Chinalco was yesterday set to walk away from a controversial $19.5bn deal with Rio Tinto after months of talks on what would have been China's biggest foreign investment.

The state-backed aluminium company abandoned the deal in the face of intense anger from investors in the UK and Australia that they had been excluded from a dilutive issue of $7.2bn convertible bonds the London-listed miner had agreed to sell to Chinalco that would have doubled the Chinese group's stake to 18 per cent.

The groups failed to agree terms on the bonds – the terms of which looked increasingly out of kilter as Rio's shares have risen. Rio said in a statement: “Rio Tinto is pursuing a range of options, some of which are at an advanced stage, for maximising shareholder value and improving the group's capital structure.”