Harmony sees regional mergers to cut risk

By Eric Onstad and Georgina Prodhan

JOHANNESBURG/LONDON (Reuters) - Mergers and takeovers are likely in the mining sector among companies overexposed to one region, the chief executive of South Africa's Harmony Gold (HARJ.J: Quote, Profile, Research, Stock Buzz) said on Tuesday.

Those might include companies in South Africa and Russia, Bernard Swanepoel told the Reuters Global Mining and Steel Summit in London by telephone from Cape Town.

"I think there will be further consolidation. I would especially expect some form of consolidation between companies which perhaps are overexposed to a single geographical or political risk environment," Swanepoel said.

"I would talk probably about South African and Russian and companies like that, which historically may have grown but only grown in one such region and diversification may make sense."

Harmony Gold Mining Company Ltd is the least internationally diversified of major South African gold miners with 90 percent of output from its home base.

Harmony, the world's fifth-biggest gold producer, has had many approaches from investment bankers with merger ideas, but it is not currently in talks, he said.

The firm has signed a memorandum of agreement with Russian investment firm Renova, which allows the two sides to share information about each other's assets, but this was still at an early, exploratory stage.

"That partnership can still take any shape. It can certainly become a Russian-wide partnership, but it is really difficult to quantify things that you don't own," Swanepoel said.

"We have in the past successfully invested in Russia... but right now pricing and valuation is a challenging environment so for me to say that it is anything more than an early stage partnership would be an overstatement of where we are."

Harmony has a strong project pipeline of five new mines coming on stream in the next three years, so it is not under pressure to buy assets, he added.

"We can to some extent afford to sit on the sidelines if we think prices are ridiculous."

Harmony has announced plans to dispose of less profitable mines and Swanepoel said assets for sale include its South African Kalgold open pit mine and its Australian mines.

The firm has already announced plans to sell its Orkney shafts to junior miner Pamodzi Gold (PZGJ.J: Quote, Profile, Research, Stock Buzz) for 550 million rand.

(Additional reporting by Georgina Prodhan in London)