AngloGold Ashanti (NYSE, AU) is joining a host of other gold producers this year and last that have seen the logic in reducing legacy hedge books. A large knock against the gold miner has been the company’s hedge positions, which have limited its participation in gold’s price strength over the years. However, management now intends to do something about it and in the process should facilitate an earnings uplift from 2009 onwards.

This week we will be providing Members with a full review of AngloGold. However, due to the imminent close of the company’s rights issue, which is raising funds for the partial closure of the hedge book, we are issuing this mid-week alert.

The company is raising $1.7 billion in order to fund the part removal of the hedge book. As a result, AngloGold will issue 24.6403 shares for every 100 shares currently held, which equates to 69.47 million new shares in total.

Those Members holding shares in the company’s US listing will receive 0.246403 rights for each share held. The rights entitle the holder to purchase new shares at US$27.81 and the offer closes to holders of the US listed ADR’s on 23 June 2008. The issue is renounceable, meaning that shareholders that do not wish to exercise their rights are able to sell them.

Following the capital raising, management will eliminate the hedge contracts that are due to mature during 2009 and 2010.

As such, in our view, management’s strategy of reducing the hedge book should underpin strong earnings growth from 2009 onwards. In turn the company’s recently weak stock price performance should not persist as the earnings uplift comes into view.

Accordingly, AngloGold Ashanti will remain held in the Fat Prophets Portfolio. With the placing pitched at a reasonable discount to current prices we recommend that Members who have a holding take up the rights. Applications close 23 June 2008.