Rio Tinto and its subsidiary Turquoise Hill Resources (TRQ) have reached an agreement with the Mongolian government to move ahead with the $6.93bn Oyu Tolgoi underground project.

The agreement ends a long-running dispute between the parties over the project.

With the agreement in place, the board of Oyu Tolgoi, which is made up of representatives of Rio Tinto, TRQ, and the state-owned Erdenes Oyu Tolgoi (EOT), has unanimously approved the start of underground operations at the Mongolian copper-gold mine.

Turquoise Hill Resources holds a stake of 66% in the Oyu Tolgoi copper-gold mine located in the South Gobi region. The remaining stake of 34% in the mine is held by Erdenes Oyu Tolgoi.

Rio Tinto owns a stake of nearly 50.8% in Turquoise Hill Resources.

Rio Tinto chief executive Jakob Stausholm said: “We would like to thank the Government of Mongolia for their commitment to working productively with Rio Tinto and TRQ to reach this crucial agreement, that will see one of the world’s largest copper growth projects move forward and firmly establish Mongolia as a global investment destination.

“This agreement represents a reset of our relationship and resolves historical issues between the OT project partners.”

Caving operations at the underground project are expected to begin in the coming days, said Turquoise Hill Resources. The company stated that the underground mine will reach sustainable production in the first half of next year.

Additionally, the company and Rio Tinto have agreed to an amended funding arrangement that offers a pathway forward to address the estimated funding needs of the project.

As part of the agreements with the government, Turquoise Hill Resources will fully waive the $2.4bn carry account loan of Erdenes Oyu Tolgoi.

The loan comprises an equity of $1.4bn invested in Oyu Tolgoi by Turquoise Hill Resources on behalf of the state-owned company to construct the underground project to date along with the accrued interest of $1bn.

Mongolian Prime Minister Luvsannamsrain Oyun-Erdene said: “The commencement of Oyu Tolgoi underground mining operations demonstrates to the world that Mongolia can work together with investors in a sustainable manner and become a trusted partner.

“As part of our “New Recovery Policy”, I am happy to express Mongolia’s readiness to work actively and mutually beneficially with global investors and partners.”

Overall, the Oyu Tolgoi copper mine is estimated to yield nearly 500,000 tonnes of copper per annum on average from 2028 to 2036 from both open pit and underground operations.