May 1 (Reuters) - The impasse between Rio Tinto and the Mongolian government over a giant copper mine in the country should be resolved by September, with underground mining beginning within two years, a government official told Reuters.
Construction of the underground mine at Oyu Tolgoi, one of the world's largest undeveloped copper deposits, was put on hold last year when the government said financing had to be approved by parliament because it was concerned cost over-runs would delay when the country began receiving its share of profits.
But Mongolia's vice minister for economic development, Chuluunbat Ochirbat, said the government had learnt from its mistakes and progress was now being made.
"We are under arrangements and negotiations with Rio Tinto now to complete the process by September this year," he said on the sidelines of a conference in London. "Underground mining will be put into operation in a year and a half or two years time," he added.
Open-pit mining has already started at the site, but the real step-up in production requires mining to move underground. The stakes are massive with the mine potentially accounting for 20-30 percent of Mongolia's economy.
In a stark change of tone, Ochirbat said disagreements with Rio Tinto had damaged the country's image.
"The ongoing negotiation process with Rio Tinto has really hurt the reputation of Mongolia as a reliable partner for businesses and investors," he said.
The Mongolian government owns 34 percent equity in the copper mine, while Rio Tinto owns 51 percent of Canadian company Turquoise Hill which has the remaining 66 percent stake in Oyu Tolgoi.
"We have made the conclusion that we have made some mistakes in the legislation, we tightened regulations in the mining industry too much and that was the reason why we showed weaker performances (last year)," Ochirbat said, referring to a slowdown in GDP growth for the country in 2013.
He added that the feasibility study for the underground part of the mine was now finished, with financing set to start in September.
"We are not going to blame Rio Tinto for the situation that occurred between the government and Rio Tinto. There are also a lot of things the government has done in the wrong way," Ochirbat said.
(Editing by Pravin Char)