Turquoise Hill shares soar after Mongolian government cuts tax claim

The Oyu Tolgoi complex in Mongolia includes a copper concentrator and other facilities at the Turquoise Hill mine  

Shares in Vancouver’s Turquoise Hill Resources (TSE:TRQ) gained sharply for a second day in a row after unconfirmed reports that Mongolian authorities have slashed the amount of tax claimed in a dispute over the Rio Tinto-subsidiary's Oyu Tolgoi mine.

Bloomberg reports the National Tax Dispute Settlement Council has reduced the tax claim on the $6 billion project to about $30 million from around $130 million.

The cuts haven't been made public and Mongolia is waiting for a formal response from Rio Tinto (LON:RIO), according to sources.

Turquoise Hill suspended work on the $5.1 billion underground expansion of Oyu Tolgoi, where 80% of the resources are located, in November. And in June work on a feasibility study for the underground phase were suspended after Mongolia’s tax authority accused the mining company of evading taxes and penalty payments related to Oyu Tolgoi.

The $6 billion underground expansion faces another crucial deadline at the end of this month.

Rio Tinto at the time said that any breach of its investment agreement with Mongolia could trigger international arbitration.

The massive copper-gold-silver mine is 66% owned by Turquoise Hill with the government of the Asian nation holding the rest.

Shareholders who have marked down the share price nearly 20% over the past year jumped back in this week, sending the counter 22% higher since Monday (September 8). By early afternoon on Friday (September 12) Turquoise Hill was trading up 4.3% at $4.37, affording the company an $8.8 billion market value on the TSX.

The underground expansion faces another crucial deadline at the end of this month. Financing arrangements with the Mongolian government including a World Bank-led $4.5 billion debt package – the largest in the history of mining – have been placed on ice.

Funding commitments needed to build the underground mine are set to expire Sept. 30.

For 2014, Oyu Tolgoi is targeting production of 150,000 to 175,000 tonnes of copper in concentrates and 700,000 to 750,000 ounces of gold in concentrates.

But after phase 2 the mine in the southern Gobi desert could produce more than 1.2 billion pounds of copper, 650,000 ounces of gold and 3 million ounces of silver each year. Oyu Tolgoi would then account for 30% of the economy of the nation of just over 3 million people.