In the fourth quarter of 2005, our adjusted net earnings were $74 million ($0.40 per share), $37 million higher than in 2004, due to improved results in the uranium business and higher earnings from Bruce Power Limited Partnership (BPLP). These increases were partially offset by lower earnings in conversion services and gold as well as increased expenditures for administration and exploration. Due to the uneven timing of uranium and conversion deliveries as well as scheduled outages at BPLP, quarterly results are not a good indicator of Cameco’s annual results.

Cash from operations in the fourth quarter of 2005 was $91 million compared to $59 million in the fourth quarter of 2004. The $32 million increase reflects higher revenues compared to 2004, partially offset by increased accounts receivable. Due to the timing of sales, the accounts receivable balance was $340 million at December 31, 2005, compared to $183 million at December 31, 2004.

Our earnings before taxes from the uranium business improved 73% to $71 million in the fourth quarter of 2005 compared to the same period last year, while the profit margin rose to 25% from 22% due to the higher realized selling price. Compared to the fourth quarter of 2004, revenue in our uranium business rose by 57% to $318 million, largely due to a 46% increase in sales volume and a 16% increase in our average realized selling price (US dollars) for uranium. The average realized price in Canadian dollars, however, increased by only 7% due to the strengthening Canadian dollar relative to the US dollar. The increase in our average realized price was mainly the result of higher prices under fixed-price contracts and a higher uranium spot price.

Cameco’s pre-tax earnings from BPLP in the fourth quarter of 2005 increased to $30 million from $2 million in 2004, as a result of higher spot electricity prices in Ontario. During the quarter, the Ontario electricity spot price averaged $71 per MWh, compared to $51 per MWh in the fourth quarter of 2004. BPLP realized an average price of $57 per megawatt hour (MWh) in the fourth quarter from a mix of contract and spot sales, 21% higher than the price realized in the same period in 2004.

“Strong performance from our uranium and nuclear electricity generation businesses in the fourth quarter contributed to Cameco’s solid 2005 financial results,” said Jerry Grandey, noting the company set a record for uranium revenue for the fourth consecutive year. “Looking ahead to 2006, we expect improved results for uranium, conversion and nuclear electricity generation.”

Year to Date 2005

Financial Highlights
($ millions except per share amounts)

For 2005, our adjusted net earnings increased by 14% to $211 million ($1.17 per share) from $185 million ($1.01 per share) in 2004. The higher earnings are due largely to improved results in our uranium business and higher earnings from BPLP. The higher earnings were partially offset by reduced earnings in conversion services and gold as well as higher charges for administration and exploration.

In 2005, Cameco generated cash from operations of $278 million compared to $228 million in 2004. This increase of $50 million was mainly attributable to higher revenues in the uranium and gold businesses compared to the previous year and cash distributions received from BPLP. Due to the timing of sales, accounts receivable increased by $157 million year-over-year.

At December 31, 2005, our consolidated net debt to capitalization ratio was 9%, down from 13% at the end of 2004. On January 17, 2006, we used cash on hand to redeem a total of $150 million in debentures.

Outlook for First Quarter 2006

We expect that the proportionate consolidation of BPLP’s financial results will add about $60 million to our reported revenue for the first quarter of 2006. We project consolidated revenue in the first quarter of 2006 to be about 80% higher than in the first quarter of 2005 due to higher deliveries and improved prices in the uranium and conversion businesses and the inclusion of our share of BPLP revenue. We expect the operating results for these businesses to improve significantly compared to 2005.

Subject to weather dependent electricity prices, earnings from BPLP are projected to be significantly higher than in the first quarter of 2005 as there are no planned outages for the period. In the first quarter of 2005, the units were offline for 17 days.

We expect consolidated earnings for the first quarter of 2006 to be significantly higher than those of the first quarter of 2005.

The projections noted above assume no major changes in Cameco’s business units’ ability to supply product and services and no significant changes in our current estimates for price, cost and volume.

Outlook for the Year 2006

In 2006, Cameco expects consolidated revenue to grow by more than 40% over 2005 due to the improved uranium market and the proportionate consolidation of BPLP revenue. On a consolidated basis, our gross profit margin is projected to improve from 23% reported in 2005 to about 28% in 2006.

In the uranium business, we expect revenue to be about 20% higher due to a stronger realized price and increased sales volumes. We also anticipate that revenue from the conversion business will be about 20% higher than in 2005 due to an anticipated 15% increase in sales deliveries and an increase in the average realized selling price.

BPLP earnings in 2006 are projected to be marginally higher than in 2005 mainly as a result of fewer outages. This earnings outlook assumes the B units will achieve a targeted capacity factor in the low 90% and that there will be no significant changes in our current estimates for costs and prices.

Gold production in 2006 is forecast at 729,000 ounces, a decline of about 7% from 2005. Unit costs are expected to increase primarily due to lower ore grades at the Boroo and Kumtor mines.

This financial outlook for the company is based on the following key assumptions:

• no significant changes in our estimates for sales volumes, costs, and prices,
• no disruption of supply from our facilities or third-party sources, and
• a US/Canadian exchange rate of $1.15.

For 2006, the effective tax rate is expected to be in the range of 15% to 20%. This range is based on the projected distribution of income among the various tax jurisdictions being similar to that of 2005.

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

Stock Split and Dividend Notice

Cameco announced today that its board of directors has approved a two-for-one stock split of the company’s outstanding common shares. This will be completed through a stock dividend with all shareholders receiving one additional share for each share owned on the record date of February 17, 2006.

Shareholders who have Cameco stock certificates should retain them. The transfer agent, CIBC Mellon Trust Company, will mail new certificates on February 22, 2006. Upon completion of the stock split, the number of shares outstanding will total approximately 349 million. Cameco’s common shares are expected to begin trading on a split basis on February 15, 2006 on the Toronto Stock Exchange and February 23, 2006 on the New York Stock Exchange. The stock split will have no unfavourable tax consequences to shareholders in Canada or the United States.

Cameco also announced today that the company’s board of directors approved an increase in the annual cash dividend from $0.24 per share to $0.32 ($0.16 post-split) beginning in 2006. The quarterly dividend of $0.04 per common share (on a post-split basis) is payable on April 13, 2006 to shareholders of record on March 31, 2006.

“Cameco had a very successful year and is now well positioned to benefit from the resurging interest in nuclear energy,” said Jerry Grandey, Cameco’s president and CEO. “Our decision to split the stock and increase the dividend reflects our continuing confidence that we can continue to grow as a nuclear energy company producing uranium fuel and generating clean electricity.”

Conference Call

Cameco invites you to join its fourth quarter conference call on Wednesday, February 1, 2006 from 11:00 a.m. to 12:00 p.m. Eastern time (10:00 a.m. to 11:00 a.m. Saskatoon time).

The call will be open to all investors and the media. Members of the media will be invited to ask questions at the end of the call. To join the conference on Wednesday, February 1, please dial (416) 695-6120 or (866) 905-2211 (Canada and US). An audio feed of the call will be available on this Web site. See the link on the home page on the day of the call.

A recorded version of the proceedings will be available:

• on this Web site shortly after the call, and
• on post view until midnight, Tuesday, February 14, by calling (416) 695-5275 or (888) 509-0081.

Additional Information

Additional information on Cameco, including its annual information form, is available on SEDAR at sedar.com and the company’s Web site at cameco.com.

Profile

Cameco, with its head office in Saskatoon, Saskatchewan, is the world’s largest uranium producer as well as a significant supplier of conversion services. The company’s competitive position is based upon its controlling ownership of the world’s largest high-grade reserves and low-cost operations. Cameco’s uranium products are used to generate clean electricity in nuclear power plants around the world including Ontario where the company is a partner in North America’s largest nuclear electricity generating facility. The company also explores for uranium in North America, Australia and Asia, and holds a majority interest in Centerra Gold Inc., a leading North American gold producer.

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For further information:

Investor inquiries: Bob Lillie (306) 956-6639

Media inquiries: Lyle Krahn (306) 956-6316

Fourth Quarter Management’s Discussion and Analysis

The following discussion of the financial condition and operating results of Cameco Corporation should be read in conjunction with the unaudited consolidated financial statements and notes for the period ended December 31, 2005, as well as the audited consolidated financial statements for the company for the year ended December 31, 2004 and management’s discussion and analysis of the audited financial statements, both of which are included in the 2004 annual report and annual information form. The financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). The 2004 annual report and annual information form are available at www.cameco.com.

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

The following is a summary of the key sections of this MD&A:

• Consolidated financial results for the fourth quarter and year 2005,
• Consolidated outlook for the first quarter and year 2006,
• Business segment results and outlook (uranium, conversion, nuclear electricity and gold),
• Nuclear industry developments,
• Liquidity and capital resources, and
• Other items.

Note: All dollar amounts are expressed in Canadian dollars unless otherwise stated.

• $US/lb U₃O₈

• $Cdn/lb U₃O₈

FINANCIAL RESULTS

Earnings

In 2005, Cameco recognized an after tax gain of $69 million ($0.40 per share) on the disposal of our 12.8 million shares in Energy Resources of Australia. We also recorded an after tax loss of $62 million ($0.36 per share) related to the restructuring of the Bruce Power limited partnership. In 2004, Cameco recorded an after tax gain of $94 million ($0.55 per share) related to certain restructuring transactions that led to the creation of Centerra Gold Inc. (Centerra). The following discussion of consolidated earnings excludes these items to provide a more representative comparison of operating results.

All references to per share earnings or losses are based on diluted amounts per share.

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

Also on November 1, 2005, Cameco began to proportionately consolidate its share of BPLP’s financial results. Our move to this new method of accounting was driven by incremental changes to the partnership agreement, which resulted in joint control among the three major partners. Proportionate consolidation is required for investments in jointly controlled entities.

Consequently, our financial results for the first 10 months of 2005 reflect a six-unit operation, which is accounted for on an equity basis. For the remaining two months in the year, our results reflect a four-unit operation, which is accounted for on a proportionately consolidated basis.

Fourth Quarter

For the three months ended December 31, 2005, our adjusted net earnings were $74 million ($0.40 per share), $37 million higher than the adjusted net earnings of $37 million ($0.21 per share) recorded in 2004 due to higher earnings from BPLP and improved results in the uranium business. These increases were partially offset by higher expenses for administration and exploration

For fourth quarter details on the uranium, conversion services, electricity and gold businesses, see “Business Segment Results” later in this report.

In the fourth quarter of 2005, our total costs for administration, exploration, interest and other were about $57 million, $16 million higher than 2004. Of this, administration costs were $12 million higher due to stock compensation charges primarily attributable to increased share prices ($4 million), charges for post-retirement benefits ($2 million), business development costs at Centerra ($1 million), and expenditures for regulatory compliance, business process improvements and workforce maintenance.

Exploration expenditures rose by $4 million to $18 million due to increased exploration activity in both the gold and uranium businesses. In uranium exploration, a $3 million increase in expenditures was related to programs in Saskatchewan, Australia and the North West Territories (NWT). In the gold business, Cameco’s 53% owned subsidiary, Centerra, increased its exploration expenditures by $1 million compared to 2004. The higher charges reflect increased gold exploration activity in the Kyrgyz Republic and Mongolia.

During the fourth quarter, the company recorded a benefit related to a court decision finding that the resource surcharge paid to the Government of Saskatchewan was deductible in calculating taxable income. Previously, the surcharge had not been a tax deductible expense. As a result, the company recorded a $10 million recovery of income tax expense.

Our effective tax rate, excluding adjustments, increased to 16% in the fourth quarter from 10% in the same period of 2004 due to a greater proportion of total income being taxable in Canada.

Earnings from operations were $57 million in the fourth quarter of 2005 compared to $46 million in 2004. The aggregate gross profit margin decreased to 22% from 24% in 2004.

Year to Date

For the year ended December 31, 2005, our adjusted net earnings were $211 million ($1.17 per share), $26 million higher than the adjusted net earnings of $185 million ($1.01 per share) reported in 2004 due largely to improved results in our uranium business and higher earnings from BPLP. The improved earnings were partially offset by higher charges for administration and exploration.

For year to date details on the uranium, conversion services, electricity and gold businesses, see “Business Segment Results” later in this report.

In 2005, Cameco’s total costs for administration, exploration, interest and other were about $178 million, $58 million higher than 2004. Of this, administration costs were $38 million higher due to stock compensation charges from increased share prices ($12 million), administration and business development costs at Centerra ($11 million), SOX compliance ($2 million), and community donations ($1 million). The remaining increase in administrative expenses was related largely to business process improvements, regulatory compliance and an increase in workforce.

Exploration expenditures rose by $21 million to $57 million due to increased exploration activity in both the gold and uranium businesses. Our uranium exploration expenditures increased by $8 million to $25 million and were related to programs in Saskatchewan, Australia and the NWT. In the gold business, Centerra increased its exploration expenditures by $13 million to $32 million compared to 2004. The higher expenditures reflect increased exploration activity in the Kyrgyz Republic and Mongolia.

Excluding the tax recovery related to resource surcharges and other adjustments, the effective rate for income taxes in 2005 increased to 20% from 17% in 2004 as a higher proportion of earnings came from higher tax jurisdictions.

Our earnings from operations were $123 million in 2005 compared to $125 million in 2004. Cameco’s aggregate gross profit was unchanged at 23%.

Quarterly Financial Results ($ millions except per share amounts)

Revenue driven by deliveries in our uranium and conversion businesses tends to be higher in the fourth quarter. However, net earnings do not trend directly with revenue because they are significantly influenced by results from BPLP. Prior to November 1, 2005, the equity method of accounting was applied to the investment in BPLP and thus no BPLP revenue was recorded. On November 1, 2005, Cameco moved to proportionate consolidation of BPLP’s financial results. As such, for the fourth quarter of 2005, we have included our share of revenue, expenses and cash flows from the Bruce B reactors for November and December. Cash from operations tends to fluctuate due largely to the timing of deliveries and product purchases in the uranium and conversion businesses.

Cash Flow

In the fourth quarter of 2005, we generated $91 million from operations compared to $59 million in the same period of 2004. The increase of $32 million reflects higher revenues compared to 2004, partially offset by increased accounts receivable. Due to the timing of sales, the accounts receivable balance increased to $340 million at December 31, 2005, compared to $183 million at December 31, 2004.

In 2005, Cameco generated record cash from operations of $278 million compared to $228 million in 2004. This increase of $50 million was mainly attributable to higher revenues in the uranium and gold businesses compared to the previous year and cash distributions received from BPLP. The increase was partially offset by a significant increase in accounts receivable year-over-year.

Balance Sheet

The proportionate consolidation of BPLP had a significant impact on our balance sheet at December 31, 2005, causing many of the reported amounts to increase considerably. The largest of the incremental values are provided in the following table.

At December 31, 2005, our total debt was $859 million, an increase of $340 million compared to December 31, 2004. At December 31, 2005, our consolidated net debt to capitalization ratio was 9%, down from 13% at the end of 2004. On January 17, 2006, we used cash on hand to redeem a total of $150 million in debentures.

Compared to the end of 2004, our product inventories increased by $13 million. Most of the increase in inventory was attributable to higher unit costs due to increased costs for purchased uranium and conversion.

At December 31, 2005, our consolidated cash balance totalled $623 million with Centerra holding about $236 million of this amount.

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

Foreign Exchange Update

Cameco sells most of its uranium and conversion services in US dollars while most of its uranium and conversion services are produced in Canada. As such, these revenues are denominated mostly in US dollars, while production costs are denominated primarily in Canadian dollars.

We attempt to provide some protection against exchange rate fluctuations by planned hedging activity designed to smooth volatility. Therefore, our uranium and conversion revenues are partly sheltered against declines in the US dollar in the shorter term.

In addition, Cameco has a portion of its annual cash outlays denominated in US dollars, including uranium and conversion services purchases, which provide a natural hedge against US currency fluctuations. While natural hedges provide this protection, 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 (if a positive value) or loss (if a negative value) 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.

During the quarter, the Canadian dollar weakened against the US dollar from $1.16 at September 30, 2005 to $1.17 at December 31, 2005.

At December 31, 2005, we had foreign currency contracts of $1,112 million (US) and EUR 32 million that were accounted for using hedge accounting and foreign currency contracts of $20 million (US) that did not meet the criteria for hedge accounting. The foreign currency contracts are scheduled for use as follows:

These contracts have an average effective exchange rate of $1.25 (Cdn) per $1.00 (US), which reflects the original spot prices at the time contracts were entered into and includes deferred revenue.

At December 31, 2005, the mark-to-market value on all foreign exchange contracts was $37 million. At September 30, 2005, the mark-to-market value on all foreign exchange contracts was $72 million.

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, 2005, deferred revenue totalled $26 million. The schedule for deferred revenue to be released to earnings, by year, is as follows:

In 2005, most of the net inflows of US dollars were hedged with currency derivatives. Net inflows represent uranium and conversion sales less outlays denominated in US dollars. For the uranium and conversion services businesses in the fourth quarter of 2005, the effective exchange rate, after allowing for hedging, was about $1.25 compared to $1.36 in the fourth quarter of 2004. Results from the gold business are translated into Canadian dollars at prevailing exchange rates.

For 2006, every one-cent change in the US to Canadian dollar exchange rate would change net earnings by about $4 million (Cdn).

Outlook for First Quarter 2006

We expect that the proportionate consolidation of BPLP’s financial results will add about $60 million to our reported revenue for the first quarter of 2006. Consolidated revenue in the first quarter of 2006 is expected to be about 80% higher than in the first quarter of 2005 due to higher deliveries and improved prices in the uranium and conversion businesses and the inclusion of our share of BPLP revenue. We expect the operating results for these businesses to improve significantly compared to 2005.

Subject to weather dependent electricity prices, earnings from BPLP are projected to be significantly higher than in the first quarter of 2005 as there are no planned outages for the period. In the first quarter of 2005, the units were offline for 17 days.

We expect consolidated earnings for the first quarter of 2006 to be significantly higher than those of the first quarter of 2005.

The projections noted previously assume no major changes in Cameco’s business units’ ability to supply product and services and no significant changes in our current estimates for price, cost and volume.

Outlook for the Year 2006

In 2006, Cameco expects consolidated revenue to grow by more than 40% over 2005 due to the improved uranium markets and the proportionate consolidation of BPLP revenue. On a consolidated basis, our gross profit margin is projected to improve to 28% from 23% reported in 2005.

In the uranium business, we expect revenue to be about 20% higher due to a stronger realized price and increased sales volumes. We also anticipate that revenue from the conversion business will be about 20% higher than in 2005 due to an anticipated 15% increase in sales deliveries and an increase in the average realized selling price.

BPLP earnings in 2006 are projected to be marginally higher than in 2005 mainly as a result of fewer outages. This earnings outlook assumes the B units will achieve a targeted capacity factor in the low 90% range and that there will be no significant changes in our current estimates for costs and prices.

Gold production in 2006 is forecast at 729,000 ounces, a decline of about 7% from 2005. Unit costs are expected to increase primarily due to lower ore grades at the Boroo and Kumtor mines.

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

• no significant changes in our estimates for sales volumes, costs, and prices,
• no disruption of supply from our facilities or third-party sources, and
• a US/Canadian exchange rate of $1.15.

Administration costs are projected to be about 10% greater than in 2005. The increase in administration reflects higher charges for stock compensation, business development and costs to maintain the workforce. Exploration costs are expected to be about $55 million in 2006. Of this, $32 million is targeted for uranium.

For 2006, the effective tax rate is expected to be in the range of 15% to 20%. This range is based on the projected distribution of income among the various tax jurisdictions being similar to that of 2005.

In 2006, we expect total capital expenditures, including the gold business, to increase by 57% to $447 million. Capital expenditures are classified as growth or sustaining. Growth capital is defined as capital spent to bring on incremental production plus business development initiatives. The remainder is classified as sustaining capital.

For growth projects, total expenditures are projected to be $226 million, an increase of $96 million compared to 2005. The increase is attributable to:

• development activity at Cigar Lake and Inkai,
• expansion of production capacity at McArthur River and US ISL mines, and
• equipment and infrastructure expenditures to increase mine life at Kumtor.

Expansion at McArthur River and development at Inkai are subject to regulatory approvals.

We expect sustaining capital expenditures to be higher in 2006 than in 2005 due to ongoing mine development work at McArthur River and Rabbit Lake, establishing freeze walls for two new mining areas at McArthur River, water treatment projects at Key Lake and Rabbit Lake, and well field expansions at the US ISL operations. Sustaining capital expenditures will also increase at conversion services to improve production processes and meet new regulatory requirements.

Outlook Information

For additional discussion on the company’s business prospects for the first quarter of 2006 and for the full year, see the outlook section under each business segment.

BUSINESS SEGMENT RESULTS

Cameco’s results come from four business segments:

• Uranium
• Conversion services
• Nuclear electricity generation
• Gold

URANIUM

Highlights

Uranium Results

Fourth Quarter
Compared to the fourth quarter of 2004, revenue from our uranium business rose by 57% to $318 million due largely to a 46% increase in sales volume. The timing of deliveries of nuclear products within a calendar year is at the discretion of customers. Therefore our quarterly delivery patterns can vary significantly. An increase in the realized selling price also contributed to the higher revenue, rising by 16% (in US dollars) over the fourth quarter of 2004. The average realized price in Canadian dollars, however, increased by only 7% due to the strengthening Canadian dollar relative to the US dollar. The increase in the average realized price was mainly the result of higher prices under fixed-price contracts and a higher uranium spot price, which averaged $34.79 (US) per pound in the fourth quarter of 2005 compared to $20.44 (US) in 2004.

Our total cost of products and services sold, including depreciation, depletion and reclamation (DDR), was $238 million in the fourth quarter of 2005 compared to $158 million in 2004. This increase was attributable to the 46% rise in sales volume and the higher costs for purchased uranium. The unit cost of product sold rose by 3% compared to the fourth quarter of 2004.

Our earnings before taxes from the uranium business improved to $71 million from $41 million last year, while the profit margin rose to 25% from 22% in 2004 due to the higher realized selling price.

Year to Date
In 2005, we established a new record for uranium revenue for the fourth consecutive year. Revenue from the uranium business increased by 19% to $690 million in 2005 due to a higher realized selling price, which rose 12% in Canadian dollar terms (20% in US dollars) over 2004. The increase in the average realized price was mainly the result of higher prices under fixed-price contracts and a higher uranium spot price, which averaged $28.67 (US) per pound in 2005 compared to $18.60 (US) in 2004. A 6% increase in sales volume also contributed to higher revenue in 2005.

Our total cost of products and services sold, including DDR, was $531 million in 2005 compared to $477 million in 2004. This increase was attributable to the 6% rise in sales volume and a 5% increase in the unit cost of product sold. The rise in the unit cost of product sold was due primarily to higher costs for purchased uranium.

Earnings before taxes from the uranium business improved to $131 million from $91 million last year, while the profit margin rose to 23% from 18% in 2004 due to the higher realized selling price.

Uranium Outlook for First Quarter 2006

Our earnings from the uranium segment are expected to be significantly greater than in the first quarter of 2005 due to higher sales volumes and realized prices. We expect deliveries to be more than double those of the first quarter of 2005 due to the timing of customer requirements. The realized price is projected to be about 30% greater than in the first quarter of 2005 due to higher realized prices under both fixed-price and market-related contracts.

Uranium Outlook for the Year 2006

In 2006, we expect uranium revenue to be 20% higher than in 2005 due to a projected 16% improvement in the expected realized selling price (in Canadian dollars) and a 4% increase in deliveries. Uranium sales volume is expected to total more than 35 million pounds in 2006. Cameco’s share of uranium production for 2006 is projected to increase slightly to 21.4 million pounds of U₃O₈ from 21.2 million in 2005.

Uranium margins are expected to improve to about 29% compared to 23% in 2005.

• no significant changes in our estimates for sales volumes, costs, and prices,
• no disruption of supply from our mines or third-party sources, and
• a US/Canadian spot exchange rate of $1.15.

Uranium Price Sensitivity

For deliveries in 2006, a $1.00 (US) per pound change in the uranium spot price from $33.00 (US) per pound would change revenue by about $4 million (Cdn) and net earnings by $2 million (Cdn). This sensitivity is based on an expected effective exchange rate of $1.00 (US) being equivalent to about $1.22 (Cdn), which accounts for our currency hedge program.

Uranium Price Sensitivity (2006 to 2008)

Uranium contract terms generally reflect market conditions at the time the contract is negotiated. After a contract negotiation is completed, deliveries under that contract typically do not begin for up to four years in the future. As a result, many of the contracts in our current portfolio, particularly those signed prior to 2005, reflect market conditions when uranium prices were significantly lower. For example, 2003 was the first year that the spot price averaged over $11.00 (US) since the 1995-1997 period. Before that they were much lower, and only exceeded $11.00 (US) on a sustained basis in the years 1988 and earlier. To the extent contracts have fixed or low ceiling prices, they will yield prices lower than current market prices. Contracts signed prior to 2005 are rolling off at a rate of about 30% per year over the next several years.

As in previous years, we are continually in the market signing new contracts with deliveries beginning one to four years in the future. Generally, Cameco continues to maintain the target portfolio mix of 40% fixed prices (escalated by inflation) and 60% market related prices, and recently, is obtaining floor prices that escalate over time. In the current market environment of rapidly increasing uranium prices, this strategy has allowed Cameco to add increasingly favorable contracts to its portfolio while maintaining sensitivity to future price movements.

The table below shows an indicative range of average prices that Cameco would expect to realize under the current sales portfolio. The prices shown in the table are intended to show how Cameco’s uranium revenue may be impacted by various market price scenarios. This analysis makes a number of assumptions that are included as table footnotes.

As shown in the $35.00 (US) spot price scenario, Cameco would expect to realize an average price of $28.25 (US), or about 81% of the spot price, by 2008 if prices remain at or close to $35.00 (US). If spot prices rose to $45.00 (US), Cameco would expect to realize an average price of $32.75 (US), or about 73% of the spot price, by 2008. On the other hand, if prices fell to $25.00 (US), Cameco would expect to realize an average price of $23.50 (US), or about 94% of the spot price, by 2008.

Cameco Expected Average Realized Uranium Price
(In brackets, expressed as a % of Spot Price)
Current US $/lb U₃O₈

• 2006 uranium sales volumes of about 35 million pounds U₃O₈ and similar sales volumes for 2007 and 2008,
• sales volume estimates assume no interruption in the company’s supply from its own production or from third parties,
• 2006 sales volumes are fully committed, 2007 sales volumes are almost all committed and 2008 is less committed,
• all uncommitted volumes are assumed to be delivered at the prevailing spot price,
• the long-term price in a given year is assumed to be equal to the average spot price for that year,
• all other price indicators are assumed to trend toward the spot price, and
• the annual inflation rate is equal to 2.5%.

Cameco intends to continue targeting a 60 / 40 mix of market-related and fixed pricing mechanisms, however, as market conditions change, it may adjust this ratio. The overall strategy will continue to focus on achieving longer contract terms, floor prices that provide downside protection and retaining an adequate level of upside potential. Today, new contracts tend to reflect contract durations of up to 10 years or more, floor prices at about 80% of the prevailing spot price and, in the case of market price related contracts, exposure to higher prices. It is important to note that not all contracts are market related or have floor prices. This depends upon the other terms negotiated for the contract.

Uranium Market Update

Uranium Spot Market
The industry average spot price (TradeTech and UxC) on December 31, 2005 was $36.38 (US) per pound U₃O₈, up 15% from $31.63 (US) at September 30, 2005. This compares to $20.60 (US) and $20.00 (US) for the same dates in 2004.

Spot market volume reported for the fourth quarter of 2005 was 6.5 million pounds U₃O₈ for a total of 34.8 million pounds in 2005. This compares to 2.7 million pounds in the fourth quarter of 2004 and a total of 19.4 million pounds for 2004.

Discretionary purchases, or purchases not for immediate consumption, accounted for about 66% of the 2005 spot volume – with almost 40% of the discretionary purchases attributable to investment and hedge funds. The large gap between spot and long-term prices early in 2005 resulted in a number of buyers, including many utilities, building inventory through discretionary spot purchases. The increase in 2005 spot market volumes is largely attributable to discretionary purchases by investment and hedge funds. If purchases by these groups were deducted from the total, the 2005 volume would be similar to the 2004 level.

Uranium Long-Term Market
Long-term contracting in 2005 is estimated to have been in excess of 240 million pounds U₃O₈, more than two and a half times the 90 million pounds U₃O₈ contracted in 2004.

The industry average long-term price (TradeTech and UxC) on December 31, 2005 was $36.13 (US) per pound U₃O₈, up from $32.50 (US) at the end of September 2005. This compares to $25.00 (US) and $23.00 (US) for the same dates in 2004.

Uranium Operations Update

2.7

4.0

13.1

13.1

13.1

1.5

1.6

6.0

5.4

5.9

0.4

0.4

1.3

1.2

1.6

0.2

0.2

0.8

0.8

0.8

4.8

6.2

21.2

20.5

21.4

McArthur River/Key Lake
In 2005, Cameco’s share of production at McArthur River/Key Lake totalled 13.1 million pounds. The operation approached the licensed annual production capacity limit of 18.7 million pounds by the end of November. Therefore, fourth quarter production was 2.7 million pounds versus 4.0 million pounds in the fourth quarter of 2004 as licenced capacity could not be exceeded. Quarter to quarter variation in production is typical and is a result of timing of plant maintenance shutdowns and normal variation in ore production. Cameco’s share of production for the first quarter of 2006 is expected to be 3.5 million pounds of U₃O₈.

The collective agreement for unionized employees at the McArthur River and Key Lake operations expired on December 31, 2005. Cameco has entered into negotiations with representatives from the United Steelworkers of America.

We have applied for an increase in the annual licensed capacity at McArthur River and Key Lake to 22 million pounds U₃O₈ per year compared to the current 18.7 million pounds. The Canadian Nuclear Safety Commission (CNSC) is considering the appropriate process to complete its review of the impacts associated with this proposed expansion. Once the process is identified, we will be in a better position to estimate the time required for the CNSC to reach a decision. If approval is received, we expect it will take about two years to ramp up production to a sustained level, with a planned production rate of approximately 21 million pounds. This production rate may change as we gain experience in ramping up production at this operation.

Continued drilling near the McArthur River mine area has yielded positive results. We are conducting additional confirmatory drilling in 2006.

Currently, McArthur River uses only raise boring to extract ore from the mine. As we expected from the start of mining, other mining methods may be used to maintain or expand production. In 2005, we determined a new mining method would be better suited for the upper zone #4 at McArthur River. The previous mining plan anticipated using raise boring, which required development in poor-quality ground above the ore zone. The proposed alternate mining method, boxhole boring, will allow development from a safer location. We have done some additional research on this method in 2005.

There is uncertainty in the estimated productivity of the boxhole boring method until we have fully developed and tested it. As a result, we have reclassified 108 million pounds U₃O₈ from proven to probable reserves. (Cameco’s share is 75 million pounds U₃O₈). Cameco plans to develop and test the boxhole boring method over the next four years, beginning in 2006.

We do not expect this change to significantly impact our long-term uranium production plans. Production from this zone is scheduled to begin in 2012.

In addition, the revisions to the proposed mining method for the upper zone #4 and re-interpretation of a small portion of zone #2 have resulted in a decrease in proven reserves at McArthur River of 12.9 million pounds U₃O₈ (Cameco’s share is 9 million pounds).

McArthur River’s proven and probable reserves at the end of 2004 was almost 420 million pounds (100% basis). The company’s annual update to its reserve base estimates is expected in March 2006 in its annual report and annual information form.

Rabbit Lake
Rabbit Lake produced 1.5 million pounds of U₃O₈ during the fourth quarter of 2005 and a total of 6.0 million pounds of U₃O₈ for the year. The additional production achieved relative to 2004 resulted from a significant increase in milled tonnage. Due to a planned mill shutdown, we expect production for the first quarter of 2006 to be 1.2 million pounds of U₃O₈. Total production for 2006 is targeted at 5.9 million pounds of U₃O₈.

The underground diamond-drilling reserve replacement program was again successful in 2005. Over 75 km of drilling was completed, contributing to a net increase of 2.8 million pounds U₃O₈ in reserves and 7.2 million pounds U₃O₈ in resources after accounting for the 2005 mine production. With further definition and test-hole drilling in 2006, we expect to further extend the mine life of Rabbit Lake.

Production mining of two new zones discovered from the reserve replacement program will be underway in the first quarter. More than 4 km of underground lateral development were completed in 2005, with the majority of the development focused on these two new zones.

Work continues on the environmental assessment (EA) to process a little over half of the uranium from Cigar Lake ore at the Rabbit Lake mill beginning in 2009. Guidelines that define the scope of the EA were approved by the province in November 2005 and were approved by the CNSC with only minor modifications in December 2005.

The technical information provided for McArthur River and Rabbit Lake was prepared under the supervision of Alain Gaston Mainville, who is the Manager, Mining Resources and Methods at Cameco and is a Qualified Person for the purpose of National Instrument 43-101.

Smith Ranch-Highland and Crow Butte
Smith Ranch-Highland and Crow Butte in situ leach (ISL) mines produced 0.6 million pounds U₃O₈ in the fourth quarter of 2005 and a total 2.1 million in 2005. The operations are expected to produce 2.4 million pounds in 2006.

Uranium Projects Update

Cigar Lake
Construction began on January 1, 2005 and remains on schedule for completion in the first half of 2007, subject to regulatory approval. Once production begins, there will be a ramp-up period of up to three years before the mine reaches expected full production of 18 million pounds per year.

The capital costs for the Cigar Lake project are currently forecast at $520 million. Our share is 50% or $260 million. The permanent access road was connected to Saskatchewan provincial road 905 in November 2005 and is currently being utilized for material transport. The final grading of the road will occur in 2006. The development of the second shaft is approximately 85% complete and development of the underground workings is approximately 55% complete.

Inkai
The ISL test mine block 2 at Inkai, in Kazakhstan, produced about 0.1 million pounds U₃O₈ during the fourth quarter of 2005 and 0.5 million pounds U₃O₈ in 2005. Approval was received in the third quarter to increase the test mine’s output to 0.8 million pounds U₃O₈ in 2006. Construction to facilitate this increase is expected to be complete in the first quarter 2006.

The regulatory authorities have approved the EA and design plan for the commercial processing facility to be located at Inkai, block 1. Initial civil work at the main processing plant and well field drilling has begun. Commercial operation is scheduled for 2007. The costs, net of sales proceeds from Inkai test mine production, are capitalized until commercial production is achieved. We expect Inkai to ramp up to full production of 5.2 million pounds U₃O₈ per year by 2010.

Uranium Exploration

Millennium Deposit
We have increased indicated resources in pounds U₃O₈ by 32% at the Millennium deposit through our winter and summer drilling programs. To the end of 2005, indicated resources total 449,000 tonnes at 4.63% U₃O₈ containing 45.8 million pounds U₃O₈. A further 280,000 tonnes at 1.81% U₃O₈ containing 11.2 million pounds are classified as inferred resources. Cameco owns 41.9% and is the operator of the Cree Extension Joint Venture, which includes the Millennium deposit. The Cree Extension Joint Venture has approved a pre-feasibility study for Millennium as part of a 2006 work program. This program also includes further diamond drilling. Several holes will be drilled in the deposit while the majority of drilling will evaluate the limits of the deposit along the mineralized trend.

Regional Exploration
A pre-feasibility study was completed on the Dawn Lake 11A zone in Saskatchewan. The study assumed the open pit mining of the 11A zone and trucking of the ore to the Rabbit Lake mill located 20 kilometres to the southeast. The study concluded that at current uranium prices the project was uneconomic.

We continued to encounter promising results from drilling at the Collins Creek zone, which is located 6 km south of the Dawn Lake deposits. Six of the eight drill holes completed in 2005 returned significant uranium mineralization, with the best intercept being 5.62% U₃O₈ over 7.8 metres. The mineralized intercept thickness does not represent the true width. Recent exploration at Collins Creek has defined mineralization over a strike length of 650 metres and at depths of about 200 metres. However, the wide drill spacing does not permit a resource estimate at this time. We have planned an aggressive infill diamond-drilling program of 20 to 25 holes for 2006.

Further drilling on the Centennial Zone discovery on the Virgin River project in Saskatchewan has succeeded in expanding the known dimensions of this zone. Four of six holes drilled during the summer of 2005 intersected significant grades and widths of uranium mineralization, with the best intercept being 8.39% U₃O₈ over 3.9 metres.

As part of the expansion of Cameco’s uranium exploration activities, exploration commenced on several new land positions including projects in Nunavut, NWT, Quebec, and Australia during 2005. All new projects are at an early stage and will require several years of grassroots exploration to define more advanced targets.

Cameco plans to invest about $32 million in uranium exploration during 2006 as part of its long-term strategy to maintain its leadership position in uranium production.

CONVERSION SERVICES

Conversion Services Results

Fourth Quarter
In the fourth quarter of 2005, revenue from our conversion business rose by 34% to $63 million compared to the same period in 2004, as a result of a 30% increase in sales deliveries. As the timing of deliveries of nuclear products within a calendar year is at the discretion of customers, Cameco’s quarterly delivery patterns can vary significantly. A 3% rise in the realized selling price also contributed to increased revenue. Most conversion sales are at fixed prices and have not yet fully benefited from the recent significant increase in uranium hexafluoride (UF6) spot prices.

In the fourth quarter of 2005, our total cost of products and services sold, including DDR, was $58 million compared to $36 million in 2004. This increase was attributable to the 30% rise in sales volume and a 24% increase in the unit cost of product sold, which was due primarily to higher costs for purchased conversion, which have trended up with the rise in the UF6 spot price.

In the fourth quarter of 2005, earnings before taxes from the conversion business decreased by $5 million compared to the fourth quarter of 2004, while the gross profit margin decreased to 8% from 24%. The lower profitability was due to the higher cost of purchased conversion coupled with the fixed prices of the sales contracts.

Year to Date
We established a new record for conversion services revenue in 2005. Revenue from the conversion business rose by 10% to $158 million compared to $144 million in 2004 due to an 12% improvement in the realized price. The benefit of the price improvement was partially offset by a decline in sales volumes, which were 2% lower than last year’s record deliveries.

The total cost of products and services sold, including DDR, was $130 million in 2005 compared to $111 million in 2004. This increase reflects a higher unit cost of product sold. The unit cost rose by 19% compared to 2004 due primarily to higher costs for purchased conversion, which have trended upward with the rise in the UF6 spot price. In 2005, the cost of purchased conversion has risen by about 50% compared to 2004, due to purchases made to replenish inventory drawn down as a result of the 2004 strike at the Port Hope facility.

In 2005, earnings before taxes from the conversion business were $25 million compared to $31 million in 2004 while the gross profit margin decreased to 18% from 23%.

Conversion Services Outlook for First Quarter 2006

For the first quarter of 2006, our conversion revenue is projected to be significantly higher than in the first quarter of 2005 due to an expected 38% increase in deliveries and a 4% improvement in the realized price. We expect the gross profit to be higher than in 2005 but the improvement will be offset somewhat by a higher cost of product sold.

Cameco expects to produce 3.7 million kgU in the first quarter of 2006, up slightly from 3.6 million kgU in the first quarter of 2005.

Conversion Services Outlook for the Year 2006

Cameco expects revenue from the conversion business to be nearly 20% higher than in 2005 due to an anticipated 15% increase in sales deliveries and a 5% improvement in the average realized selling price. We project the gross profit margin to be 18%, unchanged from 2005, as an expected increase in the unit cost is likely to offset the higher anticipated price.

We expect conversion sales volume to total about 19.0 million kgU in 2006 compared to 16.6 million kgU in 2005. Our planned production for 2006 is projected to be about 14.2 million kgU, up from 11.4 million kgU in 2005.

• no significant changes in our estimates for sales volumes, costs, and prices,
• no disruption of supply from our facilities or third-party sources, and
• a US/Canadian spot exchange rate of $1.15.

Conversion Services Price Sensitivity Analysis

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

UF₆ Conversion Market Update

Spot market UF6 conversion prices did not change during the quarter. Outlined below are the industry average spot market prices (TradeTech and UxC) for North American and European conversion services.

• North America

• Europe

The industry average long-term prices (TradeTech and UxC) for North American and European conversion services are reported below.

• North America

• Europe

Conversion Services Operations Update

Production

Port Hope Conversion Facility
We produced 2.9 million kgU as UF6 and UO2 in the fourth quarter of 2005 compared to 2.4 million kgU in the fourth quarter of 2004 at our Port Hope conversion plants. The higher production reflects the longer operating time in 2005. Total production for 2005 was 11.4 million kgU, up 21% from 9.5 million kgU for 2004, which mainly reflects the impact of a seven-week labour disruption in 2004.

At our mid-term licencing meeting, the CNSC expressed some concern that the local emergency response had limited capabilities to deal with all potential events of fire at the facility. We have made significant progress in enhancing our local emergency response capabilities including doubling the size of the emergency response team, increased training and certification as well as additional emergency response equipment. We also continue to offer additional training opportunities for the local municipal fire departments. A CNSC meeting is scheduled for the first quarter of 2006 to review the progress. Port Hope’s operating licence comes up for renewal in February 2007.

Blind River Refinery
At our Blind River refinery, unused capacity was utilized to produce additional production required to supply UO3 to Springfields Fuels Limited (SFL) under a UF6 toll conversion agreement announced last year. A record production of 15.1 million kgU as UO3 was produced in 2005 up 44% from 10.5 million kgU in 2004. In 2006, we expect the Blind River refinery to produce 18.0 million kgU as UO3 to feed both Port Hope and SFL conversion facilities. The 18 million kgU is a 19% increase over the UO3 production in 2005 and is the current licensed capacity of the plant.

We have filed a proposal with the CNSC to increase the licensed production capacity of the Blind River refinery to 24 million kgU per year from 18 million. Some relatively minor modifications are required at the refinery to achieve the increased capacity. These changes require an environmental assessment and regulatory approval. Cameco expects to complete the environmental assessment process in 2006.

NUCLEAR ELECTRICITY GENERATION

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

Following the restructuring, Cameco began to proportionately consolidate its share of BPLP’s financial results on November 1, 2005. Our move to this new method of accounting was driven by incremental changes to the partnership agreement, which resulted in joint control among the three major partners. Proportionate consolidation is required for investments in jointly controlled entities. Consequently, our financial results for the first 10 months of 2005 reflect a six-unit operation, which is accounted for on an equity basis. For the remaining two months in the year, our results reflect a four-unit operation, which is accounted for on a proportionate basis.

Highlights

30.8

• operating & maintenance

• fuel

• supplemental rent 2

In the fourth quarter of 2005, BPLP generated cash from operations of $260 million compared to a net outflow of cash from operations of $6 million in the fourth quarter of 2004. The increase reflects higher revenue due to high electricity prices during the period. Capital expenditures for the fourth quarter of 2005 totalled $87 million compared to $97 million during the same period in 2004.

BPLP also distributed $818 million to the partners in the fourth quarter, including a $633 million distribution upon the completion of the restructuring. Cameco’s share was $258 million (including the $200 million received from the restructuring). 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.

Fourth Quarter

Earnings Before Taxes
Cameco’s pre-tax earnings from BPLP amounted to $30 million (of which $25 million was accounted for under the equity method) compared to $2 million in 2004. This increase is due to a higher average realized price due to increased electricity spot prices.

Output
BPLP achieved a capacity factor of 75% in the fourth quarter of 2005, compared to 72% in the same period of 2004. During the fourth quarter of 2005, the BPLP units generated 6.2 TWh of electricity compared to 7.4 TWh in 2004, which included output from the two Bruce A units throughout the entire quarter.

Outlined below are the maintenance activities for BPLP that occurred during the fourth quarter of 2005.

• Returned to service on Dec. 22 following 66 days of planned and nine days of unplanned work to install new low-pressure turbine rotors and inspect boilers, fuel channels and safety systems.

• Returned to service on Nov. 20 following an outage that began  Nov. 18 to repair a cooling valve. Returned to service on Dec. 30 following an unscheduled outage that began Dec. 13 to inspect and repair the fueling machine.

During the fourth quarter of 2005, the BPLP reactors were offline for a total of 95 days (66 planned and 29 unplanned). In the fourth quarter of 2004, BPLP experienced 100 reactor days of planned maintenance and 35 days of unplanned outages.

Price
For the fourth quarter of 2005, BPLP’s revenue increased to $405 million from $355 million over the same period in 2004.

The realized price achieved from a mix of contract and spot sales averaged $57 (MWh) in the fourth quarter, higher than the $47 per MWh realized in 2004. During the quarter, the Ontario electricity spot price averaged $71 per MWh, compared to $51 per MWh in the fourth quarter of 2004.

To reduce its exposure to spot market prices, BPLP has a portfolio of fixed-price sales contracts. During the fourth quarter of 2005, about 53% of BPLP output was sold under fixed-price contracts. This is unchanged from the same period in 2004.

Cameco provides guarantees to customers under these contracts of up to $167 million. At December 31, 2005, Cameco’s actual exposure under these guarantees was $102 million. In addition, Cameco has agreed to provide up to $133 million in guarantees to CNSC and $58 million to Ontario Power Generation (OPG) to support other BPLP commitments. Of these amounts, corporate guarantees have been issue for $24 million to CNSC and $58 million to OPG at December 31, 2005.

Costs
Operating costs (including amortization) were $307 million in the fourth quarter of 2005, compared with $345 million in the same period of 2004. About 95% of BPLP’s operating costs are fixed. As such, most of the costs are incurred whether the plant is operating or not. On a per MWh basis, the operating cost in the fourth quarter of 2005 was $43 per MWh, compared with $46 per MWh in the fourth quarter of 2004.

Year to Date

Earnings Before Taxes
For 2005, BPLP earnings before taxes were $520 million prior to loss on disposition compared to $338 million in 2004. This increase primarily reflects higher realized electricity prices as a result of strong demand. This was partially offset by a 3% decrease in capacity factor compared to 2004. Year to date, Cameco’s earnings before tax from BPLP amounted to $170 million (of which $165 million was accounted for under the equity method) compared to $121 million for the same period in 2004.

Output
For 2005, the BPLP units achieved a capacity factor of 79%, compared with 82% in the same period last year. These units produced 30.8 TWh in 2005, a decrease of 2.8 TWh over the previous year. This decrease reflects:

• the removal of units A3 and A4 output after October 31, 2005 from BPLP results due to the restructuring,
• planned outages of units A3 and A4 prior to the restructuring,
• planned outages on units B5 and B7, and
• unplanned outages, including the 29-day outage of unit B6 to replace its main output transformer.

Price
For 2005, revenues totalled $1,858 million, compared to $1,583 million in 2004. During the year, BPLP’s realized price averaged $58 per MWh from a mix of contract and spot sales compared with $47 per MWh in 2004. The Ontario electricity spot price averaged about $68 per MWh during 2005, compared to $50 per MWh in 2004.

During 2005, about 48% of BPLP’s output was sold under fixed-price contracts, the same as in 2004.

Costs
For 2005, operating costs were $1,273 million compared with $1,178 million in 2004.
About 95% of BPLP’s operating costs are fixed. As such, most of the costs are incurred whether the plant is operating or not. On a per MWh basis, the operating cost in 2005 was $40 per MWh, compared with $35 per MWh for 2004. The increase is primarily due to planned and unplanned outages and related outage costs.

BPLP’s Outlook for First Quarter 2006

Earnings from BPLP are projected to be significantly higher in the first quarter of 2006 compared to the first quarter of 2005 due to reduced outages. There are no planned outages for the Bruce B units in the first quarter of 2006, compared the first quarter of 2005 when the units were offline for 17 days.

BPLP’s Outlook for 2006

In 2006, capacity factors for the B units are expected to average in the low 90% range compared to 79% in 2005. For the year, a significant reduction in time and expenditure on refurbishment programs is anticipated, with only one planned Bruce B outage, which is expected to last for two months, beginning in the third quarter.

BPLP earnings in 2006 are projected to be marginally higher than in 2005 mainly as a result of lower outages. This earnings outlook assumes the B units will achieve the targeted capacity factor and that there will be no significant changes in our current estimates for costs and prices.

2006 BPLP Capital Expenditures (100% Basis)

BPLP capital expenditure program for the four B units is expected to total $123 million. This includes $69 million for sustaining capital, with the balance for power uprates, infrastructure and improvements.

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

Electricity Price Sensitivity Analysis

BPLP has 13 TWh sold under fixed-price contracts for 2006. This would represent about 50% of Bruce B’s generation at its planned capacity factor. 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.

Nuclear Electricity Update

High fossil fuel prices throughout the fourth quarter helped maintain spot prices at seasonal highs. The impact of the high fuel prices was moderated only in November, when temperate weather and higher hydro generation resulted in spot prices declining from almost $76 per MWh in October to $58 per MWh in November. December saw spot prices increase significantly to almost $80 per MWh due to lower than expected nuclear generation and a rally in gas prices as cold weather hit the US Northeast in the early part of the month.

In December, the Ontario Power Authority published its Supply Mix Advice report which set out recommendations to the Minister of Energy for the future development of Ontario's electricity system. The report recommended that nuclear generation maintain its current contribution of 50% of electrical energy in Ontario.

GOLD

Cameco owns about 53% of Centerra, which is listed on the Toronto Stock Exchange (TSX). Centerra began trading on the TSX under the symbol CG in June 2004. We transferred substantially all of our gold assets to Centerra as part of our strategy to unlock the value contained in these gold properties.

The operating results of Kumtor Gold Company (Kumtor) have been fully consolidated as of June 22, 2004. Prior to that, we proportionately consolidated our interest in Kumtor. We also fully consolidate the results of Boroo, Centerra’s gold mine in Mongolia. We adjust for a 47% minority interest in Centerra, which reflects that share of earnings attributable to shareholders other than Cameco.

Gold Results

Fourth Quarter
In the fourth quarter of 2005,revenue from our gold business declined by $22 million to $88 million compared to the fourth quarter of 2004. This decrease was due to lower gold production at the Kumtor mine. The realized price for gold increased to $476 (US) in the quarter compared to $430 (US) per ounce in the fourth quarter of 2004, due to higher spot prices.

For the quarter, the gross profit margin for gold declined to 25% from 28% due to higher costs at Kumtor, largely the result of the lower production. Kumtor’s production was 99,000 ounces compared to 139,000 ounces in the fourth quarter of 2004. This decrease was due to a lower mill head grade that averaged 2.8 grams per tonne (g/t) compared to 4.0 g/t in 2004.

Production at Boroo was 68,000 ounces compared to 67,000 ounces in 2004. The average head grade of ore fed to the mill was 3.9 g/t compared to 4.5 g/t last year. In spite of the lower grade, production rose marginally due to a 17% increase in throughput.

Year to Date
In 2005,revenue from our gold business rose by $89 million to $412 million compared to 2004. This increase was due largely to the full consolidation of Kumtor’s results, a full year of production at Boroo and higher spot gold prices. The realized price for gold increased to $433 (US) in 2005 compared to $397 (US) per ounce in 2004, due to higher spot prices.

Gold revenue included proceeds from the sale of gold in the current period as well as deferred charges related to previously closed hedge contracts. The recognition of the deferred charges causes the realized gold price to vary relative to the average spot price for the period. In 2005, the deferred charges amounted to $7 (US) per ounce compared to $11 (US) per ounce in 2004.

Gold production at Kumtor was 501,000 ounces in 2005, 24% lower than in 2004 due mainly to a lower mill head grade that averaged 3.4 g/t compared to 4.4 g/t last year.

Boroo gold production in 2005 was 286,000 ounces compared to 218,000 ounces in 2004 due to a full year of production following the start of operations in 2004. The average head grade of ore fed to the mill was 4.2 g/t compared to 4.5 g/t last year.

Gold Market Update

The average spot market gold price during the fourth quarter of 2005 was $485 (US) per ounce and $513 (US) per ounce at year end. The average spot market gold price during the fourth quarter of 2004 was $434 (US) per ounce.

Gold Outlook for the First Quarter 2006

For the first quarter of 2006, profits from the gold business are projected to decline compared to the fourth quarter of 2005 due to higher cash costs at Kumtor and less production at Boroo where ore grades are expected to be lower.

Gold Outlook for the Year 2006

Based on Centerra’s current operations, total production for the year is forecast at 729,000 ounces, a decline of about 7% from 2005 primarily as a result of lower grades at the Kumtor and Boroo mines.

At Kumtor, production in 2006 is expected to decline to 461,000 ounces from 501,000 ounces in 2005, due to a lower mill head grade that is expected to average 3.3 g/t compared to 3.4 g/t in 2005.

For Boroo, the outlook for 2006 calls for production to decline to 267,000 ounces from 286,000 ounces in 2005, due to a lower mill head grade that is expected to average 3.9 g/t compared to 4.2 g/t in 2005.

Total unit cash cost for 2006 is expected to rise reflecting the lower projected production.

Centerra recently issued updated estimates on the reserves and resources at its operating mines. Reserves of 2.32 million ounces of gold have been added at Kumtor before accounting for mining of 614,000 ounces of contained gold in 2005. The reserve grade has also increased from 3.3 grams per tonne (g/t) gold to 3.8 g/t. At Boroo, reserves of 349,000 ounces of gold have been added which replaces reserves mined in 2005. Additionally, 2.5 million ounces of measured and indicated resources have been added to Centerra’s resource base.

As of December 31, 2005, on a 100% project basis, Centerra’s proven and probable reserves totaled 6.2 million ounces of contained gold (Cameco’s share is 3.2 million ounces). Based on these estimates, the additional reserves will extend the Kumtor mine life by almost three years and the Boroo mine life by more than one year. For more information, see Cameco’s news release dated January 23, 2006.

Gold Price Sensitivity Analysis

For 2006, a $25.00 (US) per ounce change in the gold spot price would change Cameco revenue by about $21 million (Cdn), cash flow by about $20 million (Cdn) and net earnings by about $9 million (Cdn).

COMPANY DEVELOPMENTS

Zircatec Precision Industries
On December 2, 2005, Cameco announced it had reached an agreement to acquire a 100% interest in Zircatec Precision Industries, Inc. for approximately $108 million, including closing adjustments.

Zircatec manufactures metal components for nuclear fuel bundles at its plant in Cobourg, Ontario. A second plant in Port Hope, Ontario handles nuclear material and completes the fuel bundle fabrication process.

Cameco anticipates the agreement will close by early February 2006 after a number of agreement conditions are met including third party and regulatory approvals. The company plans to use cash to fund this acquisition that is expected to be moderately accretive to cash flow and earnings in 2006, assuming there is no significant change to existing revenue and costs.

NUCLEAR INDUSTRY DEVELOPMENTS

World Reactor News
In 2005, four reactors were connected to the electricity grid, two in Japan, one in India, and a refurbished reactor restarted in Canada. Three of these units entered commercial operation in 2005, and the other is expected to enter commercial operation in the first quarter of 2006. There were two reactor closures in 2005, both as a result of nuclear phase-outs, one in Germany and one in Sweden. The net result was a 2,570 megawatt electric (MWe) increase in nuclear capacity.

United States

In the Utility Sector
Consolidation continues in the US, with two utilities, FPL Group and Constellation Energy, agreeing to merge. The merger has been approved by both companies’ boards of directors, but is conditional upon shareholder approval and a number of regulatory approvals. The companies anticipate regulatory approvals will take nine to 12 months and intend to seek shareholder approval in the second quarter of 2006. The new company will retain the Constellation name and will be the third-largest nuclear plant operator in the United States, owning and operating seven nuclear power stations with 11 units, including FPL Group’s pending acquisition of the Duane Arnold nuclear station.

Military HEU
The US government has announced plans to remove 200 metric tons of excess military highly enriched uranium (HEU) from its stockpile. This is equivalent to approximately 8,000 nuclear warheads. Of the 200 metric tons, the US Navy will use 160 metric tons, 20 metric tons will be reserved for the space program and for research reactors, and 20 metric tons (equivalent to about 16 million pounds U3O8) will eventually be down-blended to low enriched uranium for use in civilian nuclear power reactors or research reactors. It is expected to take until approximately 2030 for all of the HEU designated for downblending to become available.

New Reactor Initiatives
New reactor capacity initiatives have progressed as Constellation Energy and Progress Energy have announced plans to submit combined construction and operating licenses (COL) for up to four new nuclear reactors respectively, while Duke Energy prepares COLs for two new plants. In total, ten entities have expressed an interest in proceeding with applications for either early site permits (ESP) or combined COLs for a potential new nuclear power plant, but there have been no firm commitments as yet. An early site permit does not guarantee automatic approval for a new reactor, but verifies a site's suitability, environmental impact, and emergency planning concerns. This will simplify the application process when a utility files for a COL. Early site permits would be valid for 20 years, with the potential to be renewed for another 20 years. The COL process is intended to provide an accurate estimate of costs for building and operating a new nuclear plant.  Several potential sites and reactor types have been identified with the potential for a new reactor to be completed as early as 2014 or 2015.

US EIA Forecast
The US Energy Information Administration (EIA), a statistical agency of the US Department of Energy, is now projecting a 9% increase in US nuclear capacity by 2030. This increase is assumed to be a result of three gigawatts electric (GWe) of uprates at existing plants and six GWe from new plants coming online between 2014 and 2020. The current nuclear projection is significantly more optimistic than previous forecasts, where the EIA had projected decreases in US nuclear generation due to the number of reactors retiring. Despite the increase in capacity, the EIA anticipates nuclear will represent only 10% of the overall mix in electricity generation in 2020, about half of what nuclear power contributes today. The US Nuclear Energy Institute has taken exception to this forecast and anticipates the US Energy Policy, signed in 2005, will result in significantly more than six new reactors.

Licence Extensions
Licence extensions continue, with a total of 39 US reactors granted 20-year licence extensions, while extensions for 39 more reactors have been applied for or their operators have indicated they intend to apply for life extensions. This amounts to over 75% of all US reactors.

Canada

On December 9, 2005, the Ontario Power Authority (OPA) released a report on how Ontario can meet its future energy needs. The report recommends about $70 billion in spending to ensure the province continues to have enough electricity to meet future needs over the next 20 years. Of that amount, $40 billion would need to be spent on nuclear in order to maintain the 50% share of Ontario electricity that nuclear power provides. In response to the report, OPG has recommended that the government make preparations for the construction of new reactors as soon as possible due to the amount of time required for planning and construction.

Asia/Europe

New Reactors
Construction has started at the second 300 MWe Chinese-supplied Chashma nuclear reactor in Pakistan. The plant is reported to cost $860 million (US) and grid connection is expected in 2011. The Pakistan Atomic Energy Commission has been directed under the country’s Energy Security Plan 2005 to bring 8,800 MWe of nuclear capacity online by 2030, and is planning to construct two further Chinese reactors, 600 MWe each.

Korea Electric Power Corp. has signed an agreement with Indonesia’s government-owned power utility, PLN, to conduct a joint study to look into the feasibility of constructing the first nuclear power plant in Indonesia. After the study is complete, Indonesia plans to issue an international tender for the construction of a 1,000 MWe nuclear power plant. The feasibility study is expected to take a year to complete.

The Turkish government reportedly will announce plans to build 5,000 MWe of nuclear power capacity to come online in 2012. It is expected to be largely privately financed.

In Japan, Chugoku Electric Power has announced the official start of construction for Shimane unit 3, a 1,375 MWe advanced boiling water reactor. Commercial operation is scheduled for December 2011.

Other Developments

Nuclear Power Economics
The World Nuclear Association released a new report entitled “The New Economics of Nuclear Power” which concludes that in most industrialized countries, new nuclear power plants offer the most economical way to generate base-load electricity. Nuclear power has become less expensive than fossil and any other form of electricity generation. Increased competitiveness of nuclear power is the result of cost reductions in all aspects of nuclear economics from construction to decommissioning. Standardized reactor designs, shorter construction periods, new financing techniques, more efficient generating technologies, increased capacity factors and longer plant lifetimes all add to the cost reductions.

Sweden Supports Nuclear
According to a survey conducted by polling organization Temo on behalf of Sweden’s Nuclear Training and Safety Center (KSU), 65% of respondents are against a decision to shut down Swedish reactors if they are still capable of producing electricity safely. Eighty percent of respondents said the most important environmental target within the energy sector is not to increase emissions of greenhouse gases, while 11% felt the protection of the country’s remaining undeveloped rivers against hydro-electric power development is their most important objective. Only 5% said a phase-out of nuclear power is the most important target.

Namibian Production
Rossing Uranium announced that it plans to invest $112 million (US) to extend the life of its Namibian uranium mine through to about 2016. After several years of uncertainty, Rio Tinto, the
majority owner, has approved the life of mine proposal. It will take two years to return the mine to full production capacity with a target of producing 8.8 million pounds U3O8 annually. Rossing currently produces about 8 million per year.

LIQUIDITY AND CAPITAL RESOURCES

Changes in liquidity and capital resources during the fourth quarter included the following:

Commercial Commitments

Commercial commitments at December 31, 2005 decreased by 6% to $391 million from $416 million at September 30, 2005. Our obligations to provide financial guarantees supporting BPLP decreased by $31 million, while standby letters of credit increased by $6 million to the end of the quarter. At December 31, 2005, commercial commitments included standby letters of credit of $207 million and financial guarantees for BPLP of $184 million.

In 2005, Kumtor Gold Company entered into contracts to purchase plant and equipment for $62 million (US). These commitments are expected to be settled in 2006.

Credit Ratings

In addition to having issued common shares and convertible debentures, Cameco has one series of senior unsecured debentures outstanding and is a frequent issuer of commercial paper. On December 12, 2005, Cameco announced its intention to redeem in full $100 million of 6.9% debentures, due July 12, 2006 and $50 million of 7.0% debentures, due July 6, 2006. The redemption date was January 17, 2006. Moody’s Investors Service had been specifically contracted to rate these debentures and performs no other services for Cameco. Effective January 17, 2006, Moody’s withdrew its rating related to Cameco.

The following table provides Cameco’s remaining third party ratings for our commercial paper, senior debt and convertible debentures, as of December 31, 2005:

Debt

As noted, Cameco announced its intention to redeem in full $100 million of 6.9% debentures, and $50 million of 7.0% debentures. The redemption prices under the trust indenture are based on the yield for a Government of Canada bond with the equivalent term to maturity plus 25 basis points for the 6.9% debentures and 34 basis points for the 7.0% debentures. The total redemptionprice of $152.1 million plus accrued and unpaid interest was paid on January 17, 2006. In addition to cash from operations, debt is used to provide liquidity. Cameco has sufficient borrowing capacity to meet its current requirements.

Cameco has access to approximately $750 million in unsecured lines of credit. Commercial lenders have provided a $500 million unsecured revolving credit facility, available until November 30, 2010, with annual extension provisions. Up to $100 million of this facility can be used to support letters of credit. The facility ranks equally with all of Cameco’s other senior debt. At December 31, 2005, there were no amounts outstanding under this credit facility.

Cameco may borrow directly from investors by issuing commercial paper up to a maximum of $400 million. To the extent necessary, we use the revolving credit facility to provide liquidity support for its commercial paper program. At December 31, 2005, there were no amounts outstanding.

Cameco also has agreements with various financial institutions to provide up to approximately $250 million in short-term borrowing and letter of credit facilities. These arrangements are predominantly used to fulfill regulatory requirements to provide financial assurance for future decommissioning and reclamation of our operating sites. Outstanding letters of credit at December 31, 2005 amounted to $207 million.

SHARE CAPITAL

At December 31, 2005, there were 174.8 million common shares and one Class B share outstanding. In addition, there were 4.4 million stock options outstanding with exercise prices ranging from $6.25 to $71.76 per share. Cameco also has convertible debentures in the amount of $230 million outstanding. This issue may be converted into a total of 10.6 million common shares at a conversion price of $21.67 per share. The debentures are redeemable by Cameco beginning on October 1, 2008 at a redemption price of par plus accrued and unpaid interest. At current share prices, we expect existing holders to convert to equity.

Cameco announced today that its board of directors has approved a two-for-one stock split of the company’s outstanding common shares. This will be completed through a stock dividend with all shareholders receiving one additional share for each share owned on the record date of February 17, 2006. When the stock split is complete, the number of shares outstanding will total approximately 349 million.

CAUTION REGARDING FORWARD-LOOKING INFORMATION

Statements contained in this MD&A, which are not historical facts, are forward-looking statements that involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by forward-looking statements. Factors that could cause such differences, without limiting the generality of the foregoing, include: volatility and sensitivity to market prices for uranium, gold, conversion services and electricity in Ontario; the impact of the change in sales volume of uranium, conversion and fuel manufacturing services, electricity generated by BPLP, and gold produced by Centerra Gold Inc.; the financial results and operations of BPLP and Centerra Gold Inc.; competition; the impact of change in foreign currency exchange rates and interest rates; imprecision in production, reserve, decommissioning, reclamation and tax estimates; adverse mining conditions; unexpected geological or hydrological conditions; operating performance (including any disruption thereto) and life of the company’s and customer’s facilities; reduction in electricity generated due to unplanned outages or planned outages that extend beyond the scheduled period at BPLP’s facilities; environmental and safety risks including increased regulatory burdens and long term hazardous waste disposal; risks associated with the transport of uranium and chemicals and fuel used in the production process; political risks arising from operating in certain developing countries; terrorism; sabotage; a possible deterioration in political support for nuclear energy; changes in government regulations and policies, including nuclear energy, environmental, tax and trade laws and policies; demand for nuclear power; failure to replace production; failure to obtain and maintain necessary permits and approvals from government authorities; legislative and regulatory initiatives regarding deregulation, re-regulation or restructuring of the electric utility industry in Ontario; Ontario electricity rate regulations; natural phenomena including inclement weather conditions, fire, flood, underground floods, earthquakes, pit wall failures and cave-ins; ability to maintain and improve positive labour relations; strikes or lock-outs; success of planned development projects; and other development and operating risks.

Although Cameco believes the assumptions inherent in forward-looking statements are reasonable, undue reliance should not be placed on these statements, which only apply as of the date of this report. Cameco disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise, except as otherwise required by applicable law.

Fourth Quarter Results / PDF (513 KB)

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