Financial Profitability and Long-Term Viability

Continued short-term uranium market conditions – While long-term prospects for the uranium market are very positive, short-term conditions have been challenging. Market conditions deteriorated in 2013, with significantly lower spot market and long-term prices for uranium. This was the result of the lingering effects from the events in Japan in 2011 and the global economic slowdown. Slower than expected restarts of Japanese reactors, unexpected reactor shutdowns in the U.S. and temporary shutdowns in South Korea have contributed to a persistent downturn in our industry. The result has been over-supply in the short-term market, as well as a reduction in market contracting activity.

Regulatory and public expectations – Uranium mining and processing is one of the most highly regulated industries in the world. Stringent regulations and oversight govern everything from emissions and waste management to packaging, labelling and safe transportation. The bar is high, and continues to be raised. At the same time, stakeholder expectations of the industry are increasing as issues related to environmental and social governance, including stakeholder engagement, environmental monitoring and resource revenue sharing, gain wider awareness.

Prudent and disciplined management – eliminating our previous supply target of 36 million pounds by 2018 gives us greater flexibility to respond to market conditions and deliver value to our shareholders until more certainty returns to the market.

Marketing strategy – our contract portfolio is designed to maintain a balance of fixed-price and market-related contracts that optimize our realized price, deliver value and secure a solid base of earnings and cash flow. This strategy was particularly successful in 2013, when we achieved an annual average realized uranium price of $48.35 US per pound in 2013, compared to an average spot price of $38.17 (US) per pound.

Capital allocation – our priority is to allocate capital in a way that creates the greatest long-term value for shareholders, maintains our investment grade rating and ensures we execute on our dividend policy. To help achieve these goals, in 2013 we formed a capital allocation committee to streamline decision-making and determine where we should allocate capital to realize the most benefit in a period of slowing growth.

Cost reductions – looking for ways to reduce costs without jeopardizing our commitments to sustainability and communities has become a high priority in the current market. We made the difficult decision to reduce the size of our workforce and have implemented other measures to achieve cost savings.

Engaging communities and delivering on our commitments – despite the current market conditions, we haven’t changed our commitment to sustainability or to working co-operatively and collaboratively with communities affected by our operations. We know that our social licence to operate has to be earned, and that in practical terms, access to the minerals that our business depends on requires the trust and support of our neighbours. Fortunately, we have a long history of environmental stewardship, impact mitigation and community engagement. Potential new host communities are encouraged to connect with our existing stakeholders, several of whom have had longstanding relationships with Cameco that span generations, to independently verify that we keep our commitments. It’s proven to be a key differentiator in competing for new exploration territory in the Northern Territories in Australia, for example, and signing mutual benefit agreements at Kintyre in Western Australia.