Our strategy is to increase annual uranium supply to 36 million pounds by 2018, subject to market conditions, and to invest in opportunities across the nuclear fuel cycle that we expect will complement and enhance our business.

Uranium: Growing Production

The focus of our growth strategy is our uranium segment. Over the next 10 years, we expect annual consumption to increase by 50 million pounds as new reactors come on line. Deliveries under the Russian HEU commercial agreement will end in 2013, and the industry will need new uranium production. Lead-times in our industry are long, so we are preparing our assets today to make sure we can be among the first to respond when the market signals new production is needed. However, our production decisions will always be made with a focus on profitability.

Given the current challenging market environment, we are pursuing our growth with an increased focus on execution. The projects we are pursuing to contribute to our target of 36 million pounds of annual supply by 2018 are those that provide the most certainty in the near-term, and are primarily brownfield development. Our growth will come from operating properties, expansions at operating properties and our development projects.

We plan to achieve our growth with a focus on enhancing our nearer term financial picture by spreading our capital spending over a longer period and decreasing project related expenses. Of course, all of our project decisions will depend upon market conditions and profitability. We continue to monitor the market closely, and will adjust our plans in response to market signals.

We advance each project through a stage gate process that includes several defined decision points in the assessment and development stages. At each point, we re-evaluate the project based on current economic, competitive, social, legal, political and environmental considerations. If it continues to meet our criteria, we proceed to the next stage. This process allows us to build a pipeline of projects ready for a production decision and minimize expenditures on projects whose feasibility has not yet been determined.

Operating properties

Our current sources of production are McArthur River/Key Lake, Rabbit Lake, Smith Ranch-Highland, Crow Butte and Inkai. We expect about 60% of our total 2018 annual supply will come from mines that are already operating.

Brownfield expansions and development projects

We expect the rest of the 36 million pounds to come primarily from brownfield expansions and development projects, which provide the benefit of existing infrastructure, workforce and positive relationships with communities, governments and regulators. These include:

• bringing Cigar Lake into production
• expanding production at McArthur River and our US operations
• refurbishing and expanding the Key Lake mill
• working to extend the life of the Rabbit Lake mine
• advancing the process for extracting uranium from the Talvivaara mine in Finland

We previously estimated capital costs on development projects and projects under evaluation to be between $200 and $400 million per year for the next three years. However, we adjusted our strategy down from 40 million pounds to 36 million pounds of annual supply by 2018, and we now estimate capital costs for our brownfield expansions and development projects to be about $310 million per year in growth capital for 2014 and 2015.

Maintaining optionality

We will also continue to advance our other projects at a pace measured to market opportunities in order to respond should the market reflect the need for more uranium. These projects are:

• increasing production at Inkai
• the Millennium project
• the Kintyre project
• the Yeelirrie project

We previously expected to spend between $20 and $25 million per year on average for the next three years to assess the feasibility of projects under evaluation. We expect to spend about $24 million in 2013 to preserve optionality for these projects. Based upon market conditions, we currently expect to spend less than $5 million per year in 2014 and 2015.

Exploration: sustaining long-term production

Our exploration program is directed at replacing mineral reserves as they are depleted by our production, and ensuring our growth beyond 2018. We have maintained an active program even during periods of weak uranium prices, which has helped us secure land with exploration and development prospects that are among the best in the world, mainly in Canada, Australia, Kazakhstan and the US. Globally, our land holdings total 3.7 million hectares (9.3 million acres). In northern Saskatchewan alone, we have direct interests in 584,000 hectares (1.4 million acres) of land covering many of the most prospective exploration areas of the Athabasca Basin. Many of our prospects are located close to our existing operations where we have established infrastructure and capacity to expand.

For properties that meet our investment criteria, we will partner with other companies through strategic alliances, equity holdings and traditional joint venture arrangements. Our leadership position and industry expertise in both exploration and corporate social responsibility make us a partner of choice.

Fuel services: capturing synergies

UF₆ AND UO₂

We control about 25% of world UF6 conversion capacity and are the only commercial supplier of natural UO2. Our focus is on cost-competitiveness and operational efficiency.

Our fuel services segment is strategically important because it helps support the growth of the uranium segment. Offering a range of products and services to customers helps us broaden our business relationships and expand our uranium market share.

ENRICHMENT

We also continue to explore innovative areas like laser enrichment technology to broaden our fuel cycle participation and help us serve our customers more effectively.

Today, uranium enrichment is the second largest value component, after uranium, in a typical light water reactor fuel bundle. The enrichment market has the same customer base as the uranium market, and most of the world's commercial nuclear reactors need enriched uranium.

Uranium and enrichment can be substituted for each other to some extent to produce a given amount of enriched uranium product. For example, when uranium is relatively more expensive than enrichment, it is more cost-effective to reduce the amount of uranium feedstock and use more enrichment capacity. When enrichment is relatively more expensive, it makes sense to use more uranium and less enrichment to produce the same amount of enriched uranium product.

Enrichment has the potential to be a significant growth area for us, and offers operational synergies that could significantly enhance profit margins for both our uranium business and future enrichment operations.

NUKEM: strengthening our position

Our January 2013 acquisition of NUKEM complements our uranium segment by strengthening our position in nuclear fuel markets and improving our access to unconventional and secondary sources of supply. We expect it to deliver solid cash flow and sustainable profitability.

Electricity: capturing added value

Our investment in BPLP has been an excellent source of cash flow. Our focus is on maintaining steady cash flow and building synergies with our other segments. Ontario's Long Term Energy Plan has earmarked 6,300 MW of long-term capacity needed from the Bruce Power site. This means that all of the units at Bruce B will need to be refurbished and we will have an opportunity to invest if BPLP decides to proceed. We would base this investment decision on the underlying value proposition and the strategic fit with our other growth objectives. The timing of this opportunity is still unclear, as Bruce Power is working with the Ontario Power Authority (OPA) regarding a possible refurbishment schedule in recognition of the significant role the nuclear units play in maintaining system reliability and the importance of sequencing these activities over a multi-year period.

Acquisition program

We have a dedicated team looking for acquisition opportunities that could further add to our supply, support our sales activities and complement and enhance our business in the nuclear industry. We will invest when an opportunity is available at the right time and the right price. We strive to pursue corporate development initiatives that will leave us and our shareholders in a fundamentally stronger position than we are today.

Capital allocation

We remain on a cautious growth path, taking a balanced approach to capital allocation and subjecting all investment decisions to a rigorous and disciplined internal capital allocation review process. This review involves an assessment of our overall liquidity, the overall level of investment required, and the prioritization of investment choices based on the merits of each opportunity. The assessment also takes into account expected levels of future operating cash flow and the cost and availability of new financing. In the context of our uranium growth strategy, we are focused on opportunities to leverage existing infrastructure (brownfield expansion), and on projects with greater near-term certainty. The review may result in good opportunities being held back in favour of higher return projects, and should allow us to generate the best return on investment decisions when we are faced with a multitude of prospects. Future changes in the market could impact the timing and amount of cash available for future investment in capital projects, acquisitions, dividends, debt repayments and/or other uses of capital.