Russian steelmaker OAO Magnitogorsk Iron and Steel Works (MMK) has withdrawn from a A$554 million or $567 million bid to acquire Australian iron ore developer Flinders Mines after a minority shareholder challenged the plan in a legal complaint. Shares of Flinders Mines immediately took a beating, dropping more than seven per cent in early trade.

As of 1057 AEST, shares in Flinders Mines were one cent lower at 12.5 cents.

In a statement to the Australian Securities Exchange on Tuesday, Flinders Mines said it received MMK's advisory that it was canceling its scheme implementation agreement (SIA), in which the Russian steelmaker will acquire 100 per cent of Flinders Mines' issued shares by June 30. However, the deadline passed without the deal being finalised.

MMK's sudden reversal of its takeover plans, according to Flinders Mines, resulted from a legal action lodged by a minority shareholder named Elena Egorova. Little is known about Ms Egorova except that she holds a small amount of shares in the Russian steel company.

Ms Egorova believed the proposed acquisition creates financial and operational risks, Reuters News reported.

"In all the circumstances, MMK has decided that the company should terminate the SIA," MMK said in a statement released by Flinders Mines to the stock exchange.

A Russian court had issued an injunction obstructing the business deal, until the hearing on Ms Egorova's lawsuit on July 2.

"Although MMK expects that it will ultimately be successful in resisting the claim, the hearing has been adjourned and the injunction relief will, under Russian law, continue for at least another 30 days after the court's decision (even if Ms Egorova's claim is dismissed) to allow her an opportunity to appeal," MMK said in a statement issued in Russia.

"If an appeal is filed within this time, the injunction relief will continue until the appeal has been heard and determined."