WRAPUP 1-Ivanhoe, Rio ink $3 bln mine deal with Mongolia

* After six years of talks, Oyu Tolgoi gets green light

* Breakthrough for Mongolia economy, boost for copper supply

* Rio eyeing future exploration in Oyu Tolgoi region -exec

ULAN BATOR, Oct 6 (Reuters) - Mongolia wrapped up a deal on Tuesday with Rio Tinto (RIO.AX: 行情) and Ivanhoe Mines (IVN.TO: 行情) to develop its $3 billion Oyu Tolgoi mine, ending six years of talks over one of the world's biggest untapped copper and gold deposits.

The deal, made possible after the government repealed a windfall profits tax in late August, will allow work to begin on a project that help diversify the central Asian nation's economy, deliver a profit boon for small Ivanhoe and ultimately increase global copper supply by more than 2 percent.

The next milestone will be finalising a deal for global mining giant Rio to commit to a second tranche of investment, which had been tied to successfully signing the pact with the Mongolian government.

Under their partnership to develop Oyu Tolgoi, Rio has the right to take a 43 percent stake in Ivanhoe Mines. It already owns a 10 percent share in the Canada-listed miner.

"While the size and grade of the existing Oyu Tolgoi ore reserves and mineral resources are already world-class, we are also excited by significant exploration upside that still remains," said Bret Clayton, chief executive of Rio Tinto's copper and diamonds group.

"We plan to be a partner here in Mongolia for decades to come."

The signing ends a six-year struggle for Ivanhoe to access the billions of dollars of copper and gold buried beneath Mongolia's Gobi desert, about 80 km (50 miles) from the border with China.

For a factbox on the history of the project, click on [ID:nSP472570]

The development is expected to produce an average of 450,000 tonnes a year of copper and 330,000 ounces of gold over 35 years, but won't reach full capacity until about 2018.

"It will take us to about 2013 to see first production, and it will ramp up full capacity over the next five years -- I'm talking maybe eight years," Clayton told Reuters in a telephone interview earlier on Tuesday.

The copper will be sold directly to the world's biggest user, China, helping fill its rapidly growing need for raw materials at a time when finding major new mineral deposits is harder than ever, and exploiting them is more costly.

"I'm pretty bullish on copper because there is difficulty bringing new supply online," said Clayton.

"(Mines) are harder to find, we're not finding the big ones as often as we were, they are sometimes in more politically difficult areas in which to develop. As we see a lot of these things lining up around the world, there's going to be a lot of work for supply to keep up with what we see as future demand."

BREAKTHROUGH

After years of negotiations, the development suffered a major setback in 2006 when Mongolia passed a windfall profits law to allow the state to benefit from record copper and gold prices.

But that was removed by amendments passed in late August, cancelling the tax on copper and gold effective Jan. 1, 2011, well before the Oyu Tolgoi project is scheduled to begin.