Letter to Shareholders

HIGHLIGHTS

The environmental review process for McArthur River was completed in 1996. The project is on track to begin operations in 1999 and become the largest, high-grade uranium mine in the world.

Cameco experienced a year of records in 1996.

Net earnings increased 35% to $138 million after Cameco sold more uranium and conversion services than ever - and at higher prices.

The increase in the U₃O₈ spot market price which began in 1995 continued through most of 1996, rising from about $12 (US) per pound in January to above $16 (US) by midyear but declining to less than $15 (US) per pound by year end.

Revenues of $591 million in 1996 increased almost 50% over those in 1995. As in 1995, sales of uranium and uranium conversion services accounted for 95% of revenues. Gold revenues accounted for the remainder.

During 1996, Cameco moved toward its vision of increasing its presence in the uranium industry and of becoming a recognized gold producer.

URANIUM

Cameco increased its market share of sales to about 15% of the western world's U₃O₈ consumption and more than 20% of conversion requirements.

At the same time, Cameco's share of production reached 16.6 million pounds U₃O₈ - the highest in the corporation's history - and output of conversion services again exceeded 10,000 tonnes. Cameco now accounts for almost one-quarter of both the western world's primary uranium production and conversion services capacity. Our future strength is secured by a controlling interest in the world's two largest, high-grade uranium deposits at McArthur River and Cigar Lake where our share of reserves and resources is more than 400 million pounds.

With the completion in 1996 of public hearings to review the McArthur River project, it is anticipated a federal-provincial panel will make its recommendation to the governments in the first quarter of 1997. Subsequent government decisions are expected in the first half of 1997. On this timetable, McArthur River remains on schedule to begin production in 1999, replacing production from the nearby Key Lake orebodies, whose reserves will be depleted at the turn of the century.

Public hearings to review the Cigar Lake project also took place in 1996. Plans are for Cameco to operate the mine and to process the ore at the nearby partner-operated McClean Lake mill, which will be expanded. However, due to a change in the method of tailings management at McClean Lake, supplemental public hearings will be held in 1997. The panel is expected to make its recommendation to the governments before year end. On this timetable, and subject to favorable government decisions, production from Cigar Lake could begin in 2000.

In January 1997, Cameco concluded arrangements to buy Power Resources, Inc. (PRI), one of the largest uranium producers in the United States. The purchase adds more than 1 million pounds per year to Cameco's U₃O₈ production and increases Cameco's share of reserves and resources by 10% and 35% respectively. Besides diversifying Cameco's sources of uranium supply, the purchase fortifies the corporation's position in the uranium mining industry by providing access to PRI's expertise involving in situ leach technology. PRI operates, and owns 74% of, the Highland uranium project in Wyoming and is the sole owner of a number of other promising uranium properties in that state. In February 1997, Cameco entered into arrangements to acquire ownership of the remainder of the Highland project.

GOLD

Construction at the Kumtor gold operation in Kyrgyzstan was virtually complete by the end of 1996 and commissioning of the mill was under way.

Despite enormous challenges such as high altitude, isolation, rugged terrain and a diversity of culture and language, Cameco and the Republic of Kyrgyzstan have achieved what no other partnership has in Central Asia.

Assuming no unusual difficulties during startup, production during the year is targeted at 400,000 ounces, rising to more than 500,000 ounces annually when full capacity is achieved. Cameco's one-third share of Kumtor production (165,000 ounces) will advance the corporation toward its goal of producing 500,000 ounces per year by 2005.

SHARE PRICE

Cameco's share price reached an historic high in 1996 then declined despite record financial results.

Cameco's share price performance in 1996 was volatile. Shares which began the year trading at $50.63, rose sharply to trade at a record high of $76.25 in March but declined by year end to $54.90 for a net increase of only 8% during the year.

The jump in early 1996 coincided with a number of events, including the government of Saskatchewan's divestiture of more than 10 million sharesóreducing its ownership to 10% - Cameco's listing on the New York Stock Exchange and, particularly, the significant increase in the spot market price for U₃O₈ .

The share price appears to reflect the relationship which investors establish between the spot market price for uranium and the value of a uranium company. When, by midyear, the spot price lost its upward momentum, Cameco's share price began to decline, despite record corporate financial performance and the successful pursuit of long-term objectives.

URANIUM MARKET

In 1996, spot market sales volumes dropped by more than half to 19 million pounds from 40 million pounds U₃O₈ in 1995 and represented only 13% of the western world's uranium consumption of 146 million pounds. Long-term purchase commitments by utilities in 1996 increased by more than 50% over those in 1995.

Supply/Demand

This change in emphasis from the spot to the long-term market reinforces Cameco's confidence in the future of the uranium industry, a confidence based on our assessment of the various factors affecting uranium supply and demand. (See Marketing.) This assessment points to rising demand when primary production accounts for barely half of annual consumption, and to other sources of uranium - both traditional and non-traditional - which, together, are not sufficient to fill the gap between requirements and production.

NUCLEAR POWER

Our confidence in the industry is strengthened as countries such as China, Japan, South Korea and Taiwan expand their nuclear power programs and others such as Egypt, Indonesia and Turkey are increasingly committed to include nuclear power in their long-term energy strategy. In 1996, 17% of the world's electricity was generated by nuclear power.

OUTLOOK

Cameco's share performance has outpaced the TSE 300 over the long term.

Beyond the visible accomplishments reflected in the figures which we have published, there are many changes taking place within Cameco which are shaping the future of the company.

An extensive and demanding strategic planning process undertaken a few years ago matured in 1996 as a widely participatory exercise to achieve corporate goals and identify the niche which each division occupies within the broader corporate plan.

Through this process, a synthesis between strategic planning and employee commitment has emerged, defining a new corporate culture and bringing with it the promise of achieving our vision as an investment and employer of choice in the 21st century.

February 25, 1997

Bernard M. Michel

Chair, President and Chief Executive Officer