Shares in Xstrata, the Anglo-Swiss mining group, fell 15 per cent today after it confirmed plans to raise £4.1 billion through a deeply discounted equity issue as it struggles under the weight of falling commodity prices and massive debt.

The company said the move would reduce its debt to about $12.6 billion (£9 billion), although some of the money would fund the proposed $2 billion acquisition of the Prodeco thermal coal business from Glencore, the miner's biggest shareholder.

The announcement from Xstrata comes as it emerged that Rio Tinto, its Anglo-Australian rival, was in talks with Chinalco, the Chinese state-owned metals company, about a possible cash injection and a sale of assets.

Xstrata said that the proposed 2-for-1 rights issue was fully underwritten and would be priced at 210p, a 66 per cent discount to yesterday's close of 623p.

Shares in the miner fell this morning by 94.5p to 528.5p and dragged down the rest of the sector, with Rio, which was forced to admit yesterday that it may launch its own rights issue, losing 5.26 per cent to £15.30.

Anglo American’s stock fell 75p, or 5.28 per cent, to £13.45, Kazakhmys lost 4.35 per cent to 231.5p and BHP Billiton’s shares declined by 65p, or 4.92 per cent, to £12.57.

Xstrata said that as a result of the rights issue it would suspend the final dividend, but resume payments "at the earliest opportunity".

Mick Davis, chief executive of Xstrata, said: "It is clear that, in the aftermath of an unprecedented financial crisis, Xstrata's absolute level of debt is now perceived as a potential constraint on the group, given the uncertainty that exists over the near-term outlook for commodities."

He said the equity issue would mitigate the uncertainty created by the current markets and remove fears that it could be hampered by its debt burden.

The deal with Glencore, which owns a 34.5 per cent stake in Xstrata, helps to address the Swiss commodity trader's own financial position and gives it the money to take up its rights in the issue, which will cost it about £1.4 billion.

However, because the two sides could not reach agreement on the value of the Prodeco coal assets, the deal includes an option for Glencore to buy them back at any point in the first 12 months for $2.25 billion.

Mr Davis said: "The primary objective of the rights issue is to ensure that Xstrata remains financially robust during current challenging market conditions and going forward, given the lack of visibility into near-term economic conditions.

"Looking through the prevailing period of uncertainty to the return of a more benign environment, the proposed capital raising also provides the group with an enhanced platform from which, at the appropriate time, to initiate the next stage of Xstrata's growth."

Mr Davis said that the company would continue to take action to boost its position, and would consider further capital expenditure reductions and the suspension or closure of uneconomic operations.

JPMorgan Cazenove and Deutsche Bank are handling the rights issue while JPMorgan Securities and Deutsche underwriting the deal. Rothschild is advising it on the deal with Glencore.

Separately, Xstrata reported a small decline in 2008 revenues to $28 billion, with underlying earnings down 11 per cent at $9.7 billion amid lower pricing for base metals.

It said that the outlook for 2009 remained uncertain.

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