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Quarterly Text

Cameco Reports Third Quarter Earnings

Saskatoon, Saskatchewan, Canada, October 31, 2006

Cameco Corporation today reported its unaudited financial results for the third quarter and nine months ended September 30, 2006. All numbers in this release are in Canadian dollars, unless otherwise stated. For a more detailed discussion of our financial results, see the management's discussion and analysis (MD&A) following this news release.

Third Quarter 2006

Financial Highlights ($ millions except per share amounts)	Three Months Ended Sept 30		Change %
	2006	2005	Change %
Revenue ^(a)	363	287	27
Earnings from operations	69	14	393
Cash provided by operations ^(b)	79	148	(47)
Net earnings	71	78	(9)
Earnings per share – basic ($)	0.20	0.22	(9)
Earnings per share – diluted ($)	0.19	0.21	(10)
Adjusted net earnings ^(c)	42	78	(46)
(a) In the third quarter of 2006, revenue from Bruce Power Limited Partnership (BPLP) was proportionately consolidated. In the third quarter of 2005, consolidated revenue did not include BPLP's proportionate share as we accounted for BPLP using the equity accounting method.
(b) After working capital changes.
(c) Net earnings for the three months ended September 30, 2006 have been adjusted to exclude a $29 million gain ($0.08 per share diluted) on sale of our interest in Fort à la Corne. Adjusted net earnings is a non-GAAP measure used to provide a representative comparison of the financial results.

For the third quarter of 2006, our net earnings were $71 million ($0.19 per share diluted). Cameco recorded a net gain of $29 million ($0.08 per share diluted) due to the sale of its interest in the Fort à la Corne diamond project in the third quarter of 2006. The following discussion of consolidated earnings excludes this item to provide a more representative comparison of the operating results.

Our adjusted net earnings in the third quarter of 2006 were $42 million ($0.11 per share diluted), $36 million lower than the net earnings of $78 million ($0.21 per share diluted) recorded in 2005 due to lower earnings in the electricity and gold businesses, partially offset by lower income tax charges. Due to the uneven timing of uranium and conversion deliveries as well as scheduled outages at Bruce Power Limited Partnership (BPLP), quarterly results are not a good indicator of Cameco's annual results.

Cash from operations in the third quarter of 2006 was $79 million compared to $148 million in 2005. The decline of $69 million was related to lower cash flows from the gold and electricity businesses and an increase in product inventories during the quarter.

In our uranium business, earnings before taxes declined to $14 million from $30 million in the third quarter of last year, primarily as a result of a 26% decline in reported sales volumes. Compared to the third quarter of 2005, revenue from our uranium business declined by 12% to $136 million as a 30% increase in the realized selling price (in US dollars) was more than offset by a lower sales volume in the quarter.

"While earnings are lower in the third quarter compared to the same period last year, they were in line with our expectations," said Jerry Grandey, president and CEO of Cameco.

In the previous quarter, we disclosed that Cameco had entered into standby product loan agreements. As of October 31, 2006, Cameco had not borrowed any material under the standby loan agreements. However, regardless of whether any material is borrowed, we defer revenue recognition from any product sales to the counterparties of the standby loan agreements up to the limit of the loans (5.6 million pounds). This is in accordance with accounting standards. Accordingly, Cameco, in the third quarter, has deferred revenue of $58 million and the associated costs on sales of 2.8 million pounds of U₃O₈. The gross profit on the deferred sales was $12 million.

The average realized uranium price in Canadian dollars increased by 19%, with the stronger Canadian dollar relative to the US dollar having a dampening effect given that most of our sales are denominated in US dollars. The increase in our average realized price in the third quarter of 2006 was the result of higher prices under fixed-price contracts and a higher uranium spot price, which increased 67% to $50.83 (US) compared to the third quarter of 2005.

On October 23, 2006, Cameco reported a second inflow at Cigar Lake following a rock fall in a future production area that had previously been dry. Efforts were made to contain the inflow and protect the main shaft and key underground infrastructure by closing two bulkhead doors. However, one of the doors did not seal properly, allowing significant water to flow into the processing area. All underground areas of the Cigar Lake project have filled with water. Everyone was safely evacuated from the mine, no injuries were sustained and there was no impact on the environment. Cigar Lake production was expected in 2008 prior to the water inflow incident.

"Although this is a significant set back, our employees wasted no time in assessing the situation and are now working on remediation plans" Grandey said. "The orebody is of immense value and we are committed to seeing this project through."

Cameco engineers and consultants are already on site working on plans to restore underground access. International experts are assisting with options and developing a remediation plan. We anticipate that a phased plan will be in place within three months outlining a preferred option and several alternatives.

Most of the alternatives under consideration involve drilling from the surface and isolating the source of the inflow from the underground workings by using grouting or freezing techniques and then pumping the water out of the mine.

Discussions are under way with relevant authorities to review the incident and chart a regulatory path to ensure timely review of remediation plans. The existing environmental assessment of the Cigar Lake project allows for mine remediation from the surface in case of flooding.

Despite the water inflow incident, Cameco remains confident that it will be able to complete the development of and mine the Cigar Lake orebody. Nevertheless, given this unexpected incident, it is necessary to analyze the implications on reserve classification.

Proven reserves are based on "measured" resources, which are resources in which we have the highest degree of geological knowledge and confidence. To be classified as proven reserves, we evaluate our level of confidence in a number of factors, such as mining, metallurgical, processing, marketing, legal, environmental, social, and governmental. If our confidence level changes in one or more of these factors, reserves may be downgraded from proven to probable even if the orebody remains economic to mine.

In the case of Cigar Lake, given that a remediation plan is still being developed there are a number of unknowns, such as changes (if any) to the development and/or mining plan, production schedule and additional capital expenditures. Once we receive clarification on these uncertainties, we will be in a better position to evaluate if Cigar Lake reserves will need to be reclassified from proven to probable.

In addition, based upon our current information and the value of the deposit, taking into account the "reserves and resources guidelines" from the Canadian Institute of Mining, Metallurgy and Petroleum, we believe that the incident will not result in a conversion of the reserves to resources. A conversion to resources would signify that there is insufficient information to indicate that it is economic to mine.

Cost estimates, project timelines and effect on reserves, if any, will be provided after the completion of the full assessment, which is underway.

The above disclosure of scientific or technical information regarding Cigar Lake was prepared under the supervision of Alain Mainville, geologist and professional geoscientist, who is the manager, mining resources at Cameco, and Barry Schmitke, who is a professional engineer and employed by Cameco as the general manager of the Cigar Lake project, who are both qualified persons for the purpose of National Instrument 43-101.

For fuel services, we recorded a loss of $3 million in the third quarter of 2006 compared to earnings before taxes of $4 million for the same period of 2005. The loss was due to the higher cost of purchased conversion and a delay in sales at Zircatec from the third to the fourth quarter.

Cameco's pre-tax earnings from BPLP in the third quarter of 2006 amounted to $31 million compared to $97 million during the same period in 2005, due to a lower realized price, partially offset by lower operating costs. The realized price achieved from a mix of contract and spot sales averaged $48 per MWh in the quarter, down from $70 per MWh in the same quarter of 2005. Operating costs declined from $310 million in the third quarter of 2005 to $206 million in 2006, reflecting the change from six-unit site in 2005 to a four-unit site in 2006.

For gold, revenue in the third quarter of 2006 decreased by $8 million to $86 million compared to the third quarter of 2005, and the gross profit margin decreased to 12% from 24%. The lower revenue was primarily a result of lower production at Kumtor following the pit wall movement in July 2006, partially offset by increased gold prices and slightly higher production at Boroo. As a result of higher gold spot prices, the realized price for gold in the third quarter increased to $617 (US) per ounce compared to $429 (US) in the third quarter of 2005.

Year to Date

Financial Highlights ($ millions except per share amounts)	Nine Months Ended September 30		Change %
	2006	2005
Revenue ^(a)	1,322	790	67
Earnings from operations	302	66	358
Cash provided by operations ^(b)	405	186	118
Net earnings	337	136	148
Earnings per share – basic ($)	0.96	0.39	146
Earnings per share – diluted($)	0.91	0.38	139
Adjusted net earnings ^(c)	235	136	73
(a) In the first nine months of 2006, revenue from Bruce Power Limited Partnership (BPLP) was proportionately consolidated. In the first nine months of 2005, consolidated revenue did not include BPLP's proportionate share as we accounted for BPLP using the equity accounting method.
(b) After working capital changes.
(c) Net earnings for the nine months ended September 30, 2006 have been adjusted to exclude a $73 million ($0.19 per share diluted) recovery of future income taxes related to reductions in federal and provincial income tax rates. Net earnings for the three and nine months ended September 30, 2006 have been adjusted to exclude a $29 million gain ($0.08 per share diluted) on sale of our interest in Fort à la Corne. Adjusted net earnings is a non-GAAP measure used to provide a representative comparison of the financial results.

For the nine months ended September 30, 2006, our net earnings were $337 million ($0.91 per share diluted). Our adjusted net earnings were $235 million ($0.64 per share diluted), $99 million higher than the net earnings of $136 million ($0.38 per share diluted) recorded in 2005 due to improved results in the uranium and gold businesses. These increases were partially offset by higher expenses for administration.

In the first nine months of 2006, we generated $405 million cash from operations compared to $186 million in 2005. The increase of $219 million reflects higher revenue compared to 2005 and collection of fourth quarter 2005 accounts receivable in the first quarter of 2006. The accounts receivable balance decreased to $191 million at September 30, 2006 from $340 million at December 31, 2005.

At September 30, 2006, our consolidated net debt to capitalization ratio was 8%, down from 9% at the end of 2005. In 2006, we used cash on hand to redeem a total of $150 million in debentures.

"Cameco continues to demonstrate increasing financial strength with a solid balance sheet and healthy cash flow," said Grandey. "With this strong foundation, we expect to continue to reinvest in our core assets and profitably grow the company."

Outlook for Fourth Quarter 2006

We expect consolidated revenue for the fourth quarter of 2006 to be about 50% higher than that of the third quarter of 2006. This is due to an anticipated higher sales volume for uranium and conversion.

During the fourth quarter, we will estimate the value of the assets lost underground at Cigar Lake due to the water inflow and this will be expensed in the fourth quarter.

Projections for the fourth quarter 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 about 50% over 2005 due to improved uranium markets and the proportionate consolidation of BPLP revenue. On a consolidated basis, our gross profit margin is projected to improve to 30% from 23% reported in 2005.

In the uranium business, we expect revenue to be about 13% higher due to a stronger realized price offset somewhat by decreased sales volumes due to the deferral related to product loans. See uranium results for more information. During the fourth quarter, we will estimate the value of the assets lost underground at Cigar Lake due to the water inflow and this will be expensed in the fourth quarter. We also anticipate that revenue from the fuel services business will be about 50% higher than in 2005 due to an anticipated 10% increase in deliveries, an increase in the average realized selling price and the inclusion of revenue from Zircatec Precision Industries, Inc.

BPLP earnings in 2006 are projected to be lower than in 2005 mainly as a result of lower expected electricity prices, which were very strong in 2005. 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.

Based on Centerra's current plans, total production for the year is now forecast at 570,000 to 575,000 ounces compared to 680,000 to 695,000 ounces expected previously. The revised forecast for 2006 results from the pit wall ground movement experienced at the Kumtor mine in July. Centerra produced 787,000 ounces in 2005.

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 spot exchange rate of $1.12.

For 2006, the effective tax rate is expected to be in the range of 10% to 15%. Our expected tax rate varies from the Canadian statutory tax rate primarily due to differences between Canadian tax rates and rates applicable to subsidiaries in other countries. This range is based on the projected distribution of income among the various tax jurisdictions being weighted more heavily toward foreign subsidiaries compared to 2005. This projected effective tax rate does not reflect the reductions in the corporate tax rates recently enacted by the provincial and federal governments.

Under Canadian accounting rules, the cumulative effect of a change in income tax legislation on future income tax assets and liabilities is included in a company's financial statements in the period of substantive enactment. Accordingly, Cameco reduced its balance sheet provision for future income taxes and recognized a non-cash income tax adjustment of $73 million ($0.19 per share diluted) in the second quarter of 2006.

In addition, we received confirmation that we would be able to record a $5 million reduction in taxes related to Saskatchewan provincial resource surcharges. This amount is incremental to the $12 million recovery we recognized in the second quarter of 2006.

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.

Conference Call

Cameco invites you to join its third quarter conference call on Wednesday, November 1, 2006 from 10:00 a.m. to 11:00 a.m. Eastern time (9:00 a.m. to 10:00 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, November 1, please dial (416) 644-3414 or (800) 796-7558 (Canada and US). An audio feed of the call will be available on this website. See the link on the home page on the day of the call.

A recorded version of the proceedings will be available:

on this website, shortly after the call, and
on post view until midnight, Eastern time, Tuesday, November 14 by calling (416) 640-1917 or (877) 289-8525 (passcode 21203930 #).

Additional Information

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

Profile

Cameco, with its head office in Saskatoon, Saskatchewan, is the world's largest uranium producer, a significant supplier of conversion services and one of two Candu fuel manufacturers in Canada. The company's competitive position is based on 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 limited partner in North America's largest nuclear electricity generating facility. The company also explores for uranium in North America and Australia, and holds a majority interest in a mid-tier gold company. Cameco's shares trade on the Toronto and New York stock exchanges.

- End -

For further information:

Investor & media inquiries: Alice Wong (306) 956-6337

Investor inquiries: Bob Lillie(306) 956-6639

Media inquiries: Lyle Krahn (306) 956-6316

Third Quarter 2006 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 September 30, 2006, as well as the audited consolidated financial statements for the company for the year ended December 31, 2005 and management's discussion and analysis (MD&A) of the audited financial statements, both of which are included in the 2005 annual report. The financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). The 2005 annual report is available on this website.

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 and the section titled "Risks and Risk Management" in the MD&A contained in the company's 2005 annual report.

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

Financial Highlights	Three months ended Sept 30		Nine months ended Sept 30		YTD Change
	2006	2005	2006	2005	%
Revenue ($ millions)^(a)	363	287	1,322	790	67
Earnings from operations ($ millions)	69	14	302	66	358
Cash provided by operations ^(b) ($ millions)	79	148	405	186	118
Net earnings ($ millions)	71	78	337	136	148
Earnings per share (EPS) – basic ($)	0.20	0.22	0.96	0.39	146
EPS – diluted ($)	0.19	0.21	0.91	0.38	139
Adjusted net earnings ($ millions)^(c)	42	78	235	136	73
Average uranium (U₃O₈) spot price ($US/lb U₃O₈)	50.83	30.41	44.40	26.63	67
Average realized uranium price
$US/lb U₃O₈	20.12	15.46	19.96	14.82	35
$Cdn/lb U₃O₈	24.10	20.19	23.99	19.81	21
Average realized electricity price per megawatt hour ($/MWh)	48	70	49	58	(16%)
Average Ontario electricity spot price ($/MWh)	46	86	48	67	(28%)
Average realized gold price ($US/ounce)	617	429	595	423	41
Average spot market gold price ($US/ounce)	622	440	601	431	39
(a) In the first nine months of 2006, revenue from Bruce Power Limited Partnership (BPLP) was proportionately consolidated. In the first nine months of 2005, consolidated revenue did not include BPLP's proportionate share as we accounted for BPLP using the equity accounting method.
(b) After working capital changes.
(c) Net earnings for the nine months ended September 30, 2006 have been adjusted to exclude a $73 million ($0.19 per share diluted) recovery of future income taxes related to reductions in federal and provincial income tax rates. Net earnings for the three and nine months ended September 30, 2006 have been adjusted to exclude a $29 million gain ($0.08 per share diluted) on sale of our interest in Fort à la Corne. Adjusted net earnings is a non-GAAP measure used to provide a representative comparison of the financial results.

FINANCIAL RESULTS

Consolidated Earnings

Third Quarter
In the third quarter of 2006, Cameco recorded a net gain of $29 million ($0.08 per share diluted) due to the sale of its interest in the Fort à la Corne diamond project. Consolidated earnings in the following discussion are adjusted to exclude this item in order to provide a more meaningful basis for period-to-period comparisons of the financial results. A non-GAAP measure, adjusted net earnings should be considered as supplemental in nature and not a substitute for related financial information prepared in accordance with GAAP.

For the three months ended September 30, 2006, our net earnings were $71 million ($0.19 per share diluted). Our adjusted net earnings were $42 million ($0.11 per share diluted), $36 million lower than the net earnings of $78 million ($0.21 per share diluted) recorded in 2005 due to lower earnings in the electricity and gold businesses, partially offset by lower income tax charges.

For third quarter details on the uranium, fuel services, electricity and gold businesses, see "Business Segment Results" later in this report.

In the third quarter of 2006, our total costs for administration, exploration, interest and other were $50 million, $4 million higher than in the same period of 2005. Administration costs were $3 million higher due largely to increased costs for stock compensation.

Exploration expenditures were $3 million higher, at $19 million, with uranium exploration expenditures up $4 million at $12 million (focused in Saskatchewan, Australia and Nunavut). Gold exploration expenditures of Cameco's 53% owned subsidiary, Centerra Gold Inc. (Centerra), were down $2 million from the third quarter of 2005.

Interest and other charges declined by $2 million due primarily to interest income on higher cash balances offset by higher gross interest costs resulting from the proportionate consolidation of Bruce Power Limited Partnership (BPLP) debt.

Our effective tax rate decreased to 5% in the third quarter from 24% in the same period of 2005. Our expected tax rate varies from the Canadian statutory tax rate primarily due to differences between Canadian tax rates and rates applicable to subsidiaries in other countries. In addition, we received confirmation that we would be able to record a $5 million reduction in taxes related to Saskatchewan provincial resource surcharges. This amount is incremental to the $12 million recovery we recognized in the second quarter of 2006.

Earnings from operations increased to $69 million in the third quarter of 2006, from $14 million in 2005. The aggregate gross profit margin decreased in the third quarter to 19% from 21% in 2005.

Year to Date
In the second quarter of 2006, Cameco recorded a non-cash recovery of $73 million of future income taxes related to reductions in federal and provincial income tax rates. In the third quarter, Cameco recorded a $29 million gain on the sale of our interest in Fort à la Corne. Consolidated earnings in the following discussion are adjusted to exclude these items in order to provide a more meaningful basis for period-to-period comparisons of the financial results. A non-GAAP measure, adjusted net earnings should be considered as supplemental in nature and not a substitute for related financial information prepared in accordance with GAAP.

For year-to-date details on the uranium, fuel services, electricity and gold businesses, see "Business Segment Results" later in this report.

Our year-to-date total costs for administration, exploration, interest and other were $136 million, $14 million higher than in the same period of 2005. Administration costs were $21 million higher due largely to an $8 million increase in costs at Centerra, related to stock-based compensation and business development. In addition, Cameco recorded increased expenses for stock compensation primarily attributable to increased share prices ($4 million) and incurred higher charges for Sarbanes-Oxley compliance ($4 million).

During the first nine months of 2006, exploration expenditures increased to $43 million from $40 million in the same period of 2005. Uranium exploration expenditures increased to $24 million from $17 million in 2005. In the gold business, Cameco's 53% owned subsidiary, Centerra, reduced its exploration expenditures by $4 million.

Interest and other charges were $11 million lower than in 2005 due primarily to higher interest income on cash balances ($14 million) and gains for derivatives ($2 million). The lower charges were partially offset by higher gross interest costs ($4 million) related mainly to the proportionate consolidation of BPLP.

In April, the government of Saskatchewan amended the provincial income tax laws to provide for a 5% reduction in the general corporate income tax rate. The provincial tax rate is declining from 17% to 12% over a three-year period commencing July 1, 2006. In May, the federal government introduced amendments to the Canadian Income Tax Act that provide for a 2% reduction in the general corporate income tax rate. The federal tax rate will decline from its previous level of 21% to 19% over a three-year period commencing in 2008. Amendments were also introduced to eliminate the corporate surtax, which effectively will decrease the federal income tax rate by 1%, starting in 2008.

Our effective tax rate decreased to 10% in 2006 from 22% in 2005 due to a lower proportion of total income being taxable in Canada. The effective rate for 2006 excludes $90 million in tax recoveries recorded in the year.

Earnings from operations increased to $302 million in the first nine months of 2006 from $66 million in the same period of 2005. The aggregate gross profit margin increased in 2006 to 29% from 24% in 2005 due to higher realized prices for uranium and gold.

Quarterly Financial Results ($ millions except per share amounts)

Highlights	2006			2005				2004
	Q3	Q2	Q1	Q4	Q3	Q2	Q1	Q4
Revenue	363	417	542	522	287	288	216	361
Net earnings	71	149	117	81	78	33	26	37
EPS – basic ($)	0.20	0.42	0.34	0.23	0.22	0.09	0.08	0.10
EPS – diluted ($)	0.19	0.40	0.32	0.22	0.21	0.08	0.08	0.10
EPS – adjusted & diluted ($)	0.11	0.21	0.32	0.20	0.21	0.09	0.08	0.10
Cash from operations	79	40	286	91	148	(45)	84	59

Revenue of $363 million in the third quarter of 2006 was 13% lower than in the second quarter due to lower gold sales caused by the reduced production at Kumtor. Revenue is driven by timing of deliveries in our uranium and fuel services businesses, and has tended to be higher in the fourth quarter.

Net earnings do not trend directly with revenue because past results 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 or costs were recorded. On November 1, 2005, Cameco moved to proportionate consolidation of BPLP's financial results. For the first nine months of 2006, we have included our share of revenue, expenses and cash flow from the Bruce B reactors. The adjustment in our accounting method for BPLP does not change the reporting of our net earnings.

Cash from operations tends to fluctuate largely due to the timing of deliveries and product purchases in the uranium production and conversion services businesses.

Cash Flow

In the third quarter of 2006, we generated $79 million cash from operations compared to $148 million in 2005. The decline of $69 million was related to lower cash flows from the gold and electricity businesses and an increase in product inventories during the quarter.

Balance Sheet

At September 30, 2006, our total debt was $706 million, representing a decrease of $153 million compared to December 31, 2005. Included in the September 30, 2006 balance was $199 million, which represents our proportionate share of BPLP's capital lease obligation. At September 30, 2006, our consolidated net debt to capitalization ratio was 8%, down from 9% at the end of 2005. For the year to date in 2006, we have used cash on hand to redeem a total of $150 million in debentures.

Compared to the end of 2005, our product inventories increased by $63 million due primarily to higher carrying values for uranium. The average cost of our uranium and conversion services inventories has risen due to an increase in the cost of purchased material.

At September 30, 2006, our consolidated cash balance totalled $473 million with Centerra holding about $240 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.

	Book Value	Market Value¹
Investment ($ millions)	Sept 30/06	Sept 30/06	Dec. 31/05
Centerra Gold Inc.	$440	$1,270	$1,069
UEX Corporation	20	135	167
UNOR Inc.	8	10	-
Total	$468	$1,415	$1,236
¹Market value is calculated as the number of shares outstanding multiplied by the closing share price as quoted on the TSX on December 31, 2005 and September 30, 2006.

Foreign Exchange Update

Cameco sells most of its uranium and fuel services in US dollars while it produces most of its uranium and fuel services in Canada. As a result, 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. Hedging activities partly shelter our uranium and fuel services revenues against declines in the US dollar in the shorter term.

Cameco also has a natural hedge against US currency fluctuations as a portion of its annual cash outlays, including purchases of uranium and fuel services, is denominated in US dollars. 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 or loss 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.

The Canadian dollar ended the quarter at $1.12, unchanged from June 30, 2006.

At September 30, 2006, we had foreign currency contracts of $1,176 million (US) and EUR 50 million that were accounted for using hedge accounting and foreign currency contracts of $127 million (US) that did not meet the criteria for hedge accounting. The foreign currency contracts are scheduled for use as follows:

	2006	2007	2008	2009	2010
$ millions (US)	183	455	315	240	110
EUR millions	17	15	8	7	3

The US currency contracts have an average effective exchange rate of $1.18 (Cdn) per $1.00 (US), which reflects the original foreign exchange spot prices at the time contracts were entered into and includes deferred revenue.

At September 30, 2006, the mark-to-market gain on all foreign exchange contracts designated as hedges was $37 million compared to a $49 million gain at June 30, 2006.For those contracts not designated as hedges, the mark-to-market amount has been included in earnings for 2006.

Timing differences between the maturity dates and designation dates on previously closed hedge contracts may result in deferred revenue or deferred charges. At September 30, 2006, deferred revenue totalled $30 million. The schedule for deferred revenue to be released to earnings, by year, is as follows:

Deferred revenue	2006	2007	2008	2009
$ millions (Cdn)	12	15	2	1

In the third quarter of 2006, most of the net inflows of US dollars were hedged with currency derivatives. Net inflows represent uranium and fuel services sales less US dollar cash expenses and US dollar product purchases. For the uranium and fuel services in the third quarter of 2006, the effective exchange rate, after allowing for hedging, was about $1.20 compared to $1.31 in the third quarter of 2005. Results from the gold business are translated into Canadian dollars at prevailing exchange rates.

For the balance of 2006, every one-cent increase/decrease in the US to Canadian dollar exchange rate would result in a corresponding increase/decrease in net earnings of about $2 million (Cdn).

Outlook for Fourth Quarter 2006

During the fourth quarter, we will estimate the value of the assets lost underground at Cigar Lake due to the water inflow and this will be expensed in the fourth quarter.

Outlook for the Year 2006

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 spot exchange rate of $1.12.

Administration costs are projected to be about 20% greater than in 2005. The increase reflects higher charges for stock compensation, business development, Sarbanes-Oxley compliance and costs to maintain the workforce. Exploration costs are expected to be about $64 million in 2006. Of this, $35 million is targeted for uranium.

Outlook Information

For additional discussion on the company's business prospects for the fourth 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
Fuel services
Nuclear electricity generation
Gold

URANIUM

Highlights

	Three months ended Sept 30		Nine months ended Sept 30
	2006	2005	2006	2005
Revenue ($ millions)	136	154	561	372
Gross profit ($ millions)	27	33	160	79
Gross profit %	20	21	29	21
Earnings before taxes ($ millions)	14	30	131	68
Average realized price
($US/lb)	20.12	15.46	19.96	14.82
($Cdn/lb)	24.10	20.19	23.99	19.81
Sales volume (million lbs)¹	5.6	7.6	23.1	18.7
Deferred sales volume (million lbs)	2.8	0	2.8	0
Production volume (million lbs)	5.9	5.9	15.6	16.4
¹ Total sales volume for the third quarter was 8.4 million pounds. Revenue on 2.8 million pounds is deferred due to standby product loans.

Uranium Results

One of Cameco's major strengths is our reputation as a reliable long-term supplier. Given the tight market conditions in uranium supply we thought it would be prudent to ensure access to additional supplies to provide flexibility in the event of any near term supply disruption. Therefore, in the second quarter we disclosed that Cameco had entered into standby product loan agreements with two of our customers. The loans allow Cameco to borrow up to 5.6 million pounds U₃O₈ equivalent over the period 2006 to 2008, with repayment in 2008 and 2009. Of the material available under the loan, up to 1.4 million kgU can be borrowed in the form of uranium hexafluoride (UF₆). Any borrowings will be secured by letters of credit and be settled in kind.

As of October 31, 2006, Cameco had not borrowed any material under the standby loan agreements. However, regardless of whether any material is borrowed, we defer revenue recognition from sales to the counterparties of the standby product loan agreements, up to the limit of the loans (5.6 million pounds). This is in accordance with accounting standards. Cameco will recognize the deferred revenue and associated costs when the loan agreements are terminated in 2008 and 2009, or if drawn upon, when the loans are repaid and that portion of the facility is terminated.

Accordingly, Cameco in the third quarter has deferred revenue of $58 million and the associated costs on sales of 2.8 million pounds of U₃O₈. The gross profit on the deferred sales was $12 million. In the fourth quarter, Cameco expects to defer recognition of revenue and costs on sales of a further 1 million pounds of U₃O₈.

The timing of cash receipts on the deferred revenue is the same as on any other sale executed during the quarter and is unaffected by the accounting treatment for the revenue. As a result, cash flows are not impacted by the deferrals.

Standby fees associated with the loan facilities are reflected in the "Interest and Other" expense item on the Consolidated Statement of Earnings.

Our reported revenue and costs for U₃O₈ discussed throughout this report have been reduced to reflect the required deferrals. Similarly, the average realized price for U₃O₈ has been adjusted.

Third Quarter
Compared to the third quarter of 2005, revenue from our uranium business declined by 12% to $136 million as a 30% increase in the realized selling price (in US dollars) was more than offset by a 26% decline in reported sales volumes. 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. The average realized price in Canadian dollars increased by 19%, with the stronger Canadian dollar relative to the US dollar having a dampening effect given that most of our sales are denominated in US dollars. The increase in the average realized price was the result of higher prices under fixed-price contracts and a higher uranium spot price, which averaged $50.83 (US) per pound in the third quarter of 2006 compared to $30.41 (US) in the same quarter of 2005.

Our total cost of products and services sold, including depreciation, depletion and reclamation (DDR) decreased to $109 million in the third quarter of 2006 from $121 million in 2005 as a 26% decline in the reported sales volume was offset by a 21% rise in the unit cost of product sold. The unit cost of product sold increased primarily as a result of higher costs for purchased uranium and higher basic royalty charges. Basic royalty charges increase as the realized price increases.

Our earnings before taxes from the uranium business declined to $14 million from $30 million in the third quarter of last year, primarily as a result of a lower sales volume in the quarter.

Year to Date
Compared to the first nine months of 2005, revenue from our uranium business rose by 51% to $561 million due largely to a 24% increase in sales volume. The timing of deliveries of nuclear products within a calendar year is at the discretion of customers and our quarterly delivery patterns can therefore vary significantly. An increase in the average realized selling price, up 35% (in US dollars) from the same period in 2005, also contributed to the higher revenue. The average realized price in Canadian dollars, increased by only 21% due to the stronger Canadian dollar relative to the US dollar. The increase in the average realized price was the result of higher prices under fixed-price contracts and a higher uranium spot price, which averaged $44.40 (US) per pound in 2006 compared to $26.63 (US) in 2005.

Our total cost of products and services sold, including DDR, increased to $401 million in 2006 from $293 million in 2005 due to the 24% increase in deliveries and a 7% rise in the unit cost of product sold. The increase in the unit cost of product sold reflected higher costs for purchased uranium.

Our earnings before taxes from the uranium business increased to $131 million from $68 million last year.

Uranium Outlook for Fourth Quarter 2006

After adjusting for the deferral related to the sale of 1 million pounds U₃O₈ discussed previously, our sales volumes are expected to be 50% higher in the fourth quarter than the third quarter of 2006. In addition, the realized price is expected to rise by about 10% compared to the previous quarter. As a result, revenue and gross profit are projected to be higher than in the third quarter of 2006.

Uranium Outlook for the Year 2006

In 2006, we expect our uranium revenue to be about 13% higher than in 2005 due to a projected 20% improvement in the expected realized selling price (in Canadian dollars) offset slightly by a decrease in sales volume. Uranium deliveries are expected to total more than 36 million pounds, of which revenue will be recognized on 32 million pounds in 2006 reflecting the deferral of revenue recognition mentioned above.

The increase in 2006 uranium deliveries can largely be attributed to customers advancing delivery volumes based on reactor reload requirements, and not to additional flexibility to take increased volumes under legacy contracts. Historically, Cameco granted quantity flexibilities that averaged about +/- 15%, and in a few cases went as high as +/- 25% on a base amount. Today, most contracts do not have any quantity flexibilities and in the infrequent cases where it is granted, it is a maximum +/-5% and generally limited to moving volumes between years as opposed to absolute flexibility. This movement in volumes related to requirements based contracts is not unusual, nevertheless it has the impact of increasing volumes in 2006, with a corresponding decrease in 2007. Cameco currently anticipates 2007 delivery volumes will be about 35 million pounds U₃O₈.

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.

The outlook for the fourth quarter and 2006 financial results for the uranium business segment are based on the following key assumptions:

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 $1.12.

Uranium Price Sensitivity 2006

For the remainder of 2006, a $1.00 (US) per pound change in the uranium spot price from $56.00 (US) per pound would change revenue and net earnings by less than $1 million (Cdn). This sensitivity is based on an expected effective exchange rate of $1.00 (US) being equivalent to about $1.18 (Cdn), which accounts for our currency hedge program.

Uranium Price Sensitivity

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 various market price scenarios may impact Cameco's uranium revenue. This analysis makes a number of assumptions that are included as table footnotes.

As shown in the table, in the $20.00 (US) scenario, Cameco would expect the average realized price to exceed the spot price beginning in 2008, reaching almost 125% of the spot price by 2009. In the $100.00 (US) scenario, Cameco would achieve average realized prices of more than 80% of the spot price by 2013 and beyond.

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

Spot Price	$20		$40		$60		$80		$100
2006	19.50	(98% )	20.00	( 50% )	20.50	( 34% )	20.75	( 26% )	21.25	( 21% )
2007	19.50	( 98% )	25.50	( 64% )	30.25	( 50% )	35.00	( 44% )	39.50	( 40% )
2008	21.50	( 108% )	31.25	( 78% )	40.25	( 67% )	48.75	( 61% )	57.00	( 57% )
2009	24.75	( 124% )	32.00	( 80% )	38.50	( 64% )	43.50	( 54% )	48.50	( 49% )
2010	27.00	( 135% )	35.75	( 89% )	45.50	( 76% )	52.25	( 65% )	59.00	( 59% )
2011	27.25	( 136% )	36.50	( 91% )	47.75	( 80% )	56.25	( 70% )	65.00	( 65% )
2012	27.25	( 136% )	37.25	( 93% )	50.50	( 84% )	61.75	( 77% )	72.75	( 73% )
2013	28.00	( 140% )	39.75	( 99% )	54.75	( 91% )	68.00	( 85% )	80.50	( 81% )
2014	27.75	( 139% )	40.00	( 100% )	55.25	( 92% )	69.00	( 86% )	82.00	( 82% )
2015	27.50	( 138% )	40.50	( 101% )	56.25	( 94% )	70.75	( 88% )	84.25	( 84% )
2016	27.00	( 135% )	40.55	( 101% )	56.50	( 94% )	71.50	( 89% )	85.25	( 85% )

Key Assumptions (not adjusted for Cigar Lake water inflow incident):

2006 uranium sales volumes of more than 36 million pounds U₃O₈, dropping to 35 million pounds U₃O₈ in 2007 and then, for this analysis, an assumption of constant sales volumes at the 35 million pound level for the remainder of the period shown here,
utilities take maximum quantities where they can,
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 with commitments generally declining thereafter,
all uncommitted volumes are assumed to be delivered at the spot price,
the long-term price in a given year is assumed to be equal to the average spot price for that entire year,
all other price indicators are assumed to trend toward the spot price,
the average realized prices do not adjust for the deferred revenue resulting from the standby product loan agreements,
the average realized prices estimated at each price for 2006 include the actual average spot price for the first nine months of the year of $44.40 (US),
an inflation rate of 2.5%, and
current dollars are dollars in the year they are actually received or paid.

Uranium Contracting
As we have discussed in the past, our contracting objective is to secure a solid base of earnings and cash flow to allow us to maintain our core asset base and pursue growth opportunities over the long-term. Our contracting strategy focuses on reducing the volatility in our future earnings and cash flow, while providing both protection against decreases in market price and retaining exposure to future market price increases. This is a balanced approach, which we believe delivers the best value to our shareholders over the long-term.

The uranium market has been evolving over the past several months and our contracting strategy has shifted as well. Our current portfolio reflects a 60/40 mix of market-related and fixed pricing escalated by inflation mechanisms. Today our contracting is more focused on market related pricing. Consequently, we expect this ratio to change over time.

We will continue to focus on achieving longer contract terms of up to 10 years or more, floor prices that provide downside protection, and retaining an adequate level of upside potential. In general, most new offers today include price mechanisms with a 20% fixed and 80% market-related component. The fixed-price component generally is higher than the industry long-term price indicator at the time of offer and is adjusted by inflation. The market-related component will generally include an escalating floor price equivalent to about 75% to 80% of the spot price at the time of offer. No ceiling price is provided, however given other commercial terms in the contract, discounts off the spot market price may be offered at threshold levels that are at least 25% above market prices at the time of an offer.

In light of changing market conditions, and particularly high spot demand levels, Cameco is revisiting its approach to spot sales. In the future, Cameco may elect to maintain greater flexibility and take advantage of short-term opportunities by selling material directly in the spot market.

Cameco has previously discussed its opportunistic approach to buying uranium in the market. We look to purchase uranium in the spot market when we are confident that we can re-sell this material at a profit. The amount of material that we purchase varies from year-to-year depending on the opportunities available, but typically would amount to less than 10% of our annual sales deliveries. We take this approach to spot market purchases to generate profits, gather market intelligence and ensure price transparency.

To facilitate this strategy, we generally target to sell more uranium than we produce. The difference is supplied through a number of long-term purchase arrangements and spot market purchases. However, it is important to understand that the amount we are committed to sell in any given year is less than the stated target. For example, our annual target sales volume may be 35 million pounds, but what we have actually contracted to sell is less. If we cannot find profitable opportunities to purchase and resell into term contracts with near term deliveries, we have the flexibility to adjust our sales targets.

Cameco has a variety of supply sources including primary production, firm commitments for long-term purchases, inventories of six months forward sales (or equivalent to about 18 million pounds, including working inventory) and uranium from opportunistic purchases in the spot market.

We have positioned the company with significant security of supply, and have supplemented our inventory position with standby loan agreements, as discussed last quarter. All of these supply sources firmly reinforce Cameco's position as a secure and reliable supplier in the uranium market.

In addition to these multiple supply sources, we have supply interruption language in our contracts, which we introduced several years ago. This supply interruption language provides Cameco with the right to reduce, defer or cancel volumes on a pro-rata basis if we experience a meaningful shortfall in planned production or deliveries of purchases under the highly enriched uranium agreement. Currently, this language protects about three-quarters of currently contracted volumes, and this percentage will rise as old contracts expire. All contracts contain standard force majeure language.

In addition, the baseload contracts put in place to support the development of Cigar Lake contain supply interruption language, which allows Cameco to reduce, defer or terminate deliveries in the event of any delay or shortfall in Cigar Lake production.

Uranium Market Update

Uranium Spot Market
The industry average spot price (TradeTech and UxC) on September 30, 2006 was $54.88 (US) per pound U₃O₈, up 20% from $45.75 (US) at June 30, 2006. This compares to $31.63 (US) on September 30, 2005 and $29.00 (US) on June 30, 2005.

Spot market volume reported for the third quarter of 2006 was 10.5 million pounds U₃O₈ for a total of 25.6 million pounds for the first nine months of the year. This compares to 4.7 million pounds in the third quarter of 2005 and 28.9 million pounds in the first nine months of 2005. Due to steady demand and limited availability of secure supply, prices continued to increase in the third quarter.

The majority of spot activity in the third quarter was from discretionary purchases by utilities, traders and investors. Utility purchases likely reflect inventory building while investment groups appear to be taking positions in a moving market. It is expected that spot market demand will increase in the fourth quarter while supply remains tight, adding upward pressure to the price.

Uranium Long-Term Market
The industry average long-term price (TradeTech and UxC) on September 30, 2006 was $54.50 (US) per pound U₃O₈, up 17% from $46.75 (US) at the end of June 2006. This compares to $32.50 (US) on September 30, 2005 and $30.00 (US) on June 30, 2005.

The long-term market remained active in the third quarter as utilities continue to seek secure supply with reliable primary suppliers in an effort to mitigate risk. Long-term contracting is expected to be well in excess of 200 million pounds in 2006, in the order of the 2005 contracted amount, and well above historic levels.

Uranium Operations Update

Uranium Production
Cameco's share of production (million lbs U₃O₈)	Three months ended		Nine months ended		2006 planned
	Sept 30		Sept 30		production
	2006	2005	2006	2005
McArthur River/Key Lake	3.9	3.9	9.9	10.4	13.1
Rabbit Lake	1.1	1.4	3.7	4.5	5.7
Smith Ranch/ Highland	0.7	0.3	1.4	0.9	1.9
Crow Butte	0.2	0.2	0.5	0.6	0.7
Total	5.9	5.8	15.5	16.4	21.4

McArthur River/Key Lake
Cameco's share of production at McArthur River/Key Lake was 3.9 million pounds for the third quarter of 2006 and 9.9 million pounds for the first nine months of 2006. Quarter-to-quarter variation in production is common and can result from planned maintenance shutdowns and normal variation in ore production.

Year-to-date production remains 5% lower than for 2005 primarily as a result of first quarter mill process difficulties that resulted from high concentrations of concrete in the uranium ore slurry. Concrete is introduced at McArthur River when mining adjacent to previously mined-out areas that have been backfilled with concrete. The installation of sand filters in the mill to improve the clarity of the uranium solution was largely completed in the third quarter and they were fully commissioned in early October.

Strong third quarter production output was very similar to that of the second quarter of 2006 and the third quarter 2005. We expect our share of production for the fourth quarter of 2006 to be 3.2 million pounds of U₃O₈. We anticipate achieving the licensed annual production limit by mid-December as no mill shutdowns are planned and a steady feed of ore with lower concentrations of concrete is forecast from McArthur River for the remainder of the year. For 2006, Cameco's share of expected total production at McArthur River/Key Lake is 13.1 million pounds of U₃O₈.

At McArthur River, freeze-hole drilling for two new future mining zones advanced at a slower than expected rate due to technical challenges with drilling through frozen ground, difficulties sourcing supplies also used extensively in the oil drilling industry, and a shortage of freeze hole drillers.

The collective agreement for unionized employees at the McArthur River and Key Lake operations expired on December 31, 2005. Cameco and the United Steelworkers of America (USW) continued negotiations through the third quarter of 2006 and reached a tentative agreement on October 12, 2006. Ratification votes by the union local membership will be completed by early November.

As previously reported, we have applied to increase the annual licensed production limit at both the McArthur River mine and the Key Lake mill to 22 million pounds U₃O₈ (compared to the current 18.7 million pounds). This application has been undergoing a screening level environmental assessment (EA) as required by the Canadian Environmental Assessment Act with the Canadian Nuclear Safety Commission (CNSC) as the responsible authority.

The CNSC has focused on an evaluation of the longer-term environmental impact of low levels of selenium and molybdenum in the Key Lake mill's effluent and the concentration of these substances in the downstream receiving environment.

Cameco has proposed an action plan to further reduce selenium and molybdenum discharges in the mill effluent. While we believe that the current level of control is protective of the environment and consistent with past EAs of the Key Lake operation, we also recognize that improvements can be made to further reduce levels of these two metals.

We are currently in discussions with the CNSC to finalize this action plan, which we anticipate will become a new licence condition in the Key Lake CNSC operating licence in the first quarter of 2007. The first phase of the action plan is expected to be in place later in 2007. This action plan to reduce the current level of these metals to the environment is expected to help advance the EA to increase the annual licensed production limit at the McArthur River mine and the Key Lake mill. While we cannot predict the outcome of this assessment, the parallel work on effluent loading reduction is expected to advance consideration of the proposal. We remain confident that we can incrementally increase production levels with minimal environmental effect.

In addition to obtaining approval for the EA, we also need to transition to new mining zones at McArthur River and to implement various mill revitalization and process modifications at Key Lake in order to sustain increased production levels. Mine planning, development and freeze hole drilling for the McArthur River transition is ongoing. We are kicking off a Key Lake revitalization pre-feasibility assessment in the fourth quarter of 2006. The Key Lake mill began production in 1983 and was built as a world-class facility. Given we expect to continue using Key Lake for many years into the future, reinvesting in this mill will help maintain our leadership position in uranium production.

Rabbit Lake
Rabbit Lake produced 1.1 million pounds of U₃O₈ during the third quarter and a total of 3.7 million pounds for the first nine months of 2006. Year to date, production remains lower than for 2005 as a result of a planned five-week mill maintenance shutdown in the third quarter and lower grade mill feed in the first quarter of 2006. Mine grade of new ore zones continues to meet expectations and total planned ore tonnage from the mine is on track. However, year-to-date ore grades remain lower than plan. The outlook for 2006 production is now 5.7 million pounds U₃O₈, down marginally from our original target of 5.9 million pounds.

We continue to work on the EA to process a little over one-half of the uranium from Cigar Lake ore at the Rabbit Lake mill beginning in the second to third year of Cigar Lake production, dependent on the production ramp-up. During the second quarter, we submitted a pre-assessment regulatory communication document and held technical meetings with representatives of regulatory agencies to review our planned approach. This communication approach is expected to streamline the environmental review process. Submission of the EA report is planned for November and we expect the first regulatory review meeting to be held by the end of 2006.

Reclamation of the A-Zone pit pond, previously mined out in 1997 was completed during the quarter. This project involved cutting a steel cell containment dyke below the water line to return this area to the adjacent lake. The reclamation project was carried out without incident and was well received by regulators and local communities.

At Rabbit Lake, we continue to encounter encouraging underground drilling results that will require further definition.

Smith Ranch-Highland and Crow Butte
Smith Ranch-Highland and Crow Butte in situ leach (ISL) mines produced 0.9 million pounds U₃O₈ in the third quarter of 2006. The operations are expected to produce 2.6 million pounds in 2006, up slightly from our original target of 2.4 million pounds.

Uranium Projects Update

Cigar Lake
Cameco began construction of the Cigar Lake mine on January 1, 2005. As previously disclosed, Cameco experienced a water inflow into the second shaft in April of 2006.

On Monday, October 23, 2006 Cameco reported a second inflow at Cigar Lake following a rock fall in a future production area that had previously been dry. Efforts were made to contain the inflow and protect the main shaft and key underground infrastructure by closing two bulkhead doors. However, one of the doors did not seal properly, allowing significant water to flow into the processing area. Attempts to fully seal the door were not successful and the inflow exceeded capacity to pump the water out. All underground areas of the Cigar Lake project have filled with water.

Everyone was safely evacuated from the mine, no injuries were sustained and there was no impact on the environment.

Cameco engineers and consultants are on site working on plans to restore underground access to the Cigar Lake project in response to the water inflow incident. International experts are assisting with options and developing a remediation plan. We anticipate that a phased plan will be in place within three months outlining a preferred option and several alternatives.

Cost estimates, project timelines and effect on reserves, if any, will be provided after the completion of the full assessment, which is underway.

Given the previously discussed contracting strategy, Cameco has adequate contractual protections in place to meet its product delivery obligations.

During the fourth quarter, we will estimate the value of the assets lost underground at Cigar Lake due to the water inflow and this will be expensed in the fourth quarter.

Inkai
At the Inkai ISL project in Kazakhstan, there are two production areas currently in development (blocks 1 and 2). At block 1, construction is under way for the commercial processing facility. In 2007, we expect to complete construction and begin commissioning the commercial facility, subject to regulatory approvals. We expect startup of production in late 2007 with commercial production to follow in 2008 after a ramp up period.

At block 2, the test mine produced about 0.3 million pounds U₃O₈ during the third quarter of 2006 (Cameco's share is 60%). Approval was received in 2005 to increase the test mine's capacity to 0.8 million pounds U₃O₈. Production from the expanded facility started in the second quarter of 2006. Planned production for the test mine in 2006 is expected to total 0.8 million pounds U₃O₈. We plan to apply for a mining licence in 2007 for block 2. Commercial development of block 2 is planned for 2008.

As previously reported, production from blocks 1 and 2 is expected to total 5.2 million pounds by 2010.

Uranium Exploration Update ^[1]

Millennium
We completed six drill holes for a total of 3,035 metres at the Millennium project during the third quarter. The two holes, drilled in the second quarter of 2006 and located 800 metres and 2,500 metres north of the deposit, were completed but no mineralization was encountered.

During the third quarter, two additional holes (directional off-cuts) were completed within the deposit to confirm continuity of mineralization and both returned significant mineralized intercepts. Assay results are pending. The best hole returned 10.5% equivalent U₃O₈ over 28.5 metres.

Regional Exploration
During the third quarter of 2006, we continued drilling on several projects including Rabbit Lake, Dawn Lake, McArthur River, Virgin River and Southwest Athabasca.

On the Collins Creek prospect, situated within the Dawn Lake project and six kilometres south of the Dawn Lake deposits, we completed nine drill holes during the third quarter, bringing the total number of holes for the year to 27. The best hole returned 18.3% U₃O₈ over 7.8 metres. An initial resource estimate will be undertaken in early 2007.

^[1] All references to mineralized intercept thicknesses are expressed as drilled lengths and do not represent true width. Reference to uranium grade is based upon down hole radiometrics unless otherwise indicated.

FUEL SERVICES

Highlights
	Three months ended Sept 30		Nine months ended Sept 30
	2006	2005	2006	2005
Revenue ($ millions)	39	39	141	95
Gross profit (loss) ($ millions)	(3)	5	13	22
Gross profit (loss)%	(8)	13	9	23
Earnings (losses) before taxes ($ millions)	(3)	4	11	21
Sales volume (million kgU)¹	4.3	4.2	11.9	9.6
Production volume (million kgU)	3.4	2.4	9.2	8.6
¹Kilograms of uranium

Fuel Services Results

The current results and outlook for fuel services reflect the deferral of revenue and the associated costs on conversion services deliveries of 0.7 million kgU, related to the standby product loan agreements discussed under the uranium business segment. The effect of the deferral was a decrease in reported revenue of $6 million. Gross profit on the deferred conversion services deliveries was marginal.

As in the case of the deferred uranium revenue, the timing of cash receipts on the deferred revenue is the same as on any other sale executed during the quarter and is unaffected by the accounting treatment for the revenue. As a result, cash flows are not impacted by the deferral. Cameco will recognize the deferred revenue and associated costs when the loan agreements are terminated in 2008 and 2009, or if drawn upon, when the loans are repaid and that portion of the facility is terminated.

Third Quarter
In the third quarter of 2006, revenue from our fuel services business was unchanged at $39 million compared to the same period in 2005, due to a decline in the realized selling price and the deferral of revenue related to product loans being offset by the inclusion of Zircatec revenue. Most conversion sales are at fixed prices and have not yet fully benefited from the recent significant increase in UF₆ spot prices. Sales volumes were unchanged compared to 2005.

Total cost of products and services sold, including DDR, was $42 million compared to $34 million in 2005. This increase was attributable to the inclusion of Zircatec's cost of sales and higher costs for purchased conversion, which have trended up with the rise in the UF₆ spot price.

In the third quarter of 2006, we recorded a loss of $3 million compared to earnings before taxes of $4 million for the same period of 2005. The loss was due to the higher cost of purchased conversion and a delay in sales at Zircatec from the third to the fourth quarter.

Year to Date
In the first nine months of 2006, revenue from our fuel services business rose by 48% to $141 million compared to the same period in 2005, as a result of the inclusion of revenue from Zircatec and a 24% increase in conversion deliveries. The timing of deliveries of nuclear products within a calendar year is at the discretion of customers. A 2% decrease in the realized selling price partially offset the effect of the higher deliveries. Most conversion sales are at fixed prices and have not yet fully benefited from the significant increase in UF₆ spot prices.

Year to date total cost of products and services sold, including DDR, was $128 million in 2006 compared to $73 million in 2005. The increased costs are attributed to the rise in conversion sales volume, the inclusion of Zircatec's cost of sales and higher costs for purchased conversion, which have trended up with the rise in the UF₆ spot price.

In the first nine months of 2006, earnings before taxes from the fuel services business declined to $11 million from $21 million in the same period of 2005. The lower profitability was due to the higher cost of purchased and produced product.

Fuel Services Outlook for Fourth Quarter 2006

For the fourth quarter of 2006, our fuel services revenue is projected to be about double that of the third quarter due to an expected increase in deliveries and a rise in the selling price. We expect the gross profit to be significantly higher than in the third quarter.

Fuel Services Outlook for the Year 2006

Cameco expects 2006 revenue from the fuel services business to be nearly 50% higher than in 2005 due to an anticipated 10% increase in deliveries, a 5% improvement in the average realized selling price, plus the inclusion of sales from Zircatec. We project the gross profit margin to be 15%, down from 18% reported in 2005, as the expected increase in the unit cost is likely to more than offset the higher anticipated price.

Conversion services sales volume in 2006 is expected to total 19.0 million kgU, of which revenue will be recognized on 18.2 million kgU in 2006. This compares to sales of 16.6 million kgU in 2005.

The outlook for the fourth quarter and the 2006 financial results for the fuel services business segment are 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 spot exchange rate of $1.12.

Fuel Services Price Sensitivity Analysis

The majority of fuel services sales are at fixed prices with inflation escalators. In the short term, Cameco's financial results for fuel services 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 for conversion services will be positively impacted by these higher fixed-price contracts.

UF₆ Conversion Market Update

Spot and long-term UF₆ conversion prices remained unchanged during the quarter for North American and European conversion services.

Outlined below are the industry average spot market prices (TradeTech and UxC) for North American and European conversion services.

Sept 30/06