2015 ANNUAL REPORT The nuclear fuel cycle CANDU Cycle Light Water Cycle Mining Enrichment Once an orebody is discovered and defined by Uranium is made up of two main isotopes: U-238 exploration, there are three common ways to mine and U-235. Only U-235 atoms, which make up uranium, depending on the depth of the orebody 0.7% of natural uranium, are involved in the nuclear and the deposit’s geological characteristics: reaction (fission). Most of the world’s commercial • Open pit mining is used if the ore is near the nuclear reactors require uranium that has an surface. The ore is usually mined using drilling enriched level of U-235 atoms. and blasting. The enrichment process increases the concentration • Underground mining is used if the ore is too of U-235 to between 3% and 5% by separating deep to make open pit mining economical. U-235 atoms from the U-238. Enriched UF6 gas Tunnels and shafts provide access to the ore. is then converted to powdered UO2. • In situ recovery (ISR) does not require large scale excavation. Instead, holes are drilled into the ore Fuel manufacturing and a solution is used to dissolve the uranium. Natural or enriched UO is pressed into pellets, The solution is pumped to the surface where 2 which are baked at a high temperature. These are the uranium is recovered. packed into zircaloy or stainless steel tubes, sealed and then assembled into fuel bundles. Milling Ore from open pit and underground mines is Generation processed to extract the uranium and package Nuclear reactors are used to generate electricity. it as a powder typically referred to as uranium U-235 atoms in the reactor fuel fission, creating concentrates (U3O8) or yellowcake. The leftover processed rock and other solid waste (tailings) heat that generates steam to drive turbines. The fuel is placed in an engineered tailings facility. bundles in the reactor need to be replaced as the U-235 atoms are depleted, typically after one or two years depending upon the reactor type. The used – Refining or spent – fuel is stored or reprocessed. Refining removes the impurities from the uranium concentrate and changes its chemical form to Spent fuel management uranium trioxide (UO3). The majority of spent fuel is safely stored at the reactor site. A small amount of spent fuel Conversion is reprocessed. The reprocessed fuel is used in some European and Japanese reactors. For light water reactors, the UO3 is converted to uranium hexafluoride (UF6) gas to prepare it for enrichment. For heavy water reactors like the CANDU reactor, the UO3 is converted into powdered uranium dioxide (UO2). !Message from the Chair ! Dear Shareholder, ! ! Thank you for your continued interest in Cameco. In 2015, market conditions continued to challenge the industry and the company. In that context, the board focused on achieving steady progress on Cameco’s four measures of success, and paid particular attention to strategy and value creation, risk oversight and board governance. These are the areas we see as fundamental to Cameco’s sustainability as a competitive, low-cost uranium producer. Strategy is particularly important, given the challenge In that same vein, we also undertake a regular review of our the market currently poses. It is crucial that the competency and attribute matrix and diversity policy. In company remain flexible and able to respond to 2015, that review resulted in a director search that led to the changes as they occur – whether positive or negative. appointment of a new board member – Donald Kayne, CEO As a result, we discuss corporate strategy at every of Canfor Corporation and Canfor Pulp Products Inc. Don’s regular board meeting. And, we work with management CEO experience and knowledge of rapidly expanding Asian to ensure the strategy addresses both near- and markets brings a unique and useful perspective to our board. medium-term challenges, while also positioning We are also currently in the midst of a search for a female Cameco to benefit from the growth in demand we director with appropriate industry experience and other anticipate over the long term. In 2015, this work also relevant skills. included two in-depth strategic planning sessions with management. In 2016, we will also be saying goodbye to two of our members – Jim Curtiss and Nancy Hopkins. The board has Just as important as strategy, and closely related to it, benefited from Jim’s vast experience in the US nuclear is risk. The board’s focus includes both strategic risks sector and his expertise in executive compensation as chair and the structured enterprise risk management (ERM) of the human resources and compensation committee for the program that assigns oversight of certain risks to last 14 years. Nancy has been instrumental in driving many specific board committees. This program has been of Cameco’s strong governance practices, and, over the developed and refined over the past several years, and course of her tenure, she has chaired the nominating, we are pleased with the result, which earned Cameco corporate governance and risk committee, audit the inaugural 2015 Achievement in Private Sector Risk and finance committee, and human resources and Management award. The award recognizes Cameco for compensation committee. We wish them well. excellence in Canadian risk, control and audit management practices. Looking forward, we will continue to maintain our focus on strong governance And while we have a robust outward focus, the board and building shareholder value. We remain also has a strong inward focus – continually evaluating confident of the prospects for strong the composition and skill set of the board to ensure it is growth for both Cameco and the nuclear best able to serve the company and remain at the industry, and continue to prepare for it. forefront of good governance. The board, committee The board and management thank you for and director assessments we conduct every year help your continued confidence. us improve our own processes and the work we do as Cameco directors. The chair of the nominating, Sincerely, corporate governance and risk committee also meets Neil McMillan individually with each director to review their assessment, capacity and commitment to Chair of the board Cameco’s board. March 14, 2016 Cameco Board of Directors Our directors as at December 31, 2015 are listed below. More information is available in our proxy circular. Ian Bruce James Curtiss Catherine Gignac Nancy Hopkins Former President and CEO Former commissioner of Former Principal of Partner with the law firm of Peters & Co. Limited the US Nuclear Regulatory Catherine Gignac McDougall Gauley LLP Commission, currently & Associates Daniel Camus Principal of Curtiss Law Anne McLellan Former Former group CFO and head Tim Gitzel Deputy Prime Minister of strategy and international Donald Deranger President and CEO of Canada, activities of Electricité de Advisor to the Athabasca of Cameco currently counsel in France SA Basin Development Bennett Jones LLP Corporation and non- James Gowans John Clappison executive chair of the board President and CEO Neil McMillan Former managing of Points Athabasca of Arizona Mining Inc. Former President and CEO partner of the Greater Contracting Limited of Claude Resources Inc. Toronto Area office of Partnership PricewaterhouseCoopers LLP Message! from the CEO ! Dear Shareholder, ! Every year in this message, we look back at the year Cameco has had – the successes and the challenges. This year, I think it is significant that, at the time of writing, it has been five years since the accident at Fukushima when, overnight, the nuclear industry was turned upside down. I can tell you, just days before the accident, we at Cameco were talking about how we would meet the growth in uranium demand we saw on the horizon. And, to be honest, we weren’t sure how we were going to do it. The growth in nuclear coming from all corners of the globe was enormous – the US reactor fleet was growing, China was starting to build reactors at an unprecedented pace, and previously non-nuclear countries were starting to build. It was a great time to be in the industry. I think it’s safe to say that no one knew just how much That doesn’t change the fact that the challenges we of an impact Fukushima would have, and for how long. face today are real, and must be surmounted. But We certainly didn’t think oversupply and low uranium Cameco continues to return strong results. In 2015, we prices would last for five years. But larger global drivers, achieved record uranium production and exceeded our like a sluggish economy, slower growth, flat electricity expectations at Cigar Lake, which performed demand, and a host of other external factors have also exceptionally well. We delivered on our guidance. And, conspired against us. we returned excellent safety results – table stakes for our company. However, the challenges we have faced have also provided a lot of opportunity, the most significant of Today, we are on track to continue this trend. We which has been the chance to improve as a company. remain on track with our tier-one strategy, which Continual improvement has always been a priority for focuses on our best-margin assets. We remain on track us, but extended market challenges meant we needed at Cigar Lake, which should reach full production of to take a hard look at our strategy, objectives, 18 million pounds per year in 2017. And, we remain processes, in fact, every nook and cranny of our on track to be ready when the market calls for company, to find ways to be more efficient, more more uranium. innovative, more effective. And it’s been impressive to Because it is a question of ‘when’, not ‘if’ more uranium see how well our people have risen to the challenge.