CCJ

Cameco Corporation: McArthur River Operation Technical Report Summary

Business Context and Reporting Period

This Form 6-K filing, dated February 17, 2009, discloses a National Instrument 43-101 Technical Report for the McArthur River uranium mine in Northern Saskatchewan, Canada. The report has an effective date of December 31, 2008. McArthur River is the world's largest known high-grade uranium deposit. Cameco Corporation holds a 69.805% direct and indirect interest in the McArthur River Joint Venture (MRJV), with AREVA Resources Canada Inc. holding the remaining 30.195%. Cameco acts as the operator. The mine utilizes underground raisebore mining methods and transports ore slurry to the Key Lake mill for processing.

Key Financial and Operational Metrics

• Mineral Reserves (Dec 31, 2008): Cameco's share of Proven and Probable Reserves is 509,000 tonnes of ore containing 232.2 million pounds of U₃O₈ at an average grade of 20.7%.
• Mineral Resources (Dec 31, 2008): Cameco's share of Measured and Indicated Resources is 173,700 tonnes containing 34.7 million pounds of U₃O₈ (9.1% grade). Inferred Resources total 448,600 tonnes containing 97.0 million pounds of U₃O₈ (9.8% grade).
• Production Capacity: The current CNSC licensed production rate is limited to 18.7 million pounds of U₃O₈ annually. Cameco has applied to increase this to 22 million pounds.
• Operating Costs: Estimated average operating costs are Cdn$19.69/lb U₃O₈ over the life of the reserves. For the 2009-2013 period, costs are estimated at Cdn$15/lb.
• Economic Analysis: The pre-tax Net Present Value (NPV) at a 10% discount rate is estimated at Cdn$2.69 billion. The pre-tax Internal Rate of Return (IRR) is 13%.
• Mine Life: Based on current Mineral Reserves, the mine life is estimated at least 25 years, with production forecast to continue until 2033.

Material Changes and Operational Updates

• 2008 Production: Cameco's share of mine production was 12.2 million pounds of U₃O₈. A shortfall in mill production (11.6 million pounds) was attributed to process and equipment problems at the Key Lake mill.
• Water Inflow Incident (Nov 2008): A small water inflow of approximately 100 m³/hr was encountered during development of Lower Zone 4. It was quickly captured and controlled, causing no production interruption. Full grouting is required before development resumes.
• Zone Transition: The mine is transitioning from Zone 2 (Panels 1, 2, 3) to new areas. Production from Zone 2 (Panel 5) is scheduled for the second half of 2009. Lower Zone 4 production is scheduled for 2010.
• Tailings Capacity: Regulatory approval was received in February 2009 to deposit tailings at a higher elevation in the Deilmann Tailings Management Facility (TMF), extending capacity from five to approximately eight years at current production rates.

Guidance, Outlook, and Risks

• Production Outlook: Annual production is forecast at 18.7 million pounds until 2016, declining thereafter. Cameco expects to convert portions of Measured and Indicated Resources to Reserves to extend the period of full production.
• Key Lake Revitalization: A strategic plan is underway to revitalize the Key Lake mill to increase capacity to approximately 24 million pounds annually and improve environmental performance. Construction of replacement acid and oxygen plants is planned to start in 2009.
• Boxhole Boring Method: Cameco is developing the boxhole boring mining method for Upper Zones 1, 3, and 4, with production planned to commence in 2013. This method has not yet been fully tested in a production environment at McArthur River, creating uncertainty regarding productivity.
• Primary Risks:
  • Water Inflow: The single greatest risk is production interruption from water inflows due to high-pressure groundwater in the overlying sandstone. While mitigation systems (freezing, pumping) are in place, a major inflow could cause significant production loss.
  • Regulatory Approvals: The environmental assessment for increasing production capacity is pending demonstration of the effectiveness of molybdenum and selenium removal processes at Key Lake.
  • Tailings Capacity: Failure to secure long-term tailings capacity or regulatory approval for expansion could constrain production.

Investor Verification Checklist

• Verify the status of the environmental assessment for the production increase to 22 million pounds, specifically regarding the molybdenum and selenium removal circuit performance.
• Monitor the progress of the Key Lake mill revitalization project and the timeline for achieving the target capacity of 24 million pounds.
• Track the results of the boxhole boring mining method test program scheduled for 2010 to assess its viability for future production zones.
• Review updates on the Deilmann TMF sloughing mitigation and the timeline for securing long-term tailings capacity beyond the current eight-year approval.
• Confirm the successful transition of mining operations to Zone 2 (Panel 5) and Lower Zone 4 as scheduled for late 2009 and 2010.