Crosshair Exploration and Mining: Several Growth Opportunities

Includes: DNN, JETMF
by: Michael Filloon

Crosshair Exploration and Mining (CXZ) is the uranium miner most are unaware of. I am not being disrespectful to this company, but they fell under the radar after the price of uranium collapsed. At its peak, Crosshair was trading just south of $12 October of 2007. It dropped to $.32 per share in November of 2008. Crosshair doesn't just mine uranium. Vanadium and Gold are also mined. Although they mine other minerals, Crosshair trades like a uranium stock.

Crosshair went public just before the bottom fell out of uranium spot prices. Being a speculative play, the company and its investors were crushed. Since then, this stock has come back. With the price of uranium up to $73, many of the smaller uranium miners could see potential appreciation of stock value. When the price was hovering around $40, many of the smaller plays have production costs in the high thirties to low forties. Crosshair has significant properties in Wyoming. They also have a uranium and vanadium mine in Labrador, Canada. Newfoundland, Canada is the location of their gold resource.

The Jupiter Ridge Project is located in Wyoming. Recently, Crosshair announced that it would be acquiring 100% of this location. It has a historical resource of 6.97 million pounds of U3O8. In 1986 a feasibility study was done there. The study concluded that an open pit and heap leach operation would be able to recover 80% of the reserve. On November 1st of 2010, Crosshair announced it would be purchasing 100% of Jupiter Ridge. It was acquired from Strathmore Resources. Crosshair has the production potential to garner 10 to 12 million pounds of U3O8. Crosshair will pay Strathmore $1 per pound of uranium in the ground. Once the permits are received, Crosshair will pay another $.30 per pound. On top of its uranium, Jupiter Ridge has 2.5 million pounds molybdenum. Capital expenditures, including equipment, will come to $23 to $28 million. Operating costs will be $20 to $25 per pound, including transport and toll. Jupiter Ridge has a $2.5 million, 18-month budget for drilling, metallurgy, NI 43-101 report, permitting and a scoping study.

The other Wyoming property is Bootheel. Crosshair acquired 75% of this location and In-Situ Recovery will be the mining style. The current NI 43-101 resource 1.09 million pounds indicated recovery source and another 3.25 million pounds inferred. Preliminary tests show that 90% of the resource can be extracted. This area, due to the in-situ recovery, can be removed in the short term. In-situ recovery allows for several advantages in uranium mining. There is little effect on the environment and since there is less digging, there is less time needed to return the site to its original condition. There are lower capital and operational costs for this same reason. It is not as labor intensive. A small amount of uranium resource (3 million pounds) are needed for the operation to succeed. Lastly, it is quicker to get started. This is the most important, as the price of uranium increases and we get closer to 2013 when the HEU agreement is cancelled, many small miners will be able to realize profits quickly by using this technology. Bootheel could still have a large potential after the initial mining. Less than 60% of the resource was included in the estimate. 7 to 10 million pounds of uranium resource is expected to be available to mine at a cost of one million dollars. Of this amount half is indicated and the other inferred. Capital costs are expected to be $30 to $35 million. Operating costs will be between $25 and $30 a pound. Bootheel has an 18 month budget of $1.8 million. This will cover resource and exploration drilling, hydrology, permitting and scoping study.

Crosshair has a location in Labrador, Canada that has a large uranium resource, plus a larger vanadium deposit. The company believes there is 17.1 million pounds of uranium and 136.4 million pounds of vanadium. The MIchelin project nearby has been assessed a 17 year mine life, 19.4% IRR pretax, and a $914 million NPV (pretax). Due to the vicinity of the Michelin project there is a fairly good chance the numbers will correlate somewhat. The Labrador property can be broken into two sites. The first is Two Time Zone. This area has 2.33 million pounds of uranium indicated and 3.73 million pounds inferred. The C Zone area in the Armstrong corridor has 5.19 million pounds of uranium indicated and 5.82 million pounds inferred. This location also has a large vanadium deposit. There are 42.82 million pounds of vanadium indicated and 93.62 million pounds inferred. The Corridor's potential is estimated at 25 to 34 million pounds of uranium and 150 to 200 pounds of vanadium. The Two Time Zone area is estimated to have potential of 15 to 20 million pounds of uranium.

It is not strange to have vanadium located in the vicinity to uranium deposits. Denison Mines (NYSEMKT:DNN) also has a substantial vanadium business. Vanadium is a lot like uranium with respect to it's sale. Independent firms take closed bids for the purpose of purchase. Vanadium is used in conjunction with titanium and steel to make them much stronger, lightweight and wear-resistant. Vanadium has battery uses. When combined with lithium ion batteries, it will increase the battery's energy density. In hybrid automobiles, this can be used to increase the distance per charge. This vanadium redox battery is the only type with the possibility of power grid applications.

Crosshair also mines gold. The Gemini Metals Division is working the Golden Promise Property in Newfoundland, Canada. They currently have 60% interest with the ability to increase it by 10%. The NI 43-101 inferred resource of 89500 ounces of gold. In 2010, they completed 36 holes and found the gold to be 98% recoverable. Crosshair is currently waiting for the results on the grade of the gold.

In summary, Crosshair has several opportunities to grow as a company. The resources on their land are significant. Since they are a not currently producing, much of the increases in the spot and long term price of uranium are not fully realized, but it is difficult to be pessimistic about any company engaged in uranium mining. Although I have only owned this stock over the short term, buying on sell offs and selling the pops, I think this company has upside because I believe uranium prices should continue to push higher. The last time the spot price of uranium went higher then the long term price all of the uranium producers made a quick push higher. Since we are currently in this territory, I would watch these stocks closely.

Disclosure: I am long DNN.