Heads of Agreement (2007)Full Document 

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HEADS OF AGREEMENT
BETWEEN
IVANHOE MINES LTD.
AND
RIO TINTO INTERNATIONAL HOLDINGS LIMITED
DATED SEPTEMBER 11, 2007
Section 1: Facility, Parties & Availability
     
Borrower:
  Ivanhoe Mines Ltd.
 
   
Lender:
  A member of the Rio Tinto Group (the “Lender”) to be designated by Rio Tinto International Holdings Limited (“Rio Tinto)
 
   
Facility:
  Non-Revolving Convertible Credit Facility
 
   
Facility Amount:
  US$350 million available for drawdown
 
   
Use of Proceeds:
  The Borrower shall apply all amounts borrowed by it under the Facility exclusively on expenditures in accordance with the Operations Budget and Plan or the Suspension Plan, as applicable. No part of the amount borrowed by it under the Facility may be spent on or in relation to any project other than the OT Project, except that up to US$17.5 million of such amount may be spent on or in relation to other projects located in Mongolia. Any departure in the application of amounts borrowed under the Facility from the Operations Budget and Plan or the Suspension Plan, as applicable, must be agreed by the unanimous vote of the Technical Committee. Notwithstanding the foregoing, if Rio Tinto has appointed the Technical Committee Chair, any departure in the application of amounts borrowed under the Facility from the Operations Budget and Plan or the Suspension Plan may be agreed by a majority vote of the Technical Committee. For greater certainty, these Use of Proceeds obligations shall survive any repayment, conversion or cancellation of the Facility, except that upon a Mandatory Repayment pursuant to paragraph (ii) thereof, these Use of Proceeds obligations shall not apply in respect of the amount of such Mandatory Repayment.


 

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Availability Period:
  Subject to satisfaction of the Conditions to Funding, the Facility will be available for drawdown from the Funding Date until the Maturity Date.
 
Maturity Date:
  The outstanding principal amount of and accrued interest, if any, on the Facility (the “Loan Amount”) is repayable in full and the Facility will be cancelled on September 12, 2010.
 
   
Drawdowns:
  Drawdowns under the Facility may be made on five Business Days’ notice by the Finance Committee on behalf of the Borrower to the Lender. The initial drawdown must be for a minimum of US$150 million. Subsequent drawdowns must be for a minimum of the lesser of US$25 million and the undrawn amount of the Facility. The aggregate amount of drawdowns under the Facility may not exceed US$350 million. The Facility is not a revolving facility and no amounts repaid or converted thereunder may be redrawn. The Lender will not be obligated to advance a drawdown if a Default (as hereinafter defined) has occurred and is continuing on the date of the drawdown.
 
   
Demand Repayment:
  The Loan Amount is callable by the Lender by notice delivered to the Borrower (the “Demand Notice”) (i) contemporaneously or within 30 days after the completion of Second Tranche Private Placement, (ii) contemporaneously or within 30 days after the exercise of any Series A Warrants, Series B Warrants and/or Series C Warrants having an aggregate exercise price equal to or greater than the Loan Amount on the date of exercise or (iii) following an Ivanhoe Change of Control.
 
 
  If the Lender calls the Loan Amount, the Borrower shall repay the Loan Amount within five Business Days of receipt of the Demand Notice and the Facility will be cancelled.
 
 
  On or before the Funding Date, the Borrower, Rio Tinto and the Lender will enter into an agreement pursuant to which the Borrower will agree that the repayment of the Loan Amount pursuant to a Demand Notice delivered in accordance with clauses (i) or (ii) above may be satisfied by Rio Tinto transferring to the Lender such amount of the subscription price of the Second Tranche Private Placement or the exercise price of any Series A Warrants, Series B Warrants and Series C Warrants as is necessary to repay the Loan Amount.
 
   
Prepayments:
  No prepayments of the Loan Amount are permitted.


 

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Mandatory Repayment:
  Following and within 30 days after the completion of (i) an equity financing by the Borrower or any of its subsidiaries (including for greater certainty a financing of debt convertible into equity but excluding (x) a financing that is made solely to one or more members of the Rio Tinto Group or (y) a financing that is made by a subsidiary of the Borrower where the use of proceeds of such financing is solely to fund the operations of one or more mineral exploration or mine development projects owned directly or indirectly by that subsidiary (other than the OT Project) or (ii) the sale by the Borrower or any of its subsidiaries of any assets (including shares of any subsidiary of the Borrower) with an aggregate value in excess of US$50 million, the Lender may at its option deliver a notice (a “Mandatory Repayment Notice”) to the Borrower requiring the funds therefrom to be used to, and the Borrower shall within five Business Days of receipt of the Mandatory Repayment Notice, repay the Loan Amount or such portion of the Loan Amount as is equal to such proceeds. For greater certainty, a repayment pursuant a Mandatory Repayment Notice will not cancel the Facility.
 
   
Finance Committee:
  The Borrower and Rio Tinto shall establish a Finance Committee which will be responsible for drawdowns on the Facility and determining the Suspension Date. The Finance Committee will also be responsible for reviewing, and reporting to the Borrower and Rio Tinto on, actual expenditures versus the Operations Plan and Budget and the Suspension Plan at least once every eight weeks and immediately prior to each drawdown. The Finance Committee shall consist of one member appointed by the Borrower and one member appointed by Rio Tinto. Each of the Borrower and Rio Tinto may terminate the appointment of any member appointed by it to the Finance Committee and appoint another person in his or her place. Each of the Borrower and Rio Tinto may appoint one or more alternates to act in the absence of one or more of its regular members. Any alternate so acting shall be deemed a member. Appointments by a party (including alternates) may be made or changed by notice to the other party. All decisions of the Finance Committee require unanimity.
 
   
Definitions:
  Unless defined herein (including in the left-hand column) or the context otherwise requires, the definitions set out in the Private Placement Agreement between the Borrower and Rio Tinto made as of October 18, 2006, as amended, (the “PPA”) shall apply herein.


 

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Section 2: Interest
     
Interest Payments:
  Interest on the outstanding principal amount of the Facility (the “Loan”) will accrue from and after the Funding Date until the Facility is repaid in full. The Loan will bear interest during each three month period (each, an “Interest Period”) at the Interest Rate calculated on an actual over 360 days basis. The first Interest Period will commence on the Funding Date.
 
 
  If no Default has occurred and is continuing on the last day of an Interest Period, the interest on the Loan then accrued will be added to the Loan.
 
   
 
  If a Default has occurred and is continuing on the last day of an Interest Period, the interest on the Loan then accrued will be paid by the Borrower in immediately available funds to the Lender unless the Lender directs that such interest be added to the Loan.
 
 
  Notwithstanding the foregoing, once US$108 million in interest on the Loan has been added to the Loan, all additional interest on the Loan will be paid by the Borrower in immediately available funds to the Lender.
 
   
 
  If an interest payment is due on a non-Business Day, then interest on the Loan will be calculated to and payable on the following Business Day.

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