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BHP Billiton Ltd. (BHP.AU) and Rio Tinto Ltd. (RIO.AU) Monday terminated a planned US$116 billion iron ore deal that would have secured them one third of the world's output.

The cancellation was widely expected in recent months. The world's largest steel makers had opposed the deal on the grounds that it would concentrate pricing power even further in the hands of the top three iron ore miners.

"They've been writing the epitaph on this one for some time already," said Andrew Gardner, an analyst at MF Global in Sydney.

BHP and Rio, along with Brazil's Vale S.A. (VALE), account for around two-thirds of the sea-borne trade in iron ore, a crucial commodity for construction-led economies, particularly China.

China imports around 50 million tons of iron ore a month, and the shorter shipping distance from Australia to China make Pilbara iron ore a particularly important source of feedstock for the country's steel makers.

"I am disappointed that ultimately the regulators did not agree with us," Rio Tinto Chief Executive Tom Albanese said in a statement.

The end of the deal shifts attention to what alternatives the miners have to maximise their earnings from their operations in the Pilbara, a remote part of Australia's northwest where ore must be carted for hundreds of kilometres on dedicated trains to reach ports.

An agreement struck with Western Australia's state government in June, allowing Rio Tinto and BHP to share infrastructure and blend their iron ore together, is likely to form the core of any future cooperation between the companies.

"There could be some benefits from that," said Paul Xiradis, Chief Executive of fund manager Ausbil Dexia and a top-10 shareholder in both companies' Australian listings.

Glyn Lawcock, an analyst at UBS in Sydney, said the main benefit of the joint venture--combining Rio Tinto's better infrastructure with BHP's more productive mines--could be extracted from much less formal cooperation.

"You get a good front end from Rio and a good back end from BHP and together you've got a supermodel," Lawcock said. Around US$5.6 billion of an envisaged $11.5 billion synergy benefits could be extracted, he said in a note last month.

The coal miners along Australia's eastern coast mostly share rail and port facilities, a model in stark contrast to the Pilbara where Rio and BHP, alongside fast-growing challenger Fortescue Metals Group Ltd. (FMG.AU), operate four ports and three separate rail lines totalling more than 2,200 kilometres.

Fortescue Chief Executive Andrew Forrest has engaged in long-running legal battles against the larger miners to open up their rail lines to third parties, with limited success.

Gardner said that Fortescue could be one of the major beneficiaries of the collapse of the deal if it provided an impetus for BHP and Rio to share infrastructure.

"It isn't just a Rio and BHP story anymore," he said, adding: "I don't think anything's going to happen quickly."

Significant hurdles would still stand in the way of such an agreement. "It's pretty clear that the regulators, and the steel mills, would be likely to scrutinise closely any arrangement which involves the companies working together in any significant way, so we need to consider very carefully how any future arrangements address those concerns," said a person close to the joint venture, who did not want to be named.

"Sharing infrastructure and entering agreements is always a little bit complicated," said Xiradis. "Look at this joint venture: they couldn't get it approved by the relevant authorities."

Germany's Federal Cartel Office last week informed the two companies that it intended to block the venture, and Rio Tinto said the parties had also been advised the deal "would not be approved in its current form" by E.U., Australian, Korean, and Japanese competition regulators. A "state of play" meeting with E.U. regulators Friday dealt the final blow to the proposal.

BHP Billiton Chief Executive Marius Kloppers said: "It became clear that this transaction is unlikely to obtain the necessary approvals to allow the deal to close and as a result, both parties have reluctantly agreed to terminate the agreement."

BHP's board discussed the matter before agreeing to drop the deal at the weekend, although Rio Tinto's executive directors already had permission from the board to cancel the agreement.

A US$275.5 million break fee payable by any party seen to be not negotiating in good faith or breaking off the deal will not be paid, as both companies agreed mutually to walk away, BHP said.

The joint venture would have entitled each company to sell half of the combined output from their Pilbara mines, with a US$5.8 billion fee paid to Rio Tinto to equalise the stakes. Analysts saw that agreement, inked at a time when Rio Tinto was heavily indebted from the financial crisis and its US$38.1 billion 2007 takeover of Canada's Alcan, as giving Rio Tinto a poor return for its stake.

-By David Fickling, Dow Jones Newswires; +61 2 8272 4689; david.fickling@dowjones.com

(Rachel Pannett in Canberra contributed to this article.)