CCJ

Cameco Corporation Q1 2008 Financial Summary

Business Context and Reporting Period

This Form 6-K filing reports Cameco Corporation's unaudited financial results for the quarter ended March 31, 2008. Cameco is the world's largest uranium producer and a significant supplier of conversion services, nuclear fuel, and gold. The company operates four primary business segments: Uranium, Fuel Services, Nuclear Electricity Generation (via Bruce Power Limited Partnership), and Gold (via Centerra Gold Inc.).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Driven by a 55% increase in average realized uranium prices (to $44.68 Cdn/lb) and a 17% increase in uranium sales volume. Gold revenue also rose due to higher spot prices.
• Profitability: Net earnings surged 125% to $133 million. Earnings from operations increased 233% to $163 million.
• Costs and Charges: Interest and other charges increased by $36 million, primarily due to $34 million in mark-to-market losses on hedge contracts not qualifying for hedge accounting. Conversely, administration costs dropped $30 million due to reduced stock-based compensation expenses linked to a lower share price.
• Taxation: The company recorded an income tax expense of $17 million, compared to a net recovery of $16 million in Q1 2007, due to the distribution of taxable income between Canada and other jurisdictions.
• Segment Performance:
  • Uranium: Revenue up $155 million; gross profit margin improved to 50% from 33%.
  • Fuel Services: Revenue up $15 million, but gross profit margin declined to 5% from 20% due to the shutdown of the Port Hope UF6 conversion plant ($14 million in costs expensed).
  • Gold: Revenue up $17 million; gross profit margin improved to 39% from 25%.
  • Nuclear Electricity: Pre-tax earnings from Bruce Power decreased to $6 million from $11 million due to lower generation capacity factors (72% vs 78%).

Outlook, Risks, and Unusual Items

• Guidance: Management stated there were no material changes to the 2008 consolidated outlook or segment outlooks previously provided in the annual MD&A.
• Operational Updates:
  • Cigar Lake: Production startup remains targeted for 2011 at the earliest, pending dewatering and remediation.
  • Port Hope: UF6 production is expected to resume in Q3 2008 at the earliest, subject to regulatory approval.
  • McArthur River: Transition to a second mining area is behind schedule for 2009; a contingency plan is being developed.
  • Inkai (Kazakhstan): Acid shortages may reduce 2008 planned production by up to 50%.
• Risks and Contingencies:
  • Political Risk (Kumtor): Media reports indicate the Supreme Court of the Kyrgyz Republic has suspended certain agreements and licenses for the Kumtor gold mine. Cameco and Centerra are not parties to the proceedings but are monitoring the situation.
  • Regulatory: Smith Ranch-Highland received a Notice of Violation from Wyoming authorities regarding restoration progress.
  • Commodity Sensitivity: For the remainder of 2008, a $10/lb change in uranium prices would impact net earnings by approximately $32 million. A $25/oz change in gold prices would impact net earnings by approximately $7 million.
• Dividend: A quarterly dividend of $0.06 per share was declared, payable July 15, 2008.

Investor Verification Checklist

• Verify the status of the Supreme Court order regarding the Kumtor gold mine licenses in the Kyrgyz Republic.
• Confirm the timeline for the resumption of UF6 production at the Port Hope facility and associated regulatory approvals.
• Assess the impact of the acid shortage on Inkai's 2008 production targets and commercial production declaration.
• Review the progress of the McArthur River transition to the second mining area and the details of the 2009 production contingency plan.
• Monitor the resolution of the Notice of Violation issued to Smith Ranch-Highland by the Wyoming Department of Environmental Quality.