Net Earnings Rise Slightly In Second Quarter Despite Slow Uranium Deliveries

Saskatoon, Saskatchewan, Canada, August 2, 2001

Cameco Corporation today reported its financial results for the quarter and year-to-date periods ended June 30, 2001.

HIGHLIGHTS OF THE QUARTER

• Nuclear revenues and gross profits decline, gold operations perform strongly.
• 75% of annual nuclear revenue expected in third and fourth quarters.
• Uranium conversion spot prices continue to improve.
• Cigar Lake feasibility study approved, production possible in 2005, subject to regulatory approval and market conditions.
• Bruce Power net investment of $96 million outstanding at June 30, 2001, including financing of fabricated fuel. Electricity generation proceeding well.

Financial Highlights

CONSOLIDATED FINANCIAL RESULTS

Second quarter. For the three months ended June 30, 2001, net earnings attributable to common shares increased by $1 million to $12 million ($0.22 per share) compared to $11 million ($0.19 per share) in 2000. This increase was mainly due to improved results in the gold business and lower income taxes. The gold segment benefited from higher production, lower unit costs and reduced exploration expenditures, but the impact of these positive factors was partially offset by reduced earnings from the nuclear business which experienced decreased sales volumes and lower realized prices. Compared to the second quarter last year, the effective rate for income taxes declined to 26% from 48% due mainly to a greater proportion of pre-tax earnings being derived from gold operations outside of Canada where they are subject to a lower tax rate.

Earnings from operations were $19 million in the second quarter of 2001 compared to $25 million in 2000. The aggregate gross profit margin was unchanged at 23%.

Year-to-date. For the first six months of 2001, net earnings attributable to common shares were $13 million ($0.23 per share) compared to $20 million ($0.36 per share) in 2000. The decline was mainly attributable to the nuclear segment which was impacted by decreased sales volumes and lower realized prices compared to the first half of 2000. This reduction in earnings from the nuclear business was partially offset by improved results in the gold segment where a lower realized price was more than offset by reduced costs and higher production. The effective tax rate for the first half was 24% compared to 48% in the previous year.

Earnings from operations were $23 million for the first half of 2001 compared to $46 million in 2000. The aggregate gross profit margin was unchanged from the previous year at 23%.

Cash flow from operating activities of $40 million was 65% lower than in 2000 reflecting reduced nuclear sales volumes and a related increase in uranium inventory.

SEGMENTED FINANCIAL RESULTS

Nuclear Business

*Earnings before taxes.

Second quarter. Revenue from the nuclear business decreased by 25% to $106 million from $141 million in 2000 due mainly to a 25% decrease in sales volume for uranium concentrates. As the timing of deliveries of U₃O₈ and conversion services within a calendar year is at the discretion of customers, Cameco's quarterly delivery patterns can vary significantly. A 7% decrease in the average realized selling price for uranium concentrates also impacted revenue.

Revenue from conversion services was about equal to that of the previous year with a 7% increase in volume offsetting a lower realized price.

The total cost of products and services sold, including depreciation, depletion and reclamation (DDR), was $85 million in the second quarter of 2001 compared to $108 million in 2000. This reduction reflects the decreased sales volume for uranium concentrates. The unit costs for nuclear products were similar to the previous year with the exception of conversion services which declined by approximately 6% due mainly to increased production.

Earnings before taxes (EBT) from the nuclear business decreased by $11 million or 38% in the second quarter of 2001 and the gross profit margin for the second quarter declined to 20% from 23% in 2000. 

Year-to-date. Revenue from the nuclear business declined by 42% to $152 million from $264 million in 2000 due primarily to lower deliveries of uranium concentrates. The U₃O₈ sales volume was 45% lower than in the first half of 2000, due to delivery schedules determined by customers. Revenue was also impacted by a 7% decline in the average realized selling price for uranium concentrates which reflected weaker spot prices and a higher percentage of sales being delivered into contracts with market-related pricing. Approximately 70% of uranium sales were market-related compared to Cameco's historical annual average of 60%. The decline in the realized price was mitigated somewhat by more favourable currency exchange rates.

Nuclear revenue was also influenced by lower deliveries of conversion services which declined by 12% compared to the first six months of 2000.

During the first half of 2001, the total cost of products and services sold, including DDR, was $123 million compared to $202 million in 2000, reflecting the decreased sales volumes. The average unit costs for nuclear products were similar to the previous year.  Expenditures for uranium exploration were $1 million lower than in the previous year.

EBT from the nuclear business decreased by $32 million or 57% in the first six months of 2001 and the profit margin declined to 19% from 23% in 2000.

Gold Business

Second quarter. Revenue from the gold business rose by $9 million or 39% compared to last year due to a 45% increase in sales volume. Cameco's realized price for gold has declined from $302 (US) per ounce in the second quarter of 2000 to $287 (US) this quarter due to less favourable hedge positions and lower spot market prices.

Gold production at Kumtor was 15% greater than in the second quarter of 2000 due mainly to higher grade ore which averaged 5.20 grams per tonne compared to 4.58 grams, an increase of 14%. Kumtor's cash cost per ounce was $141 (US) per ounce compared to $148 (US) in 2000.

For the quarter, the gross profit margin for gold was 34% compared to 22% in 2000. Lower unit costs more than offset the reduced price.

Kumtor Gold Company's (KGC) hedge position at the end of June was 1,276,000 ounces, one-third being Cameco's share. It is expected that these hedges will yield average prices in the range of $296 (US) to $302 (US) per ounce. The mark-to-market gain on Cameco's share of the hedge position was $8 million (US) at June 30, 2001 based on a spot market gold price of $271 (US) per ounce. Considering the hedge position noted above, the sensitivity of Cameco's 2001 earnings and cash flow to changes in the gold price is not material.

Year-to-date. Revenue from the gold business rose by $15 million or 36% compared to the same period last year, reflecting a 44% increase in sales volume which more than offset a decline in the average realized selling price. Cameco's realized price for gold has declined from $314 (US) per ounce in the first six months of 2000 to $287 (US) this year. 

Gold production at Kumtor was 33% greater than in the first half of 2000 due mainly to higher grade ore which averaged 5.14 grams per tonne compared to 4.13 grams, an increase of 24%. An improved recovery rate, which rose to 84% from 81%, also contributed to the increased production. Kumtor's cash cost per ounce was $134 (US) per ounce in the first six months of 2001 compared to $171 (US) in 2000.  

The gross profit margin for gold was 32% in the first six months compared to 19% in 2000. The lower realized price has been more than offset by the reduced unit cash cost.

Corporate Expenses

During the first half of 2001, costs for administration increased by $1 million compared to the previous year and interest expense rose by $1 million reflecting less interest being capitalized. Income tax expense decreased by $17 million due to lower operating income and a reduced effective tax rate.

CASH FLOW

During the first six months of 2001, Cameco generated cash from operations of $40 million ($0.72 per share) compared to $115 million ($2.05 per share) in 2000. This decrease was largely attributable to an increase in working capital, mainly uranium inventory. During the first half of 2001, uranium production and purchases exceeded sales by a considerable margin. In the first six months of 2000, operating cash flow was bolstered by a reduction of working capital. Excluding the changes in other operating items, cash from operations in 2001 was $55 million compared to $91 million in the first half of 2000. This decline was primarily due to the lower deliveries of nuclear products in 2001.

Cash used in investing activities increased to $110 million from $71 million due primarily to the investment in Bruce Power which totalled $96 million at June 30, 2001 including financing of fabricated fuel. This amount was partially offset by lower capital expenditures and an $11 million (US) repayment of principal on the subordinated loan to KGC. Expenditures for property, plant and equipment were $45 million lower than in 2000 due mainly to the completion of development at McArthur River.

BALANCE SHEET

At June 30, 2001, total inventories increased by 16% to $424 million compared to $365 million at December 31, 2000. This increase was due mainly to the low levels of sales in the nuclear business during the first six months.

Total long-term debt increased to $377 million from $294 million at December 31, 2001. At June 30, 2001, Cameco's net debt to capitalization ratio was 16%, up from 13% at the end of 2000.

Late in the quarter, Cameco announced the sale of $50 million of 7.0% debentures Series B, due July 6, 2006. The proceeds will be used to repay short term debt as it matures and therefore, this sale does not represent additional indebtedness.

Compared to the end of 2000, both accounts receivable and accounts payable have declined significantly. Receivables, which reflect revenue, are typically higher in December than at any other time of the year. The decline in payables was due mainly to the timing of product purchases.

TRENDS AND UNCERTAINTIES

The most significant factors impacting the financial performance of Cameco are:

• the market price for U₃O₈,
• sales volumes for nuclear products,
• foreign exchange rates between the Canadian and US dollars,
• the market price for gold,
• the unit costs of production and
• quantity and profitability of electricity generated by Bruce Power.

Markets

Uranium Spot Market

The restricted spot price on June 30, 2001 was $8.75 (US) per pound U₃O₈, compared to $8.20 (US) at March 31, 2001. This was an increase of about 7%. At June 30, 2000, the spot price was $8.10 (US).

The spot market volume in the quarter ended June 30, 2001 was approximately 2 million pounds bringing the year to date total to 7 million pounds U₃O₈, about the same volume as at the end of the second quarter of 2000.

Spot demand has been weak but steady over the quarter. Spot supply, while sufficient to meet new demand, has not been aggressively priced; consequently the spot price continued to rise slowly through the quarter.

The spot market price for uranium conversion services increased by a further 15% during the quarter to $4.90 (US) per kgU from $4.25 (US) at March 31, 2001. This compares to $2.45 (US) per kgU at the end of the second quarter of 2000.

Uranium Long-Term Market

The long-term market has been active in 2001, with long-term contracting reported by market analysts to have already exceeded 35 million pounds U₃O₈. The long-term price indicator published by TradeTech was at $10.00 (US) per pound U₃O₈ at June 30, 2001, up modestly from the $9.75 (US) at the beginning of the quarter.

Uranium Market Trends

Potential For New US Nuclear Generating Capacity

In the US, the Bush administration proposed a national energy policy that included an increase in the use of nuclear power to improve air quality, reduce greenhouse gases and maintain diversity of energy sources. The Nuclear Energy Institute, an industry advocacy group, has forecast that upgrades and improved performance could add the equivalent of 10,000 megawatts (MW) of capacity in the next 20 years and is calling for the addition of another 50,000 MW of new nuclear construction by 2020. While the future of a national energy policy is uncertain, there is widespread agreement  among energy analysts that US electricity demand will increase significantly over the next 20 years.

In response to the energy growth demands in the US, two nuclear operators have announced that they are reviewing the possibility of completing partially constructed nuclear reactors. In addition, two other operators have advised the US Nuclear Regulatory Commission that they intend to apply for new nuclear plant siting permits within a year. While this does not commit them to construction, it indicates a desire to have licensed sites available in the event they decide to construct new reactors.

Nuclear Energy Credits Excluded From Bonn Agreement

On July 23, 2001, international negotiators in Bonn, Germany agreed to refrain from using emissions credits from nuclear energy under the Kyoto Protocol. These credits would otherwise be available to subsidize the construction of new nuclear plants in developing countries. Accordingly, nuclear plant programs in these countries will progress without such subsidies from industrialized nations.

For developed countries to meet their respective Kyoto targets, reliance on low emissions energy sources will be a necessity. As a result of the Bonn agreement, existing and new nuclear plant capacity will constitute, to a greater extent, an important component of the energy programs in the industrialized countries.

The agreement will now go back to each of the nearly 180 countries for ratification. The US  remains opposed to the Kyoto Protocol.

Gold Market Review

During the second quarter of 2001, the average spot market gold price improved slightly to about $268 (US) per ounce compared to $264 (US) in the first quarter. Gold prices rose briefly to the $290 (US) level but ended the quarter at $271 (US). 

Foreign Exchange Risk

Most of the company's revenues are in US dollars.  At June 30, 2001 Cameco had sold forward $699 million (US) at an average spot exchange rate of $1.5272.

During the quarter, the Canadian dollar strengthened against the US dollar from $1.5774 at the end of the first quarter to $1.5177 as of June 30, 2001.  As a result, Cameco's mark-to-market position improved by about $50 million to a gain of $1 million.

Other Corporate Updates

Cigar Lake. In June, a feasibility study for the Cigar Lake project was approved by the joint venture partners and the detailed engineering design was initiated. A preliminary estimate of the project development cost is approximately $350 million on a %100 basis. Subject to regulatory approval and market price trends, production at Cigar Lake mine could begin in 2005. Also pending approval from the regulator, Cameco expects to become operator of the project over the next few months. Cameco holds a 50.025% interest in the project.

Bruce Power. During the quarter, Cameco acquired a 15% interest in the Bruce Power Limited Partnership at an initial cost of $57 million. Cameco provided an additional $43 million for the purchase of fabricated fuel inventory, of which $39 million was outstanding at June 30, 2001. Operating performance has been satisfactory and slightly ahead of plan. In aggregate, 3.7 terawatt hours of electricity was generated for sale, representing a 97% capacity factor.

Foreign Ownership. In June, the federal government passed legislation to allow more foreign ownership of the company's common shares. The changes will allow individual non-residents to hold a maximum of 15%, up from 5%, and non-residents in total to vote up to 25%, up from 20%. The ownership limit for an individual Canadian shareholder is unchanged at 25%.

OUTLOOK FOR 2001

Uranium Production

Cameco expects its share of uranium production to total approximately 19 million pounds U₃O₈ . At McArthur River mine, production remains on track to achieve 18 million pounds (Cameco's share about 12.5 million pounds).

After producing about 4.6 million pounds in 2001, the Rabbit Lake mill was placed in care and maintenance mode in June. The mill may restart in the second quarter of 2002. Mining at Eagle Point, which will provide the Rabbit Lake mill feed, is expected to resume operations about three months before the mill restart. 

Uranium Market

The outlook for contracting in the long-term market during 2001 remains at approximately 75 million pounds U₃O₈.

Nuclear Revenue and Margins

Nuclear revenue for the year is expected to fall short of the level achieved in 2000 by about 5% reflecting lower average prices. Nuclear sales volumes and the percentage of contracts with market-related pricing are expected to be similar to last year. About 75% of this year's U₃O₈ deliveries are scheduled for the third and fourth quarters compared to about 54% in the same periods last year.

For the remainder of the year, a $1.00 (US) change in the U₃O₈ spot price from current levels would change revenue by about $10 million (Cdn), net earnings by about $4 million (Cdn) and cash flow by about $7 million (Cdn). The effective tax rate for the year is expected to be lower than the 48% rate recorded in 2000 but above the 24% rate for the first six months of 2001.

In California, one of the company's utility customers is operating under bankruptcy protection and a second customer continues to experience financial difficulties. At June 30, 2001, there were no outstanding accounts receivable from these customers. Cameco has planned deliveries to these customers later in 2001 representing approximately $16 million (US) of gross revenue. The impact of the situation faced by these two utilities, if any, on Cameco's earnings in 2001 is not presently ascertained. Prior to each delivery, Cameco will require appropriate assurances regarding payment by these customers.

Gold Production

The impact of higher ore grades mined to mid-2001 is expected to continue and result in annual production of approximately 735,000 ounces (Cameco's share 245,000 ounces), up 10% from last year. The grades achieved this year are consistent with the life of mine plan.

Bruce Power

The investment in Bruce Power is expected to contribute significantly to Cameco's earnings and cash flows beginning in 2003. Financial results in the near term are less certain as a number of one-time costs will be incurred as business improvements are implemented. Further details on the Bruce Power deal are disclosed in Cameco's 2000 Annual Information Form.

Capital Expenditures

In 2001, capital expenditures are projected to be about $120 million including the investment in Bruce Power.

Third Quarter of 2001

In the nuclear business, revenue for the third quarter is expected to increase in comparison to the second quarter reflecting both higher volume and price for uranium concentrates. Approximately 25% of the year's nuclear deliveries and revenue are expected in the third quarter.

Third quarter revenue from the gold business is likely to be lower than in the second quarter but similar to the first three months of the year due primarily to reduced sales volume.  The unit cash cost is expected to be slightly higher than in the second quarter.

At Bruce Power, the rate of electricity generation in the third quarter is scheduled to be approximately the same as experienced recently. In the third quarter, Cameco expects to report its share of earnings of Bruce Power from the date of its investment in accordance with the equity method of accounting.

Overall, Cameco's consolidated earnings for the third quarter are expected to be moderately higher than the second quarter.

DIVIDEND ANNOUNCEMENT

Cameco also announced today that the company's board of directors declared its regular quarterly dividend of $0.125 per share payable October 15, 2001 to shareholders of record on September 28, 2001.

PROFILE

Cameco, with its head office in Saskatoon, Saskatchewan, is the world's largest uranium producer. The company's competitive position is based on its large high-grade reserves and low cost operations. Cameco is also one of the world's largest commercial providers of uranium conversion services. The company's uranium products are used to generate electricity in nuclear energy plants around the world, providing one of the cleanest sources of energy available today. Cameco has an interest in the Bruce nuclear generating plant in Ontario and also produces gold. The company's shares trade on the Toronto and New York stock exchanges.

FORWARD-LOOKING STATEMENTS

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. Factors that could cause such differences, without limiting the generality of the following, include: volatility and sensitivity to market prices for uranium, electricity in Ontario and gold; competition; the impact of change in foreign currency exchange rates and interest rates; imprecision in reserve estimates; environmental and safety risks including increased regulatory burdens; unexpected geological or hydrological conditions; political risks arising from operating in certain developing countries; a possible deterioration in political support for nuclear energy; changes in government regulations and policies, including trade laws and policies; demand for nuclear power; replacement of production and failure to obtain necessary permits and approvals from government authorities; legislative and regulatory initiatives regarding deregulation, regulation or restructuring of the electric utility industry in Ontario; Ontario electricity rate regulations; weather and other natural phenomena; ability to maintain and further improve positive labour relations; operating performance of the facilities; success of planned development projects; and other development and operating risks.

CONFERENCE CALL

Cameco is hosting a conference call on Friday, August 3, 2001 from 10:00 a.m. to 11:00 a.m. Eastern time (8:00 a.m. to 9:00 a.m. Saskatoon time) to discuss the second quarter results. To join the call, please dial (416) 641-6701 or (888) 243-1745. A recorded version of the call will be available approximately two hours after the call on the company's web site www.cameco.com or by telephone replay until midnight, Friday, August 17 by calling (416) 626-4100 and entering the code 19312944.

For further information, please contact:

Bob Lillie  Manager, Investor Relations Cameco Corporation Phone: (306) 956-6639 Fax: (306) 956-6318

Lyle Krahn Supervisor, Corporate Communications Cameco Corporation Phone:(306) 956-6316 Fax:(306) 956-6318

INVESTOR INFORMATION