Russia and Mongolia on Tuesday agreed to form a joint venture to exploit the Dornod uranium deposit in the resource-rich former Soviet satellite, at the start of a visit by President Dmitry Medvedev.

Medvedev's two-day trip comes just three months after Russian Prime Minister Vladimir Putin visited this poor, landlocked country, which has vast copper, coal and gold deposits, as Moscow seeks to revive its influence.

The agreement between Russia's state-owned nuclear energy giant Rosatom and Mongolia's Mon-Atom was signed in the presence of Medvedev and his Mongolian counterpart Tsakhiagiin Elbegdorj, after the pair held talks.

Medvedev called the deal an example of "new projects that are effective for our countries" while Elbegdorj, elected earlier this year, said the Russian leader's visit would "ensure development of our ties at the strategic level".

Rosatom chief Sergei Kiriyenko said the deal marked the first time Mongolia had agreed to create a joint venture with a foreign company to mine and process uranium.

"Russia will be the first. It's an important political signal," Kiriyenko told reporters.

Under the agreement, Mon-Atom will join forces with Rosatom unit Atomredmetzoloto to create a 50-50 joint venture that should be launched by year's end, he said.

The deal so far only covers the Dornod deposit, but could cover another area in the future, Kiriyenko said, adding Russia would invest "hundreds of millions" of dollars in the new venture.

The deal comes at a sensitive time for foreign investors as Mongolia is seeking to assert greater control over its mineral resources.

Russian companies are seeking better access to the vast Tavan Tolgoi coal field and the Oyu Tolgoi copper and gold deposit near Mongolia's border with China.

Medvedev indicated the talks on the uranium deal were not easy, but he and Elbegdorj toasted each other with champagne after the signing.

On Wednesday, the pair will preside over the main day of celebrations marking the 70th anniversary of a battle in which Soviet forces defeated Japanese troops on the eve of World War II.

"Tomorrow we will honour the courage, memory and perseverance of our soldiers," said Medvedev, who is to bestow medals on Mongolian veterans.

According to official estimates, more than 18,500 Soviet and Mongolian soldiers died in a massive tank battle with the Japanese near the Khalkhyn Gol river in 1939. Japan lost about 60,000 soldiers.

In honour of Medvedev, Mongolia will also stage a festival of horse racing, wrestling and archery in the steppe outside the capital Ulan Bator.

Observers said the twin visits by Putin and Medvedev highlighted the depth of Russia's interest in Mongolia's mineral reserves and other economic opportunities in the country, one of Asia's poorest.

"Apparently someone in Russia has realised that if we are not present in Mongolia, that place will be swiftly taken by the Japanese, Chinese or Americans," said Rustam Sabirov, a Mongolia expert at Moscow State University's Institute of Asian and African Studies.

During Putin's visit in May, the two sides reached deals on improving the efficiency of Mongolia's creaking rail network and cooperating on coal and copper prospecting, officials said.

Russian Railways chief Vladimir Yakunin estimated those joint projects to be worth seven billion dollars.