Chinalco may walk away from its planned $19.5 billion deal with Rio Tinto following weeks of wandering over the terms of the transaction.
The terms of the convertible were pitched at a significant premium to Rio's share price in February when the deal has announced. That premium has now shrunk.
The Financial Times said Rio was now looking at alternatives including a $12 billion rights issue and creating a joint venture with rival BHP Billiton.
Rio Tinto is pursuing a range of options, some of which are at an advanced stage, for maximizing shareholder value and improving the group's capital structure, Rio said in a brief statement.
Under the deal agreed in February, Chinalco would pay $12.3 billion for stakes in debt-saddled Rio's key iron ore, copper and aluminum assets and $7.2 billion for convertible notes that would double its equity stake in Rio to 18 percent.
Rio still needs to pay off half its $38 billion in debt and had hoped to complete the deal by early in the third quarter.
The deal ran into opposition from Rio shareholders, who complained it favors Chinalco over other shareholders, and from some who are worried that China, Rio's biggest customer, will gain influence over pricing of key commodities like iron ore.
Two sources close to the deal told Reuters earlier on Thursday that Chinalco had been planning to revise the deal before a June 14 deadline to avoid further delays in Australian government approval.
I think they'll (Chinalco) come out and make an announcement before the deadline, an investment banker with direct knowledge of the deal told Reuters.
Australia's Foreign Investment Review Board (FIRB) was due to give its recommendation on the deal to Treasurer Wayne Swan by June 14. Swan has the final say on whether it will go ahead.
Shares in Rio closed 192p or 6.6 per cent lower at £27.20 in London trading, while BHP fell 2.5 per cent to £14.56.