi Project, the board of directors of Oyu Tolgoi LLC (“OT LLC”), the Mongolian company that owns the Oyu Tolgoi Project and is developing and will operate the mining complex, must also approve certain development, operational and management matters relating to the project. The board of directors of OT LLC, whose members include appointees from each of the Company, Rio Tinto and the Government of Mongolia, as the holder of a 34% ownership interest in the Oyu Tolgoi Project, has not always agreed with the views of the Technical Committee. Typically, these different views have involved, on the one hand, Rio Tinto’s desire to accelerate and increase Oyu Tolgoi Project development expenditures and, on the other hand, concerns on the part of the Company’s directors on the OT LLC board respecting the availability of adequate funding for these expenditures. Left unresolved, these differences could potentially have resulted in the disruption, delay or suspension of development and operational activity, which in turn could potentially have resulted in significantly increased costs to the Company and adverse effects on its share price.

 

The transactions contemplated by the Heads of Agreement are intended to address these issues in a number of ways. In relation to day-to-day decisions respecting the development, operation and management of the Oyu Tolgoi Project, the creation of the RT/IVN Operating Committee (as defined below) pursuant to the terms of the Heads of Agreement aims to eliminate the possibility of conflicts between the Technical Committee and the OT LLC board of directors, thereby facilitating timely and efficient implementation of the overall Oyu Tolgoi Project development plan. In contrast to the Technical Committee, where decisions are always carried by a majority vote, certain key matters that fall within the jurisdiction of the RT/IVN Operating Committee must be decided unanimously, which effectively gives the Company a veto with respect to those matters. See “HEADS OF AGREEMENT WITH RIO TINTO — Governance Arrangements”.

 

Series A Warrant Exercise

 

On June 29, 2010, Rio Tinto exercised all of the 46,026,522 Series A share purchase warrants it received under the terms of a private placement agreement dated October 18, 2006, as amended November 16, 2006, October 24, 2007, September 21, 2009 (which September 21, 2009 amendment was not ratified by the Company’s shareholders), October 6, 2009 and December 8, 2010 (in accordance with the Heads of Agreement), between the Company and Rio Tinto (the “Private Placement Agreement”), and thereby acquired an additional 46,026,522 Common Shares at a price of US$8.54 per Common Share. The Company received total proceeds from the exercise of the Series A share purchase warrants of approximately US$393.1 million and Rio Tinto’s equity ownership of the Company increased from 22.4% to 29.6% of the Company’s then issued and outstanding Common Shares.

 

Rio Tinto Arbitration

 

On July 9, 2010, Rio Tinto notified the Company that it was commencing an arbitration proceeding (the “Arbitration”) under the terms of the Private Placement Agreement, seeking a series of declarations to the effect that the operation of the Shareholder Rights Plan interferes with certain of Rio Tinto’s contractual rights under the Private Placement Agreement. The Company’s position is that nothing in the Private Placement Agreement prohibits the Company from implementing the Shareholder Rights Plan and that nothing in the Shareholder Rights Plan breaches any of Rio Tinto’s existing contractual rights under the Private Placement Agreement. Rio Tinto and Ivanhoe agreed to the appointment of an arbitrator and to a schedule for the hearing and for related pre-hearing procedural steps in the Arbitration hearing. The Arbitration was scheduled to be held between January 18 and February 5, 2011.

On October 26, 2010, the Company announced that it delivered a statement of defence and initiated a counter-claim as part of the Arbitration. The statement of defence rejects Rio Tinto’s assertions that the Shareholder Rights Plan breached Rio Tinto’s contractual rights under the Private Placement Agreement. The counter-claim contends that Rio Tinto has breached its covenants in the Private Placement Agreement not to engage in activities that could affect control of the Company without the Company’s permission.

 

On November 9, 2010, Rio Tinto delivered a statement of defence to the counterclaim which rejected the Company’s assertions that it had breached any of its covenants under the Private Placement Agreement.

 

Under the Heads of Agreement, Rio Tinto and Ivanhoe have agreed that the Arbitration will continue except that there will be a six (6) month suspension period commencing from December 8, 2010, the date of the Heads of Agreement (the “Tolling Period”), subject to earlier termination of such period in the event that a formal take-over bid for the Company is announced or commenced or either party takes any action that the other party reasonably believes prejudices its rights. When the Tolling Period expires or is earlier terminated, Rio Tinto and Ivanhoe will, within 14 days thereafter, consult with one another and the arbitrator assigned to the Arbitration and agree upon a new timetable for the Arbitration. Failing agreement within 14 days of the end of the Tolling Period, either party may request that the arbitrator to set a new timetable for the Arbitration, which timetable must provide for a decision on the arbitration within four (4) months of the expiration, or earlier termination, of the Tolling Period. See “HEADS OF AGREEMENT WITH RIO TINTO — Reservation of Legal Rights and Arbitration”.

 

Strategic Purchaser Covenant

 

On July 13, 2010, as part of the Company’s continual evaluation of strategic and financing opportunities, the Company notified Rio Tinto that it was electing to terminate the “Strategic Purchaser Covenant” under the Private Placement Agreement. The Strategic Purchaser Covenant restricted the Company’s ability to issue Common Shares or securities convertible into or exercisable to acquire Common Shares to “strategic purchasers” (i.e., persons other than retail investors and certain eligible institutional investors). As a consequence of the Company’s election to terminate this restriction, if the Company proposed to issue any Common Shares or securities convertible into or exercisable for Common Shares to any person in a transaction where Rio Tinto’s right of first offer under the Private Placement Agreement (the “Right of First Offer”) applied, and if Rio Tinto’s exercise of its Right of First Offer resulted in Rio Tinto’s equity ownership of the Company exceeding the contractual standstill limit provided for in the Private Placement Agreement, such standstill limit and all of the other standstill restrictions applicable to Rio Tinto under the Private Placement Agreement would terminate.

 

Conversion of Credit Facility

 

On September 13, 2010, the convertible credit facility entered into between Rio Tinto and the Company in October 2007 was, by its terms, automatically converted into Common Shares. The US$350 million principal amount plus approximately US$50.8 million in accrued and unpaid interest was converted into 40,083,206 Common Shares at a conversion price of US$10.00 per Common Share. As a result, Rio Tinto’s equity ownership of the Company increased from 29.6% to 34.9% of the Company’s issued and outstanding Common Shares as of September 13, 2010.

 

Board of Directors

 

On September 16, 2010, the Company announced the appointment of Michael Gordon and Dan Westbrook as non-executive, Rio Tinto-nominated, independent members of the Board of Directors. The Company also announced the appointment of Robert B. Holland as a non-executive, independent member of the Board of Directors and the retirement of Robert Hanson from the Board of Directors on November 5, 2010. These appointments to, and resignations from, the Board of Directors increased the total number of Rio Tinto appointees to the Board of Directors to four. Under the terms of the Private Placement Agreement, Rio Tinto is entitled to nominate its proportionate share of members of the Board of Directors based on its shareholding. Rio Tinto’s current shareholdings entitle it to appoint a further two directors. Upon having

acquired forty-five percent (45%) of the Company’s outstanding Common Shares, Rio Tinto will be entitled to appoint an additional director, thereby giving Rio Tinto the right to appoint seven of the Company’s 14 directors. Under the Heads of Agreement, Rio Tinto has agreed that it will not exercise its voting rights for the election of directors of the Company such that Rio Tinto’s representation at the Board of Directors exceeds its proportional entitlements currently provided for in the Private Placement Agreement or to elect any individual (other than those individuals who are currently directors of the Company) until the expiry or earlier termination of the Standstill Cap. For other provisions of the Heads of Agreement relating to Rio Tinto’s rights and obligations with respect to the Board of Directors, see “HEADS OF AGREEMENT WITH RIO TINTO — Board of Directors of Ivanhoe”.

 

Oyu Tolgoi Project Exploration

 

On September 28, 2010, the Company announced the results of drill hole OTD1510 in the area known as Heruga North, located between the Heruga deposit and the Southern Oyu deposits of the Oyu Tolgoi Project property. OTD1510 intercepted almost one kilometre of near-continuous gold and copper mineralization, making it the longest exploration drill intercept of gold and copper mineralization recorded since the Company began drilling at the Oyu Tolgoi Project in 2000.

 

OTD1510 intercepted 112 metres grading 1.36 grams of gold per tonne (g/t) and 0.34% copper, with a copper equivalent (“CuEq”) grade of 1.21%, at a down-hole depth of between 2,286 and 2,398 metres. The intercept included 20 metres grading 3.78 g/t gold and 0.64% copper, with a CuEq grade of 3.06%, at a down-hole depth of between 2,376 and 2,396 metres, and six metres of 8.4 g/t gold and 0.66% copper, with a CuEq grade of 6.05%, at a down-hole depth of between 2,388 and 2,394 metres. Individual two-metre samples near the bottom of hole OTD1510 returned gold assays of approximately 10 grams per tonne, among the highest gold grades ever drilled at the Oyu Tolgoi Project. Over the entire 938-metre intercept, OTD1510 averaged 0.42 g/t gold and 0.46% copper, with a CuEq grade of 0.76%, at a down-hole depth of between 1,460 and 2,398 metres (true depth below surface of between approximately 1,200 and 1,885 metres).

 

The Company’s deep diamond drilling first identified mineralization in the Heruga North zone in December 2008. Since the initial discovery, the Company has completed approximately 43,500 metres of wide-spaced diamond drilling into the Heruga North zone. Although there has been insufficient drilling to date to define a mineral resource, the Company believes that the Heruga North zone may host mineralization of a similar tonnage and grade to that previously identified in the adjacent Heruga zone. As of October 2009, the Heruga Deposit had an estimated inferred resource of 970 million tonnes grading 0.48% copper, 0.48 g/t gold and 140 parts per million molybdenum, for a copper equivalent grade of 0.86%, using a 0.60% copper equivalent cut-off grade. See page 53 of the AIF for details of the Heruga resource estimate. Mineral resources are not mineral reserves until they have demonstrated economic viability based on a feasibility study or pre-feasibility study.

 

Dr. David Crane, R.P. Geo., the Exploration Manager for OT LLC, a member of the Australian Institute of Geoscientists and a qualified person as required by National Instrument 43-101, supervised the preparation of the scientific and technical information in this subsection entitled “Oyu Tolgoi Project Exploration”.

 

Project Financing Activities

 

As part of the Company’s efforts to arrange the necessary funding for the Oyu Tolgoi Project, the Company is continuing discussions with a group of international financial institutions on a separate debt-financing package for the project, with funding targeted for the first half of 2011. Under the Heads of Agreement, Rio Tinto has agreed to work jointly with the Company in securing the debt-financing package for the project. The proposed multi-billion-dollar package is being considered by a core lending group of five international financial institutions: the European Bank for Reconstruction and Development, the International Finance Corporation, Export Development Canada, BNP Paribas and Standard Chartered.

Anti-Dilution Warrant Exercise

 

On October 5, 2010, Rio Tinto exercised a portion of its anti-dilution warrants it received under the Private Placement Agreement and thereby acquired 720,203 Common Shares at a price of Cdn$3.15 per Common Share. Rio Tinto continues to hold an additional 720,203 anti-dilution warrants underlying the Series B Warrants (the “Type B, Series 1 Warrants”).

 

New Management Appointees

 

On October 18, 2010, the Company announced that Mr. Robert Friedland assumed the duties and title of Chief Executive Officer of the Company as part of a series of organizational changes that also resulted in the establishment of the Office of the Chairman. President John Macken relinquished the position of Chief Executive Officer that he has held since 2006. Mr. Macken continues to be involved in construction of the Oyu Tolgoi Project.

 

Other Recent Developments

 

The Company also announced on October 18, 2010 that a number of potential options have been presented to the Company by industry leaders, on an unsolicited basis, since it announced in January 2010 that the Lead Dealer Manager and Hatch Corporate Finance were working with the Company in exploring opportunities to further enhance value from development successes at its various projects. However, no agreements have been reached with any party and there is no assurance that the Company will pursue or conclude any transaction with such a third party.

 

Heads of Agreement

 

On December 8, 2010, the Company and Rio Tinto entered into the Heads of Agreement. For a description of the material elements of the Heads of Agreement, see “HEADS OF AGREEMENTS WITH RIO TINTO”.

 

Series B Warrant Exercise

 

On December 15, 2010, pursuant to the terms of the Heads of Agreement, Rio Tinto exercised 33,783,784 Series B Warrants it received under the Private Placement Agreement and has thereby acquired an additional 33,783,784 Common Shares at a price of US$8.88 per Common Share. The Company received total proceeds from the exercise of the Series B Warrants of approximately US$300 million. On December 15, 2010, Rio Tinto also acquired 10,000,000 Common Shares from Robert Friedland at a price of US$25.344 per Common Share. As a result of the exercise of the Series B Warrants and the acquisition from Robert Friedland of the RMF Purchased Shares, Rio Tinto’s equity ownership of the Company increased from 34.83% to 40.49% of the Company’s then issued and outstanding Common Shares. Rio Tinto continues to hold (i) 12,242,738 Series B Warrants, (ii) 35,000,000 Series C share purchase warrants (the “Series C Warrants”) it received in connection with the terms of the credit agreement between the Company and Rio Tinto dated October 24, 2007, and (iii) 720,203 Type B, Series 1 Warrants of the Company it received pursuant to certain anti-dilution protections under the Private Placement Agreement. Rio Tinto has also entered into a separate agreement to purchase, upon the completion of the Rights Offering, a further 10,000,000 Common Shares (subject to the anti-dilution adjustment to take into account the Rights Offering) from Citibank N.A. See “HEADS OF AGREEMENTS WITH RIO TINTO”.

 

Budget Approval

 

The Board of Directors approved a US$2.3 billion capital budget for 2011 (the “2011 Budget”) in respect of the Oyu Tolgoi Project. The 2011 Budget is based on a revised capital cost estimate to first production of US$5.9 billion, of which US$1.4 billion has already been incurred and approximately US$4.5 billion will be required to be incurred between 2011 and 2013 to complete the 100,000-tonne-per day first phase of the Oyu Tolgoi Project.

 

On December 8, 2010, the Company and Rio Tinto entered into the Heads of Agreement. The Heads of Agreement is a comprehensive agreement that contemplates a number of transactions respecting the financing and management of the Oyu Tolgoi Project, certain amendments to the Private Placement Agreement and other matters. The financing commitments made by Rio Tinto pursuant to the terms of the Heads of Agreement, as detailed below, have addressed the uncertainty that previously existed with respect how the Oyu Tolgoi Project would be financed and provides the Company with more secure access to a source of funding than it previously enjoyed, thus facilitating the timely ongoing development of the Oyu Tolgoi Project. The following is a summary of the material terms of the Heads of Agreement and is qualified in its entirety with reference to the Heads of Agreement, a copy of which is available under the Company’s profile on SEDAR, at www.sedar.com and which has been filed as an exhibit to the Company’s registration statement on Form F-10 of which this Prospectus forms a part, and which is available on the SEC’s website at www.sec.gov.

 

Material Terms and Conditions of the Heads of Agreement

 

Rights Offering

 

The Company and Rio Tinto have agreed upon the material economic parameters which the Rights Offering is being made, including (i) the issuance of Rights sufficient to generate proceeds of up to US$1.0 to US$1.2 billion, (ii) the price payable by holders of Rights to acquire one Common Share, such price being at a discount in the range of 40% to 50% to the volume weighted average price of a Common Share on the NYSE during the twenty (20) trading days immediately before December 8, 2010, and (iii) the absence of a minimum subscription condition. In addition, Rio Tinto has agreed to publicly support the Rights Offering and to exercise all Rights issued to it. See “DETAILS OF THE RIGHTS OFFERING — Intention of Insiders and Others to Exercise Rights”.

 

Outstanding Warrants

 

Rio Tinto agreed to, and has, exercised a sufficient number of Series B Warrants to subscribe for and purchase at least 33,783,784 Common Shares at an exercise price of US$8.88 per Common Share for gross proceeds of at least US$300 million. In addition, Rio Tinto has also agreed to exercise all of its remaining unexercised Series B Warrants, Series C Warrants and its anti-dilution warrants (collectively, the “Outstanding Warrants”) by January 18, 2012, subject to earlier expiry and/or exercise including as described under the heading below entitled “Funding Requests”.

 

The terms of the Outstanding Warrants will be amended to change the existing mechanism for adjusting the number of Common Shares acquirable upon the exercise of the Outstanding Warrants in the event of a “common share reorganization”, a “rights offering” or a “special distribution” that results in an adjustment in the exercise price of such Outstanding Warrants to eliminate any possibility of dilution as a result of a Rights Offering.

 

Common Share Purchase and Sale

 

Rio Tinto has entered into separate agreements with Mr. Robert Friedland and Citibank N.A. to purchase Common Shares. Rio Tinto has agreed to purchase 10,000,000 outstanding Common Shares from Mr. Friedland (the “RMF Purchased Shares”) to be delivered prior to the Record Date. Rio Tinto has also agreed to purchase a further 10,000,000 Common Shares (subject to anti-dilution adjustment to take into account the Rights Offering) from Citibank (the “Citi Purchased Shares”) to be delivered after the Closing Date. The purchase price for the RMF Purchased Shares was US$25.344, being an amount equal to the simple average of the closing price of the Common Shares on the NYSE on the twenty (20) trading days preceding the date of the Heads of Agreement. The purchase price to be paid by Rio Tinto for the first 10,000,000 of the Citi Purchased Shares will also be US$25.344 and the purchase price for the balance of the Citi Purchased Shares (reflecting the anti-dilution adjustment to take into account the Rights Offering), will be equal to the Subscription Price.

Subscription Right

 

In consideration for a subscription price of US$1,000, the Company issued to Rio Tinto a subscription right (the “Subscription Right”) exercisable from time to time to subscribe for a number Common Shares. The Company is not required to issue any Common Shares to Rio Tinto pursuant to the exercise of the Subscription Right if, as a result of such issuance, Rio Tinto would own or control more than a number of Common Shares equal to (A) 49.0% of the then issued and outstanding Common Shares, less (B) the amount, if any, by which 3.7 million exceeds the number of Common Shares acquired by Rio Tinto and all persons with whom Rio Tinto is acting jointly or in concert from any person, other than the RMF Purchased Shares, the Citi Purchased Shares or any Common Shares otherwise acquired from the Company.

 

The price per Common Share acquired by Rio Tinto under the Subscription Right will be equal to the volume weighted average price of the Common Shares on the TSX on the five (5) trading days immediately before the applicable date of exercise.

 

The Subscription Right further limits Rio Tinto from acquiring, in any six month period, pursuant to the Subscription Right, Common Shares representing more than 10% of the number of Common Shares outstanding as of the beginning of any such six month period.

 

The Subscription Right will terminate on January 18, 2012, unless terminated earlier in connection with an exercise by Rio Tinto of its Right of First Offer that has the effect of terminating the Standstill Cap (as defined below).

 

Use of Proceeds

 

Under the Heads of Agreement, the Company is obligated to use (other than US$180 million in the aggregate) the proceeds from the Rights Offering and the proceeds from the exercise of the Outstanding Warrants and the sale of Common Shares underlying the Subscription Right, any other sale of Common Shares or convertible securities to Rio Tinto and the net after-tax proceeds from the sale of the OT Payment, to continue to advance development of the Oyu Tolgoi Project.

 

The Company may not use the proceeds from the sale of any of its assets that are unrelated to the Oyu Tolgoi Project (“Non-OT Assets”) to acquire any new assets or to fund any existing projects other than the development of the Oyu Tolgoi Project and the Company’s Altynalmas gold project in Kazakhstan. Notwithstanding the foregoing, the Company may use the proceeds from the sale of Non-OT Assets for general corporate purposes including the payment of taxes and corporate expenses.

 

Standstill

 

The share purchase limitations imposed on Rio Tinto under the Private Placement Agreement have been replaced by a new hard cap limitation (the “Standstill Cap”), whereby Rio Tinto will not acquire any Common Shares or securities convertible into or exercisable for Common Shares if such acquisition would result in Rio Tinto owning more than 49.0% of the outstanding Common Shares assuming the full exercise of the Outstanding Warrants.

 

The only exceptions to the Standstill Cap are acquisitions pursuant to Rio Tinto’s exercise of the Right of First Offer and its existing right of first refusal with respect to the Common Shares owned directly and indirectly by Mr. Robert Friedland under the terms of a shareholders’ agreement (the “Friedland Rio Agreement”) dated October 18, 2006, as amended.

 

The Standstill Cap will remain in effect until January 18, 2012, subject to earlier termination in the event that (i) Rio Tinto exercises its Right of First Offer and as a result owns more than 49% of the Company’s outstanding Common Shares, (ii) the Company commits a significant breach of the OT Governance Agreement (as defined below) or (iii) the Company appoints to the Board of Directors any individual who is not a Rio Tinto nominee in accordance with Rio Tinto’s director nomination rights under the Private Placement Agreement or a current director of the Company.

Project Finance

 

The Company and Rio Tinto have agreed to act together diligently and in good faith to negotiate a comprehensive project financing for the Oyu Tolgoi Project (the “OT Project Financing”) acceptable to both the Company and Rio Tinto, each acting reasonably, of US$3.6 billion, unless the parties otherwise agree to some other amount, from a primary group of lenders.

 

The parties have further agreed that the final terms of the OT Project Financing remain subject to the approval of the Board of Directors, the OT LLC board of directors and the Technical Committee. See “THE COMPANY — Recent Developments — Project Finance Activities”.

 

Interim Funding

 

Rio Tinto has agreed to immediately make available to the Company a non-revolving interim funding facility of US$1.8 billion (the “Interim Funding Facility”), pursuant to a credit agreement for the Interim Funding Facility (the “OT Interim Funding Agreement”), which will be drawn down to fund ongoing Oyu Tolgoi Project expenditures if and to the extent that funds from an OT Project Financing or from other sources are not available in a timely manner.

 

Draw-downs under the Interim Funding Facility will be available, subject to satisfaction of all applicable conditions precedent, from the date of the OT Interim Funding Agreement until the earliest of: (i) disbursement in full of the maximum amount available under such facility; (ii) OT Project Financing having become available by virtue of binding definitive loan agreements having been entered into with the project lenders and the conditions precedent to the first drawdown under such agreements having been satisfied or waived; or (iii) December 31, 2012.

 

If the OT Project Financing is obtained, the Interim Funding Facility will be repaid from the proceeds of the OT Project Financing. In any event, the Interim Funding Facility will mature, and all principal, interest and other amounts thereunder will be finally due and payable, no later than December 31, 2013.

 

The Interim Funding Facility will bear interest at a rate equal to the daily weighted average of: (i) the interest rate charged from time to time on the on-lending of advances made under the Interim Funding Facility to OT LLC by its shareholders or otherwise; (ii) the rate at which dividends are paid from time to time by OT LLC on preferred shares in the capital of OT LLC which are purchased with funds advanced under the Interim Funding Facility; and (iii) the rate(s) at which dividends, interest or other periodic payments are made from time to time to any provider of funds to OT LLC which derive from advances made under the Interim Funding Facility.

 

Rio Tinto’s obligation to advance funding under the Interim Funding Facility is conditional upon, among other things:

 

 

The Company has given a series of positive and negative covenants to Rio Tinto in respect of the Interim Funding Facility regarding its own conduct and that of certain of its subsidiaries including, but not limited to (and subject to certain exceptions), the following:

 

 

The following is a summary of certain material events of default under the Interim Funding Facility:

 

 

 

The terms and conditions governing the Interim Funding Facility are reflected in Schedule D to the Heads of Agreement, which will be superseded and replaced by a credit agreement based on the terms and conditions set out in Schedule D to the Heads of Agreement.

 

Funding Requests

 

If and when the Company requires further funds for the development of the OT Project, it will notify Rio Tinto. Rio Tinto will, after receiving each such notice, exercise a sufficient number of the remaining Outstanding Warrants, if any, to generate proceeds sufficient to fund expenditures as set out in each such notice.

 

If and when the Company requires further funds for the development of the OT Project and all Outstanding Warrants have been exercised, the Company may request a drawdown under the Interim Funding Facility, and subject to the availability of funds in the Interim Funding Facility and other terms and conditions, Rio Tinto, or its affiliate extending the Interim Facility, will deliver the requested funds to the Rio Tinto Manager (as defined below).

 

Governance Arrangements

 

Those subsidiaries of the Company (collectively, the “OT Holdcos”) that own the Company’s 66% interest in OT LLC will (i) appoint all of the directors of OT LLC reserved for the OT Holdcos under the Shareholders’ Agreement dated October 6, 2009 among the OT Holdcos, OT LLC and Erdenes MGL LLC (the “OT Shareholders’ Agreement”) based on the instructions of Rio Tinto, as to three directors, and the Company, as to the remaining three directors, and (ii) exercise all of the OT Holdcos’ rights under the OT Shareholders’ Agreement in accordance with instructions given by the RT/IVN Operating Committee (as defined below).

 

The Company and Rio Tinto will instruct their nominee directors of OT LLC to participate and to vote at OT LLC board meetings as a bloc in accordance with the instructions received from a newly formed governance body created under the Heads of Agreement (the “OT Operating Committee”).

 

Four directors of OT LLC appointed by OT Holdco (two from each of Rio Tinto and the Company) will be the members of the OT Operating Committee. Rio Tinto will be entitled to appoint one of its two directors on the RT/IVN Operating Committee as the chairman.

 

All decisions of the OT Operating Committee, other than decisions in respect of certain defined fundamental matters (“Special Matters”) will require a majority vote of the members with a casting vote of the chairman in the case of a tie. Decisions in respect of a Special Matter will require a unanimous vote of the members of the OT Operating Committee.

 

Special Matters include:

 

 

 

Rio Tinto may from time to time prepare a feasibility study for an expansion or modification of the currently envisaged Oyu Tolgoi Project development plan and the approval of the expansion or modification as proposed in the feasibility study will not constitute a Special Matter provided that no feasibility study may be presented which (i) requires material incremental capital expenditure (US$200 million or more) to be spent before January 1, 2013, (ii) envisages the construction of a 50 megawatt or greater power plant commencing before January 1, 2015, or (iii) envisages the construction of a smelter, unless such capital expenditure is funded by Rio Tinto on the same terms, with certain exceptions, as agreed in respect of funding for scope changes that qualify as Special Matters.

 

The terms and conditions governing the RT/IVN Operating Committee are reflected in Schedule E to the Heads of Agreement, which will be superseded and replaced by a governance agreement based on the terms and conditions set out in Schedule E to the Heads of Agreement (the “OT Governance Agreement”).

 

If the Company breaches certain material terms of the OT Governance Agreement, Rio Tinto will be released from the Standstill Cap and will be entitled to one-half of the Company’s 50% entitlement to the Management Services Payment (as defined in the OT Shareholders’ Agreement). If Rio Tinto breaches certain material terms of the OT Governance Agreement, the CAAA Covenants (as defined below), the covenants under the Interim Funding Facility, Rio Tinto’s Right of First Offer and the No-Sale Covenant (as defined below) will terminate.

 

OT Project Management and Exploration

 

A Rio Tinto affiliate (the “Rio Tinto Manager”) will be appointed to manage the Oyu Tolgoi Project pursuant to an agreement (the “OT Management Agreement”) acceptable to the board of directors of OT LLC. The terms and conditions of the OT Management Agreement to be presented to the board of directors of OT LLC are reflected in Schedule F to the Heads of Agreement.

 

The Rio Tinto Manager will perform its obligations and exercise its powers under the OT Management Agreement:

 

 

 

The Rio Tinto Manager will not have any liability to OT LLC in relation to or arising out of the performance of the Rio Tinto Manager’s obligations under the OT Management Agreement, except in cases of Gross Fault of the Rio Tinto Manager. “Gross Fault” means (a) fraud or wilful and intentional misconduct by the Rio Tinto Manager or (b) any act or omission by the Rio Tinto Manager which amounts to a wanton or reckless disregard for or violation of the rights or safety of others, but shall be deemed not to include any act or omission done or omitted to be done, if resulting (x) from the express direction of the board of directors of OT LLC, (y) with the knowledge and concurrence of directors of the OT LLC board who are not nominees of the Rio Tinto Group, or (z) from an action taken in good faith by the Rio Tinto Manager to protect life, health or property.

 

If the Rio Tinto Manager commits Gross Fault twice in any 12 month period that, if capable of remedy, has not been remedied within 60 days after being required in writing to do so, or if incapable of remedy, fails to pay agreed compensation, or in the absence of agreement, compensation determined pursuant to arbitration, the chairman of the RT/IVN Operating Committee will call a meeting to discuss what, if any, action should be taken in relation to the changing of the Rio Tinto Manager including the removal of the Rio Tinto Manager responsible for the relevant breach and the selection of a new Rio Tinto Manager. In the event that the RT/IVN Operating Committee determines for the removal and replacement of the Rio Tinto Manager, they may also instruct Rio Tinto that any relevant personnel employed by the Rio Tinto Manager who was responsible for the relevant breach will not be employed by the new Rio Tinto Manager.

 

OT LLC may terminate the OT Management Agreement if:

 

 

Subject to approval by the board of directors of OT LLC of the OT Management Agreement, exploration within the areas covered by the Oyu Tolgoi Project licenses, but outside of the “Core Area” of the Oyu Tolgoi Project, will be managed by a designated subsidiary of the Company (on a non-exclusive basis) by way of sub-contract with the Rio Tinto Manager (the “OT Exploration Agreement”). The Company, or a designated subsidiary, will be responsible for preparing exploration programs and budgets but Rio Tinto will have the right to approve any exploration expenditures in excess of US$30 million per year. The terms and conditions of the OT Exploration Agreement are reflected in Schedule G to the Heads of Agreement.

 

Board of Directors of Ivanhoe

 

Rio Tinto has agreed that it will not exercise its voting rights for the election of directors of the Company such that Rio Tinto’s representation at the Board of Directors exceeds its proportional entitlements currently provided for in the Private Placement Agreement or to elect any individual (other than those individuals who are currently directors of the Company) until the expiry or termination of the Standstill Cap or earlier if the Company commits a significant breach of the OT Governance Agreement.

Rio Tinto will not be obliged to vote in favour of any individual who is not currently a director of the Company, and if the Company nominates any such individual for election by the Company’s shareholders, Rio Tinto will have the right to nominate and vote for another individual of its choosing to run against the individual nominated by the Company in such election.

 

If and when Rio Tinto acquires beneficial ownership of more than fifty percent (50%) of the outstanding Common Shares (an “Ivanhoe Change of Control”) or upon termination of the Standstill Cap (whichever is earlier): (i) one incumbent Company director (selected by the Company’s incumbent senior management and acceptable to Rio Tinto) who is independent but who was not nominated by Rio Tinto pursuant to its rights under the Private Placement Agreement; and (ii) two incumbent Company directors (selected by Mr. Robert Friedland and acceptable to Rio Tinto), conditional upon Mr. Friedland continuing to own at least 10% of the outstanding Common Shares, may remain as directors of the Company (on a board of 14 directors), and in each case, Rio Tinto will exercise its voting power to vote in favour of the election of such directors from time to time until the earlier of January 18, 2014 and the date the Company ceases to be a reporting issuer.

 

In addition, if and when an Ivanhoe Change of Control occurs or upon termination of the Standstill Cap (whichever is earlier), at least 8 of the 14 directors will be independent directors until January 18, 2014.

 

Reservation of Legal Rights and Arbitration

 

Rio Tinto and the Company will continue the Arbitration upon completion of the Tolling Period, subject to earlier termination. The Tolling Period will expire immediately in the event a formal take-over bid for the Company is announced or commenced or either party takes any action that the other party reasonably believes prejudices its rights.

 

Rio Tinto will not challenge, as a breach of Rio Tinto’s rights under the Private Placement Agreement and the Friedland Rio Agreement, respectively, the Rights Offering or the Friedland Agreements. The Company and Rio Tinto further agreed that Rio Tinto’s agreement to participate in the Rights Offering will not be construed as determinative of any party’s rights or obligations under the Private Placement Agreement or the Friedland Rio Agreement in respect of any other transaction or matter including, without limitation, in respect of the Shareholders Rights Plan and future rights offerings nor as an admission by either party that a particular transaction is permitted or not permitted under the Private Placement Agreement or the Friedland Rio Agreement, as applicable.

 

Other Oyu Tolgoi Project Matters

 

The Company agrees, subject to certain exceptions set out in the Heads of Agreement, not to directly or indirectly sell, transfer or otherwise dispose of or encumber any interest in the Oyu Tolgoi Project without Rio Tinto’s consent before January 18, 2014 (the “No-Sale Covenant”).

 

The Company and Rio Tinto will form a working group to study and consider proposals for power, infrastructure and smelting for the Oyu Tolgoi Project.

 

Subject to Rio Tinto’s consent, not to be unreasonably withheld, the Company will have the right to sell the OT Payment to a third party without regard to Rio Tinto’s right of first refusal under the Private Placement Agreement with respect to such sale provided that the Company receives gross proceeds of at least US$600 million of which at least two-thirds of such proceeds are received in cash.

 

Ancillary Agreements

 

The Company will enter into an acknowledgement agreement with Rio Tinto Alcan pursuant to which the Company and Rio Tinto Alcan will acknowledge and agree that each of the covenants of the Company (the “CAAA Covenants”) in the Contract Assignment Arrangement Agreement dated August 13, 2008 between Rio Tinto Alcan, OT LLC and the Company will expire on January 18, 2012.

 

Mr. Robert Friedland and Rio Tinto will amend the Friedland Rio Agreement to extend the term of such agreement to January 18, 2012.

Rio Tinto and the Company will enter into a name rights agreement (the “Name Rights Agreement”) with Ivanhoe Capital Corp. (“ICC”), a company wholly-owned by Mr. Robert Friedland, which will give ICC the right to require the Company to convene a meeting of its shareholders seeking a resolution to change its name to a name other than “Ivanhoe” if and when there is an Ivanhoe Change of Control in favour of Rio Tinto or the Board of Directors consists of a majority of directors nominated by Rio Tinto through the exercise of its voting power or otherwise. In such circumstances, ICC can also require the Company to withdraw from the current cost-sharing arrangements that exist among the Company, ICC and other companies in respect of the Vancouver office facilities and shared employees.

 

Purpose and Business Reasons

 

In October 2006, pursuant to the terms of the Private Placement Agreement, the Company and Rio Tinto formed the Technical Committee through which the parties agreed to collectively oversee and supervise the development, operation and management of the Oyu Tolgoi Project. The Technical Committee is comprised of members appointed by each of Rio Tinto and the Company. In October 2009, Rio Tinto assumed effective control of the Technical Committee through its right, under the terms of the Private Placement Agreement, to appoint the Chair of the Technical Committee. Accordingly, Rio Tinto’s members have the right to cast the deciding vote on Technical Committee decisions concerning the development of the Oyu Tolgoi Project.

 

Although the Technical Committee oversees and supervises the development, operation and management of the Oyu Tolgoi Project, the board of directors of OT LLC must also approve certain development, operational and management matters relating to the project. The board of directors of OT LLC, whose members include appointees from each of the Company, Rio Tinto and the Government of Mongolia, as the holder of a 34% ownership interest in the Oyu Tolgoi Project, has not always agreed with the views of the Technical Committee. Typically, these differences of view have involved, on the one hand, Rio Tinto’s desire to accelerate and increase Oyu Tolgoi Project development expenditures and, on the other hand, concerns on the part of the OT LLC board of directors respecting the availability of adequate funding for these expenditures. Left unresolved, these differences could potentially have resulted in the disruption, delay or suspension of development and operational activity, which in turn could potentially have resulted in significantly increased costs to the Company and adverse effects on its share price.

 

The transactions contemplated by the Heads of Agreement are intended to address these issues in a number of ways. In relation to day-to-day decisions respecting the development, operation and management of the Oyu Tolgoi Project, the creation of the RT/IVN Operating Committee pursuant to the terms of the Heads of Agreement aims to eliminate the possibility of conflicts between the Technical Committee and the OT LLC board of directors, thereby facilitating timely and efficient implementation of the overall Oyu Tolgoi Project development plan. In contrast to the Technical Committee, where decisions are always carried by a majority vote, certain key matters that fall within the jurisdiction of the RT/IVN Operating Committee must be decided unanimously, which effectively gives the Company a veto with respect to those matters.

 

The financing commitments made by Rio Tinto pursuant to the terms of the Heads of Agreement, as detailed below, have addressed the uncertainty that previously existed with respect how the Oyu Tolgoi Project would be financed and provides the Company with more secure access to a source of funding than it previously enjoyed, thus facilitating the timely ongoing development of the Oyu Tolgoi Project.

 

Anticipated Effect of the Transaction

 

Since 2009, Rio Tinto has effectively controlled decision-making on the Technical Committee and, since 2007, has had the right to select the Managing Director and the Chief Financial Officer of OT LLC. Rio Tinto’s assumption of management control of the OT Project through the OT Governance Agreement and the OT Management Agreement augments the rights Rio Tinto has exercised, since 2009, through its decision-making power on the Technical Committee. The Company retains its right to participate in, and maintain representation on, the Technical Committee, the RT/IVN Operating Committee and the board of directors of OT LLC. Except in respect of certain defined fundamental decisions at the RT/IVN Operating Committee level, in respect of which the Company can exercise a veto, Rio Tinto can now exercise the same degree of decision-

making power on the RT/IVN Operating Committee and the board of directors of OT LLC as it has since 2009 on the Technical Committee.

 

The financing transactions contemplated by the Heads of Agreement, upon full implementation and utilization, are expected to generate total cash of approximately US$3.8 billion. This includes proceeds of the Rights Offering, the exercise by Rio Tinto of the Outstanding Warrants and the Interim Funding Facility but does not include the exercise by Rio Tinto of the Subscription Right (which is within Rio Tinto’s discretion and, therefore, may not generate any proceeds). If the Company and Rio Tinto are successful in their cooperative efforts to obtain the OT Project Financing (which is anticipated to be a long-term, limited-recourse, project financing package of up to US$3.6 billion), the Company will have another US$1.8 billion available for Oyu Tolgoi Project development expenditures, after repayment from the proceeds of the OT Project Financing of the Interim Funding Facility.

 

If and when the OT Project Financing is obtained, the total financial resources available to the Company to finance the Oyu Tolgoi Project, including foreseen expansions and associated investments, would be up to US$5.9 billion (or up to US$6.5 billion assuming an additional US$600 million of proceeds from future exercises of the Subscription Right).

 

Ivanhoe Board of Directors Approval of Heads of Agreement

 

The Board of Directors met on November 22, 2010 and again on December 7, 2010 to review and consider the proposed terms of the Heads of Agreement. Mr. Robert Friedland declared his interest in the transactions contemplated by the Heads of Agreement by reason of his intended sale to Rio Tinto of the RMF Purchased Shares and advised the Board of Directors that he would abstain from any vote with respect to matters relating to the approval of the Heads of Agreement.

 

The Board of Directors noted that, under Multilateral Instrument 61-101 — Protection of Minority Security Holders in Special Transactions (“MI 61-101”), the transactions contemplated by the Heads of Agreement are “related party transactions” insofar as Rio Tinto is, by reason of its shareholding, a related party of the Company. Under MI 61-101, related party transactions are, with certain limited exceptions, subject to formal valuation and minority approval requirements unless exemptions from those requirements are available.

 

The Board of Directors concluded that the Interim Funding Facility is not subject to the formal valuation requirement and is exempt from the minority approval requirement of MI 61-101 on the basis that the terms and conditions of the Interim Funding Facility are reasonable commercial terms that are not less advantageous to the Company than if the Interim Funding Facility were obtained from a person dealing at arm’s length with the Company.

 

The Board of Directors also concluded that all of the transactions contemplated by the Heads of Agreement, other than the Interim Funding Facility and the Rights Offering (which is not a transaction to which the formal valuation and minority approval requirements of MI 61-101 apply) (the “Other HOA Transactions”) are exempt from the formal valuation and minority approval requirements of MI 61-101 based on a good faith determination by the Board of Directors that the aggregate fair market value of all such Other HOA Transactions (including the OT Governance Agreement and the OT Management Agreement, the fair market values of which are not readily determinable) does not exceed US$3.75 billion, being 25% of the Company’s US$15 billion market capitalization.

 

The Board of Directors further deliberated upon the advantages and disadvantages to the Company of the transactions contemplated by the Heads of Agreement and concluded that entering into the Heads of Agreement was in the best interests of the Company. Accordingly, the Board of Directors voted unanimously to approve the Heads of Agreement.

 

The Company has been informed by Mr. Robert Friedland that he and entities controlled by him, who collectively hold 86,881,622 Common Shares representing 15.34% of the issued and outstanding Common Shares, intend to fully exercise all of the Rights issued to each of them, subject to financing and an absence of any material adverse change to the Company. Mr. Friedland has entered into the Friedland Agreements, which consist of the Loan Agreement, subject to certain conditions precedent, with Citibank, an affiliate of the Lead Dealer Manager and the Cash-Settled Contract with Citibank, which provides a collar with reference to approximately 12 million Common Shares, subject to certain adjustments pursuant to the Cash-Settled Contract. Each of the Friedland Agreements is a separate transaction from the Rights Offering entered into by Citibank and Mr. Friedland. The Friedland Agreements will facilitate the participation of Mr. Friedland in the Rights Offering. See “RISK FACTORS — Risks Related to this Offering — Hedging transactions undertaken by Citibank in connection with the Cash-Settled Contract may affect the trading price of our Common Shares”.

 

In addition, under the Heads of Agreement, Rio Tinto, a holder of 229,251,843 Common Shares representing 40.49% of the issued and outstanding Common Shares, has also agreed, among other things, to exercise all Rights issued to it, publically support the Rights Offering and not challenge the Rights Offering or the Friedland Agreements as a breach of its rights under the Private Placement Agreement and the Friedland Rio Agreement, respectively. Notwithstanding Rio Tinto’s exercise of Rights, under the Heads of Agreement, each of Rio Tinto and Ivanhoe has agreed that Rio Tinto’s participation in the Rights Offering will not be construed as determinative of any party’s rights or obligations under the Private Placement Agreement or the Friedland Rio Agreement in respect of any other transaction or matter including, without limitation, in respect of the Shareholders Rights Plan and future rights offerings nor as an admission by either party that a particular transaction is permitted or not permitted under the Private Placement Agreement or the Friedland Rio Agreement, as applicable.

 

The Company, after reasonable inquiry, believes that certain insiders of the Company, other than Mr. Robert Friedland and Rio Tinto, intend to exercise Rights to purchase an aggregate of approximately 576,188 Common Shares. The information as to the intentions of our insiders is not within our knowledge and has been furnished by the respective insiders. No assurance can be given by us that the respective insiders will subscribe for Common Shares in the amounts set out above or at all.

 

The Company is contemplating the Rights Offering in order to raise capital to advance development of the Oyu Tolgoi Project and for general and administrative expenses. The Rights Offering is intended to:

 

 

The Board of Directors has unanimously approved the Rights Offering and the Company believes that the proceeds raised by the Rights Offering will place it in a much stronger position to fund ongoing development of the Oyu Tolgoi Project.

 

The net proceeds from the issuance of the Common Shares under the Rights Offering are expected to be approximately US$1,154,335,226, assuming exercise of all the Rights based on the number of Common Shares outstanding as of the date of this Prospectus, after payment of the Dealer Manager Fees and deducting expenses and fees payable relating to the Rights Offering, estimated to be approximately US$21,100,000, which is payable by the Company. The proceeds to the Company were calculated using the United States dollar Subscription Price. Actual proceeds to the Company will vary depending on the relative amounts of Subscription Payments received by the Company in United States dollars and Canadian dollars, the exchange rate between United States dollars and Canadian dollars and the number of Common Shares outstanding on the Record Date.

 

Under the Heads of Agreement, the Company is obligated to use (other than US$180 million in the aggregate) the proceeds from the Rights Offering and the proceeds from the exercise of the Outstanding Warrants and the sale of Common Shares underlying the Subscription Right, any other sale of Common Shares or convertible securities to Rio Tinto and the net after tax proceeds from the sale of the OT Payment, to continue to advance development of the Oyu Tolgoi Project.

 

The proceeds from the Rights Offering, in conjunction with (i) approximately US$300 million of available cash and cash equivalents as of December 31, 2010 (projected available cash position as of December 31, 2010 — excludes cash associated with SGQ and Ivanhoe Australia Ltd.), (ii) approximately US$300 million in proceeds received from Rio Tinto pursuant to its exercise of 33,783,784 Series B Warrants, (iii) approximately US$500 million to be received from Rio Tinto pursuant to the exercise of the remaining Outstanding Warrants, and (iv) amounts obtained pursuant to the OT Project Financing, and to the extent such financing is not secured, amounts drawn down under the Interim Funding Facility, are expected to fund the majority of the Oyu Tolgoi Project’s initial capital cost. The Company began full-scale construction of the Oyu Tolgoi Project in the second quarter of 2010, and initial production is expected as early as the fourth quarter of 2012. Notwithstanding the forgoing, there is no assurance that the Company will be able to raise the capital necessary to fund the Oyu Tolgoi Project’s initial capital costs. Upon exercise, the Outstanding Warrants held by Rio Tinto will account for a portion of the development cost of the Oyu Tolgoi Project; however, they will be insufficient to fund the entire development cost.

 

Issue of Rights and Record Date

 

All Shareholders as at 5:00 p.m. (Toronto time) on the Record Date of December 31, 2010 will be issued Rights to subscribe for Common Shares pursuant to the Rights Offering. A Shareholder is entitled to receive one Right for each Common Share held.

 

Only a Prospectus Holder or a Qualified Holder may exercise Rights. For every 100 Rights held, a Prospectus Holder or a Qualified Holder will be entitled to subscribe for 15 Common Shares from the Commencement Date until the Expiry Time on the Expiry Date, at the Subscription Price. The United States dollar denominated Subscription Price is a price equal to an approximate 46% discount to the weighted average closing price per Common Share on the NYSE over the 20 trading days prior to December 8, 2010, being the date of the Heads of Agreement, and the Canadian dollar denominated Subscription Price is a price equal to the Canadian dollar equivalent of the United States dollar Subscription Price based on the Noon Buying Rate on December 15, 2010. Rights not exercised prior to the Expiry Time on the Expiry Date will be void and of no value and no longer exercisable for any Common Shares.

 

At the Commencement Date, the Rights will be evidenced by Rights Certificates registered in the name of the Shareholder entitled thereto. Each Registered Shareholder, other than a Non-Prospectus Holder, will receive a Rights Certificate evidencing the total number of Rights to which such Shareholder is entitled. Subject to certain exceptions described herein, Rights Certificates may not be held directly by, and

subscriptions for Common Shares will not be accepted from, Non-Prospectus Holders. See “— Non-Prospectus Holders” below.

 

Shareholders that hold their Common Shares through a Participant will not receive physical certificates evidencing their ownership of Rights. Instead, on the Record Date, a global Rights Certificate representing the total number of Rights to which all such Shareholders are entitled pursuant to the terms of the Rights Offering will be issued in registered form to, and in the name of, CDS or DTC (or one of their respective nominees), as the case may be, and will be delivered to CDS or DTC, as the case may be. The Company expects that each such Shareholder will receive a confirmation of the number of Rights issued to it from its respective Participant in accordance with the practices and procedures of that Participant. Each of CDS and DTC will be responsible for establishing and maintaining book-entry accounts for Participants holding Rights. See “— Common Shares Held In Book-Entry Form” below.

 

Only subscriptions for whole Common Shares will be accepted. No fractional Common Shares will be issued. There is no standby commitment or additional subscription privilege with respect to Common Shares underlying unsubscribed Rights as part of this Rights Offering.

 

The Rights Offering is not subject to any minimum subscription level.

 

Rights are transferable. A Right does not entitle the holder thereof to any rights whatsoever as a securityholder of the Company other than to subscribe for and purchase Common Shares as described herein.

 

This Prospectus qualifies the distribution of the Rights and the Common Shares issuable upon the exercise of the Rights only in the Prospectus Jurisdictions, except where the subscription by a holder of Rights in a Non-Prospectus Jurisdiction is lawfully made by a Qualified Holder in compliance with all securities and other laws applicable in the Non-Prospectus Jurisdiction where such person is resident. Registered Shareholders that wish to be recognized as Qualified Holders must contact the Subscription Agent at the earliest possible time, but in no event after 4:30 p.m. (Toronto time) on January 14, 2011, in order to satisfy the Company that such holders are Qualified Holders. From and after January 17, 2011, the Subscription Agent will attempt to sell the Rights of registered Non-Prospectus Holders that have not demonstrated that they are Qualified Holders, on such date or dates and at such price or prices and in such markets as the Subscription Agent determines in its sole discretion. The Subscription Agent will convert or cause to be converted any proceeds denominated in Canadian dollars into U.S. dollars at the prevailing exchange rate on the date of distribution, and, net of any expenses incurred by the Subscription Agent in connection with such conversion, distribute all proceeds in U.S. dollars to the registered Non-Prospectus Holders on a pro rata basis. See “— Non-Prospectus Holders” below.

 

Shareholders Resident in the United States

 

We have filed with the SEC a Registration Statement on Form F-10 under the U.S. Securities Act, and expect to make certain other filings with the SEC, the NYSE and NASDAQ so that the Rights and the Common Shares issuable upon the exercise of the Rights issued to Shareholders that are U.S. residents and are not affiliates of the Company will not be subject to transfer restrictions under U.S. securities law.

 

Dilution to Existing Shareholders

 

If a Shareholder wishes to retain its current percentage ownership, and assuming all the Rights are exercised, a Shareholder should exercise all of the Rights issued to such Shareholder. If a Shareholder does not exercise its Rights and the Rights Offering is completed, such Shareholder’s percentage interest in the Company may be substantially diluted upon the exercise of Rights by other Shareholders and the corresponding issuance of Common Shares.

Expiry of Rights

 

The Rights will expire at the Expiry Time of 5:00 p.m. (Toronto time) on the Expiry Date of January 26, 2011. Rights not exercised prior to the Expiry Time on the Expiry Date will be void and of no value and will no longer be exercisable for any Common Shares.

 

Fees Payable by Subscribers

 

Apart from the Subscription Payment payable in connection with the exercise of your Rights, there will be no fee or sales commission charged by us or the Subscription Agent on the issuance of Rights to Shareholders or upon the exercise of Rights. Notwithstanding the foregoing, payment of any service charge, commission or other fee payable (including those of brokers) in connection with the purchase or sale of Rights (other than the fees for the services to be performed by the Subscription Agent referred to under “— Subscription Agent” below) will be the responsibility of the Subscriber. Subscribers must also pay all stamp, issue, registration or other similar taxes or duties contingent upon the issue or delivery of Common Shares to or for the order of a third party.

 

Rights

 

100 Rights are required to be exercised by a Subscriber to subscribe for 15 Common Shares. Where the exercise of Rights would otherwise entitle a Subscriber to fractional Common Shares, the Subscriber’s entitlement will be reduced to the next lowest whole number of Common Shares. No fractional Common Shares will be issued.

 

Rights will be eligible for exercise at any time from the Commencement Date to the Expiry Time on the Expiry Date. If a Prospectus Holder or a Qualified Holder wants to exercise some but not all of the Rights represented by a Rights Certificate and such holder wishes to retain the ability to exercise the balance of the unexercised Rights represented by a Rights Certificate, such holder must first complete and submit to the Subscription Agent Form 3 on the Rights Certificate in order to divide the Rights and be issued two separate Right Certificates: one certificate representing the number of Rights that the holder wishes to exercise in the first instance (which should then be completed and delivered to the Subscription Agent) and a second certificate representing the balance of unexercised Rights available for future exercise prior to the Expiry Time on the Expiry Date. For information on how to exercise Rights, see “— Common Shares Held in Book-Entry Form” and “— Common Shares Held in Registered Form” below.

 

Prospectus Holders and Qualified Holders of Rights that are unsure how to exercise their Rights should contact the Subscription Agent, the Company or their respective Participant. See “ — Enquiries” below.

 

Deemed Representation and Warranty of Each Subscriber

 

As a condition to a purchase of any Common Shares in the Rights Offering, each Subscriber other than a Qualified Holder will be deemed to have represented and warranted that it is resident in a Prospectus Jurisdiction, and this representation and warranty will be relied upon by us, the Lead Dealer Manager, its affiliates, the Co-Dealer Managers and the Subscription Agent.

 

Subscription Agent and Depository

 

CIBC Mellon Trust Company, in its role as Subscription Agent, has been appointed to (i) receive subscriptions for Common Shares and Subscription Payments directly from Registered Shareholders or indirectly through Participants, and (ii) act as depository and to perform certain services relating to the

exercise and transfer of Rights. Completed Rights Certificates Subscription Payments under the Rights Offering should be delivered by hand delivery, registered mail or courier service to:

 

CIBC Mellon Trust Company

199 Bay Street

Commerce Court West, Securities Level

Toronto, Ontario M5L 1G9

 

The Subscription Agent can be reached toll-free at 1-800-387-0825 (in North America) or 1-416-643-5500 (outside North America), or by email at inquiries@cibcmellon.com.

 

Common Shares Held In Book-Entry Form

 

Shareholders that hold their Common Shares through a Participant will not receive physical certificates evidencing their ownership of Rights. Instead, on the Record Date, one or more global Rights Certificates representing the total number of Rights to which all such Shareholders are entitled pursuant to the terms of the Rights Offering will be issued in registered form to, and in the name of, CDS or DTC (or one of their respective nominees), as the case may be, and will be delivered to CDS or DTC, as the case may be. The Company expects that each such Shareholder will receive a confirmation of the number of Rights issued to it from its respective Participant in accordance with the practices and procedures of that Participant. Each of CDS and DTC will be responsible for establishing and maintaining book-entry accounts for Participants holding Rights.

 

For Common Shares held through a Participant, a Prospectus Holder or a Qualified Holder may exercise the Rights issued in respect of such Common Shares by: (a) delivering to the Participant a properly completed form required by your Participant to effect the exercise of your Rights, and (b) forwarding to such Participant the Subscription Price for each Common Share that such holder wishes to subscribe for in accordance with the terms of this Rights Offering.

 

Subscriptions for Common Shares made through a Participant will be irrevocable, subject to Canadian statutory withdrawal rights in certain limited circumstances, such as the filing of an amendment to the Prospectus, and Subscribers will be unable to withdraw their subscriptions for Common Shares once submitted.

 

Holders that wish to exercise Rights issued in respect of Common Shares held through a CDS Participant or a DTC Participant should contact such CDS Participant or DTC Participant to determine how Rights may be exercised. The entire Subscription Price for any Rights exercised must be paid at the time of subscription and must be received by the Subscription Agent at the Subscription Office prior to the Expiry Time on the Expiry Date. Accordingly, Subscribers must provide the CDS Participant or DTC Participant holding their Rights with the Beneficial Owner Election Form and the corresponding Subscription Payment sufficiently in advance of the Expiry Time on the Expiry Date to permit proper exercise of their Rights. Participants will have an earlier deadline for receipt of the Beneficial Owner Election Form and corresponding Subscription Payment.

 

None of the Company, the Lead Dealer Manager, its affiliates, the Co-Dealer Managers or the Subscription Agent will have any liability for: (a) the records maintained by CDS or DTC or by CDS Participants or DTC Participants relating to the Rights or the book-entry accounts maintained by them; (b) maintaining, supervising or reviewing any records relating to such Rights; or (c) any advice or representations made or given by CDS or DTC or by CDS Participants or DTC Participants with respect to the rules and regulations of CDS or DTC, respectively, or any action to be taken by CDS or DTC or by CDS Participants or DTC Participants, as the case may be. The ability of a person having an interest in Rights held through a Participant to pledge such interest or otherwise take action with respect to such interest (other than through a Participant) may be limited due to the lack of a physical Rights Certificate. Holders of Rights must arrange sales or transfers of Rights through their Participant. See “— Sale or Transfer of Rights”.

CDS

 

The Subscription Price for Rights held through a CDS Participant is payable, at the election of the Subscriber, in either Canadian dollars or U.S. dollars by way of wire transfer, cheque, bank draft or money order payable to the CDS Participant, by direct debit from the Subscriber’s brokerage account or by electronic funds transfer or other similar payment mechanism.

 

DTC

 

If Rights are held of record through DTC, a holder may exercise its Rights through the DTC’s “PSOP” function by instructing DTC to charge his or her applicable DTC account for the Subscription Payment for the Common Shares and deliver such amount to the Subscription Agent. If Rights are held through a DTC Participant, the holder of such Rights may not be able to exercise such Rights in Canadian dollars and such holder should contact its DTC Participant if it wishes to submit any Subscription Payment in Canadian dollars. The Subscription Agent must receive the required subscription documents, including the Subscription Payment for the Common Shares sufficiently in advance of the Expiry Time on the Expiry Date to permit proper exercise of Rights. Participants will have an earlier deadline for receipt of instructions and payment.

 

Common Shares Held in Registered Form

 

Registered Shareholders in a Prospectus Jurisdiction will be mailed a copy of this Prospectus and a Rights Certificate representing the total number of Rights each such Shareholder is entitled to receive. In order to exercise Rights represented by the Rights Certificate, Subscribers must complete and deliver the Rights Certificate in accordance with the instructions set out below.

 

Rights not exercised by the Expiry Time on the Expiry Date will be void and of no value and will no longer be exercisable for any Common Shares. The Subscription Price for Rights exercised by Subscribers is payable, at the election of the Subscriber, in either Canadian dollars or U.S. dollars by way of wire transfer, certified cheque, bank draft or money order payable to the Subscription Agent.

 

How to Complete the Rights Certificate

 

 

 

 

 

It is not necessary for a transferee to obtain a new Rights Certificate to exercise the Rights, but the signatures of the transferee on Form 1 must correspond in every particular with the name of the transferee (or the bearer if no transferee is specified) as the absolute owner of the Rights Certificate for all purposes. If Form 2 is completed, the Company and the Subscription Agent will treat the transferee as the absolute owner of the Rights Certificate for all purposes and will not be affected by notice to the contrary.

 

 

The signature of the holder of a Rights Certificate must correspond in every particular with the name that appears on the face of the Rights Certificate. Signatures by a trustee, executor, administrator, guardian, attorney, officer of a company or any person acting in a fiduciary or representative capacity should be accompanied by evidence of authority satisfactory to the Subscription Agent.

 

Subscriptions for Common Shares will be irrevocable, subject to Canadian statutory withdrawal rights in certain limited circumstances, such as the filing of an amendment to the Prospectus, and Subscribers will be unable to withdraw their subscriptions for Common Shares once submitted.

Guaranteed Delivery Procedures

 

If you wish to exercise your Rights and you are a Registered Holder that is a Prospectus Holder or a Qualified Holder, but you do not have sufficient time to deliver the Rights Certificate evidencing your Rights to the Subscription Agent before the Expiry Time on the Expiry Date, you may exercise your Rights by complying with the following guaranteed delivery procedures:

 

 

Your notice of guaranteed delivery must be substantially in the form provided to you with your Rights Certificate. Your notice of guaranteed delivery must come from a Prospectus Holder or a Qualified Holder, as applicable. In your notice of guaranteed delivery you must state:

 

 

You may deliver the notice of guaranteed delivery to the Subscription Agent in the same manner as the Rights Certificate at the addresses set forth above under “DETAILS OF THE RIGHTS OFFERING — Subscription Agent and Depositary”.

 

The Subscription Agent will send you additional copies of the form of notice of guaranteed delivery if you need them. You may call the Subscription Agent toll-free at 1-800-387-0825 (in North America) or 1-416-643-5500 (outside North America).

 

If you wish to exercise your Rights and you are a Prospectus Holder or a Qualified Holder holding Rights through a Participant, but you are not able to deliver the Rights according to the practices and procedures of that Participant such that the Subscription Agent receives your Rights before the Expiry Time on the Expiry Date, you may be able to exercise your Rights by complying with that Participant’s guaranteed delivery procedures. Please contact the Participant through which you hold your Rights well in advance of the Expiry Time on the Expiry Date for more information regarding its guaranteed delivery procedures.

 

Undeliverable Rights

 

Rights Certificates returned to the Subscription Agent as undeliverable will be held by the Subscription Agent until the Expiry Time on the Expiry Date, after which time the Rights represented by such Rights Certificate will be void and of no value and no longer be exercisable for any Common Shares. As a result, the Subscription Agent will not sell or attempt to sell such undelivered Rights and no proceeds of sale will be credited to holders of such Rights.

 

Sale or Transfer of Rights

 

A holder of Rights in registered form may sell or transfer some or all of such Rights to any person that is not a Non-Prospectus Holder. A holder of Rights in registered form that wishes to sell or transfer some or all of its Rights must complete Form 2 on the Rights Certificate and have its signature guaranteed in accordance with the procedures outlined above. Holders that hold their Rights either through a CDS Participant or DTC Participant must arrange purchases or transfers of Rights through their CDS Participant or DTC Participant,

respectively. See “— Common Shares Held in Book Entry Form” and “— Common Shares Held in Registered Form — How to Complete the Rights Certificate” above.

 

The Company has received conditional approval from the TSX for the listing on the TSX of the Rights and the Common Shares issuable upon the exercise of the Rights. Similar approvals have been received from NYSE and NASDAQ to admit the Rights for trading and list the Common Shares issuable upon the exercise of Rights. Listing of the Rights and the Common Shares underlying the Rights on the TSX, NYSE and NASDAQ is subject to IVN fulfilling all of the listing requirements of the TSX, NYSE and NASDAQ, respectively. Provided IVN fulfills all such requirements, the Rights will be listed or admitted for trading, as applicable, on the TSX on January 4, 2011 and on the NYSE and NASDAQ on January 6, 2011. Holders that do not wish to exercise their Rights may sell or transfer their Rights through the usual investment channels, such as investment dealers and brokers, at the holder’s own expense. The Rights will cease trading on the TSX at noon (Toronto time) on the Expiry Date, and on the NYSE and NASDAQ at the close of trading (New York time) on the day immediately preceding the Expiry Date. The Company has filed with the SEC a Registration Statement on Form F-10 under the U.S. Securities Act, and expects to make other certain filings with the SEC, the NYSE and NASDAQ so that the Rights and the Common Shares issuable upon the exercise of the Rights issued to Shareholders that are U.S. residents and are not affiliates of the Company will not be subject to transfer restrictions under U.S. securities law.

 

Persons interested in selling or purchasing Rights should be aware that the exercise of Rights by holders that are located in Non-Prospectus Jurisdictions will not be permitted unless the person exercising the Rights meets the conditions and satisfies the procedures described under “— Non-Prospectus Holders” below.

 

Non-Prospectus Holders

 

Holders of Rights that reside outside of Canada or the United States and any persons (including any Participants) that have a contractual or legal obligation to forward this document to a jurisdiction outside a Prospectus Jurisdiction should read this section.

 

This Prospectus covers the distribution of the Offered Securities in the Prospectus Jurisdictions only. Rights Certificates will not be sent to any holders of Rights with addresses of record in a Non-Prospectus Jurisdiction and, except as described herein, Rights may not be exercised by or on behalf of any holder of Rights with addresses of record in a Non-Prospectus Jurisdiction. Instead, Non-Prospectus Holders will be sent a copy of this Prospectus together with a letter advising them that their Rights Certificates will be held by the Subscription Agent as agent for the benefit of all such Non-Prospectus Holders. The letter will also set out the conditions required to be met, and procedures that must be followed, in order for Non-Prospectus Holders to participate in the Rights Offering.

 

Notwithstanding any of the foregoing, subscriptions from Qualified Holders will be accepted. The Company has confirmed that Rio Tinto and Robert Friedland are Qualified Holders. Shareholders that have not received Rights Certificates but are resident in a Prospectus Jurisdiction or that wish to be recognized as Qualified Holders must contact the Subscription Agent at the earliest possible time and, in any event, prior to 4:30 pm (Toronto time) on January 14, 2011. Rights of Shareholders with addresses of record in a Non-Prospectus Jurisdiction will be held by the Subscription Agent until 4:30 p.m. (Toronto time) on January 17, 2011 in order to provide such holders with the opportunity to satisfy the Company that: (i) the holder is resident in a Prospectus Jurisdiction, or (ii) the exercise of their Rights will not be in violation of securities and other laws applicable in the Non-Prospectus Jurisdiction where such person is resident. After such time and until the Expiry Date, the Subscription Agent will attempt to sell the Rights of such registered Non-Prospectus Holders on such date or dates and at such price or prices and in such markets as the Subscription Agent determines in its sole discretion. The Subscription Agent will convert or cause to be converted any proceeds denominated in Canadian dollars into U.S. dollars at the prevailing exchange rate on the date of distribution, and, net of any expenses incurred by the Subscription Agent in connection with such conversion, distribute all proceeds in U.S. dollars to the registered Non-Prospectus Holders on a pro rata basis.

No charge will be made for the sale of Rights on behalf of Non-Prospectus Holders by the Subscription Agent except for a proportionate share of any brokerage commissions incurred by the Subscription Agent and the costs of or incurred by the Subscription Agent in connection with the sale of the Rights. The proceeds from the sale of Rights by the Subscription Agent (net of brokerage fees and selling expenses and, if applicable, costs incurred and Canadian withholding taxes) will be divided on a pro rata basis among registered Non-Prospectus Holders and delivered to such Non-Prospectus Holders as soon as reasonably practicable, provided that amounts of less than US$10.00 will not be remitted. The Subscription Agent will act in its capacity as agent of the registered Non-Prospectus Holders on a best efforts basis only, and none of the Company, the Lead Dealer Manager, its affiliates, the Co-Dealer Managers or the Subscription Agent accept any liability for the price obtained on the sale of Rights or the inability of the Subscription Agent to sell the Rights. None of the Company, the Lead Dealer Manager, its affiliates, the Co-Dealer Managers or the Subscription Agent will be subject to any liability for or in connection with the sale of, or failure to sell, any Rights on behalf of Non-Prospectus Holders. There is a risk that the proceeds to be received from the sale of Rights issued in respect of Common Shares held by Non-Prospectus Holders would not exceed the costs of or incurred by the Subscription Agent in connection with the sale of such Rights, in which case no sale of Rights will occur and no proceeds will be remitted to Non-Prospectus Holders.

 

Holders of Rights that are not resident in Canada or the United States should be aware that the acquisition and disposition of any of the Offered Securities may have tax consequences in the jurisdiction in which they reside which are not described in this Prospectus. Such holders should consult their own tax advisors about the specific tax consequences of acquiring, holding and disposing of the Offered Securities.

 

Common Share Certificates

 

Common Shares issued in connection with the Rights Offering will be registered in the name of the person to whom the Rights Certificate was issued or to whom the Rights have been properly and duly transferred. The certificates representing such Common Shares will be delivered by mail to the address of the Subscriber as it appears on the Rights Certificate, unless otherwise directed, or to the address of the transferee, if any, indicated on the appropriate form on the Rights Certificate as soon as practicable after the Expiry Date. Except as otherwise described under “— Non-Prospectus Holders” above, Common Shares will not be issued to or on behalf of any holder of Rights with addresses of record in a Non-Prospectus Jurisdiction, other than Qualified Holders that exercise their Rights.

 

Holders of Rights that hold their Rights through a CDS Participant or through a DTC Participant will not receive physical certificates evidencing their ownership of Common Shares issued upon the exercise of Rights. At the Closing Date, one or more global certificates representing such Common Shares will be issued in registered form to, and in the name of, CDS, DTC or their respective nominees as applicable.

 

Enquiries

 

If you have any questions, you should contact the Subscription Agent, CIBC Mellon Trust Company, toll-free at 1-800-387-0825 (in North America) or 1-416-643-5500 (outside North America), or by email at inquiries@cibcmellon.com.

 

Validity and Rejection of Subscriptions

 

All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any subscription will be determined by us in our sole discretion, which determination will be final and binding. All subscriptions are irrevocable, subject to Canadian statutory withdrawal rights in certain limited circumstances, such as the filing of an amendment to the Prospectus. Subject to applicable laws and the rules of the TSX, NYSE and NASDAQ, we reserve the absolute right to reject any subscription if such subscription is not in proper form or if the acceptance thereof or the issue of Common Shares upon the exercise of the Rights could be deemed unlawful. We also reserve the right to waive any defect with regard to any particular subscription. Neither we, the Lead Dealer Manager, its affiliates, the Co-Dealer Managers nor the Subscription

Agent will be under any duty to give any notification of any defect or irregularity in such subscriptions, nor will either of us incur any liability for failure to give such notification.

 

We reserve the right to treat as invalid any exercise or purported exercise of any Rights in the Rights Offering that appears to us to have been exercised, effected or dispatched in a manner which may involve a breach of the laws or regulations of any jurisdiction or if we believe, or our agents believe, that the same may violate or be inconsistent with the procedures and terms set out in this Prospectus.

 

No Fractional Common Shares; No Fractional Cents

 

We will not issue fractional Common Shares upon the exercise of the Rights. Where the exercise of Rights would otherwise entitle a holder thereof to fractional Common Shares, the holder’s entitlement will be reduced to the next lowest whole number of Common Shares. Where the exercise of Rights would result in the payment of a fractional cent in respect of the aggregate Subscription Price, the aggregate Subscription Price payable by such holder will be rounded up to the next whole cent.

 

Reservation of Common Shares

 

We will, at all times, reserve sufficient unissued Common Shares to permit the exercise of all of the Rights.

 

The Shareholder Rights Plan is intended to allow shareholders to properly evaluate and assess a takeover bid without facing undue pressure or coercion. The Shareholder Rights Plan provides the Board of Directors with additional time to consider any takeover bid and, if applicable, to explore alternative transactions that would maximize value for shareholders. It is intended to prevent any shareholder from increasing its holdings beyond 20% — or, in the case of Rio Tinto, beyond the level agreed by Ivanhoe and Rio Tinto pursuant to the terms of the Private Placement Agreement — without making an offer to all other shareholders.

 

Rio Tinto will not become an “Acquiring Person” (as defined in the Shareholder Rights Plan) as a result of any of the transactions contemplated by the Heads of Agreement including (i) the receipt and exercise of Rights by Rio Tinto pursuant to the Rights Offering, (ii) the acquisition and exercise from time to time of the Subscription Right, (iii) the amendment of the Outstanding Warrants, and (iv) the acquisition of the RMF Purchased Shares and the Citi Purchased Shares.

 

The Rights Offering is a “Pro Rata Acquisition” under the Shareholder Rights Plan. Accordingly, a person acquiring and exercising Rights pursuant to the Rights Offering will not thereby become an “Acquiring Person” (as defined in the Shareholder Rights Plan) and trigger the effects of the Shareholder Rights Plan as long as that person does not thereby acquire a greater percentage of the total number of Common Shares issuable under the Rights Offering than the person’s percentage of the total number of issued and outstanding Common Shares that such person owned immediately prior to the Record Date.

 

The following table sets forth IVN’s capitalization as at September 30, 2010. IVN’s capitalization is presented on an actual basis, and as adjusted for the (i) exercise of 720,203 anti-dilution warrants underlying the Series A Warrants, (ii) exercise of 33,783,784 Series B Warrants, (iii) availability of the Interim Funding Facility, and (iv) Rights Offering, assuming the Rights are exercised in full. The capitalization table should be read in conjunction with IVN’s interim consolidated financial statements as at and for the period ended September 30, 2010, which are incorporated by reference in this Prospectus. Other than as specifically referred to in the capitalization table below, other transactions referred to in the Heads of Agreement are not reflected in the capitalization table. See “HEADS OF AGREEMENT” for more information on the transactions contemplated by Heads of Agreement.

 

 

 

 

The authorized share capital of IVN consists of an unlimited number of Common Shares without par value and an unlimited number of Preferred Shares without par value. As at December 15, 2010 there were 566,245,476 Common Shares and no Preferred Shares issued and outstanding. Rights and restrictions in respect of the Common Shares and the Preferred Shares are set out in our articles of continuance, our by-laws and in the Business Corporations Act (Yukon) and its regulations. In addition, as of December 15, 2010, we have issued and outstanding options to acquire 18,437,070 Common Shares pursuant to our Employees’ and Directors’ Equity Incentive Plan. Rio Tinto continues to hold (i) 12,242,738 Series B Warrants, (ii) 35,000,000 Series C Warrants, and (iii) 720,203 Type B, Series 1 Warrants.

 

Common Shares

 

The holders of Common Shares are entitled to one vote per Common Share at all meetings of Shareholders except meetings at which only holders of another specified class or series of shares of the Company are entitled to vote separately as a class or series. Subject to the prior rights of the holders of Preferred Shares, the holders of Common Shares are entitled to receive dividends as and when declared by the Board of Directors, and to receive a pro rata share of the remaining property and assets of the Company in the event of liquidation, dissolution or winding up of the Company. The Common Shares carry no pre-emptive, redemption, purchase or conversion rights. Neither the Business Corporations Act (Yukon) nor the constating documents of the Company impose restrictions on the transfer of Common Shares on the register of the Company, provided that the Company receives the certificate representing the Common Shares to be transferred together with a duly endorsed instrument of transfer and payment of any fees and taxes which may be prescribed by the Board of Directors from time to time. There are no sinking fund provisions in relation to the Common Shares and they are not liable to further calls or to assessment by the Company. The Business Corporations Act (Yukon) provides that the rights and provisions attached to any class of shares may not be modified, amended or varied unless consented to by special resolution passed by a majority of not less than two-thirds of the votes cast in person or by proxy by holders of shares of that class.

Preferred Shares

 

The Preferred Shares are issuable in one or more series, each consisting of such number of Preferred Shares as may be fixed by the Board of Directors. The Board of Directors may from time to time, by resolution passed before the issue of any Preferred Shares of any particular series, alter the constating documents of the Company to determine the designation of the Preferred Shares of that series and to fix the number of Preferred Shares therein and alter the constating documents to create, define and attach special rights and restrictions to the shares of that series, including, without limitation, the following: (i) the nature, rate or amount of dividends and the dates, places and currencies of payment thereof; (ii) the consideration for, and the terms and conditions of, any purchase of the Preferred Shares for cancellation or redemption; (iii) conversion or exchange rights; (iv) the terms and conditions of any share purchase plan or sinking fund; and (v) voting rights and restrictions.

 

Registered holders of any Preferred Shares or Common Shares are entitled, at their option, to a certificate representing their shares of the Company.

 

Options and Warrants to Purchase Common Shares

 

The Rights Offering is a corporate transaction that will affect the Company’s issued share capital and its outstanding equity securities that are convertible into, exchangeable for or exercisable to acquire unissued share capital (“Convertible Securities”). The Convertible Securities contain certain anti-dilution adjustment provisions that are intended to ensure that a holder of Convertible Securities is entitled to acquire equivalent share capital after the occurrence of a relevant corporate transaction, such as the Rights Offering. Information provided in this Prospectus with respect to the number of Convertible Securities issued and outstanding is given without giving effect to any anti-dilution adjustment provisions described above.

 

The following table summarizes issuances of Common Shares and securities convertible into Common Shares within the twelve (12) months prior to the date of this Prospectus. “C/S” refers to Common Shares and the price per security represents the issue price per Common Share. “S/O” refers to incentive stock options issued under the Company’s Employees’ and Directors’ Equity Incentive Plan, each exercisable to purchase one (1) Common Share and the price per security represents the exercise price per Common Share. “B/O” refers to bonus shares issued as awards of fully paid Common Shares to eligible participants as and when determined to be warranted on the basis of past performance.