OZ Minerals has approved the development of an underground mine at Prominent Hill in South Australia to complement its existing open pit mine operations.

The decision was made as a result of the Australian Government excluding copper producers from its mineral resource rent tax, according to the Sydney Morning Herald.

The development will begin in October with first ore to be mined in the last quarter of 2011 and full production scheduled for the second half of 2012.

The mine is expected to produce an average of 25,000t of copper and 12,000oz of gold a year.

OZ Minerals chief executive Terry Burgess said the project is a high-grade resource that will increase production from Prominent Hill.