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TREASURY BILL PURCHASE AGREEMENT

BETWEEN



THE GOVERNMENT OF MONGOLIA

AND

IVANHOE MINES MONGOLIA INC LLC



Treasury Bill Purchase Agreement between the Government of Mongolia and

Ivanhoe Mines Mongolia Inc LLC

This Treasury Bill Purchase Agreement (“this Agreement”) is made on this 6th day of October

2009 between:

The Government of Mongolia, acting through its authorized representative, the Minister of

Finance (hereinafter referred to as the “Government”);

and

Ivanhoe Mines Mongolia Inc LLC, a company duly organized in Mongolia with the state

registration certificate of incorporation # 2657457 and foreign investor’s certificate # 00-218,

possessing mining licenses 6709A, 6708A and 6710A (hereinafter referred to as the

“Investor”);

having regard to the following:

The Investor and the Government, and others, have entered into an Investment Agreement

(the “Investment Agreement”) on or about the date of this Agreement which memorializes

and regulates a relationship between them for the development and operation of the Oyu

Tolgoi Project.

The Government requires the Investor to enter into this Agreement as a condition of the

Government’s entry into the Investment Agreement.

The purpose of this Agreement is to record the terms and conditions on which the Investor

has agreed to purchase from the Government three discounted Treasury Bills with an

aggregate face value of USD $287,500,000.



1. GENERAL

1.1.



Capitalized terms used in this Agreement, if not defined in this Agreement, shall have

the meanings given to them in the Investment Agreement provided that “Parties” as

used in this Agreement shall mean the Government as that term is defined in this

Agreement and the Investor (and “Party” shall mean either the Government or the

Investor, individually), and provided further that:

1.1.1.



“Taxes” for the purposes of this Agreement shall mean the taxes listed in

Article 7 of the General Taxation Law.



1.1.2.



“Treasury Bill" means a bill issued by the Government in respect of the First

TBill, Second TBill or Third TBill, denominated in USD and substantially in the

form set out in Schedule 1, each having a term of five (5) years from the date of

issue and in all respects ranking equally with and be payable pari passu with

other priority sovereign debt of Mongolia (and in no circumstances inconsistent

with the terms of this Agreement).



1.2.



A term not defined in this Agreement and which is defined in the Investment Agreement

shall have the meaning given to it in the Investment Agreement. The rules of

interpretation contained in Chapter 16 (Definitions) of the Investment Agreement shall

apply to this Agreement, and this Agreement forms part of the Investment Agreement.



1.3.



This Agreement shall enter into force at such time as the Investment Agreement shall

have been signed by all the parties thereto, and such execution shall constitute a



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condition precedent to this Agreement. This Agreement shall remain in effect from the

aforesaid date of signing for so long as any amount of the Outstanding Balance

remains unpaid by the Government, provided however, that Clause 7 shall survive so

long as any taxable year of the Investor or any of its Affiliates to which any Tax may

relate shall remain open for audit or adjustment by the Government.



2. PURCHASE OF TREASURY BILLS

2.1.



Subject to the terms and conditions of this Clause 2 in its entirety, the Investor shall

purchase at a discount three (3) Treasury Bills to be issued by the Government having

an aggregate face value of USD $287,500,000:

2.1.1.



Within fourteen (14) days after the Investment Agreement has been signed by

all parties thereto, the Investor will purchase a Treasury Bill in the principal

amount of USD $115,000,000 by paying the Government USD $100,000,000

(“First TBill”)



2.1.2.



Within fourteen (14) days after the Effective Date (as defined in the Investment

Agreement), the Investor will purchase a Treasury Bill in the principal amount

of USD $57,500,000 by paying the Government USD $50,000,000 (“Second

TBill”).



2.1.3.



Within fourteen (14) days after drawdown, pursuant to full project financing, of

all the funds required for construction of the open pit mine and underground

mine for the Oyu Tolgoi Deposit contemplated in the Investment Agreement

and all associated infrastructure (as contemplated by the associated feasibility

studies for the open pit mine and underground mine) or no later than 30 June

2010 if such drawdown has not occurred by 30 June 2010, the Investor will

purchase a Treasury Bill in the principal amount of USD $115,000,000 by

paying the Government USD $100,000,000 (“Third TBill”).



The aggregate of the face value of the First TBill (being USD $115,000,000), the

Second TBill (being USD $57,500,000) and the Third TBill (being USD $115,000,000)

is hereinafter referred to as the “Principal Amount”.



3. OUTSTANDING BALANCE

3.1.



The “Outstanding Balance”, which shall always be in USD, shall mean, at any point in

time:

3.1.1.



the Principal Amount outstanding at that time;



3.1.2.



less any amounts repaid by the Government to the Investor in accordance with

Clauses 4.1, 6.1 or 6.3;



3.1.3.



less any amounts applied by the Investor in reduction of the Tax liability of the

Investor and its Affiliates in accordance with Clause 4.1;



3.1.4.



plus the amount of any interest under Clause 6.2.1.



4. APPLICATION OF OUTSTANDING BALANCE AGAINST TAX LIABILITY

4.1.



If the entirety of the then current Outstanding Balance has not been paid on a

Repayment Date in accordance with Clause 6.1, then the Investor may, at its

discretion, notify the Government in writing through the relevant taxation authority in



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Mongolia that any Tax owed by the Investor or any of its Affiliates has been satisfied in

whole or in part by being offset against the Outstanding Balance. Promptly following the

provision of such written notice, the Government shall, through the relevant taxation

authority, provide to the Investor a receipt or voucher acceptable to the Investor (acting

reasonably) as evidence of payment by the Investor (or, where applicable, its Affiliates)

of the Tax liability described in the notice. Neither the Investor (nor, where applicable,

its Affiliates) shall be liable or subject to any penalties or interest which might otherwise

have been imposed on the Investor (or, where applicable, its Affiliates) in respect of a

Tax liability satisfied by a written notice under this Clause 4.1. The Outstanding

Balance shall not be reduced by the amount of a Tax liability specified by the Investor

in a notice under this Clause 4.1 until the Investor has received all receipts and

vouchers required under this Clause 4.1.

4.2.



If the Investor issues a written notice under Clause 4.1 to satisfy a VAT liability of the

Investor or its Affiliates by application of the VAT amount against the Outstanding

Balance, then the Government shall ensure that any entitlement the Investor or its

Affiliates may have to a VAT refund under the laws or regulations of Mongolia shall not

be affected by the VAT liability having been satisfied by such notice.



4.3.



Except as provided in Clause 6, the Government may repay the Outstanding Balance

in whole or in part at any time.



4.4.



For the purposes of calculating the VAT refund amount to be applied as a credit in

accordance with Clauses 2.1.2 or 2.1.3 and for applying a Tax liability against the

Outstanding Balance under Clause 4.1, the VAT credit or Tax liability (as applicable)

shall be converted by the Investor to USD using the average official Mongolian togrog /

USD exchange rate published by Reuters during the week immediately preceding the

payment in accordance with Clause 2.1.2 or 2.1.3 or Investor’s written notice under

Clause 4.1 (this shall be calculated as the simple arithmetic average of the last

published exchange rate for each day during that week).



5. SCOPE

5.1.



For the avoidance of doubt, other than as provided in Clauses 4.1 and 6.3, nothing in

this Agreement shall affect the manner in which any Tax liability shall be calculated

and, without limiting the foregoing, nothing in this Agreement shall limit the ability of the

Investor to treat any offset of Tax liability by amounts prepaid hereunder as a

deductible expense from the taxable income of the Investor if otherwise permitted by

the Investment Agreement or any applicable treaty, law or regulation.



5.2.



Any income that arises from this Agreement, or which may be derived as a result of the

issue or redemption of the Treasury Bills or in any other way whatsoever as a result of

the implementation of this Agreement shall not be subject to any form of taxation.



6. REPAYMENT

6.1.



The Government must immediately repay to the Investor the whole of the then current

Outstanding Balance on the earliest to occur of each of the following events (the date

of each such event constituting a “Repayment Date”):

6.1.1.



the Government or SHC fails to fulfil any material and significant

obligations under the Investment Agreement or the Shareholders’

Agreement respectively for a period of 6 (six) months;



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6.2.



6.1.2.



the termination of the Investment Agreement or the Shareholders’

Agreement;



6.1.3.



if the conditions precedent in Clause 15.7 of the Investment Agreement

are not satisfied or waived by the time required under the Investment

Agreement and, accordingly, the Investment Agreement does not come

into force and effect (as contemplated by the final paragraph in Clause

15.7 of the Investment Agreement); and



6.1.4.



each date which is five (5) years after the date of purchase by the

Investor of each Treasury Bill.



If the Government does not repay the then current Outstanding Balance in accordance

with Clause 6.1, then the obligation to pay for the Treasury Bills remaining to be

purchased by the Investor shall be cancelled and:

6.2.1.



the then current Outstanding Balance for the purposes of Clause 3 shall

bear interest at a rate of 9.9% per annum calculated daily on the basis of

a year comprising 360 days (but after allowing for the notional interest

incorporated in the discount at which each Treasury Bill is issued) and

added to the Outstanding Balance at the end of each Calendar Quarter;

and



6.2.2.



the Government and SHC agree that the Investor may, without limiting

any of its other rights, apply any freely available dividends or other

amounts which may become due and payable by the Investor to SHC

towards reduction of the Outstanding Balance.



6.3.



The Government must repay the Principal Amount of each Treasury Bill in accordance

with its terms.



6.4.



Repayment of the Principal Amount and the Outstanding Balance must be made in

USD.



6.5.



On repayment of the whole of the Principal Amount owing in respect of a Treasury Bill

the Investor shall surrender to the Government the applicable Treasury Bill.



6.6.



Nothing in this Clause 6 limits the Investor’s right to commence arbitration proceedings

to recover the Outstanding Balance.



6.7.



As consideration for the Investor's purchase of the First TBill, the Government shall in

good faith draw on sources of revenue other than the First TBill revenue until such time

as the conditions precedent to the Investment Agreement have been satisfied and, to

the extent possible, will not comingle Treasury Bill revenues with other sources of

Government revenue.



7. DISPUTE RESOLUTION

Chapter 14 (Dispute Resolution) of the Investment Agreement relating to dispute

resolution shall apply to this Agreement as if set out in full in this Agreement, and as if

references in that clause to the ‘Parties’ were references to the Parties to this

Agreement.



PAGE 4



8. ASSIGNMENT

8.1.



The Investor shall be entitled to assign its rights and obligations under this Agreement

and the Treasury Bills. The Investor may charge, mortgage or grant other forms of

security over its rights and obligations under this Agreement and the Treasury Bills and

the Government shall provide all necessary support (including providing written consent

and signing necessary documents) to register and perfect the security in Mongolia.



8.2.



The Government shall not be entitled to assign or encumber its rights and obligations

under this Agreement or the Treasury Bills.



8.3.



No assignment will expand or alter the rights and obligations of either Party under this

Agreement.



9. MISCELLANEOUS

9.1.



The provisions of this Agreement contain the entire agreement between the Parties

with respect to the subject matter of this Agreement.



9.2.



Notices or other communications under this Agreement between the Parties shall be

given in accordance with the notice provisions contained in clause 15.32 of the

Investment Agreement.



9.3.



This Agreement shall be governed by and interpreted in accordance with the laws of

Mongolia and international treaties to which Mongolia is a party.



9.4.



Each Party agrees to do all things and execute all deeds, instruments, transfers or

other documents as may be necessary or desirable to give full effect to the provisions

of this Agreement and the transactions contemplated by it.



9.5.



Upon mutual consent recorded in writing, the Parties may amend or modify this

Agreement.



9.6.



The issuer of the Treasury Bills is the Government of Mongolia and the Treasury Bills

constitute sovereign debt.



9.7.



Each Party warrants to each other Party that at the date of this Agreement it has full

power and lawful authority to execute and deliver this Agreement, to perform its

obligations under this Agreement and to complete the transactions contemplated by

this Agreement. The Government further warrants to the Investor that at the date of

this Agreement and at the date that each Treasury Bill is issued:

9.7.1.



it has all requisite power and authority and has all necessary approvals,

licences, permits and authorizations to issue the Treasury Bill;



9.7.2.



it has taken all requisite action to issue the Treasury Bill, and the Treasury Bill

concerned constitutes a valid and binding obligation of the Government,

enforceable against the Government in accordance with its terms, without

regard to the principles of sovereign immunity;



9.7.3.



that the Treasury Bills are legally binding, valid and enforceable obligations of

and against the Government;



9.7.4.



there are no facts or circumstances existing, except current liabilities incurred

and obligations entered into in the usual and ordinary course, none of which



PAGE 5



(individually or in the aggregate) could have a material adverse effect on the

Government's ability to perform its obligations under this Agreement and under

the Treasury Bills.

9.8.



If any provision of this Agreement is found to be unenforceable for whatever reason,

that provision will be severed from the Agreement, and the remainder of this

Agreement shall remain in force.



9.9.



The Government agrees that any change to the laws or regulations of Mongolia

(including the passing of any new laws or regulations), or any other requirements that

would, but for this Clause 9.9, be required to be complied with in connection with this

Agreement that take effect after the date of this Agreement, and which discriminates

against the Investor (taking into account the principles of non-discrimination in clause

2.3 of the Investment Agreement), shall not apply in relation to this Agreement.



9.10. Expiration or earlier termination of this Agreement does not affect the monetary rights

and obligations of the Parties which have accrued prior to the date of such expiry or

termination and which remain undischarged at that date.

9.11. This Agreement will be provided and executed in the Mongolian and English languages

each in two original copies, with each Party retaining one copy in each language and

the Parties agree that the Mongolian and English versions will be treated equally

except that, in the event of any legal dispute in the interpretation between the twolanguage versions, the English version shall prevail.



PAGE 6



SCHEDULE 1

Form of Treasury Bill

(the Form of Treasury Bill omitted)



SIGNING PAGE

IN WITNESS WHEREOF, this Agreement is executed and signed on this 6th day of October 2009

in the City of Ulaanbaatar.



For and on behalf of the Government of Mongolia:



Minister of Finance

S. Bayartsogt



Signature: “Signed”



Date: 6 October 2009



For and on behalf of Ivanhoe Mines

Mongolia Inc LLC:



Keith Marshall

Managing Director



Signature “Signed”



Date: 6 October 2009