Weak stock markets have boosted gold prices

The deal would consolidate AngloGold's position as South Africa's biggest gold producer, and propel it up the global rankings.

AngloGold is proposing to swap 26 of its own shares for every 100 Ashanti shares, valuing the Ghanaian company at about $900m (�550m; 783m euros).

However, AngloGold said it could not guarantee that the talks would result in an agreement.

One potential obstacle is the Ghanaian government, which owns a 20% stake in Ashanti, and could block the deal.

Ashanti said the takeover talks would reach a conclusion in a few weeks.

Fresh supplies

Analysts welcomed the takeover plan, saying the deal would give AngloGold access to much-needed new gold reserves.

"I think there's a reasonable rationale for it," said Graham Birch, manager of the Merrill Lynch World Mining Trust.

"It 's clear that the depletion rate of the industry is probably running ahead of the discovery rate."

Shares in AngloGold slipped lower on the Johannesburg stock exchange, falling 2.7% to 236.5 rand.

Hedge error

AngloGold - majority-owned by mineral resources giant Anglo American - is thought to have been on the lookout for potential acquisitions for some time. The company launched an unsuccessful bid for Australia's Normandy Mining last year.

Four years ago, Ashanti narrowly avoided going bust after it misjudged a series of derivatives deals designed to protect it against gold price fluctuations, incurring heavy losses.

But its finances are now back on track, helped by a strong rally in the price of gold over the past two years as investors sought safe havens from tumbling stock markets.