AAL Anglo American Plc

By Scott Patterson and Alex MacDonald 

LONDON-- Anglo American PLC has said it agreed to sell its Brazilian niobium and phosphates businesses to China Molybdenum Co. Ltd. for $1.5 billion, the latest sign of a brewing, though still shaky, recovery in the battered global mining sector.

The deal follows an agreement earlier this month by Glencore PLC to sell a 40% stake in its agricultural business to Canada's largest pension fund for $2.5 billion, a milestone in the miner's efforts to reduce its near-$26 billion net debt load.

Anglo's sale announced Thursday is in line with its plans to sell more than half of its mines to focus on a smaller group of operations that can turn a profit even in a commodities downturn. The world's fifth largest diversified miner by market capitalization is disposing of $3 billion to $4 billion of assets this year, exiting coal and reducing its iron-ore operations with an eye toward focusing on diamonds platinum and copper. It plans to reduce its workforce to 50,000 in the next several years, down from 138,000 today.

Analysts cheered the deal, saying the $1.5 billion price was higher than expectations.

Anglo's shares rose 2.6% by midday on Thursday.

The deal's value also indicates appetite by Chinese companies for acquisitions, observers said.

"The valuation suggests that China is prepared to outbid other suitors for mineral assets, and they are hungry for deals," SP Angel said in a morning report.

Phosphates are a key ingredient used to make fertilizers. Niobium helps make steel stronger.

The niobium and phosphates businesses were considered one of Anglo's more profitable divisions, although a small contributor to its overall profitability. Together, the businesses generated earnings before interest and taxes of $119 million last year, or 5% of the group's total of $2.2 billion. Located in the Brazilian states of Goiás and São Paulo, the mines employ roughly 4,600 workers, or about 3% of Anglo's 138,081 workforce as of 2015.

The transaction, expected to close in the second half of 2016, is conditional upon regulatory approval from China.

The Anglo and Glencore deals are another indication of a rebound for miners this year following a miserable 2015, when Glencore and Anglo shares plunged amid withering commodity prices.

So far in 2016, Anglo and Glencore stocks have rallied, gaining 140% and 68%, respectively. The gains follow a recovery in key commodities that suffered in 2015 owing to growing supplies and a slowdown in Chinese demand. Copper is up 4.3% year-to-date, iron ore has surged 47% and platinum has added 16%.

Rallying commodity markets are likely to spur companies to act now on deals rather than wait, said Paul Gait, a mining analyst with Sanford C. Bernstein, the investment firm.

"Buyers are coming to the point that if they wait, they may have missed the lows and hence a rush to get the deal done," Mr. Gait said in an email.

Others aren't so sure deals are back in favor. The latest agreements are "the inevitable closing out of divestment processes that were up and running towards the back end of last year," said Lee Downham, global head of Ernst & Young's mining and metals deals team.

Mining companies still have a long way to go to recover from a five-year drought that has wiped away billions from investors' portfolios. Deal activity has declined five straight years, according to Ernst & Young. Just $40 billion worth of deals were completed in 2015, down 10% from the previous year and miles below the record-setting pace of more than $700 billion in 2007, Ernst & Young said in a recent report.

Anglo's share price remains down 36% in the past 12 months and Glencore is 52% lower. Both companies, as well as Anglo-Australian mining giant Rio Tinto PLC, have slashed dividend payments to stabilize their balance sheets.

The rally in commodities could easily fade. Some of the rebound, especially in iron ore, has been driven by debt-fueled speculation by Chinese day traders.

Demand in China appears to have stabilized for now, but experts have proved unable to predict the short-term ebb and flow of the Chinese economy. A surprise slowdown in Chinese demand last year stunned most mining chief executives, such as Glencore Chief Executive Ivan Glasenberg, who had expected demand to remain solid.

Write to Scott Patterson at scott.patterson@wsj.com and Alex MacDonald at alex.macdonald@wsj.com

(END) Dow Jones Newswires

April 28, 2016 08:07 ET (12:07 GMT)

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