Cameco Corporation

2121 11th Street West
Saskatoon, Saskatchewan S7M 1J3
Canada
Telephone: (306) 956-6200
Fax: (306) 956-6201
Web site: http://www.cameco.com

Public Company
Incorporated: 1987
Employees: 1,538
Sales: CAD 1.04 billion (2004)
Stock Exchanges: Toronto Montreal New York
Ticker Symbol: CCO; CCJ
NAIC: 212291 Uranium-Radium-Vanadium Ore Mining

Cameco Corporation is the largest uranium producer in the world, accounting for one-fifth of the world's production. Cameco and two other uranium producers, the French-owned AREVA Group and the Australian-owned Rio Tinto Group, control 60 percent of the world's uranium supply. Cameco is a vertically integrated uranium company, involved in mining the metal ore, processing it, making fuel rods, and, through a 31.6 percent stake in Bruce Power Partnership, operating four Canadian nuclear reactors. The company also is involved in gold production, holding a 52.7 percent interest in Centerra Gold Inc., the largest, Western-based gold producer in central Asia and the former Soviet Union. Cameco's mining operations are conducted in Saskatchewan, where the largest known deposit of high-grade uranium is located, and in Wyoming and Nebraska. The company's uranium refining and conversion facilities are located in Ontario, where the reactor plants it manages are also located. Uranium is used to generate 16 percent of the world's electricity.

ORIGINS

There was a time when the business of mining for uranium appeared destined for exponential growth. During the 1970s, soaring oil prices helped promote nuclear power as an alternative energy source, and uranium, the radioactive metal used to fuel reactors, stood to gain considerably in value. More common than tin and 500 times more common than gold, uranium possessed unique properties: Its atomic structure could be changed in a process that released energy in the form of heat, which, inside a nuclear reactor, could be harnessed to generate electricity, producing one of the cleanest sources of energy available. Concern about a reactor meltdown and the creation of radioactive waste historically had held the growth of the nuclear power industry in check, but by the late 1970s, the attitude toward nuclear-generated electricity was changing. By the end of the decade, there were plans to build 50 new nuclear plants in the United States alone. The price of concentrated uranium ore, known as "yellowcake," shot upward because of the anticipated demand, surpassing $40 per pound. A new era of power generation appeared to be imminent, but on March 28, 1979, the hopes of the nuclear industry and the prospects of uranium miners were crushed shortly after 4 a.m.

When the Three Mile Island nuclear facility near Middletown, Pennsylvania, recorded the most serious accident in the history of the U.S. commercial nuclear power industry, an industry on the verge of major expansion was forced to retreat. The accident, deemed a partial meltdown (roughly half of the core melted during the early stages of the incident), caused no deaths or injuries to plant workers or residents of the nearby community, but it raised the specter of worst-case consequences and stripped the nuclear power-generation movement of its momentum. In the wake of the accident, efforts to build the previously planned 50 new nuclear plants were abandoned, causing the price of concentrated uranium ore to fall substantially. From a business standpoint, the Three Mile Island accident was a public relations disaster for proponents of nuclear-generated power and the commercial interests supporting the nuclear industry, a disaster that was greatly exceeded when the worst-case scenario played itself out seven years later. In April 1986, an explosion at the nuclear facility in Chernobyl destroyed the core of reactor number four, triggering a second explosion and a fireball two minutes later that blew off the reactor's steel and concrete lid. At least 5 percent of the radioactive reactor core was released into the atmosphere and downwind, eventually causing 56 fatalities, either from the explosions, or from radiation, thermal burns, or thyroid cancer.

Cameco was formed in the wake of the Chernobyl disaster, unfurling its corporate banner for the first time as faith in nuclear-generated power reached an all-time low and uranium prices continued to plummet. The company was a newcomer to uranium mining in name only, however. Cameco was created through the merger of two companies, the Saskatchewan Mining Development Corporation and Eldorado Nuclear Limited, each a holder of substantial uranium assets. Eldorado was established in 1926, a founding date that would make it the oldest company in the uranium business in North America. Eldorado, which became a Canadian Crown corporation during World War II, also developed into one of the largest companies in the uranium business in North America, accumulating substantial uranium mining interests in Saskatchewan and uranium processing facilities in Ontario, the only such facilities in Canada. The Canadian government first began exploring the possibility of privatizing the company in 1984, discussions that led to its merger with Saskatchewan Mining Development Corp. Saskatchewan Mining, a provincially owned Crown corporation, had established itself as the lowest-cost producer of uranium in Canada by the time of the merger, using its uranium mining operations and reserves in Saskatchewan to distinguish itself. The merger in 1988 created one of the largest integrated uranium mining and processing companies in the world, boasting $1.6 billion in assets under the Cameco name.

Cameco, impressive in size and scope, began operating under less than favorable conditions considering the damage caused by the accidents at Three Mile Island and Chernobyl. By the late 1980s, the price of uranium had fallen to $10 per pound, down substantially from prices that eclipsed $40 per pound a decade earlier. For Cameco and the rest of the uranium industry, the prevailing attitude toward nuclear-generated power provided little encouragement that the 1990s would bring growth. The decade, in fact, brought even bleaker conditions to the uranium industry, as the fall of the Soviet Union delivered a third, decisive blow to the industry. The end of the Cold War brought the end of the nuclear arms race and created another problem for uranium producers. The radioactive material in many nuclear warheads was converted to commercial use (during the early 21st century, reactor fuel made from scrapped Soviet nuclear weapons powered one out of every ten homes in the United States), glutting the uranium market. With the construction of new nuclear plants on hold indefinitely and the existing reactors feeding off stockpiles of uranium, the market for the ore dwindled. Mines were sold or closed down, as depressed prices and excess inventories encouraged or forced many of the smaller operators to exit the business. One of the exceptions to the trend was Cameco.

COMPANY PERSPECTIVES

Our mission is to bring the multiple benefits of nuclear energy to the world. We are a global supplier of uranium fuel and a growing supplier of clean electricity. We deliver superior shareholder value by combining our extraordinary assets, exceptional employee expertise, and unique industry knowledge to meet the world's rising demand for clean, safe and reliable energy. The key measures of our success are a safe, healthy and rewarding workplace, a clean environment, supportive communities and outstanding financial performance.

EXPANSION IN THE 1990S

While other uranium concerns made a retreat, Cameco pressed ahead, increasing its already stalwart position in the uranium market. The company aggressively pursued new prospecting grounds, using the anemic conditions hobbling its industry to its advantage by acquiring terrain that likely contained high-yield, low-risk deposits. In 1991, as it prepared to embark on its expansion plan, the company completed its initial public offering (IPO) of stock, selling 10.4 million shares at CAD 12.50 per share in its debut on the Toronto and Montreal Stock Exchanges in July. At the time of the IPO, which netted the company CAD 130 million in proceeds, Cameco accounted for 10 percent of the world's electrical utility fuel requirements and 20 percent of its uranium conversion services. The company began trading on the New York Stock Exchange in 1996, the year it entered the gold production business through an investment in a gold mine in Kyrgyzstan. The year also marked the acquisition of Power Resources, Inc., a U.S.-based uranium mining company, and Central Electricity Generating Board Exploration (Canada) Ltd., a company involved in Canadian uranium exploration. Cameco paid $105 million for the two companies, gaining the greatest boost to its stature from the addition of Power Resources, which ranked as the largest uranium producer in the United States. The acquisition increased Cameco's reserves and resources by 10 percent.

Cameco's most aggressive moves occurred at the end of the 1990s, when the uranium industry was in its deepest doldrums. In 1998, the company paid CAD 489 million for Uranerz Exploration and Mining Limited and Uranerz U.S.A., Inc. Uranerz Exploration, based near Cameco in Saskatoon, held a 33.33 percent interest in the Key Lake and Rabbit Lake uranium mines and a 27.92 percent interest in the McArthur River uranium project, all of which were located in northern Saskatchewan. The acquisition added greatly to Cameco's holdings, particularly the McArthur River property, then under development, which ranked as the world's largest known high-grade uranium deposit. Cameco's chief executive officer at the time, Bernard Michel, noted the significance of the purchase in a company press release issued on August 11, 1998. "This acquisition," he said, "increased Cameco's uranium reserves and resources and uranium production levels by about 30 percent, solidifying Cameco's already strong position in the global uranium industry." Cameco began mining at McArthur River in 1999 and achieved commercial production in late 2000.

As Cameco entered the 21st century, the uranium industry continued to limp along, its customers still feeding off excess inventories. Cameco, as it had been doing since its inception, responded to the dour state of its industry by broadening its interests. In 2000, the company expanded its capabilities beyond mining and refining uranium and entered the generation business, signing a memorandum of understanding with British Energy PLC to acquire a 15 percent interest in Bruce Power Partnership. The deal, concluded in April 2001, put Cameco in charge of four nuclear reactors in Ontario, an arrangement that made Cameco the exclusive supplier of fuel to the reactors. In 2003, the company increased its stake in Bruce Power, paying CAD 209 million to gain a 31.6 percent interest in the partnership. Gerald W. Grandey, Cameco's chief executive officer, commented on the move in a February 16, 2003 interview with Canadian Corporate News, one month after being promoted to the chief executive office. "The increased ownership," he said, "is consistent with our objective to leverage our unparalleled uranium assets into a greater role in the nuclear industry."

KEY DATES

1988:

Cameco, incorporated the previous year, begins operating following the merger of the Saskatchewan Mining Development Corporation and Eldorado Nuclear Limited.

1991:

Cameco completes its initial public offering of stock.

1996:

Cameco acquires Power Resources, Inc., the largest uranium producer in the United States.

1998:

The acquisition of Uranerz Exploration and Mining Limited gives Cameco access to uranium deposits at Rabbit Lake and McArthur River, two of the largest deposits in the world.

2001:

Cameco takes a 15 percent interest in Bruce Power Partnership, giving it control over four nuclear reactors in Ontario.

2003:

Russia announces it will limit exports of uranium, causing prices to rise.

2004:

Cameco's revenues eclipse CAD 1 billion.

2020 BECKONS

Grandey's commitment, and the commitment demonstrated by his predecessors, to increase Cameco's exposure in the nuclear industry began to look astute not long after the Bruce Power deal. There were a number of factors at work, including the pressing energy needs of a host of nations and the fact that uranium stockpiles were not inexhaustible, but once Russia, the world's second largest exporter of uranium, announced in October 2003 that it would limit exports to conserve fuel for the reactor plants it planned to build, the price of uranium began to rise energetically. After decades of either declining or stagnating in price, the value of uranium began to appreciate, and the one company more than any other that stood to gain was the world's largest uranium producer, Cameco, the "Saudi Arabia of uranium," as the head of an investment firm referred to the company in the November 28, 2005 issue of Forbes Global.

After 25 years of being relegated to the backwaters of the energy field, nuclear-generated power had become popular again. Between 1985 and 2003, half of the commercial stockpile of enriched uranium was exhausted, but Cameco's hopes for a lucrative future were based on more than just the gradual depletion of excess inventories. Between the beginning of 2004 and October 2005, the price of uranium nearly tripled, rising to $33 per pound. Analysts expected the price to reach $45 per pound by 2007. The reason for Cameco's optimism and the optimism underpinning pundits' prognostications was the enormous number of nuclear energy projects being announced midway through the decade. In January 2005, China was preparing to award an $8 billion contract to build four reactors, the largest nuclear power construction project in the world. By 2020, China planned to build 27 reactor plants to meet its target of increasing its nuclear energy output fivefold. India, desperate to meet the energy needs of its population, planned to increase its nuclear power capacity by a factor of eight by 2020, an objective it intended to meet by building 31 reactors. Russia, aiming for the same target year, planned to build 25 new reactors. Cameco, as it listened to the ambitious construction plans being announced, holding in its hands one-fifth of the world's supply of uranium, looked toward the future with a degree of confidence unprecedented in its history. The company, able to survive in the worst of times, seemed guaranteed to thrive in the best of times.

PRINCIPAL SUBSIDIARIES

Cameco Bruce Holdings Inc.; Cameco Bruce Holdings II Inc.; Centerra Gold Inc. (52.7%); UEM Inc. (50%); Bruce Power Limited Partnership, LP (31.6%).

PRINCIPAL COMPETITORS

Rio Tinto Group; AREVA Group; WMC Resources Ltd.; Uranium Resources, Inc.

FURTHER READING

"Cameco Announces Close of Bruce Power Deal," Canadian Corporate News, February 16, 2003.

"Cameco to Acquire Canadian Nuclear Fuel Fabricator," Canadian Corporate News, December 2, 2005.

Hoover, Ken, "Cameco's Persistence Led to Glowing Gains," Investor's Business Daily, December 5, 2005, p. B22.

Serafin, Tatiana, "Going Nuclear," Forbes Global, November 28, 2005, p. 52.

"Uranium Company Jumps into Canadian Nuclear Venture," Energy Daily, October 16, 2000, p. 3.

"Uranium Demand Rises As Interest in Nuclear Rekindles," America's Intelligence Wire, October 14, 2005.

"Uranium Prospects Are Glowing: Asian Projects, Dwindling Stockpiles Lifting Uranium Prices," America's Intelligence Wire, January 5, 2005.

"Where Mining Gold Is the Easy Part," Business Week, October 29, 2001, p. 4.