The Mongolian Government has accused Rio Tinto and its subsidiary, Turquoise Hill Resources, of failing to pay taxes and penalties relating to the $6.6bn Oyu Tolgoi copper-gold mine project.
The Mongolian Tax Authority has claimed that Rio Tinto has unpaid taxes, penalties and disallowed entitlements associated with the first phase development of mine.
Oyu Tolgoi mine's operating unit director Ganbold Davaadorj was quoted by Bloomberg as saying that the disputed amount is about $130m.
The Oyu Tolgoi mine is 66%-owned by Turquoise Hill, while the Government of Mongolia holds the remaining stake.
Turquoise Hill has disputed the Tax Authority's claims, saying in a statement that the mine has paid all taxes and charges as required under the investment agreement and Mongolian law.
Turquoise Hill CEO Kay Priestly said that the company strongly disagrees with the claims in the audit report and is currently reviewing options to resolve the matter.
"Rio Tinto and Turquoise Hill are planning to seek international arbitration if any element of the claim is found to be a breach of investment agreement," Priestly said.
"It is important that we protect our right of tax stabilisation provided by the investment agreement."
Rio Tinto and Turquoise Hill are planning to seek international arbitration if any element of the claim is found to be a breach of investment agreement.
Oyu Tolgoi mine has undergone significant negotiations and delays, which forced Turquoise Hill to sign a new deal with 15 international lenders in May. The deal will expire in September.
Works on the Oyu Tolgoi open pit mine began in 2013, but an underground expansion was reportedly halted, as the Mongolian Government feared that construction costs would outrun profits.
Following the latest unpaid tax claims, THR is now concerned that the underground feasibility study could be delayed if the issues are not resolved before 30 June.
Meanwhile, Oyu Tolgoi CEO and president Craig Kinnell said the company's commitment is to continue legally operating Oyu Tolgoi and look after the health and safety of its 6,000 employees and contractors.
Image: Oyu Tolgoi copper-gold mine in Mongolia. Photo: courtesy of Rio Tinto.