UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 6-K

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 Under
the Securities Exchange Act of 1934

For the month of March, 2007

Cameco Corporation

(Commission file No. 1-14228)

2121-11th Street West
Saskatoon, Saskatchewan, Canada S7M 1J3
(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F o       Form 40-F þ

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o       No þ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

 

 

Exhibit Index

Exhibit No.		Description		Page No.
1.		2006 Management Discussion & Analysis

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

2006 MANAGEMENT’S DISCUSSION & ANALYSIS (MD&A)
MARCH 16, 2007

This management’s discussion and analysis (MD&A) is designed to provide investors with an informed discussion of Cameco’s business activities and reflects information known to management as at March 16, 2007. This MD&A is intended to supplement and complement our audited consolidated financial statements and notes thereto for the year ended December 31, 2006, prepared in accordance with Canadian generally accepted accounting principles (GAAP), (collectively our financial statements). As required by securities authorities, a reconciliation of our Canadian GAAP financial statements to US GAAP is included in note 28 to the financial statements. You are encouraged to review our financial statements in conjunction with your review of this MD&A. Additional information relating to the company, including our annual information form, is available on SEDAR at sedar.com. All dollar amounts are in Canadian dollars, unless otherwise specified. The financial information in this MD&A has been prepared in accordance with Canadian GAAP, unless otherwise indicated. In addition, we use non-GAAP financial measures as supplemental indicators of our operating performance and financial position. We use these non-GAAP financial measures internally for comparing actual results from one period to another, as well as for planning purposes. We have historically reported non-GAAP financial results, as we believe their use provides more insight into our performance. When non-GAAP measures are used in this MD&A, they are clearly identified as a non-GAAP measure and reconciled to the GAAP measure. All sensitivities in this MD&A noted for 2007 reflect the potential impact for the full year.

Statements contained in this MD&A, which are not historical facts, are forward-looking statements that involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For more detail on these factors, see the section titled “Caution Regarding Forward-Looking Information” in this MD&A.

The following is a list of the key sections of this MD&A.

Overview			2
Cameco’s Businesses			2
Growth Strategy			4
Trends in the Nuclear Power Industry			4
Uranium Business			9
Fuel Services Business			35
Nuclear Electricity Generation Business			41
Gold			45
2006 Fourth Quarter Consolidated Results			48
2005-2006 Quarterly Consolidated Financial Highlights			49
2006 Consolidated Results			50
Consolidated Outlook for 2007			53
Liquidity and Capital Resources			54
2004-2006 Consolidated Financial Highlights			58
Outstanding Share Data			59
Reserves and Resources			60
Qualified Persons			68
Risks and Risk Management			68
Disclosure Controls and Procedures			88
Critical Accounting Estimates			88
Caution Regarding Forward — Looking Information			89
Additional Information			90

OVERVIEW

Vision
Cameco will be a dominant nuclear energy company producing uranium fuel and generating clean electricity.

Mission
Our mission is to bring the multiple benefits of nuclear energy to the world. We are a global supplier of uranium fuel and a growing supplier of clean electricity.

We deliver superior shareholder value by combining our extraordinary assets, exceptional employee expertise and unique industry knowledge to meet the world’s rising demand for clean, safe and reliable energy.

The key measures of our success are a safe, healthy and rewarding workplace, a clean environment, supportive communities and outstanding financial performance.

Values
Safety and Environment

•

The safety of people and protection of the environment are the foundations of our work. All of us share in the responsibility of continually improving the safety of our workplace and the quality of our environment.

People

•

We value the contribution of every employee and we treat people fairly by demonstrating our respect for individual dignity, creativity and cultural diversity. By being open and honest we achieve the strong relationships we seek.

Integrity

•

Through personal and professional integrity, we lead by example, earn trust, honour our commitments and conduct our business ethically.

Excellence

•

We pursue excellence in all that we do. Through leadership, collaboration and innovation, we strive to achieve our full potential and inspire others to reach theirs.

CAMECO’S BUSINESSES

Cameco is involved in four business segments:

•

uranium,

•

fuel services,

•

nuclear electricity generation, and

•

gold.

The only significant commercial use for uranium is to fuel nuclear power plants for the generation of electricity. In recent years, nuclear plants generated about 16% of the world’s electricity.

The major stages in the production of nuclear fuel are uranium exploration, mining and milling, refining and conversion, enrichment and fuel fabrication. Once a commercial uranium deposit is discovered and reserves delineated, regulatory approval to mine is sought. Following regulatory approval, the mine is developed, and ore is extracted and processed at a mill to produce uranium concentrates. Mining companies sell uranium concentrates to nuclear electricity generating companies around the world on the basis of the U₃O₈ contained in the concentrates. These utilities then contract with converters, enrichers and fuel fabricators to produce the required reactor fuel.

Uranium
Cameco is the world’s largest uranium producer, accounting for 20% of the world’s production in 2006 and backed by more than 500 million pounds of proven and probable reserves of uranium. We have controlling ownership of the world’s largest high-grade uranium reserves and low-cost operations located in northern Saskatchewan. Cameco operates four mines in Canada and the United States, and has two mines under development, one each in Canada and Central Asia.

Fuel Services
The company is an integrated uranium fuel supplier with refining facilities at Blind River and fuel services facilities (conversion and fuel fabrication) at Port Hope, both located in Ontario, Canada.

The Blind River facility refines uranium concentrates into uranium trioxide (UO₃), an intermediate product in the uranium conversion process. Our Port Hope conversion services plants chemically change the form of the UO₃ to either uranium hexafluoride (UF₆) or uranium dioxide (UO₂). The Port Hope plants have the licensed capacity to produce 18% of the world’s annual requirements of UF₆ used in making fuel for light water reactors. In 2005, Cameco signed a toll-conversion agreement to acquire UF₆ conversion services from Springfields Fuels Ltd. (SFL) in Lancashire, United Kingdom. Under the 10-year agreement, SFL will annually convert a base quantity of 5 million kgU as UO₃ to UF₆ for Cameco. This arrangement increases our UF₆ conversion capacity by 40%. In addition, Port Hope is the world’s only commercial producer of natural UO₂, the fuel used by all Canadian-designed Candu reactors.

During early 2006, Cameco became a nuclear fuel manufacturer by acquiring Zircatec Precision Industries, Inc. (Zircatec) in Port Hope and Cobourg. This company manufactures fuel bundles for use in Candu reactors. With this acquisition, Cameco now participates in all stages of the Candu nuclear fuel cycle.

Nuclear Electricity Generation
Cameco generates clean electricity through its 31.6% interest in the Bruce Power Limited Partnership (BPLP), which operates the four Bruce B nuclear reactors and manages the overall site located in southern Ontario. We are the fuel procurement manager for uranium, conversion services and fuel fabrication for BPLP’s four B nuclear reactors. For the Bruce A reactors, Cameco is the fuel procurement manager for conversion services and fuel fabrication. Through the Bruce Power restructuring in 2005, Cameco no longer holds a 31.6% ownership in the four A reactors. BPLP’s four B reactors have a combined net generation capacity of about 3,200 megawatts (MW), supplying about 15% of Ontario’s electricity.

Gold
Cameco has a 52.7% interest in Centerra Gold Inc. (Centerra), which began trading on the Toronto Stock Exchange in June 2004. Cameco transferred substantially all its gold assets to Centerra as part of the strategy to unlock the value of those assets. Centerra is a growth-orientated Canadian-based gold producer focused on acquiring, exploring and developing gold properties in Central Asia, the former Soviet Union and other emerging markets. Centerra operates two gold mines, located in the Kyrgyz Republic and

Mongolia. Gold is not a core business for Cameco. Centerra was created as a vehicle for Cameco to eventually exit the gold business.

GROWTH STRATEGY

Cameco’s goal is to be a dominant nuclear energy company — the supplier, partner, investment and employer of choice in the nuclear industry. Cameco will achieve this goal through four main strategies:

	•		maintain our competitive advantage in uranium and conversion,
	•		maximize growth in uranium markets,
	•		continue vertical integration, and
	•		promote growth in the nuclear energy industry.

Our specific strategies in the uranium and conversion businesses — the company’s core businesses — are discussed under the sections “Uranium Strategies” and “Fuel Services Strategies” respectively, in this MD&A.

In pursuing further integration in nuclear fuel supply and nuclear power generation, our goals are to:

	•		add significantly to shareholder value, through new opportunities within the nuclear fuel cycle,
	•		secure projects that have an attractive rate of return and provide a basis for long-term profitability,
	•		supply fuel, engage Cameco’s operational and management expertise, and achieve synergies in fuel supply logistics and market position,
	•		capture the value added to uranium in each step of the fuel cycle, including its enormous energy value in the final generation of electricity,
	•		strengthen Cameco’s foundation for further expansion in the nuclear fuel cycle, and
	•		ensure each investment has a prudent risk/reward ratio.

The key strategies are to:

	•		maximize choice by considering acquisition and investment opportunities in all aspects of the nuclear fuel cycle,
	•		seek opportunities to facilitate change in the nuclear industry by supporting or leading the development, assessment, or licensing of new technology,
	•		evaluate and encourage BPLP’s growth strategy,
	•		pursue partnering opportunities throughout the nuclear fuel cycle by leveraging fuel-supply relationships, and by enhancing relationships with industry leaders in nuclear technology,
	•		seek active ownership by structuring each investment to allow participation in management and, where possible, operational involvement, and
	•		seek to maximize nuclear power’s contribution to global energy supply by:

	•		promoting industry initiatives to position nuclear power as a major part of the solution in addressing clean air and climate change by providing leadership and resources to key industry associations and by developing government relationships, and
	•		diversifying into related technologies that support nuclear energy development.

TRENDS IN THE NUCLEAR POWER INDUSTRY

A number of evolving trends in the nuclear power industry have the potential to affect Cameco’s uranium and fuel services businesses.

Reactors — Operating, Planned and Under Construction
There are 434 reactors operating worldwide, and a total of 100 new reactors that are under construction or planned for completion within the next 10 years (as of March 2007). This more than offsets 10 anticipated closures for a net increase of 90 reactors during the period. Given that new reactors tend to have higher capacities than older units, this represents a 21% growth in nuclear generating capacity. Highlights include:

	•		59 reactors are scheduled to be built in Asia, as energy demand is driven by rapid economic expansion. More than 65% of this growth will occur in China and India which have plans to build 24 and 15 reactors respectively,
	•		in Russia, Ukraine and several other eastern European countries, it is anticipated that 14 reactors will be built, offset by one closure in Armenia,
	•		in Finland, a new European Pressurized Water Reactor (EPR) is being constructed and when completed, will bring the country’s total to five nuclear reactors,
	•		France has announced the construction of a new EPR beginning in 2007, and
	•		in Canada, Bruce Power A Limited Partnership (BALP) is refurbishing two A units which had previously been shutdown, and both Bruce Power and Ontario Power Generation Inc, (OPG) have initiated the regulatory process for new generating units.

Reactors — Pending
A number of non-nuclear countries including Kazakhstan, Belarus, Italy, Indonesia, Poland, Turkey and Vietnam are considering nuclear programs. Additionally, South Africa is developing a new type of reactor, called the Pebble Bed reactor that, if successful, will be smaller and targeted at regions requiring electricity, but lacking critical distribution and transmission capability.

World Nuclear Reactors (Cameco estimate, March 2007) ¹

										Outlook to 2016
		Nuclear
		Electricity				Operating												Operating				GWe
		2005 2 (%)				2007				New				Shutdown				2016				Change
Argentina			7				2				2				0				4				1.6
Brazil			3				2				1				0				3				1.3
Canada			15				18				3				1				20				2.2
Mexico			5				2				0				0				2				0.0
USA			19				103				6				0				109				6.0
Americas Total							127				12				1				138				11.1
China			2				9				24				0				33				20.4
India			3				16				15				0				31				7.0
Iran			0				0				2				0				2				1.9
Japan			29				55				5				1				59				5.9
Korea (South)			45				20				8				0				28				9.2
Pakistan			3				2				2				0				4				0.6
Taiwan			20				6				2				0				8				2.6
Turkey			0				0				1				0				1				1.0
Asia Total							108				59				1				166				48.5
Belgium			56				7				0				0				7				0.0
Czech Republic			31				6				0				0				6				0.0
Finland			33				4				1				0				5				1.6
France			79				59				1				1				59				1.6
Germany			31				17				0				0				17				0.0
Hungary			37				4				0				0				4				0.0
Lithuania			70				1				1				1				1				0.4
Netherlands			4				1				0				0				1				0.0
Romania			9				1				3				0				4				1.3
Slovakia			56				5				2				1				6				0.4
Spain			20				8				0				0				8				0.0
Slovenia			42				1				0				0				1				0.0
Sweden			45				10				0				0				10				0.0
Switzerland			32				5				0				0				5				0.0
UK			20				19				0				4				15				-1.4
Europe Total							148				8				7				149				3.9
Russia			16				31				9				0				40				7.6
Armenia			43				1				0				1				0				0.0
Bulgaria			44				2				2				0				4				1.9
Ukraine			49				15				3				0				18				2.9
Russia and Eastern Europe Total							49				14				1				62				12.4
South Africa			6				2				7				0				9				1.9
World Total							434				100				10				524				77.8

1		Estimated by Cameco, March 2007. Based on public announcements made prior to March 2007.
2		World Nuclear Association (WNA).

Nuclear Power Share

Nuclear power accounts for about 16% of the world’s electricity generation. While the number of reactors and gigawatts produced are expected to increase over the next 10 years, the rate of growth in nuclear generation is expected to be less than the growth in total electricity generation. Therefore, nuclear’s share of world electricity is expected to decline over the 10-year period to about 13%.

Plant Performance

Safety
There were no significant safety incidents at nuclear power plants during 2006 and nuclear power continues to be one of the safest forms of electricity production. Nevertheless, the industry is continuously seeking methods to improve its safety record.

Operating Costs
Based on the first ten months of 2006, the direct costs of US nuclear electricity production was the lowest for baseload (non-hydro) electricity production for the eighth consecutive year. US production costs were 1.66 cents per kWh for nuclear, 2.28 cents for coal, 6.60 cents for natural gas and 9.64 cents for petroleum (Source: Nuclear Energy Institute NEI).

Nuclear Acceptance

Positive Trends

North America
Public support for nuclear power in North America is trending higher. In the US, a 2006 survey prepared by Bisconti Research for the NEI, showed that 86% of the public and 88% of college graduate voters agree that nuclear energy will play an important role in meeting future electricity demand. Majorities also support

license renewal for existing nuclear power plants and “definitely building” new nuclear power plants. The survey also showed 73% of Americans would find it acceptable to add a new reactor at the nearest existing nuclear power plant site.

In Canada, a recent Ipsos Reid survey showed that support for nuclear power in Ontario had increased to 62% from 58%.

In the US, 15 entities are now in the process of preparing applications for either early site permits (ESP) or combined construction and operating license (COL) for a potential new nuclear power plant. Applications from Dominion, Southern, Entergy (NuStart) and Exelon for ESPs are under review by the US Nuclear Regulatory Commission. One ESP has been approved, the first site licensed in the US in over 30 years. As many as 33 units are now being considered for potential new build. Several potential sites and reactor types have been identified with the potential for a new reactor to be completed as early as 2014.

The US has recognized the strategic risk of over-reliance on natural gas and the contribution nuclear energy can make to clean air.

Europe
The UK Prime Minister recently acknowledged that new nuclear construction must be considered in the UK’s plans for energy security and Kyoto compliance.

The UK and the European Union have recognized the strategic risk of over-reliance on natural gas.

Germany, Belgium, and the Netherlands continue to back away from a previous anti-nuclear stance. In Germany, many politicians have questioned the planned phase out program for its reactors by 2021 given one-third of the country’s electricity is generated by nuclear power and there is no obvious solution for replacing these plants with equally clean sources. In Belgium, the Minister of Energy commissioned a study to review Belgium’s future energy challenges. The study recommended that Belgium reconsider its plan to phase out its nuclear reactors by 2025. Over half of the country’s electricity is generated by nuclear power and the report warns that due to changing circumstances, it would be very costly to proceed with the phase out program. It noted that climate change action was becoming more urgent and the era of very cheap fuel prices was likely behind them. In the Netherlands, a previous decision to phase out its nuclear program was reversed.

India
In December 2006, US President Bush signed the United States-India Peaceful Atomic Energy Cooperation Act, a major step towards civil nuclear trade with India. The bill on nuclear cooperation between India and the US was passed in the US Senate by a majority of 85 to 12 in November 2006, following passage in the House of Representatives. The two countries now must conclude a bilateral agreement — known in the US as the 123 civil nuclear agreement, which essentially codifies their negotiations of the last 18 months. Additional steps before trade can take place include approval from India’s Parliament, India’s negotiation of a safeguard agreement with the International Atomic Energy Agency (IAEA) and approval from the 45-nation Nuclear Suppliers Group. In addition, each country that wishes to trade with India must negotiate a bilateral agreement.

Negative Trends
While nuclear power has finally been recognized as a non-emitting technology in US energy legislation, it still does not qualify internationally for greenhouse gas emission credits.

Although progress is being made in several countries on the management of radioactive waste from the nuclear fuel cycle, it remains a controversial issue. Concerns about the long-term management of radioactive waste continue to be an impediment to the nuclear renaissance. Certain environmental groups continue to oppose the nuclear power industry.

The first few new nuclear plants will face significant business risks including “first-of-a-kind” costs, as well as possible delays in financing, licensing and construction.

SUMMARY OF TRENDS
The nuclear industry is experiencing stable growth in the form of capacity factor improvements, refurbishments, life extensions and, in the developing world, aggressive new-build programs. While it is difficult to determine which factors will dominate the outlook for nuclear in the long-term, the demand for nuclear power is expected to accelerate in response to concerns about electricity supply, the need for non-emitting base load power, and security of supply.

URANIUM BUSINESS

Worldwide Uranium Supply and Demand
The uranium market supply and demand fundamentals remained strong in 2006, indicating a need for more primary mine production over the coming decade. During the past 20 years, uranium consumption has exceeded mine production by a wide margin, with the difference being made up by secondary supply sources such as various types of inventory and recycled products.

Uranium Demand
Overall, as discussed above under nuclear power trends, indicators support a trend of moderately growing demand for uranium and conversion services in the next ten years, with the potential for more rapid growth thereafter.

Cameco estimates that the world uranium consumption totalled about 177 million pounds in 2006 and will increase to about 183 million pounds in 2007. We expect annual world uranium consumption will reach 239 million pounds in 2016 reflecting an annual growth rate of about 3%.

Growth in demand could be tempered as uranium price increases encourage utilities to utilize more enrichment services and less uranium. Uranium demand is affected by the enrichment process, which is one of the steps in making most nuclear fuel. Utilities choose the amount of uranium and enrichment services they will use depending on the price of each. In essence, utilities may substitute enrichment for uranium, thereby decreasing the demand for uranium and increasing the demand for enrichment. For example, when uranium prices rise, utilities tend to use more enrichment assuming enrichment prices remain constant. If enrichment prices increase, utilities would likely use less enrichment and more uranium. The tails assay (percentage of uranium left after processing) is an indication of the mix of uranium and enrichment used. At different prices for uranium, conversion and enrichment services there is a combination that minimizes the fuel cost called the optimal tails assay. The lower the tails assay, the less uranium being used.

The uranium price has increased 580% since mid 2003. Over the same time period, enrichment prices have increased by only 25%. Thus, utilities are choosing lower tails assay under their enrichment contracts, using less uranium and more enrichment services.

Based on current demand, a 0.01% decrease in tails assay would decrease uranium requirements by 2% or about 3 million pounds of uranium per year and increase the demand for enrichment services by 2%. It is important to note that there is a limit to the enrichment capacity that is currently available. In addition, enrichment contracts generally limit the ability to substitute enrichment for uranium. In the past, enrichers offered a wide range of tails assay, much like volume flexibilities on uranium contracts. Currently, enrichers are offering tails assay ranging from 0.25 to 0.3%, thus over time, as old enrichment contracts expire, the average tails assay will move to this range.

In 2006, two reactors were connected to the electricity grid, one in India and one in China. India’s Tarapur-3 entered commercial operation in August of 2006, while China’s Tianwan-1 is expected to begin commercial operation in spring 2007. There were eight reactor closures in 2006, four in the UK, two in Bulgaria, and one each in Slovakia and Spain. There were also nine power uprates. The net result was a 525 megawatt electric (MWe) increase in nuclear capacity.

Uranium Supply
World uranium supply comes from primary mine production and a number of secondary sources.

Mine Production
We estimate world mine production in 2006 was about 103 million pounds U₃O₈, down 5% from 108 million pounds in 2005, largely due to a variety of operating difficulties experienced at a few large production centres. We expect world production to increase to 117 million pounds in 2007.

It is expected that with higher uranium prices, new mines will continue to start up, but the lead-time before they enter commercial production may be lengthy depending on the region. As a result, primary supply cannot significantly increase in the near-term. The level of increase in primary mine production is dependent on a number of factors, including:

•

the strength of uranium prices,

•

the efficiency of regulatory regimes in various regions,

•

currency exchange rates in producer countries compared to the US dollar,

•

prices for other mineral commodities produced in association with uranium (i.e. byproduct or co-product producers), and

•

the quality and size of the ore reserve.

Secondary Sources
Secondary sources of supply consist of surplus US and Russian military materials, excess commercial inventory and recycled products. Recycled products include reprocessed uranium, mixed oxide fuel and re-enriched tails material. Some utilities use reprocessed uranium and mixed oxide fuel from used reactor fuel. In recent years, another source of supply has been re-enriched depleted uranium tails generated using excess enrichment capacity. We estimate that these recycled products will account for about 7% of world requirements over the next 10 years. With the exception of recycled material, secondary supplies are finite. Currently, most recycled products are a high-cost fuel alternative and are used by utilities in only a few countries.

One of the largest sources of secondary supply is the uranium derived from Russian highly enriched uranium (HEU). As a result of the 1993 HEU agreement between the US and Russia to reduce the number of nuclear weapons, additional supplies of uranium have been available to the market. Under the 20-year agreement, weapons-grade HEU is blended down in Russia to low enriched uranium capable of being used in western world nuclear power plants. Uranium derived from Russian HEU could meet about 7% of world demand over the next 10 years based on the current Russian HEU commercial agreement, which expires in 2013. In parallel, the US has made some of its military inventories available to the market, in quantities much smaller than those derived from the Russian HEU agreement.

Another source of potential supply is excess inventory held by the US Department of Energy. We expect about 4% of world demand through 2016 will be met from this source of supply.

Historically, the other large source of secondary supply has been excess inventories. Prior to 1985, uranium mine production exceeded reactor requirements due, in large part, to government incentive programs that

anticipated rapid growth of nuclear generated electricity. The result was a buildup of large inventories, both in the commercial and government sectors.

Since 1985, uranium consumption has exceeded mine production by increasingly wide margins, with a large part of the difference being made up by draw down of excess inventories. The company believes that most of these excess inventories have been consumed. In recent years, there has been evidence of this trend reversing, with some utilities purchasing uranium to build strategic inventories.

Over the next 10 years, even with new mines currently under development, such as Cigar Lake and Inkai, this shortfall between demand and production is not expected to change significantly. The production response is expected to remain challenged, while demand is expected to continue growing due to better reactor operations, reactor uprates, life extensions and the construction of new units. However, there are a number of potential new mines and planned mine expansions that are expected to help meet this shortfall, but the timing and production rates are uncertain at this time.

With 2006 uranium production less than 60% of uranium requirements, secondary supplies (such as recycling and blended down HEU) continue to bridge the gap between production and requirements and this is expected to continue in the near future.

Uranium Markets
Utilities secure most of their uranium requirements (80% to 90% in recent years) by entering into long-term contracts with uranium suppliers. These contracts usually provide for deliveries to begin two to five years after contracts are finalized. In awarding contracts, utilities consider the commercial terms offered, including price, and the producer’s record of performance and uranium reserves.

There are a number of pricing formulas, including fixed prices adjusted by inflation indices, reference prices (generally spot price indicators, but also long-term reference prices) and annual price negotiations. Many contracts also contain floor prices, ceiling prices and other negotiated provisions that affect the amount ultimately paid.

Utilities acquire the remainder of their uranium requirements through spot purchases from producers and traders. Spot market purchases are those that call for delivery within one year. Traders and investors or hedge funds are active in the market and generally source their uranium from organizations holding excess inventory, including utilities, producers and governments.

Uranium Spot Market
The industry average spot price (TradeTech and Ux) on December 31, 2006 was $72.00 (US) per pound U₃O₈, almost double the $36.38 (US) on December 31, 2005. Spot market volume reported for 2006 was 33 million pounds. This compares to 36 million pounds for 2005.

Discretionary purchases, or purchases not for immediate consumption, hit a record level in 2006 accounting for about 73% of spot market volume. There were continued increases in inventory building by utilities, trader positioning and investment and hedge fund participation. It is expected that spot market demand will remain strong in 2007 while supply remains tight, adding upward pressure to the price.

Long-Term Uranium Market

The industry average long-term price (TradeTech and Ux) on December 31, 2006 was $72.00 (US) per pound U₃O₈, up almost 100% from $36.13 (US) at December 31, 2005.

We estimate long-term contracting in 2006 to have been in excess of 200 million pounds U₃O₈, slightly less than the 240 million pounds contracted in 2005, but well above historic levels.

We expect long-term contracting activity in 2007 will remain quite strong as utilities attempt to mitigate the risk of potential future supply shortfalls by securing long-term contracts with reliable primary suppliers. Currently, we estimate that approximately 200 million pounds will be contracted in the long-term market in 2007.

Uranium Business — Key Performance Drivers

The major factors that drive Cameco’s uranium business results are:

•		prices — spot and long-term,
•		volume — sales, production and purchases,
•		costs — production and purchases, and
•		the relationship between the US and Canadian dollars.

Prices — Spot/Long-Term

Background

While Cameco generally has not sold uranium in the spot market, about 60% of the company’s uranium is sold under its long-term contracts at prices that reference the spot market price near the time of delivery. The remaining 40% is sold at fixed prices escalated by an inflation index. Uranium market price indicators are quoted by the industry in US dollars per pound U₃O₈.

Uranium contract terms generally reflect market conditions at the time the contract is negotiated. Historically, after a contract negotiation was completed, deliveries under that contract typically did not begin for up to three years. For example, a contract that was signed in 2001, when the spot price averaged less than $9.00 (US), could have started deliveries in 2004 and could continue through to 2008. As a result, many of the contracts in our current portfolio reflect market conditions when uranium prices were significantly lower. For example, 2003 was the first year that the spot price averaged over $11.00 (US) since the 1995-1997 period. Before that they were much lower, and only exceeded $11.00 (US) on a sustained basis in 1988 and earlier. To the extent contracts have fixed or low ceiling prices, they will yield prices lower than current market prices.

As a result, Cameco’s average realized price for uranium sales in 2006 was $20.62 (US) per pound of uranium compared to an average spot price of $49.60 (US) and average long-term price of $49.90 (US). In 2006, the benefit of improved spot prices was also partially offset by a less favourable foreign exchange rate. Our average realized selling price rose by 34% in US dollars but only 23% in Canadian dollars over 2005.

As in previous years, we are continually in the market signing new contracts. Generally, our current portfolio reflects a 60/40 mix of market-related and fixed pricing (escalated by inflation) mechanisms. In general, most new offers include price mechanisms that are more focused on market-related pricing. Consequently, we expect this ratio to change over time.

In the current market environment of rapidly increasing uranium prices, this strategy has allowed Cameco to add increasingly favourable contracts to its portfolio while maintaining sensitivity to future price movements.

Uranium Price Sensitivity 2007

For 2007, a $1.00 (US) per pound change in the uranium spot price from $85.00 (US) per pound would change revenue by $6 million (Cdn) and net earnings by $3 million (Cdn). This sensitivity is based on an expected effective exchange rate of $1.00 (US) being equivalent to about $1.19 (Cdn) as a result of our currency hedge program.

Volume — Sales, Production and Purchases

Sales Volume

In 2006, Cameco delivered 36.1 million pounds of uranium, representing a 6% increase from 2005 deliveries of 34.2 million pounds. The higher delivery volumes were in response to strong market demand.

However, for revenue purposes in 2006, Cameco reported sales of 32.2 million pounds due to the accounting for product loans it has in place. During 2006, Cameco entered into standby product loan agreements with two of our customers. The loans allow Cameco to borrow up to 5.6 million pounds U₃O₈ equivalent over the period 2006 to 2008, with repayment in 2008 and 2009. Of the material available under

the loan, up to 1.4 million kgU can be borrowed in the form of uranium hexafluoride (UF₆). Any borrowings will be secured by letters of credit and be settled in kind.

As of December 31, 2006, Cameco had not borrowed any material under the standby loan agreements. However, regardless of whether any material is borrowed, we defer revenue recognition from sales to the counterparties of the standby product loan agreements, up to the limit of the loans (5.6 million pounds). This is in accordance with accounting standards. Cameco will recognize the deferred revenue and associated costs when the loan agreements are terminated, or if drawn upon, when the loans are repaid and that portion of the facility is terminated. Accordingly, for the year 2006, we have deferred revenue of $80 million and the associated costs on sales of 4.0 million pounds. The gross profit on the deferred sales was $15 million.

In 2007, the reported sales volume and associated revenue may be affected by changes to product loan arrangements. In 2007, we expect uranium deliveries to total 33 million pounds. However, the reported sales volume for revenue purposes depends upon the product loan arrangements. We may terminate a portion or all of the product loan arrangements in 2007. To the extent we terminate the product loan arrangements, revenue that was deferred on up to 4 million pounds in 2006 would be recognized in 2007. If the product loan facilities remain in place unchanged, we would be required to defer revenue on an additional 1.6 million pounds in 2007, regardless if any amount is drawn on the loans.

Cameco sells more uranium than it produces from its mines and meets its contractual delivery commitments through a combination of mine production, long-term purchase arrangements, spot purchases and inventory.

Production Volume

Uranium Operations

Cameco’s share of production
(million lbs U3O8)		2007 Planned				2006 Actual				2005 Actual
McArthur River/Key Lake			13.1				13.1				13.1
Rabbit Lake			5.5				5.1				6.0
Smith Ranch/Highland			1.6				2.0				1.3
Crow Butte			0.8				0.7				0.8
Total			21.0				20.9				21.2

McArthur River/Key Lake

Cameco’s share of production of U₃O₈ at McArthur River/Key Lake in Saskatchewan was 13.1 million pounds for 2006. Ten days prior to year-end, the operations achieved the licensed annual production limit of 18.7 million pounds (100% basis). Cameco’s share of production for 2007 is expected to be 13.1 million pounds for the full year.

In November 2006, unionized employees at the McArthur River and Key Lake operations ratified a new four-year agreement that Cameco and the United Steelworkers of America (USW) had negotiated. The new collective agreement will expire December 31, 2009.

At McArthur River, progress on freeze-hole drilling for two future mining zones improved by year end to near targeted rates. However drilling progress for 2006 was lower than targeted due to technical challenges

with drilling through frozen ground, additional time required to address operational challenges such as improvements to the drill setups, and earlier staffing challenges associated with getting a sufficient number of experienced drillers given the high levels of activity in the exploration diamond drilling industry.

In 2006, we encountered mill process difficulties associated with higher levels of concrete dilution. We have installed sand filters in the mill to improve the clarity of the uranium solution. In addition, further mill process changes are planned for implementation in 2007. We are confident that with these changes, the Key Lake mill will be able to process this ore with high concentrations of concrete at target mill production rates.

The increased concrete concentrations result from the mining process at McArthur River. Once a raise has been bored through the ore zone, it is backfilled with concrete. After all the rows of raises are complete in a chamber, equipment is removed from the area and the chamber is backfilled with concrete. A new chamber is excavated to allow for the next area to be mined and the cycle is repeated.

In order to maximize mining ore recovery the cylindrical raises are deliberately overlapped. Therefore, as we mine ore that is adjacent to previously mined out raises backfilled with concrete, we experience higher concentrations of concrete in the mined ore and resulting uranium ore slurry.

As previously reported, we have applied to increase the annual licensed production capacity at both the McArthur River mine and the Key Lake mill to 22 million pounds U₃O₈ (compared to the current 18.7 million pounds). This application has been undergoing a screening level environmental assessment (EA) as required by the Canadian Environmental Assessment Act with the Canadian Nuclear Safety Commission (CNSC) as the responsible authority.

The CNSC has focused on an evaluation of the longer-term environmental impact of low levels of selenium and molybdenum in the Key Lake mill’s effluent and the concentration of these substances in the downstream receiving environment.

Cameco has proposed a three-phase action plan to further reduce selenium and molybdenum discharges in the mill effluent, which was subsequently accepted by the CNSC staff. While we believe that the current level of control protects the environment and is consistent with past EAs of the Key Lake operation, we also recognize that improvements can be made to further reduce levels of these two metals.

At a commission level hearing in January 2007, the CNSC considered a proposed licence condition for the Key Lake mill to implement this plan. We expect a CNSC decision shortly and the first phase of the plan to be in place later in 2007. Reducing the current level of these metals discharged to the environment is expected to help advance the EA to increase the annual licensed production limit at the McArthur River mine and the Key Lake mill. While we cannot predict the outcome of this assessment, we expect that the parallel work on effluent reduction will advance consideration of the proposal. We remain confident that we can incrementally increase production levels with minimal environmental effect.

In addition to obtaining approval for the EA, we need to transition to new mining zones at McArthur River and to implement various mill process modifications at Key Lake in order to sustain increased production levels. Mine planning, development and freeze hole drilling for the McArthur River transition is ongoing. A revitalization pre-feasibility assessment for the Key Lake mill was initiated in October 2006. The mill began production in 1983 and was built as a world-class facility. Revitalization of Key Lake will include upgrading circuits to new technology for simplified operation and increased production capacity.

Reinvesting in this mill will help maintain our leadership position in uranium production for many years into the future.

At McArthur River, work also progressed on the planning of a boxhole boring mining method, which we anticipate using for production from upper zone 4 beginning in 2012. This zone is south of the current zone 2 workings and the Pollock (main) shaft. We completed the mine plan for the boxhole boring test area for development in 2007 to 2008 and placed an order for a boxhole borer for delivery in early 2008. Long-term conceptual planning for resources north of the Pollock shaft was carried out and development of a tunnel for future access and drilling is progressing as planned.

Refer to the section titled “Uranium Exploration” in this MD&A for information on exploration programs near McArthur River.

Rabbit Lake

Rabbit Lake, located in Saskatchewan, produced 5.1 million pounds of U₃O₈ in 2006. Production in 2006 was lower than 2005 as a result of lower than expected ore grades encountered at Eagle Point underground operations. In 2007, we are expecting to mine areas with higher grades relative to 2006. The outlook for 2007 production is 5.5 million pounds of U₃O₈.

In 2006, the Rabbit Lake operation returned the mined out A-zone open pit to the surrounding Wollaston Lake and completed a mill project that reduces the concentration of uranium in the operation’s effluent discharge.

Similar to previous years, the underground diamond-drilling reserve replacement program was successful in 2006. Over 69 kilometres of drilling was completed with excellent results. At the end of 2006, total proven and probable reserves are estimated at 737,000 tonnes at 1.2% U₃O₈ for 19.1 million pounds in areas that are currently being mined and in a new zone that is in close proximity to a newly producing mining area. We now anticipate that the Eagle Point mine life will continue through to 2011.

As previously reported, we have been working on an EA to process a little over one-half of the future uranium production from Cigar Lake ore at the Rabbit Lake mill beginning in the third year of Cigar Lake production, depending on the production rampup. The draft EA study report was submitted to regulatory agencies for review in November 2006. We held a meeting with regulatory reviewers in February 2007 and are now preparing responses to their initial comments and questions. Rabbit Lake began operation in 1975 and is Saskatchewan’s longest operating uranium operation. Given we expect to extend the life of this facility by processing a portion of Cigar Lake’s ore, we will begin a revitalization assessment of the mill in 2007.

Smith Ranch-Highland and Crow Butte

Smith Ranch-Highland and Crow Butte in situ leach (ISL) mines, located in Wyoming and Nebraska respectively, produced a record 2.7 million pounds in 2006, up from our original target of 2.4 million pounds. Smith Ranch-Highland produced 2.0 million pounds of our ISL production in 2006, which is the highest production achieved in the history of ISL mining in the US.

Uranium Projects

Cigar Lake

Cameco began construction of the Cigar Lake mine on January 1, 2005. On October 23, 2006, Cameco reported that a rock fall causing a water inflow had flooded the underground development.

As previously announced, Cameco intends to complete a technical report for Cigar Lake that meets requirements under Canadian Securities Administrators’ National Instrument 43-101. In the course of preparing that report, the company finalized material information which was news released on March 18, 2007. More detailed information will be available in the technical report that Cameco plans to file with SEDAR before the end of March 2007. The information contained in news release issued on March 18, 2007 is discussed below.

Cameco is proceeding with a five-phase plan to restore the underground workings at Cigar Lake and complete construction. Each phase requires regulatory approval which has already been received for the work under way in phase one, other than drilling dewatering holes.

Cameco’s share of additional capital costs to develop Cigar Lake, including mill modifications at Rabbit Lake and McClean Lake (where the uranium will be processed), is currently estimated at $274 million. Adding this new cost estimate to the $234 million that Cameco has already spent on Cigar Lake construction brings Cameco’s share of total construction cost to develop the project to about $508 million. The increase from the last estimate of $330 million, provided on April 30, 2006, is primarily due to site costs during the extended construction period, higher contractor rates driven by the high level of construction activity in western Canada, increased energy costs and several scope additions. Two significant scope additions are increased dewatering capacity and optimized mine plans to freeze more underground areas such as the access tunnels to the production level. In addition to the $234 million of historic construction costs noted above, Cameco’s investment in Cigar Lake as of December 31, 2006 included $378 million for expenditures related to test mining, infrastructure development and capitalized interest.

In addition to capital costs, Cameco’s share of remediation expenses are expected to total $46 million, of which $5 million was expensed in 2006. In 2007, Cameco anticipates its share of remediation costs will be $32 million that will be expensed and reduce pre-tax earnings accordingly. In 2008, Cameco expects its pre-tax earnings to be reduced by $9 million of remediation expenses for Cigar Lake.

Forecast Cigar Lake Costs (Cameco’s share)¹

		Prior
Capital costs		construction
($ millions)		costs				2007				2008				2009				2010				2011				Total
Mine			203				68				99				71				—				—				441
Mills			31				6				5				9				5				11				67
Total			234				74				104				80				5				11				508

Remediation expenses1		2006				2007				2008				2009				2010				2011				Total
($ millions)			5				32				9				—				—				—				46

Cameco is making good progress on the first phase of remediation. The first phase involves drilling holes down to the source of the inflow and to a nearby tunnel where reinforcement may be needed, pumping concrete through the drill holes, sealing off the inflow with grout and drilling dewatering holes.

As of March 16, 2007, 13 of the 14 drill holes planned for reinforcing and sealing off the water inflow area are complete. Concrete is required in two locations underground — one near the rockfall to seal off the inflow area and another in a nearby tunnel to provide reinforcement. More than 1,000 cubic metres of

concrete have been poured through drill holes into the reinforcement area. The concrete mixture is designed to harden under water and is being poured in successive layers.

Cameco now expects to complete the work necessary to seal off the water inflow in the third quarter of 2007 after spending additional time learning the best way to work with concrete in the water underground. This timeline assumes that the current pace of drilling is maintained, and the concrete solidifies as planned to provide reinforcement and prevent or reduce water inflow sufficiently to enable mine dewatering. The integrity of the plug will not be known until dewatering is under way.

Cameco has applied to the regulators for approval to drill an additional four, larger-diameter, holes that would be used to dewater the mine. Cameco has secured access to all drilling equipment required for the remediation work. We will also be making the appropriate application for relicensing since the current Cigar Lake construction licence expires at the end of 2007.

The subsequent four phases of remediation and construction are:

Phase 2		Dewatering the underground development, verifying the water inflow has been sufficiently sealed, and initiating the installation of surface freezing infrastructure — expected to be completed by the end of the third quarter 2007.
Phase 3		Completing any additional remedial work identified in phase two such as determining if additional reinforcement is required in higher risk areas — expected by the end of 2007.
Phase 4		Completing underground rehabilitation that includes securing areas to prevent ground fall or water inflow, re-establishing mine ventilation, installing pumping capacity and re-establishing the ore freezing program — expected to be completed by the summer of 2008.
Phase 5		Resuming construction activities that will lead to scheduled completion of the mine-targeted for 2010.

While these phases are under way, the area around the flooded second shaft will be frozen after the installation of underground freeze pipes from a nearby tunnel. This is anticipated to be completed by the summer of 2008. Shaft sinking will continue with completion scheduled for 2010.

Cameco has hired internationally qualified independent experts to investigate the two water inflow incidents at the Cigar Lake project and provide corrective action recommendations. The company will be carefully reviewing the final reports to identify opportunities for improvement.

After construction is complete, Cameco estimates production startup in 2010, ramping up to the company’s share of full production of about 9 million pounds in just over two years. This is subject to regulatory approval and the remediation being completed in a timely fashion.

Following a review of the reserves and resources at Cigar Lake, Cameco’s share of proven reserves remains unchanged at 113.2 million pounds. However, a small amount (Cameco’s share is 2.6 million pounds) of probable reserves have been reclassified as indicated resources due to a change in the cut-off grade to 5.9% U₃O₈. Additional work is required on the inferred resources to determine if they can be reclassified to a higher category.

Cigar Lake Reserves and Resources at March 16, 2007

										Total				Cameco’s Share
		Tonnes				Grade				lbs U3O8				lbs U3O8
Category		(thousands)				%U3O8				(millions)				(millions)
Reserves
Proven reserves			497				20.7				226.3				113.2
Resources
Indicated resources			61				4.9				6.6				3.3
Inferred			317				16.9				118.2				59.1

Notes:

At a mill recovery rate of 98.5%, Cameco anticipates that its share of proven reserves will produce 111.5 million recoverable pounds of U₃O₈ over 14.8 years of production. The first five years of planned production are as follows:

Cameco’s share of Cigar Lake production		2010				2011				2012				2013				2014
(million pounds U3O8)			1.5				4.5				8.8				9.0				9.0

Cigar Lake will produce less than Cameco’s share of full production of 9 million pounds in the early and late years resulting in an average total recovery of 7.5 million pounds annually over the reserve life.

The above discussion regarding Cigar Lake should take into consideration the following risk factors:

	•		Cigar Lake is a challenging deposit to develop and mine. These challenges include control of groundwater, weak ground formations, and radiation protection. The sandstone overlying the basement rocks contains significant water at hydrostatic pressure. Freezing the ground is expected to result in several enhancements to the ground conditions, including: (1) minimizing the risk of water inflows from saturated rock above the unconformity; (2) reducing radiation exposure from radon dissolved in the ground water; and (3) increasing rock stability. However, freezing will only reduce, not eliminate, these challenges. There is also the possibility of a water inflow during the drilling of holes to freeze the ground. Therefore, the risk of water inflows at Cigar Lake remains. The consequences of another water inflow will depend upon the magnitude, location and timing of any such event, but could include a significant delay in Cigar Lake’s remediation, development or production, a material increase in costs, a loss of mineral reserves or require Cameco to give notice to many of its customers that it is declaring an interruption in planned uranium supply. Such consequences could have a material adverse impact on Cameco. Water inflows are generally not insurable.
	•		Cigar Lake’s remediation and production schedules are based upon certain assumptions regarding the condition of the underground infrastructure at the mine. The condition of this underground infrastructure, however, will not be known until the mine is dewatered. If the underground infrastructure has been impaired, this could adversely impact our schedules and cost estimates.
	•		The outcome of each phase of remediation will impact the schedule of each subsequent phase of remediation and the planned commencement of production in 2010. For example, if the plug is not successful in securing the inflow area, then ground freezing, already incorporated in the remediation plan, will be utilized to secure the inflow area. If this situation occurs, there could be a delay in the remediation schedule and the commencement of production.
	•		Remediation and production schedules will be impacted by regulatory approvals. We have not yet received regulatory approval to drill four drill holes for dewatering the mine during the first phase of the remediation plan. This approval is required to move forward with our planned dewatering strategy. We believe that each phase of remediation falls within the scope of the environment assessment of the Cigar Lake project. If regulatory authorities do not agree, this could impact our remediation and production schedules. In addition, working with the regulatory authorities to receive approvals for additional corrective actions which may result from current inflow investigations may impact our remediation and production schedules. Readers are cautioned that conclusions, projections and estimates set out in the section above under the heading “Cigar Lake” are subject to the qualifications, assumptions and exclusions which are detailed in the technical report. To fully understand the summary information set out above, the technical report that will be filed on SEDAR should be read in its entirety.

The scientific and technical information in this news release was prepared under the supervision of:

	•		Alain G. Mainville, a professional geoscientist employed by Cameco as director, mineral resources management.
	•		Barry W. Schmitke, a professional engineer employed by Cameco as the general manager of the Cigar Lake project.

The individuals noted above are qualified persons for the purpose of National Instrument 43-101.

Inkai

At the Inkai ISL project in Kazakhstan, there are two production areas currently in development (blocks 1 and 2). At block 1, construction is under way for the commercial processing facility. In 2007, we expect to complete construction and begin commissioning the commercial facility, subject to regulatory approvals. We expect startup of production in late 2007 with commercial production to follow in 2008 after a rampup period.

At block 2, the test mine produced about 0.8 million pounds U₃O₈ during 2006. Production from the expanded facility started in the second quarter of 2006. Assuming that resources are converted to reserves this year, we would apply for a mining licence in 2007 for block 2. Commercial development of block 2 could start in 2008. As previously reported, production from blocks 1 and 2 is expected to total 5.2 million pounds per year by 2010.

The total cost to bring Inkai to commercial production (100% basis) is now projected to be about $200 million (US). The capital expenditures for Inkai in 2007 are expected to total $90 million (US). The production obtained from the Inkai test mine is being sold and proceeds from the sales are used to fund the construction and operation of the project. Including the recoveries related to these sales, the net cost of development at Inkai is expected to be about $95 million (US).

Inkai will be subject to taxes in Kazakhstan at statutory rates fixed at the signing of the Resource Use Contract in 2000. Inkai will also be subject to Excess Profits Tax. Excess profits tax becomes payable when the internal rate of return of the project (as defined in the applicable tax code) exceeds 20%. Excess profits tax is levied at rates scaled from 4% to 30%, depending on the internal rate of return. The excess profits tax rate is applied to pre-tax net income less income tax. Inkai will not pay excess profits tax in 2007. The timing of excess profits tax in the future, after Inkai reaches commercial production will be dependent on the internal rate of return of the project.

Purchase Volumes

Cameco also has purchase commitments for uranium products and services from various sources. Most of these purchase commitments are in the form of UF₆. At the end of 2006, these purchase commitments totalled 51 million pounds uranium equivalent from 2007 to 2013. Of this, 46 million pounds are from exercising options under our agreement to purchase uranium from dismantled Russian weapons (the Russian HEU commercial agreement). At December 31, 2006, these purchase commitments totalled $598 million (US). Refer to note 24 in the notes to consolidated financial statements.

Costs

Cameco’s cost of supply is influenced by its mix of produced mine material and uranium purchases.

Production costs at our Saskatchewan uranium mines, our largest source of production, are primarily fixed, with almost one-third attributable to labour. The largest variable operating cost is production supplies (25%), followed by maintenance materials (10%). Another large component of production costs is contracted services which is 23% of the total. Contracted services include items such as mining, maintenance, air charters, security and ground freight. These four components make up 90% of the production costs at our Saskatchewan uranium mines.

Uranium mine production costs are driven mostly by the complexity of the operation. Unit costs of production are driven primarily by the grade and size of the reserves. McArthur River is the world’s largest, high-grade uranium mine. Its ore grade averages 21% U₃O₈ which means it can produce more than 18

million pounds per year by extracting only 100 to 120 tonnes of ore per day. While Rabbit Lake’s average ore grade of 1% U₃O₈ is much lower, it compares favourably to other operating mines in the world where ore grades are generally below 0.5%.

ISL extraction methods can make even lower-grade orebodies commercially attractive. Worldwide, ISL mines typically recover uranium from orebodies with an average grade in the range of 0.1% U₃O₈. Cameco’s cost of supply is influenced only modestly by the two US ISL operations. In 2006, US ISL production accounted for about 13% of the company’s primary output.

Purchased product also affects Cameco’s cost of supply. Most of Cameco’s purchase commitments are under long-term, fixed-price arrangements reflecting prices significantly lower than the current published spot and long-term prices. These purchase commitments totalled $599 million (US) at December 31, 2006. Refer to note 24 in the notes to the consolidated financial statements. A significant portion of these purchased pounds will be delivered into existing sales contracts.

Foreign Exchange

The relationship between the Canadian and US dollars affects financial results of the uranium business as well as the fuel services business. For that reason, the effect on both businesses will be discussed in this section.

Sales of uranium and fuel services are routinely denominated in US dollars while production costs are largely denominated in Canadian dollars. We attempt to provide some protection against exchange rate fluctuations by planned hedging activity designed to smooth volatility. Hedging activities partly shelter our uranium and fuel services revenues against declines in the US dollar in the shorter term.

Cameco also has a natural hedge against US currency fluctuations as a portion of its annual cash outlays, including purchases of uranium and fuel services, is denominated in US dollars. The influence on earnings from purchased material in inventory is likely to be dispersed over several fiscal periods and is more difficult to identify.

At each balance sheet date, Cameco calculates the mark-to-market value of all foreign exchange contracts with that value representing the gain or loss that would have occurred if the contracts had been closed at that point in time. We account for foreign exchange contracts that meet certain defined criteria (specified by generally accepted accounting principles) using hedge accounting. Under hedge accounting, mark-to-market gains or losses are included in earnings only at the point in time that the contract is designated for use. In all other circumstances, mark-to-market gains or losses are reported in earnings as they occur.

At December 31, 2006, the Canadian/US dollar exchange rate was $1.17, unchanged from December 31, 2005. Over the course of the year, the exchange rate averaged $1.13.

At December 31, 2006, we had foreign currency contracts of $1,237 million (US) and EUR 58 million that were accounted for using hedge accounting and foreign currency contracts of $127 million (US) that did not meet the criteria for hedge accounting. The foreign currency contracts are scheduled for use as follows:

		2007				2008				2009				2010
$ millions (US)			584				375				270				135
EUR millions			32				13				10				3

The US currency contracts have an average effective exchange rate of $1.17 (Cdn) per $1.00 (US), which reflects the original foreign exchange spot prices at the time contracts were entered into and includes net deferred gains.

At December 31, 2006, the mark-to-market loss on all foreign exchange contracts designated as hedges was $34 million compared to a $37 million gain at December 31, 2005. For those contracts not designated as hedges, the mark-to-market loss of $2 million has been included in earnings for 2006.

Timing differences between the maturity dates and designation dates on previously closed hedge contracts may result in deferred revenue or deferred charges. At December 31, 2006, net deferred gains totalled $26 million. The schedule for net deferred gains to be released to earnings, by year, is as follows:

Deferred Gains (Charges)		2007				2008				2009				2010
$ millions (Cdn)			15				9				2				0

In 2006, most of the net inflows of US dollars were hedged with currency derivatives. Net inflows represent uranium and fuel services sales less US dollar cash expenses and US dollar product purchases. For the uranium and fuel services businesses in 2006, the effective exchange rate, after allowing for hedging, was about $1.20 compared to $1.30 in 2005.

For 2007, every one-cent increase/decrease in the US to Canadian dollar exchange rate would result in a corresponding increase/decrease in net earnings of about $6 million (Cdn).

Uranium Strategies

Cameco’s overall objective is to build on and leverage our competitive advantage in uranium. In doing so, we strive to meet three major goals:

	•		remain one of the low-cost producers,
	•		expand our market position, and
	•		increase supply flexibility.

There are a number of key strategies the company uses to achieve these goals. We strive to maintain our low-cost position by adding economically attractive reserves and improving our margins. We look to expand our low-cost reserves through acquisition, exploration around existing operations and by identifying geological regions that will provide the next tier of low-cost production.

We improve our margins by optimizing production to yield the highest rate of return, gaining cost efficiencies through quality and business process improvements, and pursuing fundamental productivity gains through technological development.

We seek to grow our market position by acquisition, seeking to accelerate production from existing operations, and participating in new uranium opportunities at exploration and development stages.

To increase our supply flexibility, we are building a geographically diverse production base. This includes accelerating the production at Inkai, bringing Cigar Lake into production, and continuing to pursue a global exploration program. This program identifies the most prospective regions and maximizes options to access and/or control land positions for future business advantage. To ensure we have adequate production, we

identify the optimal resource mix (i.e. different types of deposits such as unconformity versus in situ leach), and replace reserves through exploration and acquisition.

Given Cameco’s leadership role in the uranium market, the company wants to successfully maximize uranium market growth. Our goals in this regard are to:

	•		expand market position,
	•		optimize price realization over time, and
	•		improve supply flexibility.

To grow our market position, we build on our customer relationships and expand the range of services available to customers while maintaining the company’s reputation as a reliable supplier. In addition, we maintain participation in secondary supplies including, enhancing our relationship with Russia, influencing the timing of sales of secondary supplies to the market, and using market intelligence to achieve early notice of new supply sources.

A key element for Cameco is our contracting strategy, which is influenced by the supply and demand outlook for uranium. Since mid-2003, the supply side has experienced significant impacts that caused uranium prices to rise rapidly. This upward trend has been due, in large part, to the realization by market participants that excess secondary supplies will not contribute as much to future uranium supply as they had previously expected. Consequently, a greater volume of new primary mine production will be needed.

The rise in prices has triggered predictable supply side responses. The most notable is the increase in companies exploring for new uranium deposits and the construction of new mines and the proposed expansion of existing ones. However, given the low prices of the last two decades, very little exploration was undertaken on a global basis, and relatively little investment was made in advancing new uranium projects. Producers were operating at close to full capacity to minimize unit costs. Undeveloped deposits, identified in previous exploration cycles, were mostly uneconomic or located in jurisdictions with political challenges. With higher prices, existing projects and newly discovered deposits will be developed, but the lead time before they enter commercial production may be lengthy depending on the region. Consequently, the primary supply industry cannot significantly increase supply in the near-term.

Future market prices will depend on a number of supply and demand factors, the more notable ones being:

	•		additional production from the successful expansion of existing production, startup of mines currently under construction and development of existing deposits yet to be developed,
	•		the success of exploration programs in identifying new commercial uranium deposits that can be developed in a reasonable period of time,
	•		the exchange rate in various producer country currencies relative to the US dollar,
	•		the timing and extent of expansion of uranium produced as a byproduct or co-product of other commodities, particularly in Australia and South Africa,
	•		availability of existing and possible new secondary materials, such as blended down uranium from military stock including dismantled weapons,
	•		the manner in which investment funds liquidate their holdings,
	•		ultimate sales by the US Department of Energy (DOE),
	•		the extent enrichment services are substituted for natural uranium feed, and
	•		the growth rate of nuclear power.

Given the uncertainty surrounding the foregoing supply/demand factors and the impact on price, we believe it is prudent to continue to target a mix of market-related and fixed price mechanisms.

As we have discussed in the past, our contracting objective is to secure a solid base of earnings and cash flow to allow us to maintain our core asset base and pursue growth opportunities over the long-term. Our contracting strategy focuses on reducing the volatility in our future earnings and cash flow, while providing both protection against decreases in market price and retaining exposure to future market price increases. This is a balanced approach, which we believe delivers the best value to our shareholders over the long-term.

Our current portfolio reflects a 60/40 mix of market-related and fixed pricing (escalated by inflation) mechanisms. Currently, our contracting is more focused on market-related pricing. Consequently, we expect this ratio to change over time.

The overall strategy will continue to focus on achieving longer contract terms of up to 10 years or more, floor prices that provide downside protection, and retaining an adequate level of upside potential. In general, most new offers include price mechanisms with an 80% market-related and 20% fixed component. The fixed-price component generally is equal to or higher than the industry long-term price indicator at the time of offer and is adjusted by inflation. The market-related component will include a floor price (escalated by inflation).

Cameco has a variety of supply sources including primary production, firm commitments for long-term purchases, inventories of six months forward sales (or equivalent to about 17 million pounds, including working inventory) and uranium from opportunistic purchases in the spot market.

Capability to Deliver Results

Cameco will continue to enhance its capabilities in a number of areas to execute our strategies and deliver on our goals to remain one of the low-cost producers, protect and expand our market position and increase supply flexibility. We will achieve these goals by:

	•		transitioning successfully from current mining areas to new ones,
	•		advancing other mining methods and technologies,
	•		proceeding with revitalization plans for our milling operations,
	•		obtaining timely regulatory approvals under an increasingly stringent regulatory regime,
	•		securing adequate human resources to replace an aging workforce, including ensuring skilled tradespeople continue to be available,
	•		ensuring capital is readily available over the longer term given our expansion plans,
	•		allocating adequate resources to exploration, and
	•		evaluating and acting upon opportunities that we expect to add value.

transition to new mining areas

Underground drilling exploration at McArthur River has identified four ore zones (zones 1 to 4). Currently, only zone 2 is being mined. Zone 2 is divided into four panels (panels 1, 2, 3 and 5).

The McArthur River mine schematic above illustrates the location of the four ore zones.

As extraction of zone 2 (panels 1, 2, and 3) progresses, we expect to place zone 1, zone 2 (panel 5) and the lower mining area of zone 4 into production by 2009, subject to regulatory approval. We plan to continue using the raiseboring method to extract ore in these zones.

All tunnels have been developed for zone 1 and we do not expect any technical issues. At zone 2 (panel 5) and lower zone 4, freeze hole drilling and tunnel construction commenced in 2006. Through much of 2006, freeze-hole drilling advanced at a slower than expected rate due to technical challenges with drilling through frozen ground, additional time required to address operational challenges. For example, we made improvements to the drill setups, and addressed earlier staffing challenges associated with getting sufficient experienced drillers given the high levels of activity in the exploration diamond drilling industry. We have modified our freeze-hole drilling technique and equipment and have since achieved our scheduled target drilling rates.

Mining Methods
Currently, McArthur River uses raiseboring to extract ore from the mine. As we expected from the start of mining, other mining methods will be used to maintain or expand production. In 2005, we determined that the boxhole boring method would be better suited for the upper zone 4 at McArthur River, because it would allow development from a preferred location. Production from this zone is scheduled to begin in 2012.

Until Cameco has fully developed and tested the boxhole boring method, there is uncertainty in the estimated productivity. Cameco plans to develop and test the boxhole boring method over the next four years. In 2006, we completed the mine plan for the boxhole boring test area and placed an order for a boxhole borer for delivery in early 2008. Mine development for the test area is planned to take place during 2007 and 2008. During this time, we will continue to further develop detailed plans for this mining method.

At Cigar Lake, we plan to use the jet boring method, which has been examined through extensive test mining programs. Overall, the test mine programs were considered highly successful with all initial objectives fulfilled. However, as the jet boring mining method is new to the uranium mining industry, the potential for technical challenges exist. We are confident that our engineers will be able to solve the challenges that may arise during the initial rampup period.

Revitalization of Mills
The Key Lake and Rabbit Lake mills have been in operation for 24 and 32 years respectively. We plan to renew both these mills to help maintain our leadership position in uranium production. A revitalization pre-feasibility assessment for the Key Lake mill was kicked off in October 2006. We are targeting to complete the final feasibility study in early 2008. A revitalization assessment of the Rabbit Lake mill will begin in 2007.

Regulatory Approval
Cameco’s growth plans depend on regulatory approvals such as environmental assessments, and obtaining construction and operating licences in various jurisdictions including Canada, Kazakhstan, and the US. The timing for approvals can be impacted by various factors such as, the regulator’s assessment of current performance, the comprehensiveness of the documentation submitted to support the application, assessment of the significance of any anticipated incremental impacts, the number of industry approval applications being assessed at any given time by the regulator, changing regulatory standards and other factors.

Cameco expends significant financial and managerial resources to comply with laws and regulations. We seek to find solutions that best reduce or eliminate our environmental impacts.

Human Resources
Cameco’s workforce reflects the national demographics where a significant number of the eligible workforce is nearing retirement age. Approximately 27% of the workforce at our Saskatchewan uranium mines was age 50 or older at December 31, 2006. Cameco’s challenge is to compete for the limited number of people entering the workforce to replace retiring employees. We have developed a long-term people strategy that includes workforce planning to meet this challenge. Another challenge we have is securing skilled tradespeople. Cameco is examining various options to accelerate our extensive apprenticeship programs.

Ready Access to Capital
Cameco has an ambitious plan to grow in the nuclear energy industry. Opportunities to invest are unpredictable and often capital intensive. We intend to maintain financial flexibility to pursue opportunities as they arise. For that reason, we maintain a conservative financial structure with a target of no more than 25% net debt to total capital.

Exploration Programs
Cameco continues to pursue a focused exploration program to identify additional uranium reserves for the future to maintain the company’s position as the world’s largest uranium producer.

Cameco retained an exploration program and its expertise during the depressed market. As uranium prices have risen we have increased our investment in exploration to achieve our goal of expanding our reserve base to grow our uranium market leadership position.

We plan to invest about $45 million in uranium exploration during 2007. This is up 29% compared to the $32 million invested in 2006.

For more information on our exploration activities, see the section titled “Uranium Exploration” in this MD&A.

Uranium Business Results
Cameco’s uranium business consists of the McArthur River, Key Lake and Rabbit Lake mine and mill operations in Saskatchewan, two ISL mines in the US, the Inkai ISL test mine in Kazakhstan, the Cigar Lake development project in Saskatchewan and uranium exploration projects located primarily in Canada and Australia.

Uranium Business Highlights

		2006				2005				% Change
Revenue ($ millions)			803				690				16
Gross profit ($ millions)			237				159				49
Gross profit %			30				23				30
Earnings before taxes ($ millions) 1			181				134				35
Average realized price
($US/lb)			20.62				15.45				33
($Cdn/lb)			24.72				20.14				23
Sales volume (million lbs) 2			32.1				34.2				(6	)
Deferred sales volume (million lbs)			4.0				0				—
Production volume (million lbs)			20.9				21.2				(1	)

In 2006, we reported that Cameco had entered into standby product loan agreements with two of our customers. The loans allow Cameco to borrow up to 5.6 million pounds U₃O₈ equivalent over the period 2006 to 2008, with repayment in 2008 and 2009. Of the material available under the loan, up to 1.4 million kgU can be borrowed in the form of uranium hexafluoride (UF₆). Any borrowings will be secured by letters of credit and be settled in kind.

As of December 31, 2006, Cameco had not borrowed any material under the standby loan agreements. However, regardless of whether any material is borrowed, we defer revenue recognition from sales to the counterparties of the standby product loan agreements, up to the limit of the loans (5.6 million pounds). This is in accordance with accounting standards. Cameco will recognize the deferred revenue and associated costs when the loan agreements are terminated, or if drawn upon, when the loans are repaid and that portion of the facility is terminated.

Accordingly, in 2006, Cameco has deferred revenue of $80 million and the associated costs on sales of 4.0 million pounds of U₃O₈. The gross profit on the deferred sales was $15 million.

The timing of cash receipts on the deferred revenue is the same as on any other sale and is unaffected by the accounting treatment for the revenue. As a result, cash flows are not impacted by the deferrals.

Standby fees associated with the loan facilities are reflected in the “Interest and Other” expense item on the Consolidated Statement of Earnings.

Our reported revenue and costs for U₃O₈ discussed throughout this MD&A have been reduced to reflect the required deferrals. Similarly, the average realized price for U₃O₈ has been adjusted.

Revenue
Compared to 2005, revenue from our uranium business rose in 2006 by 16% to $803 million due to a 33% increase in the realized selling price (in US dollars) partially offset by a 6% decline in reported sales volume. The decline is a function of the deferred sales described above.

The average realized price in Canadian dollars, increased by only 23% due to the stronger Canadian dollar relative to the US dollar. The increase in the average realized price was the result of higher prices under fixed-price contracts and a higher uranium spot price, which averaged $49.60 (US) per pound in 2006 compared to $28.67 (US) in 2005.

Cost of Products and Services Sold
For 2006, the cost of products and services sold was $472 million compared to $429 million in 2005, reflecting increases in the cost of purchased uranium and in the proportion of sales commitments met with purchased material. In 2006, purchased material represented about 45% of sales compared to 35% in 2005. On a per unit basis, the cost of product sold was about 16% higher than in the previous year due to the foregoing factors.

Depreciation, Depletion and Reclamation
In 2006, depreciation, depletion and reclamation (DD&R) charges were $94 million compared to $102 million in 2005, due to the higher proportion of sales of purchased uranium. On a per unit basis, DD&R costs were about 5% lower than in 2005.

Gross Profit
In 2006, our gross profit from the uranium business amounted to $237 million compared to $159 million in 2005, an increase of 49%. This was attributable to the 23% increase in the realized price for uranium and was partially offset by higher unit costs for purchased uranium. Our earnings before taxes from the uranium business improved to $181 million from $134 million last year, while the profit margin rose to 30% from 23% in 2005 again due to the higher realized selling price.

2007 Outlook for Uranium
In 2007, the reported sales volume and associated revenue may be affected by changes to product loan arrangements. Total uranium deliveries amounted to 36 million pounds in 2006, while reported sales volume was 32 million pounds due to the accounting for the product loans.

In 2007, we expect uranium deliveries to total 33 million pounds. However, the reported sales volume for revenue purposes depends upon the product loan arrangements. We may terminate a portion or all of the product loan arrangements in 2007. To the extent we terminate the product loan arrangements, revenue that was deferred on up to 4 million pounds in 2006 would be recognized in 2007. If the product loan facilities remain in place unchanged, we would be required to defer revenue on an additional 1.6 million pounds in 2007, regardless if any amount is drawn on the loans. Assuming the product loans remain in place, we would expect our reported revenues to be about 45% greater than in 2006 due to an increase in our realized price.

Excluding the impact of any deferrals related to the product loans, we would expect our uranium revenue for 2007 to increase by about 50% due primarily to an increase in the realized price. Our average realized uranium price is anticipated to improve due to higher expected prices under our current contracts relative to 2006.

The unit cost of product sold is projected to increase by about 20% as a result of increased costs for purchased material, higher royalty costs due to an increase in the realized price, the impact of tiered royalty charges and increased production costs expected to be incurred in 2007.

As mentioned in the 2006 fourth quarter report, we have included supply interruption language in our contracts, which provides Cameco with the right to reduce, defer or cancel volumes on a pro-rata basis if we experience a shortfall in planned production or deliveries of purchases under the highly enriched uranium agreement. This language protects about three-quarters of currently contracted volumes, and this percentage will rise as old contracts expire. All contracts contain standard force majeure language.

The baseload contracts put in place to support the development of Cigar Lake also contain supply interruption language, which allows Cameco to reduce, defer or cancel deliveries in the event of any delay or shortfall in Cigar Lake production.

Since the Cigar Lake water inflow, we have been in discussions with our customers to address the production delay at the mine and its possible effect on uranium deliveries. Our immediate focus is on customers who will be impacted with uranium deliveries in 2007.

In the case of the Cigar Lake baseload contracts containing deliveries in 2007, we plan to defer the volumes to the end of the various contracts.

For the remainder of the contracts that are impacted by the supply interruption language in 2007, we plan to defer the portion of deliveries impacted by this language for a five to seven-year period.

Contract specific decisions will be made in consultation with each of our customers. We appreciate their understanding and support.

In 2007, Cameco expects its pre-tax earnings will be reduced by $32 million of remediation expenses for Cigar Lake.

Cameco’s share of uranium production for 2007 is projected to increase slightly to 21.0 million pounds of U₃O₈ from 20.9 million in 2006. These quantities do not include Inkai as the operation is not yet in commercial production.

Cameco did not pay tiered royalties in 2006 and prior years due to the availability of prescribed capital allowances that reduce uranium sales subject to tiered royalty. Cameco expects its capital allowances to be fully exhausted during 2007 and, therefore, expects to pay tiered royalties in 2007. We currently estimate that tiered royalties will reduce net earnings by approximately $10 million in 2007. We will be eligible for additional capital allowances once Cigar Lake commences production at which time we do not expect to be required to pay tiered royalties until the additional allowances are fully exhausted. The following is an example of how tiered royalties are estimated.

Calculation of Tiered Royalties
(2006 rates; index value to determine rates for 2007 not available until April, 2007)

Assumptions:

	•		based on 100,000 pounds U3O8 sold, and
	•		no capital allowance are available

Sales Price		Tier 1				Tier 2				Tier 3
Realized ($ Cdn)		Royalty1				Royalty2				Royalty3				Total Tiered Royalty
$25.00		$	53,040			$	3,040				—			$	56,080
$35.00		$	113,040			$	43,040			$	13,350			$	169,430
$45.00		$	173,040			$	83,040			$	63,350			$	319,430
$55.00		$	233,040			$	123,040			$	113,350			$	469,430
$65.00		$	293,040			$	163,040			$	163,350			$	619,430
$75.00		$	353,040			$	203,040			$	213,350			$	769,430
$85.00		$	413,040			$	243,040			$	263,350			$	919,430

The outlook for 2007 financial results for the uranium business segment do not include all the expected adjustments for the Cigar Lake water inflow incident as they are being finalized. Also the outlook is based on the following key assumptions:

	•		no significant changes in our estimates for sales volumes, costs, purchases and prices, as discussed above,
	•		no disruption of supply from our mines or third-party sources, and
	•		a US/Canadian dollar spot exchange rate of $1.16.

Uranium Exploration
A significant part of our future production base is expected to result from our global exploration activities. We have maintained an active exploration program even during the bottom of the uranium price cycle, reflecting our long-term commitment to the industry. Over the past five years we have significantly increased our investment in exploration programs. We invested about $32 million in uranium exploration during 2006.

We have skilled and experienced exploration staff with more than 80 professionals searching for the next generation of economic deposits. Our land holdings are substantial, with approximately 4.8 million hectares (11.8 million acres) of Cameco and partner-operated land, primarily in Canada, Australia, the US, Mongolia and Africa. Our activities include both brownfields and greenfields prospects and we monitor potential acquisition targets.

Cameco owns a range of participating interests in its exploration lands, and either owns or has the right to earn a majority interest in most of the company’s projects. At year-end 2006, Cameco operated approximately 75% of its exploration projects, including joint ventures. The majority of Cameco’s exploration projects are early to middle stage, on which indications of economic grades or quantities of uranium have not yet been identified. The nature of mineral exploration is such that discovery of economic deposits on new projects is uncertain and can take many years.

2006 Exploration Results

Brownfield Exploration
Brownfield exploration refers to uranium exploration activity undertaken near existing operations and advanced projects. In 2006, we made progress on several projects. We continue our drilling programs intended to add resources at the McArthur River and Rabbit Lake operations, which could extend the mine life at both locations.

At Rabbit Lake, the underground diamond-drilling reserve replacement program was successful in 2006, with over 69 kilometres of drilling being completed with excellent results. At the end of 2006, total proven and probable reserves are estimated at 737,000 tonnes at 1.2% U₃O₈ for 19.1 million pounds in areas that are currently being mined and in a new zone that is in close proximity to a newly producing mining area.

In addition, both the Millennium and Collins Creek deposits were advanced in 2006.

Regional Exploration
The Centennial discovery on the Virgin River project was extended with several new mineralized holes, confirming the significance of this new mineralized region.

As part of Cameco’s continuing expansion of uranium exploration activities, our land holdings were increased significantly, either directly or under option, with new projects in Nunavut, the Northwest Territories, and Mongolia.

Also in March 2007, Cameco signed additional non-binding memorandums of understanding (MOU) with Joint Stock Company Techsnabexport (Tenex), a leading state-owned Russian nuclear company, to explore in Russia and Canada.

Building on the MOU signed in November 2006, Cameco and Tenex have further developed terms on which they would co-operate on joint uranium exploration projects in Russia and Canada and, if warranted, engage in development and production of uranium deposits that are found. Cameco and Tenex have also identified priority projects for possible future joint exploration activities in Russia and Canada that would be disclosed when agreements are finalized. Cameco anticipates that binding agreements will be signed in 2007.

Junior Exploration Companies

Since the recovery of the world uranium market, and corresponding higher prices for uranium, the competitive environment for uranium exploration has changed. There are more than 400 uranium exploration companies listed on stock exchanges and most of these are actively funding new exploration programs in Canada and other regions. In the newly active sector, Cameco maintains an ongoing dialogue with numerous companies, with the objective of positioning the company for future participation in areas with promising results, and leveraging Cameco’s recognized position in the sustainable development of uranium resources worldwide. Cameco’s approach to future resource replacement is to combine its own exploration activities with partnerships, joint ventures, or equity holdings in other companies with assets that meet the company’s investment criteria.

At December 31, 2006, Cameco owned a 21.6% interest in UEX Corporation, a TSX listed junior exploration company formed in 2002 from a combination of exploration assets previously held by Cameco and Pioneer Metals Corporation. Cameco has, as long as it maintains a 20% or higher interest in UEX, certain rights related to financing, and marketing production from future uranium deposits. As well, Cameco

has the right to mill uranium produced from properties it contributed to UEX at the time of its formation in 2002.

In 2006, Cameco completed its acquisition of a 19.5% interest in UNOR Inc. (formerly Hornby Bay Exploration Ltd.). Cameco purchased 22.9 million common shares of UNOR at $0.40 per share through a private placement for $9.2 million. UNOR is a uranium exploration and development company with its head office in Toronto, Ontario. Its principal properties are 226 mineral claims in northwestern Nunavut on the Hornby Basin, a geological formation with similar characteristics to the uranium-rich Athabasca Basin in northern Saskatchewan. The strategic alliance agreement concluded between Cameco and UNOR includes the following terms:

	•		As long as Cameco continues to hold 10% of UNOR’s outstanding common shares, it will have the right to nominate one person for election to UNOR’s board of directors, and UNOR will consult with Cameco on its exploration and development programs;
	•		As long as Cameco continues to hold 16% of UNOR’s outstanding common shares, it will have the right to participate in any future equity issues, match equity or debt required for mine development, operate any mine developed on UNOR’s properties and market any uranium produced; and
	•		Cameco and UNOR each have a right of first refusal on each other’s uranium projects in a specified area of Nunavut and the Northwest Territories.

On January 26, 2007, Cameco signed a Letter of Intent with Vena Resources to establish a jointly-owned company to explore and develop Vena’s uranium assets in Peru. Subject to signing definitive agreements, the new company will begin by initially exploring and developing the numerous uranium targets held by Vena in southern Perú. Under the terms of the Letter of Intent, Cameco has the option to invest $10 million over the next four years in two stage payments to obtain up to 50% of MINERGIA SAC, the private company that holds Vena’s uranium landholdings in Perú. Cameco can increase its stake in MINERGIA to 60% when a feasibility study is completed and to 70% when mine development commences.

2007 Exploration outlook
Cameco plans to invest about $45 million in uranium exploration during 2007 as part of our long-term strategy to maintain our leadership position in uranium production.

Brownfield Exploration
Approximately 28% of the uranium exploration budget will be for brownfield exploration projects in the Athabasca Basin. We will invest $12.5 million on six advanced projects. The largest investment will be at McArthur River, where $3.8 million will be directed towards diamond drilling on the northern extension of the prolific P2 fault. At the Rabbit Lake operation, surface exploration will focus on both regional targets and mine-related targets, principally in the vicinity of the Eagle Point mine.

The Dawn Lake joint venture will continue work on two uranium deposits in 2007. Delineation of the Collins Creek deposit will continue, with additional drilling and a scoping study to examine potential mining scenarios. At the original Dawn Lake deposit, a pre-feasibility study on the 11A Zone will be completed by the second quarter of 2007.

Exploration activity at the Cree Zimmer and the Waterbury Lake projects will also increase in 2007. Priority targets on the Cree Zimmer project, which surrounds the historic Key Lake mining operation, include the P-Zone and the area on the main Key Lake fault southwest of the former Gaertner and Deilmann uranium

deposits. In 2007, exploration on the Waterbury Lake project will be focused east of the Cigar Lake orebody.

The partners on the Cree Extension joint venture approved the completion of a feasibility study on the basement rock hosted Millennium deposit in early 2008. Integral to the study will be the completion of a three-dimensional seismic survey over the deposit area. The survey will define the unconformity depth. Several shaft pilot holes will be drilled during the year.

Regional Exploration
The remaining $32.5 million of exploration expenditures in 2007 will be allocated among 44 projects worldwide, the majority of which are at drill target stage. Our largest investment will be in Saskatchewan, where a $3.3 million program will be completed on the Virgin River project as followup on the Centennial zone mineralization. We will also focus on projects in the Northwest Territories and Nunavut regions of northern Canada, where Cameco has a large land position. In addition to our existing land positions in the Northern Territory, Cameco will undertake work on new land positions in Western Australia and South Australia.

In 2007, exploration will also take place in the United States, Mongolia, and Africa, where Cameco is earning an interest in prospective land in Gabon. Cameco continues to evaluate other regions and projects globally, and we will add to our land position as new prospects are confirmed.

FUEL SERVICES BUSINESS
In 2006, the fuel services business added fuel fabrication services for Candu-type reactors as a result of our acquisition of Zircatec to our existing businesses of refining and conversion services. See the following discussion under “Fuel Fabrication.” Refining is an intermediate step to prepare uranium to be converted into either UF₆ or UO₂.

The industry practice for measuring conversion services is kilograms of uranium (kgU) rather than pounds of U₃O₈. For example, 66 million kgU is equivalent to about 172 million pounds U₃O₈.

Conversion Demand
World demand for UF₆ and natural UO₂ conversion services was estimated to be about 68 million kgU in 2006. Western world demand accounted for almost 60 million kgU with the remaining 8 million kgU coming from the non-western world (Russia, China and eastern Europe).

Over the next 10 years, world demand is expected to increase by 35% to about 92 million kgU. In 2007, total world conversion services demand is expected to increase by 3%.

Conversion Supply
The western world UF₆ conversion industry consists of Cameco and three other significant producers, with an annual conversion capacity of about 46 million kgU. In 2005, Cameco signed a toll-conversion agreement to acquire UF₆ conversion services from one of these other converters, Springfields Fuels Ltd. (SFL) in Lancashire, United Kingdom. Under the 10-year agreement, SFL will annually convert a base quantity of 5 million kgU to UF₆ for Cameco. This new source, coupled with our Canadian UF₆ plant, will account for almost 40% of the western world UF₆ conversion capacity.

In addition, supplies are available from secondary sources including excess western inventories, Russian sales in the form of low enriched uranium, Russian re-enriched depleted tails, and Russian and US uranium

derived from dismantling nuclear weapons. Russia supplies most of the UF₆ conversion requirements of the former Soviet Union and eastern Europe in the form of low enriched uranium.

Conversion Markets
Utilities contract about 90% of their UF₆ conversion services through long-term contracts, purchasing the remainder on the spot market. Cameco is the only commercial supplier in the world of conversion for natural UO₂ customers. In addition to the Canadian requirements, Cameco also exports UO₂ to South Korea for its Candu reactors and to the US and Japan for use as blanket fuel in boiling water reactors. Cameco also sells conversion services packaged with U₃O₈ as a UF₆ or UO₂ product.

Spot/Long-Term Conversion Market
Spot market UF₆ conversion prices remained steady during 2006. Spot prices increased slightly for North American conversion services and 8% for European conversion services year-over-year. Outlined below are the industry average spot market prices (TradeTech and Ux) for North American and European conversion services.

		Dec 31/06				Dec 31/05				% Change
Average spot market price ($US/kgU)
· North America			11.75				11.50				2
· Europe			12.38				11.50				8

Outlined below are the industry average long-term prices (TradeTech and Ux) for North American and European conversion services.

		Dec 31/06				Dec 31/05				% Change
Average long-term price ($US/kgU)
· North America			12.25				12.00				2
· Europe			13.75				12.88				7

The industry does not publish UO₂ prices.

Conversion Business — Key Performance Drivers
The major factors that drive Cameco’s conversion business results are:

	•		prices — spot and long-term,
	•		volume — sales, production and purchases,
	•		costs — production and purchases, and
	•		the relationship between the US and Canadian dollars.

Prices — Spot/Long-Term
Cameco sells its conversion services directly to utilities located in many parts of the world, primarily through long-term contracts. Conversion services are priced in US dollars per kgU. The majority of conversion sales are at fixed prices adjusted for inflation. In 2006, most of our conversion sales were made under long-term contracts negotiated in a low price environment and therefore, we did not benefit from the current elevated UF₆ conversion spot prices during the year.

Going forward, the majority of our contract commitments, totalling more than 75 million kgU over more than 10 years, are at fixed prices adjusted for inflation.

We continue to sign new long-term contracts with fixed prices that generally reflect long-term prices at the time of the contract award. Like uranium sales, we begin delivery of conversion services up to four years after the agreement has been finalized. Therefore, in the coming years, Cameco’s contract portfolio will benefit from higher fixed-price contracts signed in the more recent higher priced environment.

Volumes — Sales, Production, Purchases

Sales Volume

Cameco sold 18.5 million kgU of fuel services in 2006, up 11% from the 16.6 million kgU in 2005. We expect conversion sales volume to total about 20.2 million kgU in 2007, up 9% from 2006.

Production Volume
At our Port Hope conversion facility, we produced 12.5 million kgU in 2006 compared to 11.4 million kgU in 2005. The rise reflects increased fluorine generation capacity and other plant improvements achieved during the year. We anticipate production for 2007 to be 13.8 million kgU as UF₆ and UO₂.

The CNSC has not yet issued the draft scope for the required environmental study for the Vision 2010 project. This project proposes to clean up and modernize the Port Hope conversion facility site. Design and preliminary engineering for the project have been proceeding.

At our Blind River refinery, we produced a record 17.2 million kgU in 2006 compared to 15.1 million kgU for 2005. The increase was due to using the refinery to produce UO₃ for SFL. We anticipate annual production for 2007 to be about 15.8 million kgU to meet both Port Hope and SFL requirements. The CNSC issued Blind River a new 5-year operating licence in late February.

In mid December 2006, we received CNSC approval of the EA for the addition of pollution abatement equipment to the incinerator at our Blind River operation. This equipment is required to meet new Canadian standards for incinerator emissions that came into force in January 2007. The installation of the equipment has begun. The Blind River refinery needs an amendment to its operating licence in order to use this new equipment, which is subject to CNSC approval. We anticipate that the incinerator will be ready to commission late in the first quarter and start receiving material early in the second quarter of 2007.

The draft EA study report for the proposed increase in the Blind River licensed production capacity from 18 to 24 million kgU per year was filed with the CNSC for review late in the fourth quarter of 2007.

Purchase Volume
Cameco also has purchase commitments, which primarily reflect the conversion component of the low enriched uranium from Russian HEU, re-enriched tails product and beginning in 2006, the company’s agreement to purchase SFL’s conversion services for a 10-year period. Cameco’s UF₆ conversion purchase commitments at December 31, 2006 total about 66 million kgU, most as conversion services.

Costs
Cameco’s mix of production and purchases influences its cost of sales. Operating costs are primarily fixed with about 45% attributable to labour. The largest variable operating cost is for anhydrous hydrogen fluoride, followed by energy (gas and electricity).

The majority of Cameco’s UF₆ conversion purchase commitments are under long-term, fixed-price arrangements reflecting prices lower than current spot prices. These purchase commitments totalled $406 million (US) at December 31, 2006. Refer to note 24 in the notes to the financial statements. A significant portion of these purchases has been committed under existing sales contracts.

Foreign Exchange
The majority of the company’s conversion services are sold in the US and sales are denominated in US dollars, while production costs are incurred in Canada and denominated in Canadian dollars. A discussion about Cameco’s hedging program can be found in the uranium business section under the heading “Foreign Exchange.”

Fuel Fabrication
Cameco acquired a 100% interest in Zircatec in early 2006. Zircatec’s primary business is manufacturing nuclear fuel bundles for sale to companies that generate electricity from Candu reactors.

In Port Hope, Ontario, Zircatec operates a facility that is licensed to handle uranium materials. The plant presses uranium dioxide powder into pellets that are loaded into tubes and then assembled into fuel bundles for Candu utility customers. These bundles are ready to insert into the reactor core as fuel to generate clean electricity. Zircatec supplies these fuel bundles to Candu-style reactors, with sales to BPLP and BALP currently representing a substantial portion of its business. The plant’s annual capacity is approximately 1,200 tonnes uranium as finished fuel.

In Cobourg, Ontario, Zircatec also operates a facility where the primary product is zirconium tubing, an integral part of fuel bundles used by nuclear reactors. The plant also manufactures various Candu reactor components and monitoring equipment.

Fuel Services Strategies
Cameco’s objective is to build on and leverage its competitive advantage in fuel services. In doing so, we strive to meet three major goals to:

	•		remain one of the low-cost producers,
	•		expand market position, and
	•		increase supply flexibility.

To achieve these goals, the company’s strategies are to:

	•		improve its margins,
	•		ensure adequate production, and
	•		grow its market position.

We plan to improve our margins through quality and business process improvements and by pursuing fundamental productivity gains through technological development. We will ensure adequate production through extending and/or expanding production from current toll conversion arrangements or pursuing opportunities to build capacity. To grow market position, we intend to expand or build new capacity. We will limit risk and capital expense by selectively pursuing partnering opportunities with other nuclear fuel cycle participants.

Capability to Deliver Results
Cameco will execute our strategies and deliver on our goals by ensuring:

•

community relations at Port Hope continue to strengthen,

•

adequate human resources are available to replace an aging workforce,

•

capital is available over the longer term given our expansion plans, and

•

adequate resources are allocated to maintain and grow our fuel services business.

Community Relations
We have significantly increased our community outreach program in Port Hope through the implementation of a series of ongoing community liaison forums, community newsletters, newspaper advertising, open houses and a Port Hope dedicated website (camecoporthope.com). The response from the community has been very positive with excellent attendance at our forums and open houses.

Human Resources
As with our uranium business, we need to ensure we have adequate human resources to replace the aging fuel services workforce. At December 31, 2006, about 35% of the conversion services workforce was age 50 or older. We have developed a long-term people strategy that includes workforce planning to meet that challenge.

Ready Access to Capital
Cameco has an ambitious plan to grow in the nuclear energy industry. Opportunities to invest are unpredictable and often capital intensive. We intend to maintain financial flexibility to pursue opportunities as they arise. For that reason, we maintain a conservative financial structure with a target of no more than 25% net debt to total capital.

Adequate Resources
Cameco believes it has the appropriate capabilities in place to maintain its low-cost status, protect and grow its market position and improve its supply flexibility. We intend to remain competitive in the longer term and retain the flexibility to quickly take advantage of future new market opportunities. Cameco constantly reviews options to grow the conversion business to meet these longer-term opportunities.

Fuel Services Business Results
In 2006, the fuel services business consisted of refining, conversion services and fuel fabrication services. In 2005, Cameco’s fuel services business consisted of only refining and conversion services.

Conversion Highlights

		2006				2005				% Change
Revenue ($ millions)			224				158				42
Gross profit ($ millions)			25				28				(11	)
Gross profit %			11				18				(39	)
Earnings before taxes ($ millions)			22				25				(12	)
Sales volume (million kgU) 1,2			18.5				16.6				11
Production volume (million kgU) 2			13.2				11.4				16

The current results and outlook for fuel services reflect the deferral of revenue and the associated costs on conversion services deliveries of 1.0 million kgU, related to the standby product loan agreements discussed under the uranium business segment. The effect of the deferral was a decrease in reported revenue of $9 million. Gross profit on the deferred conversion services deliveries was $1 million.

As in the case of the deferred uranium revenue, the timing of cash receipts on the deferred revenue is the same as on any other sale and is unaffected by the accounting treatment for the revenue. As a result, cash flows are not impacted by the deferral. Cameco will recognize the deferred revenue and associated costs when the loan agreements are terminated, or if drawn upon, when the loans are repaid and that portion of the facility is terminated.

Revenue
In 2006, revenue from our fuel services business rose by 42% to $224 million compared to 2005, as a result of the inclusion of revenue from Zircatec and a 12% increase in fuel service deliveries. The timing of deliveries of nuclear products within a calendar year is at the discretion of our customers. A 1% increase in the average realized selling price contributed marginally to higher revenues. As noted above, most conversion sales are at fixed prices and have not yet fully benefited from the significant increase in UF₆ spot prices.

Cost of Products and Services Sold
In 2006, the cost of products and services sold was $180 million compared to $120 million in 2005, an increase of 50% due to the inclusion of costs from Zircatec, higher volumes and higher costs for purchased conversion. In 2006, a greater proportion of our sales commitments was met with purchased conversion compared to 2005. On a per unit basis, the cost of products and services sold increased by about 30% over the previous year.

Depreciation, Depletion and Reclamation
In 2006, DD&R charges were $19 million compared to $10 million in 2005 due to the inclusion of charges from Zircatec. The rate of depreciation per unit for fabrication is significantly higher than for conversion, causing total DD&R charges to nearly double.

Gross Profit
In 2006, earnings before taxes from the fuel services business declined to $22 million from $25 million in the same period of 2005. The lower profitability was due to the higher cost of purchased and produced product.

Fuel Services Outlook for 2007
Cameco expects 2007 revenue from the fuel services business to be nearly 20% higher than in 2006 due to an anticipated 10% increase in deliveries and an improvement in the average realized selling price.

Fuel services sales volume in 2007 is expected to total 20.2 million kgU compared to sales of 18.5 million kgU in 2006. The cost of product sold is expected to increase due to the higher volume. On a per unit basis, product costs are projected to be similar to 2006.

The outlook for 2007 financial results for the fuel services business segment are based on the following key assumptions:

•

no significant changes in our estimates for sales volumes, costs, and prices, as discussed above,

•

no disruption of supply from our facilities or third-party sources, and

•

a US/Canadian dollar spot exchange rate of $1.16.

Fuel Services Price Sensitivity Analysis
The majority of fuel services sales are at fixed prices with inflation escalators. In the short term, Cameco’s financial results for fuel services are relatively insensitive to changes in the spot price for conversion. Newer fixed-price contracts generally reflect longer-term prices at the time of contract award. Therefore, in the coming years, our contract portfolio for conversion services will be positively impacted by these higher fixed-price contracts.

NUCLEAR ELECTRICITY GENERATION BUSINESS
Cameco has a 31.6% interest in the Bruce Power Limited Partnership (BPLP), which operates the four Bruce B nuclear reactors and manages the overall site located in southern Ontario. BPLP’s business is the generation and sale of electricity into the Ontario wholesale market. BPLP’s four B reactors have a combined net generation capacity of about 3,200 MW, and supply about 15% of Ontario’s electricity needs.

Nuclear Electricity Generation Business Results
These financial results reflect the new partnership structure that was created on October 31, 2005 following the division of the Bruce Power site assets between Bruce B operations (BPLP) and Bruce A operations (Bruce Power A Limited Partnership or BALP). Effective November 1, 2005, Cameco’s 31.6% interest in BPLP included the four Bruce B units and does not include the A units.

Immediately following the restructuring, Cameco began to proportionately consolidate its share of BPLP’s financial results. Our move to this new method of accounting was driven by incremental changes to the partnership agreement, which resulted in joint control among the three major partners. Proportionate consolidation is required for investments in jointly controlled entities. For 2006, our results reflect a four-unit operation. Our financial results for the first 10 months of 2005 reflected a six-unit operation, which was accounted for on an equity basis.

Bruce Power Limited Partnership (100% basis) ¹

		2006				2005				% Change
Output — terawatt hours (TWh) 1			25.8				30.8				(16	)
Capacity factor (%) 2			91				79				15
Realized price ($/MWh)			48				58				(17	)
Average Ontario electricity spot price ($/MWh)			46				68				(32	)
($ millions)
Revenue			1,242				1,787				(31	)
Operating costs 3			807				1,202				(33	)
Cash costs			701				1,008				(31	)
- operating & maintenance			523				779				(33	)
- fuel			65				73				(11	)
- supplemental rent 4			113				156				(28	)
Non cash costs (amortization)			106				194				(45	)
Income before interest and finance charges			435				585				(26	)
Interest and finance charges			47				65				(28	)
Earnings before taxes 5			388				520				(25	)
Cash from operations			514				771				(33	)
Capital expenditures			103				323				(68	)
Operating costs ($/MWh)			31				39				(21	)
Distributions 6			480				1,033				(54	)

Cameco’s Earnings from BPLP

$ millions		2006				2005				% Change
BPLP’s earnings before taxes (100%)1			388				520				(25	)
Cameco’s share of pre-tax earnings before adjustments			122				164				(26	)
Proprietary adjustments			6				6				—
Pre-tax earnings from BPLP			128				170				(25	)

Nuclear Electricity Generation Business Highlights

Earnings Before Taxes
For 2006, BPLP earnings before taxes were $388 million compared to $520 million (which excludes the $149 million loss recorded on the restructuring of Bruce Power) in 2005.

Fewer days lost to planned outages in 2006, combined with substantially fewer forced outages, contributed to a significantly higher capacity factor and reduced unit operating costs. However, lower electricity spot prices offset these gains.

output
For 2006, the BPLP units achieved a capacity factor of 91%, compared with 79% in the same period last year. These units produced 25.8 TWh during 2006 compared to 30.8 TWh (including 8.2 TWh from the A units up to October 31, 2005) over the same period last year. The decrease primarily reflects the loss of output from the A units as a result of the restructuring from six to four units in late 2005. The decrease was partially offset by higher output from the B units.

price
For 2006, BPLP’s electricity revenue totalled $1,242 million, compared to $1,787 million in 2005. During the year, BPLP’s realized price averaged $48 per MWh from a mix of contract and spot sales compared with $58 per MWh last year. The Ontario electricity spot price averaged about $46 per MWh during the year, compared to $68 per MWh in 2005.

During 2006, about 51% of BPLP’s output was sold under fixed-price contracts compared to 48% in 2005.

Costs
For 2006, operating costs were $807 million, compared with $1,202 million in 2005. This decrease primarily reflects the costs of four units in 2006 versus the six units during most of 2005, and higher costs associated with planned and forced outages in 2005. The operating cost declined to $31 per MWh in 2006 from $39 per MWh in 2005.

Cash from Operations
For 2006, BPLP generated $514 million in cash from operations compared to $771 million in 2005 due to significantly weaker spot electricity prices and changes in working capital requirements. Due to the timing of sales, the accounts receivable balance increased by $32 million in the fourth quarter of 2006, whereas it decreased by $42 million in the fourth quarter of 2005.

Capital Expenditures
In 2006, capital expenditures were $103 million, down from $323 million in 2005 principally due to lower or completed expenditures for new steam generators, low pressure turbines and the new Bruce Power Support Centre building in 2005.

Cash Distributions
BPLP also distributed $480 million to the partners in 2006. Cameco’s share was $152 million. The partners have agreed that all future excess cash will be distributed on a monthly basis and that separate cash calls will be made for major capital projects.

BPLP Outlook Considerations
The results from BPLP are influenced by a number of factors including operating performance, costs and realized price. The operating performance is affected by planned and unplanned outages. Total costs are relatively insensitive to output shifts as about 95% of BPLP’s operating costs are fixed and most of the costs are incurred whether the plant is operating or not. As such, unit costs are dependent on output and subject to large variability if output changes. Cameco reports BPLP costs net of recoveries. Realized prices are made up of a mixture of sales under contract at fixed prices and sales in the Ontario spot electricity market. The

Ontario spot price is dependent on a number of factors such as the supply of and demand for electricity. The demand for electricity is very sensitive to Ontario weather patterns.

BPLP’s Outlook for 2007

In 2007, capacity factors for the B units are expected to average in the low 90% range similar to the 91% achieved in 2006. After investing significant capital on refurbishing the B units over the past few years, we anticipate continuing through 2007 with a significant reduction in time and expenditure on refurbishment programs, with only one planned outage in the first quarter of 2007. Unit B6 was shut down on January 20, 2007 and is expected back in service early in the second quarter.

For 2007, the average unit cost is expected to rise to $34 per MWh compared to $31 in 2006. Total costs are expected to rise by 12% in 2007 over 2006. The increase is due primarily to a rise in staff costs, operating and maintenance costs for heavy water treatment and fuel costs as well as lower incidental recoveries compared to 2006. In addition, higher amortization expenses are expected in 2007 reflecting the addition of the new administration building and other capital projects.

For 2007, we anticipate BPLP’s revenue to be 18% higher than in 2006, almost entirely due to higher expected realized prices, which are made up of fixed contract prices and Ontario spot market electricity prices. The spot prices are very sensitive to Ontario weather patterns. The average realized price was $48 per MWh in 2006.

The 2007 outlook for BPLP assumes the B units will achieve their targeted capacity factor and that there will be no significant changes in current estimates for costs and prices.

2007 BPLP Capital Expenditures (100% Basis)

BPLP’s capital expenditure program is expected to total $103 million. This includes $55 million for sustaining capital, with the balance for major projects and improvements.

2007 BPLP Capital Plan		Bruce B				Common
$ millions		Specific				Capital				Total BPLP
Category
Major Projects		$	17			$	16			$	33
Improvement			15				—				15
Sustaining			23				32				55
Total Capital Plan		$	55			$	48			$	103

Cameco expects that funding of these projects will come entirely from BPLP cash flows. However, available funds will depend on the electricity market prices and the operational performance of the BPLP reactors.

Electricity Price Sensitivity Analysis
For 2007, BPLP has 7 TWh under contract, which would represent about 25% of Bruce B generation at its planned capacity factor. For 2007, a $1.00 per MWh change in the spot price for electricity in Ontario would change Cameco’s after-tax earnings from BPLP by about $4 million.

New Fuel Program
As part of its Bruce B power uprate project, BPLP had initiated plans to refuel the B units with modified fuel containing slightly enriched uranium (SEU) and blended dysprosium uranium beginning in 2008. Until recently, all four of the B units were operating at 90% of maximum power, based on an operating limitation imposed by the CNSC. The operating limitation ensures that necessary safety margins are maintained. The use of the modified fuel is intended to allow the reactors to operate at designed capacity, while maintaining necessary safety margins. Approval is required from the CNSC to operate the B units with the modified fuel.

In early 2007, Bruce Power revised its fuel deployment strategy and is now developing plans to load the modified fuel into the Bruce A reactors prior to loading any fuel into the B reactors, subject to the finalization of all commercial arrangements and Bruce Power board approvals. This will effectively delay the power uprate program at Bruce B.

While the delay of the new fuel program at the B units will result in the inability to restore power to 100%, Bruce Power has successfully taken other steps to partially restore power ratings at the B units. In 2004, unit B6 received CNSC approval to operate at 93% on the basis of improved safety margins attributed to completion of the first phase of a fuel core reordering program. Units B7 and B8 have since also achieved this power uprate to 93%. Unit B5 is expected to receive this uprate by 2008.

GOLD

Centerra
Cameco owns 52.7% of Centerra, which is listed and publicly traded on the Toronto Stock Exchange under the symbol CG. We transferred substantially all of our gold assets to Centerra in 2004 as part of our strategy to unlock the value contained in these gold properties. Gold is not a core business for Cameco. Centerra was created as a vehicle for Cameco to eventually exit the gold business.

The geographic focus of Centerra’s exploration, development, and acquisition efforts is in Central Asia, the former Soviet Union, and other emerging markets. Centerra owns 100% of the Kumtor mine in the Kyrgyz Republic and a 95% interest in the Boroo mine in Mongolia. Centerra is the operator of both mines. Centerra also has interests in exploration properties, including a 100% interest in the Gatsuurt property in Mongolia, 35 kilometres from the Boroo mine, and a 62% joint-venture interest in the REN property in Nevada.

•

Centerra’s growth strategy is to increase its reserve base and expand its current portfolio of gold mining operations by:

	•		developing new reserves at existing mines from in-pit, adjacent and regional exploration,
	•		advancing late stage exploration properties by additional drill programs, and feasibility studies as warranted, and
	•		actively pursuing selective acquisitions or mergers primarily in Central Asia, the former Soviet Union and other emerging markets.

Centerra recently issued updated estimates on the reserves and resources at its operating mines. At Kumtor, 208,000 ounces of reserves were added before accounting for mining of 416,000 contained ounces in 2006. The reserve grade increased by 20% from 3.8 g/t to 4.7 g/t due to the higher grade mineralization being delineated in the SB Zone. Measured and indicated resources increased by approximately 500,000 ounces and inferred resources significantly increased by 1.1 million ounces. Centerra will proceed with a $39 million (US) underground exploration and development program at Kumtor.

At Boroo, 342,000 contained ounces have been added, which replace reserves mined in 2006. Centerra will invest $19 million (US) to develop a heap leach addition to process approximately 645,000 ounces of contained gold.

As of December 31, 2006, on a 100% project basis, Centerra’s proven and probable reserves totalled 7.0 million ounces of contained gold (Cameco’s share is 3.6 million ounces).

Centerra has an aggressive exploration program to further expand its reserve and resource base and is actively seeking acquisitions. Cameco believes that Centerra will be successful in its growth strategy and ultimately add more value to our investment in Centerra.

In the longer term, Cameco will look for the right opportunity to reduce and ultimately fully divest of its gold investment. It is not our intention to sell quickly, but rather to encourage Centerra to grow and gain value for Cameco’s shareholders. The decision whether to divest will also depend on the need to fund investment opportunities in the nuclear energy business.

For further information on Centerra, refer to its annual report and annual information form for 2006.

Gold Operating Results
Cameco fully consolidates the results of Centerra’s operations. Cameco adjusts for a 47% minority interest in Centerra, which reflects that share of earnings attributable to shareholders other than Cameco.

Gold Highlights		2006				2005				% Change
Revenue ($ millions)			414				412				1
Gross profit ($ millions)			101				107				(6	)
Gross profit %			24				26				(8	)
Realized price ($US/ounce)			597				433				38
Sales volume (ounces)			610,000				781,000				(22	)
Production (ounces)			587,000				787,000				(25	)

Gold Financial Results
In 2006, revenue from our gold business increased by $2 million to $414 million compared to 2005. This increase was attributable to higher gold prices, offset by lower production at Kumtor. The realized price for gold increased to $597 (US) per ounce in 2006 compared to $433 (US) per ounce in 2005, due to higher spot prices.

Kumtor’s production for the year was 304,000 ounces compared to 501,000 ounces in 2005. This decrease was primarily due to the pit wall movement that occurred in July 2006 and a lower mill head grade that averaged 2.3 g/t in the period compared to 3.4 g/t in 2005.

Production at Boroo was 283,000 ounces for the year compared to 286,000 ounces in 2005. The average head grade of ore fed to the mill was 4.3 g/t compared to 4.2 g/t in the same period last year.

The gross profit margin for gold declined to 24% in 2006 compared to 26% in 2005 due to the higher cost of labour and consumables, lower head grade at Kumtor and lower recoveries at Kumtor and Boroo. Partially offsetting the increase in cost of sales was significantly higher realized gold prices and lower depreciation, depletion, amortization and accretion expense.

Gold Outlook for 2007
Overall, 2007 production, on a 100% basis, is expected to total between 700,000 to 720,000 ounces of gold. At Kumtor, production for 2007 is expected to be about 450,000 to 460,000 ounces of gold. At Boroo, on a 100% basis, we expect production in the range of 250,000 to 260,000 ounces of gold in 2007. Gold revenue is expected to increase by about 20% in 2007 over 2006. This outlook for the gold business is based on the following key assumptions:

	•		Centerra’s forecast production is achieved,
	•		spot gold price of $600 (US) per ounce, and
	•		a US/Canadian dollar spot exchange rate of $1.16.

Centerra expects the current gold industry’s strong fundamentals to continue to exert upward pressure on price. As such, Centerra currently plans to leave its gold production unhedged.

Gold Price Sensitivity Analysis
For 2007, a $25.00 (US) per ounce change in the gold spot price would change Cameco revenue by about $21 million (Cdn), cash flow by about $15 million (Cdn) and net earnings by about $8 million (Cdn).

Qualified Person
The disclosure in this MD&A of scientific and technical information regarding Centerra’s gold properties, including reserve and resource estimates and the description of the geology, was prepared by or under the supervision of the following qualified person:

Ian Atkinson, a certified professional geologist, and employed by Centerra as vice-president exploration (Kumtor and Boroo). He is a qualified person for the purpose of National Instrument 43-101.

2006 FOURTH QUARTER CONSOLIDATED RESULTS

Financial Highlights		Three months
($ millions except per share amounts)		ended Dec 31								% Change
		2006				2005
Revenue 1			512				522				(2	)
Earnings from operations			36				59				(39	)
Cash provided by operations 2			13				91				(86	)
Net earnings			40				83				(52	)
Earnings per share (EPS) — basic ($)			0.11				0.24				(54	)
EPS — diluted ($)			0.11				0.23				(52	)
EPS — adjusted and diluted ($)			0.11				0.21				(48	)
Adjusted net earnings 3			40				76				(47	)

For the three months ended December 31, 2006, our net earnings were $40 million ($0.11 per share diluted), $43 million lower than the net earnings of $83 million ($0.23 per share diluted) recorded in 2005. The decrease was due to lower earnings in the electricity and gold businesses, and a $20 million (pre-tax) charge at Cigar Lake. As highlighted in our third quarter report, we are required to write down the value of assets lost in the Cigar Lake inflow. The write down results in a $15 million (pre-tax) charge in the fourth quarter of 2006. In addition, we expensed $5 million (pre-tax) in costs related to remediation activities at the project.

In the fourth quarter of 2006, our total costs for administration, exploration, interest and other were $62 million, $6 million higher than in the same period of 2005. Administration costs were $14 million higher due largely to increased costs of $4 million at Centerra Gold Inc (Cameco’s 53% owned subsidiary), information systems and process enhancements ($3 million), Sarbanes Oxley compliance ($2 million), business development ($1 million) and higher workforce related costs ($1 million).

Exploration expenditures were $3 million lower, at $15 million, with uranium exploration expenditures down $2 million at $7 million (focused in Saskatchewan, Australia and Nunavut). Gold exploration expenditures at Centerra were down $1 million from the fourth quarter of 2005.

Interest and other charges declined by $5 million due to higher interest income on higher cash balances ($7 million) and foreign exchange gains ($3 million) partially offset by mark to market losses on foreign exchange contracts that are not designated as hedges ($5 million).

In the fourth quarter of 2006, we recorded a $9 million net recovery of income taxes. During the quarter, Centerra recorded $10 million in recoveries related mainly to losses at its Kumtor operation. The portion of our income taxable in Canada was relatively low in the quarter due to the Cigar Lake remediation charges and lower earnings from BPLP. Our tax rate varies from the Canadian statutory tax rate primarily due to differences between Canadian tax rates and rates applicable to subsidiaries in other countries.

Earnings from operations decreased to $36 million in the fourth quarter of 2006, from $59 million in the fourth quarter of 2005. The aggregate gross profit margin increased in the fourth quarter to 23% from 22% in 2005.

For more information on the fourth quarter of 2006, refer to Cameco’s news release dated February 6, 2007.

2005-2006 QUARTERLY CONSOLIDATED FINANCIAL HIGHLIGHTS

Highlights
($ millions except per share amounts)		2006																2005
		Q4				Q3				Q2				Q1				Q4				Q3				Q2				Q1
Revenue			512				360				417				542				522				287				287				216
Net earnings			40				73				150				112				83				79				34				20
EPS — basic ($)			0.11				0.21				0.43				0.32				0.24				0.23				0.10				0.06
EPS — diluted ($)			0.11				0.20				0.40				0.30				0.23				0.22				0.10				0.06
EPS — adjusted & diluted ($)			0.11				0.12				0.21				0.30				0.21				0.22				0.10				0.06
Cash from operations			13				79				40				286				91				148				(45	)			84

The following points are intended to assist the reader in analysing the trends in the quarterly financial highlights for 2006:

•

Revenue of $512 million in the fourth quarter of 2006 was 42% higher than in the third quarter due to higher sales volumes and improved prices in the uranium and fuel services businesses. Revenue is driven by timing of deliveries in our uranium and fuel services businesses, and has tended to be higher in the fourth quarter. However in 2006, the deliveries were more heavily weighted in the first quarter of the year.

•

Net earnings do not trend directly with revenue because past results are significantly influenced by results from BPLP. Prior to November 1, 2005, the equity method of accounting was applied to the investment in BPLP and thus no BPLP revenue or costs were recorded. On November 1, 2005, Cameco moved to proportionate consolidation of BPLP’s financial results. For 2006, we have included our share of revenue, expenses and cash flow from the Bruce B reactors. The adjustment in our accounting method for BPLP does not change the reporting of our net earnings.

•

Cash from operations tends to fluctuate largely due to the timing of deliveries and product purchases in the uranium production and fuel services businesses.

2006 CONSOLIDATED RESULTS

Consolidated Earnings

Earnings
In 2006, Cameco recorded a non-cash recovery of $73 million of future income taxes related to reductions in federal and provincial income tax rates. Also in 2006, Cameco recorded a $29 million after-tax gain on the sale of our interest in the Fort à la Corne joint venture. Consolidated earnings in the following discussion are adjusted to exclude these items for period-to-period comparisons of the financial results. Adjusted net earnings is a non-GAAP measure that should be considered supplemental in nature and not a substitute for related financial information prepared in accordance with GAAP.

For 2006, our net earnings were $376 million ($1.02 per share diluted). Our adjusted net earnings were $274 million ($0.75 per share diluted and adjusted), $66 million higher than the adjusted net earnings of $208 million ($0.58 per share diluted) recorded in 2005 due to improved results in the uranium and gold businesses. These improvements were partially offset by lower earnings from BPLP, charges related to the Cigar Lake water inflow and higher administration expenses.

The improvement in the uranium business was due to a higher realized price, the result of both the significant increase in the spot price for uranium and higher realized prices under fixed-price contracts. In the gold business, an increase in the realized price more than offset the impact of reduced production caused by the movement of the pit wall at Kumtor. In 2006, our earnings from BPLP declined in comparison to 2005 due to a 32% decrease in the average Ontario electricity spot price.

Earnings from operations increased to $335 million in 2006 from $121 million in 2005. The aggregate gross profit margin increased in 2006 to 28% from 23% in 2005 due to higher realized prices for uranium and gold.

Corporate Expenses
Administration
In 2006, administration costs were $143 million, an increase of $33 million due largely to an $11 million increase in costs at Centerra, related to stock-based compensation and business development. In addition, Cameco recorded increased expenses for stock compensation primarily attributable to increased share prices ($4 million) and incurred higher charges for Sarbanes-Oxley compliance ($7 million), business process enhancements ($5 million) and higher workforce related costs ($4 million).

Interest and Other
In 2006, interest and other costs declined by $16 million compared to 2005 due primarily to higher interest income on cash balances ($22 million) partially offset by higher gross interest costs ($5 million) related mainly to the proportionate consolidation of BPLP. Refer to note 13 in the notes to the financial statements.

Income Taxes
In 2006, we recorded a net tax recovery of $69 million compared to an expense of $30 million for 2005.

In 2006, the government of Saskatchewan amended the provincial income tax laws to provide for a 5% reduction in the general corporate income tax rate. The provincial tax rate is declining from 17% to 12% over a three-year period commencing July 1, 2006. Also in 2006, the federal government introduced amendments to the Canadian Income Tax Act that provide for a 2% reduction in the general corporate

income tax rate. The federal tax rate will decline from its previous level of 21% to 19% over a three-year period commencing in 2008. Amendments were also introduced to eliminate the corporate surtax, which effectively will decrease the federal income tax rate by 1%, starting in 2008.

Under Canadian accounting rules, the cumulative effect of a change in income tax legislation on future income tax assets and liabilities is included in a company’s financial statements in the period of substantive enactment. Accordingly, Cameco reduced its balance sheet provision for future income taxes and recognized a non-cash income tax adjustment of $73 million ($0.19 per share diluted) in 2006.

In addition, confirmation was received with respect to the deductibility of the Saskatchewan provincial resource surcharge for the years prior to 2001. As a result, a $17 million reduction of future taxes was recorded.

Our effective tax rate decreased to 6% in 2006 from 20% in 2005 due to a lower proportion of total income being taxable in Canada. The effective rate for 2006 excludes the $73 million recovery related to the change in tax rates and the $17 million recovery due to the deductibility of the resource surcharges. The effective rate for 2005 is based on adjusted net earnings and also excludes $10 million in recoveries related to the deductibility of the resource surcharges.

Income tax expense also includes capital taxes of approximately $2 million and $6 million in 2006 and 2005 respectively. The amount reported in 2005 also included large corporations tax which was eliminated effective January 1, 2006. Refer to note 16 in the notes to the financial statements.

Cash Resources

Operating Activities
In 2006, Cameco generated record cash from operations of $418 million compared to the previous record of $278 million in 2005. The increase of $140 million reflects higher revenue compared to 2005 and the proportionate consolidation of BPLP results in 2006.

Investing Activities
In 2006, Cameco used $527 million in its investing activities, an increase of $548 million compared to the prior year when the investing activities generated positive cash flow of $21 million. In 2005, Cameco collected $302 million as a result of the restructuring of BPLP ($200 million) and the sale of its shares in ERA ($102 million). Excluding these inflows, the net increase in cash used in investing activities in 2006 over 2005 was $247 million and was largely attributable to the acquisition of Zircatec ($84 million), higher development charges at Cigar Lake ($37 million) and Inkai ($19 million) as well as greater capital expenditures by Centerra ($81 million).

For 2006, investing activities included $29 million for sustaining capital at McArthur River/Key Lake, $120 million in development costs at Cigar Lake and $31 million in capitalized interest charges.

Financing Activities
In 2006, Cameco used $182 million in its financing activities. In January 2006, Cameco redeemed $150 million in debentures. In 2006, the company paid a record total of $53 million in dividends, up from $40 million in 2005.

Balance Sheet

Cash
At December 31, 2006, our consolidated cash balance totalled $334 million with Centerra holding about $217 million of this amount.

Inventories
Compared to the end of 2005, our product inventories increased by $17 million to $416 million. The increase in the inventory value was attributable to higher unit costs due primarily to higher unit costs for uranium, which were largely offset by a 20% decline in the quantity of uranium inventory. The average cost of our uranium and conversion services has risen due primarily to an increase in the cost of purchased material. Refer to note 4 in the notes to the financial statements.

Debt
At December 31, 2006, our total debt was $705 million, representing a decrease of $154 million compared to December 31, 2005. Included in the December 31, 2006 balance was $198 million, which represents our proportionate share of BPLP’s capital lease obligation. At December 31, 2006, our consolidated net debt to capitalization ratio was 12%, up from 9% at the end of 2005. In 2006, we used cash on hand to redeem a total of $150 million in debentures. Refer to note 7 in the notes to the financial statements.

Investments
Cameco has a number of investments in publicly traded entities. The following table illustrates the book and market values for its more significant holdings.

		Book Value				Market Value1
Investment ($ millions)		Dec 31/06				Dec 31/06				Dec. 31/05
Centerra Gold Inc.		$	443			$	1,504			$	1,069
UEX Corporation			19				220				167
UNOR Inc.			9				14				—
Total		$	471			$	1,738			$	1,236

1		Market value is calculated as the number of shares outstanding multiplied by the closing share price as quoted on the TSX on December 31, 2005 and December 31, 2006.

Off-Balance Sheet Arrangements
In the normal course of operations, Cameco enters into certain transactions which are not required to be recorded on its balance sheet. These activities include the issuing of financial assurances, derivative instruments and long-term product purchase contracts. These arrangements are discussed in the following sections of this MD&A and the notes to the financial statements:

•

Financial Assurances:

	•		Nuclear Electricity Business,
	•		Liquidity and Capital Resources,
	•		Risks and Risk Management and
	•		Notes 7, 8, 19 and 25 of the Consolidated Financial Statements.

•

Derivative Instruments:

•

Uranium Business,

	•		Risks and Risk Management,
	•		Critical Accounting Estimates and
	•		Note 25 of the Consolidated Financial Statements.

•

Long-term Product Purchase Contracts

	•		Uranium Business,
	•		Liquidity and Capital Resources and
	•		Note 24 of the Consolidated Financial Statements.

CONSOLIDATED OUTLOOK FOR 2007

In 2007, Cameco expects consolidated revenue to grow by about 25% over 2006 due to higher revenue from uranium and fuel services. In the uranium business, we expect revenue to increase by approximately 45% due to stronger average realized prices under our contracts relative to 2006. This projection for the uranium business does not include all the expected adjustments for the Cigar Lake water inflow incident as they are being finalized and assumes that the product loan arrangements in place remain unchanged. We may consider terminating a portion or all of the product loans. Excluding the impact of any deferrals related to the product loans, we anticipate uranium revenue to increase by about 50% in 2007 primarily due to higher realized prices.

We also anticipate that revenue from the fuel services business will be about 20% higher than in 2006 due to an anticipated 10% increase in deliveries and an increase in the average realized selling price.

For 2007, we anticipate BPLP revenue to be 18% higher than in 2006, almost entirely due to higher expected realized prices. This outlook for BPLP assumes the B units will achieve a targeted capacity factor in the low 90% range.

In 2007, we expect gold production (100% basis) to increase to 700,000 to 720,000 ounces from 587,000 ounces in 2006. Gold revenue is expected to increase by about 20% in 2007 over 2006.

The financial outlook noted above for the company is based on the following key assumptions:

	•		no significant changes in our estimates for sales volumes, purchases and prices, as discussed above,
	•		no disruption of supply from our facilities or third-party sources, and
	•		a US/Canadian dollar spot exchange rate of $1.16.

Administration costs are projected to be about 10% greater than in 2006. The increase reflects higher charges for operations related regulatory compliance, business development and costs to maintain the workforce. Exploration costs are expected to be about $72 million in 2007. Of this, $45 million is targeted for uranium, a 41% increase over 2006.

For 2007, the effective tax rate is expected to be in the range of 15% to 20%. Our expected tax rate varies from the Canadian statutory tax rate primarily due to differences between Canadian tax rates and rates applicable to subsidiaries in other countries. This range is based on the projected distribution of income among the various tax jurisdictions being weighted less heavily toward foreign subsidiaries compared to 2006.

In 2007, we expect total capital expenditures, including the gold business, to increase by 25% to $577 million.

Capital expenditures are classified as growth or sustaining. Growth capital is defined as capital spent to bring on incremental production plus business development initiatives. The remainder is classified as sustaining capital. For growth projects, total expenditures are projected to be $256 million.

We expect sustaining capital expenditures to be higher in 2007 than in 2006 due to revitalization programs at Key Lake and Rabbit Lake, and well field expansions at the US ISL operations. Sustaining capital expenditures will also increase at fuel services to improve production processes and meet new regulatory requirements.

Capital Expenditures
(Cameco’s share in $ millions)		2007 Plan				2006 Actual
Growth Capital
McArthur River			—			$	9
US ISL			2				1
Cigar Lake			74				120
Fuel Services			19				—
Inkai			62				37
Gold1			99				94
Total Growth		$	256			$	261
Sustaining Capital
McArthur River/Key Lake		$	78			$	29
US ISL			33				23
Rabbit Lake			63				24
Fuel Services			37				18
Bruce Power (BPLP)			33				33
Gold1			28				27
Other			14				14
Total Sustaining		$	286			$	168
Capitalized interest			35				31
Total		$	577			$	460

1		Represents 100% of Centerra’s expenditures.

LIQUIDITY AND CAPITAL RESOURCES

Overview
Financial liquidity represents the company’s ability to fund future operating activities and investments. Some important measures of liquidity are summarized in the table below.

In 2006, Cameco arranged for standby product loan facilities with two Cameco customers that allow Cameco to borrow up to 5,560,000 pounds U₃O₈ equivalent over the period 2006 to 2008, with repayment in 2008 and 2009. Cameco also extended its revolving credit facility by one year to be available until November 30, 2011.

Liquidity Indicators

		2006				2005				2004				2003				2002
Cash provided by operations ($ millions)			418				278				228				250				241
Cash provided by operations/net debt1 (%)			113				118				69				48				66
Net debt*/total capitalization (%)			12				9				13				22				18

1		Total debt less cash and cash equivalents based on consolidated amounts.

Indicators Defined
Cash provided by operations reflects the net cash flow generated by operating activities after consideration for changes in working capital.

Cash provided by operations to net debt indicates the company’s ability to meet debt obligations from internally generated funds.

Net debt to total capitalization measures the company’s use of financial leverage. A lower percentage means less reliance upon debt as a source of financing. Although debt is a lower cost form of financing compared to equity, a lower percentage of debt also represents lower repayment obligations. At December 31, 2006, the consolidated cash balance totalled $334 million with Centerra holding about $217 million of this amount for its own use.

Credit Ratings
The following table provides Cameco’s third party ratings for our commercial paper, senior debt and convertible debentures, as of December 31, 2006:

Security		DBRS		S&P
Commercial Paper		R-1 (low)		A-1 (low)1
Senior Unsecured Debentures		A (low)		BBB+
Convertible Debentures		BBB (high)		Not Rated

1		A-1 (low) is the Canadian National Scale Rating while the Global Scale Rating is A-2.

Debt
In addition to cash from operations, debt is used to provide liquidity. Cameco has sufficient borrowing capacity to meet its current requirements with access to about $750 million in unsecured lines of credit.

Commercial lenders have provided a $500 million five-year unsecured revolving credit facility, available until November 30, 2011. Upon mutual agreement the facility can be extended for an additional year. In addition to direct borrowings under the facility, up to $100 million can be used for the issuance of letters of credit and, to the extent necessary, up to $400 million may be allocated to provide liquidity support for the company’s commercial paper program. The facility ranks equally with all of Cameco’s other senior debt. At December 31, 2006, there were no amounts outstanding under this credit facility.

Cameco may borrow directly from investors by issuing up to $400 million in commercial paper. At December 31, 2006, there were no amounts outstanding under the commercial paper program.

Various financial institutions have entered into agreements to provide Cameco up to approximately $250 million in short-term borrowing and letters of credit facilities. These arrangements are predominantly used to fulfill regulatory requirements to provide financial assurance for future decommissioning and reclamation of our operating sites. At December 31, 2006, outstanding letters of credit amounted to $213 million under these facilities. Cameco has established separate letter of credit facilities to support standby product loan facilities, as described below.

Cameco has operated within the investment-grade segment (high-credit quality) of the market when obtaining credit. The cost, terms and conditions under which financing is available vary over time. While future access to credit cannot be assured, it was readily available in 2006.

Product Loan Facilities
Cameco has arranged for standby product loan facilities with two of its customers. The arrangements, which were finalized in June and July of 2006, allow Cameco to borrow up to 5.6 million pounds U₃O₈ equivalent over the period 2006 to 2008 with repayment in 2008 and 2009. Of this material, up to 1.4 million kgU can be borrowed in the form of UF₆. Under the loan facilities, standby fees of 0.5% to 2.25% are payable based on the market value of the facilities, and interest is payable on the market value of any amounts drawn at rates ranging from 4.0% to 5.0%. Any borrowings will be secured by letters of credit and are repayable in kind.

Revenue from future deliveries to these counterparties (up to the limit of the loan facilities) will be deferred until the loan arrangements have been terminated, or if drawn upon, when the loans are repaid and that portion of the facility is terminated.

The market value of the facilities is based on the quoted market price of the products at December 31, 2006 and was approximately $416 million (US). As at December 31, 2006, the company did not have any loan amounts outstanding under the facilities.

Cameco has established $300 million (US) of letter of credit facilities maturing in 2010 to support these standby product loan facilities. At December 31, 2006, there were no amounts outstanding under these letter of credit facilities.

Debentures
Cameco’s senior unsecured debentures consist of $300 million of debentures that bear interest at the rate of 4.7% per annum and which mature September 16, 2015.

Convertible Debentures
Cameco has $230 million outstanding in convertible debentures. The debentures bear interest at 5% per annum, mature on October 1, 2013, and at the holder’s option are convertible into common shares of Cameco. The debentures are redeemable by the company beginning October 1, 2008 at a redemption price of par plus accrued interest. Refer to note 7 in the notes to consolidated financial statements.

Debt Covenants
Cameco is bound by certain covenants in its general credit facilities. The financially related covenants place restrictions on total debt, including guarantees, and set minimum levels for net worth. As of December 31,

2006, Cameco met these financial covenants and does not expect its operating and investment activities in 2007 to be constrained by them.

Contractual Cash Obligations

						Due in				Due in				Due in				Due
As at December 31, 2006						Less Than				1 — 3				4 — 5				After
($ million)		Total				1 Year				Years				Years				5 Yrs
Long-term debt 1			727				8				19				25				675
Interest on long-term debt			207				26				51				51				79
Other liabilities			373				11				11				1				350
Unconditional product purchase obligations 2,3			1,171				202				308				281				380
Total contractual cash obligations			2,478				247				389				358				1,484

1		Includes the amortized value of the conversion option associated with the convertible debentures. Refer to note 7 in the notes to the consolidated financial statements.
2		Denominated in US dollars. Converted to Canadian dollars at the December 31, 2006 rate of $1.1653.
3		Virtually all of Cameco’s product purchase obligations are under long-term, fixed-price arrangements.

Commercial Commitments
Commercial commitments at December 31, 2006 decreased to $297 million from $463 million at December 31, 2005. Our obligations to provide financial guarantees supporting BPLP decreased by $100 million, Kumtor Gold Company purchase commitments decreased by $72 million and standby letters of credit increased by $6 million to the end. At December 31, 2006, commercial commitments included standby letters of credit of $213 million and financial guarantees for BPLP of $84 million.

As at December 31, 2006		Total amounts
($ millions)		committed
Standby letters of credit 1			213
BPLP guarantees 2			84
Total commercial commitments			297

1		The standby letters of credit maturing in 2007 were issued with a one-year term and will be automatically renewed on a year-by-year basis until the underlying obligations are resolved. These obligations are primarily the decommissioning and reclamation of Cameco’s mining and conversion facilities. As such, the letters of credit are expected to remain outstanding well into the future.
2		At December 31, 2006, Cameco’s total commitment for financial assurances given on behalf of BPLP was estimated to be $84 million. Refer to note 19 in the notes to consolidated financial statements.

2004-2006 CONSOLIDATED FINANCIAL HIGHLIGHTS

For the Years Ended December 31
($ millions except per share amounts)		2006				2005				2004
Revenue			1,832				1,313				1,048
Earnings from operations			335				121				123
Net earnings			376				215				277
— per common share (basic)			1.07				0.62				0.81
— per common share (diluted)			1.02				0.60				0.77
Adjusted net earnings 1			274				208				183
Cash provided by operations			418				278				228
Total assets			5,140				4,773				4,052
Long-term financial liabilities			1,582				1,687				1,306
Dividends per common share		$	0.20			$	0.12			$	0.10

1		Net earnings for 2006 have been adjusted to exclude a $73 million ($0.19 per share diluted) recovery of future income taxes related to reductions in federal and provincial income tax rates and adjusted to exclude a $29 million gain ($0.08 per share diluted) on sale of our interest in the Fort à la Corne joint venture. Net earnings for 2005 have been adjusted to exclude $69 million ($0.19 per share diluted) in net earnings related to the gain on sale of Energy Resources of Australia Ltd shares as well as $62 million ($0.17 per share diluted) in net loss related to the restructuring of the Bruce Power Limited Partnership. Adjusted net earnings is a non-GAAP measure used to provide a representative comparison of the financial results.

The following points are intended to assist the reader in analyzing the trends in the annual financial highlights for the years 2004 through 2006.

	•		Revenue has trended higher over the three-year period, rising by 75% over 2004 to a record $1,832 million in 2006. Approximately half of this increase was related to the electricity business where the restructuring undertaken late in 2005 required a change in accounting, from equity method to proportionate consolidation. In 2006, we reported electricity revenues of $408 million.
	•		Revenue has also been influenced by improved prices in the uranium and gold businesses. Our realized price for uranium concentrates has increased consistently over the three-year period, averaging $24.72 (Cdn) per pound in 2006 compared to $17.97 (Cdn) per pound for 2004, a 38% improvement. We have also seen consistent improvement in the price for gold, where our average realized price has risen by 50% during the period due to higher spot prices. In addition, revenues in our fuel services business have risen by 55% due to increased volumes and realized prices as well as the acquisition of Zircatec in early 2006.
	•		Earnings from operations have also trended higher during the period but the rise has been tempered by higher costs for product sold, higher administration charges and greater investment in exploration. The increase in the cost of sales was attributable to higher costs for purchased uranium and conversion services, driven by rising spot prices. Our administration costs have risen significantly over the three-year period due to establishing Centerra as a separate publicly traded company, higher stock compensation expenses and higher costs for regulatory compliance.
	•		Net earnings have not trended with revenue due to two main reasons. First, our results are significantly influenced by operating results from Bruce Power. Until November 1, 2005, we used the equity method to account for the investment in Bruce Power and therefore no revenue was recorded prior to that time. Second, our earnings have been influenced by unusual, one-time items

over the past three years. In 2004, we recorded a gain of $94 million (after tax) on the restructuring of our gold business. In 2005, there were two unusual items: 1) the disposition of our investment in ERA which resulted in a gain of $69 million (after tax), and 2) the restructuring of the BPLP partnership which resulted in an after-tax loss of $62 million. In 2006, we recorded income tax recoveries of $73 million as the result of changes in tax legislation and we recognized a gain of $29 million (after tax) on the sale of our interest in the Fort à la Corne joint venture.

	•		Excluding the adjustments noted above, net earnings have increased by 50% in 2006 over the $183 million recorded in 2004. The 14% increase to $208 million in 2005 from 2004 was attributable to improved results in the uranium business as well as stronger performance at BPLP. The improvement in the uranium business was due to a higher realized price, which was related mainly to the significant increase in the spot price for uranium. Earnings from BPLP benefited from a 23% increase in realized price due to higher spot prices in Ontario. The improvement in net earnings from 2005 to 2006 was due largely to improved results in our uranium and gold businesses. The higher earnings were partially offset by reduced earnings from BPLP as well as higher charges for administration and the recognition of remediation costs at Cigar Lake. The improvement in the uranium profits was due to the higher average realized price, which was mainly the result of higher prices under fixed-price contracts and a higher uranium spot price. The gold business also benefited from higher realized prices with the spot price averaging $602 (US) per ounce in 2006, an increase of 35% over 2005. The earnings from BPLP declined due to a $10 per MWh (17%) decrease in the average realized price to $48.00 per MWh as a result of lower electricity spot prices.
	•		In 2006, Cameco generated record cash from operations of $418 million compared to $278 million in 2005. This increase of $140 million was mainly attributable to higher revenues and the proportionate consolidation of BPLP results in 2006. Cash from operations of $278 million in 2005 represented an increase of $50 million compared to the $228 million recorded in 2004. This increase was mainly due to higher revenues in the uranium and gold businesses compared to 2004.
	•		The major components of Cameco’s long-term financial liabilities are long-term debt, future income taxes and the provision for reclamation. In 2006, Cameco’s total long-term financial liabilities declined to $1,582 million from $1,687 million at the end of 2005 due to a $154 million decrease in long-term debt, and a $133 million reduction in future income taxes due largely to changes in Canadian tax rates. These reductions were partially offset by an increase in other liabilities related to revenue deferrals under our product loan arrangements and higher liabilities for reclamation at our fuel services facilities in Ontario.
	•		At the end of 2006, Cameco’s total assets amounted to $5,140 million, an increase of $367 million over the previous year. Most of the change was due to the increased investment in property, plant and equipment related to the acquisition of Zircatec and development expenditures for Cigar Lake, Inkai and gold.

OUTSTANDING SHARE DATA

At March 12, 2007, there were 352.4 million common shares and one Class B share outstanding. In addition, there were 7.3 million stock options outstanding with exercise prices ranging from $3.13 to $41.00 per share. Cameco also has convertible debentures in the amount of $230 million outstanding. This issue may be converted into a total of 21.2 million common shares at a conversion price of $10.83 per share. The

debentures are redeemable by Cameco beginning on October 1, 2008 at a redemption price of par plus accrued interest. At current share prices, we expect existing holders to convert to equity.

RESERVES AND RESOURCES

Canadian Securities Administrators’ National Instrument 43-101 requires mining companies to disclose reserves and resources using the subcategories of proven reserves, probable reserves, measured resources, indicated resources and inferred resources. Cameco reports reserves and resources separately.

Cameco reports all its mineral reserves as a quantity of contained ore supporting the mining plans and includes an estimate of the metallurgical recovery for each of its properties. Metallurgical recovery is a term used in the mining industry to indicate the proportion of valuable material physically recovered by the metallurgical extraction process. The estimated recoverable amount of a commodity is obtained by multiplying the reserves “Content” by the “Estimated Metallurgical Recovery Percentage”.

Uranium Reserves

The following table shows the estimated uranium reserves as at December 31, 2006 on a property basis and Cameco’s share.

RESERVES		PROVEN												PROBABLE												TOTAL RESERVES
		(100% basis)												(100% basis)												(100% basis)
										Content												Content												Content				Cameco’s				Estimated
						Grade				(lbs								Grade				(lbs								Grade				(lbs				Share				Metallurgical				Mining
		Tonnes				%U3O8				U3O8)				Tonnes				%U3O8				U3O8)				Tonnes				%U3O8				U3O8)				(lbs U3O8)				Recovery %				Method
PROPERTY		(tonnes in thousands; pounds in millions)
Cigar Lake			497.0				20.67				226.3				—				—				—				497.0				20.67				226.3				113.2				98.5	%		UG
Crow Butte			901.6				0.33				6.5				—				—				—				901.6				0.33				6.5				6.5				85.0	%		ISL
Gas Hills — Peach			—				—				—				6,851.0				0.13				19.7				6,851.0				0.13				19.7				19.7				65.0	%		ISL
Highland			278.5				0.13				0.8				935.1				0.13				2.7				1,213.6				0.13				3.5				3.5				80.0	%		ISL
Inkai			22,694.0				0.07				35.4				63,727.0				0.06				79.0				86,421.0				0.06				114.4				68.6				80.0	%		ISL
Key Lake			61.9				0.52				0.7				—				—				—				61.9				0.52				0.7				0.7				98.7	%		OP
McArthur River			530.2				17.49				204.5				280.0				26.33				162.5				810.2				20.55				367.0				256.2				98.7	%		UG
North Butte/ Brown Ranch			—				—				—				3,874.6				0.10				8.5				3,874.6				0.10				8.5				8.5				80.0	%		ISL
Rabbit Lake			40.0				1.15				1.0				696.5				1.18				18.1				736.5				1.18				19.1				19.1				96.7	%		UG
Ruby Ranch			—				—				—				2,832.2				0.09				5.5				2,832.2				0.09				5.5				5.5				80.0	%		ISL
Ruth			—				—				—				853.7				0.09				1.7				853.7				0.09				1.7				1.7				80.0	%		ISL
Smith Ranch			676.9				0.10				1.5				3,143.1				0.12				8.3				3,820.0				0.12				9.8				9.8				80.0	%		ISL
Total			25,680.1				—				476.7				83,193.2				—				306.0				108,873.3				—				782.7				513.0				—				—