September 15, 2014 / 4:55 AM / 5 years ago

UPDATE 1-Mongolia says resolves Rio Tinto copper mine tax dispute

* Minister says tax bill cut from $130 mln to $30 mln

* Oyu Tolgoi phase II construction to resume in Q1 2015

* All disputes ended, feasibility study approval still needed (Adds detail, background, quotes)

By Terrence Edwards

ULAN BATOR, Sept 15 (Reuters) - A tax dispute that threatened to delay the giant Oyu Tolgoi copper mine being developed in Mongolia by Rio Tinto has been resolved, a government official said on Monday.

The $6.5 billion Oyu Tolgoi project will produce more than 300,000 tonnes of copper concentrate a year once construction is fully completed. It is expected to boost Mongolia’s economy by a third by 2020.

But the development has been embroiled in a series of disputes between its two owners, Rio Tinto-subsidiary Turquoise Hill Resources and the Mongolian government.

Mongolia’s vice-minister of mining, Oyun Erdenebulgan, told Reuters that the two sides have agreed to cut an outstanding tax bill on the project to $30 million. The authorities had delivered a $130 million bill in June.

“I understand both parties are now working closely and effectively and nobody wants to delay because of this tax issue,” he said, adding that the project would resume construction in the first quarter of 2015.

Oyu Tolgoi, located in Mongolia’s vast and remote southern Gobi region, is 66 percent owned by Torquoise Hill, with the Mongolian government holding the remaining 34 percent.

The first open-pit phase of the project went into operation in July 2013, and the mine produced 76,700 tonnes of copper concentrate by the end of that year.

However, the second phase, which involves the underground expansion of the mine, has been subject to a series of delays. The Mongolian government expressed concern about financing terms and cost overruns, and also ordered Turquoise Hill to draw up a new feasibility study.

Oyun said all remaining disputes on the project had been settled, and both sides were waiting for the completion of the new feasibility study.

“When it has been received, we will appoint a committee to approve it,” he said. (Writing by David Stanway; Editing by Richard Pullin)

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