Disputes with Oyu Tolgoi's lead developer, Rio Tinto (>> Rio Tinto Limited), have prevented the construction of an underground mine that Rio says will unlock 80 percent of the copper wealth.

The Multilateral Investment Guarantee Agency Mongolia (MIGA) said on Monday Mongolia had extended its cooperation with it from April 18.

MIGA provides insurance from political risk to investors such as those who would finance the underground mine at Oyu Tolgoi.

"It's our understanding that signing the current MIGA agreement is an essential precondition to project financing," said Nick Cousyn, chief operating officer at the Ulan Bator-based brokerage BDSec, in an email.

Rio chief Sam Walsh, while in Mongolia in March, said Rio would have to return to investors to negotiate a financing deal for the underground mine. Oyu Tolgoi last year missed a deadline to resolve disputes with the government for $4 billion in project financing package from banks.

Rio owns 66 percent of the mine indirectly through its Turquoise Hill Resources unit. The remaining 34 percent belongs to the government.

Mongolia's prime minister, Chimed Saikhanbileg, came to office in November hopeful of reversing the Mongolian economy's downward trend. The expansion of mining projects such as Oyu Tolgoi and the Tavan Tolgoi coal mine is central to his plan.

The International Monetary Foundation has projected 4.4 percent growth for Mongolia this year, without more foreign investment. That compares with 7.8 percent in 2014 and peak growth of 17.3 percent in 2011.

"This is another major issue solved by PM Saikhanbileg's administration, which dates back to when underground construction was halted in July 2013," Cousyn said.

MIGA's announcement came the same day that government-appointed Oyu Tolgoi board member Ganzorig Temuulen unexpectedly announced his resignation.

He was appointed deputy minister of mining in the new government in December. Analysts and officials cited Temuulen as telling Mongolian media that he had criticised the progress the government made in its relations with Rio because it would not lead to a deal beneficial enough to Mongolia and violated Mongolian laws.Dale Choi, the head of Independent Mongolian Metals & Mining Research, said Temuulen's resignation could lead to "a united credible position of the Mongolian negotiations side".

(Editing by Alison Williams)

By Terrence Edwards

Stocks treated in this article : Rio Tinto Limited, Rio Tinto plc