Vale, the Brazilian mining giant, is understood to be close to pulling the plug on its attempted £43 billion takeover of Xstrata after falls in its share price knocked billions of pounds off the value of the deal.

Vale, the world’s largest producer of iron ore, has been at loggerheads with Glencore, Xstrata’s biggest shareholder, over marketing rights that Glencore would receive in the event that the Brazilian bid for Xstrata is successful. Those talks are still believed to be inconclusive, with neither side budging on the terms. However, a more pressing concern has now arisen in the form of Vale’s share price.

The stock, which is traded on the Brazilian stock exchange, has been hit hard in the past ten days and would now value Xstrata at only about £40 a share.

Vale closed off 3 per cent in Brazil, at 46.5 reais, below the roughly 54 reais it was trading at about the time that it approached Xstrata. With the value of the deal in freefall and no agreement with Glencore in sight, it is understood that the mood in the Vale camp has become “a lot darker”, according to one source, and the “dynamic around the transaction” is believed to be waning.

The sour sentiment was reflected in the shares of mining stocks yesterday, which collectively lost about 4.5 per cent of their value in London. Traders said there were growing fears that a slowing global economy could hit demand for metals, and some investors feared that the fast pace of consolidation in the sector could be starting to ebb. Xstrata slipped 2.6 per cent to close at £38.60.

A tie-up between Vale and Xstrata would create the world’s biggest mining group, with particular strengths in iron ore, nickel, alloys and coal. However, one source familiar with Vale’s thinking said: “There’s a feeling that the window for a deal might have been and gone.”

Mick Davis, the chief executive of Xstrata, said last week that discussions with Vale were continuing, but he suggested that a full-blown offer may not be forthcoming.

The sticking point has revolved around demands by Glencore, which owns 34.6 per cent of Xstrata, for a ten-year exclusive marketing contract for the combined group’s mining output. Vale is understood to be offering a five-year contract.

A source close to Glencore said last night that there was no change in the group’s stance.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive