A $10 billion (£5 billion) takeover in the mining sector today fell victim to the growing economic turmoil today as Xstrata scrapped plans to bid for its rival, Lonmin.

Xstrata, the world's fifth biggest diversified mining group, said it had been impossible to find a suitable financing package in the current economic climate.

Lonmin's shares plunged nearly 27 per cent to £16.68 — less than half the £33 bid price set by Xstrata.

Mick Davis, Xstrata's chief executive, said that, while banks were willing to lend money, it was only on the condition that much of the debt was refinanced in 12 months’ time.

Given the “unprecendented uncertainty” in financial markets, the company had decided it could not proceed.

Mr Davis said: “The current lack of clarity and certainty regarding the future availability of credit introduces significant risks into the financing package available."

Xstrata had been told by the Takeover Panel to make a bid for Lonmin by 5pm tomorrow or walk away.

The collapse of one of the most daring bids in recent months comes as executives across industry voice fears that the credit crunch has made it impossible to value anything, from a house to a business.

Xstrata launched a £33-per-share bid for Lonmin on August in a dawn raid in which it built a near 11 per cent stake in the company, which produces platinum in South Africa.

Lonmin rejected the offer and said it was an opportunistic move that undervalued the group and its assets.

It is believed that Xstrata had approached 22 banks to make commitments for a $15 billion loan to fund the Lonmin takeover and refinance existing debt.

Mr Davis insisted that, despite failing to land Lonmin, Xstrata’s strategy of growing organically and through acquisition was intact and “as relevant as ever”.

He added: “While the current instability of the financial markets has created an environment of great uncertainty, it does not change the fundamental robust nature of Xstrata’s cash-generative portfolio and profitability.”

Xstrata's shares surged nearly 9 per cent after the statement, up 138p at £17.16.

David Butler, analyst at Cazenove, said: "This is certainly the outcome that the majority of shareholders will have wanted in the short term.

"Xstrata had become a natural target for short-sellers in the market, resulting in a 46 per cent fall since it made the offer on August 6, underperforming its peer group by between 14% and 29%.

"The underperformance is even more extreme when one considers that the company's first-half earnings were ahead of expectations based on strong coal pricing conditions."

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts