Cameco Announces First Quarter Financial Results For 1998

Saskatoon, Saskatchewan, Canada, April 27, 1998

This news release combines the information previously contained in the quarterly news release and the printed quarterly report. This new format will allow Cameco to distribute the information more efficiently to shareholders and other interested parties.

Highlights from Bernard Michel, Chair, President and Chief Executive Officer

"Cameco posted solid net earnings in the first quarter of 1998 despite the challenge of low prices in both uranium and gold."

"Kumtor gold sales made a substantial contribution to Cameco's revenue and net earnings providing the benefits from diversification planned years ago."

"The long-term fundamentals of the uranium market remain positive and Cameco is well positioned to capitalize on market opportunities."

"The Cigar Lake uranium project passed one more milestone on the road to production after receiving federal and provincial government support to advance to the next stage of the regulatory process."

"Cameco's strategic plan to grow in the uranium business has resulted in an agreement in principle to purchase Uranerz Exploration and Mining Limited and Uranerz U.S.A. for $483 million, subject to closing adjustments and regulatory approval. This will substantially increase our ownership in the world's best uranium operations and projects and provide approximately 30% more uranium reserves and resources and uranium production."

Financial Highlights

			Three Months Ended			Three Months Ended
			March 31/98			March 31/97				Change
Revenue ($ millions)			132			114				16%
Earnings from operations ($ millions)			26			27				-4%
Cash from operations ($ millions)			22			(4	)			-
Net earnings ($ millions)			18			14				29%
Earnings per share ($)			0.31			0.27				15%
Average uranium spot price for the period (US$/lb U3O8)			11.27			13.77				-18%
Cameco's average realized gold price for the period (US$/ounce)			401			390				3%
Average LME gold price for the period (US$/ounce)			294			352				-16%

Earnings

In the first quarter, Cameco increased revenue and net earnings compared to 1997 despite lower uranium and gold prices.

Net earnings during the first quarter increased to $18 million ($0.31 per share) from $14 million ($0.27 per share) in 1997. These results were achieved primarily as a result of increased gold sales and lower income tax provisions--reflecting the relatively higher proportion of income from lower taxed, non-Canadian sources compared to the first quarter of 1997.

Revenue increased to $132 million from $114 million a year ago. Increased gold sales from the Kumtor mine, which achieved commercial production May 1, 1997, more than tripled gold revenue to $39 million compared to the first quarter last year. This offset an 8% decline in Cameco's average selling price for uranium concentrates. The average uranium spot price was lower by 18% compared to the same quarter in 1997. The LME gold price averaged $294 (US) per ounce during the quarter, while Cameco's average selling price for gold was $401 (US) ($574 (CDN)) per ounce.

The cost of products and services sold including depreciation, depletion and reclamation increased by 27%--reflecting greater sales of Kumtor gold and the higher cost of purchased uranium.

Earnings from operations of $26 million were marginally lower than 1997, despite higher revenue. This is primarily due to the increased costs and the decline in the average selling price of uranium. Cameco's quarterly earnings fluctuate significantly with the timing of uranium deliveries, and therefore, annual results are not easily extrapolated from the results of any one quarter.

Cash provided by operations in the first quarter was $22 million compared to a net cash outflow of $4 million for the same period last year. This was primarily due to a $20 million decrease in the amount of cash committed to working capital. This reduction was related mainly to lower uranium purchases in the quarter.

Cash used in investing activities decreased substantially from 1997. In the first quarter of 1997, higher use of cash was related to Cameco's purchase of Power Resources, Inc. (PRI) and loans made to the Kumtor Gold Company.

At March 31, 1998, long-term debt was $285 million compared to $143 million at December 31, 1997. This largely reflects the replacing of the short-term bridge loan for PRI with long-term debt.

On February 18, 1998, Cameco reached an agreement with a syndicate of large financial institutions to provide a $400 million revolving credit facility. The credit facility will mature in five years and replaces a $250 million revolving facility that the company previously had in place.

Uranium spot prices averaged $10.80 (US) per pound U₃O₈ on March 31, 1998, down 11% from $12.13 at the end of 1997.

There has been adequate uranium supply available to meet weak spot demand in 1998 with 2.2 million pounds of U₃O₈ trading in the spot market in the first quarter, compared to 1.7 million in the same period in 1997. However, by the end of the quarter, demand increased modestly. This may indicate the spot price is approaching the bottom of the current price cycle.

The spot market price for uranium conversion services continued to decline, closing the quarter at $4.90 (US) compared to $5.10 at the beginning of the quarter. This reflects the perception of surplus supply from the blended down Russian highly enriched uranium.

Long-term uranium price indicators declined from $12.50 to $11.50 per pound U₃O₈ during the quarter reflecting low levels of activity in the uranium market. Demand in the long-term market is expected to increase over the remainder of the year as utilities move to cover future needs and should reach annual volumes similar to what was contracted in 1997, which was 72 million pounds.

Over the next 10 years, the fundamentals of the uranium market remain strong. Western world excess inventory has now been reduced to an estimated one year's supply of western consumption. As this inventory is reduced by approximately 25% to 30% each year, there should be increased market demand for uranium and the price cycles should shorten.

Cameco sells only in the long-term market and has more than 100 million pounds U₃O₈ under contract for delivery over the next decade. About 40% of quantities under contract will be delivered at prices not impacted by the spot market, while the remainder will be affected by the prevailing spot price at the time of delivery.

Ontario Hydro has completed its plan to temporarily lay up seven reactors with the closure of the last Bruce A unit in mid April. This will initially result in reduced demand for Cameco's UO₂ conversion services. However, as Ontario Hydro increases the operating capacity of the 12 remaining reactors and returns the laid up units to service as currently planned, UO₂ conversion consumption will return to its previous level.

As expected, deregulation of the electrical utility industry in the United States has led to the premature closure of some nuclear reactors which were not prepared to meet the new competitive pressures. Commonwealth Edison has shutdown the two Zion units, citing deregulation as one factor in the decision.

Deregulation is forcing utilities to improve operations and achieve higher capacity factors in nuclear power plants. Improved capacity factors indicate nuclear plants are operating for longer periods of time which results in higher uranium consumption. This will offset a significant portion of the demand lost when uncompetitive reactors close.

Cameco remains of the view that the economic difficulties in the Far East will not significantly affect the current nuclear programs. The reactors in this region are typically large, base-load plants reflecting a long-term commitment to nuclear energy and the lack of any domestic alternatives. While some planned reactors may be temporarily delayed, growing demand for electricity will ultimately necessitate the construction of those reactors.

China's nuclear power development program may be accelerated over the next few decades following the decision by the United States government to allow export sales of nuclear technology to China.

In December, Russia ended negotiations with Cameco and its western partners who had agreed to purchase uranium resulting from the dismantling of nuclear weapons. Russian authorities indicated then they wanted to make their own marketing arrangements but they have recently expressed interest in considering other alternatives. Political instability in Russia makes the situation difficult to predict and Cameco continues to monitor the situation.

Kumtor mine production averaged more than 54,000 ounces per month during the quarter and is now planning to produce in excess of 600,000 ounces for the year. This increased level of production is due to higher than anticipated ore grades, recoveries and throughput.

On April 3, the federal and provincial governments announced that the Cigar Lake project could proceed to the next stage of the regulatory approval process. Production is expected to begin in 2001 subject to the timely receipt of appropriate licences from the regulators.

On April 17, Cameco announced it had reached an agreement in principle to purchase Uranerz Exploration and Mining Limited (UEM) and Uranerz U.S.A. (UUS) for $483 million, subject to closing adjustments. The principal assets acquired and ownership changes are summarized in the following table:

 

The company will also acquire uranium and gold exploration properties in Saskatchewan, the United States and Kazakhstan. The acquisition will result in approximately 30% more uranium reserves and resources, and uranium production as well as a portfolio of diversified contracts.

Cameco has also agreed to buy 6.45% interest in Energy Resources of Australia Limited (ERA) for approximately $61 million (Aus). ERA operates the Ranger mine in the Northern Territory of Australia. Cameco's purchase of a minority position in ERA is subject to the first rights held by others.

The arrangements are subject to regulatory approval from a competition perspective, satisfactory completion of normal corporate due diligence, vendor shareholder approval and negotiation of final agreements, which will be effective as of January 1, 1998. Closing is expected to occur by mid to late summer.

For the remainder of the year, a $1.00 (US) increase (decrease) in the U₃O₈ spot price from current levels would increase (decrease) revenues by about $11 million (CDN) and net earnings by about $4 million (CDN).

Statements contained in this report to shareholders 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. Such factors include among others: volatility and sensitivity to market prices for uranium and gold, competition, the impact of changes in foreign currency exchange rates, environmental risks, political risk arising from operating in certain developing countries, changes in government regulations, and policies including trade laws and policies, demand for nuclear power, replacement of production, receipt of permits and approvals from government authorities as well as other operating and development risks.

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Cameco Corporation, with its head office in Saskatoon, Saskatchewan, is the world's largest publicly traded uranium company and a growing gold producer. Its products are used to generate electricity in nuclear energy plants around the world, providing one of the cleanest sources of energy available today.

Financial statements.