Turquoise Hill (TSX: T.TRQ, Stock Forum), a company controlled by Rio Tinto Plc (NYSE: RIO, Stock Forum), said Monday that its Oyu Tolgoi LLC operating unit in Mongolia has received an audit report from the Mongolian Tax Authority claiming unpaid taxes, penalties and disallowed entitlements associated with the Oyu Tolgoi mine.
Turquoise Hill owns 66% of Oyu Tolgoi, one of the world’s largest copper-gold-silver mines.
Open pit mining began last year. It is hoped that the mine will eventually produce more than 1.2 billion pounds of copper, 650,000 ounces of gold, and 3 million ounces of silver annually.
But an underground expansion is currently on hold.
Turquoise Hill said in a press release it is of the firm view that Oyu Tolgoi LLC has 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,’’ said Kay Priestly, Turquoise Hill Chief Executive Officer. “It is important that we protect our right of tax stabilization provided by the Investment Agreement."
Turquoise Hill went on to say that it and Rio Tinto are reviewing the detailed tax claim. Any element of that claim that amounts to a breach of the Investment Agreement will trigger a dispute resolution process outlined in the Investment Agreement including possible international arbitration.
Turquoise Hill said completion of the underground feasibility study is likely to be delayed if a resolution to the tax matters is not reached before June 30, 2014.
Turquoise Hill Resources, shares were down 2% to $4 Monday, leaving a market cap of $8 billion, based on 2 billion shares outstanding.