Turquoise Hill Resources on June 26 filed a formal notice of dispute with the government of Mongolia regarding an audit report it received from the Mongolian Tax Authority on June 23 claiming that Oyu Tolgoi LLC, the operating company for the Oyu Tolgoi copper-gold mine in southern Mongolia, was subject to unpaid taxes, penalties and disallowed entitlements associated with the initial development of the mine.

Turquoise Hill holds a 66% ownership interest in Oyu Tolgoi LLC and "is of the firm view that Oyu Tolgoi LLC has paid all taxes and charges as required under the investment agreement, and Mongolian law and strongly disagrees with the claims in the audit report," the company's announcement said.

The Oyu Tolgoi investment agreement outlines the dispute resolution process. The filing of a notice of dispute by Turquoise Hill was the first step in that process, which includes a 60-day negotiation period. If the parties are unable to reach a resolution during this period, the dispute can be referred to international arbitration.

Outstanding shareholder issues, including tax claims, must be resolved before further investment in the development of an underground mine at Oyu Tolgoi can proceed, Turquoise Hill said. Consequently, distribution of the underground feasibility study will be delayed.

Oyu Tolgoi came into production as an open-pit operation in early 2013 and has been building production since that time. The mine produced 76,700 metric tons (mt) of copper and 157,000 oz of gold in concentrates in 2013. Production in the first quarter of 2014 was 25,300 mt of copper and 66,000 oz of gold in concentrates.

Development plans for Oyu Tolgoi include a 95,000-mt/d-underground block-cave mine. Development of the underground mine has been on hold since August 2013, due to unresolved issues that include shareholder ownership issues; agreement on a comprehensive funding plan, including project finance; completion and approval of a feasibility study; and obtaining all necessary permits for the mine's expansion.

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