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

REACTORS – OPERATING, PLANNED AND UNDER CONSTRUCTION

There are 440 reactors operating worldwide, and a total of 82 new reactors that are under construction or planned for completion within the next 10 years (as of January 2006). This more than offsets 16 anticipated closures for a net increase of 66 reactors during the period. Given that new reactors tend to have higher capacities than older units, this represents 19% growth in nuclear generating capacity.

Highlights include:

• 57 reactors are scheduled to be built in Asia, as energy demand is driven by rapid economic expansion. More than half of this growth will occur in China and India with plans to build 18 and 15 reactors respectively,
• in Russia, Ukraine and several other eastern European countries, it is anticipated that nine reactors will be built, offset by two closures in Bulgaria as a result of their accession to the European Union, for a net gain of seven reactors,
• Finland is building a new European Pressurized Water Reactor (EPR). Upon completion, the country will have five nuclear reactors. France has also announced the construction of the new EPR beginning in 2007, and
• in Canada, Bruce Power has committed to restart the two shutdown A units. The Province of New Brunswick will proceed with refurbishing the Point Lepreau reactor, a 680 MW Candu. The refurbishment is expected to extend the life of the unit by 25 years.

REACTORS – PENDING

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

PLANT PERFORMANCE

CAPACITY FACTORS¹

More electricity is being generated from existing reactors through life extensions, reactor upgrades and improved performance. World capacity factors averaged approximately 79% in 2005, about the same as 2004. The US nuclear industry generated an estimated 783 billion kWh of electricity in 2005, slightly down from the 2004 record of 789 billion kWh. The average net capacity factor for the US was 89.7% in 2005, just short of 2004's record of 90.5%. A 1% improvement in world capacity factors equates to additional demand for about 1.5 million pounds of uranium concentrates and approximately 0.6 million kgU of conversion services.

¹ Capacity factor for a given period represents the amount of electricity actually produced for sale as a percentage of the amount of electricity the plants are capable of producing for sale.

SAFETY

There were no significant nuclear safety incidents during 2005 and the industry continues to be one of the safest forms of electricity production.

OPERATING COSTS

In 2004, the latest year for which data is available, the direct costs of US nuclear electricity production was the lowest for baseload (non-hydro) electricity production for the fifth consecutive year. US production costs were 1.68 cents per kWh for nuclear, 1.92 cents for coal, 5.39 cents for oil and 5.87 cents for natural gas.

CAPITAL COST

Recognizing the need to continue to be economically competitive with other baseload generation alternatives, the industry is targeting reduced capital costs for new nuclear plant construction.

NUCLEAR ACCEPTANCE

POSITIVE TRENDS

North America

Support for nuclear power in North America is gaining wider acceptance. In the US, a poll conducted by the Nuclear Energy Institute in 2005, showed that 70% of Americans favoured the use of nuclear power. In another poll, 83% of residents living within 16 kilometres of an operating nuclear power plant favoured nuclear energy and 76% were willing to see another reactor built on an existing site near them.

In Canada, a November 2005 poll showed that support for nuclear power in Ontario had increased to 62% from 48% in February 2005, returning to support levels experienced in previous years. Similarly, support for refurbishing reactors in Ontario was 72%, up from 68%.

US President George Bush signed into law the first national energy policy in more than 10 years. The policy contains provisions that encourage investment in new nuclear reactor construction. Companies constructing new plants will receive financial protection for delays beyond their control for the first six new reactors and a limited production tax credit for the first eight years of operation for the first 6,000 MW of new capacity. Additionally, loan guarantees up to 80% of the project cost are available for non-emitting technologies, including nuclear power plants.

In the US, 10 entities are proceeding with applications for either early site permits (ESP) or a combined construction and operating licence (COL) for a potential new nuclear power plant. Three ESP applications are currently under review by the US Nuclear Regulatory Commission, one is being developed and six others have indicated they will go straight to a COL. Several potential sites and reactor types have been identified with the potential for several new reactors to be ordered in the next several years with completion as early as 2014 or 2015.

Licence extensions continue, with a total of 39 US reactors granted 20-year licence extensions, and another 39 reactor operators having applied for or indicating applications are pending for life extensions. This covers more than 75% of the 103 US reactors.

Europe

Reliability of natural gas supply is a critical issue for European consumers. As a result of a dispute over Russian gas supplies to the Ukraine, Europeans are questioning their increasing reliance on Russian gas and are reconsidering nuclear power to diversify energy sources.

The Netherlands has reversed its policy of closing down its only nuclear reactor by 2013 and has granted a 20-year life extension allowing the unit to operate for a total of 60 years until 2033.

The United Kingdom has granted 10-year life extensions to two of its units, allowing operations until 2018. Licence extensions for other units are being pursued. In addition, the prime minister of the UK recently acknowledged that new nuclear construction must be considered in the UK's plans to reduce greenhouse gas emissions and maintain energy diversity.

Several countries including Germany and Sweden are debating the wisdom of their nuclear phase-out policies.

India

The US has announced plans to end nuclear sanctions on India, which would enable the country to buy nuclear fuel as well as civilian reactor technology from the US and possibly other nations. In return, India would have to separate its civilian and military nuclear programs and place its civilian nuclear facilities under the supervision of the International Atomic Energy Agency. The removal of the sanctions could provide an additional market for nuclear fuel suppliers, equivalent to about 9 million pounds U₃O₈ per year by 2020. India currently supplies its 1.2 million pound annual requirements from its domestic uranium mines.

NEGATIVE TRENDS

A number of European countries such as Sweden, Germany and Spain, still have official nuclear power phase-out policies and it remains a political issue in many other countries. Nuclear has been recognized as a non-emitting technology in US energy legislation, but the US does not have greenhouse emission credits or carbon taxes. Other countries have resisted recognizing nuclear power as a non-emitting technology entitled to emission credits.

The first few new nuclear plants may face significant business risks including "first-of-a-kind" costs, construction delays, and political, regulatory and licensing risk.

Although progress is being made in several countries on the management of radioactive waste from the nuclear fuel cycle, it remains a controversial issue. There remains strong opposition to nuclear power among certain members of the environmental community. In the past year, however, a number of prominent environmentalists have strongly endorsed renewed nuclear power plant construction.

SUMMARY OF TRENDS

The nuclear industry is experiencing stable growth through capacity factor improvements, refurbishments, life extensions and, in Asia, aggressive new-build programs. It is difficult to determine which factors will dominate the outlook for nuclear energy in the long term. However, the demand for nuclear power has the potential to grow even more significantly as increasing electricity demand, the need for non-emitting, affordable baseload energy and desires for energy security begin to take hold globally.

Overall, these indicators are expected to support a stable demand trend for uranium and conversion services in the next 10 years with the potential for accelerated growth if nuclear energy continues to gain broader acceptance worldwide.