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Turquoise Hill Resources, the Rio Tinto-controlled operator and developer of Mongolia's flagship copper and gold mine Oyu Tolgoi, has outlined four major conditions to be met by local authorities for further developments in the mine's planned underground expansion to commence, the company said in its quarterly report released on November 11.

The company called for a "successful resolution" of the pending tax dispute with the country's General Taxation Authority; an agreement on a comprehensive funding plan, including project finance; approval of the Oyu Tolgoi's underground feasibility study by all shareholders and acceptance by the Mongolian Minerals Council; issuance of all the necessary permits for the mine's development.

Oyu Tolgoi is by far the largest ongoing development in Mongolia and it is generally perceived as a barometer for Mongolia's business climate. Turquoise Hill, in which the British-Australian mining powerhouse Rio Tinto holds a 50.8% stake, owns 66% in Oyu Tolgoi, the remainder being in the hands of the Mongolian government. The company invested as much as $6.2bn to start the mine's open pit in July 2013, but a $4.9bn underground expansion has been delayed for more than 18 months as the company and government have yet to come to an agreement over the above mentioned issues.

The Mongolian Tax Authority launched a tax review into Turquoise Hill's Oyu Tolgoi operations earlier this year. That brought to light unpaid taxes, penalties and disallowed entitlements worth some $127mn. The amount, notified to the company in June 2014, was reduced to $30mn in September 2014. "There are aspects of the ruling that require 'further clarification'," the company said in the report, adding that it is appealing against the tax authority's ruling to a local administrative court.

"It is important that the tax situation is clear to support further investment," CEO Kay Priestly said during a conference call after the quarterly results were published.

With regard to the project's funding plan, a pool of international financial institutions and commercial banks has already committed to providing financing for the project, although the offer officially expired on September 30. "The lending group continues to be supportive of Oyu Tolgoi's project finance and current indications are that a suitable project finance package would be available upon resolution of the shareholders matters; however this is not guaranteed," the company report reads.

The negotiations risk new delays as the country headed for a political crisis following the resignation of Prime Minister Norov Altankhuyag on November 5 amid concerns over the country's weakening economy and mounting opposition from within his Democratic Party (DP). Parliament has 30 days to find a replacement, who will be in charge of forming a new government.

“Last week’s resignation of the Mongolian prime minister, an announcement that a new cabinet would be formed, will likely impact the timing of those discussions,” CEO Priestly said.

“We are not in a position to make any predictions or comment on the political environment. We are monitoring the situation and we have to wait and see how the political process unfolds. We stand ready and are willing to work with the new leadership when in place and continue our engagement.”

Turquoise Hill announced the retirement of CEO Kay Priestly and chairman David Klingner on November 6. Long-time Rio Tinto executive Jeff Tygesen will take over the role from January 1, 2015.

The company posted a net loss of $36.8mn in Q3, up from a loss of $94mn in the same period of 2013, when Oyu Tolgoi's started operations. Production of copper concentrate reached 36,600 tonnes against 36,200 tonnes in the previous quarter; gold production decreased to 216,000 ounces from 229,000 ounces in Q2. Silver output grew to 220,300 ounces from 202,500 ounces in the previous quarter.

As a result of “the delayed mine advancement” in the third quarter of 2014, Turquoise Hill expects Oyu Tolgoi to produce between 550,000 and 600,000 ounces of gold in concentrates for full 2014, the company said in a statement on October 14. In August the company forecast the 2014 gold production to reach between 600,000 and 700,000 ounces.

Copper concentrate production is also expected to be weaker, with the total 2014 output now expected at between 135,000 and 150,000 tonnes against the previous estimates of 135,00-160,000 tonnes.

Turquoise Hill stocks climbed up 3.06% on the Toronto Stock Exchange on the announcement of the quarterly results.