TORONTO (miningweekly.com) – Rio Tinto subsidiary Turquoise Hill Resources on Monday reported that the Mongolian Tax Authority had given the Oyu Tolgoi copper/silver/gold complex, in the country’s Southern Gobi region, an audit report that claimed unpaid taxes, penalties and disallowed entitlements related to the initial development of the project.

Turquoise Hill, which owns 66% of the giant mining operation, said it firmly believed that Oyu Tolgoi had paid all taxes and charges as required under the investment agreement and Mongolian law.

“We strongly disagree with the claims in the audit report and are currently reviewing all options to resolve this matter. It is important that we protect our right of tax stabilisation provided by the investment agreement,” Turquoise Hill CEO Kay Priestly said.

Turquoise Hill and Rio Tinto were now reviewing the detailed tax claim and, should they find that any element of the claim amounted to a breach of the investment agreement, it would trigger the dispute resolution process or possible international arbitration.

Turquoise Hill said completing the underground feasibility study was likely to be delayed if a resolution to the tax matters was not reached before the end of the month. The expansion still needed to be approved by the company and the Mongolian government, following the completion of a new feasibility study.

Last month, a group of banks agreed to a six-month extension to September 30 of a $4-billion commitment to fund the underground expansion of Oyu Tolgoi. The final cost of the Phase 1 capital project was expected to be about $6.6-billion, within 3% of the initial budget, excluding foreign-exchange exposures.

The Phase 2 capital estimate was $5.1-billion and initial production from the underground mine was expected in 2016.

The underground development of Oyu Tolgoi, which is one of the world's largest undeveloped copper deposits, was put on hold last year when the Mongolian government became concerned that cost overruns would delay the flow of the government's share of profits from the mine.

Priestly last month said talks with the Mongolian government on restarting development of the underground expansion had been "constructive".

She also said Turquoise Hill was considering selling its stake in Mongolian coal miner SouthGobi Resources as it focused on Oyu Tolgoi.