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Why Are BHP Billiton plc, Anglo American plc and Rio Tinto plc Falling Today?

Mining shares fell sharply when markets opened this morning — and amongst the biggest fallers were FTSE 100 giants Rio Tinto (LSE: RIO) (NYSE: RIO.US), BHP Billiton (LSE: BLT) (NYSE: BBL.US) and Anglo American (LSE: AAL).

The falls were triggered by the World Bank, which has warned that the global economy is currently too reliant on the “single engine” of the US recovery. As a result, the Bank’s forecast for global growth in 2015 has been cut from 3.4% to 3%, while its estimate of 2014 growth has also been revised down, falling from 2.8% to 2.6%.

What’s the problem?

The cuts were blamed primarily on the weak economies of the eurozone, which are continuing to struggle in the aftermath of the financial crisis. Although the US economy appears to be growing strongly, and is expected to grow by 3.2% in 2015, the Bank’s forecast for eurozone growth was cut from 1.8% to 1.1%, while Russia is now expected to contract by 2.9% this year.

The news triggered a slide in commodity prices, especially copper, which is down by more than 5% today and has fallen by nearly 12% so far in 2015.

There was one bright spot, however, which may have been overlooked in today’s sell-off — growth in China, which is one of the miners’ biggest customers, is expected to remain firm at 7.1% in 2015, only slightly below the 7.4% seen in 2014.

Copper surplus

There is a second reason that the price of copper is falling — too much supply.

As with oil, the global copper market is currently running a surplus. However, the copper market is expected to return to a deficit next year, thanks to a fall in mine supply and growing Chinese demand, which should provide support for copper prices in the medium term.

Is the sell-off overdone?

Mining stocks look pretty battered at the moment, and you may be tempted to cut your losses and sell.

However, I think this could prove to be a costly mistake — mining stocks look cheap today, and could rebound strongly over the next few years, in my view:

Company

2015 forecast P/E

2015 prospective yield

PE10 (price/10-year average earnings per share)

BHP Billiton

9.9

6.6%

8.4

Rio Tinto

10.0

5.4%

8.5

Anglo American

9.0

5.5%

5.0

These valuations seem pretty undemanding to me, especially given the generous dividend payouts on offer, which I believe are unlikely to be cut.

It’s also worth noting how low each miner’s PE10 ratio is: this is a classic value investing measure designed to highlight firms that are cheap compared to their historical average earnings.

However, while these mining stocks do look attractive, in the near term we could see more volatility.

If you own one or more of these miners, I'd strongly suggest you make sure your portfolio is sufficiently diversified to withstand any further shocks.

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Roland Head owns shares in Rio Tinto and BHP Billiton. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.