Rio finalises deal with Mongolian govt

Rio Tinto Ltd says it has finalised an investment agreement with the Mongolian government for the development of the $US4 billion ($A4.37 billion) Oyu Tolgoi copper-gold project.

"The investment agreement has now taken full and binding effect," Rio Tinto said in a statement on Wednesday.

Under the agreement, the government of Mongolia will own 34 per cent of OT LLC, the licence holder of the project, which is being developed by Rio Tinto and Canada's Ivanhoe Mines Ltd.

Rio Tinto said the parties would now commence the development phase of the project, with production slated to commence in 2013.

Output will be ramped up over five years to a full production rate of 450,000 tonnes of copper per year, with substantial gold by-products.

Ivanhoe has estimated the joint venture will spend about $US4 billion over the next four years to build and commission the initial mining complex.

The construction of a coal-powered electricity generating plant will require further capital.

The project was initially expected to cost more than $US2 billion ($A2.19 billion) to develop.

Ivanhoe originally planned to commission the mine in 2009.

Talks with the Mongolian government hit a roadblock in 2006 when Mongolians protested against increasing levels of mineral asset ownership by foreign entities, and a windfall tax of up to 68 per cent was levelled on profits from mining projects when commodity prices reached certain levels.

Mongolia's government scrapped the tax in August last year, clearing the path for an investment deal to be reached.

"We plan to be a partner in Mongolia for decades to come," Rio Tinto Copper chief executive Andrew Harding said on Wednesday in a statement.

Rio Tinto has a 22.4 per cent stake in Ivanhoe Mines, which is led by Canadian billionaire Robert Friedland, and it also holds a near 81 per cent stake in Ivanhoe's Australian arm.

By REBECCA LE MAY of AAP (Australian Associated Press news service)