Mining giant Rio Tinto has been given the green light to expand the mammoth Oyu Tolgoi copper and gold mine in Mongolia, after a years-long saga.

The pair had been at loggerheads over taxation and design issues since 2012, but this week reached an agreement which will allow Rio Tinto to expand the facility and unlock vast quantities of underground metals.

Rio Tinto’s head of copper Jean Sebastian Jacques says the agreement is close to the original investment contract agreed with the Mongolian government some six years ago, adding: “Our joint announcement today reflects tremendous leadership by all parties and paves the way for work to resume on the underground development which is expected to deliver significant value to shareholders.”

It marks a significant victory for the miner, which is hedging its fortunes on copper, after other extractive sectors have floundered significantly this year.

“The importance of Oyu Tolgoi to Mongolia’s future cannot be overstated. This agreement with Rio Tinto after over two years of negotiation will give much-needed assurance to foreign investors and will also be transformative for Mongolia’s economy. The focus will now be on finalising the project finance for the second phase of the mine and securing the necessary permits for development. Of course this cannot happen overnight, but today’s announcement may well be enough for investors who have been waiting on the sidelines,” says Marius Toime, Singapore-based partner at law firm Berwin Leighton Paisner.

Rio Tinto owns 50% of the Canadian company Turquoise Hill, which in turn owns 66% of Oyu Tolgoi. The US$6bn project has been on hold after a series of legal disputes, despite sealing significant portions of the required debt finance in 2013.

Much of the debt raised is now thought to have expired, with Rio Tinto set to revisit markets in the coming months in an attempt to replace it.

GTR reported at the time that US Exim had lent US$500mn to the project, following a number of other ECAs and development banks into the deal.

The EBRD pledged €400mn from its own account in September 2012. The Australian ECA, Export Finance and Insurance Corporation (EFIC), Canada’s Export Development Canada (EDC) as well as the German and Dutch development banks KfW-Ipex and FMO also signed up.

It’s understood that commercial banks agreed pricing and terms in April 2013. The mandated lead arrangers (MLAs) were BNP Paribas and Standard Chartered, who were both set to lend US$250mn each. Contributing US$200mn each will be Crédit Agricole, HSBC, ING, ANZ, Natixis, Société Générale and Sumitomo Mitsui Banking Corporation (SMBC).

This historical resolution to launch underground mining at Oyu Tolgoi will open possibilities for the world’s biggest 14 banks to invest $US4.2bn in Mongolia, Prime Minister Chimediin Saikhanbileg

A Rio Tinto spokesperson tells GTR that the company has not yet made a decision on how the financing will be replaced, however a recent statement from the Mongolian Prime Minister Chimediin Saikhanbileg implied that a similar roster of financiers may be involved.

“This historical resolution to launch underground mining at Oyu Tolgoi will open possibilities for the world’s biggest 14 banks to invest $US4.2bn in Mongolia,” he said.

Analysts are looking to copper to outpace other base metals markets, with the latest signs from China being that the government’s latest efforts to avoid a hard landing will lead to an increase in demand for copper over the coming years.

“Authorities are expected to bring forward spending on infrastructure and other government-led investment, notably in social housing. Indeed, there were already signs of a tentative pick-up in fixed asset investment in March. We also think that the desire to prevent job losses will mean that there will be less immediate pressure on large companies in sectors with overcapacity, such as steel and aluminium, to restructure and consolidate.

“In our view, this all bodes well for some recovery in copper demand, notwithstanding the fact that the property sector continues to suffer from oversupply,” writes Caroline Bain of Capital Economics, in a note.

The urbanisation of China’s population continues apace, with up to 20 million people each year moving from rural locations to cities. With this, comes demand for basic infrastructure, such as electricity supplies, which requires large amounts of copper to construct.

One senior commodities executive told GTR this week: “Of the base metals, copper is the most active market. Aluminium and zinc are having a much more difficult time than copper. Copper has a more fundamental application: there’s demand for it in a country that’s still raising its middle class. There is a need for more consumer stuff. Where there is electricity, there is copper. So there is a more fundamental requirement for copper.”