“	With the nuclear renaissance firmly under way, the industry will build on the successes of the past year.”

Cameco is at the forefront of a worldwide rebirth of nuclear energy. We're leading the way, answering questions that demonstrate Cameco is poised to deliver the environmental, energy security and cost benefits nuclear power will provide.

What were your successes and failures in 2005?

This past year has been transformational for Cameco. The construction of two new, low-cost uranium mines, the utilization of excess capacity at our refining facility, the increase in conversion supply and the creation of value through a series of transactions has bolstered our foundation for the next wave of growth. We did this in pursuit of our vision to be a dominant nuclear energy company producing uranium fuel and generating clean electricity. Equally important, we adhered to our values and to our four measures of success: a safe, healthy and rewarding workplace, a clean environment, supportive communities and outstanding financial performance.

During the year, Cameco met its uranium production targets, exceeded its refining objective in anticipation of supplying UO₃ to Springfields, but fell short of its UF₆ conversion targets by about 17%. The difficulties experienced in our Port Hope conversion facility were particularly vexing as they persisted in spite of vigorous efforts by our dedicated employees to overcome them.

Sales for the year were slightly above plan and new uranium and conversion contracting exceeded expectations by a wide margin in response to very strong market demand. Contracts negotiated during the year captured rising prices and will help mitigate exposure to any future market weakness while preserving price upside.

All of this transpired while maintaining our exemplary safety and health record – not an easy task when two major mine construction projects were under way. And, while there were no significant releases to the environment, as always, improving this performance is a major focus for 2006.

What are your highest priorities?

Cameco is extraordinarily well blessed with abundant geographically diverse reserves, low-cost operations, good customers and talented people. The first priority, then, is to enhance these assets, making sure that they are not taken for granted, while maximizing their potential. The best way I know to achieve this is by augmenting our leadership skills at all levels and by developing and nurturing the next generation of Cameco leaders. Every aspect of our daily effort to create value involves leadership, whether it be leading a team, being innovative or finding a new level of excellence.

Accordingly, we have defined the leadership characteristics we look for and promote, and we have embarked on a mission to implement them throughout the company. We will use these characteristics to help us judge our individual and collective effectiveness and to guide our response to growth.

By focusing on leadership at all levels we are already unleashing creativity and overcoming long-standing pockets of disengagement. Jobs are becoming broader in scope, more stimulating and, above all, more fun. And, importantly, by improving our leadership skills we secure the path that advances toward our long-term vision – the vision that will continue to create substantial value for all of our stakeholders.

What news or events in 2006 would represent a major breakthrough for the nuclear industry?

The last year was distinguished by a number of astonishing developments in the world of nuclear energy – developments that set the stage for additional breakthroughs in 2006.

Countries representing over one-half the world's population are now building new nuclear power plants, and several others without the benefit of nuclear energy are planning for them. China and India are notable with their aggressive building programs to meet insatiable energy appetites. Energy legislation passed in the United States last August recognized, for the first time at a national level, the clean air benefits of nuclear energy and provided the encouragement to jump-start the construction of a new generation of nuclear plants. And, remarkably, several icons of the environmental movement abandoned their anti-nuclear dogma and came out strongly in favour of an accelerated nuclear construction program to mitigate the consequences of global warming.

So, with the nuclear renaissance firmly under way, I believe that a major breakthrough in 2006 could include such things as new plant designs. New plant designs will advance toward certification and additional plants will be ordered from vendors, providing irrefutable evidence that the next generation of plants can be competitive. A number of countries with burgeoning energy demand will announce their first entry into nuclear plant construction. Already we've seen announcements from Indonesia, Vietnam and Turkey. And utilities in the US will advance their site licensing initiatives, positioning themselves to join Asia and Europe in ordering new plants.

Three other things of notable significance could occur in 2006. First, trade in nuclear technology with India is likely to be approved by the vast majority of countries who are signatory to the Non-Proliferation Treaty. If so, India will be able to purchase uranium from other countries to supply its rapidly escalating requirements for its nuclear power program. Second, several countries are likely to make significant progress in demonstrating the safe disposal of used fuel while preserving the option of recycling for future energy requirements. And third, countries that have stepped outside the bounds of the Non-Proliferation Treaty will be encouraged to return.

Will Cameco change its contracting strategy to get more benefit from higher uranium prices?

Marketing uranium and conversion services is a relationship business. Unlike gold and base metals, there is no central selling organization or exchange. Cameco's uranium, then, is sold under long-term contracts negotiated individually with each of our valued utility customers. Volumes sold on the spot market in aggregate represent only 10% to 15% of annual global uranium consumption, and are far too small and infrequent for a major producer like Cameco to rely on. Customers with highly valued nuclear plants that now have life extensions and only operate on uranium, eschew dependence on the spot market, preferring the security provided by long-term contracts with a reliable supplier. It is very unlikely that customers would leave themselves exposed in any significant way to the vagaries of the spot market.

When prices were low due to inventory liquidation and with the abundance of supply, contracting favoured the buyer with quantity flexibility and low fixed and ceiling price protection. Now that supplies are more difficult to find, fixed prices have increased and ceiling price protection has either disappeared or been lifted to very high levels. Quantity flexibility has been eliminated or severely curtailed and more recently floor price protection for the seller has been available. Perhaps the most significant change is contract duration. When prices were low, utilities had little concern about uranium supplies and Cameco kept contract delivery terms short (three to four years). Today, contract durations of five to 10 years are common as both customer and supplier are placing much greater emphasis on long-term relationships.

During the recent period of rapid price increase, Cameco has retained its traditional portfolio weighting – 40% fixed pricing adjusted for inflation and 60% related to the market price (spot and long-term) at the time of delivery. Given the investments in growth we are making and the volatility inherent in any commodity, with uranium being no exception, we believe this balance is prudent. As we succeed, however, in obtaining meaningful floor price protection in our market-related contracts we review this strategy in light of our market expectations.

Do you believe current uranium prices adequately reflect the value of uranium? Do you believe forward demand will further increase the price of uranium?

These two questions are frequently asked and five years ago were much easier to answer. Although one can legitimately argue that uranium has never found its true value given past government procurement practices and price regulation, followed by decades of inventory liquidation, uranium will eventually find an equilibrium value. Perhaps the most important factor in determining this will be the future value of the US dollar since most production is located outside the borders of the US. As the dollar depreciates, producer revenue shrinks, offsetting some of the appreciation in uranium price. Compound this currency uncertainty with changing inventory policies, the presence of speculators and the prospects for demand acceleration due to increased capacity utilization and new construction, and the crystal ball gets even more opaque.

Events over the past year reflect the strong market fundamentals, as existing and new producers responded to the rising price. Many of the uranium deposits being evaluated and reactivated today were last produced 25 years ago. But perhaps the bigger unanswered questions for producers are: what is the price required to bring these properties into production and what is the timing by which that production could be supplied to the market?

Inventories in large quantities still exist and whether they are considered strategic or available is a function of one's view of future price and, in the case of Russia, internal requirements. Undeveloped lower-cost deposits also exist and their availability will be determined by such factors as permitting lead times, politics, co-product pricing and technical constraints. We now expect demand will grow at a faster rate given the renewed interest in nuclear technology and, toward the beginning of the next decade, the "first core" effect will place an added burden on supply. Uranium prices, like any commodity, will rise and fall over time as answers to the many uncertainties appear and the struggle for equilibrium unfolds between growing demand and the range of available supplies.

How high can the uranium price go?

I've heard and seen some pretty high numbers recently. Every time I encounter such prognostications, I am reminded of the last uranium price boom when there were many pundits predicting $100 per pound or higher. My answer to the previous question illustrates the many variables and just how difficult it is to forecast price. Inventories remain exceedingly important and any significant shift toward rebuilding inventories would add near-term pressure to the market. Similarly, any lengthy disruption to a major supply source, for technical or political reasons, could see prices rise dramatically. And, finally, we have already seen the market effect from speculators. Any significant increase in this activity could produce a price response in the spot market, given its lack of depth. But, any of these are temporary and, over time, the longer term price will depend on supply and demand fundamentals.

Are you confident Cameco will discover the next high-grade uranium mine?

Yes. I have great confidence in our ability to discover the next high-grade deposit. During the low-price environment of the past two decades, Cameco invested sufficient funds to:

• retain its large land position in the best hunting ground, Saskatchewan's Athabasca Basin,
• establish a large property position in Arnhem Land in the Northern Territory of Australia outside Kakadu National Park, and
• look more globally for prospective areas.

Even more important, we maintained and broadened our unique expertise in uranium exploration and discovery, contained within our talented exploration group. As the uranium price increased during the last two years, we have almost doubled our exploration budget and aggressively recruited new talent. Today, we are exploring in both northern Saskatchewan and in Australia, and land positions have been secured elsewhere in areas having promise. Perhaps most prospective in the near-term, are areas around our existing mines as exemplified by the resource additions at Rabbit Lake and by the promising drilling results last year adjacent to our McArthur River mine.

Uranium is an abundant element, some 40 times more common than silver. We know that significant deposits are out there to meet the expanding needs of the rejuvenated industry. It is just a matter of money, time and talent.

After reducing your investment in Bruce Power, do you still plan to grow in the nuclear power generation business?

This question, too, is answered affirmatively. Increasing our participation in nuclear generation is consistent with our vision. But, as we have explained when we decided not to invest in the Bruce A reactors, any investment we make must meet our financial and risk requirements. As much as we would have liked to expand our involvement in the Bruce A reactors, the proposed refurbishment did not meet our criteria. We continue to look for other opportunities, although I would observe that the economic and environmental advantages of existing nuclear generators is being increasingly recognized. There are now many parties interested in owning nuclear energy plants leading to a very competitive field. Absent special circumstances, it is doubtful that Cameco can obtain, from an investment in an existing plant, the return required to meet our financial hurdles. Thus, we will continue to observe and look for the right opportunities while vigorously pursuing growth in other areas that support our vision.

In what business areas do you believe Cameco will get its best returns for shareholders? Are there near-term investment opportunities in these areas?

Over the history of Cameco, returns have varied by business segment illustrating the value of diversity and vertical integration. In the commodity business, and here I include electricity generated in a deregulated market, returns are predominately a function of price. Of course, cost of production is important, but this tends to be much more stable over time as efficiencies offset inflationary pressures. Currently, all prices influencing Cameco's financial performance are robust. The two areas with the strongest longer-term fundamentals appear to be uranium and nuclear electricity production. For the reasons outlined previously, we are hesitant to invest in additional generation and are currently focused on expanding our uranium production capability. Two projects, Cigar Lake and Inkai, are being developed and promise to provide solid returns.

Exploration expenditures to find the next economically viable deposits have been substantially increased; but the time from discovery to development is lengthy. Additionally, we watch the success of others in identifying and developing new deposits and hope that Cameco will be viewed as a partner of choice based upon our financial capability and technical expertise. Cameco will also continue to look vertically. The opportunities are scarce, but we believe there are a number that have the potential to add significant value.

Is Cameco's share price over valued? Why should we expect it to rise over the coming year or two?

The share price of Cameco has appreciated in excess of 200% over the past three years delivering to our shareholders considerable value. Its rise has been correlated mostly with the increase in the price of uranium, but at times with energy and precious metal prices. Some observers argue that Cameco shares are expensive. Whether true or not, it is something over which we have little or no control. The best we can do is run the business competently, always mindful of adding value.

High valuations often reflect scarcity, but I would argue that in the case of Cameco, it is a manifestation of our vision of a robust nuclear future and the quality of our underlying assets. In pursuit of its vision, Cameco has put together a low-cost, geographically diversified suite of production assets in both uranium refining and conversion. They are long-lived and their output is delivered into a portfolio of contracts which now reflect much improved market conditions.

The confidence our shareholders have shown in us also represents, I believe, confidence in the future of nuclear energy and in our ability to seize opportunities. If this past year illustrated anything, it was the agility we show in pursuing our vision. The combination of Springfields, Zircatec, Energy Resources of Australia Ltd (ERA), and Bruce Power restructuring demonstrate the range of decisions and their underlying rationale as we pursue growth relentlessly.

What keeps you awake at night?

Frankly I sleep very well knowing that Cameco is blessed with an exceptional complement of very talented people. We pay attention to developing this talent and ensuring that we are capable of meeting the challenges we know will come our way.

Looking after the work environment – making sure that it is safe, healthy and rewarding – is one area that gets a lot of focus. We can never neglect our commitment to continual improvement in these areas, particularly given the special challenges experienced in mining and nuclear energy. I am very proud that our safety record is considerably better than the mining and chemical industries. Still, we can do better.

In answering the previous 10 questions you can see that I also spend a lot of time thinking about our strategic direction and growth. Here, again, I am very proud of what we have achieved, particularly in the past year. The actions taken provide the foundation from which we will be able to take Cameco to the next level.

Gerald W. Grandey
President and Chief Executive Officer

MARCH 17, 2006