Australia's Sundance Resources said its suitor Hanlong would fail to meet a deadline on Tuesday to supply credit approval for its long-delayed $1.4 billion takeover offer and would decide after April 3 whether to scrap the deal.
The decision to enter five days of talks on whether to salvage the deal came after Hanlong Mining Chairman Liu Han was reported by Chinese media to be under police investigation for harboring his younger brother, a murder suspect.
"If the parties fail to reach agreement during that period, either party may then terminate the SIA (scheme implementation agreement)," Sundance said on Tuesday.
Liu's detention was the latest setback in a deal first announced in October 2011, after Hanlong had acquired a 14 percent stake in Sundance targeting the company for its $4.7 billion Mbalam iron ore project in Africa.
(Read More: Aussie Mining Loses Its Lure for China Investors)
Sundance had remained committed to the deal even after some Hanlong executives in Australia were charged with insider trading, Chinese authorities held up approvals and Hanlong cut its offer by more than a fifth.
Investors have been betting the deal would not go ahead due to the Chinese government's reluctance to back Hanlong. Sundance's shares last traded at 21 cents, less than half the value of Hanlong's 45 cents a share offer.
The stock has been suspended from trading since last week, with Sundance expecting to lift the suspension by April 8.