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 seek to achieve these goals by:

• transitioning successfully from current mining areas to new ones,
• advancing other mining methods and technologies,
• ensuring availability of critical production supplies,
• proceeding with revitalization plans for our milling operations,
• obtaining timely regulatory approvals,
• securing sufficient human resources to replace an aging workforce, including ensuring the availability of skilled tradespeople,
• 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 at McArthur River has delineated four mineralized zones with mineral reserves (zones 1 to 4). Since mine startup in 2000, only zone 2 has been mined. Zone 2 is divided into four panels (panels 1, 2, 3 and 5).

The McArthur River mine schematic above illustrates the location of six mineralized zones. The four described above and mineralized zones A and B, which are drilled from surface only and are currently categorized as inferred mineral resources.

As extraction of zone 2 (panels 1, 2 and 3) progresses, we expect to place lower zone 1, zone 2, panel 5 and the lower mining area of zone 4 into production in stages between 2009 and late-2010. We plan to continue using the current raiseboring method to extract ore in these zones.

Freeze drilling and raisebore access for lower zone 1 have been developed on the 530 metre level. As a precautionary measure, the 560 metre level extraction chamber development will not be initiated until the production freezewall has been established. Freeze drilling for lower zone 1 is scheduled to begin in the second quarter of 2009.

At zone 2, panel 5, the brine system to form the new freeze wall was activated in the fourth quarter of 2008. Approximately six months of freeze time are required before the raisebore chamber can be safely developed. For more information, refer to the section titled "Uranium Operations – McArthur River/Key Lake" in this MD&A.

In November 2008, the lower extraction area for lower zone 4 development on the 590 metre level encountered a small inflow of water that was quickly captured and controlled. This area was considered low-risk development which is defined as having an inflow potential of less than 100 cubic metres per hour or an order of magnitude below our pump and treat capacity. The inflow has not caused Cameco to alter any planned mining in this area. However, full grouting of the inflow area is required before development in the area resumes.

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 2013.

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 we completed the mine plan for the boxhole boring test area. The first test raise was setup at the end of 2008 and pilot hole drilling commenced in January 2009. Three raises in waste are planned for 2009 as is completion of freeze drilling for a boxhole boring ore extraction test area. We expect to install the brine distribution system for this area in 2009 as part of the plan for test raise excavation in 2010.

At Cigar Lake, we plan to use the jet boring method, which has been examined through 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 expect we will be able to solve the challenges that may arise during the initial rampup period.

Availability of Supplies

Our production is dependent upon the availability of certain critical supplies. For example, at Inkai, production is dependent on an adequate supply of sulphuric acid. We are examining our entire supply chain to reduce vulnerability to shortages in any of our critical supplies.

Revitalization of Mills

The Key Lake and Rabbit Lake mills commenced operations in 1983 and 1975 respectively. We plan to renew both these mills to help maintain our uranium production capability.

A revitalization assessment for the Key Lake mill was completed in the first part of 2008. For more information, refer to the section titled "Uranium Operations – McArthur River/Key Lake" in this MD&A.

At Rabbit Lake substantial work has been carried out to renew the mill and associated facilities. For more information, refer to the section titled "Uranium Operations – Rabbit Lake" in this MD&A.

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, Australia, 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.

Human Resources

Cameco's workforce reflects the national demographics where a significant number of the eligible workforce is nearing retirement age. Approximately 25% of the workforce at our Saskatchewan uranium mines was age 50 or older at December 31, 2008. Cameco's challenge is to compete for the limited number of people entering the workforce to replace retiring employees, as well as to retain our current trained workforce and 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 its uranium operations. Opportunities to invest are unpredictable and often capital intensive. In the current economic environment raising new funds is a challenge for most companies. However, we believe Cameco's history of strong financial discipline will enable us to maintain financial flexibility and access additional funding to pursue opportunities as they arise. We are prepared to go above our target level of 25% net debt to total capital to pursue attractive opportunities, but would then return to this benchmark over time.