Brazilian mining group Vale on Tuesday night said its efforts to take over London-listed Xstrata had failed after three months of talks, news that could prompt both groups to look for alternative deals.

Xstrata shares closed more than five per cent lower at £35. 22 on Wednesday after the London-listed mining group said talks had been “terminated by mutual agreement”.

The collapse of talks comes weeks after Xstrata rejected an informal offer valuing the company’s equity at between £41.55bn and £44.36bn ($82.5bn-$88bn), depending on the level of Vale‘s share price.

Xstrata said the indicative offer was not high enough for it to put to its board, and the deal ran into further problems on the question of marketing rights. Much of Xstrata’s current output is marketed by Swiss commodities trader Glencore, Xstrata’s biggest shareholder. Glencore said it would only support Vale’s bid for Xstrata if it could extend its marketing rights to cover some of Vale’s output.

It is understood that Xstrata was demanding a higher offer based on the strong outlook for copper and coal markets, two of its main products.

Mick Davis, Xstrata chief executive, said: “While Vale and Xstrata continue to believe that a combination of the two companies could realise significant value for both sets of shareholders, we have not been able to reach agreement.”

Vale said it had put forward “an indicative proposal to Xstrata that included cash and shares … which it believes would have created significant value for both sets of shareholders“, but that “an agreement was not reached“.

Earlier this month Glencore chief executive Ivan Glasenberg met Vale chief executive Roger Agnelli in Rio and it is understood that the two sides made progress on the issue of marketing rights. But people close to the situation said it soon became clear that Vale would not be able to increase its bid to a level acceptable to Xstrata, particularly given the turmoil in the credit markets. The volatility in the stock markets had hit Vale’s share price and the group would have had to come up with more cash to fund its bid for Xstrata, something that may not have been possible in the current market conditions.

People close to the talks said that both sides thought a combination of Xstrata and Vale would make sense. Vale on Tuesday reserved the right to return with a bid for Xstrata at a later date, but people close to the company said this was unlikely.

Vale and Xstrata will both be on the lookout for alternative deals, although Vale has stressed in recent weeks that its top priority will be organic growth. The Brazilian group has earmarked $59bn for investment in new mines over the next four years.

Xstrata, which has grown rapidly through acquisition over the past five years, has already been looking at other options. The group has in the past expressed an interest in merging with Anglo American, but the London-listed mining group has so far been unwilling to talk to Xstrata.