Rio Tinto said it will now start developing the $4bn Oyu Tolgoi copper and gold mine in Mongolia following approval by the Mongolian Government.

According to the agreement, Mongolia’s state-owned resources company Erdenes MGL LLC will acquire a 34% stake in an Ivanhoe Mines subsidiary, Oyu Tolgoi LLC, which holds the Oyu Tolgoi mining licenses.

Ivanhoe Mines will own the remaining 66% interest in Oyu Tolgoi LLC and will develop the project with the financial and technical support of Rio Tinto.

Rio Tinto currently owns 22.4% of Ivanhoe Mines and holds options to increase that stake to 46.6% over the next 19 months.

Production is expected to begin in 2013 and the mine estimated to produce 450,000mt of copper a year, along with significant gold by-products.

Ivanhoe said a joint Ivanhoe Mines-Rio Tinto committee has approved an initial $758m to begin full-scale construction of the Oyu Tolgoi mining complex in the second quarter of 2010.

Ivanhoe has already invested about $1bn in the exploration and development of Oyu Tolgoi since acquiring the exploration licenses in 2000.