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ANGLOGOLD LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 ? (Continued)
(In millions, except share information)

16. Provision for post retirement medical benefits

    The businesses acquired during the year provide post-retirement health care benefits for their employees. The costs of post retirement benefits are made up of those obligations which the group has towards current and retired employees.

The post-retirement health care liability in respect of existing employees is recognised as an expense systematically over the expected remaining service period of those employees, using the expected unit credit method. Changes in the liability in respect of retired employee is recognised immediately as an expense as and when incurred. The Company has recorded a liability of
R746 million, as at December 31, 1998 and has not incurred material expenses related to the plan during 1998.

Vulnerability from concentrations

    The majority of AngloGold's 93 316 employees (1997: 32 665, 1996: 35 664) are subject to collective bargaining agreements. These agreements are established in negotiations between the Chamber of Mines, the body which represents the gold mine industry in South Africa, and representative groups of labor. The agreements set in July 1997, have two or three year validity periods. In prior years the agreements were effective for a year.

Guarantees

    With the sale of Shafts 1, 3, 4, 5, 6 and 7, excluding all major equipment and winders, to ARM, AngloGold have guaranteed ARM's hedging book with Standard Bank of South Africa Limited. AngloGold perform all the functions of managing ARM's hedging book. At December 31, 1998, the exposure on the ARM hedge book stood at R25 million.

18. Stockholders' equity

    The authorized common stock of AngloGold was increased in 1998 to 200,000,000 common stock of 50 cents each principally to meet the company's obligations regarding the proposed merger of gold interests through AngloGold.

    During 1998, 78,204,908 common stock in AngloGold was issued for a consideration of
R16,552 million, net of share issue expenses, to finance the formation of the enlarged AngloGold as set out in Note 2 ? 1998 Merger of gold interests. In addition 13,800 common stock was issued for a consideration of R3 million under the Share Incentive Scheme (refer Note 23).

    The unissued common stock of 50 cents each are under the control of the directors until the forthcoming annual general meeting. In terms of a specific authority granted at the general meeting of stockholders held on March 29, 1993, the directors are authorized to issue the 4,221,104 unissued B redeemable preferred stock of 1 cent each to Eastvaal Gold Holdings Limited.

    In 1998 the A and B redeemable preferred stock was acquired as part of the acquisition of Eastvaal Gold Holdings Limited. However, in 1997 this stock was outstanding and the following was applicable.

    The A and B redeemable preferred stock, all of which are held by Eastvaal Gold Holdings Limited and which may not be transferred, are redeemable from the sale of the assets relating to the Moab Lease area after cessation of mining operations in the area. The preferred stockholders are entitled to receive dividends equivalent to the after tax profits from mining operations in the Moab Lease area as determined by the directors in each year, but confer no rights to any dividend payments from any other profits of AngloGold.

    The A preferred stock entitles the holder thereof to the right to receive notice of, and to attend any meeting of AngloGold and the right to one vote for each A preferred stock held.

    The B preferred stock entitles the holder thereof to the right to receive notice of, and to attend any meeting of AngloGold provided that the holder of a B preferred stock shall not be entitled to vote at such meeting, except:

• during any period commencing six months after the due date for payment of any B preferred stock dividend which has been declared and during which such B preferred stock or any part of such B preferred stock remains in arrears and unpaid; or

• in regard to any resolution passed which directly affects any of the rights attached to the
B preferred stock or the interests of the holders of the B preferred stock, including a resolution for the winding up of AngloGold or for the reduction of its capital; or

• in regard to any resolution of AngloGold proposed for the disposal of the whole or substantially the whole of the operations of AngloGold or the whole or the greater part of the assets of AngloGold, or the whole or the greater part of the assets relating to the operations in the Moab Lease area.

    The B preferred stock shall only be redeemable from any net proceeds remaining after the disposal of assets following the termination of mining activities in the Moab Lease area. In the event of any surplus after the redemption in full of the B preferred stock, the A preferred stock will be redeemable at the value that would cover the outstanding surplus.

19. Gold price risk management activities

    The Group does not acquire, hold or issue derivative instruments for trading purposes. A number of products, including derivative instruments are used to manage gold price and foreign exchange risks, that arise out of the Group's core business activities. Fixed and spot-deferred forward sales contracts and call and put options are used by the Company to protect itself from downward fluctuations in the gold price. These instruments establish a minimum price for future production while maintaining the ability to participate in increases in the gold price. The executive management committee set limits for the volume of production to be hedged, the nature of instruments utilized and the maximum tenor of hedging structures.

    Derivatives are accounted for as hedging transactions provided the following criteria are met:

    (i.) the underlying item being hedged exposes the Group to price risk;

    (ii.) the derivative is highly correlated to the underlying item hedged, and reduces the price
    exposure associated with the underlying transaction; and

    (iii.) the derivative contract is designated as a hedge

    Gains or losses arising from transactions accounted for as a hedge are recognized in revenue when the planned production is delivered. If the instrument is sold, extinguished or terminated prior to the delivery of the planned production, gains or losses are deferred until the original designated date.

    Derivatives which do not meet the hedge criteria outlined above at inception or cease to meet the hedge criteria at any later date, are accounted for on a mark to market basis and the associated gains or losses recognized as revenue in the current period. Unrealized market profits on financial instruments of R120 million (1997: R8 million) were included in the current year income statement.

    Typically forward sale contracts and purchased put options meet the required criteria and are accounted for as hedging transactions. Forward sale contracts and purchased put options which do not meet hedge criteria are accounted for on a mark to market basis. All other instruments are accounted for on a mark to market basis.

    Gold hedging instruments are denominated in both South African Rands and U.S. dollars. The primary hedging instruments utilized are fixed forward, spot-deferred forward sales contracts and purchased put options. Purchased and sold call options and sold put options are also used in the hedge price risk management. Where these instruments do not meet hedge accounting criteria, they are marked to market and recognised in the current period. The mix of hedging instruments, the volume of production hedged and the tenor of the hedging book is continuously reviewed in the light of changes in operational forecasts, market conditions and the Group's hedging policy. The Group's reserve and financial strength has allowed it to arrange credit lines of up to ten years with counterparties.

The following table indicates the Company's gold hedge position at December 31, 1998:

    Forward sales contracts require the future delivery of gold at a specified price. A number of these contracts are spot-deferred and are intended by the Company for delivery against production in a future period. The notional amount of outstanding forward sales type contracts at the end of the year was 276,736kg (1997: 46,324kg).

    A put option gives the put buyer the right, but not the obligation, to sell gold to the put seller at a predetermined price on a predetermined date. A call option gives the call buyer the right, but not the obligation, to buy gold from the call seller at a predetermined price on a predetermined date. The Group's risk as outlined above in purchasing compound options is limited to the premium paid. Net cash receipts received under the option hedging strategies for the year were R220 million (1997: R27 million). The notional value of option contracts outstanding at the end of the year was 196,036kg (1997: 68,163kg).

Foreign exchange price risk protection agreements

    The Group periodically enters into forward exchange and currency option contracts to hedge certain recorded transactions, firm commitments and other anticipated transactions denominated in foreign currencies. The objective of the Group's foreign hedging activities is to protect the Group from the risk that the eventual cash flows resulting from transactions denominated in U.S. dollars will be adversely affected by changes in exchange rate between the U.S. dollar and the Group's functional currency, the South African Rand.

    The following table indicates the Group's currency hedge position at December 31, 1998.

Credit risk

    Realization of all these contracts is dependant upon the counterparties performing in accordance with the terms of the contracts. The Group does not anticipate non-performance by any counterparties. The Group generally does not obtain collateral or other security to support financial instruments subject to credit risk, but monitors the credit standing of counterparties. The Group believes that no concentration of credit risk exists.

Fair value

    The estimated fair values of financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair values of the Company's financial instruments, as measured at December 31, 1998 and 1997, are as follows:

    The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

    Cash and cash equivalents

The carrying amounts approximate fair value because of the short maturity of these instruments.

    Long-term debt

    In the current year, long-term debt re-prices on a short-term market related floating rate basis. Accordingly the carrying amount is considered to approximate fair value.

    In prior years, the fair value is calculated as the net present value of future cash flows, discounted at the prevailing market rates.

Derivative instruments

    The fair value of volatility based instruments are estimated based on market prices, volatilities and interest rates, while the fair value of forward sales and purchases are estimated based on the quoted market price for the contracts at December 31, 1998 and 1997.

21. Employee benefit plan

    Defined Benefit Fund

    On September 1, 1998 the Company registered a defined benefit pension plan. As part of the acquisition of the participating companies, it was agreed that assets and liabilities from the defined benefit plan of AAC for former employees of AAC, now employed by AngloGold, would be transferred to the new AngloGold defined benefit plan.

    At year-end no regulatory approval had been obtained for this transfer. When obtained, it is estimated that the fair value of the assets at year-end amounted to R220 million while the corresponding liabilities totalled R209 million.

    The AngloGold Defined benefit fund has incurred no material liabilities since date of inception to current date.

    Contributions to the defined benefit fund for the four month period ended December 31, 1998 amounted to R12 million.

    Defined Contribution Funds

    Contributions to the funds for the year totalled R275 million.

22. Sales of shafts and tributing agreement

    In 1997 AngloGold management decided to sell shaft Nos. 1, 3, 4, 5, 6 and 7, excluding all major equipment, for an amount of R38 million to African Rainbow Minerals & Exploration (Proprietary) Limited (ARM). The sale was effective from the date ARM received mining authorization, namely January 27, 1998. In terms of the agreement AngloGold will retain the rehabilitation liability for
No. 1 shaft but ARM will assume such liability for the other shafts. The proceeds of R38 million have been reflected as a gain in 1998, as these shafts were fully amortized. During 1997 these shafts generated revenue of R546 million and decreased pre-tax income by R12 million. Employees at these shafts have been retrenched.

In addition to the sale of the above mentioned shafts to ARM, the Company has tributed (allowed ARM to mine, but not to own) No. 2 shaft to ARM and 60 percent of revenue, net of costs and capital expenditure, will accrue to AngloGold. The Company has sold its wholly owned contracting mining company, Naledi Mining Services (Proprietary) Limited (Naledi) for R2 million to ARM.

23. Geographical and segment information

    No separate geographic and segment information is presented as the Company's principal mining product is gold and all operations are currently conducted in South Africa.

24. Share Incentive Scheme

    On June 4, 1998 AngloGold's shareholders approved the Share Incentive Scheme the purpose of which is to promote the retention of the employees (including salaried directors) of AngloGold and its subsidiaries.

    The aggregate number of shares which may be made available for the Share Incentive Scheme at any time, shall not at any time exceed 2.75 percent of the total number of issued shares of AngloGold. Only employees, including salaried directors, of AngloGold and its subsidiaries may participate in the Share Incentive Scheme and only if and to the extent that options are granted to them, or debentures are offered to and are accepted by them in accordance with the Share Incentive Scheme.

    Share Incentive Scheme shares shall, subject to the provisions of the Share Incentive Scheme, rank pari passu with issued shares in all respects, including participation in dividends declared by AngloGold.

Options

    An option may only be granted to an employee to purchase a certain number of shares, specified by the directors, at the option price payable in accordance with the Share Incentive Scheme. It is personal to the employee to whom it is addressed and may only be accepted by him or his family, company or his family trust.

Debentures

    An employee may further be selected to be offered variable rate automatically convertible debentures pursuant to a debenture offer at a specified debenture price. On acceptance, should the employee not pay for the debenture price in full in cash, as security for his obligation to repay the debenture debt, the employee will be required to pledge the debentures allotted to him to the trustees of the Share Incentive Scheme and the outstanding capital amount will bear interest at the official interest rate stipulated by the seventh schedule of the Income Tax Act.

    If AngloGold allots and issues shares to its shareholders by way of a capitalization issue while there are debentures in issue, then the directors may elect to either reduce the debenture debt or increase proportionately the number of Incentive Scheme shares arising from the conversion of the debentures

    The options granted may be exercised and the debentures accepted may be converted as follows:

    All options, however, which have not been exercised within ten years from the date on which they were granted automatically lapse. Debentures which have not been converted within a similar period of acceptance will be ceded to the AngloGold Limited Employees' Share and Debenture Trust established by the company for purposes of the scheme.

    At the year end, the unallocated balance of shares subject to the scheme amounted to 1 611 262.

    Between the year end and the date of this report, employees have accepted a further 26 000 debentures have been allocated at prices varying between R235,80 and R257,00 per debenture.

    Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1998, respectively: risk-free interest rates of 17.25%; dividend yields of 7%; volatility factors of the expected market price of the Company's common stock of 0,303 and a weighted-average expected life of the option of 7 years.

    The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

    For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (in thousands except for earnings per share information):

A summary of the Company's stock option activity, and related information for the years ended December 31, 1998:

    During 1998 a total of 420,500 debentures were issued while a total of 13,800 shares were issued under the option scheme

25. Subsequent events (unaudited)

    Minorco

    Effective January 1, 1999, AngloGold acquired the gold assets of Minorco for a consideration of R2,897 million subject to adjustments. The consideration will be funded by a three year R2,065 million term loan facility, concluded with a syndication of banks on February 12, 1999, and cash from the company's own resources. All conditions precedent relating to the acquisition and funding arrangements are expected to be completed by March 31, 1999.

    Driefontein

On February 18, 1999, AngloGold announced that it would dispose of its entire interest of 43,809,572 shares in Driefontein to Goldfields for a consideration of R30 per share totaling R1,314 million. The purchase price is to be settled by way of R714 million in cash and a loan, on commercial terms, amounting to R600 million from the Company, repayable in full within nine months from the date on which the transaction is approved by the shareholders' of Goldfields.

EXHIBIT INDEX

1.1 Addendum to Agreement Relating to Purchase of Shares in Anmercosa Exploration (Senegal) Limited.

1.2 Addendum to the Cession and Assignment of Service Agreement.

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