NEW YORK (MarketWatch) -- Mining giant Anglo American has sold its remaining 11.3% stake in South African gold miner AngloGold Ashanti to investment funds managed by John Paulson's firm for $1.28 billion.

London-based Anglo American AAUK (AAL)(AGL), one of the world's largest diversified mining groups, said late Tuesday that it has sold the stake to Paulson & Co. for $32 a share in cash, generating proceeds of $1.28 billion.

"The proceeds will be used for general corporate purposes," Anglo American said in a statement. "Consistent with Anglo American's stated intention to dispose of this non-core holding, Anglo American no longer owns any shares in AngloGold Ashanti."

Anglo American's shareholding in AngloGold Ashanti AU, -0.68% (AGD)(ANG) was 16.2% as of Dec. 31 last year. Since then, Anglo American has sold that entire stake for a total of $1.77 billion.

“ "As the world deals with the global economic crisis the value of gold, as the only true 'hard currency,' is coming to the fore as evidenced by the investment choices of some of the world's most seasoned investors." ” — Mark Cutifani, CEO of AngloGold Ashanti

"We believe AngloGold Ashanti is one of the best managed and most undervalued of the major global gold mining companies," Paulson & Co. said in an emailed statement. "We look forward to the implementation of their global expansion strategy."

Hedge fund manager John Paulson, who is president of Paulson & Co., became known for profiting handsomely from bets against subprime mortgages.

Based in Johannesburg, South Africa, AngloGold Ashanti produced 5.5 million ounces of gold in 2007, or an estimated 7% of global production, making it the third largest producer in the world, according to its Web site.

'Only true hard currency'

AngloGold Ashanti Chief Executive Officer Mark Cutifani welcomed Paulson & Co. as one his company's largest shareholders.

"As the world deals with the global economic crisis, the value of gold, as the only true 'hard currency,' is coming to the fore, as evidenced by the investment choices of some of the world's most seasoned investors," Cutifani said in an emailed statement.

Gold is typically seen as a safe-haven investment and demand for it tends to rise at times of financial and economic crisis.

Gold futures rallied 6% to $942 an ounce in electronic trading on Wednesday, as the dollar tumbled after the Federal Reserve surprised investors and said it will buy long-term Treasurys. Gold has surged 10% over the last three months. See Metals Stocks.

"We're extremely pleased that someone with John Paulson's track record and reputation has chosen AngloGold Ashanti as one of his investments through which to increase his exposure to the gold market," Cutifani said. "The Anglo American share overhang, with its depressing effect on our share price, has now gone."

London-listed shares of Anglo American have fallen 63% over the last 12 months, while U.S.-listed shares of AngloGold Ashanti are up 12.4% in the same period.

"While we view the sale as positive, we do not expect a re-rating of the shares [of Anglo American]," said Johan Rode, an analyst at Citigroup, adding that Anglo American's shares are trading at a slight premium to its U.K. peers.

"Whilst we can see longer-term value through project development, the company has less flexibility than its peers to reduce costs and we see no near-term catalysts," Rode said in a research note.

He maintained his "hold" rating on Anglo American and raised his target price to 11.5 British pounds a shares from 11 pounds a share to reflect the impact of the AngloGold deal.