CCJ

Cameco Corporation: Q1 2006 Financial Summary

Business Context and Reporting Period

This Form 6-K filing covers Cameco Corporation's unaudited financial results for the first quarter ended March 31, 2006. Cameco is the world's largest uranium producer, a supplier of conversion services, and a manufacturer of CANDU fuel. The company also holds a 31.6% interest in Bruce Power Limited Partnership (BPLP) and a 53% interest in Centerra Gold Inc. (Centerra). All financial figures are in Canadian dollars unless otherwise noted.

Key Financial Metrics

Liquidity and Debt: Total debt decreased to $708 million (down $151 million from year-end 2005) following the redemption of $150 million in debentures. The net debt to capitalization ratio improved to 5% from 9%. Cash and cash equivalents totaled $577 million as of March 31, 2006.

Margins: The consolidated gross profit margin increased to 35% from 22% in the prior year. The uranium segment margin rose to 34% from 15%.

Material Changes vs. Prior Period

• Uranium Business: Revenue surged 265% to $285 million, driven by a 179% increase in sales volume (12 million lbs vs. 4.3 million lbs) and a 29% increase in the realized price (CAD). The high volume was attributed to the timing of customer delivery requests.
• Accounting Change: Revenue from BPLP is now proportionately consolidated (effective Nov 1, 2005), whereas it was previously equity-accounted. This significantly impacts reported revenue and cash flow figures compared to 2005.
• BPLP Performance: Pre-tax earnings from BPLP increased 62% to $47 million, driven by a capacity factor of 95% (vs. 81% in 2005) and fewer outages.
• Gold Business: Revenue decreased slightly to $107 million due to lower production volumes at Kumtor and Boroo, though gross profit margin improved to 34% due to higher gold prices ($542/oz realized vs. $417/oz).
• Acquisition: Cameco acquired 100% of Zircatec Precision Industries, Inc. for $109 million on February 1, 2006, integrating it into the Fuel Services segment.

Guidance, Outlook, and Risks

Q2 2006 Outlook: Consolidated earnings are projected to be considerably lower than Q1 due to reduced uranium sales volumes (expected to be roughly half of Q1 levels) driven by customer delivery timing.

Full Year 2006 Outlook:

• Revenue: Expected to grow ~50% over 2005.
• Uranium: Revenue expected to be ~20% higher; sales volume forecast at 35 million lbs.
• Fuel Services: Revenue expected to be ~50% higher.
• BPLP: Earnings projected to be marginally lower than 2005 due to expected lower electricity prices.
• Gold (Centerra): Total production forecast revised down to 680,000–695,000 ounces (from 729,000) due to lower grades and recovery at Kumtor.

Risks and Contingencies:

• Project Delays: Expansion plans for McArthur River/Key Lake are deferred pending regulatory approval for effluent treatment modifications. The Cigar Lake mine second shaft completion is delayed 6–7 months due to a water inflow incident, pushing production start to late 2007.
• Legal: Cameco is defending a $75 million claim by Rio Algom regarding historical tailings management costs (management believes the claim is without merit). A royalty dispute with Mountain West Mines Inc. is on appeal after a favorable lower court ruling.
• Political: Ongoing political instability and potential regulatory changes in the Kyrgyz Republic (Kumtor) and Mongolia (Boroo) are being monitored.

Key Facts for Investor Verification

• Seasonality: Q1 2006 uranium sales volumes were unusually high due to delivery timing; Q2 is expected to be significantly lower, making Q1 results non-representative of annual performance.
• Currency Impact: While the US uranium spot price rose 79%, the realized price in CAD only rose 29% due to the strengthening Canadian dollar. A 1-cent change in the USD/CAD rate impacts net earnings by ~$3 million.
• Capital Expenditures: The Cigar Lake project capital cost estimate increased to $660 million (Cameco's 50% share) due to contractor rates, energy costs, and the new ground-freezing program.
• Dividend: A quarterly dividend of $0.04 per share was declared, payable July 14, 2006.