2013 Highlights

The long-term outlook for growth in the nuclear industry remains very strong. Over 70 reactors are under construction at the beginning of 2014, and average annual uranium demand is expected to increase by about 4% over the next decade. However, challenges remain in the near to medium term, and have persisted for longer than anticipated due to the lingering effects of the events in Japan in 2011 and global economic slowdown. In this environment, our previous supply target of 36 million pounds by 2018 is no longer appropriate, and thus, we have eliminated that target. We expect this will allow us greater flexibility to respond to market conditions and deliver the best value until more certainty returns to the market environment.

In spite of the challenging market environment, we demonstrated our strengths again in 2013, exceeding our production target, delivering on our financial guidance and achieving a number of performance records. In particular, with the addition of NUKEM in 2013, our sales were about 42 million pounds, representing about 25% of 2013 reactor consumption.

Strong financial performance

Our financial results remained strong in 2013:

• record annual revenue of $2.4 billion
• annual gross profit of $607 million
• record annual revenue of $1.6 billion from our uranium segment
• record annual average realized price of $49.81 per pound ($48.35 US per pound) in our uranium segment

Net earnings attributable to our equity holders (net earnings) in 2013 were $318 million compared to $253 million in 2012. This $65 million increase in net earnings was the result of:

• the impact of a one-time $168 million write-down of our investment in the Kintyre deposit in 2012
• higher earnings in our fuel services segment as a result of an increase in sales volumes and realized prices
• lower exploration expenditures
• higher tax recoveries due to a decline in pre-tax earnings in Canada

partially offset by:

• lower earnings from our electricity business due to lower generation, a lower average realized price and higher costs
• a $70 million write-down of our Talvivaara asset, due to their weakened financial position and pending corporate restructuring
• higher losses on foreign exchange derivatives, due to the weakening of the Canadian dollar

Solid progress in our uranium segment this year

In our uranium segment, we achieved record annual production and, in the fourth quarter, record quarterly production, as well as a number of successes at our mining operations and development project. Key highlights:

• record annual production of 23.6 million pounds—2% higher than the guidance we provided in our 2013 third quarter MD&A
• record quarterly production of 7.5 million pounds in the fourth quarter—15% higher than in 2012
• realized benefits of production flexibility provisions in our McArthur River/Key Lake licences, exceeding our annual production target by 4% and setting a new record for annual production from a uranium operation, anywhere in the world, with 20.1 million pounds (100% basis) in 2013
• began commissioning the jet boring system at Cigar Lake, jetting a test cavity in waste rock followed by our first cavity in ore
• in the US, our North Butte satellite operation began production
• the Canadian Nuclear Safety Commission (CNSC) granted an eight-year operating licence for Cigar Lake, and 10-year operating licences for McArthur River, Key Lake and Rabbit Lake
• Inkai received government approval of an amendment to the resource use contract to increase production from blocks 1 and 2 to 5.2 million pounds (3.0 million pounds our share)
• we announced the signing of a collaboration agreement that will strengthen and formalize the relationship between us, AREVA Resources Canada Inc. (AREVA) and the English River First Nation, building on past co-operation and sharing of benefits from our operations
• the government of Saskatchewan announced changes to the provincial royalty system to encourage continued investment in Saskatchewan
• we delivered our first shipments of Canadian uranium to China under the Canada-China Nuclear Cooperation Agreement (NCA)
• the Canadian government announced the signing of the final agreement required to implement the Canada-India NCA, which, once brought into force, will allow us to export Canadian-origin uranium to India

We also continued to advance our exploration activities, spending $9 million on seven brownfield exploration projects, $7 million on our projects under evaluation in Australia, and $13 million for resource definition at Inkai and at our US operations. We spent about $44 million on regional exploration programs, mostly in Saskatchewan, followed by Australia and the United States.

Updates on our other segments and investments

In our fuel services segment, production was 5% higher than in 2012 when we reduced production in response to weak market conditions for UF₆. We also signed new three-year collective agreements with unionized employees at our Port Hope conversion facility.

In our electricity segment, Bruce Power Limited Partnership (BPLP) generated 24.8 terawatt hours (TWh) of electricity, at a capacity factor of 87%. Our share of earnings before taxes was $109 million, a 31% decrease compared to 2012.

On January 31, 2014, we announced the sale of our 31.6% limited partnership interest in BPLP and related entities to BPC Generation Infrastructure Trust, one of the limited partners in BPLP, for $450 million. The effective date for the sale is December 31, 2013. Under the agreements governing BPLP, the limited partners have rights of first offer upon a sale by us. Closing of the transaction is subject to completion or waiver of the right of first offer process by the other limited partners and receipt of certain regulatory approvals.

Our investment in GLE continues to progress. GLE is continuing its testing activities and engineering design work for a commercial facility. On November 27, 2013, the US Department of Energy (DOE) announced that it will negotiate with GLE for the sale of its depleted uranium hexafluoride inventory held at their Paducah, Kentucky and Portsmouth, Ohio sites. If negotiations are successful, we expect that definitive agreements would follow.

We completed our acquisition of NUKEM Energy GmbH in January 2013. NUKEM is one of the world’s leading traders and brokers of nuclear fuel products and services.