Miner Xstrata Plc has given up its pursuit of rival Anglo American, it announced on Thursday, leaving Anglo to push ahead with its own restructuring plan and raising questions about whether Xstrata will revisit former target Lonmin.

Xstrata said it has dropped its merger of equals plan for Anglo that would have created a group with a market value of $96 billion after refusing demands from Anglo shareholders that it pay a premium.

Xstrata said it still believed in the strategic rationale of a merger with Anglo and left the door open to a future bid but was being disciplined.

Analysts said Xstrata, saddled with $13.1 billion of debt, had insufficient financial muscle to offer the premium of up to 30 percent demanded by some Anglo shareholders.

Anglo's shares were down 4.2 percent at 2,215 pence by 1145 GMT (7:45 a.m. EDT), while Xstrata was off 1.6 percent at 1,015 pence, giving each company a market value of about $48 billion.

The hostility with which the Anglo board views Xstrata meant no deal was possible without a material transfer of value from Xstrata to Anglo shareholders, said Michael Rawlinson at Liberum Capital.

The pressure is now on (Anglo's chairman) Sir John Parker to deliver the promised changes at the company.

Parker, who took office in August, convinced several major Anglo shareholders who had been wavering on Xstrata's proposal to give Anglo more time to deliver its promised $2 billion in cost cuts by 2011, a source close to the situation had said.

I think he has changed the dynamics entirely. The institutions know John very well and they understand that he is a man who delivers, the source said.

Anglo also must decide on whether it needs to inject more capital into underperforming units Anglo Platinum and 45-percent owned diamond producer De Beers, analysts said.

NEW LONMIN BID?

UK regulators issued a put up or shut up order last week compelling Xstrata to either make a formal offer by October 20 or walk away for at least six months. Our decision not to proceed with an offer before the deadline imposed by the UK Takeover Panel reflects our disciplined approach to growth and our focus on the value proposition for Xstrata's shareholders in a merger, Chief Executive Mick Davis said in a statement.

We continue to assess a range of alternative growth options, in full recognition that transactions of this nature often take time and patience to mature.

As Xstrata looks at possibilities, it will have to decide whether to return to Lonmin, the world's third biggest platinum producer, after it dropped a $10 billion cash bid last year amid the global downturn.

At this point in time we do not expect Xstrata to chase after Lonmin, in which it holds a 25 percent stake, said analyst Nick Hatch at ING.

Xstrata is likely to wait on Lonmin, since it has an effective blocking stake and also because it cannot buy both Anglo and Lonmin due to anti-trust issues, analysts said.

Meanwhile Xstrata said it will press on with growth projects, saying on Thursday that its board had approved spending $700 million on a South African coal project and a copper expansion in Chile.

DEAD AND BURIED

A combination of Xstrata and Anglo American would have created the world's biggest producer of zinc, platinum, coal for power stations and ferrochrome, and the second-biggest company in coal for steelmaking and in copper.

Xstrata had said a merger would benefit both sets of shareholders with estimated synergies of at least $1 billion.

It also said that bringing together the fourth and fifth biggest diversified mining firms by market value would create a group better able to compete against rivals BHP Billiton and Rio Tinto.

But Anglo said the approach was totally unacceptable on June 22, one day after Xstrata unveiled the plan, and welcomed Xstrata's announcement on Thursday saying it could now move forward without the distraction of a merger battle.

The proposed 50-50 merger never gained any momentum with Anglo shareholders and the idea is now dead and buried, an Anglo spokesman said.

(Editing by Greg Mahlich)

United kingdom Anglo american plc