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EXHIBIT 3







Cameco Corporation

2003 Managements Discussion and Analysis





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(MANAGEMENT'S DISCUSSION & ANALYSIS)  ANALYSE THIS This managements discussion and analysis (MD&A) is designed to provide
investors with an informed discussion of Camecos business activities.    How to use this MD&A Cameco has made important changes to its MD&A this year, to take into account
new requirements from the Canadian Securities Administrators and to reflect
guidelines from the Canadian Institute of Chartered Accountants (CICA). We have included new sections on Camecos vision and mission and added some
discussion about the companys key performance drivers and its capability to
deliver results. In response to some investor requests, we have also grouped
together all the discussion and analysis for each of our business segments. So,
for instance, readers can find all the appropriate information on our
conversion business in one place in the MD&A rather than having to go to
separate sections on topics such as strategies and results. For those less familiar with Cameco, the MD&A is ordered so that readers can
first be introduced to the company, and then learn about its business
environments, strategies, key performance drivers, capability to deliver, 2003
consolidated results, 2004 outlook, liquidity and capital resources and risk
factors.
 The following is a summary of the key sections of this MD&A.OverviewIncludes a description of Camecos vision and mission  the
goals and principles that drive the company
    
    
    2Camecos BusinessesDiscusses the nature of Camecos businesses and reviews its
overall business strategies
    
    
    2Growth StrategyDiscusses Camecos strategy to grow the company and add shareholder value
    
    
    2Nuclear Industry TrendsNotes a number of evolving trends in the nuclear power
industry that have the potential to affect Camecos business
environment for uranium and conversion services
    
    
    3Uranium BusinessReviews the business environment, strategies, key
performance drivers, capability to deliver results,
performance and outlook for Camecos uranium business
    
    
    5Conversion BusinessSame as above, for the conversion business
    
    
    11Nuclear Electricity BusinessSame as above, for the nuclear electricity business
    
    
    14Gold BusinessSame as above, for the gold business
    
    
    17Consolidated ResultsExplains the companys consolidated 2003 performance. How
did Cameco perform as a whole and why?
    
    
    202004 Consolidated OutlookProjects how the business might perform in the future and
describes the factors the company believes may influence its
results going forward
    
    
    22Liquidity and Capital ResourcesAnalyses Camecos financial health and its ability to fund operations and
growth
    
    
    23Business Risks and UncertaintiesExplains the uncertainties in the business and describes the
factors that might cause results to vary from expectations
    
    
    25




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MANAGEMENTS DISCUSSION & ANALYSIS
  OVERVIEW
 Vision Cameco will be a dominant nuclear energy company producing uranium fuel and
generating clean electricity. Mission Our core business is uranium fuel supply. Through our nuclear investments we
participate in the generation of clean energy. Sustainable growth is realized
by building upon our core business strengths through socially, environmentally
and economically responsible conduct. In doing so, we will enhance our status
as an investment, supplier and employer of choice, and continue to earn the
support of the communities where we interact. The key measures of our success will be a safe, healthy and rewarding
workplace, clean environment, and supportive communities wherever we operate,
together with solid financial performance, all reflected in a growing return to
shareholders. 
  CAMECOS BUSINESSES
 Cameco is involved in four business segments:  
    
    uranium
    
    conversion services
    
    nuclear electricity generation
    
    gold The only significant commercial use for uranium is to fuel nuclear power plants
for the generation of electricity. In recent years, nuclear plants generated
approximately 16% of the worlds electricity. The major stages in the production of nuclear fuel are uranium exploration,
mining and milling, refining and conversion, enrichment and fuel fabrication.
Once a commercial uranium deposit is discovered and reserves
 delineated, the regulatory approval to mine is secured and the mine is
developed, uranium ore is mined and upgraded at a mill to produce uranium
concentrates. Uranium mining companies sell uranium concentrates to nuclear
electrical generating companies around the world on the basis of the
U3O8
contained in the uranium concentrates. These utilities then contract with
converters, enrichers and fuel fabricators to produce the required reactor
fuel. Cameco is the worlds largest uranium producer with 550 million pounds of
proven and probable reserves of uranium including controlling ownership of the
worlds largest high-grade reserves and low-cost operations in northern
Saskatchewan. The company has four operating mines in Canada and the US, as
well as two new mines ready to be developed in Canada and Central Asia, subject
to regulatory and partner approval. The company is an integrated uranium producer with refining and conversion
facilities at Blind River and Port Hope located in Ontario, Canada. The
products from these sites are used to produce fuel for nuclear power reactors.
The Port Hope plant can produce 20% of the worlds annual requirements for
uranium hexafluoride (UF6) to make fuel for light-water reactors. In addition,
the Port Hope plant is the worlds
only commercial producer of natural uranium dioxide (UO2) the fuel used by all
Canadian-built Candu reactors. Through its 31.6% ownership of the Bruce Power nuclear generating station
located in southern Ontario, Cameco generates clean electricity. Cameco is the
sole fuel supplier to the Bruce Power Limited Partnership that leases six
operating nuclear power reactors, plus two reactors that are laid up. Bruce
Powers operating plants have a combined generation capacity of 4,660 megawatts
(MW), which is equivalent to the residential and industrial needs of a city the
size of Toronto, Ontario.
 Cameco is also a gold producer. In early January 2004, Cameco announced that it
had reached an agreement with the Kyrgyz Republic to create a jointly owned
Canadian gold company called Centerra Gold Inc. Cameco will own 67% and the
Kyrgyz government (through its agency Kyrgyzaltyn) will own the remaining 33%.
Centerra intends to undertake an initial public offering (IPO) in Canada and
sell shares to the public. Cameco expects to continue to hold a majority
interest in Centerra immediately following the IPO, which is planned for the
second quarter of 2004. 
 Growth Strategy Camecos vision is to be a dominant nuclear energy company, producing uranium
fuel and generating clean electricity. The main strategies of Cameco are:  
    
    to maintain and leverage the companys competitive advantages in
the uranium and conversion businesses,
    
    to continue vertical integration within the nuclear fuel supply, and
    
    to expand nuclear generation capacity. The specific strategies in the uranium and conversion businesses, which provide
the foundation of the company, will be (CUSTOMER COUNTRIES)
   2




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MANAGEMENTS DISCUSSION & ANALYSIS
  discussed in the sections dealing with those businesses. In pursuing its plans for further integration in nuclear fuel supply and
expansion in nuclear power generation, the company has a number of goals:  
    
    to earn a sufficient rate of return and provide a basis for long-term profitability,
    
    to provide nuclear fuel supply where possible and link to core assets and competencies,
    
    to strengthen Camecos foundation for further expansion in the nuclear fuel cycle,
    
    to achieve a reward commensurate with the risks taken, and
    
    to not unduly risk Camecos overall viability. The key strategies are:  
    
    to pursue the most appropriate investments by considering
investment opportunities in all aspects of the nuclear fuel cycle,
    
    to guide and support Bruce Powers growth strategy,
    
    to pursue partnering opportunities in new reactor construction and
completions by leveraging fuel supply relationships, developing
expertise in new fuel requirements, and enhancing relationships with
industry leaders in reactor technology, and
    
    to seek active ownership to allow, where possible, participation in
management and operational involvement of generation facilities. In March 2004, Cameco announced that one of its wholly owned US subsidiaries
signed an agreement to purchase a 25.2% interest in assets comprising the South
Texas Project (STP) from a wholly owned subsidiary of American Electric Power
(AEP) for $333 million (US). Included in this purchase price is $54 million
(US) for fuel and non-fuel inventory. STP consists of two 1,250-MW nuclear units located in Texas. The net
 (2.5 BILLION) generating capacity from the 25.2% interest in STP is 630 MW. Each owner takes
in kind and markets its pro-rata share of electricity generated by STP. The balance of STP is held by Texas Genco (30.8%), San Antonio City Public
Service Board (28%) and Austin Energy (16%). The interest being purchased by
Cameco is subject to a
 right of first refusal in favour of these owners. The agreement is subject to
regulatory approval and other closing conditions, and the final purchase price
is subject to closing adjustments. The transaction is expected to close in the
second half of 2004. In addition, Cameco seeks to increase nuclear powers contribution to global
energy supply through two major strategies:  
    
    participate in related technologies that support nuclear energy
development, and
    
    promote industry initiatives to position nuclear power as an
important factor in addressing climate change by providing leadership
and resources to key industry associations, developing government
relationships and further enhancing Camecos environmental and safety
reputation. 
 Trends in the Nuclear Power Industry A number of evolving trends in the nuclear power industry have the potential to
affect Camecos business environment for uranium and conversion. Nuclear Utilities Consolidate Electric utilities in the US and Europe continued to restructure in 2003,
albeit at a slower pace than in the previous five years. Consolidation of
nuclear generating plant ownership can be
   (WORLD ELECTRICITY GENERATION) 3




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MANAGEMENTS DISCUSSION & ANALYSIS
  WORLD NUCLEAR REACTORS
 Reactors
    
    Reactors under
    
    Nuclearin Operation
    
    Construction
    
    Electricity (%)(as of 12/03)
    
    (as of 12/03)
    
    (as of 12/02)Argentina
    
    
    2
    
    
    
    0
    
    
    
    7Armenia
    
    
    1
    
    
    
    0
    
    
    
    41Belgium
    
    
    7
    
    
    
    0
    
    
    
    57Brazil
    
    
    2
    
    
    
    0
    
    
    
    4Bulgaria
    
    
    4
    
    
    
    0
    
    
    
    47Canada
    
    
    16
    
    
    
    0
    
    
    
    12China
    
    
    8
    
    
    
    3
    
    
    
    1Czech Republic
    
    
    6
    
    
    
    0
    
    
    
    25Finland
    
    
    4
    
    
    
    0
    
    
    
    30France
    
    
    59
    
    
    
    0
    
    
    
    78Germany
    
    
    18
    
    
    
    0
    
    
    
    30Hungary
    
    
    4
    
    
    
    0
    
    
    
    36India
    
    
    14
    
    
    
    8
    
    
    
    4Iran
    
    
    0
    
    
    
    1
    
    
    
    0Japan
    
    
    53
    
    
    
    4
    
    
    
    39Korea (North)
    
    
    0
    
    
    
    0
    
    
    
    0Korea (South)
    
    
    18
    
    
    
    6
    
    
    
    39Lithuania
    
    
    2
    
    
    
    0
    
    
    
    80Mexico
    
    
    2
    
    
    
    0
    
    
    
    4Netherlands
    
    
    1
    
    
    
    0
    
    
    
    4Pakistan
    
    
    2
    
    
    
    0
    
    
    
    3Romania
    
    
    1
    
    
    
    1
    
    
    
    10Russia
    
    
    30
    
    
    
    5
    
    
    
    16Slovak Republic
    
    
    6
    
    
    
    0
    
    
    
    65Slovenia
    
    
    1
    
    
    
    0
    
    
    
    41South Africa
    
    
    2
    
    
    
    0
    
    
    
    6Spain
    
    
    9
    
    
    
    0
    
    
    
    26Sweden
    
    
    11
    
    
    
    0
    
    
    
    46Switzerland
    
    
    5
    
    
    
    0
    
    
    
    40Taiwan
    
    
    6
    
    
    
    2
    
    
    
    21Ukraine
    
    
    13
    
    
    
    2
    
    
    
    46United Kingdom
    
    
    27
    
    
    
    0
    
    
    
    22United States
    
    
    103
    
    
    
    1
    
    
    
    20World
    
    
    437
    
    
    
    33
    
    
    
    16
 expected to continue in response to market deregulation and result in increased
cost efficiency and more concentrated customer buying power. Capacity Factors In 2003, the world gross average capacity factor of nuclear generation
decreased for the first time in five years to 76%. This 2% decrease can largely
be attributed to lower averages in Japan and the US. In Japan, long regulatory
outages impacted the average. The US decrease of about 2% is primarily a result
of extended plant shutdowns for capital improvements and inspections. These
small year-to-year variances, both up and down, are not unexpected. Existing Nuclear Plants Increase Capacity Nuclear plants continue to increase generating capacity through uprates (the
increase in the nominal level of output due to the installation of more
efficient equipment and/or improved instrumentation). These uprates can
increase a power plants capacity between 2% and 20%. In most cases, an
increase in capacity translates into increased demand for uranium concentrates
and conversion services. In 2003, US regulators authorized uprates at eight of the nations 103
reactors, resulting in an increase in capacity of about 130 MW. In total, over
the last 10 years, US uprates have resulted in the addition of about 3,500 MW
capacity, and over the next five years, another 28 units are expected to
increase capacity by about 1,900 MW. Nuclear reactors in other countries,
including France, Germany, Spain, Sweden and Belgium, have increased or plan to
increase capacity through uprates, a trend that Cameco expects to continue. Nuclear Plant Licence Extensions In 2003, 13 US nuclear units received 20-year licence extensions, bringing the
total to 23 units since 2000. Operators
   4




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MANAGEMENTS DISCUSSION & ANALYSIS
 (SUPPORT FOR NUCLEAR ENERGY)  of an additional 40 units have applied or are expected to apply for extensions
in the next few years. In total, these units represent more than 50% of the US
nuclear generating capacity. In Russia, three reactors have been granted life extensions, and more are
planned, for a total of 12 out of 30 reactors. Other countries contemplating
life extension of their reactors include France, the United Kingdom, and
Ukraine. New Nuclear Construction Three new reactors began commercial operation around the world in 2003, two in
China and one in the Czech Republic. In addition, construction began on a
further two units, one in each of Romania and Japan, bringing the total under
construction to 33 units. In Canada, two of the six units mothballed in the latter part of the 1990s
returned to service in 2003, a third in January 2004. This includes Bruce A
units 4 and 3, which restarted in 2003 and 2004 respectively. In Finland, the operator has applied for a construction licence and began site
preparation for the countrys fifth nuclear unit. The 1,600-MW reactor is
expected to commence commercial operations in 2009. In the US, three utilities have applied for Early Site Permits (ESPs) with the
 US Nuclear Regulatory Agency. These utilities have not committed to building
new reactors, but the ESPs will simplify the process if they decide to proceed
with a new build. In the next two years, Argentina and Bulgaria are expected to restart
construction of two units that were halted in the 1990s. In 2003, Slovenia and
the Czech Republic also indicated they were considering new nuclear units. Proposed US Senate energy legislation provides for the construction of an
advanced reactor to demonstrate both electricity and hydrogen production at the
Idaho National Engineering and Environmental Laboratory. This research project
is proposed to move the US toward advanced nuclear energy and clean carbon-free
hydrogen production. Nuclear Power and Politics In Europe, some reactors are scheduled to close in the short term as a result
of political decisions. However, these countries still have to deal with the
economic and environmental realities of replacing the electricity production of
these plants, as well as the need to expand electricity supply to meet growing
demand. Germany experienced the first permanent closure of a reactor under the
phase-out regime in late 2003. The next permanent closure is expected in 2005.
 In Sweden, the government is expected to decide on a phase-out plan in 2004 and
the timetable for the closure of one reactor, which has been delayed for
several years. The Swedish public, in a November 2003 poll, indicated that 84%
favour the continued use of nuclear, at least until existing reactor units are
closed for either safety or economic reasons. Cost of Nuclear Generation In 2002, the latest year for which data is available, the direct costs of US
nuclear electricity production, for the fourth consecutive year, continued to
be lower than the cost of electricity from coal plants. Other than hydro,
nuclear energy is the cheapest source of electricity in the US. This is largely
attributable to the improved performance of US nuclear power plants. 
  URANIUM BUSINESS
 Worldwide Uranium Supply and Demand The supply and demand fundamentals in the uranium market are in a period of
significant change and uncertainty, and point to a need for more primary mine
production, which will require new investment. Higher sustained prices are
needed to encourage the required new investment in primary production. Cameco
is positioned to benefit from this need for new supply through its control of
more than 65% of currently planned new uranium production. Uranium Demand The nuclear power trends mentioned earlier are generally positive for nuclear
energy. However, it is difficult to know whether these trends and the national
debates on the long-term future of nuclear power will eventually result in more
or less favourable conditions for the nuclear industry. Of note, however, is
that the two most populous countries, China and India, representing over
one-half of the worlds population, are
   5




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MANAGEMENTS DISCUSSION & ANALYSIS
 (WORLD URANIUM PRODUCTION)  committed to increasing their share of nuclear generated electricity. New construction, improved reactor operations, uprates and the extension of
reactor lives make it highly likely that, at a minimum, the current demand for
uranium will continue for a number of years. In the shorter term, perceptions
that there are ample uranium supplies are beginning to change as excess
inventories decline. This change has already begun to affect uranium prices as
average spot prices rose during 2003 to $14.45 per pound from $10.20 a year
earlier. As secondary supplies continue to decrease it is expected that uranium
prices will more closely reflect the cost of primary supply, including a
reasonable return on new investment. Western world uranium consumption totalled about 155 million pounds in 2003.
Cameco estimates that annual uranium consumption in the western world will
reach 172 million pounds in 2013, reflecting an annual growth rate of 1% per
year over the period. Demand in the former Soviet Union, Eastern Europe and
China was about 25 million pounds in 2003 and is expected to increase to about
33 million pounds in 2013. In total, world uranium demand was 180 million
pounds in 2003 and is expected to increase to 205 million pounds in 2013. In
2004, uranium demand is expected to remain about the same as 2003.
 In 2003, five reactors started commercial operations, while five smaller
reactors closed, maintaining the total number of reactors at 437 at the end of
the year. The net gain in installed capacity was 3,200 MW in 2003. Uranium Supply The world uranium supply comes from primary mine production and a number of
secondary sources. Mine Production World production in 2003 was
about 92 million pounds U3O8, about the same as
2002. Western world production decreased 4% to about 68 million pounds, largely
as a result of operating (WORLD MARKET)
 difficulties at Camecos McArthur River mine, but is expected to increase to
about 75 million pounds in 2004. In 2003, the worlds major uranium producers were affected by the weakening US
dollar. While most uranium is sold in US dollars, most of the worlds
production comes from outside the US. Uranium prices increased over 40% in
2003, but this increase was largely offset by the growing strength of other
currencies against the US dollar. For example, in the same period, the uranium
price only increased by 18% in Canadian dollars, 6% in Australian dollars, and
5% in South African rand. The countries affected by these currency changes
produced about 59% of world production in 2003. As a consequence, additional
price increases will be required to stimulate exploration and development of
new production in these countries. Secondary Sources Secondary sources of supply consist of surplus military materials, excess
inventory and recycled products. With the exception of recycled material,
secondary supplies are finite. Recycled products are currently a high-cost fuel
alternative and are used by utilities in a limited number of countries. One of the largest sources of secondary supply is the uranium derived from
Russian highly enriched uranium (HEU). As a result of the 1994 HEU agreement
between the US and Russia to reduce the number of nuclear weapons, additional
supplies of uranium have been available to the market. Under the 20-year
agreement, weapons grade HEU is blended down in Russia to low enriched uranium
(LEU) capable of being used in western world nuclear power plants. Cameco, together with two other companies, will purchase an increasing quantity
of the uranium feed component of the Russian LEU over the next few years.
Uranium not purchased is returned to Russia and held in a special stockpile for
use in blending additional HEU or, to the extent the stockpile
   6




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MANAGEMENTS DISCUSSION & ANALYSIS
  (CONTRACT VOLUMES) exceeds 58 million
pounds U3O8, for sale under certain conditions. Cameco and
its partners also have options to purchase uranium from this stockpile. At the
end of 2003, there were 44 million pounds U3O8 equivalent in the stockpile. On February 12, 2004 Cameco, its partners and Tenex agreed in principle to
allow Tenex:  
    
    to return additional quantities of uranium to Russia, and
    
    the priority right to remove uranium from the stockpile to facilitate blending of HEU. This would reduce the remaining quantity of uranium available for Cameco and
its partners to purchase over the remaining life of the HEU agreement which
will be completed in 2013. In 2003, all scheduled LEU
deliveries (24 million pounds U3O8 equivalent) were
received in the US from Russia. For 2003, the aggregate US sales quota of
uranium derived from Russian HEU was 12 million pounds and Cameco purchased
almost 4 million pounds, which represents its prescribed share of the quota and
some additional quantities. The US sales quota in 2004 is 14 million pounds.
 The other large source of secondary supply is excess inventories. Prior to
1985, uranium mine production exceeded reactor requirements due, in large part,
to government incentive programs that anticipated rapid growth of nuclear
generated electricity. The result was a buildup of large inventories, both in
the commercial and government sectors. Over the past 19 years, uranium mine
production has been less than annual requirements and the company believes that
most of these inventories have been consumed. Cameco estimates the drawdown in 2003 of excess inventory held by western world
utilities, producers, governments and other industry participants was in the
order of 35 to 40 million pounds U3O8. Inventory drawdown in 2004 is expected
to be somewhat lower than in 2003, reflecting the declining inventory
availability, as noted above. Uranium Markets Utilities secure about 85 to 90% of their uranium requirements by entering into
medium- and long-term contracts with uranium suppliers. These contracts usually
provide for deliveries to begin one to three years after execution and continue
for several years thereafter. In awarding contracts, utilities consider the
commercial terms offered, including price, and the producers record of
performance and uranium reserves. Prices are established by a number of methods including base prices adjusted by
inflation indices, reference prices (generally spot price indicators but also
long-term reference prices) and annual
 price negotiations. Many contracts also contain floor prices, ceiling prices
and other negotiated provisions that affect the price ultimately paid. Utilities acquire the remaining 10 to 15% of their uranium requirements through
spot and near-term purchases from producers and traders. Spot market purchases
are those that call for delivery within one year. Traders generally source
their uranium from organizations holding excess inventory, including utilities,
producers and governments. Uranium Spot Market Spot market demand was steady throughout 2003 and totalled 22 million pounds
for the year, up from 20 million pounds in 2002. Over 2003, the average spot
price increased by more than 40% to close the year at $14.45 (US) per pound
U3O8. The spot market represented about 14% of the western worlds uranium
consumption in 2003, a modest increase over the past several years. Long-Term Uranium Market The long-term contract price indicator published by TradeTech closed the year
at $15.50 (US), a 44% increase during 2003. Long-term contracting in 2003 by western world utilities is estimated to have
been more than 75 million pounds. This, combined with spot market sales of
about 22 million pounds, represented only about 62% of western world
consumption during the year.
    URANIUM MARKET REVIEW
 Year-End Prices($US/lb U3O8)Market
    
    2003
    
    
    2002
    
    
    % changeSpot uranium1
    
    
    14.45
    
    
    
    10.20
    
    
    
    42Long-term uranium2
    
    
    15.50
    
    
    
    10.75
    
    
    
    44
 1
 2
   7




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MANAGEMENTS DISCUSSION & ANALYSIS
  (AVERAGE URANIUM SPOT PRICE) Uranium Business  Key Performance Drivers The major factors that drive Camecos uranium business results are:  
    
    prices  spot market and contract,
    
    volume  sales, production, purchases,
    
    costs  production and purchases,
    
    relationship between the US and Canadian dollars. Prices  Spot/Long-Term While Cameco generally does not sell uranium in the spot market, about 60% of
the companys uranium under its long-term contracts is sold at prices that
reference the spot market price near the time of delivery. The remaining 40% is
sold at fixed prices or base prices escalated by an inflation index. Most of the companys spot market-related contracts were entered into a number
of years ago when the spot price was much lower than the year-end average price
of $14.45 (US) per pound. These contracts generally contain ceiling prices. Due
to the rapid increase in the uranium spot price in the latter part of 2003, a
number of spot market-related contracts reached ceiling prices in the near
term. The impact of ceiling prices
 became significant as the spot price moved into the $14.00 (US) range. In addition, many of Camecos fixed/base-price contracts were also entered into
when the uranium spot price was considerably lower and some of the older, more
favourably priced contracts are expiring. As a result, in 2004, the average
realized price from these fixed-price contracts is expected to be lower than in
2003. However, the impact of the current higher spot prices will benefit Cameco over
the longer term as the company delivers uranium in the future under new
contracts signed in the current environment. Volume  Sales, Production, Purchases Sales Volume Cameco sold more than 35 million pounds of uranium in 2003, up 11% from 2002.
In 2004, Camecos uranium sales volumes are expected to total about 32 million
pounds. For the period 2004 forward, Cameco has more than 100 million pounds of
uranium committed over the following five years. About 75% of the sales
commitments in that five-year period will be delivered during 2004 to 2006.
Camecos committed sales decline rapidly over this period and they will be
replaced in the normal course with contracts reflecting prevailing market
conditions. Cameco sells more uranium than it produces from its mines. Camecos sales
commitments are filled by a combination
 of sources consisting of mine production, long-term purchase arrangements, spot
purchases and inventory. Production Volume For 2003, Camecos original uranium production target was 20.9 million pounds.
Due to the water inflow incident at McArthur River, the 2003 production target
was revised to 16.7 million pounds. Actual production in 2003 was 18.5 million
pounds, above the companys revised target, and up almost 17%
from 2002. The Inkai test mine in Kazakhstan also produced 169,000 pounds of uranium
(Camecos share) in 2003. McArthur River production was down in 2003 compared to 2002 due to the water
inflow incident, which resulted in the mine being closed for about three months
to deal with the additional water. Rabbit Lake was in the process of restarting
in 2002 and produced for the full year in 2003. In 2004, Camecos share of total mine production is expected to rise to 20.7
million pounds U3O8, up 2.2 million pounds or 12% from 2003 due primarily to
the McArthur River mine returning to normal operations. The planned production
of 12.9 million pounds at McArthur River/Key Lake represents Camecos share of
the maximum production level allowed for these operations under their current
licences. At Rabbit Lake, the Eagle Point underground mine is expected to produce 5.8
million pounds in 2004, from its remaining reserves of about
    URANIUM PRODUCTION
 (Cameco's share 000 lbs U3O8)2004
    
    2003
    
    
    2002Plan
    
    Actual
    
    
    ActualMcArthur River/Key Lake
    
    
    12,900
    
    
    
    10,579
    
    
    
    13,095Rabbit Lake
    
    
    5,800
    
    
    
    15,928
    
    
    
    1,143Smith Ranch/Highland
    
    
    1,200
    
    
    
    1,201
    
    
    
    887Crow Butte
    
    
    800
    
    
    
    823
    
    
    
    768Total
    
    
    20,700
    
    
    
    18,531
    
    
    
   15,893
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MANAGEMENTS DISCUSSION & ANALYSIS
  12.5 million pounds
U3O8. Prospects for additional reserves have been
identified and surface drilling for targets near current workings as well as
underground drilling to further explore a deeper target will begin in the first
quarter of 2004. In the US, the in situ leach (ISL) operations at the Smith Ranch-Highland mine
have planned production of 1.2 million pounds while Crow Butte is expected to
produce 0.8 million pounds in 2004. Studies are underway to examine
alternatives to increase production at these operations. In addition, the Inkai test mine is expected to produce 0.4 million pounds of
uranium in 2004 (Camecos share is 60%). It is anticipated that Inkai will produce 2.6 million pounds after it reaches
full production. This annual production level will be examined to determine if
it can be increased. Purchases Cameco also has purchase commitments for uranium products and services from
various sources. At the end of 2003, these purchase commitments totalled 88
million pounds uranium equivalent (most is in the form of UF6) over the period
2004 to 2013. Of this, 64 million pounds is from exercising options under the
HEU commercial agreement. In early 2004, Cameco exercised options for an
additional 4 million pounds under the HEU commercial agreement. (U3O8 REVENUE BY REGION)
 (20% OF WORLD MARKET) The majority of Camecos purchase commitments are under long-term, fixed-price
arrangements, reflecting prices much lower than the current spot price. These
purchase commitments total about $1.1 billion (US) as at December 31, 2003. See
note 24 to the consolidated financial statements. Costs Camecos cost of supply is influenced by its mix of produced mine material and
uranium purchases. Uranium mine production costs are driven primarily by the grade and size of the
reserves. McArthur River is the worlds largest, high-grade uranium mine. Its
ore grade averages 25% U3O8 which means it can produce more than 18 million
pounds per year by extracting only 100 to 120 tonnes of ore per day. While
Rabbit Lakes average ore grade of 1% U3O8 is much lower than McArthur River,
it compares favourably to other operating mines in the world that are generally
below 0.5%. ISL extraction methods can make even lower grade orebodies
commercially attractive. Worldwide, ISL mines typically recover uranium from
orebodies with an average grade in the 0.1% U3O8 range. Camecos cost of supply
is influenced modestly by the two US ISL operations, as the production from the
ISL operations accounts for a small percentage of its total primary output. For
example, US ISL production is expected to account for about 10% of the
companys planned primary output in 2004.
 Purchased product also impacts Camecos cost of supply. The majority of
Camecos purchase commitments are under long-term, fixed-price arrangements
reflecting prices lower than the year-end average spot price of $14.45 (US) per
pound. Foreign Exchange In 2003, the strengthening of the Canadian dollar against the US dollar
affected Camecos results. Cameco sells most of its uranium in US dollars, but
the majority of its production comes from Canada. As such, the companys
uranium sales are denominated mostly in US dollars, while its production costs
are denominated primarily in Canadian dollars. The strengthening Canadian dollar has emphasized the importance of the
companys currency hedging
policies and its drive toward geographic diversity of production. For instance,
Camecos US operations are not affected by the stronger Canadian dollar as
their revenues and costs are both denominated in US dollars. In addition,
prospects for production at Camecos Inkai property in Kazakhstan remain good,
as the Kazakh government has managed its currency exchange rate so that it does
not fluctuate too widely against the US dollar. The company attempts to provide some protection against exchange rate
fluctuations by planned hedging activity designed to smooth volatility. Thus
Cameco is protected against declines in the US dollar in the shorter term. In addition, Cameco has a portion of its annual cash outlays denominated in US
dollars, including uranium and services purchases, which provides a natural
hedge. While natural hedges provide cash flow protection against exchange rate
fluctuations, the impacts on earnings may be dispersed over several fiscal
periods and are more difficult to identify. For 2003, $177 million (US) of Camecos uranium and conversion revenue was
hedged using currency
   9




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MANAGEMENTS DISCUSSION & ANALYSIS
 (65% OF THE FUTURE)  contracts at an average rate of $0.62. As of December 31, 2003, about 50% of
2004 uranium and conversion revenue was hedged using currency contracts at an
effective rate of $0.68. To the extent the company borrows in US dollars, this provides a hedge against
its US revenue generating assets. Uranium Strategies Camecos overall objective is to maintain and leverage its competitive
advantage in uranium. In doing so, it strives to meet four major goals:  
    
    to maintain its low-cost status,
    
    to protect and grow its market position,
    
    to improve supply flexibility, and
    
    to optimize its contract portfolio. There are a number of key strategies the company uses to achieve its goals: Maintain its low-cost status:  
    
    add low-cost reserves:  
    
    through exploration and acquisition, and
    
    by validating the potential for competitive ISL production from
existing properties.  
    
    improve margins by:  
    
    optimizing ISL and conventional production,
    
    gaining cost efficiencies through quality and business process improvements, and
    
    pursuing fundamental productivity gains through technological
development.
 Protect and grow its market position:  
    
    leverage industry relationships to participate in new production,
    
    ensure sustainable production by identifying and exploring for
profitable uranium resources, and
    
    develop customer relationships and expand the range of services
currently available while enhancing the companys reputation as a
secure supplier. Improve supply flexibility:  
    
    accelerate Inkai production in Kazakhstan,
    
    bring Cigar Lake into production when appropriate,
    
    continue to pursue an international exploration program, and
    
    manage secondary supplies. Optimize contract portfolio:  
    
    position for market recovery by managing the companys portfolio of
contracts to maximize profits for Cameco in light of future
expectations of prices. Capability to Deliver Results Cameco has three major resources from which to draw on in order to deliver results:  
    
    quality uranium assets,
    
    management of secondary supplies, and
    
    strong market position. Quality Uranium Assets Cameco has geographically diverse primary supply, with uranium mines and
projects in Canada, the US and
 Kazakhstan. The company owns 550 million pounds of proven and probable uranium
reserves, which include more than 400 million pounds of the worlds richest
uranium reserves at McArthur River and Cigar Lake. Camecos share of reserves
at McArthur River and Cigar Lake can produce as much electricity as would be
generated by 2 billion tonnes of coal or 9 billion barrels of oil. Another quality asset is the uranium exploration expertise that Cameco has
retained even during the low uranium price cycles. The companys large and
high-grade uranium deposits were all discovered through successful exploration
over the past 20 years. Cameco has pursued a focused and effective exploration
program to identify profitable uranium resources for the future to maintain the
companys position as the worlds largest uranium producer. The companys uranium exploration efforts focus predominantly, but not
exclusively, on prospects in the Athabasca Basin of northern Saskatchewan,
Canada, and the Arnhem Land region in Northern Territory, Australia. In
addition, Cameco and an exploration company called Pioneer Metals combined some
assets in 2001 to form a junior uranium company called UEX Corporation. At
December 31, 2003, Camecos ownership interest in UEX was 29%. In 2003, uranium exploration expenditures were about $13 million, up $1 million
from 2002. In 2004, the planned uranium exploration expenditures are $15
million. Manage Secondary Supplies Cameco manages a significant portion of secondary supplies through a number of
long-term agreements that allow the company to purchase uranium from dismantled
Russian weapons and other secondary sources. These agreements give Cameco
greater diversity of supply and ensure that this material enters the market in
an orderly fashion.
   10




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##### 



MANAGEMENTS DISCUSSION & ANALYSIS
  Cameco generated a profit through its management of secondary supplies in 2003. Strong market position Cameco supplies about 20% of the worlds uranium demand. The companys market
position allows it to purchase uranium in the spot market when prices are low,
adding to its profits and providing support for weak markets. Uranium Business Results Camecos uranium business consists of the McArthur River, Key Lake and Rabbit
Lake mine/mill operations in Saskatchewan, two ISL mines in the US, the Inkai
ISL test mine in Kazakhstan, the Cigar Lake development project in Saskatchewan
and uranium exploration projects located primarily in Canada and Australia. Revenue In 2003, revenue from the uranium business rose by 9% to $570 million from $524
million in 2002 due to an 11% increase in sales volume. For the second
consecutive year, Cameco delivered a record quantity of uranium concentrates.
The average realized selling price was 2% lower than 2002 as the influence of
higher spot prices in the second half of the year was offset by a less
favourable foreign exchange rate and lower realized prices on fixed-price
contracts. Cost of products and services sold In 2003, the cost of products and services sold was $395 million compared
 (URANIUM PRICE INCREASE) to $345 million in 2002, an increase of 14% due to the higher volume sold and
rehabilitation costs of $26 million at McArthur River related to the water
inflow incident. Excluding these costs for McArthur River in 2003 and Rabbit
Lakes care and maintenance costs of $8 million in 2002, the unit cost of sales
decreased by 2% compared to 2002, primarily as a result of a $7 million royalty
recovery recorded in 2003. Depreciation, depletion and
reclamation In 2003, depreciation, depletion and reclamation (DD&R) charges were $92
million compared to $86 million in 2002, an increase of $6 million due to the
higher volume sold. On a per unit basis, costs rose by about 3% due to
increased deliveries of Rabbit Lake material, which carries a relatively high
DD&R charge.
 Gross profit In 2003, gross profit from the uranium business amounted to $84 million
compared to $93 million in 2002, a decrease of $9 million or 10%. This decline
was attributable to rehabilitation costs at McArthur River, partially offset by
the 11% increase in deliveries of uranium concentrates. Earnings before taxes
from the uranium business decreased by $13 million in 2003 and the profit
margin declined to 15% from 18% in 2002. Excluding the rehabilitation costs at
McArthur River, earnings before taxes were $97 million and the gross profit
margin was 17%. 2004 Outlook for Uranium In 2004, Camecos uranium revenue is projected to decline by about 5% compared
to 2003 as the result of a 10% decline in sales volume. This decline in sales
volume reflects Camecos plan to decrease the amount of uranium purchased on
the spot market for resale. A modest improvement in realized price is expected
to partially offset the impact of the decline in volume. Cameco expects its
average realized price in Canadian dollars will increase by about 5% in 2004
even after an expected negative impact of an anticipated 5% decline in the
US/Canadian dollar exchange rate. Uranium margins are expected to be stronger than in 2003 due to the higher
average price and lower costs. In 2003, the gross profit was burdened by the
costs associated with the remediation of the McArthur River mine following a
water inflow problem.  CONVERSION BUSINESS
 Conversion Demand The demand for uranium hexafluoride (UF6) conversion services is directly
linked to the level of electricity generated by light water nuclear power
plants. The demand for uranium dioxide (UO2) conversion services is linked to
the level
    URANIUM BUSINESS HIGHLIGHTS
 2003
    
    2002
    
    % ChangeRevenue ($ millions)
    
    
    570
    
    
    
    524
    
    
    
    9Gross profit ($ millions)
    
    
    84
    
    
    
    93
    
    
    
    (10
    )Gross profit %
    
    
    15
    
    
    
    18
    
    
    
    (17
    )Earnings before taxes ($ millions)
    
    
    71
    
    
    
    84
    
    
    
    (15
    )Sales volume (million lbs U3O8)
    
    
    35.4
    
    
    
    31.9
    
    
    
    11Production (million lbs U3O8)
    
    
    18.5
    
    
    
    15.9
    
    
    
    18
    11




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##### 



MANAGEMENTS DISCUSSION & ANALYSIS
  of electricity generated by Candu heavy water nuclear power plants. Western world demand for
UF6 and natural UO2 conversion services was estimated
to be approximately 58,200 tonnes of uranium in 2003. It is estimated that this
demand will increase to approximately 65,700 tonnes of uranium by 2013. In
2003, demand in the former Soviet Union, Eastern Europe and China was about
9,400 tonnes of uranium and is expected to increase to about 12,400 tonnes of
uranium by 2013. In 2004, conversion demand is expected to remain about the
same as in 2003. Conversion Supply 
 6 6
 In 2001, British Nuclear Fuels Limited (BNFL), with annual conversion capacity
of about 6,000 tonnes, announced that it would halt production of
UF6 in 2006.
With the announcement, BNFL ceased the marketing of UF6 conversion services and
sold its uncommitted UF6 production to Cameco. In addition, supplies are available from secondary sources including excess
 (AVERAGE CONVERSION SPOT PRICE) western inventories, Russian inventory sales in the form of low enriched
uranium, Russian re-enriched depleted tails in the form of UF6 and Russian and
US uranium derived from dismantling nuclear weapons. Russia supplies most of the requirements of the former Soviet Union and Eastern
Europe in the form of low enriched uranium. Cameco is the only commercial supplier of conversion for natural UO2 customers
in the world. Conversion Markets 
 6
 purchasing the remainder on the spot market. Cameco is the only commercial
supplier of ceramic grade UO2 for Candu reactors operated in Canada. Cameco
also exports UO2 to South Korea for its Candu reactors and to the US and Japan
for use as blanket fuel in boiling water reactors. Spot/Long-Term Conversion Market 
 6
 Spot prices for UF6 conversion services in the US market increased by 17%
during 2003 and in the European market the spot price rose by 10%. The published long-term contract price indicators closed the year at $6.00 (US)
KgU as UF6 for North American delivery and $6.75 (US) for European delivery, a
15% and 14% increase respectively. Conversion prices are expected to remain firm in 2004, as the tight supply
situation is likely to continue in 2004. Conversion Business  Key Performance Drivers 
   
    
    prices  spot and long-term,
    
    volume  sales, production and purchases,
    
    costs  production and purchases, and
    
    relationship between the US and Canadian dollars. Prices  Spot/Long-Term
    SPOT CONVERSION MARKET REVIEW
 Year-End Prices$US/lb U3O8Markets
    
    2003
    
    
    2002
    
    
    % ChangeSpot UF6 conversion1North America
    
    
    5.88
    
    
    
    5.03
    
    
    
    17Europe
    
    
    6.75
    
    
    
    6.13
    
    
    
    10Long-term UF6 conversion2North America
    
    
    6.00
    
    
    
    5.20
    
    
    
    15Europe
    
    
    6.75
    
    
    
    5.90
    
    
    
    14
  1Spot prices are industry averages.2TradeTech
     12




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MANAGEMENTS DISCUSSION & ANALYSIS
  Volumes  Sales, Production, Purchases Sales Volume Cameco sold 16,747 tonnes of uranium conversion services in 2003, up 10% from
2002. In 2004, Camecos conversion volume is expected to total about 16,000
tonnes uranium, 4% less than in 2003. Production Volume At Camecos Port Hope facilities, conversion production totalled 13,273 tonnes
uranium in 2003, up 7% from 2002. In 2004, production is expected to be about
12,400 tonnes, 6% less than in 2003. Purchase Volume Cameco also has purchase commitments, which primarily reflect the HEU
conversion component, re-enriched tails product and the companys agreement to
purchase BNFLs excess production until shutdown of BNFLs plant. As noted in
the uranium business section, Camecos purchase commitments over the period
2004 to 2013 total about 88 million pounds uranium equivalent (or more than
34,000 tonnes U equivalent), most of which is in the form of
UF6. Costs Camecos cost of supply is influenced by its mix of production and purchases.
Conversion operating costs are primarily fixed with the largest component being
labour. The largest variable operating cost is for anhydrous hydrogen fluoride. The majority of Camecos purchase commitments are under long-term, fixed-price
arrangements reflecting prices lower than the current spot prices. Foreign Exchange The majority of the companys conversion products are sold in the US and sales
are denominated in US dollars, while production costs are incurred in Canada
and denominated in Canadian dollars. As a result, the strengthening of the
Canadian dollar against the US
 dollar in 2003 negatively affected Camecos results. A discussion about Camecos hedging program can be found in the uranium
business section under the heading Foreign Exchange. Conversion Strategies Camecos objective is to maintain and leverage its competitive advantage in
conversion services. In doing so, it strives to meet four major goals:  
    
    to maintain its low-cost position,
    
    to protect and grow its market position,
    
    to improve supply flexibility, and
    
    to optimize contract position. The following are the key strategies the company uses to achieve its
goals:  
    
    to improve margins by gaining cost efficiencies through quality and
business process improvements and pursuing productivity gains through
technological development,
    
    to grow market share through product diversification to meet
changing nuclear fuel requirements,
    
    to optimize capacity utilization in preparation for BNFLs exit
from the conversion market,
    
    to position for market recovery by managing the companys portfolio
of contracts to maximize profits for Cameco in light of future
expectations of prices, and
    
    to manage secondary supplies. Capability to Deliver Results A key competitive advantage for Cameco lies in its ability to provide both
uranium and conversion services, allowing it to benefit from synergies of
offering combined purchasing for the first two fuel components of nuclear fuel
supply. The Port Hope conversion
facility currently supplies natural UO2 powder for the
manufacture of fuels for Candu reactors operating in Canada and other
 countries. The market for
UO2 is changing, at least partially, due to the
planned introduction of slightly enriched uranium (SEU) in place of the natural
uranium dioxide. SEU is a uranium dioxide powder that has an enrichment level
up to 2.5% U-235, and is the primary uranium component of a new type of fuel
that is proposed for use in some Candu reactors. Camecos technology
development group developed the process to produce SEU, providing the company
with an opportunity to capitalize on a changing market. Initially the SEU will be produced for use in Bruce Powers B reactors as part
of a power uprate project that is expected to add about 400 megawatts of power
(an increase of 9% over Bruce Powers current capacity) to Ontarios
electricity grid. It is expected that SEU fuel will be used in the next
generation of Candu reactors called the advanced Candu reactor (ACR) designed
by Atomic Energy of Canada Ltd. In 2003, Cameco has advanced the SEU project through the first stage of the
regulatory process by filing a project proposal and receiving the approved
environmental assessment (EA) guidelines from the Canadian Nuclear Safety
Commission (CNSC). In 2004, important project milestones include completing and
submitting the EA, completing the engineering design and preparing the Port
Hope site for the construction of the SEU blending facility. Demonstration fuel
bundles are to be placed in the Bruce B reactors in late 2004 or early 2005.
The SEU powder for these bundles will be produced at the Port Hope facility.
Approval for preparation of limited quantities of these bundles has already
been obtained. The total annual quantity of SEU produced will depend on future market
development. The SEU product would replace a limited volume of the current
natural product sales.
   13




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MANAGEMENTS DISCUSSION & ANALYSIS
  CONVERSION BUSINESS HIGHLIGHTS
 2003
    
    2002
    
    % ChangeRevenue ($ millions)
    
    
    142
    
    
    
    137
    
    
    
    4Gross profit ($ millions)
    
    
    40
    
    
    
    44
    
    
    
    (10
    )Gross profit %
    
    
    28
    
    
    
    32
    
    
    
    (13
    )Earnings before taxes ($ millions)
    
    
    38
    
    
    
    41
    
    
    
    (7
    )Sales volume (million kgU)
    
    
    16.7
    
    
    
    15.3
    
    
    
    10Production (million kgU)
    
    
    13.3
    
    
    
    12.4
    
    
    
    7
 
    Conversion Business Results Camecos conversion business consists of the uranium refining and conversion
facilities located in Ontario. Revenue In 2003, revenue from the conversion business rose by 4% to $142 million from
$137 million in 2002 due to a 10% increase in sales volumes. The realized
selling price declined by 4% due largely to changes in foreign exchange rates.
Record annual conversion sales of 16,747 tonnes were achieved. Cost of products and services sold In 2003, the cost of products and services sold was $92 million compared to $83
million in 2002, an increase of 11% due to the higher sales volume. The unit
cost of product sold rose by 1% due to an increase in the cost of purchased
conversion services, which more than offset a reduction in the unit cost of
produced conversion. In 2003, Camecos unit cost of produced conversion (REVENUE BY REGION)
 declined as record production of 13,273 tonnes was achieved. Depreciation, depletion and reclamation In 2003, depreciation, depletion and reclamation (DD&R) charges were unchanged
at $11 million. In spite of the higher deliveries, total DD&R was unchanged
compared to 2002 as sales in 2003 included a higher proportion of purchased
conversion. Gross profit In 2003, gross profit from the conversion business amounted to $40 million
compared to $44 million in 2002. The gross profit margin for the conversion
business declined to 28% from 32% due to a lower average realized price. 2004 Outlook for Conversion At Port Hope, conversion production is expected to be about 12,400 tonnes, a
decline of 6% compared to 2003 output due to an anticipated decrease in sales
volume in 2004. Revenue from the conversion business is anticipated to be about 5% lower than
in 2003 due primarily to a 4% decline in sales volume. A modest decrease in
realized price is also anticipated as a result of the expected continuing
decline in the US dollar. Conversion margins are projected to decline compared
to 2003, as the unit cost of conversion production is likely to increase as a
result of lower expected output. The unit cost of purchased conversion is also
expected to rise as lower-cost sources of supply are diminished.
 NUCLEAR ELECTRICITY
BUSINESS
 Cameco has a 31.6% interest in the Bruce Power Limited Partnership. Bruce
Powers business is the generation and sale of electricity into the Ontario
wholesale market. Bruce Power generates electricity from the four Bruce B and
two Bruce A nuclear-powered units. The Bruce B nuclear units and the two
recently restarted Bruce A units have capacity to supply about 20% of Ontarios
electricity needs. In addition to the carrying value of its investment in Bruce Power, Cameco has
provided certain financial assurances on behalf of the partnership. Camecos
maximum exposure under these arrangements is $274 million and at December 31,
2003, the actual exposure under these assurances was $191 million. See note 19
to the consolidated financial statements. Cameco has extended a loan to the partnership in the amount of $75 million. The
loan is due February 14, 2008 and bears interest at a rate of 10.5% per annum.
At December 31, 2003, the entire amount was outstanding. Cameco has entered into fuel supply agreements with Bruce Power for the
procurement of the fabricated fuel. Under these agreements, Cameco will supply
uranium and conversion services and finance the purchase of fabrication
services. Contract terms are at market rates and on normal trade terms. During
2003, sales of uranium and conversion services to Bruce Power amounted to
approximately 3% of Camecos total revenue. At December 31, 2003, amounts
receivable under these agreements amounted to $30 million. Ontario Electricity Market The Ontario government deregulated its electricity market in May 2002 to
encourage innovation and investment in new generation capacity. Seven months
     14




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MANAGEMENTS DISCUSSION & ANALYSIS
  later, the province froze rates for retail (residential and small business)
customers at 4.3 cents per kilowatt hour (kWh) to shelter consumers from high
prices. The wholesale market, where Bruce Power sells all of its electricity,
continues to operate free of price regulation. Late in 2003, the newly elected Liberal government in Ontario introduced the
Ontario Energy Board Amendment Act 2003, which will remove the 4.3¢/kWh price
freeze for the retail market. As of April 1, 2004, an interim-pricing plan is
expected to be implemented. The first 750 kWh of a customers consumption will
be priced at 4.7¢/kWh and monthly consumption above that level will be priced
at 5.5¢/kWh. The Ontario government stated that this structure will remain in
place until the independent regulator, the Ontario Energy Board, develops a
clear and transparent mechanism for setting prices, to be implemented as soon
as possible, but no later than May 1, 2005. The interim pricing structure does
not distinguish between commercial and residential users; rather it
distinguishes between consumption patterns. These regulatory changes have not had as yet a direct impact on the price in
the wholesale electricity market into which Bruce Power sells its output.
However, the volume of medium- and long-term transactions in the wholesale
electricity market has dramatically decreased and the regulatory changes have
increased uncertainty for generators like Bruce Power. Nuclear Electricity Business  Key Performance Drivers The major factors that drive Bruce Powers results are:  
    
    prices,
    
    volume, and
    
    costs. Prices Bruce Power earnings are significantly affected by fluctuations in electricity
spot
 (1 IN 9 US HOUSEHOLDS) market prices, which in turn are affected by supply (temporary generating
station shutdowns) and demand (mainly driven by weather). To reduce its exposure to fluctuations in spot market prices, Bruce Power has a
portfolio of fixed-price sales contracts. About 65% of Bruce Powers output was
delivered into fixed-price contracts during 2003 compared to 69% in 2002. Volume Output is affected by shutdowns, both those that are planned (for maintenance)
and those that are unplanned (such as the August 14, 2003 blackout in Ontario). Bruce Power attempts to achieve high output through effective maintenance
programs, as well as various investments that can help secure and improve
output. Since about 95% of Bruce Powers costs are fixed, volume improvements
are directly reflected in financial performance. Costs Bruce Powers operating costs in 2003 totalled $853 million ($35 per megawatt
 hour (MWh)) compared to $750 million ($36 per MWh) in 2002, primarily
reflecting increased maintenance costs for the Bruce B reactors and operating
costs for Bruce A unit 4 in November and December, after it was brought back
into production. Bruce Power continually strives to control its costs through
effective management of routine maintenance programs and investments intended
to improve operating performance. Bruce Power Strategies Operational Bruce Power plans to improve the operating efficiency of the Bruce reactors. In
2003, the capacity factor achieved was 85%. While it is expected to decline to
approximately 80% in 2004 due to a number of planned maintenance outages, the
long-term goal is to reach a capacity factor of 90%. Because about 95% of Bruce Powers operating costs are fixed, the more output
produced, the lower the unit costs. Growth Bruce Power will examine the feasibility of restarting Bruce A units 1 and 2 to
serve Ontarios growing electricity needs. The study will include a technical
inspection of these reactors and an assessment of the cost to upgrade them to
current industry operational safety standards. Cameco believes that looking at restarting these two units is a logical first
step in determining if Bruce Power can play a growing role in securing
Ontarios future energy needs. The study will determine if an adequate return
on investment can be achieved. The study will also establish what improvements are needed to extend the lives
of the four Bruce B reactors and the two operating Bruce A reactors, which are
scheduled to be taken out of service over the next 15 years.
   15




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MANAGEMENTS DISCUSSION & ANALYSIS
  Bruce Power will also examine the feasibility of building one or more advanced
Candu reactors currently being developed by Atomic Energy of Canada Limited.
Bruce Power has a well-established infrastructure. The Bruce site was designed
to accommodate expansion and as such is ideal for potential new reactors. Capability to Deliver Results Bruce Power has an experienced executive team leading more than 3,500 highly
skilled employees. Together they achieved an 18% increase in output and a 13%
increase in the capacity factor in 2003 while managing the restart of two
long-idled reactors. Bruce Power has invested, and continues to invest,
substantial amounts to improve reactor output and reliability. At the same time, Bruce Powers ongoing emphasis on safety was reflected in its
accident frequency of only 0.12 lost-time injuries for every 200,000 hours
worked in 2003. That was significantly better than the companys ambitious
target of 0.20. Bruce Powers cash flows provide a source of funds to make investments to
improve its operational performance and expand its capacity. Electricity Business Results Revenue Bruce Powers revenue in 2003 totalled $1,208 million, up 31% compared to 2002.
Bruce Power has contributed $108 million of pre-tax earnings to Camecos
results ($72 million after tax or $1.29 per share) compared to pre-tax earnings
of $16 million in 2002 ($11 million after tax or $0.19 per share). Operation For 2003, Bruce Power achieved a total capacity factor of 85% compared to 75%
in 2002. Bruce Power produced 24.5 TWh, an 18% increase over the same period
last year. In 2002, Bruce Power carried out a series of major planned outages
to prepare the four Bruce B reactors for better long-term performance. Electricity Prices For 2003, the Ontario electricity spot price averaged about $54 per MWh. During
this period, Bruce Powers realized price averaged $48 per MWh from a mix of contract and spot sales, a
12% increase over the previous year. Costs The 2003 cost per MWh was lower compared to 2002 because about 95%
 ELECTRICITY BUSINESS HIGHLIGHTS
 ($ millions)
    
    2003
    
    
    2002Revenue
    
    
    1,208
    
    
    
    919Operating costs
    
    
    853
    
    
    
    750Earnings before interest and taxes
    
    
    355
    
    
    
    169Interest
    
    
    69
    
    
    
    63Earnings before taxes
    
    
    286
    
    
    
    106Output (terawatt hours)
    
    
    24.5
    
    
    
    20.8Capacity factor1(%)
    
    
    85
    
    
    
    75Realized price ($/MWh)
    
    
    48
    
    
    
    43
  1
    
    Capacity factor for a given period represents the amount of
electricity actually produced for sale as a
percentage of the amount of electricity the
plants are capable of producing for sale.
  CAMECOS EARNINGS FROM BRUCE POWER
 ($ millions)
    
    2003
    
    
    2002Bruce Powers earnings before taxes (100%)
    
    
    286
    
    
    
    106Camecos share of earnings before adjustments
    
    
    77
    
    
    
    16Adjustments:Sales contract valuation1
    
    
    20
    
    
    
    Interest capitalization
    
    
    12
    
    
    
    2Interest income on loan to Bruce Power
    
    
    7
    
    
    
    Fair value increments on assets1
    
    
    (8
    )
    
    
    (2
    )Earnings from Bruce Power
    
    
    108
    
    
    
    16
  1
    
    See note 19 to the consolidated financial statements
 (ONTARIO ELECTRICITY SPOT PRICE)
   16




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##### 



MANAGEMENTS DISCUSSION & ANALYSIS
  of Bruce Powers total operating costs are fixed and the output was higher
year-over-year. Interest cost of $69 million included interest on the long-term
loans from Bruce Power partners and interest costs attributable to the capital
lease. Bruce Power has spent about $350 million on the restart of the two Bruce A
units in 2003, bringing the total project capital cost to $724 million, which
includes $4 million in post-synchronization operational losses that were
capitalized during the commissioning phase. Bruce Power spent an additional
$159 million on capital expenditures at Bruce B, the majority of which was for
safety systems and power uprate programs. 2004 Outlook for Electricity Output The targeted capacity factor in 2004 for the six Bruce reactors is about 80%
compared to 85% in 2003, which reflects planned maintenance outages for the
Bruce A and B reactors during the year. In addition, the vacuum building for
Bruce B will be tested in the fall, which will require all four B reactors to
be taken offline for about a month. This vacuum building test is a regulatory
requirement. Results from Bruce Power are projected to decline modestly in 2004
compared to 2003 due primarily to higher costs resulting from the increased
level of planned outages. Capital expenditures In 2004, Bruce Powers capital expenditure program for the two A and
 four B reactors is expected to total about $280 million, plus an additional
$120 million for sustaining capital and site service support areas. Bruce Power capital expenditures are expected to average about $200 million for
each of 2005 and 2006. This excludes sustaining capital and expenditures for
site service support areas, which are expected to average about $120 million
per year. These capital projects will provide higher output for the Bruce B units,
deliver the expected operational life for Bruce A unit 4 and increase overall
efficiency for the site. These projects are the fundamental building blocks for
enhancing operational performance and will allow Bruce Power to supply more
power to the growing Ontario electricity market. Funding needs for these projects will depend on the electricity price and the
operational performance of the Bruce reactors. Cameco does not expect it will
be required to contribute to the funding of these projects. 
  GOLD BUSINESS
 In early January 2004, Cameco announced that it had reached an agreement with
the Kyrgyz Republic to create a new jointly owned Canadian gold company called
Centerra Gold Inc. Under the agreement, Cameco subsidiaries will transfer their one-third interest
in the Kumtor Gold Company (KGC) and additional gold-related assets
 to Centerra. The Joint Stock Company Kyrgyzaltyn (Kyrgyzaltyn), whose shares
are held 100% by the Kyrgyz government, will transfer its two-thirds interest
in KGC to the new gold company. Initially after the transfer of assets, Cameco
subsidiaries will hold 67% and Kyrgyzaltyn will hold 33% of Centerra. In conjunction with the transfer of gold assets, Centerra intends to undertake
an initial public offering (IPO) in Canada and sell shares to the public.
Cameco expects to retain a majority interest in Centerra immediately following
the IPO. Kyrgyzaltyn also has the option to acquire an additional 2% of
Centerra from Cameco for 30 days after Centerra is listed on the Toronto Stock
Exchange (TSX). Initially, Centerras assets will include the following:  
    
    100% of KGC, owner of the Kumtor gold mine located in the Kyrgyz Republic,
    
    100% of Kumtor Operating Company, operator of the Kumtor mine,
    
    56% of AGR Limited (AGR), 95% owner of the Boroo gold mine located in Mongolia,
    
    62% interest in the REN joint venture, an advanced exploration
project located in Nevada, US, and
    
    73% interest in the exploration licences for the Gatsuurt
exploration property located about 35 kilometres from Boroo in
Mongolia. In addition, about $130 million (US) in loans previously advanced by Cameco
subsidiaries to the Kumtor and Boroo gold mines will be contributed by Cameco
in exchange for equity in Centerra. Closing is targeted for the second quarter of 2004 and is subject to a number
of conditions including:  
    
    consent from a number of third parties, including certain financial
institutions,
    2004 BRUCE POWER CAPITAL EXPENDITURES (100% )
 ($ millions)Bruce B turbines/power uprate
    
    
    160Bruce A unit 4 steam generators (progress payment)
    
    
    25Infrastructure projects
    
    
    95Sub-total
    
    
    280Sustaining capital and site service support areas
    
    
    120Total
    
    
    400
    17




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##### 



MANAGEMENTS DISCUSSION & ANALYSIS
  
    
    Centerra entering into an underwriting agreement for an IPO of Centerra shares, and
    
    the conditional listing of Centerra shares on the TSX. Cameco has negotiated a new agreement with the Kyrgyz government to ensure that
a stable investment regime will be maintained in the Kyrgyz Republic for
Centerra. The new agreement will take effect on closing. Centerra will have a
10-year tax stabilization period, during which the application of Kyrgyz tax
legislation will not increase the tax burden on the Kumtor operation. With an agreement to create Centerra, an offer will be made to the non-Cameco
shareholders of AGR to exchange their AGR shares for Centerra shares. Gold Market Review Gold prices rose substantially again in 2003, ending the year 20% higher at
$416 (US) per ounce. That followed a 25% increase in 2002. The average spot
price in 2003 was $363 (US) per ounce, compared to $310 (US) per ounce in 2002. A number of factors continue to support the strengthening gold price, including
the US dollar weakness, geopolitical uncertainties and reductions in producer
hedging. While years of lower gold prices have limited the development of new
mines, higher prices are once again opening up investment in gold exploration
and production companies. Key Performance Drivers The major factors that drive Camecos gold business are:  
    
    prices,
    
    volume,
    
    cost, and
    
    exploration. Gold Prices Realized prices are largely outside the control of Cameco, except through its
 gold hedging strategy, which the company is actively reducing. At the end of
December 2003, Cameco Golds operating companies hedge positions totalled
478,300 ounces or about 12% of proven and probable reserves. These hedges are
expected to yield an average price of about $326 (US) per ounce. Volume/Cost In 2003, 677,552 ounces of gold were poured at Kumtor compared to 528,550
ounces in 2002. Gold production at Kumtor was 28% higher than in 2002 due
mainly to higher grade mill feed that averaged 4.5 grams per tonne (g/t)
compared to 3.7 g/t in 2002 and an improved recovery rate of 83% compared to
78%. The ore grade and recovery were lower in 2002 due to a pit wall failure
that occurred in July 2002 and forced the company to revise its mining plan.
The total cash cost per ounce in 2003 was about $199 (US) calculated in
accordance with the standards of The Gold Institute. The cash cost per ounce in
2002 was $216 (US). In 2004, production at Kumtor is expected to be about 610,000 ounces
representing an 10% decrease compared to 2003. This decline is due to the
milling plan which calls for a mix of low-grade stockpiled ore
and higher grade mine ore. As a result, a lower average millfeed ore grade of
4.1 g/t is expected, compared to 4.5 g/t in 2003. The unit cash cost is
projected to increase to $220 (US) per ounce from $199 per ounce in 2003. Ore
grade is expected to be lower in future years. The unit cash costs referenced above include exploration costs and a management
fee. Due to the restructuring of the gold business under Centerra, the cash
unit operating costs will be adjusted to exclude exploration costs and the
management fee for a couple of reasons. First, the exploration costs have historically been nominal, with greater than
50% of the expenditures associated
 (DAILY GOLD PRICES) with mining activities such as further ore body delineation and grade control,
with the remainder related to extending the mine life. The Gold Institute
Standard excludes the latter type costs from the standard unit cost
calculation. As exploration expenditures are anticipated to increase in the
coming years, and the focus of the exploration program changes to extending the
mine life, it was determined that the expense should be identified separately
and excluded from the unit cost calculation. The exploration expense accounted
for about $0, $2 and $7 per ounce respectively of the $216, $199 and $220 unit
cash costs. Second, Camecos wholly owned subsidiary Kumtor Operating Company earns a
management fee for operating the Kumtor mine. As Centerra will soon own 100% of
KOC and KGC after the restructuring, it is appropriate that the inter-company
management fee now also be identified separately and excluded from Centerras
reported production costs. The management fee accounted for about $9, $8 and $7
per ounce respectively of the $216, $199 and $220 unit cash costs. Beginning in
2004, Centerra will report unit cash costs that exclude exploration costs and
the management fee. See table on the next page for a breakdown of the costs. At Boroo in Mongolia,
commercial production was achieved March 1, 2004.
   18




---



##### 



MANAGEMENTS DISCUSSION & ANALYSIS
  GOLD UNIT CASH COSTS
 ($US/oz)
    
    
    
    
    
    
    
    
    
    20042002
    
    
    2003
    
    
    EstimatedQ4 Report
    
    
    216
    
    
    
    199
    
    
    
    220Exploration costs
    
    
    (0
    )
    
    
    (2
    )
    
    
    (7
    )Management fee
    
    
    (9
    )
    
    
    (8
    )
    
    
    (7
    )New cost
    
    
    207
    
    
    
    189
    
    
    
    206
    The cost of the project was about $75 million (US). Boroo production is
expected to total about 210,000 ounces in 2004, at a cash cost of about $170
(US) per ounce. Gold Exploration In 2003, gold exploration expenditures decreased to $9 million from $10 million
in the prior year due to the lower exchange rate. In 2003, approximately 70% of
the total exploration expenditures were incurred in North America with the
remainder relating to exploration activity in Central Asia. Gold Strategies Cameco has been a gold producer since its inception and, over the years, has
assembled some quality gold properties. Cameco Gold Inc., a wholly owned
subsidiary of Cameco, manages the companys gold activities from its head
office in Toronto, Ontario. Cameco believes these assets are undervalued inside
of Cameco, as they do not benefit from higher gold company valuations that
apply in todays gold market. For that reason, Cameco has embarked on a
strategy to unlock this value by
 packaging the gold assets in a single vehicle for public listing. Camecos partner in the Kumtor gold mine, the Kyrgyz government through its
agency Kyrgyzaltyn, had elected to participate by contributing its interest,
but the rapidly rising gold price in 2003 delayed implementing the strategy. At
the end of 2003, the Kyrgyz government ratified an agreement. Assuming final
agreements can be reached with all other critical parties and markets remain
favourable, the newly named Centerra Gold Inc. plans to list on the Toronto
Stock Exchange in the second quarter of 2004. Capability to Deliver Results Ability to Perform in Remote Environments Cameco Gold, Centerras majority owner, has a proven ability to deliver results
by developing and operating properties in remote areas of the world. It has
built expertise in managing relationships with local cultures and governments
in Central Asia and in sourcing and training local manpower. Nonetheless, the
management and
 training of local labour resources can be challenging as standards, customs and
practices vary widely. Access to Capital Cameco Gold needs reasonable access to funds to undertake projects and
acquisitions that allow for expansion of its assets and production. Cameco
Gold, as a wholly owned subsidiary of Cameco, has been able to secure funds and
financing for the development of its Kumtor and Boroo properties and the
acquisition of its interest in AGR. Going forward, Centerra plans to become a
stand-alone public company that expects to directly access the debt and equity
markets for required capital. Gold Exploration Cameco Gold must find new gold reserves to extend the life of its mines and
increase production. The companys exploration program is focused in proximity
to its two existing producing properties and at the REN site in Nevada. As part
of Cameco Golds strategy to go public, it plans to increase its exploration
efforts in 2004 and beyond as well as focus on potential acquisitions. Gold Business Results Revenue In 2003, revenue from the gold business improved by 31% to $114 million (Cdn)
from $87 million (Cdn) in 2002, reflecting a 35% increase in sales volume and
an increase in the average realized selling price. Camecos realized gold price
increased to $334 (US) per ounce in 2003 compared to $300 (US) in 2002. The
average spot market price for gold during 2003 was $363 (US) per ounce, up 17%
from the average price of $310 (US) for 2002. KGC and AGR hedge certain price
risk for future gold sales. At the end of 2003, KGC had in place forward sales
on 278,300 ounces and AGR had in place forward sales on 200,000 ounces.
      GOLD BUSINESS FINANCIAL HIGHLIGHTS
 2003
    
    
    2002
    
    
    % ChangeRevenue ($ millions)
    
    
    114
    
    
    
    87
    
    
    
    31Gross profit ($ millions)
    
    
    40
    
    
    
    9
    
    
    
    344Gross profit %
    
    
    35
    
    
    
    10
    
    
    
    250Earnings before taxes ($ millions)
    
    
    32
    
    
    
    (3
    )
    
    
    Selling price ($US/oz)
    
    
    334
    
    
    
    300
    
    
    
    11Unit cash cost ($US/oz)
    
    
    189
    
    
    
    207
    
    
    
    (9
    )Sales volume (ounces)
    
    
    234,864
    
    
    
    174,394
    
    
    
    35Production (ounces)
    
    
    225,851
    
    
    
    176,183
    
    
    
    28
   19




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##### 





MANAGEMENTS DISCUSSION & ANALYSIS
  hedges are expected to yield an average price of about $326 (US) per ounce. Cameco has agreed to provide various levels of credit support up to $130 (US)
per ounce to the counterparties of KGC and AGR which, based on the ounces
hedged at December 31, 2003, could amount to $57 million (US) depending on the
spot price of gold. At December 31, 2003, the actual exposure under these
arrangements, reflecting the net mark-to-market losses, was $46 million (US). Cost of products and services sold In 2003, the cost of products and services sold was $52 million compared to $58
million in 2002, a decrease of $6 million due to a reduced Canadian/US dollar
exchange rate in 2003. Gold production at Kumtor was 28% higher than in 2002
due mainly to higher-grade mill feed that averaged 4.5 g/t compared to 3.7 g/t
in 2002 and an improved recovery rate of 83% compared to 78% in 2002. The ore
grade and recovery were lower in 2002 due to the pit wall failure. Kumtors
cash cost per ounce was $199 (US) compared to $216 (US) in 2002. Please see
table on the previous page for unit cost information. Depreciation, depletion and reclamation In 2003, depreciation, depletion and reclamation charges were $22 million, an
increase of $2 million compared to $20 million in 2002 due mainly to the 28%
increase in production. The effect of the higher production was largely offset
by the reduction in the Canadian/US dollar
 exchange rate. On a unit basis, the depreciation rate declined to $65 (US) per
ounce from $73 (US) in 2002. Gross profit In 2003, gross profit from the gold business amounted to $40 million compared
to $9 million in 2002. The gross profit margin for gold was 35% compared to 10%
in 2002. 2004 Outlook for Gold Given the increase in planned total production from the Kumtor and Boroo mines,
greater revenue is expected compared to 2003, assuming gold prices remain at
current levels. This is independent of the planned IPO for Centerra, which is
targeted for the second quarter of 2004.  CONSOLIDATED RESULTS
 Consolidated Earnings For 2003, net earnings attributable to common shares were $205 million ($3.65
per share), an increase of $161 million compared to $44 million ($0.78 per
share) in 2002. These results include the effects of changes in Canadian
federal and Ontario provincial tax laws. Together, the changes in the tax
legislation allowed Cameco to recognize a non-recurring, non-cash reduction in
deferred income taxes of $81 million ($1.45 per share) in 2003. Excluding the tax adjustments, net earnings attributable to common shares in
2003 were $123 million ($2.20 per
 share) compared to $44 million ($0.78 per share) in 2002. This increase was
attributable to higher earnings from Bruce Power and higher profits in the gold
segment. These improvements were offset somewhat by lower earnings in the
uranium segment and higher charges for interest and administration. Excluding the tax adjustment, the effective rate for income taxes decreased to
33% in 2003 from 48% the year before as a higher proportion of earnings came
from the gold operations in the Kyrgyz Republic which are subject to lower tax
rates. Earnings from operations were $88 million compared to $84 million in
2002 and the aggregate gross profit margin remained at 20%. Cash Resources Operating Activities In 2003, Cameco generated cash from operations of $246 million compared to $251
million in 2002. This does not include Camecos pro rata interest in Bruce
Powers operating cash flow of $117 million in 2003 compared to $28 million in
2002. Cameco accounts for this investment using the equity method and thus
Bruce Powers operating cash flows are not consolidated with Camecos. For
further information, refer to note 19(c) of the consolidated financial
statements. Investing Activities Cash used in investing activities increased to $448 million in 2003 from $74
million in 2002 due to the
    QUARTERLY CONSOLIDATED FINANCIAL RESULTS
 2003
    
    
    2002($ millions except per share amounts)
    
    Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    Year
    
    
    Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    YearRevenue
    
    
    103
    
    
    
    220
    
    
    
    232
    
    
    
    272
    
    
    
    827
    
    
    
    124
    
    
    
    195
    
    
    
    158
    
    
    
    271
    
    
    
    748Earnings from Bruce Power
    
    
    17
    
    
    
    49
    
    
    
    36
    
    
    
    6
    
    
    
    108
    
    
    
    (3
    )
    
    
    (1
    )
    
    
    12
    
    
    
    8
    
    
    
    16Net earnings
    
    
    37
    
    
    
    105
    
    
    
    33
    
    
    
    30
    
    
    
    205
    
    
    
    5
    
    
    
    12
    
    
    
    7
    
    
    
    20
    
    
    
    44 per share
    
    
    0.66
    
    
    
    1.87
    
    
    
    0.59
    
    
    
    0.53
    
    
    
    3.65
    
    
    
    0.09
    
    
    
    0.20
    
    
    
    0.11
    
    
    
    0.38
    
    
    
    0.78Cash provided by operations
    
    
    56
    
    
    
    35
    
    
    
    79
    
    
    
    76
    
    
    
    246
    
    
    
    134
    
    
    
    80
    
    
    
    22
    
    
    
    15
    
    
    
    251Cash dividends per share
    
    
    0.15
    
    
    
    0.15
    
    
    
    0.15
    
    
    
    0.15
    
    
    
    0.60
    
    
    
    0.125
    
    
    
    0.125
    
    
    
    0.125
    
    
    
    0.125
    
    
    
    0.50
 20




---



##### 





MANAGEMENTS DISCUSSION & ANALYSIS




additional investment in Bruce Power. Cameco paid $204 million for its
incremental 16.6% interest and loaned an additional $75 million to Bruce Power.
Expenditures for property, plant and equipment rose by $69 million compared to
2002 due to the development of the Boroo gold mine in Mongolia. During 2003, Cameco received no principal repayments on its subordinated loan
to KGC, the operator of the Kumtor open pit gold mine in the Kyrgyz Republic
whereas in 2002, Cameco received $15 million (US) from KGC. The payments
scheduled for 2003 were deferred as the result of a pit wall failure at the
mine in 2002. Financing Activities During the year, cash used in investing activities exceeded operating cash
flows by $202 million due to the acquisition of the additional interest in
Bruce Power. Cameco financed this shortfall by issuing $230 million in
convertible debentures. Inventories At the end of 2003, total product inventories amounted to $316 million, $24
million or 7% lower than the previous year-end. There was a reduction in the
quantity of uranium inventory during the year as record deliveries exceeded
production and purchases. (CASH FROM OPERATIONS)


(7 GRAMS) See note 3 to the consolidated financial statements. Debt At the end of 2003, total outstanding debt amounted to $243 million, an
increase of $18 million compared to $225 million at the end of 2002. The net
debt to capitalization ratio declined to 7% from 8%. If the preferred
securities and the convertible debentures were accounted for as debt, the net
debt to capitalization ratio would be 23%. In December 2003, $20 million (US) (Camecos share) of the Kumtor senior debt
was repaid. See note 6 to the consolidated financial statements. Convertible Debentures The company increased its short-term commercial paper to help fund the February
2003 acquisition of a further 16.6% interest in Bruce Power. In September 2003,
Cameco issued $230 million in convertible debentures. The net proceeds of
approximately $223 million are being used to repay commercial paper as it
matures. The company decided to put in place financing that better matched the
long-term nature of the Bruce Power asset. In accordance with Canadian
generally accepted accounting principles (GAAP), these debentures are reflected
as equity


on the companys balance sheet. See note 10 to the consolidated financial
statements. Corporate Expenses Administration In 2003, administration costs were $47 million, an increase of $5 million
compared to 2002 due to a number of items including an expense for stock-based
compensation and costs incurred for quality and business process improvements. Effective January 1, 2003, Cameco changed its accounting policy for stock-based
compensation opting to record a compensation expense for the fair value of
stock options granted during the year. The total expense for 2003 amounted to
$2.4 million, of which $1.9 million has been attributed to administration. Interest and Other Interest and other costs increased by about $7 million due to revaluation of US
dollar denominated assets as a result of the strengthening Canadian dollar. In
2003, the company recognized foreign exchange losses of $4 million compared to
gains of $2 million in 2002. See note 13 to the consolidated financial
statements. Income Taxes In 2003, the federal government introduced amendments to the Canadian Income
Tax Act which provide for a 7% reduction in the corporate tax rate on income
from resource activities. The federal tax rate is declining from its previous
level of 28% to 21% over a five-year period commencing in 2003. Under Canadian
generally accepted accounting principles (GAAP), the cumulative effect of a
change in income tax legislation on future income tax assets and liabilities is
included in a companys financial statements in the period of substantial
enactment. Accordingly, Cameco reduced its balance sheet provision for future
income taxes and


21



---



##### 



MANAGEMENTS DISCUSSION & ANALYSIS
  recognized a one-time, non-cash income tax adjustment of $86 million ($1.54 per
share) in the second quarter. Also in 2003, the government of Ontario amended the provincial income tax laws
to increase the corporate income tax rate to 14% effective January 1, 2004.
Prior to this amendment, the tax rate was projected to decline from 11% in 2004
to 8% in 2007. As a result, Cameco increased its provision for future income
taxes by $5 million ($0.09 per share). Excluding these adjustments, income tax expense was $18 million greater than in
2002 primarily as a result of the significantly higher earnings from Bruce
Power which are taxed at a rate of 34%. The effective tax rate on consolidated
earnings was lower at 33% compared to 48% last year due to a higher proportion
of earnings in the gold business. Income tax expense includes large corporations taxes which amounted to $5
million in each of 2003 and 2002. See note 15 to the consolidated financial
statements.
 CAPITAL EXPENDITURES
 (Cameco's share in $ millions)2004 Plan
    
    
    2003 ActualSustaining CapitalMcArthur River/Key Lake
    
    
    43
    
    
    
    11US ISL
    
    
    16
    
    
    
    8Rabbit Lake
    
    
    7
    
    
    
    6Conversion Services
    
    
    22
    
    
    
    6Boroo
    
    
    10
    
    
    
    Kumtor
    
    
    3
    
    
    
    7Other
    
    
    3
    
    
    
    8Total Sustaining
    
    
    104
    
    
    
    46New DevelopmentCigar Lake
    
    
    32
    
    
    
    10Conversion Services
    
    
    15
    
    
    
    Inkai
    
    
    4
    
    
    
    4Boroo
    
    
    
    
    
    
    81Total Development
    
    
    51
    
    
    
    95Capitalized interest
    
    
    9
    
    
    
    13Total
    
    
    164
    
    
    
    154
    CONSOLIDATED OUTLOOK FOR 2004
 In 2004 consolidated revenue is expected to rise by about 4%. This is due to
new gold production from the Boroo mine, which is anticipated to more than
offset reduced revenues in the uranium and conversion businesses. On a
consolidated basis, the gross profit margin is projected to increase to 23%
from 20% in 2003. In 2004, the effective rate for income taxes is expected to
be about 30%. In 2004, total capital expenditures are expected to increase by $10 million to
 $164 million. In 2004, sustaining capital expenditures are expected to be
higher than in 2003 due to ongoing mine development work, pumping and water
treatment projects at the McArthur River mine in northern Saskatchewan, and
well field expansions at the ISL operations in Nebraska. Capital spending will
also increase at conversion services to improve production processes and meet
regulatory requirements. For new development projects, total expenditures are projected to be $51
million, a decrease of $48 million compared to 2003. The decline is
attributable to the completion of construction at Boroo and partially offset by
increased expenditures at the proposed Cigar Lake minesite in northern
Saskatchewan and at Camecos
conversion services facilities.
 At Cigar Lake, the construction licence is now expected in late 2004, following
which Cameco and the partners will make a decision on development. In the
meantime, activities requiring considerable advanced planning are expected to
continue. Procurement is planned for several long-lead-time items including the
#2 hoist and headframe complex, the freezing system, freeze hole drilling and
the electrical distribution system. At the Inkai development project in Kazakhstan, the feasibility study is
completed and the results are being reviewed. The feasibility results need to
be approved by the Inkai joint venture partners. Subject to these approvals,
test mining is planned to continue through 2004 as a detailed mine design is
prepared and an application for a
    LIQUIDITY INDICATORS
 2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999Cash provided by operations ($ millions)
    
    
    246
    
    
    
    251
    
    
    
    116
    
    
    
    224
    
    
    
    249Cash provided by operations/net debt1 (%)
    
    
    155
    
    
    
    151
    
    
    
    36
    
    
    
    86
    
    
    
    80Net debt1/total capitalization (%)
    
    
    7
    
    
    
    8
    
    
    
    15
    
    
    
    13
    
    
    
    14
  1
    
    Total debt less cash and cash equivalents.
 22




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##### 



MANAGEMENTS DISCUSSION & ANALYSIS
  construction permit is submitted to the local authorities. Pending receipt of
the permit, construction would follow in 2005 and the first half of 2006 with
production expected to begin toward the end of 2006. Sensitivity Analysis Uranium Price With the recent increase in the uranium spot price, a significant proportion of
the deliveries in 2004 are likely to be influenced by price ceilings.
Consequently, a $1.00 (US) increase in the U3O8 spot price from the year-end
average of $14.45 (US) per pound would improve revenue by about $9 million
(Cdn), net earnings by about $5 million (Cdn) and cash flow by about $4 million
(Cdn). Conversely, a $1.00 (US) decrease in the U3O8 spot price from $14.50
(US) would reduce revenue by about $11 million (Cdn), net earnings by about $7
million (Cdn) and cash flow by about $6 million (Cdn). Gold Price For 2004, about 70% of forecast gold sales are unhedged. A $10 (US) per ounce
change in the gold spot price would change each of revenue, net earnings and
cash flow by about $3 million (Cdn). Electricity Price For 2004, about 55% of forecast generation is to be sold at spot prices. A
$1.00 (Cdn) per MWh change in the spot price for electricity in Ontario would
change Camecos after-tax earnings from Bruce Power by about $4 million (Cdn). Conversion Price In the short term, Camecos financial results are relatively insensitive to
changes in the spot price for conversion as the majority of conversion sales
are at fixed prices.
 Foreign Exchange Most uranium and conversion US dollar inflows are hedged through a combination
of forward sales of US currency and natural hedges. Gold revenue and expenses
are not hedged. Results from the gold business are converted into Canadian
dollars at the prevailing exchange rates. For 2004, every one-cent change in
the US to Canadian dollar exchange rate from $0.77 would change net earnings by
$3 million (Cdn). 
  LIQUIDITY AND CAPITAL
RESOURCES
 Overview Financial liquidity represents the companys ability to fund future operating
activities and investments. Some important measures of liquidity are summarized
in the table below. In 2003, Cameco issued $230 million of 5% convertible subordinated debentures
and extended the term of its revolving credit facility by one year. Indicators Defined Cash provided by operations reflects the net cash flow generated by operating
activities after consideration for changes in working capital. Cash provided by operations to net debt indicates the companys ability to meet
debt obligations from internally generated funds. Cash provided by operations
does not include Camecos pro rata interest in Bruce Powers operating cash
flow of $117 million in 2003 compared to $28 million in 2002. Cameco accounts
for this investment using the equity method and thus Bruce Powers operating
cash flows are not consolidated with Camecos. For further information, refer
to note 19(c) of the consolidated financial statements. Net debt to total capitalization measures the companys use of financial
leverage. A lower percentage means less reliance
 upon debt as a source of financing. Although debt is a lower cost form of
financing compared to equity, a lower percentage of debt also represents lower
repayment obligations. Credit Ratings As of February 2004, the company has the following ratings for its senior debt
from third-party rating agencies:  
    
    Dominion Bond Rating Service LimitedA (low) under review with developing implications following
Camecos announcement that it has bid on the South Texas Project.
    
    Moodys Investors Service
Baa1 with a stable outlook.
    
    Standard & Poors
BBB+ with a stable outlook. Debt In addition to cash flow from operations, debt is used to provide liquidity.
Cameco has access to about $700 million in unsecured lines of credit. Commercial lenders have provided a $417.5 million unsecured revolving credit
facility that is available in two tranches. The first tranche is a three-year,
$196.5 million revolving facility. The second tranche is a $221 million
revolving facility available for 364 days with a two-year term-out option.
(This means, as long as the company is not in default, Cameco has the option to
extend the repayment date on the balance outstanding at maturity of the second
tranche for an additional two years.) Up to $100 million of this facility can
be used to support letters of credit. The facility ranks pari passu (or equal
ranking) with all other senior debt of the company. At December 31, 2003, there
were no amounts outstanding under these credit facilities. Cameco also has agreements with various financial institutions to provide up to
$294 million in short-term borrowing and letter of credit facilities. These
   23




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MANAGEMENTS DISCUSSION & ANALYSIS
  CONTRACTUAL CASH OBLIGATIONS1As at December 31, 2003
 ($ Cdn millions)
    
    
    
    
    
    Due in
    
    Due in
    
    Due in
    
    DueLess Than
    
    1-3
    
    4-5
    
    After 5Total
    
    
    1 Year
    
    Years
    
    Years
    
    YearsLong-term debt
    
    
    243
    
    
    
    4
    
    
    
    232
    
    
    
    7
    
    
    
    Preferred Securities2
    
    
    162
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162Convertible Debentures
    
    
    230
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230Unconditional product purchase obligations2,3
    
    
    1,441
    
    
    
    146
    
    
    
    353
    
    
    
    355
    
    
    
    587Total contractual cash obligations
    
    
    2,076
    
    
    
    150
    
    
    
    585
    
    
    
    362
    
    
    
    979
 1
    
    Cameco has the unrestricted ability to settle its obligations for its preferred securities and convertible debentures by delivering common shares of Cameco.2
    
    Denominated in US dollars. Converted to Canadian dollars at the December 31, 2003 rate of $1.2924.3
    
    Virtually all of Camecos product purchase obligations are under long-term, fixed-price arrangements.
  COMMERCIAL COMMITMENTSAs at December 31, 2003
 ($ Cdn millions)
    
    Total amountscommittedStandby letters of credit1
    
    
    203GuaranteesKGC senior debt2, 4
    
    
    15Gold hedge program3, 4, 7
    
    
    73Bruce Power investment5
    
    
    7Bruce Power guarantees6
    
    
    191Total commercial commitments
    
    
    489
  1
    
    The standby letters of credit maturing in 2004 were issued with a
one-year term and will be automatically renewed on a year-by-year basis
until the underlying obligations are resolved. These obligations are
primarily the decommissioning and reclamation of Camecos mining and
conversion facilities. As such, the letters of credit are expected to
remain outstanding well into the future.2
    
    See note 6 to the consolidated financial statements.3
    
    See note 25 to the consolidated financial statements.4
    
    Denominated in US dollars. Converted to Canadian dollars at the December 31, 2003 rate of $1.2924.5
    
    Under its initial 15% partnership interest, Cameco agreed to invest up to
$100 million in Bruce Power. To the end of 2003, Cameco had invested $93
million in the partnership.6
    
    At December 31, 2003, Camecos total commitment for financial assurances
given on behalf of Bruce Power is estimated to be $191 million. See note
19 to the consolidated financial statements.7
    
    See discussion under gold prices in the section titled Business Risks and
Uncertainties.
     arrangements are predominantly used to fulfill regulatory requirements to
provide financial assurance for future reclamation of the companys operating sites.
Outstanding letters of credit at December 31, 2003 amounted to $202.7 million.
See Business Risks  Reclamation and Decommissioning in this MD&A and note 6 to
the consolidated financial statements. The company may also borrow directly from investors by issuing commercial paper
up to $400 million. To the extent necessary, Cameco uses the revolving credit
facility to provide liquidity support for its commercial paper program.
 Commercial paper outstanding at December 31, 2003 amounted to $65.9 million. Cameco has operated within the investment grade segment (high credit quality)
of the market when obtaining credit. The cost, terms and conditions under which
financing is available vary over time. While future access to credit cannot be
assured, it was readily available during 2003. Debentures
 will mature July 6, 2006. Cameco also has $100 million outstanding in senior
unsecured debentures that bear interest at a rate of 6.9% per annum and will
mature July 12, 2006. Equipment Loan 
  Preferred Securities 
  Convertible Debentures
     24




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MANAGEMENTS DISCUSSION & ANALYSIS
  KUMTOR GOLD COMPANY CAPITAL STRUCTURE
 ($US millions)
    
    Initial Funding
    
    Balance at Dec. 31, 2003Debt
    
    
    
    
    
    
    
    


Third partySenior1
    
    
    265
    
    
    
    17Subordinated
    
    
    20
    
    
    
    20Total third party
    
    
    285
    
    
    
    37Cameco subordinated loan
    
    
    107
    
    
    
    61Total debt
    
    
    392
    
    
    
    98Equity
    
    
    45
    
    
    
    45Total Capital
    
    
    437
    
    
    
    143
  1
    Cameco has guaranteed the payment of all principal and interest that
becomes due on the senior debt.
     Kumtor Gold Company To finance the Kumtor gold project, a consortium of financial institutions
advanced $285 million (US) in senior and subordinated loans to the project in
1996. During 2003, KGC repaid $60 million (US) of these third party loans.
After these repayments, the outstanding balances were $17 million (US) in
senior debt and $20 million (US) in subordinated debt. Since Cameco
proportionately consolidates its interest in KGC, $12 million (US) ($16 million
(Cdn)) of the remaining loans were included in Camecos long-term debt. See
note 6 to the consolidated financial statements. In addition, Cameco provided a subordinated loan of $107 million (US) to the
project. The outstanding principal and accrued interest at the end of 2003
amounted to $61 million (US) and $3 million (US) respectively compared to $61
million (US) of outstanding principal at year-end 2002. Cameco also invested
$45 million (US) as an equity contribution in 1996. Cameco plans to contribute
the subordinated loan in exchange for equity in Centerra. The senior debt is the direct obligation of KGC, although Cameco has guaranteed
the payment of principal and interest owing. See note 18 to the
 consolidated financial statements. Under current production plans, the
guarantee is not expected to be called. Debt Covenants Cameco is bound by certain covenants in its general credit facilities and in
those of Kumtor. The financially related covenants place restrictions on total
debt, including guarantees, and set minimum levels for net worth. As of
December 31, 2003, Cameco met these financial covenants and does not expect its
operating and investment activities in 2004 to be constrained by them.  BUSINESS RISKS AND UNCERTAINTIES
 Financial Risk Camecos financial condition is influenced by operational performance and by a
number of market risks. The most significant of these risks are fluctuations in
market prices and sales volumes of uranium, conversion, gold and electricity,
foreign exchange rates and unit costs of production. Risk management strategies
are employed to assist in identifying and mitigating these and other risks.
 Uranium Prices The company reduces its exposure to short-term volatility in uranium prices by
maintaining a long-term contract portfolio that is diversified by price
mechanism, delivery date and customer. About 60% of Camecos contract portfolio
has been priced in relation to the spot market price in effect at or near the
time of delivery. The remaining 40% has been sold at a fixed price (usually
adjusted for inflation) over the term of the contract. The companys
sensitivity to changes in the uranium spot price is noted in the section
entitled consolidated outlook for 2004 in this MD&A. Limited Number of Customers Cameco relies on a small number of customers that purchase a significant
portion of the companys uranium concentrates and conversion services. For
example, Camecos five largest customers are expected to account for 42% of the
companys contracted supply of U3O8 for 2004 through 2006. This compares to 39%
of the contracted supply of U3O8 for 2003 through 2005. The loss of any of
these large customers, or any significant curtailment of purchases or lack of
timely payments could have a material adverse effect on Camecos financial
performance. Use of Derivatives Cameco uses financial derivatives to assist in mitigating its exposure to
fluctuations in gold price and foreign exchange rates. A derivative is entered
into as a hedge against specific economic and transactional exposures. Cameco
does not enter into derivative contracts for speculative purposes. However,
derivatives bring with them an exposure to counterparty
default.1 As of
December 31, 2003, Camecos exposure is predominantly with counterparties that
had credit ratings of A+ or higher.
         1
    
    Counterparty default would occur if the other party in a derivative
contract is unable to perform its obligations at the time of contract
maturity, resulting in the intended hedge being of no value. This concern
is addressed by dealing with a variety of counterparties and primarily
only those of high credit quality and limiting the amount and duration of
the exposure. A measure of default risk is the mark-to-market value of a
hedge position. This value is the difference between the price at which a
derivative contract was entered into and its current market value. A
mark-to-market gain indicates that the company has that amount of value at
risk should its counterparties default. A mark-to-market loss represents
the amount of value Cameco would have to pay should the hedge position
need to be settled immediately.
 25




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MANAGEMENTS DISCUSSION & ANALYSIS
  Accordingly, Cameco believes the risks of default are low and the benefits
derived from using derivatives outweigh the risks. Gold Prices KGC and AGR hedge the price risk for future gold sales. At December 31, 2003,
KGC had in place forward sales on 278,300 ounces and AGR had in place forward
sales on 200,000 ounces. Combined, these hedge positions represented about 12%
of proven and probable reserves. These hedges are expected to yield an average
price of about $326 (US) per ounce. The mark-to-market loss on these hedge
positions was $46 million (US) at December 31, 2003. Camecos share of these hedging agreements was 292,800 ounces in spot-deferred
contracts which are expected to yield an average price of about $321 (US) per
ounce. Based upon Camecos consolidated interest in KGC (33%) and AGR (56%),
Camecos net mark-to-market loss, after deducting other partners interests on
these hedge positions, was $20 million (US) at December 31, 2003 based on a
year-end spot gold price of $416 (US) per ounce. Cameco has agreed to provide various levels of credit support up to $130 (US)
per ounce to the counterparties of KGC and AGR which, based on the ounces
hedged at December 31, 2003, could amount to $57 million (US) depending on the
spot price of gold. Timing differences between the usage and designation of hedge contracts may
result in deferred revenue or deferred charges. At the end of 2003, Camecos
share of deferred charges to be recognized in future years totalled $2 million
(US). See note 25 to the consolidated financial statements. Foreign Exchange Risk The US/Canadian foreign exchange rate started the year at $1.5796 and averaged
$1.40 during the year. Most of the
 companys revenues are in US dollars with a majority of its costs in Canadian
dollars. To reduce its currency risk, at December 31, 2003, Cameco had sold
forward $457 million (US). These hedges are expected to yield an average
exchange rate of $1.4179. The mark-to-market gain on these positions was $51
million (Cdn) at December 31, 2003 based on a year-end exchange rate of
$1.2924. Timing differences between the usage and designation of hedge contracts may
result in deferred revenue or deferred charges. At the end of 2003, deferred
revenue to be recognized in future years totalled $24 million. Political Risk The company has diversified its political risk internationally. The Kumtor gold
mine is located in the Kyrgyz Republic, a country formerly part of the Soviet
Union. The mine is the largest foreign investment in the country and
represented about 5% of the countrys gross domestic product, 33% of export
earnings and 34% of total industrial production in 2002, the latest date for
which information is available. The importance of Kumtor in relation to the
rest of the Kyrgyz economy has meant that Kumtor has maintained a very high
profile within the country. This level of attention is not without risk;
however, it has also been of benefit in ensuring continued efficient
operations. Cameco also owns a 60% interest in Joint Venture Inkai (JVI), which is
developing a uranium mine in the Republic of Kazakhstan. Through KazAtomProm,
the Republic of Kazakhstan owns the remaining 40% of JVI. Cameco has agreed to
provide funding of up to $40 million (US) to JVI for project development of
which $19.5 million (US) has been funded to the end of 2003. Test mining
continued through 2003. Approval of the feasibility study is planned for 2004.
To date, the Kazakhstan government has supported
 the project, but there is no assurance that support will continue for the
projects duration. Cameco also owns a 56% interest in AGR, which owns 95% of the Boroo gold
project in Mongolia. At Boroo, commercial production was achieved on March 1,
2004. AGRs investment in Boroo may be exposed to adverse political
developments that could affect the economics of the project. The Mongolian
government has supported the project to date, but there is no assurance that
support will continue for the projects duration. Camecos investment in these operations may be exposed to adverse political
developments that could affect the economics of each operation. The company has
made an assessment of the political risk associated with each of its foreign
investments and has purchased political risk insurance to mitigate losses as
deemed appropriate. Insurance Cameco purchases insurance to mitigate losses that may arise from certain
liability and property risks. The cost of this insurance and the specific
protection provided by the policies vary from year to year depending on
conditions in the insurance market. In 2003, market conditions were difficult
across all lines of insurance. This resulted in significantly increased
premiums along with more restrictive policy terms and conditions. Cameco believes that the insurance program it has in place continues to
prudently address its major liability and property risk exposures. Uncertainty in the insurance market is expected to continue for at least a few
more years. During this time, the availability of certain types of insurance
coverage that Cameco has purchased in the past may be significantly reduced
and/or the cost to acquire insurance may significantly increase.
   26




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MANAGEMENTS DISCUSSION & ANALYSIS
  Operations Risk Camecos business is capital intensive and subject to a number of risks and
hazards, including environmental pollution, accidents or spills, industrial and
transportation accidents, labour disputes, blockades, changes in the regulatory
environment, natural phenomena (such as inclement weather conditions,
earthquakes, pit wall failures, cave-ins, adverse mining conditions and
underground flooding) and encountering unusual or unexpected geological
conditions. The company also contracts for the transport of its uranium and
uranium products to refining, conversion and enrichment facilities in North
America and Europe, which exposes the company to transportation risks. Many of
the foregoing risks and hazards could result in damage to, or destruction of,
the companys mineral properties or refining or conversion facilities, personal
injury or death, environmental damage, delays in or interruption of or
cessation of production from the companys mines or refining or conversion
facilities or in its exploration or development activities, delay in or
inability to receive regulatory approvals to transport its uranium and uranium
products, or costs, monetary losses and potential legal liability and adverse
governmental action. In addition, due to the radioactive nature of the
materials handled in uranium mining, refining, conversion and transport,
additional costs and risks are incurred by the company on a regular and ongoing
basis. Safety, Health and
Environmental Risk Cameco is subject not only to the normal worker health, safety and
environmental risks associated with all mining and chemical processing, but
also to additional risks uniquely associated with uranium mining, milling and
conversion operations. In 2001, to better manage these risks and to enhance its quality culture,
 Cameco embarked upon the design and implementation of an integrated quality
management system (QMS). Program development continued in 2003. The QMS (based
upon Camecos vision, mission, values, quality policy and ISO 9001  2000
quality management principles) is to be implemented at Camecos Canadian
uranium sites to a degree that meets the CNSC requirements by the end of 2004
and with complete QMS implementation at Canadian uranium operating sites and
related head office requirements to be finalized by the end of 2005. Cameco
also continues to utilize an environmental management system at its operations.
The company received ISO 14001 certification at its Blind River refining
facility in 2002 and at the McArthur River mine and the Key Lake milling
operation in 2003. The Port Hope conversion facility received this
certification in 2000. Also in conjunction with the QMS program, Cameco is reviewing its existing
health and safety management system, based upon principles similar to those in
the ISO series of management systems and identifying ways to further implement
it and integrate it with QMS. For the year, on a combined basis, Cameco, its
subsidiaries and long-term contractors achieved an accident frequency of 0.61
lost-time accidents per 200,000 person hours worked, which was up from last
years best overall record of 0.24. Regulators must approve the startup, continued operation and decommissioning
of many of Camecos facilities. These facilities are subject to numerous laws
and regulations regarding safety and environmental matters and the management
of hazardous wastes and materials. Significant economic value is dependent on
the companys ability to obtain and renew licences necessary to operate. In
2003, the CNSC renewed the Rabbit Lake licence for a five-year term. Given the
level of regulatory work, Cameco will seek an interim extension
 of the current two-year licences for the McArthur River and Key Lake operations
and renewal of both licences in 2004. Cameco continues to face challenges from the burden of increasing regulatory
demands and costs from the CNSC, Canadian Environmental Assessment Agency, and
other federal and provincial regulators. In particular, the lead regulator,
CNSC, has increased its fees charged to the nuclear industry, and is
increasing the regulatory burden as a result of the implementation of the new
Canadian Nuclear Safety and Control Act. In addition the CNSC and Environment
Canada are calling for more stringent environmental monitoring and
environmental performance, based on precautionary principles, of uranium mining
and milling operations. Operational changes are increasingly subject to regulatory approval that may
include delays due to longer and more complex regulatory review and approval
processes. These increasing requirements are expected to continue to result in
higher administration costs and capital expenditures for compliance. The
increasing complexity of the regulatory approval process reduces the
flexibility of the company to make operational changes in a timely fashion. Reclamation and
Decommissioning The company actively plans for the closure, reclamation and decommissioning of
its operating sites. Decommissioning and reclamation costs may increase over
time due to increasingly stringent regulatory requirements. At least
bi-annually, Cameco estimates its total decommissioning and reclamation costs,
based on current operations to date, for its operating assets. At the end of
2003, the estimate was $234 million. The majority of such expenditures are
typically incurred at the end of the useful
   27




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MANAGEMENTS DISCUSSION & ANALYSIS
  lives of the operations to which they relate and, therefore, only a very small
percentage of total estimated costs is expected to be incurred over the next
five years. See note 7 to the consolidated financial statements. At the end of 2003, Camecos accounting provision for future reclamation costs
totalled $141 million. To provide financial assurances for these costs, Cameco
has provided letters of credit (LOCs), where required. Camecos LOCs totalled
$203 million at the end of 2003, of which $199 million was related to
reclamation and decommissioning activities. Since mid-2001, all Camecos North American operations have in place letters of
credit providing financial assurance, which are aligned with preliminary plans
for site-wide decommissioning. Beginning in 1996, the company has conducted regulatory-required reviews of its
decommissioning plans for all Canadian sites. These periodic reviews are done
on a five-year basis, or at the time of an amendment to an operating licence,
or if at renewal, there has been a material change to the site. Reclamation and decommissioning obligations represent unfunded liabilities of
the company. Electricity Business Risks Through its interest in Bruce Power, Cameco is exposed to various business
risks associated with the generation and marketing of electricity. The
following discusses some, but not all, risks associated with this business. In Ontario, political risk results from uncertainty over the future direction
of government energy policies. This risk was amplified in late 2002 when the
Ontario government abandoned the deregulation of the retail electricity market.
Thus far, the wholesale market remains unregulated, but there can be no
assurance that this will continue. Political risk is beyond the control of
Bruce Power.
 Of the remaining risks, the most significant is directly related to the
operating performance of Bruce Powers generating assets. Bruce Power manages
this risk through preventive maintenance to improve overall equipment
reliability, by adopting more efficient operational processes and by improving
employee performance at all levels. Another category of risk is electricity price. Bruce Power mitigates this risk
by entering into long-term, fixed-price supply contracts with reliable
customers for the delivery of a significant portion of its annual generation.
Electricity generated, but not covered by such contracts, is sold on the
wholesale spot market and is subject to prices in effect at the time of
delivery. Most long-term supply agreements obligate Bruce Power to deliver electricity at
a predetermined contractual price. Credit risk arises from these contracts. On
the one hand, the counterparty must have the financial resources to take
delivery and pay for contracted electricity. On the other hand, if quoted
forward market prices exceed contracted prices, then the counter-party has the
right, in most cases, to request financial assurance to mitigate the
possibility that Bruce Power does not deliver the electricity as contracted. In
such circumstances, Camecos contingent obligations may increase if it is
called upon to guarantee its share of Bruce Powers obligation. To maintain the
economic benefit of the electricity supply contracts, Cameco and its partners
must have the financial ability to address this credit risk. A further risk category relates to the transmission grid. The ability of Bruce
Power to deliver electricity to its customers is dependent on the provincial
transmission grid, owned and maintained by Hydro One, an Ontario provincial
Crown corporation. Bruce Powers ability to deliver power to customers is also
dependent on the interlinked North American power grid. Any
 adverse conditions such as severe weather or inadequate maintenance that
results in unreliable performance by the grid could cause significant financial loss to Bruce Power. Transmission
grid risks are beyond Bruce Powers control.  CRITICAL ACCOUNTING
POLICIES
 Cameco prepares its consolidated financial statements in accordance with
Canadian GAAP. In doing so, management is required to make various estimates
and judgments in determining the reported amounts of assets and liabilities,
revenues and expenses for each year presented, and in the disclosure of
commitments and contingencies. Management bases its estimates and judgments on
its own experience, guidelines established by the Canadian Institute of Mining,
Metallurgy and Petroleum and various other factors believed to be reasonable
under the circumstances. Management believes the following critical accounting
policies reflect its more significant estimates and judgments used in the
preparation of the consolidated financial statements. Depreciation and depletion on property, plant and equipment is primarily
calculated using the unit of production method. This method allocates the cost
of an asset to each period based on current period production as a portion of
total lifetime production or a portion of estimated recoverable ore reserves.
Estimates of lifetime production and amounts of recoverable reserves are
subject to judgment and significant change over time. If actual reserves prove
to be significantly different than the estimates, there could be a material
impact on the amounts of depreciation and depletion charged to earnings. Significant decommissioning and reclamation activities are often not undertaken
until substantial completion of the useful lives of the productive
   28




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MANAGEMENTS DISCUSSION & ANALYSIS
  assets. Regulatory requirements and alternatives with respect to these
activities are subject to change over time. A significant change to either the
estimated costs or recoverable reserves may result in a material change in the
amount charged to earnings. Effective January 1, 2003, Cameco changed its policy for accounting for
reclamation activities by adopting CICA Handbook section 3110, Asset Retirement
Obligations. This section addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. The standard applies to legal
obligations related to the retirement of long-lived assets that result from the
acquisition, construction, development and use of the asset. The new rules
require that the fair value of the estimated cost of an asset retirement
obligation be recognized as a liability in the period in which it is incurred.
A corresponding amount is added to the carrying amount of the associated asset
and depreciated over the assets useful life on a unit of production basis. The
liability is accreted over time through charges to earnings. This differs from
the previous practice that involved accruing for the estimated reclamation and
closure liability through annual charges to earnings over the estimated life of
the asset. If it is determined that carrying values of assets cannot be recovered, the
unrecoverable amounts are written off against current earnings. Recoverability
is dependent upon assumptions and judgments regarding future prices, costs of
production, sustaining capital requirements and economically recoverable ore
reserves. A material change in assumptions may significantly impact the
potential impairment of these assets.
 Cameco uses derivative financial and commodity instruments to reduce exposure
to fluctuations in foreign currency exchange rates, interest rates and
commodity prices. As long as these instruments are effective, they have the
effect of offsetting future changes in these underlying rates and prices.
Future earnings may be adversely impacted should these instruments become
ineffective.  CAUTION REGARDING
FORWARDLOOKING
INFORMATION
 Statements contained in this document which are not historical facts are
forward-looking statements that involve risks, uncertainties and other factors
that could cause actual results to differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause such
differences, without limiting the generality of the following, include:
volatility and sensitivity to market prices for uranium, electricity in Ontario
and gold; the impact of the sales volume of uranium, conversion services,
electricity generated and gold; competition; the impact of change in foreign
currency exchange rates and interest rates; imprecision in reserve estimates;
environmental and safety risks including increased regulatory burdens;
unexpected geological or hydrological conditions; adverse mining conditions;
political risks arising from operating in certain developing countries; a
possible deterioration in political support for nuclear energy; changes in
government regulations and policies, including trade laws and policies; demand
for nuclear power; replacement of production and failure to obtain necessary
permits and approvals from government authorities; legislative and regulatory
initiatives regarding deregulation, regulation or restructuring of the electric
utility industry in Ontario; Ontario electricity
 rate regulations; weather and other natural phenomena; ability to maintain and
further improve positive labour relations; operating performance of the
facilities; success of planned development projects; and other development and
operating risks. Although Cameco believes that the assumptions inherent in the forward-looking
statements are reasonable, undue reliance should not be placed on these
statements, which only apply as of the date of this document. Cameco disclaims
any intention or obligation to update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.  ADDITIONAL INFORMATION
 Additional information related to your company including Camecos annual
information form is available at www.sedar.com and www.cameco.com.
   29