Appendix B - Summary of Accounting Policies
Summary of accounting policies
Basis of accounting
Anglogold Limited is a company incorporated in the Republic of South Africa. The
company reports in accordance with IAS and in Rand. The company will continue to report
on this basis in the future and accordingly, all financial information is expressed in Rand
and is prepared in accordance with IAS. Specific accounting policies adopted, as explained
below, comply with the standards issued by the International Accounting Standards
Committee and are consistent with the policies adopted in the preparation of AngloGold?s
IAS financial statements for the year ended 31 December 1997 and 31 December 1998.
The historical financial information comprises the consolidated income statements, balance
sheets and cashflow statements of the economic entity comprising AngloGold and the
entities it controlled at period?s end or from time to time during the financial period:
as at and for the years ended 31 December 1997 and 1998. This information has
been extracted from the annual financial statements of AngloGold which have been
audited by Ernst & Young South Africa, and for which an unqualified audit report
was issued; and
as at and for the 9 month period ended 30 September 1999 . This information has
been extracted from the financial report for the quarter ended 30 September 1999
which was lodged with the Johannesburg Stock Exchange on 29 October 1999, and
which has not been audited by Ernst & Young South Africa.
Where applicable, the comparative figures as at and for the year ended 31 December 1997
constitute the aggregation of the previously audited financial statements of the participating
companies, as if the group had been in existence since 1 January 1997.
The group financial statements incorporate the financial statements of the company, its
subsidiaries and its proportionate interest in joint ventures. The method adopted for the
combination of the scheme companies on the formation of the AngloGold group is the
uniting of interest method for accounting for mergers in terms of International Accounting
Standard No. 22 ? Business Combinations. The scheme companies were Eastvaal,
Elandsrand, East Rand Gold and Uranium Company Limited, Freegold, Joel, Southvaal
Holdings Limited (Southvaal), and Western Deep Levels Limited (Western Deeps). The
surplus arising on merger accounting between the nominal share capital and share premium
issued by the company and the nominal value of the share capital and share premium of the
scheme companies acquired has been reflected as the merger adjustment and set-off against
Where an investment in a subsidiary or a joint venture is acquired or disposed of during the
financial year, its results are included from, or to the date control became, or ceased to be
effective. Where an investment in a subsidiary or a joint venture is made during the
financial year, any excess of the purchase price compared with the fair value of the
attributable net assets is recognised as goodwill and amortised as an expense over the lesser
of its useful life or 20 years.
All intergroup transactions and balances are eliminated on consolidation. Unearned profits
that arise between group entities are eliminated.
Associates are long-term investments in which the company holds between 20 per cent and
50 per cent of the equity and thereby has the ability to exercise significant influence over
those companies? financial and operating policy decisions. The post-acquisition results of
associates are incorporated in the company?s financial statements, using the equity method,
from the effective dates of acquisition and up to the effective dates of disposal.
The income statement includes the group?s proportionate share of the results of operations,
the attributable share of taxation thereon, and outside shareholders? interest in net income of
associates. The equity-accounted retained earnings of associates, which are not available
for distribution by way of a dividend to the company?s shareholders, less any provisions, are
transferred to a non-distributable reserve.
Results of associates are equity accounted from their most recent audited annual financial
statements or unaudited interim statements. Any losses of associates are brought to account
until the investment in and loans to such associates are written down to a nominal amount.
Thereafter losses are accounted for only insofar as the group is committed to providing
financial support to such associates.
The carrying values of the investments in associates represent the cost of each investment,
including unamortised goodwill, the share of post-acquisition retained earnings and any
other movements in reserves. The carrying value is compared with the associate?s market
value or directors? valuation. Where, in the opinion of the directors, the value of an
associate has been permanently impaired below its carrying value, or the market value has
fallen below the carrying value over a sustained period, a provision is made for such
impairment in value.
Mining assets are recorded at cost of acquisition less amortisation and amounts written off.
Cost includes preproduction expenditure incurred during the development of the mine. Cost
also includes interest capitalised during the construction period where such costs are
financed by borrowings.
Mine development costs
Capitalised mine development cost includes expenditure incurred to develop new ore
bodies, to define further mineralisation in existing ore bodies and to expand the capacity of
the mine. Development costs to maintain production are deferred, where applicable, and
expensed against the related production. Amortisation is first charged on new mining
ventures from the date on which production reaches commercial quantities. Mine
development costs are amortised using the units-of-production method based on estimated
proved and probable mineral reserves. Proved and probable reserves reflect estimated
quantities of economically recoverable reserves, which can be recovered in future from
known mineral deposits.
Plant and equipment are amortised using the lesser of their useful life or units-of-production
method based on estimated proved and probable mineral reserves.
Land is not depreciated.
Mineral rights, dumps and other
Mineral rights are amortised using the units-of-production method based on estimated
proved and probable mineral reserves. When there is little likelihood of a mineral right
being exploited, or the value of an exploitable mineral right has diminished below cost, a
write down is effected. The cost of exploration programmes not anticipated to result in
additions to the group?s reserves are expensed when incurred.
Assets subject to finance leases are capitalised at cost with the related lease obligation
recognised at the same value. Capitalised leases are depreciated over their estimated useful
lives. Finance lease payments are allocated, using the effective interest rate method,
between the lease finance cost, which is included in interest paid, and the capital repayment,
which reduces the liability to the lessor. Operating lease rentals are charged against
operating profits in a systematic manner related to the period of use of the assets concerned.
Inventories are valued at the lower of cost and net realisable value after appropriate
provisions for redundant and slow moving items. Cost is determined on the following
Gold on hand, uranium oxide and sulphuric acid are valued on an average
production cost method.
Gold in process is valued at the average production cost of the relevant stage of
Consumable stores are valued at the lower of average cost or net realisable value.
Rehabilitation expenditure and related accrued liabilities, which are based on the group?s
environmental management plans, in compliance with the current environmental and
regulatory requirements, are accrued and expended over the operating life of the mines
using the units-of-production method based on estimated proved and probable mineral
reserves. The carrying amount of liabilities is regularly reviewed and adjusted as
appropriate for new circumstances or changes in law or technology. Expenditure on
ongoing rehabilitation costs is brought to account when incurred.
Annual contributions are made to the group?s Environmental Trust Fund, created in
accordance with South African statutory requirements, to provide for the estimated cost of
pollution control and rehabilitation during and at the end of the life of the mine. Interest
earned on monies paid to the trust fund is accrued on an annual basis and is set off against
future liability of the group.
The costs of post-employment benefits are made up of those obligations which the group
has towards current and retired employees. These obligations can be separated into the
following categories, and are determined as follows:
Defined contribution plans - Retirement and provident funds
Contributions to defined contribution plans in respect of services during a current year are
recognised as an expense in that year.
Defined benefit plans - Pension funds
The current service cost in respect of defined benefit plans is recognised as an expense in
the current period. Past service costs, experience adjustments, the effect of changes in
actuarial assumptions and the effects of planned amendments in respect of existing
employees are recognised as an expense or income systematically over the expected
remaining service period of those employees.
Post-retirement medical aid costs
The post-retirement medical aid liability in respect of existing employees is recognised as
an expense systematically over the expected remaining service period of those employees,
using the projected unit credit method. The liability in respect of retired employees is
recognised immediately as an expense.
The sale of mining products is recognised when the significant risks and rewards of
ownership of the products are transferred to the buyer.
Dividends are recognised when the right to receive payment is established.
Interest is recognised on a time proportion basis, taking account of the principal outstanding
and the effective rate over the period to maturity, when it is determined that such income
will accrue to the group.
Deferred taxation represents the tax effect of all temporary differences and is provided at
the current mining cost formula rate using the comprehensive liability method.
The group enters into financial transactions to ensure a degree of price certainty and to
guarantee a minimum revenue on a portion of the planned gold production of its gold mines.
Financial instruments entered into in pursuit of this objective are specifically designated as
hedges of the planned future production of the gold mines.
Gains and losses on gold hedging instruments that effectively establish prices for future
production, are recognised in income at the earlier of any cash flow or delivery of the
related hedged production.
Hedged positions below current cost of production are recognised in the period in which the
Foreign currency derivative financial instruments are translated at contract rates. Gains and
losses on these contracts are recognised in income as a component of the related gold
Foreign currency transactions are recorded at the exchange rate ruling on the transaction
date. Assets and liabilities designated in foreign currencies are translated at rates of
exchange ruling at the year end and any gains and losses arising are included in earnings.
The balance sheets and income statements of foreign subsidiaries are translated on the
Foreign entities do not form an integral part of the operations of the group. Assets and
liabilities (both monetary and non-monetary) are translated at the closing rate. Income
statement items are translated at a weighted average rate of exchange for the period.
Exchange differences are taken directly to a foreign currency translation reserve which is
included with non-distributable reserves.
Foreign operations form an integral part of the operations of the group. Monetary items of
these operations are translated using the closing rate of exchange. Non-monetary items are
translated at the rate of exchange at the historical transaction date. Income statement items
are translated at a weighted average rate of exchange for the period. All exchange
differences are taken to the income statement for the period.