Rio Tinto (ASX: RIO), the second-largest miner in the world, is having problems over rising costs at its Oyu Tolgoi copper mine as well as a planned progressive royalty scheme being introduced.

The cost blowout is estimated at $1.4 billion which would increase the cost of the project's second phase to $5.1 billion, excluding the building of a power station and less production of copper concentrate.

Turquoise Hill Resource, the Rio subsidiary constructing the project, released on Wednesday the data as part of its technical report. In 2010, the project cost was placed at $2.5 billion.

With the soaring cost, Rio would need to source power for the Oyu Tolgoi mine from a third-party Mongolia-based power provider and would have to postpone the boost of its production capacity by 60 per cent.

The planned progressive royalty is included in the country's 2013 budget that was not part of the October 2008 deal between Rio and Mongolia which specified a stabilised 5 per cent royalty rate over the life of the agreement and new laws made after the inking of the agreement would not apply to the Oyu Tolgoi mine. Any change would need the agreement of the two parties under the Investment Agreement, Rio said.

Turquoise Hill also released on Wednesday its full-year earnings and confirmed that the mine development's first phase is on time and on budget at $6.2 billion. Its commercial production is expected to begin by June 2013.

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