Slide #1: Market: How did we get here and what will be needed to fuel the nuclear renaissance

Good morning and thank you for this opportunity to address the 2008 class of the World Nuclear University. Before I delve into my topic, I would just like to say a few things about this program. I give the WNA and Member companies a great deal of credit for having the foresight to create this strategic program. Put simply, your participation in the WNU, and the network that it fosters, is critically important to the success of the growth of our industry going forward. As someone who entered the nuclear industry at the age of 21 in 1984, I can only imagine how useful this program would have been to me at that stage in my career. While learning at the feet of the grey haired pioneers of this business was very exciting, and sometimes colorful, the network of gifted nuclear professionals that you are a part of must be very exciting and gives us all confidence that this industry will be very capably led into the future. The mid 80s (smack between TMI and Chernobyl) was not necessarily a time of optimism and growth in our industry so as a young person coming in, you could say I bucked the trend. In retrospect, however, I am extremely thankful that I made this career choice and never lost my faith in the benefits of clean, safe and economic .

It is nice to see our nuclear dreams being realized, and your generation could not be more ideally positioned. The workforce challenges of the nuclear

1 renaissance weigh heavy on industry leaders as we recruit the intellectual power, and execute the critically important knowledge transfer from our older (and retiring) industry experts.

With that, let’s talk about the uranium market.

Slide #2: Nuclear Renaissance – Challenges

This exciting re-birth of nuclear power that we enjoy today, has of course, created many challenges. We have the workforce issues that this program is helping to address. We also face regulatory hurdles as the industry inundates the authorities with applications for construction and operating licenses, design certifications, and permits for new fuel cycle facilities. There are supply constraints and cost issues with a number of the production inputs for new reactors (steel, concrete, large forgings).

The cycle could also be included on this list of challenges if we fail to keep up the growth of nuclear power. Today, I am going to talk about the front end of the fuel cycle, specifically the uranium industry’s capability to support our end of the nuclear success story.

2 Slide #3 - Uranium Miners Risks

Uranium is one of the more common elements in the Earth’s crust - it is more common than tin, about 40 times more common than silver and 500 times more common than gold.. So what is all the fuss about? Our industry’s challenge and great opportunity is to locate sufficient concentrations and quantities of this strategic element to be categorized as deposits which can be economically extracted and then, in turn, sold for a profit (not so simple). In our quest for this profit, we take a number of risks, so many in fact, that one might wonder whether there isn’t a better way to make money.

Uranium miners must face:

Risk that we will spend millions every year on exploration (between

$50-55 million in ’s case) which will more likely than not, come up empty.

Once we have had the good fortune to locate a deposit, we accept the technical risks that it can be mined safely, economically, and in an environmentally acceptable fashion.

Having mastered the technical challenges, we take on political risks in both developed and developing countries that we will be allowed to extract the mineral and/or retain profits.

3 And finally we are exposed to the market risk. Everything else might have come together for the uranium producer only to have uranium market prices move against them.

Slide #4 – Fuel as a % of Electricity Production Costs

The uranium market is interesting in a lot of ways. Given the inherent energy efficiency of splitting atoms to create heat in a commercial nuclear reactor, the relatively cheap fuel cost component of nuclear energy is much more advantageous than say coal or natural gas.

Having said that, it is a large percentage of the variable operating cost of the reactor and much attention is put to it.

Slide #5 – Nuclear Fuel Procurement

Engineers at nuclear operations design optimal reactor core loadings which in turn drive fuel requirements. From these forecast fuel needs, requirements for natural uranium (U3O8), UF6 conversion and enrichment services are determined and sourced from the market. Uranium is sold largely under long term contracts which are determined competitively at arms length between buyers and sellers. These contracts can last anywhere between 3 and 20 years in duration and are often signed several years before the first delivery. Long term pricing can either be set at an agreed level and escalated by , negotiated periodically, or allowed to float with market

4 indices. Uranium can also be bought for immediate delivery (less than one year) in the spot market directly. Like many commodities, a small percentage of the overall market supplies may be sold in the spot market, however, this is the quoted and published price that most market observers fixate upon. As we will discuss, there are positive aspects, and certainly shortfalls, to this spot market fixation, but nevertheless it is very influential in determining the prices for uranium.

Slide #6 – Martin Heinrich Klaproth (1743-1817)

Historical Developments

In order to have a meaningful discussion of the current and future uranium market, it is necessary to look at the historical developments which have created a number of the conditions present today. By historical, I don’t mean back to the discovery of the element by Martin Klaproth in 1789, the uses in glass colorization, or even the early weapons program (although the latter did, and still does, have a profound impact on the supply side of the uranium market). Let’s look at the uranium market in support of the commercial nuclear power industry which I will generalize into three distinct phases.

5 Slide #7 – Three Phases of Nuclear Power Generation

1. Birth/emergence of commercial nuclear power - 1950 - 1979

2. Middle Ages – 1980 - 2002.

3. Nuclear Renaissance – 2003 – present

The first phase is when we moved…

Slide #8 – Large

From this….

Slide #9 – Birth /Emergence of Nuclear Power

Photo: The first reactor that was used to generate electric energy was the EBR (Experimental ) in the United States. The EBR was put into operation in 1951 and 200 kW out of its 1400 kW thermal power was utilized including the lighting of one of the buildings of the National Reactor Testing Station in Idaho.

…To the birth/emergence of commercial nuclear power

The strategic nuclear arms race, beginning with the Manhattan Project was, of course, the original driver behind the frantic global search for uranium. Governments seeking stable supplies for their weapons programs provided substantial resources within their spheres of influence to encourage

6 new discoveries and production. This was, of course, certainly true in the

United States and the .

The real commercial uranium heyday however came in the period of the 1970’s with the realization of the peaceful use of nuclear energy

(primarily power generation). In the United States, for example, there was hardly an electric utility that had not ordered, or at least speculated on adding nuclear generation to their grid (this was the “too cheap to meter” nuclear boom). In fact, a 1972 Atomic Energy Commission forecast estimated that between 825 and 1,500 gigawatts of nuclear capacity in the US was expected to be in place by 2000 (about 100 gigawatts exist today). The corresponding projections of uranium prices exceeded $100 per pound as supplies of uranium were secured even before the ink had dried on the nuclear plant orders (many of which never materialized). Many utilities during this time pursued self supply programs with equity interests in exploration and mining companies, fearing being left with a reactor and no fuel. Adding to the situation were the fixed commitment enrichment contracts with the U.S. DOE which required utilities to feed their SWU contracts with UF6 even though they had no (or delayed) reactor requirements.

7 Slide #10 – Evolution of Uranium Price - Birth /Emergence of Nuclear Power

(1950-1979) Birth/Emergence of commercial nuclear power – Transition from nuclear weapons to electricity generation – “Atoms for peace”.

You see this represented in the production curve exceeding the demand curve based on that ultimately unfounded optimism. Nuclear power did grow dramatically worldwide over this period, but much less than the predictions, which caused the industry to produce far more than would be ultimately needed by the world’s nuclear reactors. It is this profound development, and that of the huge military build up of inventories that preceded it, that would set the stage for twenty years of inventory drawdown which has only now begun to move back towards equilibrium.

This graph also shows very clearly the direct relationship between high uranium prices and expansion of new production. While there is understandably a timing lag, this direct correlation should be comforting to fuel buyers facing historic high prices.

8 Slide #11 – Evolution Middle Ages – 1980-2002.

Photo: Incomplete reactor at Chernobyl

As the 1970’s came to a close the uranium rush was beginning to lose some of its luster. Confidence in the nuclear industry was shaken by the partial core meltdown at Three Mile Island in Pennsylvania, despite there being no injuries, illness or loss of life. The resulting re-engineering of existing plant designs and increased regulatory oversight, however, caused many reactor projects to fall into prolonged construction delays. Public opposition mounted as the anti-nuclear movement took hold. The high interest rate environment of the early 80’s and these construction delays combined to cause the costs of new reactors to skyrocket to unacceptable levels. A number of projects were abandoned at various stages of partial completion and additional previously ordered plants were cancelled outright. The secondary, or spot, market emerged as brokers sought out utilities with excess, or unneeded, uranium and wheeled it into willing buyers at deeply discounted prices. The result was a prolonged period of inventory driven depressed prices which bore no relation to the production economics of . During this period, the production industry was severely contracted having peaked worldwide at 177 million lbs in 1982 and falling to a low of 81 million lbs in 1999. With the outlook for nuclear looking meager at best and uranium prices languishing below $10 per pound, operating mines simply shut down and worldwide exploration expenditures dropped dramatically.

9 Industry consolidation was as equally dramatic as scores of uranium mining companies left the business, in some cases giving away their assets in exchange for relief from the reclamation liabilities.

Slide #12 – Evolution of Uranium Price – Middle Ages

(1980-2002) Middle ages – Stagnation of nuclear power and growth of the anti- nuclear movement – reactor cancellations and no new orders.

In 1998 only six companies comprised over 70% of worldwide uranium production. In the exploration field, as much as one-half of worldwide exploration investment by the late 1990’s could be accounted for between two companies, Cameco and . While even the most pessimistic of analysts could predict that this situation could not last forever (consumption exceeding production by as much as a two to one margin), a number of factors contributed to a sense of complacency about the future:

• Global nuclear growth was plateauing – new build in Asia was more

than offset by European moratoriums and threats of early reactor

retirements (ahead of scheduled licensed life).

• Liquidation of government inventories from the United States and the

former Soviet Union piled on to the sense of supply abundance to

utilities (and of hopelessness for many producers).

10 • Low spot prices masked the underlying imbalance of resource

inadequacy. Supplies in the near term were abundant at a cost which

bore no relation to the cost of finding and extracting a pound of

uranium 5 to 10 years down the road.

• Regulatory environment did not encourage resource development –

Utilities found it very difficult to justify to it’s ratepayers that paying a

producer a premium uranium price was a prudent decision. Even if the

intent would be to encourage new production capacity, any such

strategic move would be judged unfavorably against the depressed spot

market benchmark. There were exceptions, of course. Japanese

utilities, for example, bucked this trend and supported supply diversity

and reliability through base load contracting with leading producers.

Note: the “crossover year” in 1991 where demand exceeds production for the first time. Cameco estimates that over one billion pounds of uranium inventory have been drawn from the system since this time (we have truly been living off of inventories as these curves show). An interesting side note:

At the time, we in the industry thought that this “crossover year” was actually occurring in 1984, however at that time we underestimated the substantial supply potential of the former Soviet Union. We still had very distinct “Western and non-Western” markets, but the integration of these

11 two worlds would ultimately see these supplies come to the West and thereby pushing out the supply curve substantially (further delaying recovery).

Slide #13 – Nuclear Renaissance

Photo: in Cattenom, France

This brings us to the present day where we are in the midst of the resurgence of nuclear power on a global scale. In North America, this turnaround was quite sudden and abrupt. Earlier in this decade, the talk was centered around the demise of nuclear power in deregulated electricity markets and whether reactors would even operate to the end of their licensed lives. The competition was to be dominated by quick to build, and cheap to operate, natural gas fired turbines and continued reliance on coal.

Environmental costs of the various options were beginning to be discussed, but not yet influencing policy. A number of things changed that:

• High fuel costs hurt the competitiveness of gas turbines.

• Nuclear plants dramatically improved performance.

• Fully amortized base load nuclear became the cost competitive leaders

in de-regulated electricity market.

• Clean air advantages of nuclear, and environmental shortcomings of

coal, began to take hold in public opinion and policy.

12 • High oil prices and Middle Eastern conflicts also raised the general

awareness of energy issues with focus on the stability of supplies.

Slide #14 – Evolution of Uranium Price – Nuclear Renaissance

(2003- present) Nuclear renaissance – Global realization of the benefits of nuclear power to meet energy needs in an environmentally responsible manner.

This turnaround first took the form of capacity up-rates and license extensions and has further progressed to license applications and new reactor orders. From a uranium market perspective this was, and is, all very welcome news as it gives confidence that capital investments made today will be rewarded by the bright future of a growing market. However, this alone could not be the explanation of the 1800% increase in the uranium market price to $135.50 per pound in 2007.

Slide #15 – Uranium Market

Supply Shocks

I’ll not go into any detail on the following events but the cumulative effect was to dramatically sop up any inventory slack that was remaining in the system, suddenly bringing supply and demand into balance (or perhaps more appropriately into a period of “supply tightening”).

13 • October 2001 – Fire in the solvent extraction circuit of the Olympic

Dam mine in Australia

• Early 2003 – Production and cost challenges at Rossing Mine in

Namibia calls into question future operations.

• April 2003 – Water inflow in the McArthur River Mine in Canada

• November 2003 – Contract dispute between Russian entities puts

significant volumes from the HEU deal in limbo.

• November 2007 - Water inflow at the Rabbit lake Mine in Canada.

• 2005 to present – Start-up of the Cigar Lake Mine in Canada set back

due to flooding of underground operations.

• 2001 to present – various strikes, events and shutdowns at worldwide

refining and UF6 conversion operations puts further pressure on

squeezed uranium supplies.

Slide #16 – Financial Speculators

At the same time as the foregoing supply disruptions were straining available supplies, the financial and investment community recognized an opportunity to capitalize on the nuclear energy success story. These analysts saw the imbalance between new mine production and (growing) consumption, caused by the twenty or so years of underinvestment, as a strong signal to buy not only the equities of exploration and mining companies, but also the

14 underlying uranium commodity. Many are surprised to learn that the private ownership of uranium is even possible given its strategic nature. By

“physical ownership”, we mean the ability to buy, hold and sell uranium in accounts at licensed facilities within the normal . Private entities can participate in these transactions, as the uranium never leaves the

IAEA safeguarded fuel cycle. It is estimated that these “hedge fund” and financial entities hold as much as 20-22 million lbs U3O8 which underscores the importance of having a solid understanding of their activities. Just as is the case in grain, oil and other commodity markets, the speculators can be praised or vilified depending on whether they are accumulating or dumping inventories. The reality is however, that while they do not alter the longer term supply and demand fundamentals, they do add a great deal of volatility

(and liquidity) to the spot market. Most analysts agree that they played a role in the rise to the historic uranium market high of $135.50 per pound in June of 2007, and are perhaps a factor in the markets 59% drop to the $57 per pound level in June of 2008. Most recently (this month), speculative and financial demand has returned to the market, having cleared much of the available cheap/distressed supplies which has resulted in the price nudging back up into the $60’s.

15 Slide #17 – Uranium Supply and Demand

Hopefully the foregoing gives some context as to why the uranium market is at where it is, but what about the future? In particular it is reasonable to ask whether the front end of the fuel cycle will be able to keep up with the growth of the nuclear industry. We believe that it will, but a substantial amount of investment in exploration and new mine development will be required. For example, the Cigar Lake technical report in March

2007 estimated Cameco’s share at close to $570 million in capital and remediation costs combined. We are also moving ahead with revitalization plans at both Key Lake and Rabbit Lake. I expect that Cameco could easily spend a couple of billion dollars on these efforts in the coming decade.

The price signals we have seen in recent years are definitely helping reinvestment to become a reality, but remember we are digging out of a very sizeable hole of the 1980’s and 90’s when we essentially missed two complete exploration and development cycles.

Our supply and demand forecast for the next twenty years is the best way to put this challenge into perspective.

16 Slide #18 – World Uranium Supply and Demand

Demand

The gold bar in this graph represents the worldwide demand for uranium based on the actual needs of existing reactors and the projected requirements of reactors planned or under construction. Over the next 20 years we expect that demand to be a little over 4.5 billion pounds of uranium.

It is worth noting that these projections are in line with those of the World

Nuclear Association which attempt to portray a realistic, yet balanced, view of new reactor growth.

% of Million lbs U3O8 (2008-27) Demand Supply Demand World Demand 4,523 Existing Mines 1,823 40% Existing Secondary Supply 765 17% Total 2,588 Required Supply 1,934 43%

17 Slide #19 – World Uranium Supply and Demand

Supplies

• First, Existing Mines, will contribute 1.8 billion lbs which represents

40% of required supplies

% of Million lbs U3O8 (2008-27) Demand Supply Demand World Demand 4,523 Existing Mines 1,823 40% Existing Secondary Supply 765 17% Total 2,588 Required Supply 1,934 43%

Slide #20 – Largest Producing mines

In this category of existing mines, we see the diverse geographic distribution of uranium production. We also see the high degree of market concentration where 70% of current world production comes from only 12 large mines. The large scale of these mining operations is certainly a source of their competitive strength, but at the same time presents challenges to the overall uranium market when production interruptions at individual mines can have profound impact on broader supply availability (as has been experienced recently).

18 In terms of a global breakdown,

• Canada continues as the world production leader with 25 M lbs

representing about 23%

• Australia follows closely with production of 22 m lbs or 21%

• produced 17 M lbs or 16%. I should note that this large

Central Asian country has seen the greatest rate of increased

production of any country in the last couple years (In fact 2007

production increased 26% over 2006 levels!). And they have even more

ambitious plans going forward.

2007 World Uranium Production by Country 2006 World Uranium Production by Country % Change 07 M lbs % of World M lbs % of World vs 06 Canada 25 23% Canada 26 25% -4% Australia 22 21% Australia 20 19% 13% Kazakhstan 17 16% Kazakhstan 14 13% 26% Russia 9 8% Russia 8 8% 5% 8 8% Niger 9 9% -8% 7 7% Namibia 8 8% -6% Uzbekistan 6 6% Uzbekistan 6 6% 3% USA 4 4% USA 4 4% -1% Ukraine 2 2% Ukraine 2 2% 6% South Africa 1 1% South Africa 1 1% 1% Other* 5 4% Other 4 4% 6% Total 107 100% Total 103 100% 5% Totals may not add due to rounding Totals may not add due to rounding *Other includes: France, Czech Republic, *Other includes: France, Czech Republic, Germany, Brazil, Pakistan, Romania, India & Germany, Brazil, Pakistan, Romania, India & China China

19 Largest Producing Mines in 2007 % of Production Mine Country Main Owner Type World Million lbs Production McArthur River Canada Cameco Conventional 18.7 17% Ranger Australia /ERA Conventional 11.9 11% Olympic Dam Australia BHP Billiton By Product 8.8 8% Priargunsky Russia Russia Conventional 7.9 7% Rossing Namibia Rio Tinto Conventional 6.7 6% Arlit Niger Areva Conventional 4.5 4% Rabbit Lake Canada Cameco Conventional 4.0 4% Akouta Niger Areva Conventional 3.6 3% Akdala Kazakhstan Uranium One ISR 2.6 2% Zafarabad Uzbekistan Navoi ISR 2.3 2% McClean Lake Canada Areva Open Pit 1.9 2% Beverly Australia Heathgate ISR 1.6 2% Top Twelve Total 74.8 70% Total Global Production 107.3

Slide #21 – World Uranium Supply and Demand

Supplies

Existing secondary supplies will contribute another 765 million lbs, or 17% of supply in this period. This will come from the continued draw down of inventories, including the recycling of US and Russian weapons material and .

% of Million lbs U3O8 (2008-27) Demand Supply Demand World Demand 4,523 Existing Mines 1,823 40% Existing Secondary Supply 765 17% Total 2,588 Required Supply 1,934 43%

20 Slide #22 – Secondary Supplies

One of the best known sources of secondary supply is the highly successful disarmament initiative that is the US/Russian HEU deal. Russian nuclear warheads that were once pointing at large US cities during the cold war are now powering them through the megatons to megawatts program. As of June 2008, 337 metric tons of bomb-grade HEU have been recycled into

9,800 metric tons of LEU, equivalent to 13,497 nuclear warheads eliminated.

By 2013, when the program is completed, 500 metric tons (MT) of Russian highly (HEU), the equivalent of 20,000 warheads will have been recycled into LEU—enough material to produce fuel to power the entire

United States for about two years.

Another significant secondary source of supply is the US government’s uranium inventories. A strong coalition of US uranium producers, the

Nuclear Energy Institute and major utilities, has been lobbying the

Department of Energy for the measured and predictable (non-disruptive) disposition of these supplies into the uranium market. The market recognizes the value of these government inventories to the future supply mix, however, is cognizant that an undisciplined liquidation of these supplies would have a very damaging impact on the commercial uranium mining industry. It is interesting to note that the one of the cornerstones of this industry compromise is to direct as much of these supplies as possible towards the

21 initial cores of new reactors being built in the United States (a very positive use of these inventories indeed).

Slide #23 – World Uranium Supply and Demand

So, with the existing mine production and secondary supplies, this leaves us with a gap of about 1.9 billion lbs, (or roughly 43% of total demand) over the twenty year period…

% of Million lbs U3O8 (2008-27) Demand Supply Demand World Demand 4,523 Existing Mines 1,823 40% Existing Secondary Supply 765 17% Total 2,588 Required Supply 1,934 43%

Slide #24 –Required Supply

…which we assume to be filled by mine expansions and new production. Some noteable examples are:

• Cigar Lake in Northern Saskatchewan which is expected to produce 18

million pounds annually by mid next decade;

• Potential expansions at existing mines and new mines currently under

development in Namibia, Malawi and the republic of South Africa

22 could produce more than 200 million lbs over the next twenty year time

period.

• Kazakhstan ISR production from numerous operations will also

amount to large uranium volumes.

It should be emphasized that the supply volumes in this category are by no means a certainty. Numerous challenges exist for these production sources which include:

• Technical start-up difficulties

• Infrastructure challenges (sulphuric acid, electricity)

• Workforce challenges

• Political risk / Native landowner claims

• Rising cost of production (steel, concrete, fuel).

World U3O8 Supply and Demand 2008-2027 Summarized % of (Millions lbs U3O8) Demand Demand 4,523 Supplies Existing Mines 1,823 40% Existing Secondary Supplies 765 17% New Mines under Development 1,112 25% Totals 4,523 3,700

Required Supply 822 18%

Slide #25 – World Uranium Supply and Demand

Adding in these supplies under the assumption that they will be successful, still leaves a shortfall of over 800 million pounds (or about 18% of

23 requirements) in the 20-year period. While these sources are still undetermined, we do believe that these needs will be filled by new discoveries and developments that the industry is hopefully on the verge of today.

A prime example is the recent announcement whereby Cameco and its partner Mitsubishi acquired an advanced exploration project in Western

Australia called Kintyre for $495 million. Uranium was first discovered in the area in 1985 and followed up with extensive exploration that identified eight deposits which may host between 62 and 80 million lbs U3O8. The project was placed in care and maintenance in 1988 when uranium prices declined below $12 per pound (US), but the market rebound has clearly created a renewed economic stimulus. Like all potential new mines, there are a number of hurdles that must be cleared before we can begin developing Kintyre. For example, we will immediately begin working toward a mine development agreement with the local aboriginal Martu people. We believe that Cameco’s successful operations in Canada have contributed to a core corporate competency in this area as we have gained the respect of our aboriginal stakeholders through trust, fair dealings, open communication, economic development, training and safe, high paying jobs.

Our industry should be encouraged by developments, like Kintyre, as it signals a confidence in the future of nuclear power. As this chart shows, we will need at least 10 large new mines of this magnitude to meet the required

24 supply in this period. We look forward to other similar announcements in the coming years.

World U3O8 Supply and Demand 2008-2027 Summarized % of (Millions lbs U3O8) Demand Demand 4,523 Supplies Existing Mines 1,823 40% Existing Secondary Supplies 765 17% New Mines under Development 1,112 25% Totals 4,523 3,700

Required Supply 822 18%

Slide #26 – Conclusion

In conclusion, Cameco does believe that the uranium mining industry is rising to the challenges of the nuclear renaissance and the fuel cycle will continue to be one of its greatest advantages. It will however be the product of significant investment, risk-taking and hard work among the world’s uranium miners. It will also be a product of the foresight of strategic nuclear utilities that forge strong relationships with their suppliers and provide the base load contracts that allow this level of investment to move forward.

The success of the uranium mining industry will also be dependant upon the support of other key stakeholders such as our local communities, governments and regulators. We have a responsibility to operate under the highest standards of environmental stewardship, safety and ethical integrity.

In turn, we expect reasonable policy and regulation from our governing

25 bodies which balances our right to earn a profit for our shareholders while conducting our business in the best public interest possible. In response to a number of production challenges at our own operations, Cameco has set out to improve its culture to one of high reliability and operational excellence

(our Bob Steane will speak to you next on our exciting production challenges and opportunities).

In closing, while the uranium market is rapidly moving into a new phase of hyper-growth, it presents a whole new set of challenges and uncertainties. Having said that, the uranium industry is taking this challenge on as a great opportunity and I am confident that the fuel cycle will continue to be one of nuclear power’s greatest advantages.

Slide #27 – Cameco.com

I look forward to your questions/comments.

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