Force majeure is a French expression that describes an event that is a result of the elements of nature, as opposed to one caused by human behavior.
It is a legal term used in contracts to protect the parties in case some outside force, like a natural disaster, causes one party or the other to not fulfill their obligations.
In the world of gold mining, this is a clause that is enacted frequently.
Though they haven’t dropped the bomb yet, Freeport–McMoRan is on the verge of running out of gold.
This is because the largest gold mine in the world has been shut down — and may be closed for at least three months.
The gold mine is owned by Freeport–McMoRan Copper and Gold, Inc. (FCX: NYSE) and goes by the name of the Grasberg Mine.
I’m from the Government, and I’m Here to Help
The Indonesian government has closed the mine after a tunnel collapsed on May 14, killing 28 people. They are now investigating, and they haven’t given a time line as to when the mine will reopen.
The financial press is speculating it may take as long as three months.
Freeport had projected that the mine would produce 1.2M troy ounces of gold for 2013. That equals about 40 tonnes of the malleable metal.
The total global amount of gold mined every year is roughly 2,500 tonnes.
So this closure, if it continues, would shut out 1.5% of all gold mined this year.
The Grasberg Mine also produces 1.1 billion pounds of copper.
Kyrgyzstan’s Gold
In other news, Kyrgyzstan imposed a state of emergency after protests shut down Centerra Gold’s Kumtor Mine.
The protesters want the mine nationalized, more jobs, and paved roads.
The mine is Kyrgyzstan’s largest gold deposit. Nationalization would destroy it and end the jobs of more than 1,000 people. But it’s better that everyone suffers than your neighbor makes some money…
Strike Season in South Africa
If that wasn’t enough bad news on the production front, South Africa is sliding into mine warfare…
Last week a miner protester was shot at Lonmin’s platinum mine.
The country’s ANC party of corrupt insiders has said it could send peacekeepers to the mines, a move traditionally reserved for rebellions.
On the same day, Glencore Xstrata announced that it had fired 1,000 workers across three of its chrome mines for an illegal strike.
South Africa mining unions have been in a violent turf war for the last year and a half. Last year 46 people died after they were shot by police at the Lonmin Mine. (You’ll remember we traded the Platinum ETF on the news.)
None of these situations on the supply front seems to have had any impact on the price of gold, which is trading at $1,385 as I write this.
In fact, gold fell earlier this week as the dollar rallied.
Dollar Up
The dollar surge was a direct result of the Japanese yen falling. The yen is falling because the Bank of Japan is printing money to push it lower and build exports.
GDP in Japan came in at 4.1% for the first quarter, so it appears to be working in the short term.
Standard & Poor’s also raised the United States’ credit to neutral, which further boosted the dollar yesterday.
As you know, a strong dollar is bad for gold priced in dollars — though if you are Japanese, your gold value just went up.
All the best,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
