Talks to merge global mining giants Xstrata PLC and Companhia Vale do Rio Doce in a deal estimated to be worth as much as $90-billion (U.S.) have broken off without an agreement.

A merger would have created the world's largest mining company and a nickel powerhouse by combining the two firms' neighbouring nickel operations in Sudbury, Ont.

Both Swiss-based Xstrata and Brazil's Vale issued statements Tuesday saying discussions regarding a possible combination had been terminated.

“While Vale and Xstrata continue to believe that a combination of the two companies could realize significant value for both sets of shareholders, we have not been able to reach agreement. We have therefore mutually decided to cease discussions,” Xstrata chief executive officer Mick Davis said.

Vale confirmed it had offered stock and cash for 100 per cent of Xstrata but “given that an agreement was not reached, discussions between the parties have been discontinued,” the Rio de Janeiro-based iron ore producer said in a statement.

The two sides have been trying to hammer out a deal for months but were unable to come to terms. It is believed that Vale could not secure an agreement with commodities trading firm Glencore International AG, which controls 35 per cent of Xstrata's shares.

Glencore had reportedly been seeking a long-term deal for the marketing rights to Xstrata's metals production which includes copper, nickel, cobalt, zinc and coal.

According to The Wall Street Journal, Glencore wanted rights to the lucrative fees from marketing and advising on the metal sales, excluding iron ore, for a 10-year period. Vale balked at the demand, offering a five-year deal instead.

Earlier Tuesday, Vale's CEO said the potential acquisition of Xstrata was not a priority and that Vale was studying other options.

“It's a difficult operation. It's not simple, and there are issues involving marketing rights that we're discussing. But it's not something that's a priority for Vale,” Roger Agnelli told reporters in Sao Paulo.

He stressed that Vale would continue to diversify regardless of the outcome of the talks with Xstrata.

“Xstrata is not the only opportunity,” he said. “There are others.”

Mr. Agnelli also said he did not think the recent boom in commodity prices had come to an end, adding that strong demand from Asia would likely continue to prop up prices.

“People ask me if the cycle has ended,” he said. “I don't think so. I think it's going to last for a while.”

Xstrata and Vale were the victors in a frenzied battle for control of Canadian nickel miners Inco and Falconbridge in 2006. Vale won Inco with an all cash $19-billion (Canadian) offer, beating out U.S. copper producer Phelps Dodge Corp. as well as Canada's Teck Cominco Ltd.

Xstrata seized control of Falconbridge for $24-billion, scuttling a three-way proposal to combine Inco and Falconbridge with Phelps Dodge.

With the merger talks terminated, Vale's and Xstrata's respective nickel units are expected to resume discussions aimed at combining some of the Sudbury operations. Vale Inco and Xstrata Nickel had put the co-operation agreement negotiations on hold as the parent companies tried to reach a takeover deal.

With a file from Reuters