By Alex MacDonald

A massive Mongolian copper mine in which Rio Tinto PLC (RIO) owns an interest will need a slightly larger budget to expand below ground but the project will only move ahead once all issues with the Mongolian government have been resolved, the company that owns the rights to the mine said.

Canada-listed Turquoise Hill Resources Ltd. (TRQ), which is 50.8% owned by Rio, said it would cost $5.4 billion to expand the Oyu Tolgoi mine underground, compared with a previous estimate of $5.1 billion. The figure includes $0.5 billion of capital already spent this year and last year.

The mine, which sits on one of the world's largest copper and gold deposits, began commercial production last summer and could represent a third of landlocked Mongolia's economy.

The latest study, whose publication has been delayed several times, will need to be approved by all the mine's shareholders and stakeholders before the project can proceed. Oyu Tolgoi is operated by Rio Tinto and 66% owned by Turquoise Hill with the remaining 34% held by the Mongolian government.

The underground mine project was put on hold last summer following a protracted dispute with the Mongolian government over a series of issues, including timing of the revenue stream to be incurred by the government from the project, terms of financing burden, and claims of unpaid taxes, penalties and disallowed entitlements connected with the initial development of Oyu Tolgoi, which cost $6.2 billion to develop.

On the tax front, Turquoise Hill said Monday that the Mongolian tax authority reduced the initial tax-related charges to about $30 million from $127 million. While Turquoise Hill welcomed the new ruling, it said it would seek further clarity about the latest findings.

Write to Alex MacDonald at alex.macdonald@wsj.com

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