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

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		2007 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.

CAMECO CORPORATION
2007 MANAGEMENT’S DISCUSSION & ANALYSIS (MD&A)
MARCH 7, 2008

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 7, 2008. This MD&A is intended to supplement and complement our audited consolidated financial statements and notes thereto for the year ended December 31, 2007, prepared in accordance with Canadian generally accepted accounting principles (GAAP), (collectively, our financial statements). A reconciliation of our Canadian GAAP financial statements to US GAAP will be filed with securities regulatory authorities. 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 sensitivity analysis discussions in this MD&A address the potential impact of changes to the variables discussed for the full 2008 year.

Statements contained in this MD&A, which are not current statements or 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 and Statements” in this MD&A.

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

Our Core Business			2
Our Vision, Mission and Values			3
Our Objectives and Strategies — Growth			4
Nuclear Energy Trends			5
The Uranium Industry			9
The Fuel Services Industries			14
Our Uranium Business			16
Our Fuel Services Business			35
2007 Consolidated Financial Results			41
Consolidated Outlook for 2008			45
2005 — 2007 Consolidated Financial Highlights			47
2007 Uranium Business Financial Results			48
2007 Fuel Services Business Financial Results			52
2007 Nuclear Electricity Generation Business Results			54
2007 Gold Business Results			56
2007 Fourth Quarter Consolidated Financial Results			60
2006 — 2007 Quarterly Consolidated Financial Highlights			61
2007 Fourth Quarter Business Segment Financial Results			62
Liquidity and Capital Resources			66
Outstanding Share Data			69
Our Reserves and Resources			70
Risk and Risk Management			76
Controls and Procedures			94
Critical Accounting Estimates			94
New Accounting Pronouncements			95
Use of Non-GAAP Financial Measures			96
Qualified Persons			97
Caution Regarding Forward-Looking Information and Statements			97

1. OUR CORE BUSINESSES, VISION, MISSION, VALUES, OBJECTIVES & STRATEGIES

OUR CORE 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 uranium (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 19% of the world’s production in 2007 and with 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 and Cobourg, all 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 plant has the licensed capacity to produce 20% 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 up to 5 million kilograms of uranium (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.

Cameco is a nuclear fuel manufacturer through a wholly owned subsidiary. This company manufactures fuel bundles for use in Candu reactors. Cameco participates in all stages (from uranium exploration and production to fuel fabrication) 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 two operating Bruce A reactors, Cameco is the fuel procurement manager for conversion services and fuel fabrication. BPLP’s four B reactors have a combined net generation capacity of about 3,260 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 (TSX) in June 2004. Cameco transferred substantially all its gold assets to Centerra as part of the strategy to maximize 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.

OUR VISION, MISSION, VALUES

Vision

Our vision is to 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.

OUR OBJECTIVES AND STRATEGIES — GROWTH

Cameco’s goal is to be a dominant nuclear energy company — the supplier, partner, employer and investment 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 of the nuclear energy industry.

Our specific strategies in the uranium and fuel services 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 to expand our services 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 an appropriate risk/reward ratio.

The key strategies are to:

	•		maximize available options 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. We will do this by providing leadership and resources to key industry associations and by developing government relationships.

2. THE NUCLEAR ENERGY, URANIUM AND FUEL SERVICES INDUSTRIES

NUCLEAR ENERGY TRENDS

The nuclear energy industry is experiencing stable growth in the form of capacity factor improvements, power uprates, refurbishments, life extensions and, in the developing world, aggressive new-build programs. The following discussion outlines a number of factors that may have a positive or negative impact on the outlook for nuclear energy. While it is difficult to determine which factors will dominate in the long term, the demand for nuclear energy is expected to accelerate in response to concerns about electricity supply, the need for non-emitting baseload power, and security of supply.

Positive Factors

North America

In a December 2007 US national public opinion survey by Bisconti Research for the Nuclear Energy Institute (NEI), support for “definitely building more nuclear power plants” continues to rise, with 62% agreeing we should definitely build new reactors and 32% disagreeing. Those who strongly agree increased nine percentage points between April and October 2007 — from 23% to 32%. Those who strongly disagree declined from 22% to 18%.

Support for nuclear energy in Canada continues to grow. Four in 10 Canadians (44%) expressed support for nuclear energy in a national poll (Ipsos Reid) conducted for the Canadian Nuclear Association (CNA) in February 2007. Support for nuclear energy was up four points in 2007 over 2006, and nine points from two years ago.

At the end of 2007, the US Nuclear Regulatory Commission (NRC) had received five applications for combined construction and operating licences (COL) for eight new nuclear reactors (one is a partial submission). The COL applications were filed by Duke Power, NRG, TVA, Dominion, and Constellation. Constellation filed a partial COL application and plans to file the remainder of the application in early 2008. In addition, three Early Site Permits were granted to Exelon, Entergy and Dominion. The NRC expects to receive 14 applications from 13 companies for 21 reactors by the end of 2008, which may lead to substantial new nuclear capacity in the US by 2020.

The US has recognized the strategic risk of over-reliance on natural gas and the contribution nuclear energy can make to clean air. In addition, it was reported early in 2008 that more than 50 proposed coal-fired plants in 20 states have been cancelled. Reasons noted included concern about climate change as well as rising costs of transportation and construction, along with environmental regulations.

In Canada, there is an application before federal regulators to build a reactor near Peace River, Alberta, which, if approved, would mark the first time a Canadian nuclear plant is located west of Ontario. In addition, New Brunswick Power is considering the construction of a second nuclear reactor to produce electrical power for export to the northeastern US.

Europe

The UK government formally announced a decision to support a new generation of nuclear power plants. Reports indicate up to 10 nuclear reactors could be built by 2020.

India

In December 2006, US President Bush signed the United States-India Peaceful Atomic Energy Cooperation Act, a major step toward civil nuclear trade with India. The two countries now must conclude a bilateral agreement, known in the US as the 123 Civil Nuclear Agreement, which essentially codifies their negotiations. Several steps need to occur before trade can take place, including approval from India’s parliament, India’s negotiation of a safeguard agreement with the International Atomic Energy Agency (IAEA), final approval from the US Congress and approval from the 45-nation Nuclear Suppliers Group. Currently, the 123 agreement faces opposition from India’s Communist parties, which form part of the nation’s ruling coalition.

Other Factors

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. Nuclear plant phase out programs still exist in a number of European countries, including Germany, Sweden, Belgium and Spain, although phase out plans are reportedly being reconsidered.

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. Escalating costs of construction materials present a major obstacle to new plant construction. It remains to be seen whether new plants can be competitive in all regions with other forms of baseload electricity generation.

Nuclear Power Share

The IAEA has significantly increased its projection of world nuclear generating capacity. In the next 15 years, the IAEA anticipates 430 gigawatt electric (GWe) of nuclear energy will be in place in 2020 — 130 GWe more than projected in 2000 and 16% more than actually operating in 2006. The change is based on specific plans and actions in a number of countries, including China, India, Russia, Finland and France, coupled with the changed outlook due to concerns about global warming. Achieving the IAEA projections would give nuclear power a 17% share in electricity production in 2020.

Nuclear Plant Performance

Safety

There were no significant safety incidents at nuclear power plants during 2007 and nuclear power continues to be one of the safest forms of electricity generation. The IAEA completed a five-day reassessment of Japan’s Kashiwazaki-Kariwa nuclear power complex, which was hit by a magnitude 6.8 earthquake in July 2007. Four of the seven reactors operating at the time automatically shut down and were put in a stable condition. The director of the IAEA’s Nuclear Installation Safety Division confirmed there was no significant damage to the safety-related components. Nevertheless, the industry is continuously seeking methods to improve its safety record.

Operating Costs

In 2007, US nuclear power plants achieved a record low average electricity production cost of 1.68 cents per kilowatt hour (kWh). Comparable figures for coal, natural gas and petroleum are not yet available for 2007.

In 2006, the last year for which data are available, the direct costs of US nuclear electricity production were the lowest for baseload (non-hydro) electricity production for the eighth consecutive year. US production costs were 1.72 cents per kWh for nuclear, 2.37 cents for coal, 6.75 cents for natural gas and 9.63 cents for petroleum (Source: NEI).

World Nuclear Reactors (Cameco estimate, February 2008) ¹

		Nuclear								Outlook to 2017
		Electricity				Operating												Operating				GWe
		20062 (%)				2008				New				Shutdown				2017				Change
Argentina			7				2				2				0				4				1.5
Brazil			3				2				1				0				3				1.4
Canada			16				18				2				2				18				1.1
Mexico			5				2				0				0				2				0.0
USA			19				104				5				0				109				6.5
Americas Total							128				10				2				136				10.5
China			2				11				23				0				34				23.8
India			3				17				15				0				32				10.2
Iran			0				0				2				0				2				2.0
Japan			30				55				5				1				59				6.1
Korea (South)			39				20				8				0				28				10.1
Pakistan			3				2				2				0				4				0.7
Taiwan			20				6				2				0				8				2.7
Turkey			0				0				1				0				1				1.0
Asia Total							111				58				1				168				56.6
Belgium			54				7				0				0				7				0.0
Bulgaria			44				2				2				0				4				2.0
Czech Republic			31				6				0				0				6				0.0
Finland			28				4				1				0				5				1.7
France			78				59				1				1				59				1.7
Germany			32				17				0				0				17				0.0
Hungary			38				4				0				0				4				0.0
Lithuania			69				1				1				1				1				0.4
Netherlands			4				1				0				0				1				0.0
Romania			9				2				2				0				4				1.4
Slovakia			57				5				2				1				6				0.4
Spain			20				8				0				0				8				0.0
Slovenia			40				1				1				0				2				1.1
Sweden			48				10				0				0				10				0.0
Switzerland			37				5				0				0				5				0.0
UK			18				19				0				4				15				-1.6
Europe Total							151				10				7				154				7.1
Russia			16				31				13				2				42				11.3
Armenia			42				1				0				1				0				-0.4
Belarus			0				0				1				0				1				1.0
Ukraine			48				15				2				0				17				2.0
Russia and Eastern Europe Total							47				16				3				60				13.9
South Africa			6				2				2				0				4				1.1
World Total			16				439				96				13				522				89.2

Reactors — Operating, Planned and Under Construction

There are 439 reactors operating worldwide and a total of 96 new reactors that are under construction or planned for completion within the next 10 years (as of February 2008). These more than offset 13 anticipated closures, for a net increase of 83 reactors during the period. Given that new reactors tend to have higher capacities than older units, this represents a 23% growth in nuclear generating capacity. Highlights include:

	•		58 reactors are scheduled to be built in Asia, as energy demand is driven by rapid economic expansion. About 65% of this growth will occur in China and India, which have plans to build 23 and 15 reactors, respectively,
	•		in Russia, Ukraine, Belarus and Armenia, it is anticipated that 16 reactors will be built, offset by one closure in Armenia and two in Russia,
	•		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, and a second EPR is under construction in France,
	•		both South Africa and Turkey have solicited bids for multiple units, and
	•		in Canada, Bruce Power A Limited Partnership (BALP) is refurbishing two A units that had previously been shutdown, and both Bruce Power and Ontario Power Generation Inc. (OPG) have initiated the regulatory process for new generating units.

In 2007, four reactors were connected to the electricity grid, one each in Romania, China, India and the US. There were no reactor closures in 2007. There were also five power uprates. The net result was a 3.3 GWe increase in nuclear capacity.

Reactors — Potential

In 2007, a number of additional non-nuclear countries expressed interest in pursuing nuclear energy, including Azerbaijan, Bangladesh, Chile, Egypt, Indonesia, Israel, Jordan, Kuwait, Libya, Namibia, Phillipines, Poland, Qatar, Saudi Arabia, Thailand, United Arab Emerites, Vietnam and Yemen. Currently these countries are examining the feasibility of a nuclear program and do not appear in our reactor table.

THE URANIUM INDUSTRY

Worldwide Uranium Supply and Demand

The uranium market supply and demand fundamentals remained strong in 2007, 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 from various types of inventory and recycled products, often collectively referred to as secondary sources.

Uranium Demand

Overall, nuclear power trends support moderately growing demand for uranium and conversion services in the next 10 years, with the potential for more rapid growth thereafter.

Cameco estimates the world uranium consumption totalled about 174 million pounds in 2007, 2% lower than in 2006 as a result of lower capacity factors in India and Japan. In 2008, we expect world uranium demand to increase to about 182 million pounds. Annual world uranium consumption should reach 226 million pounds in 2017, reflecting an annual growth rate of almost 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.

At December 31, 2007, the uranium price had increased in excess of 700% since mid-2003. Over the same period, enrichment prices have increased by only 30%. 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 0.30%, thus, over time, as old enrichment contracts expire, the average tails assay will move to this range.

Uranium Supply

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

Mine Production

World production in 2007 increased but at a lower rate than anticipated. We estimate world mine production in 2007 was about 109 million pounds U₃O₈, up 6% from 103 million pounds in 2006, but down 7% from an early 2007 forecast of 117 million pounds. We currently expect world production to total in the range of 125 to 130 million pounds in 2008, but, as seen in 2007, production targets are not always easily achievable.

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 equal world consumption 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,
	•		the availability and sufficiency of required infrastructure and skilled workforce,
	•		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),
	•		the quality and size of the mineral reserves, and
	•		the availability of financing.

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 recovered 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 these recycled products will account for about 7% of world requirements over the next 10 years. With the exception of recycled products, 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 6% of world consumption 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 (DOE). We expect about 3% of world demand through 2017 will be met from this source.

Since 1985, uranium consumption has exceeded mine production by wide margins, with a large part of the difference being made up by drawdown of excess inventories. We believe 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 consumption 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.

With 2007 uranium production just over 60% of uranium requirements, secondary supplies (such as recycling and blended down HEU) continue to bridge the gap 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, market referenced prices (spot and long-term indicators). 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 investment 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 Consulting (UxC)) on December 31, 2007 was $89.50 (US) per pound U₃O₈, a 24% increase over the December 31, 2006 price of $72.00 (US). Spot market demand in 2007 decreased to about 20 million pounds U₃O₈ from 35 million pounds U₃O₈ in 2006.

Discretionary purchases, or purchases not for immediate consumption, accounted for about 68% of spot market volume in 2007, similar to levels in previous years. Increased inventory positions that were built over the past several years, resulting in higher than average spot purchases, allowed many buyers to withdraw from the market as the spot price hit record levels in June 2007. Since the utilities average inventory levels have improved compared to three years ago, we expect more price volatility in 2008.

Long-Term Uranium Market

The industry average long-term price (TradeTech and UxC) on December 31, 2007 was $95.00 (US) per pound U₃O₈, up almost 32% from $72.00 (US) at December 31, 2006.

We estimate long-term contracting in 2007 to have been about 250 million pounds U₃O₈, slightly higher than the 200 million pounds contracted in 2006, and well above historic levels.

We expect long-term contracting activity in 2008 to be lower compared to 2007, but higher than the long-term average. We expect utilities to mitigate the risk of potential future supply shortfalls by securing long-term contracts with reliable primary suppliers. Currently, we estimate the 2008 long-term contracting volume will be about half of the 2007 volume, however this level will be highly dependent on supply developments and market prices.

THE FUEL SERVICES INDUSTRIES

In 2007, Cameco’s fuel services business consisted of uranium refining and conversion facilities in Ontario, a Candu fuel fabrication facility in Ontario and a uranium conversion services supply arrangement with SFL.

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

The following sections discuss the conversion services market only, as information on the other segments of fuel services is not publicly available.

Conversion Services Demand

World demand for UF₆ and natural UO₂ conversion services was estimated to be about 66 million kgU in 2007. Western world demand accounted for almost 57 million kgU, with the remaining 9 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 32% to about 87 million kgU in 2017. In 2008, total world conversion services demand is expected to increase by 5%.

Conversion Services Supply

The western world UF₆ conversion industry consists of Cameco and three other significant producers, with an annual nameplate conversion capacity of about 51 million kgU. In 2005, Cameco signed a toll-conversion agreement to acquire UF₆ conversion services from one of these other converters, SFL in Lancashire, United Kingdom. Under the 10-year agreement, SFL will annually convert a base quantity of up to 5 million kgU to UF₆ for Cameco. This source, coupled with our Canadian UF₆ plant, will account for about 35% of the western world UF₆ nameplate 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 Services 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 declined in 2007. Spot prices decreased for North American conversion services and for European conversion services year-over-year. Outlined below are the industry average spot market prices (TradeTech and UxC) for North American and European conversion services.

		Dec 31/07				Dec 31/06				% Change
Average spot market price ($US/kgU)
•      North America			8.75				11.75				(26	)
•      Europe			10.25				12.38				(17	)

Outlined in the following table are the industry average long-term prices (TradeTech and UxC) for North American and European conversion services. The industry does not publish UO₂ prices.

		Dec 31/07				Dec 31/06				% Change
Average long-term price ($US/kgU)
•     North America			12.25				12.25				—
•     Europe			13.00				13.75				(5	)

3. OUR KEY PERFORMANCE DRIVERS, BUSINESS STRATEGIES AND CAPABILITIES TO DELIVER RESULTS

OUR 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 2003, when the spot price averaged less than $12.00 (US), could have started deliveries in 2005 and could continue through to 2010. Consequently, many of the contracts in our current portfolio reflect market conditions when uranium prices were significantly lower.

As a result, Cameco’s average realized price for uranium sales in 2007 was $37.47 (US) per pound of uranium compared to an average spot price of $99.29 (US) and average long-term price of $90.83 (US). In 2007, the benefit of improved spot prices was also partially offset by a less favourable foreign exchange rate. Our average realized selling price rose by 82% in US dollars but only 69% in Canadian dollars over 2006.

For more information on Cameco’s contracting strategy, see the section titled “Uranium Strategies” in this MD&A.

Volume — Sales, Production and Purchases

Sales Volume

In 2007, Cameco delivered 29.3 million pounds of uranium, representing a 19% decrease from 2006 deliveries of 36.1 million pounds. The lower delivery volumes were the result of shifting customer requirements and our decision to reduce sales in light of production constraints.

However, for revenue purposes in 2007, Cameco reported sales of 30.2 million pounds due to the accounting treatment of product loans it had 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 UF₆. Any borrowings will be secured by letters of credit and be settled in kind.

As of December 31, 2007, Cameco had terminated two of the three product loan agreements and no material was borrowed under the remaining standby loan agreement. However, in accordance with accounting standards, regardless of whether any material is borrowed, we defer revenue recognition from sales to the counterparty of the standby product loan agreements, up to the limit of the loan. As of December 31, 2007, because of the remaining standby loan agreement, we have deferred revenue of $96 million and the associated costs on sales of 2.6 million pounds (as UF₆ supply). The gross profit on the deferred sales was $44 million. Notice of termination has been given on the remaining facility and we will recognize previously deferred revenue in our earnings for the first quarter of 2008. Our reported sales volume will be affected by the termination.

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.

Sales of the company’s uranium are routinely denominated in US dollars, while production costs are largely denominated in Canadian dollars. A discussion about Cameco’s hedging program can be found under the heading “Foreign Exchange.”

Production Volume

Uranium Operations

Cameco’s share of production
(million lbs U3O8)		2008 Planned*				2007 Actual
McArthur River/Key Lake			13.1				13.1
Rabbit Lake			3.6				4.0
Smith Ranch/Highland			1.8				2.0
Crow Butte			0.9				0.7
Inkai			1.2				0.0
Total			20.6				19.8

Continued production at our operations is subject to the timely receipt of all necessary approvals, permits and licences.

McArthur River/Key Lake

Cameco’s share of production of U₃O₈ at McArthur River/Key Lake in Saskatchewan was 13.1 million pounds for 2007. Cameco’s share of production for 2008 is expected to be 13.1 million pounds.

Cameco has submitted requests to the Canadian Nuclear Safety Commission (CNSC) to renew our facility operating licences for McArthur River and Key Lake in 2008 for a five-year term. The current operating licences have been in place since 2004 and expire in October 2008.

Cameco plans to increase the annual production licence capacity at the McArthur River/Key Lake operation to 22 million pounds from 18.7 million pounds. As the first step, we submitted an environmental assessment for an increase in the annual licensed capacity in November 2004. The environmental assessment was delayed due to the discussions with the regulator regarding how to deal with the local accumulation of trace amounts of selenium and molybdenum in the Key Lake mill downstream environment.

Cameco has developed a three-phase action plan that modifies the effluent treatment process to reduce concentrations of selenium and molybdenum discharged to the environment. At a regulatory hearing in January 2007, the CNSC subsequently amended the licence to include a condition for the Key Lake mill to implement this plan. The first phase of the plan is expected to be in place in the first part of 2008.

The environmental assessment for the increased licence capacity is pending the demonstration of the effectiveness of our plan to reduce concentrations of selenium and molybdenum. We expect that reducing the current level of these metals will help advance the environmental assessment.

In addition to obtaining approval for the environmental assessment (which has to be resubmitted at the appropriate time) and licence approval to operate at higher production levels, we need to move 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 zone transition is ongoing and only after this transition is complete can we fully assess the production rate capacity of the new mining zones. A revitalization pre-feasibility assessment for the Key Lake mill was initiated in October 2006 and is scheduled to be completed in the first part of 2008. Revitalization of Key Lake will include upgrading circuits to new technology for simplified operation, increased production capacity and improved environmental performance.

If we receive approval for the increased production limit, we expect annual production will range between current levels and 20 million pounds U₃O₈ until such time as revitalization is completed at Key Lake. Annual production levels after mill revitalization are expected to be largely dependent on mine production. As such, Cameco anticipates it will be a number of years before it can achieve the sustainable rate at these operations, and there is a risk of even further delay.

For more information about McArthur River/Key Lake, including the assumptions and risk factors associated with the forward-looking information discussed above, refer to the section titled “Uranium — Capability to Deliver Results” in this MD&A.

At McArthur River, tunnelling of the north exploration drift continued during the fourth quarter of 2007. This development is intended to follow up on surface exploration drilling results from 2005 and 2006. The north exploration development will continue through 2008, followed by an underground diamond-drilling program to delineate targets previously identified from surface.

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

Rabbit Lake

Rabbit Lake produced 4.0 million pounds U₃O₈ for 2007. Reduced tonnage and mill head grade, and required changes to the mine plan related to a new mining zone contributed to production being 1.5 million pounds less than target.

In late November 2007, there was an increased water inflow to the underground mine at Rabbit Lake and mining was suspended. Cameco immediately began construction of four concrete bulkheads to control the inflow and, at the same time, initiated action to find and seal the source of the inflow. An old exploration drill hole was confirmed as the source and plugged, allowing normal mining activities to resume on December 31, 2007, well ahead of plan.

Rabbit Lake continued milling during the event by processing stockpiled ore, but the loss of a month of mining has reduced our 2008 planned production. Estimates for 2008 have been reduced from 4.5 to 3.6 million pounds U₃O₈ due to reduced ore stockpile levels and a decision to delay mining in the area affected by the inflow.

Cameco has submitted a request to the CNSC to renew our facility operating licence for Rabbit Lake in 2008 for a five-year term. The current operating licence expires in October 2008.

We have been working on an environmental assessment to process a little over one-half of the future uranium from Cigar Lake ore at the Rabbit Lake mill beginning in the second to third year of Cigar Lake production, depending on the production rampup. A CNSC hearing to consider the environmental assessment is expected by mid 2008.

Rabbit Lake began operation in 1975 and is Saskatchewan’s longest operating uranium production facility. In order to extend the life of this facility to process uranium from Cigar Lake’s ore, we began a mill revitalization assessment in 2007.

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

Smith Ranch-Highland and Crow Butte

Smith Ranch-Highland and Crow Butte in situ recovery (ISR) mines, located in Wyoming and Nebraska, respectively, produced 2.7 million pounds U₃O₈ in 2007, up from our target of 2.4 million pounds. Smith Ranch-Highland produced 2.0 million pounds of our ISR production in 2007, equalling a record set in 2006. In 2008, the two operations are expected to produce 2.7 million pounds.

In January 2008, Smith Ranch-Highland received regulatory approval for construction of a second satellite facility (SR-2), which will extend the life of the Smith Ranch-Highland operation. We expect the new SR-2 facility to be operational in the third quarter of 2008 and operate for about nine years.

Uranium Projects

Cigar Lake

Site crews at Cigar Lake continue to make progress on the remediation plan following a rockfall that caused a flood of the underground development in October 2006. Construction was about 60% complete at that time.

We have completed pouring a concrete barrier in the area of the inflow and reinforcing a tunnel adjacent to the rockfall. This includes injection of cement into the rock around the area of the inflow to seal off the area. In addition, we completed a test on the effectiveness of the underground seal in February 2008. The results were positive and demonstrated that the seal is effective with no indication of plug deterioration throughout the six-day testing period. Additional testing will be conducted as we prepare to dewater the mine.

There are a number of activities that must now take place before we can begin dewatering the underground development. We need to complete an assessment to determine if depressurization, reinforcement or other precautionary measures are necessary in two other areas of the mine. We anticipate results from this assessment in the first quarter of 2008 and can then determine if additional remediation is required in these areas.

In addition to the technical work, we need to complete many of the corrective actions arising from the root cause investigation before applying for regulatory approval to dewater the mine.

We are preparing a regulatory application to allow dewatering of the underground development and all other remediation activities leading up to, but not including, the restart of mine construction. We plan to submit this application to the CNSC in the first half of the year. Therefore, if the application is approved, we anticipate dewatering in the second half of 2008, as previously announced.

Cameco is also conducting an assessment of the partially completed second shaft to gather more detailed images of the structures and geology to facilitate the successful sinking of the shaft. We are targeting substantial completion of this assessment in the first half of 2008.

Installation of the ventilation fans on surface, slurry load-out facilities and surface pipelines is currently underway at the site.

We continue to anticipate production startup by 2011 at the earliest. We will be able to provide a better estimate of the initial production date after the mine has been dewatered, the condition of the underground development has been assessed, and the findings incorporated in the new mine development and production plans.

The Cigar Lake expected production date mentioned above and certain other statements regarding our plans and expectations for the resumption of production are forward-looking information and are based upon the material assumptions, and subject to the risk factors, stated under the heading “Caution Regarding Forward-Looking Information and Statements”, as well as the following key assumptions and risk factors that could cause results to differ materially:

•

we have assumed the success and timely completion of our dewatering and remediation efforts (including favourable results of geotechnical assessments), which are subject to the risk that they do not succeed as anticipated or take longer to complete than anticipated;

•

our ability to obtain and comply with the terms of, and the timing of, various regulatory approvals, which are subject to the risk of taking longer to obtain than anticipated, or our inability to comply with their terms; and

•

our expectation regarding the condition of the existing underground workings is correct, which is subject to the risk that actual conditions prove to be worse.

We have also assumed that there are no further disruptions to our dewatering and other remediation plans, but we are subject to the risk of delays arising from natural phenomena, such as fires, floods or cave-ins; the occurrence of another water inflow at Cigar Lake; failure of our radiation protection plans, labour disputes, litigation or arbitration proceedings; delays in obtaining or failure to procure the required equipment, personnel, operating parts and supplies; equipment failure; unexpected geological or hydrological conditions, and adverse ground conditions.

If actual results differ materially from the assumptions set out above or if any of the material risk factors above occur, the target date for the completion of dewatering Cigar Lake, and its production restart date, may differ materially from the expected dates that are stated above.

In March 2007, we estimated 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), 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. This capital cost estimate will be updated after the mine has been dewatered, the condition of the underground has been evaluated, and information from the evaluation has been incorporated in a new mining plan.

In addition to capital costs, Cameco’s share of remediation expenses are expected to total $60 million, of which $35 million has been expensed to the end of 2007. In 2008, Cameco expects its pre-tax earnings to be reduced by $15 million due to remediation expenses for Cigar Lake.

Cameco obtained an amended construction licence for Cigar Lake in 2007, which is valid until December 31, 2009. We will be applying to amend the licence to allow for completion of the mine remediation work prior to the end of the existing licence term.

Inkai

Two production areas are currently in development (Blocks 1 and 2) at the Inkai ISR project in Kazakhstan. At Block 1, construction of a commercial processing facility is underway. We expect to complete construction and begin commissioning the facility in the first half of 2008, subject to regulatory approvals. We expect commercial production to follow in 2008, subject to the availability of acid as noted below.

At Block 2, the test mine produced about 0.6 million pounds U₃O₈ during 2007. Commercial development of Block 2 could start in 2008 subject to regulatory approval.

During the third quarter of 2007, the availability of acid required for ISR mining was restricted due to a fire at one acid plant in Kazakhstan and delays in the startup of a new plant. As a result, Inkai and other ISR operations in Kazakhstan are receiving reduced acid allotments from Kazatomprom, Cameco’s state-owned joint venture partner in Inkai. These allotments are expected to continue through the second quarter of 2008 or longer. Inkai is making progress on securing alternative supply options and putting in place the necessary logistics. Inkai expects to have sufficient quantities of acid to facilitate commercial production in 2008. We continue to acidify the existing wellfield at the block 2 test plant and began acidifying the new commercial wellfield at block 1.

Production from blocks 1 and 2 is expected to total 5.2 million pounds per year by 2010, subject to regulatory approval (Cameco’s share is 60% or 3.1 million pounds). However, a non-binding memorandum of understanding (MOU) signed between Cameco and Kazatomprom in May 2007 provides for the doubling of future production capacity from the Inkai uranium deposit, raising the total annual production capacity to 10.4 million pounds on a timeframe yet to be confirmed.

While the existing project ownership would not change, Cameco’s share of the additional capacity under the MOU would be 50%, raising Cameco’s share of the future annual production at Inkai to 5.7 million pounds. This MOU also contemplates studying the feasibility of constructing a uranium conversion facility in Kazakhstan. For more information, refer to the section titled “Fuel Services Business — Key Performance Drivers — Production Volume” in this MD&A.

The total cost to bring Inkai to commercial production (100% basis) is now projected to be about $245 million (US). The development expenditures for Inkai in 2008 are expected to total about $45 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 $110 million (US) (reflecting the direct costs of construction less the proceeds for sales of pre-commercial production).

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 (IRR) 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 IRR. The 4% rate is triggered at an IRR of 20% and the 30% rate is triggered at an IRR of 30%. The excess profits tax rate is applied to net income. Inkai is not expected to pay excess profits tax in 2008. The timing of excess profits tax in the future, after Inkai reaches commercial production, will be dependent on the IRR of the project.

A one-time commercial discovery bonus of $14 million (US) was paid to the Kazakh government in the first quarter of 2008.

A new Kazakh law took effect in 2007 allowing the government to renegotiate previously signed subsoil use agreements. Cameco does not have any reason to believe the new law will be applied to uranium projects. However, it is a concern going forward and we continue to monitor how the government uses this new legislation.

See the section titled “Cameco’s Uranium Supply Outlook” in this MD&A for more information about assumptions and risk factors associated with the forward-looking information regarding Inkai discussed above.

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 2007, these purchase commitments totalled 41 million pounds uranium equivalent from 2008 to 2013. Of this, 39 million pounds are from exercising options under our agreement to purchase uranium from dismantled Russian weapons (the Russian HEU commercial agreement).

Cameco’s Uranium Supply Outlook

We are providing an update for our near-term production outlook in the table below.

Cameco’s Share of Production (million pounds U₃O₈) Excluding Cigar Lake¹

Current Forecast		2008				2009				2010				2011				2012
McArthur River/Key Lake 2			13.1				13.1				13.1				13.1				13.1
Rabbit Lake 3			3.6				3.2				1.8				3.1				2.4
US ISR4			2.7				2.8				3.6				4.8				4.8
Inkai			1.2				2.9				3.0				3.0				3.0
Total*			20.6				22.0				21.5				24.0				23.3

Cameco also purchases uranium derived from blended down Russian highly enriched uranium (HEU) from Techsnabexport (Tenex). These purchases total about 7 million pounds uranium equivalent annually until 2013. As previously announced, Tenex has asked Cameco and its partners to consider a new pricing structure to share in the improved uranium market prices for the last few years of the remaining six years of the agreement. Discussions have commenced.

The current uranium production and HEU purchase forecast noted above for the company are forward-looking information. This forward-looking information is based upon the key assumptions and subject to the material risk factors that could cause results to differ materially which are discussed under the heading “Caution Regarding Forward-Looking Information and Statements”. In particular, we have assumed that:

•

the company’s forecast production for each operation is achieved;

•

the company’s schedule for the development and rampup of production from Inkai is achieved, which requires, among other things, resolution of the issues surrounding acid availability required for mining;

•

the successful transition between zones at McArthur River beginning in 2009;

•

the company is able to obtain or maintain the necessary permits and approvals from government authorities to achieve the forecast production;

•

there is no disruption in production due to natural phenomena, labour disputes or other development and operation risks; and

•

the HEU supplier complies with its delivery commitments.

Material risk factors that could cause actual results to differ materially include our inability to achieve forecast production levels for each operation; our development and rampup of production from Inkai does not proceed as anticipated; the transition between zones at McArthur River is not successful; the inability to obtain or maintain necessary permits or government approvals; a disruption or reduction in production or the failure of the HEU supplier to comply with its delivery commitments. No assurance can be given that the indicated quantities will be produced or purchased. Expected future production estimates are inherently uncertain, particularly in the latter years of the forecast, and could materially change over time.

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 about 35% 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 27% of the total. Contracted services include items such as mining, maintenance, air charters, security and ground freight. These four components (labour, production supplies, maintenance materials and contracted services) make up 95% 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 volume of material mined. 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 high-grade ore per day. While Rabbit Lake’s average ore grade of around 1% U₃O₈ is much lower, it compares favourably to other operating mines in the world where ore grades are generally below 0.5%.

ISR extraction methods can make even lower grade mineralization commercially attractive. Worldwide, ISR 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 ISR operations. In 2007, US ISR production accounted for about 14% 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 $500 million (US) at December 31, 2007. Refer to note 25 in the financial statements. A significant portion of these purchased pounds will be delivered into existing sales contracts.

Uranium Strategies

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

	•		remain one of the low-cost producers,
	•		expand our market position,
	•		increase supply flexibility, and
	•		maximize realized prices over time.

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, which is expected to achieve commercial production in 2008, bringing Cigar Lake into production, and continuing to pursue a global exploration program. Our program seeks to identify the most prospective regions and maximize options to access and/or control land positions for future business advantage. To ensure we have adequate production, we look to identify the optimal resource mix (i.e. different types of deposits such as unconformity versus in situ recovery), and replace reserves through exploration and acquisition.

Given Cameco’s leadership role in the uranium market, the company wants to successfully maximize its 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 maximizing our realized price 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 are the increase in companies exploring for new uranium deposits and the construction of new mines and the proposed expansion of existing ones. However, this is a recent phenomenon. 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 will be expanded and newly discovered deposits will be developed, but the lead time for commercial production may be lengthy depending on the region. Consequently, the primary supply industry will be challenged to 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 mines, startup of mines currently under construction and development of known deposits,
	•		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 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 appropriate to continue to target a mix of market-related and fixed-price mechanisms.

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 retention of 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.

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 both market-related and fixed components. 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 references either the spot price or the long-term price in effect near the time of delivery. The market-related component may include a floor price (escalated by inflation), and, while the level of floor prices secured will depend on the prevailing market prices at the time of signing, recently, they have been in the mid to high $40 (US) range.

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

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.

Uranium — 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,
	•		securing sufficient human resources to replace an aging workforce, including ensuring skilled tradespeople continue to be available,
	•		ensuring capital is readily available over the longer term to support 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 mineralized zones with reserves (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 mineralized 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 current 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 continued in 2007. Significant advances in 2007 were made in both the zone 2 panel 5 freeze program and to the accessible portion of the freeze drill program for lower zone 4. Lower zone 4 development continues to advance in this area, but slower than planned as we mitigate risk of potential water inflows. Zone 2 panel 5 was on schedule at the end of 2007 for production in the first half of 2009. The lower zone 4 area is currently forecasted to begin production by mid-2009, but it may not occur until the second half of 2009. We are developing options that may allow us to access other areas of the mine if needed.

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 upper zone 4 is scheduled to begin in 2012.

Cameco plans to develop and test the boxhole boring method over the next four years. In 2006, we placed an order for a boxhole borer for delivery in the first half of 2008 and in 2007 completed the mine plan for the boxhole boring test area. We expect mine development for the test area will be completed in 2008, and initial test boring is planned for the second half of 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 exists. We are confident we 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 25 and 33 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 started in October 2006. We are targeting to complete the pre-feasibility study in the first quarter of 2008. A revitalization assessment of the Rabbit Lake mill was initiated 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 practices and other factors.

Cameco expends significant financial and managerial resources to comply with laws and regulations. We seek to find solutions that 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 26% of the workforce at our Saskatchewan uranium mines was age 50 or older at December 31, 2007. Cameco’s challenge is to compete for the limited number of people entering the workforce to replace retiring employees, as well as to adequately resource our growth plans. We have identified critical workforce segments and developed a long-term people strategy that includes workforce planning to meet this 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 25% net debt to total capital. We are prepared to temporarily go above our target to pursue attractive opportunities, but would then return to this benchmark over time.

uranium exploration

A significant part of Cameco’s 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 $46 million in direct uranium exploration during 2007. An additional $30 million was invested in three strategic partnerships with junior exploration companies, complementing our own exploration program.

We have skilled and experienced exploration staff with more than 90 professionals searching for the next generation of economic deposits. Our landholdings are substantial, with approximately 5.2 million hectares (12.8 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 2007, Cameco operated approximately 70% 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.

exploration acquisition/merger approach

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. 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.

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.
We will continue to use Cameco’s industry leadership position and specifically our recognized exploration expertise to leverage investments as the partner of choice in the junior sector and with larger players.

We will also create a portfolio of future options for Cameco through the structure of the strategic alliances we are developing, and on high quality exploration and development projects. Our strategic alliances with junior exploration companies typically involve investments in publicly listed or private companies, which themselves hold exploration land in which Cameco wishes to participate. In return for these investments, Cameco typically obtains the right to own a majority in, and develop a successful discovery resulting from, exploration on the junior companies’ lands.

Junior Exploration Companies

At December 31, 2007, Cameco owned interests in the following junior exploration companies:

	•		UEX Corporation (UEX)
			Cameco has a 21.4% interest in UEX, 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. This minimum 20% ownership level also provides Cameco with the right to mill uranium produced from properties it contributed to UEX at the time of its formation in 2002.
	•		UNOR Inc. (UNOR)
			Cameco acquired a 19.5% interest in UNOR in 2006 by purchasing 22.9 million common shares. UNOR is a uranium exploration and development company with its head office in Toronto, Ontario. Its principal properties include 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 provides Cameco with 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 provided it maintains a 10% or greater equity interest in UNOR.
	•		MINERGIA SAC (MINERGIA)
			Cameco has the right to earn a 50% ownership interest in MINERGIA, a private company jointly owned by Cameco and Vena Resources, established to explore and develop Vena’s uranium assets in Peru. Cameco has the option to invest $10 million over the next four years in two stage payments to obtain its 50% interest. Cameco can increase its stake in MINERGIA to 60% when a feasibility study is completed and to 70% when mine development commences.
	•		Western Uranium Corporation (WUC)
			In July 2007, Cameco acquired a 10% interest in WUC. WUC is an exploration company with land positions primarily in Nevada, US and Nunavut. As long as Cameco maintains a 7.5% or greater interest in WUC, it has the right to purchase a 70% joint venture interest in uranium resources discovered by WUC, that meet certain size criteria, in return for a defined payment to WUC.
	•		Cue Capital Corp. (CUE)
			In September of 2007, Cameco gained a 15.4% interest in CUE through the execution of a strategic alliance agreement to pursue exploration on CUE’s uranium exploration land in Paraguay. Cameco has the right to purchase a 60% joint venture interest in uranium resources discovered by Cue, that meet certain size criteria, in return for a three-stage private placement in CUE, provided Cameco maintains ownership of 90% of the CUE shares it acquired as part of this investment.

2007 Exploration Program¹

Brownfield Exploration

Brownfield exploration refers to uranium exploration activity undertaken near existing operations and on advanced projects. In 2007, 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.

Diamond drilling to evaluate the P2 trend north of the McArthur River mine was undertaken in 2007. In total, almost 13,000 metres were drilled in 25 drill holes comprising a combination of conventional and directional drilling. The P2 structure has now been tested at approximately 200-metre intervals for a distance of three kilometres north of the mine. Results continue to be encouraging.

We have been successful at extending the mine life at Rabbit Lake by finding incremental reserves. The underground drilling reserve replacement program has been extended to include drilling throughout 2008. We drilled 66,000 metres in 2007 to test the north zone beyond the area where reserves were identified in 2006, as well as a target south of the mine. Both areas continue to provide good indications of mineralization and are part of our ongoing underground exploration drilling focus for 2008. The surface exploration program comprised about 13,000 metres in 62 holes and tested targets in the vicinity of the Eagle Point mine as well as more regional targets on the mining lease.

Both the Millennium and Tamarack (formerly Collins Creek) deposits were advanced in 2007. At Millennium, a feasibility study was approximately 80% complete by year end. A new resource estimate for Millennium resulted in indicated resources of 469,000 tonnes at 4.5% U₃O₈ for 46.8 million pounds U₃O₈ and inferred resources of 214,000 tonnes at 2.1% U₃O₈ for 9.7 million pounds U₃O₈. Cameco’s share of Millennium resources is 42%. We have notified the CNSC of our intent to file a formal project proposal for Millennium in 2008.

Cameco completed a pre-feasibility study on the Dawn Lake 11B zone. The study examined mining the 11B zone as a stand-alone operation by shaft and underground development. The study concluded the project economics would not support this style of operation.

On the Dawn Lake project, a scoping study was undertaken in 2007 to examine the potential for mining the Tamarack deposit by open pit. Environmental studies involving a fish habitat compensation program were initiated. Infill diamond drilling (6,000 metres in 32 holes) of the deposit was completed on 50-metre spacing. Further drilling is planned for 2008, at which time a resource estimate will be undertaken.

The English River First Nation (ERFN) has selected claims for Treaty Land Entitlement (TLE) designation that include the Millennium uranium deposit. Similarly, the Peter Ballantyne Cree Nation has selected lands under the TLE process that cover portions of the mineral claims held by the Dawn Lake joint venture. The TLE process does not affect the rights of our mining joint ventures, however, it may have an impact on the surface rights and benefits ultimately negotiated

as part of the development of our two uranium deposits. Cameco, as operator of both affected joint ventures, is investigating the potential implications of the TLE land issue.

On the AREVA operated Cree Zimmer project, surrounding the Key Lake operation, 13 diamond drill holes totalling about 3,000 metres were drilled in the P-zone and along the Key Lake fault southwest of the historic deposits. The best hole of the summer program intersected three zones of weak to moderate mineralization. The hole was designed to test approximately 20 metres north of known mineralization and to test below the historical drilling.

On the Waterbury/Cigar Lake joint venture project operated by AREVA, the dominant activity undertaken was diamond drilling at Cigar East and Tibia Lake. The drilling program consisted of 12 holes for a total of approximately 6,000 metres. Nine drill holes tested the Cigar East area and three drill holes investigated the Tibia Lake area. The drilling in the Cigar East area extended the mineralization intersected in 2006 over a strike length of approximately 120 metres, with mineralization intersected in four drill holes. Drilling in the Tibia area intersected prospective sandstone alteration, large zones of structural deformation, favourable basement lithologies and weak mineralization in two of the three drill holes.

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. During 2007, a total of about 8,000 metres in six pilot holes and five wedge holes (holes drilled from existing holes) were completed on the Centennial zone. The best assay result from the 2007 drilling program was a drill hole, which returned 6.33% U₃O₈ over 21 metres. Mineralization has now been defined over a strike length of at least 550 metres and remains open for expansion along strike to the south.

As part of Cameco’s continuing expansion of uranium exploration activities, numerous new projects were initiated in Nunavut, the Northwest Territories, Quebec, Western Australia, South Australia and Mongolia.

In November 2007, Cameco signed an agreement to explore in Russia and Canada with Joint Stock Company Atomredmetzoloto (“ARMZ”), a Russian company, which, as part of the restructuring and centralization of Russia’s nuclear industry, will now control all of Russia’s uranium mining assets previously controlled by Tenex. Pursuant to this agreement, Cameco and ARMZ will work to establish and organize joint venture companies in Russia and Canada. These companies will explore for uranium deposits in northwestern Russia, Saskatchewan and Nunavut and, if warranted, engage in the development of deposits that are found. This agreement builds on memoranda of understanding signed in March 2007 and October 2006 between Cameco and Tenex. Cameco anticipates entering into binding shareholders’ agreements and operators’ agreements in 2008.

2008 Exploration Program

Cameco plans to invest between $50 million and $55 million on uranium exploration during 2008 as part of our long-term strategy to maintain our leadership position in uranium production.

Brownfield Exploration

Approximately 26% of the uranium exploration budget will be for brownfield exploration projects in the Athabasca Basin. We plan to invest about $13 million on six advanced projects. The largest proposed investment will be at McArthur River, with $3.5 million to be directed toward diamond drilling on the northern extension of the prolific P2 fault. At the Rabbit Lake operation, surface exploration will continue to focus on both regional and mine-related targets, principally east and north of the Eagle Point mine.

The Dawn Lake joint venture plans to continue delineation work on the Tamarack deposit. Environmental studies will continue while more engineering-related geotechnical work will be initiated. An initial resource estimate is intended to be undertaken once all the 2008 drilling program assay results are available.

Exploration activity at the Cree Zimmer and the Waterbury Lake/Cigar Lake projects continues in 2008. Priority targets on the Cree Zimmer project include the P-zone and the area along the main Key Lake fault southwest of the former Gaertner and Deilmann uranium deposits. In 2008, exploration on the Waterbury Lake project will be focused east of the Cigar Lake orebody to follow up on the mineralization encountered and also in the Tibia Lake area.

The Millennium deposit is expected to proceed to the mine planning and development stage following completion of the feasibility study and a positive development decision, which is pending. We expect the feasibility study will be complete by the end of the first quarter of 2008. Exploration on the Cree Extension joint venture will shift to testing along the Millennium trend and on a parallel trend.

Regional Exploration

The remaining exploration expenditures in 2008 are expected to be allocated among 63 projects worldwide, the majority of which are at drill target stage. Our largest investments are planned to be in Saskatchewan, where a $2.7 million program is scheduled to 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. A significant proportion of the $9 million earmarked for Australian exploration will take place on new land positions in Western Australia and South Australia.

In 2008, exploration will also take place in the US, Mongolia, South America and in Africa. Cameco continues to evaluate other regions and projects globally, and we will add to our land position as new prospects are confirmed.

OUR FUEL SERVICES BUSINESS

Key Performance Drivers

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

	•		conversion 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 (Conversion Services)

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 2007, 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 90 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 on average 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 recent higher priced environment.

Volumes — Sales, Production, Purchases

Sales Volume

Cameco sold 17.0 million kgU of fuel services in 2007, down 8% from the 18.5 million kgU in 2006. Cameco has met scheduled UF₆ deliveries since our Port Hope UF₆ production was suspended in July 2007 (see “Production Volume” below). We are working with our customers to manage our worldwide pool of inventories in order to meet customer requirements at specific locations. In addition, we have arranged for voluntary deferrals of UF₆ deliveries and purchased UF₆ conversion services. These actions are intended to allow us to meet utility delivery commitments until Port Hope production resumes, assuming customers do not accelerate deliveries and UF₆ production and other purchases proceed as planned.

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 under the heading “Foreign Exchange.”

Production Volume

Conversion Services

Our Port Hope fuel services production and SFL supply totalled 12.9 million kgU in 2007 compared to 15.4 million kgU in 2006. The decrease for 2007 is a result of the Port Hope UF₆ plant shutdown due to the discovery of contamination beneath the plant in July 2007. UO₂ conversion services and other activities at the site were not affected.

Cameco has received regulatory approval to begin installing the structures and new equipment required for safely restarting and operating the plant. We have already removed most of the UF₆ plant floor and the top 0.6 metres of soil beneath areas of the plant where leakage was identified. Subsequent steps involve backfilling the excavated area and pouring the concrete floor of the UF₆ building, adding leak-proof surface coatings and re-installing equipment. Replacement of the concrete floors has started.

Additionally, a groundwater management system outside the plant will be installed to contain, recover and treat affected groundwater. We will require approval for the final design, installation and operation of this system.

Cameco must also complete and receive CNSC approval for a comprehensive risk assessment that will identify contaminants that could pose a potential risk to the environment and verify that the selected treatment methods and technology will effectively mitigate potential risks. The health and safety of employees and the public have not and will not be adversely affected based on a preliminary risk assessment and the low concentrations of contaminants in the soil and groundwater outside the footprint of the UF₆ plant.

Cameco has set a target of resuming UF₆ production at its Port Hope plant in the third quarter of 2008 at the earliest. We expect to provide a more specific timetable after construction schedules are finalized and availability of contractors is confirmed. Resuming production in the UF₆ plant will require CNSC approval.

The statements above regarding the target date for resumption of Port Hope UF₆ production and certain other statements regarding future events, including meeting UF₆ utility delivery commitments, are forward-looking information and are based upon the following key assumptions and subject to the following material risk factors that could cause results to differ materially: we have made certain assumptions regarding the timing of regulatory approvals for remediation activities, modifications to the UF₆ plant, and production restart, but they are subject to the risk that they take longer to obtain than anticipated; we have assumed that the UF₆ plant can be brought back into production without unforeseen difficulty or delay, but that is subject to a number of risks including the risk of unusual difficulties arising from the extended length of time that the UF₆ plant has been shut down, the risk that there will be a delay in or failure to procure the required contractors, equipment and suppliers, the risk of equipment failure, the risk of natural phenomena including inclement weather conditions and fire, and the risk of delay or ultimate lack of success; we have assumed that the findings in our preliminary risk assessment prove to be correct, but that is subject to the risk of adverse findings in the final risk assessment; and we have assumed our efforts to meet scheduled UF₆ delivery commitments will succeed, but that is subject to a number of risks including customers accelerating UF₆ deliveries or UF₆ production, purchases and deferrals not proceeding as planned; which are subject to the risk that costs are higher than expected.

Port Hope Conversion Facility Project

The CNSC has released, for public review, the environmental assessment guidelines required 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.

Potential New UF₆ Supply Capacity

In addition, Cameco is working with Kazatomprom under a MOU to study the feasibility of constructing a UF₆ conversion facility in Kazakhstan and elsewhere. Cameco would provide the technology and potentially hold an interest of up to 49% in the facility, at the company’s discretion. Cameco anticipates that binding agreements will be signed in 2008 and that various government approvals will be required as the agreements are implemented.

Refining

At our Blind River refinery, we produced 9.5 million kgU in 2007 compared to 17.2 million kgU for 2006. The decrease was due primarily to the suspension of UF₆ production at Port Hope, which reduced the requirement for UO₃ feed.

The Blind River incinerator, having received regulatory approval, was operational by the end of 2007. The incinerator has additional pollution abatement equipment.

The final environmental assessment for the proposed increase in the Blind River licensed production capacity from 18 to 24 million kgU per year is expected to be issued early in 2008 with approval expected in the fall, after which construction of modifications to meet the new licensed capacity can be completed.

Fuel Fabrication

The primary business of our fuel manufacturing facilities is to fabricate nuclear fuel bundles for sale to companies that generate electricity from Candu reactors.

In Port Hope, Ontario, our plant presses UO₂ 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. The fuel bundles are supplied 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.

We are planning to modify our fuel manufacturing plant in Port Hope to produce fuel bundles containing slightly enriched uranium, subject to reaching agreement with BALP. Cameco is in the process of obtaining regulatory approval from the CNSC to produce these fuel bundles. The environmental assessment was approved by the CNSC in February 2008 and we have made a submission for approval of the licence amendment.

In Cobourg, Ontario, we operate 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.

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, 2007 total about 57 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 $349 million (US) at December 31, 2007. Refer to note 25 in the financial statements. A significant portion of these purchases has been committed under existing sales contracts.

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 four major goals to:

	•		remain a sustainable low-cost producer,
	•		expand market position,
	•		increase supply flexibility, and
	•		maximize realized prices.

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

	•		upgrade its plant and improve operating practices,
	•		ensure adequate production,
	•		grow its market position, and
	•		manage its conversion services contract portfolio.

Learning from the extended shutdown of the Port Hope UF₆ plant, we will enhance our plant and operating practices to ensure sustainable economic production for the long term. 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.

Fuel Services — Capability to Deliver Results

Cameco will execute our strategies and deliver on our goals by ensuring:

	•		community relations at Port Hope continue to strengthen,
	•		sufficient 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 sufficient human resources to replace the aging fuel services workforce. At December 31, 2007, about 36% of the conversion services workforce was age 50 or older. We have identified the critical workforce segments and developed a long-term people strategy that includes workforce planning to meet that challenge.

ready access to capital

For information on this topic, refer to section titled “Uranium — Capability to Deliver Results — Ready Access to Capital” in this MD&A.

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 fuel services business to meet these longer term opportunities.

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 because 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, 2007, the Canadian dollar strengthened against the US dollar to $0.99 from $1.17 at December 31, 2006. Over the course of the year, the exchange rate averaged $1.08.

At December 31, 2007, we had foreign currency contracts of $1,568 million (US) and EUR 88 million that were accounted for using hedge accounting and foreign currency contracts of $340 million (US) that did not meet the criteria for hedge accounting. The foreign currency contracts are scheduled for use as follows:

		2008				2009				2010				2011
$ millions (US)			918				510				380				100
EUR millions			45				20				15				8

The US currency contracts have an average effective exchange rate of $1.11 (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, 2007, the mark-to-market gain on all foreign exchange contracts designated as hedges was $118 million compared to a $34 million loss at December 31, 2006. For those contracts not designated as hedges, the mark-to-market gain of $22 million has been included in earnings for 2007.

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, 2007, net deferred gains totalled $80 million. The schedule for net deferred gains to be released to earnings, by year, is as follows:

Deferred Gains (Charges)		2008				2009				2010				2011
$ millions (Cdn)			49				18				13				0

In 2007, 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 2007, the effective exchange rate, after allowing for hedging, was about $1.11 compared to $1.20 in 2006.

For sensitivity of our net earnings in 2008 to changes in the US to Canadian dollar exchange rate, see the section titled “Consolidated Outlook for 2008” in this MD&A.

4. our performance and outlook

2007 CONSOLIDATED FINANCIAL RESULTS

In 2007, Cameco recorded strong financial results and established a number of records in key measures of financial performance, exceeding the previous results achieved in 2006. The following table illustrates these measures.

For the Years Ended December 31
($ millions)		2007				2006				% Change
Revenue		$	2,310			$	1,832				26
Net earnings			416				376				11
Adjusted net earnings1			603				274				120
Cash from operations			801				418				92

In our 2007 third quarter report, we indicated that our consolidated revenue for the year was expected to be about 30% higher than in 2006. However, actual revenue came in below expectations (26% higher than in 2006) due to deliveries of uranium and conversion services being rescheduled to 2008.

Consolidated Earnings

Earnings

For the year ended December 31, 2007, our net earnings were $416 million ($1.13 per share diluted), $40 million higher than net earnings of $376 million ($1.02 per share diluted) recorded in 2006. Cameco recorded a number of amounts related to unusual items in net earnings for 2007 and 2006. In 2007, Cameco recorded an after-tax loss of $153 million ($0.41 per share diluted) as the results of the agreements reached among Cameco, Centerra and the Government of the Kyrgyz Republic, an after-tax expense of $59 million ($0.16 per share diluted) due to the amendment to the company’s stock option program under which a cash settlement feature was introduced and a $25 million ($0.07 per share diluted) recovery of future income taxes due to tax legislation changes enacted by the federal government. In 2006, Cameco recorded a non-cash recovery of $73 million ($0.19 per share diluted) of future income taxes related to reductions in federal and provincial income tax rates and a net gain of $29 million ($0.08 per share diluted) due to the sale of its interest in the Fort à la Corne diamond project. Consolidated earnings in the following discussion are adjusted to exclude these items in order to provide a more meaningful basis for period-to-period comparisons of the financial results. Adjusted net earnings, a non-GAAP measure, should be considered as supplemental in nature and not a substitute for related financial information prepared in accordance with GAAP.

For the year ended December 31, 2007, our adjusted net earnings¹ were $603 million ($1.63 per share adjusted and diluted), $329 million higher than the adjusted net earnings¹ of $274 million ($0.75 per share adjusted and diluted) recorded in 2006. The increase was due to higher earnings

in the uranium business resulting from a significant increase in the realized selling price driven by the rise in the spot price of uranium, partially offset by higher costs in the fuel services business related to the discovery of uranium contamination in the soil beneath the UF₆ plant in Port Hope.

Earnings from operations increased to $475 million in 2007 from $335 million in 2006. The aggregate gross profit margin increased in 2007 to 38% from 28% in 2006 due to higher realized prices for uranium.

Corporate Expenses

Administration

In 2007, Cameco’s administration expenses include direct costs for administration as well as expenses for stock-based compensation. As a result of the amendment to our stock option program, the amount of the reported expense is determined using the Cameco share price as of the date of the financial statements. Thus, the reported expense may vary significantly from period to period. The following table illustrates the components of our administration expense.

$ millions		2007				2006				Change
Direct administration		$	132			$	118			$	14
Stock-based compensation1			(5	)			25				(30	)
Total administration		$	127			$	143				($16	)

In 2007, direct administration costs were $132 million, an increase of $7 million compared to 2006 due to increased costs for systems enhancements and higher costs for recruiting, retention and maintenance of the workforce.

Cameco also recorded a net recovery of $5 million in 2007 for stock compensation as a result of the decline in the share price following the amendment of the stock option program. The stock compensation expense reported above does not include the $94 million charge recorded at the date of the amendment.

Interest and Other

In 2007, interest and other charges were $29 million lower than in 2006 due to the recognition of $40 million in gains on foreign exchange contracts that do not qualify for hedge accounting, partially offset by foreign exchange losses recorded on US dollar-denominated asset balances and a provision of $5 million for the decline in the fair value of investments in asset-backed commercial paper. Refer to note 14 in the notes to the financial statements.

Income Taxes

In 2007, we recorded a tax expense of $29 million compared to a net tax recovery of $69 million for 2006.

In 2007, the federal Government introduced amendments to the Canadian Income Tax Act that provide for a 4% reduction in the general corporate income tax rate. The federal tax rate will

decline in 2012 from 19% to 15%. This legislation was substantively enacted in 2007. 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 $25 million ($0.07 per share diluted) in 2007.

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. 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.

Also in 2006, 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.

In 2007, our effective tax rate increased slightly to 7% from 6% in 2006 due to higher taxes in Centerra. The Boroo mine in Mongolia had been exempt from paying corporate income taxes until early 2007. The effective rates for 2007 and 2006 are based on adjusted net earnings and the rate for 2006 also excludes the $17 million recovery mentioned above.

Income tax expense also includes capital taxes of approximately $2 million in each of 2007 and 2006, respectively. Refer to note 17 in the notes to the financial statements.

Cash Resources

Operating Activities

In 2007, Cameco generated record cash from operations of $801 million compared to the previous record of $418 million in 2006. The increase of $383 million reflects higher uranium revenue compared to 2006 and a reduction in non-cash working capital during the year. Trade receivables were $75 million lower than at the end of 2006 due to the timing of sales in the uranium and fuel services businesses.

Investing Activities

In 2007, cash used in its investing activities was $527 million, unchanged compared to 2006. Total expenditures for property, plant and equipment in 2007 were $494 million, an increase of $35 million over 2006 due to higher development charges at Inkai ($19 million) and increased capital expenditures at the Saskatchewan uranium operations. In 2006, Cameco spent $84 million in the acquisition of its fuel manufacturing subsidiary and collected $45 million as a result of the sale of its interest in the Fort à la Corne joint venture.

For 2007, investing activities included $77 million for sustaining capital at McArthur River/Key Lake, $69 million in development costs at Cigar Lake and $31 million in capitalized interest charges.

Financing Activities

In 2007, Cameco used $437 million in its financing activities compared to $182 million in 2006 due largely to the share repurchase program. In 2007, Cameco spent $429 million to repurchase and cancel 9.6 million shares. In 2006, Cameco redeemed $150 million in debentures. In 2007, the company paid a record total of $67 million in dividends, up from $53 million in 2006.

Balance Sheet

Cash

At December 31, 2007, our consolidated cash balance totalled $132 million with Centerra holding $104 million of this amount.

Inventories

Our product inventories increased by $21 million to $437 million compared to the end of 2006. The increase in the inventory value was attributable to higher unit costs due primarily to higher unit costs for uranium and fuel services, partially offset by a 22% decline in the quantity of conversion inventory. The average cost of our uranium rose due to higher production costs. The cost of conversion services has risen due to higher production costs and an increase in the cost of purchased material. Refer to note 4 in the notes to the financial statements.

Debt

At December 31, 2007, our total debt was $726 million, representing an increase of $21 million compared to December 31, 2006. Included in the December 31, 2007 balance was $190 million, which represents our proportionate share of BPLP’s capital lease obligation. At December 31, 2007, our consolidated net debt to capitalization ratio was 18%, up from 12% at the end of 2006. Refer to note 8 in 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 31/07				Dec 31/07				Dec. 31/06
Centerra Gold Inc. 2		$	375			$	1,432			$	1,504
UEX Corporation			14				258				220
Western Uranium			13				13				N/A
UNOR Inc.			8				6				14
CUE Capital			7				7				N/A
Total		$	417			$	1,716			$	1,738

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, 2006 and December 31, 2007.

2

The market value for the investment in Centerra has not been reduced to reflect the 22.3 million shares that are to be transferred upon the closing of the restructuring arrangement with the Kyrgyz Republic.

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 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:

	•		2007 Nuclear Electricity Generation Business,
	•		Liquidity and Capital Resources,
	•		Risks and Risk Management, and
	•		Notes 8, 9, 25 and 27 of the Financial Statements.

•

Long-Term Product Purchase Contracts

	•		Uranium Business,
	•		Liquidity and Capital Resources, and
	•		Note 25 of the Financial Statements.

CONSOLIDATED OUTLOOK FOR 2008

In 2008, Cameco expects consolidated revenue from its nuclear fuel and electricity businesses to increase by about 3% to 10% over 2007, due largely to expected higher revenue from the uranium business. Gold revenue is excluded from this forecast, as Cameco will equity account for Centerra’s results instead of consolidating them once Cameco’s ownership in Centerra falls below 50%. We expect this to occur once the pending transaction with the Kyrgyz government is completed.

Administration costs, excluding stock-based compensation, are projected to be 10% to 15% greater than in 2007. The increase reflects anticipated growth in the workforce, and costs to maintain the workforce. Uranium exploration costs are expected to range from $50 million to $55 million in 2008.

For 2008, the effective tax rate is expected to be in the range of 10% to 15% compared to approximately 7% in 2007. The rate for 2007 is calculated on adjusted net earnings.

At December 31, 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 $5 million (Cdn) related to unhedged exposures and about a $2 million (Cdn) decrease/increase related to mark-to-market exposure on hedges that do not qualify for hedge accounting. Going forward, we expect to continue to reduce our US dollar hedge position.

Capital Expenditures

(Cameco’s share in $ millions)		2008 Plan				2007 Actual
Growth Capital
Cigar Lake			108				62
Inkai			27				56
Rabbit Lake			19				—
US ISR			5				—
Fuel Services			12				—
Total Growth			171				118
Sustaining Capital
McArthur River/Key Lake			164				77
US ISR			48				28
Rabbit Lake			33				34
Fuel Services			56				36
Other			23				6
Total Sustaining			324				181
Capitalized Interest			39				31
Total Uranium & Fuel Services			534				330
Bruce Power (BPLP)1			39				31
Gold2			68				132

For 2007, our capital expenditures of $330 million for uranium and fuel services were $87 million lower than our planned expenditures for the year, due largely to curtailed activity at our Rabbit Lake and fuel services operations. Projects at the Rabbit Lake mill were deferred due to the change in the development schedule for Cigar Lake following the flooding in 2006. At Port Hope, capital projects were delayed due to the discovery of the contaminated soil under the UF₆ plant that has resulted in plant shutdown and corrective actions since July 2007.

In 2008, we expect total capital expenditures for uranium and fuel services to increase by 62% to $534 million. The increase is largely the result of higher sustaining capital expenditures for the revitalization programs at Key Lake and well field expansions at the US ISR operations. Sustaining capital expenditures will also increase at fuel services to improve production processes and meet new regulatory requirements.

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 $171 million.

This consolidated outlook for 2008 is forward-looking information and is based upon the key assumptions and subject to the material risk factors that could cause results to differ materially which are discussed under the heading “Caution Regarding Forward-Looking Information and Statements”, and the particular assumptions and material risk factors relating to each of our business segments that are discussed following the outlook for that segment presented below.

2005-2007 CONSOLIDATED FINANCIAL HIGHLIGHTS

For the Years Ended December 31
($ millions except per share amounts)		2007				2006				2005
Revenue			2,310				1,832				1,313
Earnings from operations			475				335				121
Net earnings			416				376				215
— per common share (basic)			1.18				1.07				0.62
— per common share (diluted)			1.13				1.02				0.60
Adjusted net earnings 1			603				274				208
Cash provided by operations			801				418				278
Total assets			5,371				5,140				4,773
Long-term financial liabilities			1,633				1,592				1,687
Dividends per common share		$	0.20			$	0.16			$	0.12

The following points are intended to assist the reader in analyzing the trends in the annual financial highlights for the years 2005 through 2007.

	•		Revenue has trended higher over the three-year period, rising by 76% over 2005 to a record $2,310 million in 2007. This increase was primarily the result of an increase in the realized selling price for uranium, which averaged $41.68 per pound (Cdn) in 2007 compared to $20.14 per pound (Cdn) in 2005. Revenue from the fuel services business has also risen over the three-year period due to improved prices and the acquisition of our fuel manufacturing subsidiary in 2006.
	•		Earnings from operations have also trended higher during the period, but the rise has been tempered somewhat 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 as well as higher royalty charges for uranium. 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, higher costs for regulatory compliance and growth in the workforce.
	•		Net earnings have trended with revenue but our results have been significantly influenced by unusual items over the past three years. 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. In 2007, we recorded charges of $153 million after tax related to the restructuring of Centerra and $59 million after tax related to the amendment to the stock option plan to provide for a cash settlement feature, as well as a $25 million recovery of future income taxes due to tax legislation changes.

	•		Excluding the adjustments noted above, net earnings for 2007 have nearly tripled at $603 million compared to the $208 million recorded in 2005. The 32% increase to $274 million in 2006 from 2005 was attributable to improved results in the uranium business related to an improved realized price, driven by a significant increase in the spot price for uranium. Earnings were also bolstered by stronger results in the gold business. These improvements were partially offset by reduced earnings from BPLP as well as higher charges for administration and the recognition of remediation costs at Cigar Lake. Adjusted net earnings rose to $603 million in 2007 compared to $274 million in 2006 due to continued improvement in the realized price for uranium, due primarily to higher uranium spot prices. Realized prices under fixed-price contracts were also stronger.
	•		In 2007, Cameco generated record cash from operations of $801 million compared to $418 million in 2006. This increase of $383 million was mainly attributable to the higher revenues in 2007. Cash from operations of $418 million in 2006 represented an increase of $140 million compared to the $278 million recorded in 2005. This increase was mainly due to higher revenues in the uranium business and the proportionate consolidation of BPLP results in 2006.
	•		The major components of Cameco’s long-term financial liabilities are long-term debt, future income taxes and the provision for reclamation. In 2007, Cameco’s total long-term financial liabilities increased to $1,633 million from $1,592 million at the end of 2006 due to a $56 million increase in our provision for reclamation and a $21 million increase in long-term debt, partially offset by a $54 million reduction in future income taxes due largely to changes in Canadian tax rates.
	•		At the end of 2007, Cameco’s total assets amounted to $5,371 million, an increase of $231 million over the previous year. Most of the change was due to the increased investment in property, plant and equipment related to development expenditures for Cigar Lake and Inkai as well as sustaining capital for the other uranium operations.

2007 URANIUM BUSINESS FINANCIAL RESULTS

Cameco’s uranium business consists of the McArthur River, Key Lake and Rabbit Lake mine and mill operations in Saskatchewan, two ISR mines in the US, the Inkai ISR test mine in Kazakhstan, the Cigar Lake development project in Saskatchewan and uranium exploration projects located primarily in Canada and Australia. The uranium business also involves the purchase and sale of uranium concentrates.

Uranium Business Highlights

		2007				2006				% Change
Revenue ($ millions)			1,269				803				58
Gross profit ($ millions)			648				237				173
Gross profit %			51				30				70
Earnings before taxes ($ millions)			572				181				216
Average realized price
($US/lb)			37.47				20.62				82
($Cdn/lb)			41.68				24.72				69
Sales volume (million lbs)			30.2				32.1				(6	)
Production volume (million lbs)			19.8				20.9				(5	)

Revenue

Compared to 2006, revenue from our uranium business rose by 58% to $1,269 million due to an 82% increase in the realized selling price (in US dollars), partially offset by a 6% decline in reported sales volumes. The timing of deliveries of uranium products within a calendar year is at the discretion of customers. Therefore, our quarterly delivery patterns can vary significantly. The average realized price in Canadian dollars increased by only 69% due to the strengthening of the Canadian dollar relative to the US dollar. The increase in the average realized price in 2007 was largely due to higher uranium spot prices, which averaged $99.29 (US) per pound compared to $49.60 (US) in 2006. Realized prices under fixed-price contracts were also stronger than in the prior year. The average realized price in 2007 reflects the effect of some older, lower priced contracts expiring and being replaced with newer, higher priced contracts.

Cost of Products and Services Sold

For 2007, the cost of products and services sold was $516 million ($17.09 per pound U₃O₈) compared to $472 million ($14.71 per pound U₃O₈) in 2006, due largely to higher charges for royalties. In 2007, Cameco recorded total royalty expenses of $60 million compared to $22 million in 2006 due to the increase in realized selling price, resulting in higher overall royalty payments and the recognition of $18 million in tiered royalty charges. The cost of products sold was also impacted by higher unit production costs, which rose by 20% compared to 2006 due to increased labour costs and lower production.

Depreciation, Depletion and Reclamation

In 2007, depreciation, depletion and reclamation (DD&R) charges were $105 million compared to $94 million in 2006 due to a higher proportion of sales commitments being met with produced uranium rather than purchased material. On a per unit basis, DD&R costs were about 15% higher than in 2006.

Gross Profit

In 2007, our gross profit from the uranium business amounted to $648 million compared to $237 million in 2006, an increase of 173%. This was attributable to the 69% increase in the realized price for uranium and was partially offset by the higher charges for royalties. Our earnings before taxes from the uranium business improved to $572 million from $181 million last year, while the profit margin rose to 51% from 30% in 2006 again due to the higher realized selling price.

2008 Outlook for Uranium

In 2008, reported uranium sales quantities are expected to total 31 million to 33 million pounds U₃O₈. We expect our reported revenue to be about 5% to 15% greater than in 2007 due to the expected increase in both reported sales volume and realized price, based on an estimated spot price of $74.00 (US) per pound, reflecting the UxC spot price as of March 3, 2008. Changes in the uranium spot price will impact the prices we realize under our contracts.

Cameco’s share of uranium production for 2008 is projected to total about 20.6 million pounds of U₃O₈, up slightly compared to 2007 due to the anticipated start of commercial production at Inkai.

The unit cost of product sold is projected to increase by 5% to 10% as a result of higher royalty costs and increased production costs expected in 2008.

We currently estimate that tiered royalties will reduce net earnings between $40 million and $45 million in 2008. We will be eligible for additional capital allowances once Cigar Lake commences production, at which time we do not expect 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

(2007 rates; index value to determine rates for 2008 not available until April, 2008)

Assumptions:

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

Sales Price		Tier 1				Tier 2				Tier 3				Total Tiered
Realized ($ Cdn)		Royalty1				Royalty2				Royalty3				Royalty
$25.00		$	50,820			$	800				—			$	51,620
$35.00		$	110,820			$	40,800			$	9,650			$	161,270
$45.00		$	170,820			$	80,800			$	59,650			$	311,270
$55.00		$	230,820			$	120,800			$	109,650			$	461,270
$65.00		$	290,820			$	160,800			$	159,650			$	611,270
$75.00		$	350,820			$	200,800			$	209,650			$	761,270
$85.00		$	410,820			$	240,800			$	259,650			$	911,270

Uranium Price Sensitivity (2008)

For 2008, a $10.00 (US) per pound change in the uranium spot price from $74.00 (US) per pound (reflecting the UxC spot price at March 3, 2008) would change revenue by $67 million (Cdn) and net earnings by $48 million (Cdn). This sensitivity is based on an expected effective exchange rate of $1.00 (US) being equivalent to about $1.04 (Cdn) as a result of our currency hedge program.

This uranium business outlook for 2008 is forward-looking information and is based upon the key assumptions and subject to the material risk factors that could cause results to differ materially which are discussed under the heading “Caution Regarding Forward-Looking Information and Statements”. In particular, we have assumed that there will be no significant changes in sales volumes, purchases and prices, and that there will be no disruption or reduction of supply from our facilities or third-party sources other than as disclosed. We have also assumed a uranium spot price of $74.00 (US) per pound reflecting the UxC spot price as of March 3, 2008. Material risk factors that could cause actual results to differ materially include significant adverse changes in sales volumes, purchases and prices, and the actual occurrence of additional supply disruptions or reductions.

Uranium Price Sensitivity (2008 to 2012)

The table below shows an indicative range of average prices that Cameco would expect to realize under its sales portfolio at this time. The prices shown in the table are intended to provide the reader with a general indication of how Cameco’s expected realized prices for uranium may tend to vary with changes in spot market prices. This information will change as Cameco enters into new contracts. Due to the number of variables affecting Cameco’s realized prices, we have made a simplifying assumption regarding spot prices. We set the spot price at the levels noted and

calculated our expected realized prices accordingly. For example, under the $80.00 (US) spot price scenario, the calculation of realized prices assumes the spot price reaches $80.00 (US) at January 1, 2008 and remains at that level through 2012. Each column in the table should be read assuming the column header spot price remains constant for the entire five-year period. Actual realized prices in any given year will differ from what is shown in the table due to the fact that we are continually signing new contracts, with first deliveries beginning as far out as five years after contract signing.

We presented a similar table in our 2007 third quarter MD&A that contained an indicative range of average prices for the years 2013 through 2017. However, as expected, price estimates become increasingly more uncertain as they extend further into the future. We believe that it is appropriate to limit the information contained in this table to a five-year period. As such, we have decided to withdraw the information contained in the table for the years 2013 through 2017. Accordingly, information previously presented for those years should no longer be relied upon as that information was based upon a number of assumptions that may not be valid and will not be updated, including the composition of Cameco’s uranium contract portfolio, which changes as Cameco enters into new contracts.

As shown in the table, in the $20.00 (US) scenario, Cameco would expect the average realized price to exceed the spot price over the next five years, reaching almost double the spot price by 2012. In the $140.00 (US) scenario, Cameco would achieve average realized prices of more than 60% of the spot price by 2012. These prices are in current dollars, which are dollars in the year they are actually received or paid.

It is useful to provide an overview of the changes in expected realized prices in 2008 compared to the information published in the third quarter of 2007. The general trend is an increase in the expected realized prices at a spot price of $100.00 (US) or less. This is largely due to recent changes in scheduled deliveries for 2008, including some deliveries rescheduled into 2008 from 2007.

Cameco Expected Average Realized Uranium Price (Rounded to the nearest $1.00)
Current US $/lb U₃O₈

		$20				$40				$60				$80				$100				$120				$140
2008		$	28			$	33			$	38			$	42			$	47			$	51			$	55
2009		$	27			$	33			$	39			$	43			$	48			$	53			$	58
2010		$	33			$	39			$	47			$	53			$	60			$	67			$	74
2011		$	38			$	42			$	50			$	56			$	63			$	69			$	76
2012		$	39			$	42			$	51			$	59			$	67			$	76			$	85

This price table is forward-looking information and is based upon the material assumptions, and subject to the material risks, discussed under the heading “Caution Regarding Forward-Looking Information and Statements”, as well as the following key assumptions, and material risks which could cause actual prices to vary:

•		sales volume of 33 million pounds for 2008 (which has been adjusted for the accounting requirements of the loan agreements) and a sales volume of about 30 million pounds for each year thereafter. Variations in our actual sales volume could lead to materially different results;
•		utilities take the maximum quantities allowed under their contracts, which is subject to the risk that they take lower quantities resulting in materially different realized prices;

•		Cameco defers a portion of deliveries under contract for 2009 through 2011 as a result of exercising its rights under supply interruption provisions;
•		all volumes for which there are no existing sales commitments are assumed to be delivered at the spot price assumed for each scenario, which is subject to the risk that sales are at prices other than spot prices which could result in materially different realized prices;
•		the average long-term price indicator in a given year is assumed to be equal to the average spot price for that entire year. Fluctuations in the spot price or the long-term price, during the course of a year could lead to materially different results; and
•		an inflation rate of 2.5%, but variations in the inflation rate could have a material impact on actual results.

The assumptions stated above, including our annual sales volumes and the price realized from them, are made solely for the purpose of the foregoing price table and do not necessarily reflect our views of anticipated results.

2007 FUEL SERVICES BUSINESS FINANCIAL RESULTS

Fuel Services Highlights

		2007				2006				% Change
Revenue ($ millions)			239				224				7
Gross profit ($ millions)			(23	)			25				(192	)
Gross profit %			(10	)			11				(191	)
Earnings before taxes ($ millions)			(27	)			22				(223	)
Sales volume (million kgU) 1			17.0				18.5				(8	)
Production volume (million kgU) 2			12.9				15.4				(16	)

Revenue

In 2007, revenue from our fuel services business rose by 7% to $239 million compared to 2006 as the impact of a decline in reported sales volumes was offset by an increase in the realized price. Compared to 2006, sales volumes were 8% lower due to reduced customer requirements and UF₆ production constraints in 2007. The average realized selling price for our fuel services products was 15% higher than in 2006. Most conversion sales are at fixed prices and have not yet fully benefited from the increase in UF₆ spot prices, but the trend has been positive.

Cost of Products and Services Sold

In 2007, the cost of products and services sold was $238 million compared to $180 million in 2006, an increase of 32% due primarily to the shutdown of the UF₆ conversion plant following the discovery of contaminated soil in July 2007. All costs incurred during the shutdown ($27 million) have been expensed as incurred (including $2 million for the cleanup of contaminated soil) and an additional $15 million was accrued as a provision for the cleanup.

Depreciation, Depletion and Reclamation

In 2007, DD&R charges were $24 million compared to $19 million in 2006 due largely to increased estimates for asset retirement obligations. Late in 2007, Cameco updated its decommissioning plans for its fuel services facilities. These plans included revised cost estimates, which were more than double the previous amounts. The higher estimated costs are charged to earnings over the remaining expected lives of the facilities and, as a result, DD&R charges rose in 2007.

Gross Profit

In 2007, Cameco recorded a loss before taxes from the fuel services business of $27 million compared to a profit of $22 million in 2006. The lower profitability was due primarily to the higher costs associated with the shutdown of the UF₆ plant.

Fuel Services Outlook for 2008

Cameco expects 2008 revenue from the fuel services business to be 5% to 10% less than that reported in 2007. The average realized selling price for our fuel services products is expected to increase modestly, while the reported sales volumes are expected to be 5% to 10% lower than those reported in 2007.

Fuel services production at Port Hope and SFL supply are expected to total between 9 and 12 million kgU in 2008 compared to 12.9 million kgU in 2007. Cameco expects the Port Hope UF₆ conversion plant will restart production in the third quarter of 2008 at the earliest. We
anticipate annual production for 2008 at Blind River to be about 10 million kgU.

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.

This fuel services business outlook for 2008 is forward-looking information and is based upon the key assumptions and subject to the material risk factors that could cause results to differ materially, which are discussed under the heading “Caution Regarding Forward-Looking Information and Statements”. In particular, we have assumed that there will be no significant changes in sales volumes, purchases and prices, and that there will be no disruption or reduction of supply from our facilities or third-party sources other than as disclosed. We have also assumed the successful restart and rampup of the Port Hope UF₆ plant in the third quarter of 2008 at the earliest. Material risk factors that could cause actual results to differ materially include significant adverse changes in sales volumes, purchases and prices, the actual occurrence of additional supply disruptions and the unsuccessful restart and/or rampup of the Port Hope UF₆ plant.

2007 NUCLEAR ELECTRICITY GENERATION BUSINESS RESULTS

Bruce Power Limited Partnership (100% basis)

		2007				2006				% Change
Output — terawatt hours (TWh)			25.3				25.8				(2	)
Capacity factor (%) 1			89				91				(2	)
Realized price ($/MWh)			52				48				8
Average Ontario electricity spot price ($/MWh)			48				46				4
($ millions)
Revenue			1,319				1,242				6
Operating costs 2			881				807				9
Cash costs			759				701				8
- operating & maintenance			578				523				11
- fuel			68				65				5
- supplemental rent 3			113				113				0
Non-cash costs (amortization)			122				106				15
Income before interest and finance charges			438				435				1
Interest and finance charges			—				47				(100	)
Earnings before taxes			438				388				13
Cash from operations			506				514				(2	)
Capital expenditures			98				103				(5	)
Distributions			455				480				(5	)
Operating costs ($/MWh)			35				31				13

Cameco’s Earnings from BPLP

$ millions		2007				2006				% Change
BPLP’s earnings before taxes (100%)			438				388				13
Cameco’s share of pre-tax earnings before adjustments			138				122				13
Proprietary adjustments			(1	)			6				(117	)
Pre-tax earnings from BPLP			137				128				7

Earnings Before Taxes

For the year ended December 31, 2007, BPLP earnings before taxes were $438 million compared to $388 million in 2006. The higher earnings are a result of higher realized prices and gains recorded on fair value changes of sales contracts, offset by lower electricity generation and higher operating costs. For the year, Cameco’s earnings before tax from BPLP amounted to $137 million compared to $128 million in 2006.

Output

In 2007, the BPLP units achieved a capacity factor of 89% compared with 91% last year. These units produced 25.3 TWh in 2007, a decrease of 0.5 TWh over 2006 due primarily to higher planned outage days.

Price

For 2007, BPLP’s electricity revenue totalled $1,319 million compared to $1,242 million in 2006. During the year, BPLP’s realized price averaged $52 per MWh from a mix of contract and spot sales compared with $48 per MWh in 2006. The Ontario electricity spot price averaged about $48 per MWh in 2007, up $2 per MWh from 2006.

During 2007, about 38% of BPLP’s output was sold under fixed-price contracts compared to 51% in 2006.

Cameco provides guarantees to customers under these contracts of up to $47 million. At December 31, 2007, Cameco’s actual exposure under these guarantees was nil. In addition, Cameco has agreed to provide up to $133 million in guarantees to CNSC and $58 million to OPG to support other Bruce Power commitments. Of these amounts, corporate guarantees have been issued for $24 million to CNSC and $58 million to OPG at December 31, 2007.

Costs

For 2007, operating costs were $881 million compared with $807 million in 2006. This increase primarily reflects the additional costs associated with the unit B6 planned outage, additional overtime to maintain the base work programs, winter storm coverage during the first quarter and higher post-employment benefits and other employee-related costs.

Cash from Operations

For 2007, BPLP generated $506 million in cash from operations compared to $514 million in 2006. The benefit of the higher revenues was offset by an increase in working capital requirements.

Capital Expenditures

In 2007, capital expenditures were $98 million, down slightly from $103 million in 2006. The amount for 2007 represented sustaining capital expenditures.

Cash Distributions

BPLP also distributed $455 million to the partners in 2007. Cameco’s share was $144 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’s Outlook for 2008

For 2008, we anticipate BPLP revenue to be 5% to 10% higher than in 2007 due to higher generation and higher expected realized prices, which are made up of fixed contract prices and Ontario spot market electricity prices. In 2007, the average realized price was $52 per MWh.

In 2008, capacity factors for the B units are expected to average about 91%.

For 2008, the average unit cost (net of cost recoveries) is expected to remain at about $35 per MWh. Total operating costs are expected to rise by 3% in 2008 over 2007, due primarily to a rise in fuel costs.

2008 BPLP Capital Expenditures (100% Basis)

BPLP’s sustaining capital is expected to total $124 million in 2008. Cameco expects that funding of these capital expenditures will come entirely from BPLP cash flows. However, available funds will depend on electricity market prices and the operational performance of the BPLP reactors.

Electricity Price Sensitivity Analysis

For 2008, BPLP has about 10 TWh under contract, which would represent about 40% of Bruce B generation at its planned capacity factor. For 2008, 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 $3 million.

This 2008 outlook for BPLP is forward-looking information and is based upon the key assumptions and subject to the material risk factors that could cause results to differ materially, which are discussed under the heading “Caution Regarding Forward-Looking Information and Statements”. In particular, we have assumed that the B units will achieve their targeted capacity factor and that there will be no significant changes in costs, contract levels and prices. Material risk factors that could cause actual results to differ materially include the failure of the B units to achieve their targeted capacity factor, and the occurrence of significant adverse changes in costs and prices.

2007 GOLD BUSINESS RESULTS

Cameco owns almost 53% of Centerra, a publicly traded gold company with two operating mines. After the completion of a pending transaction with the Kyrgyz government, Cameco’s share would fall to about 41%. Centerra owns 100% of the Kumtor mine in the Kyrgyz Republic and a 100% 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 63% joint-venture interest in the REN property in Nevada. The geographic focus of Centerra’s exploration, development and acquisition efforts is in Central Asia, the former Soviet Union and other emerging markets.

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 worldwide.

Centerra recently issued updated estimates on the reserves and resources at its operating mines. At Kumtor, 578,000 ounces of reserves were added before accounting for mining of 421,000 contained ounces in 2007. The reserve grade decreased from 4.7 g/t to 4.0 g/t due to lowering the cutoff grade from 1.3 g/t gold to 1.0 g/t gold, reflecting a higher gold price used in estimating the reserves ($550 (US) per ounce compared to $475 (US) per ounce in 2006). Measured and indicated resources increased by approximately 170,000 ounces and inferred resources slightly decreased by 27,000 ounces.

The current pit design at Kumtor assumes the glacial till and bedrock will be hydrologically depressurized to achieve the pitwall slope angles. Geotechnical work to date has indicated the till is amenable to depressurization. A program to hydrologically depressurize the till and bedrock has been designed and will be implemented in 2008. This methodology has not previously been tested at Kumtor. To reflect the geotechnical risks and the technical risks associated with implementing the depressurization program , 6.4 million tonnes containing 0.9 million ounces of gold, previously classified as proven reserves, have been reclassified as probable reserves. A total of 18 million tonnes containing 2.5 million ounces of gold affected by these risks are now classified as probable reserves, representing 57% of the contained ounces of the central pit proven and probable reserves.

At Boroo, 111,000 contained ounces of reserves were added, before accounting for 297,000 contained ounces of reserves mined in 2007. The change in reserves is a result of a slight increase in the size of the pit design.

As of December 31, 2007, Centerra’s proven and probable reserves totalled 7.0 million ounces of contained gold. For more information see “Our Reserves and Resources” section of this MD&A.

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.

Gold Operating Results

Cameco fully consolidates the results of Centerra’s operations. Cameco adjusts for a 47.3% minority interest in Centerra, which reflects that share of earnings attributable to shareholders other than Cameco.

Gold Highlights (100%)		2007				2006				% Change
Revenue ($ millions)			405				414				(2	)
Gross profit ($ millions)			108				101				6
Gross profit %			27				24				12
Realized price ($US/ounce)			691				597				16
Sales volume (ounces)			541,000				610,000				(11	)
Production (ounces)			555,000				586,000				(5	)

2007 Gold Financial Results

For the year ended December 31, 2007, revenue from our gold business decreased by $9 million to $405 million compared to 2006. The decline in revenue was due to lower sales, which more than offset the benefit of a higher realized price. The realized price for gold rose to $691 (US) per ounce in 2007 compared to $597 (US) per ounce in 2006, due to higher spot prices.

Kumtor’s production was 301,000 ounces compared to 303,000 ounces in 2006.

Centerra is extending the Kumtor pit to access high-grade ore as discussed in Cameco’s first quarter report. In a news release issued on July 19, 2007, Cameco announced that, after

preliminary analysis, Centerra’s independent geotechnical experts recommended using flatter angles on the pitwall to provide greater stabilization. The lower slope angles require the removal of more waste than previously planned, delaying access to the high-grade ore until the second half of 2008. A till depressurizing and till dewatering program has been initiated with guidance from a third-party consulting firm and will be undertaken in 2008. If successful, this program will allow the steepening of the pitwall slope angle to near its original design and the removal of much less waste than originally expected, which may have the impact of lowering costs in future years and maximizing the extraction of the open pit SB zone ores. For more information, see the “Operational Risks” section of this MD&A.

Production at Boroo in 2007 was 254,000 ounces compared to 283,000 ounces in 2006. The average head grade of ore fed to the mill was 3.6 g/t compared to 4.3 g/t in the same period last year.

The gross profit margin for gold increased to 27% in 2007 compared to 24% in 2006 due to the higher realized price, partially offset by higher operating costs at Kumtor related to the reconfiguration of the pitwall.

Cameco has recorded a charge of $113 million ($153 million after a net tax expense of $40 million) as a result of its agreement to transfer 22.3 million Centerra shares to the Kyrgyz Republic. Refer to note 24 of the financial statements.

Political Update

During the third quarter of 2007, Cameco and Centerra entered into preliminary agreements with the Kyrgyz government, which are expected to provide additional business certainty for mining operations at Kumtor, further align the parties’ business interests and support Centerra’s growth plans.

Under the terms of the agreements, the Kyrgyz government and Kyrgyzaltyn JSC, a joint stock company owned by the Kyrgyz government, agree to support Centerra’s continuing long-term development of the Kumtor project and agree to facilitate eventual divestiture of Cameco’s interest in Centerra. In return, the Kyrgyz government will receive 32.3 million shares (22.3 million net from Cameco and 10 million treasury shares from Centerra) upon closing of the definitive legal agreements. Of these, 15 million shares will be received immediately and 17.3 million shares will be held in escrow until the earliest of:

	•		Cameco’s holdings of Centerra’s issued and outstanding shares fall below 17.3 million shares,
	•		the volume-weighted average closing price of Centerra’s shares on the TSX being no less than $13.30 for at least seven business days, or
	•		the fourth anniversary of the closing.

After the transfer of all the shares is completed, Cameco will own about 41% of Centerra, the Kyrgyz Republic will own about 29% and the public shareholders will own the remaining 30%. When Cameco’s ownership interest falls below 50%, we will no longer consolidate Centerra’s financial results and will instead account for Centerra using the equity method.

These agreements are subject to a number of conditions, including the approval by Parliament of the Kyrgyz Republic. There can be no assurance that parliamentary approval will be received or that the other conditions will be satisfied.

The Kyrgyz government submitted the preliminary agreements for parliamentary approval in early September 2007. The Parliament began to deliberate the issue during the first half of October and scheduled its final voting on the issue for October 22, 2007. On October 21, 2007, the citizens of the Kyrgyz Republic voted in a referendum on drafts of a new constitution and new electoral law proposed by the president of the Kyrgyz Republic. On October 22, 2007, the president dismissed the Parliament effective that day. The president signed the new constitution and electoral law in to law on October 23, 2007. On October 31, 2007, the parties agreed to extend the deadline for closing the transaction contemplated by the agreements from October 31, 2007 to February 15, 2008. Subsequently, the deadline was extended to April 30, 2008 at the request of the Kyrgyz government.

Gold Outlook for 2008

Overall, 2008 production is expected to total between 770,000 to 830,000 ounces of gold. At Kumtor, production for 2008 is expected to be about 580,000 to 620,000 ounces of gold. At Boroo, we expect production in the range of 190,000 to 210,000 ounces of gold in 2008.

On February 26, 2008, Centerra experienced an equipment failure on the ball mill at the Kumtor mine, requiring the mill to be shut down for seven days. On March 4, 2008, after considering various alternatives, Centerra implemented a bypass of the ball mill using the existing SAG mill and regrind mill circuits. The mine continues to process material, but at a reduced mill throughput rate. Centerra has retained an experienced contractor to repair the equipment. The repairs are expected to be complete and the ball mill returned to operation by mid-April 2008. This temporary shutdown of the ball mill and the operation of the reconfigured grinding circuits are not expected to affect gold production guidance for 2008. While Centerrra believes the repair will be successful, if the equipment cannot be repaired, Centerra plans to operate the Kumtor mill without the ball mill until the equipment can be replaced, which it anticipates would occur by year end. While operating in this manner would result in significantly reduced mill throughput, Centerra expects to it would be able to achieve its 2008 gold production guidance by processing higher grade ore and stockpiling lower grade ore that was scheduled to have been processed in 2008.

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 2008, a $25.00 (US) per ounce change in the gold spot price would change Cameco’s net earnings by about $8 million (Cdn).

This outlook for the gold segment of our business is forward-looking information and is based upon the key assumptions, and subject to the material risk factors that could cause results to differ materially, which are discussed under the heading “Caution Regarding Forward-Looking Information and Statements”. In particular, we have assumed Centerra’s plans to repair the failed equipment, replace the Kumtor ball mill shell and to operate the Kumtor mill as described above proceeds as anticipated, but that is subject to a number of risks including the risk of delay, that Centerra’s plans cannot be implemented as anticipated, the equipment cannot be repaired requiring it to be replaced, or unforeseen difficulty which could result in disruption or reduction in planned gold production, and

we have assumed there is no disruption or reduction in planned gold production due to natural phenomena, labour disputes, or other development and operation risks, but that is subject to risk that there is a disruption or reduction due to the occurrence of one or more these risks which could cause results to vary materially.

2007 FOURTH QUARTER CONSOLIDATED RESULTS

		Three months
		ended
Financial Highlights		December 31
($ millions except per share amounts)		2007				2006				% Change
Revenue			494				512				(4	)
Earnings from operations			68				36				89
Cash provided by operations1			57				13				338
Net earnings			61				40				53
Earnings per share (EPS) — basic ($)			0.18				0.11				64
EPS — diluted ($)			0.17				0.11				55
EPS — adjusted and diluted ($)2			0.18				0.11				64
Adjusted net earnings 2			64				40				60

For the three months ended December 31, 2007, our net earnings were $61 million ($0.17 per share diluted), $21 million higher than the net earnings of $40 million ($0.11 per share diluted) recorded in the fourth quarter of 2006. The increase was due to higher earnings in the uranium, electricity and gold businesses driven by increases in the realized selling prices, partially offset by higher costs in the fuel services business.

In the fourth quarter of 2007, our total costs for administration, exploration, interest and other were $30 million, a decrease of $31 million compared to the same period in 2006. Administration costs were $28 million lower due primarily to reduced stock-based compensation expenses. The decline in stock compensation expense reflects a decrease of $6.31 in our share price during the quarter. Exploration expenditures were $2 million higher, at $17 million, with uranium exploration expenditures up $4 million to $11 million (focused in Saskatchewan, Australia and Nunavut). Gold exploration expenditures at Centerra were $2 million lower compared to the fourth quarter of 2006. Interest and other charges were $5 million lower than in the fourth quarter of 2006.

In the fourth quarter of 2007, we recorded a $3 million net recovery of income taxes due to the change in Canadian federal income tax rates. In 2006, we recorded a $9 million net recovery of income taxes related mainly to losses at Centerra’s Kumtor operation.

Earnings from operations increased to $68 million in fourth quarter of 2007 from $36 million in the fourth quarter of 2006. In the fourth quarter of 2007, the aggregate gross profit margin was 23%, unchanged compared to 2006.

2006-2007 QUARTERLY CONSOLIDATED FINANCIAL HIGHLIGHTS

Highlights		2007																2006
($millions except per share amounts)		Q4				Q3				Q2				Q1				Q4				Q3				Q2				Q1
Revenue			494				681				725				410				512				360				417				542
Net earnings			61				91				205				59				40				73				150				112
EPS — basic ($)			0.18				0.26				0.58				0.16				0.11				0.21				0.43				0.32
EPS — diluted ($)			0.17				0.25				0.55				0.16				0.11				0.20				0.40				0.30
Adjusted net earnings1			64				275				205				59				40				44				78				112
EPS — adjusted & diluted ($)1			0.18				0.74				0.55				0.16				0.11				0.12				0.21				0.30
Cash from operations			57				450				155				139				13				79				40				286

The following points are intended to assist the reader in analyzing the trends in the quarterly financial highlights for 2007:

•

Cameco’s financial results are strongly influenced by the performance of our uranium business, which, in 2007 accounted for 55% of annual consolidated revenues.

•

Revenue of $494 million in the fourth quarter of 2007 was 27% lower than in the third quarter due to lower sales volumes and lower realized prices in the uranium business. Timing of customer requirements, which tend to vary from year to year, drives revenue in the uranium and fuel services businesses. In 2007, sales volumes for uranium were most heavily weighted to the second quarter of the year and the highest realized price was recorded in the third quarter.

•

Net earnings do not trend directly with revenue because of unusual items and transactions that occur from time to time. The company uses a non-GAAP measure, adjusted net earnings, to provide a more meaningful basis for period-to-period comparison of financial results.

•

On an adjusted basis, our net earnings were highest in the third quarter of 2007 at $275 million when our realized price for uranium reached an all-time high of $56.78/lb (Cdn). Adjusted net earnings were also strong in the second quarter of 2007 due to high reported sales volumes for uranium. Nearly 40% of uranium sales for 2007 were recorded in the second quarter.

•

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

2007 FOURTH QUARTER BUSINESS SEGMENT FINANCIAL RESULTS

2007 Fourth Quarter Uranium Business Financial Results

Highlights

		Three months ended
		December 31
		2007				2006				% Change
Revenue ($ millions)			219				242				(10	)
Gross profit ($ millions)			81				77				5
Gross profit %			37				32				16
Earnings before taxes ($ millions)			63				49				29
Average realized price
($US/lb)			38.92				22.35				74
($Cdn/lb)			39.64				26.62				49
Sales volume (million lbs) 1			5.5				9.0				(39	)
Production volume (million lbs)			5.6				5.4				4

Uranium Financial Results

Fourth Quarter

Compared to the fourth quarter of 2006, revenue from our uranium business decreased by $23 million to $219 million due to a 39% decrease in reported sales volumes. The timing of deliveries of uranium products within a calendar year is at the discretion of customers. Therefore, our quarterly delivery patterns can vary significantly. The impact of the lower sales volumes was largely offset by a 49% increase in the average realized price due primarily to higher uranium spot prices, which averaged $90.00 (US) per pound compared to $65.21 (US) in the same quarter of 2006. Realized prices under fixed-price contracts were also stronger.

Our total cost of products and services sold, including DD&R, decreased to $138 million in the fourth quarter of 2007 from $165 million in the fourth quarter of 2006 due to the decline in reported sales volumes, partially offset by an increase in the unit cost of product sold. The unit cost of product sold increased as a result of higher royalty charges, which increase with the realized price and higher production costs.

Our earnings before taxes from the uranium business increased to $63 million from $49 million in the fourth quarter of last year. The gross profit margin increased to 37% compared to 32% in the fourth quarter of 2006.

2007 Fourth Quarter Fuel Services Business Financial Results

Highlights

		Three months ended
		December 31
		2007				2006				% Change
Revenue ($ millions)			77				83				(7	)
Gross profit ($ millions)			(36	)			12				(400	)
Gross profit %			(47	)			14				(436	)
Earnings before taxes ($ millions)			(36	)			11				(427	)
Sales volume (million kgU)1			6.4				6.7				(4	)
Production volume (million kgU) 2			1.7				5.2				(67	)

Fuel Services Financial Results

Fourth Quarter

In the fourth quarter of 2007, revenue from our fuel services business was $77 million, a decrease of $6 million compared to the same period in 2006 due to a 4% decrease in reported sales volumes and a 6% decline in the average realized price.

Total cost of products and services sold, including DD&R, increased by 58% to $112 million from $71 million in 2006. The cost of products sold was impacted by the shutdown of the Port Hope UF₆ conversion plant. All costs associated with the UF₆ conversion plant ($18 million) were expensed as incurred in the fourth quarter. In addition, the estimate for the cleanup of the contaminated soil at Port Hope has been increased by $14 million compared to the previous estimate of $3 million, due to an increase in the scope of work required to remediate the contaminated areas.

In the fourth quarter of 2007, the company recorded a loss before taxes in fuel services of $36 million compared to earnings of $11 million in 2006.

2007 Fourth Quarter Nuclear Electricity Generation Business Financial Results

Bruce Power Limited Partnership (100% basis)

		Three months ended
		December 31
		2007				2006				% Change
Output — terawatt hours (TWh)			6.7				6.0				12
Capacity factor (%) 1			93				85				9
Realized price ($/MWh)			54				46				17
Average Ontario electricity spot price ($/MWh)			48				43				12
($ millions)
Revenue			359				278				29
Operating costs 2			207				230				(10	)
Cash costs			177				202				(12	)
- operating & maintenance			130				157				(17	)
- fuel			19				17				12
- supplemental rent 3			28				28				0
Non-cash costs (amortization)			30				28				7
Income before interest and finance charges			152				48				217
Interest and finance charges			—				12				(100	)
Earnings before taxes			152				36				322
Cash from operations			165				81				104
Capital expenditures			41				38				8
Distributions			185				65				185
Operating costs ($/MWh)			31				38				(18	)