CCJ

Cameco Corporation: Q4 and Full Year 2006 Financial Summary

Business Context and Reporting Period

This Form 6-K filing, dated February 7, 2007, reports the unaudited financial results for Cameco Corporation for the fourth quarter and full year ended December 31, 2006. Cameco is the world's largest uranium producer and a significant supplier of conversion services and nuclear fuel. All financial figures are presented in Canadian dollars unless otherwise noted.

Key Financial Metrics

Balance Sheet & Liquidity: Total debt was $705 million at year-end. The consolidated net debt to capitalization ratio was 12% (up from 9% in 2005). Cash and cash equivalents totaled $334 million. The company redeemed $150 million in debentures during 2006.

Material Changes vs. Prior Period

• Q4 Performance: Q4 2006 net earnings declined 52% to $40 million compared to $83 million in Q4 2005. This decrease was driven by lower earnings in electricity and gold businesses and a $20 million pre-tax charge at the Cigar Lake mine (comprising a $15 million asset write-down and $5 million in remediation costs).
• Uranium Segment: Q4 uranium revenue fell 24% to $242 million due to a 42% decline in reported sales volumes, which offset a 36% increase in realized selling prices. The volume decline was attributed to unusual delivery timing and revenue deferrals related to standby product loans ($22 million deferred in Q4).
• Full Year 2006: Full-year revenue increased 40% to $1.832 billion, and net earnings rose 75% to $376 million. Adjusted net earnings increased 32% to $274 million, reflecting improved uranium and gold results.
• Accounting Adjustments: Full-year 2006 net earnings included a $73 million non-cash tax recovery due to legislative rate reductions and a $29 million gain on the sale of the Fort à la Corne joint venture interest. These were excluded from adjusted earnings.

Outlook, Risks, and Management Commentary

• 2007 Guidance: Management expects consolidated revenue to grow approximately 25% in 2007. Uranium revenue is projected to increase 45% (or 50% excluding loan deferrals) due to higher realized prices. Gold production is forecast at 700,000–720,000 ounces.
• Cigar Lake Incident: A water inflow in October 2006 flooded the Cigar Lake mine. Remediation is underway, with a technical report expected in late March 2007. Capital cost estimates for remediation are not yet finalized but are excluded from the current 2007 capital expenditure plan of $517 million.
• Product Loans: Cameco has standby product loan agreements allowing customers to borrow up to 5.6 million pounds of uranium. Revenue on sales to these counterparties is deferred until the loans are terminated or repaid. Cameco may consider terminating these arrangements in 2007.
• Political Risks: The company faces political uncertainties in the Kyrgyz Republic (Kumtor mine) regarding tax disputes and government relations, and in Mongolia (Boroo mine) regarding stability agreements and potential windfall taxes.
• Dividends: A quarterly dividend of $0.05 per share was declared, payable April 13, 2007.

Investor Verification Checklist

• Cigar Lake Remediation Costs: Verify the final capital cost estimates and timeline for the Cigar Lake water inflow remediation, expected in the late March 2007 technical report.
• Product Loan Deferrals: Monitor decisions regarding the termination of standby product loan agreements, which could significantly impact 2007 revenue recognition.
• Uranium Price Sensitivity: Assess the impact of uranium spot price volatility on 2007 earnings, noting that a $1.00/lb change in spot price has limited direct impact due to hedging and fixed-price contracts.
• Geopolitical Stability: Review developments in the Kyrgyz Republic and Mongolia regarding tax disputes and mining license stability for the Centerra Gold subsidiary.
• Regulatory Approvals: Track regulatory approvals for the McArthur River/Key Lake capacity increase and the Rabbit Lake mill revitalization.