Anglo said in a statement that a bid above Rio’s $3.5 billion offer, or $4.75 per share, would not present enough value for its shareholders.

Rio is keen to take control of North to benefit from synergies with its own operations, although Rio chairman Robert Wilson conceded that the company would retain only half the perceived synergies it would have received under its original bid of $3.80 per share.

A win for Rio would create the world’s second largest iron ore producer, behind Brazil’s Companhia Vale do Rio Doce and ahead of Austraia’s largest producer, BHP.

Anglo’s withdrawal is likely to disappoint the three major Japanese steelmakers, Mitsui, Nippon Steel Corporation and Sumitomo Metal Industries, who had strongly backed its bid to avoid the creation of a new giant producer capable of driving a harder bargain at the negotiating table.

The Japanese mill owners had threatened to reduce iron ore purchases from Rio, however, some analysts believed that the mining world is too interdependent for them to risk slighting what will become the world’s second largest producer.

North shares slumped to $4.75, the same level as Rio’s offer, following Anglo’s withdrawal. They had run up as high as $4.95 on Friday as the market speculated that Anglo would make a counter-offer.

Takeover talk has already turned to other miners seen as likely targets by Anglo, with MIM, WMC, Pasminco and QCT Resources receiving most of the attention.