Clear Channel Outdoor
Annual Report 2019

Plain-text annual report

2019 Annual Report  Management’s discussion and analysis February 7, 2020 6 10 15 25 26 55 78 83 85 2019 PERFORMANCE HIGHLIGHTS MARKET OVERVIEW AND DEVELOPMENTS OUR STRATEGY MEASURING OUR RESULTS FINANCIAL RESULTS OPERATIONS AND PROJECTS MINERAL RESERVES AND RESOURCES ADDITIONAL INFORMATION 2019 CONSOLIDATED FINANCIAL STATEMENTS This management’s discussion and analysis (MD&A) includes information that will help you understand management’s perspective of our audited consolidated financial statements (financial statements) and notes for the year ended December 31, 2019. The information is based on what we knew as of February 6, 2020. We encourage you to read our audited consolidated financial statements and notes as you review this MD&A. You can find more information about Cameco, including our financial statements and our most recent annual information form, on our website at cameco.com, on SEDAR at sedar.com or on EDGAR at sec.gov. You should also read our annual information form before making an investment decision about our securities. The financial information in this MD&A and in our financial statements and notes are prepared according to International Financial Reporting Standards (IFRS), unless otherwise indicated. Unless we have specified otherwise, all dollar amounts are in Canadian dollars. Throughout this document, the terms we, us, our, the Company and Cameco mean Cameco Corporation and its subsidiaries, unless otherwise indicated. Caution about forward-looking information Our MD&A includes statements and information about our expectations for the future. When we discuss our strategy, plans, future financial and operating performance, or other things that have not yet taken place, we are making statements considered to be forward-looking information or forward-looking statements under Canadian and United States (US) securities laws. We refer to them in this MD&A as forward- looking information. Key things to understand about the forward-looking information in this MD&A:  It typically includes words and phrases about the future, such as: anticipate, believe, estimate, expect, plan, will, intend, goal, target, forecast, project, strategy and outlook (see examples below). It represents our current views, and can change significantly. It is based on a number of material assumptions, including those we have listed on page 3, which may prove to be incorrect. Actual results and events may be significantly different from what we currently expect, due to the risks associated with our business. We list a number of these material risks on pages 2 and 3. We recommend you also review our most recent annual information form, which includes a discussion of other material risks that could cause actual results to differ significantly from our current expectations. Forward-looking information is designed to help you understand management’s current views of our near and longer term prospects, and it may not be appropriate for other purposes. We will not necessarily update this information unless we are required to by securities laws.     Examples of forward-looking information in this MD&A        on the financial front, we are well-positioned to execute on our strategy and self-manage risk we will continue to take the necessary actions to maintain the strength of our balance sheet so we can self-manage risk, and that we expect will reward shareholders for their continued patience and support of our strategy to build long- term value our expectations about 2020 and future global uranium supply, consumption, contracting volumes and demand, including the discussion under the heading Market overview and developments the discussion under the heading Our strategy our expectations for uranium purchases our expectations for uranium sales and deliveries the discussion of our expectations relating to our Canada Revenue Agency (CRA) transfer pricing dispute, including that the Tax Court of Canada’s (Tax Court) ruling will be upheld on appeal, the timing of an appeal decision, the Tax Court ruling diminishes our tax risk relating to our CRA dispute, and our estimate of the amount and timing of expected cash taxes and transfer pricing penalties and the amount of the disbursements award Material risks     actual sales volumes or market prices for any of our products or services are lower than we expect for any reason, including changes in market prices, loss of market share to a competitor or trade restrictions we are adversely affected by changes in currency exchange rates, interest rates, royalty rates, or tax rates our production costs are higher than planned, or our cost reduction strategies are unsuccessful, or necessary supplies are not available, or not available on commercially reasonable terms our strategies may change, be unsuccessful or have unanticipated consequences 2 CAMECO CORPORATION                  the discussion under the heading Outlook for 2020, including our 2020 financial outlook, expectations for 2020 gross profit and cash balances, and our price sensitivity analysis for our uranium segment the outlook for our uranium and fuel services segments for 2020 our expectations for future tax payments and rates, including effective tax rates our expectation that our cash balances and operating cash flows will meet our anticipated 2020 capital requirements our expectations for 2020, 2021 and 2022 capital expenditures our expectation that in 2020 we will be able to comply with all the covenants in our unsecured revolving credit facility production and life of mine operating cost estimates for the Cigar Lake and Inkai operations future plans and expectations for uranium properties, advanced uranium projects, and fuel services operating sites our expectations related to care and maintenance costs, including incurring between $150 million and $170 million in 2020 our mineral reserve and resource estimates our decommissioning estimates our estimates and forecasts prove to be inaccurate, including production, purchases, deliveries, cash flow, revenue, costs, decommissioning, reclamation expenses, our tax expense, or receipt of future dividends from JV Inkai we are unable to enforce our legal rights under our existing agreements, permits or licences we are subject to litigation or arbitration that has an adverse outcome, including lack of success in our dispute with CRA we are unsuccessful in our dispute with CRA and this results in significantly higher cash taxes, interest charges and penalties that could have a material adverse effect on us we are unable to utilize letters of credit to the extent anticipated in our dispute with CRA there are defects in, or challenges to, title to our properties           our mineral reserve and resource estimates are not reliable, or there are unexpected or challenging geological, hydrological or mining conditions we are affected by environmental, safety and regulatory risks, including increased regulatory burdens or delays necessary permits or approvals from government authorities cannot be obtained or maintained we are affected by political risks we are affected by terrorism, sabotage, blockades, civil unrest, social or political activism, accident or a deterioration in political support for, or demand for, nuclear energy a major accident at a nuclear power plant we are impacted by changes in the regulation or public perception of the safety of nuclear power plants, which adversely affect the construction of new plants, the relicensing of existing plants and the demand for uranium government laws, regulations, policies or decisions that adversely affect us, including tax and trade laws our uranium suppliers fail to fulfil delivery commitments or our uranium purchasers fail to fulfil purchase commitments our Cigar Lake development, mining or production plans are delayed or do not succeed for any reason Material assumptions            our expectations regarding sales and purchase volumes and prices for uranium and fuel services, trade restrictions, and that counterparties to our sales and purchase agreements will honour their commitments our expectations regarding the demand for and supply of uranium our expectations regarding spot prices and realized prices for uranium, and other factors discussed under the heading Price sensitivity analysis: uranium segment that the construction of new nuclear power plants and the relicensing of existing nuclear power plants not being more adversely affected than expected by changes in regulation or in the public perception of the safety of nuclear power plants our ability to continue to supply our products and services in the expected quantities and at the expected times our expected production levels for uranium and conversion services our cost expectations, including production costs, purchase costs, operating costs, capital costs, and the success of our cost reduction strategies our expectations regarding tax rates and payments, royalty rates, currency exchange rates and interest rates our expectations about the outcome of our dispute with CRA, including that the Tax Court ruling will be upheld on appeal we are able to utilize letters of credit to the extent anticipated in our dispute with CRA our decommissioning and reclamation estimates, including the assumptions upon which they are based, are reliable                any difficulties in milling of Cigar Lake ore at the McClean Lake mill water quality and environmental concerns could result in a potential deferral of production and additional capital and operating expenses for the Cigar Lake operation JV Inkai’s development, mining or production plans are delayed or do not succeed for any reason our expectations relating to care and maintenance costs prove to be inaccurate we are affected by natural phenomena, including inclement weather, fire, flood and earthquakes our operations are disrupted due to problems with our own or our suppliers’ or customers’ facilities, the unavailability of reagents, equipment, operating parts and supplies critical to production, equipment failure, lack of tailings capacity, labour shortages, labour relations issues, strikes or lockouts, underground floods, cave-ins, ground movements, tailings dam failures, transportation disruptions or accidents, unanticipated consequences of our cost reduction strategies, or other development and operating risks our mineral reserve and resource estimates, and the assumptions upon which they are based, are reliable our understanding of the geological, hydrological and other conditions at our uranium properties our Cigar Lake development, mining and production plans succeed the McClean Lake mill is able to process Cigar Lake ore as expected JV Inkai’s development, mining and production plans succeed the ability of JV Inkai to pay dividends that care and maintenance costs will be as expected our and our contractors’ ability to comply with current and future environmental, safety and other regulatory requirements, and to obtain and maintain required regulatory approvals our operations are not significantly disrupted as a result of political instability, nationalization, terrorism, sabotage, blockades, civil unrest, breakdown, natural disasters, governmental or political actions, litigation or arbitration proceedings, the unavailability of reagents, equipment, operating parts and supplies critical to production, labour shortages, labour relations issues, strikes or lockouts, underground floods, cave-ins, ground movements, tailings dam failure, lack of tailings capacity, transportation disruptions or accidents, unanticipated consequences of our cost reduction strategies, or other development or operating risks MANAGEMENT’S DISCUSSION AND ANALYSIS 3 4 CAMECO CORPORATION   MANAGEMENT’S DISCUSSION AND ANALYSIS 5   2019 performance highlights Throughout 2019 we continued to do what we said we would do, executing on all strategic fronts; operational, marketing and financial. On the operational front, Cigar Lake and our Fuel Services segment are performing very well. With the McArthur River/Key Lake operation still on care and maintenance, production in our uranium segment remained well below our committed sales. As a result, we were actively purchasing material on the spot market. On the financial front, we are well- positioned to execute on our strategy and self-manage risk. Our balance sheet is strong, we are starting 2020 with $1.1 billion in cash and $1 billion in long-term debt with maturities in 2022, 2024 and 2042. In addition, the Federal Court of Appeal hearing of our September 2018 unequivocal Tax Court of Canada (Tax Court) win has been scheduled to be held on March 4, 2020 and we anticipate we could receive a decision in 2020. We believe the Tax Court ruling diminishes the risk related to our tax case with Canada Revenue Agency (CRA) and believe the decision of the Tax Court will be upheld on appeal. In 2019, the spot market underperformed our expectations, due to the delay of end-user demand caused by uncertainty largely related to market acess and trade policy issues. However, we were pleased by our performance in the term market. The interest in long-term contracting and our off-market conversations with some of our best and largest customers continues. We have not seen the current level of prospective business in our pipeline since before 2011. Since the beginning of 2019, we added just over 36 million pounds of deliveries to our contract portfolio, more than replacing the volumes delivered in 2019, while maintaining leverage to higher future uranium prices. Our customers recognize that, from a security of supply perspective, diversification is important, and in some cases their risk management departments require it. They want access to long-lived, tier-one productive capacity from commercial suppliers who have a proven operating track record. Increasingly, many customers are also required to ensure their suppliers adhere to more stringent environmental, social, and governance performance standards. In addition, in light of the market access and trade policy issues affecting our market, they recognize the potential for trade policy distortions to regionalize supply, and ultimately, along with low prices, make the availability of future supply less certain and less predictable. In September, the World Nuclear Association released its nuclear fuel report, which highlighted the fact that the demand cycle is on an upswing while the production cycle has swung down. The report outlined three scenarios for uranium demand and supply for the years 2019 through 2040. Demand was up in all three scenarios considered: the low case, the base case, and the high case. Under all three scenarios the report shows that the industry needs to at least double projected primary uranium production by 2040 to satisfy forecasted demand. To achieve this, the WNA report recognized that the market will require the appropriate signals to ensure current levels of production continue, the return of idled capacity, the completion of projects under development, the pursuit of brownfield expansion projects, and the development of currently planned and prospective greenfield projects. Finally, the report recognized that even when inventories are high, mobility can be low. For us, the report reinforced our belief that the uranium market needs to transition, similar to what has happened in the conversion market and is beginning to occur in the enrichment market. However, until we see that transition occur, we will continue to take the necessary actions to maintain the strength of our balance sheet so we can self-manage risk, and that we expect will reward shareholders for their continued patience and support of our strategy to build long-term value. 6 CAMECO CORPORATION Financial performance HIGHLIGHTS DECEMBER 31 ($ MILLIONS EXCEPT WHERE INDICATED) Revenue Gross profit Net earnings attributable to equity holders $ per common share (diluted) Adjusted net earnings (non-IFRS, see page 28) $ per common share (adjusted and diluted) Cash provided by operations (after working capital changes) 2019 1,863 242 74 0.19 41 0.10 527 2018 2,092 296 166 0.42 211 0.53 668 CHANGE (11)% (18)% (55)% (56)% (81)% (81)% (21)% Net earnings attributable to equity holders (net earnings) and adjusted net earnings were lower in 2019 compared to 2018, in- line with the outlook we provided. See 2019 consolidated financial results beginning on page 27 for more information. Key highlights:  generated $527 million in cash from operations  retired one-third, $500 million, of our outstanding debt  extended the maturity date of our revolving credit facility to November 2023, and reduced it by $250 million to $1 billion  Tax Court awarded $10.25 million in legal fees incurred, plus an amount for disbursements of up to $17.9 million in our dispute with CRA. Timing of any payments under the cost award is uncertain.  tribunal of international arbitrators ruled in favour of Cameco Inc. in its dispute with Tokyo Electric Power Company Holdings, Inc. (TEPCO), awarding damages of $40.3 million (US), which we received in the third quarter  received $92.6 million (US) from JV Inkai, representing repayment, in full, of its outstanding loan. In addition, received dividends of $10.6 million (US) in December 2019. Our segment updates In our uranium segment, annual production was in-line with expectations. Key highlights:  continued the production suspension at McArthur River/Key Lake, removing 18 million pounds per year (100% basis) from the market  annual production of 9.0 million pounds—in-line with the 2019 outlook provided  purchased 19.0 million pounds of uranium, including our spot purchases, committed purchase volumes, JV Inkai purchases and the purchase of NUKEM’s excess inventory  reached a new collective agreement with unionized employees at our McArthur River/Key Lake operation, which expires December 31, 2022 Production in 2019 from our fuel services segment was 27% higher than in 2018, as a result of an increase in UF6 production given the increase in demand in the market. We reached a new collective agreement with unionized employees at our Port Hope conversion facility, which expires July 1, 2022. See Our operations and projects beginning on page 55 for more information. MANAGEMENT’S DISCUSSION AND ANALYSIS 7 HIGHLIGHTS Uranium Production volume (million lbs) Sales volume (million lbs) Average realized price Revenue ($ millions) Gross profit ($ millions) ($US/lb) ($Cdn/lb) Fuel services Production volume (million kgU) Sales volume (million kgU) Average realized price Revenue ($ millions) Gross profit ($ millions) Industry prices Uranium ($US/lb U3O8)1 Average annual spot market price Average annual long-term price Fuel services ($US/kgU as UF6)1 Average annual spot market price North America Europe Average annual long-term price North America Europe ($Cdn/kgU) 26.21 26.78 370 90 313 59 2019 9.0 31.5 33.77 44.85 1,414 153 13.3 14.1 2018 9.2 35.1 37.01 47.96 1,684 268 10.5 11.6 CHANGE (2)% (10)% (9)% (6)% (16)% (43)% 27% 22% (2)% 18% 53% 2019 2018 CHANGE 25.64 31.75 18.27 18.12 16.73 16.63 24.59 30.38 9.98 10.32 14.33 14.44 4% 5% 83% 76% 17% 15% Note: the industry does not publish UO2 prices. 1 Average of prices reported by TradeTech and UxC, LLC (UxC) On the spot market, where purchases call for delivery within one year, the volume reported by UxC for 2019 was approximately 63.3 million pounds, compared to 88.7 million pounds in 2018. The majority of the activity in the spot market has been churn, the same material changing hands many times. There has been a lack of end-user demand primarily caused by the delay of purchasing decisions. Uncertainty due to changing market dynamics, including ongoing market access and trade policy issues continued to keep some utilities on the sidelines. At the end of 2019, the average reported spot price was $24.93 (US) per pound, down $2.82 (US) per pound from the end of 2018. During the year, the uranium spot price ranged from a high of $28.90 (US) per pound to a low of $24.05 (US) per pound, averaging $25.64 (US) for the year. Long-term contracts usually call for deliveries to begin more than two years after the contract is finalized, and use a number of pricing formulas, including fixed prices escalated over the term of the contract, and market referenced prices (spot and long- term indicators) quoted near the time of delivery. The volume of long-term contracting reported by UxC for 2019 was about 95.8 million pounds compared to about 91.5 million pounds in 2018. While higher than the same period last year, newly contracted volumes continued to be less than the quantities consumed. Uncertainty regarding the future of some reactor fleets and complacency due to low uranium prices continued to impact contracting volumes. The average reported long-term price at the end of the year was $32.50 (US) per pound, up $0.50 (US) from 2018. With the uncertainty created by market access and trade policy issues facing the nuclear industry, we expect contracting in 2020 could remain largely discretionary. Spot UF6 conversion prices increased to record levels in both the North American and European markets. For North American delivery, the average reported spot price at the end of 2019 was $22.13 (US) per kilogram uranium as UF6 (US/kgU as UF6), up $8.63 (US) from the end of 2018. Long-term UF6 conversion prices finished 2019 at $18.13 (US/kgU as UF6), up $2.13 (US) from the end of 2018. 8 CAMECO CORPORATION SHARES AND STOCK OPTIONS OUTSTANDING DIVIDEND At February 5, 2020, we had:  395,797,732 common shares and one Class B share outstanding  8,594,527 stock options outstanding, with exercise prices ranging from $11.32 to $26.81 In 2019, our board of directors declared a dividend of $0.08 per common share, which was paid December 13, 2019. The decision to declare an annual dividend by our board will be based on our cash flow, financial position, strategy and other relevant factors including appropriate alignment with the cyclical nature of our earnings. MANAGEMENT’S DISCUSSION AND ANALYSIS 9 Market overview and developments Growing confidence Market access and trade policy issues were at the top of the list of factors affecting the market in 2019. These issues created uncertainty and consumed a significant amount of time and focus from our customers and contributed to the delay of end-user demand in the spot market. Despite the significant demand created by the reduction in primary supply this year, at least half of the activity in the spot market has been churn, the same material changing hands many times. In contrast, interest in long-term contracting increased compared to 2018. While the volume of uranium executed under long-term contracts is still below annual consumption levels, it reached its highest level since 2012 and there continues to be significant interest. We believe that underlying this interest is the recognition that the demand cycle is on an upswing while the production cycle has swung down and the market needs to transition to one where price reflects an economic return on primary production. This gives us confidence that the uranium market will undergo the same transition we have seen in the conversion market and that is beginning to occur in the enrichment market. Supply is not guaranteed Economic realities and government-driven trade policies continue to have an impact on the security of supply in our industry. Not only does it not make sense to invest in future primary supply, even the lowest-cost producers are deciding to preserve long-term value by leaving uranium in the ground. Adding to security of supply concerns today is the role of commercial and state-owned entities in the uranium market, and the disconnect between where uranium is produced and where it is consumed. Nearly 80% of primary production is in the hands of state-owned enterprises, after taking into account the cuts to primary production that have occurred over the last several years. Furthermore, almost 90% of primary production comes from countries that consume little-to-no uranium, and 90% of uranium consumption occurs in countries that have little-to-no primary production. As a result, government-driven trade policies can be particularly disruptive for the uranium market. Some of the more significant supply developments are:  In the US, which has the largest fleet of nuclear reactors in the world, the US Nuclear Fuel Working Group (NFWG) was established to further analyze the state of nuclear fuel production in the US. This action followed the determination by the President of the United States under Section 232 of the Trade Expansion Act that imports of foreign uranium do not constitute a national security threat, and that new restrictions on imports were not required. The NFWG has submitted its report to the President, however, the details of the report have not been made public and the President has not made any determinations.  The concern regarding expanded sanctions on Iran that could extend to countries providing nuclear fuel products and services to Iran (i.e. Russia, China, and some European nations), and therefore disrupt Russian nuclear fuel imports into the US. Compounding this concern is the continued uncertainty regarding Russian sanctions and whether existing quotas on imports of Russian uranium into the US, under the Russian Suspension Agreement, will be extended or amended prior to its expiry in 2020.  Trade tensions with China continue. On August 14, 2019, the US issued sanctions that involved China General Nuclear Power Group and three of its subsidiaries, effectively banning US companies from supplying these groups with specific nuclear-related commercial or dual-use goods. This has not impacted uranium sales.  Kazatomprom (KAP) announced that, given current market conditions, it intends to extend its current production limits (20% reduction from planned production volumes) across all its production assets through 2021. Combined with reductions from prior years, KAP indicated its cutbacks are equivalent to stopping all production in Kazakhstan for about one year. They have also indicated that a return to full production will not occur until there is a sustained market recovery. In addition, during the third quarter KAP offered a secondary placement of its shares, increasing its publicly-traded share capital from 15% to 18.8%.  Energy Resources of Australia Ltd. reconfirmed that it is required to discontinue mining and processing activities at the Ranger uranium mine in the Northern Territory of Australia by January 2021.  The board of directors of Orano’s Cominak mine announced that the mine will shut down in March 2021 due to depletion of reserves. 10 CAMECO CORPORATION Demand has recovered and is growing The demand gap left by forced and premature nuclear reactor shut-downs since March of 2011 has been filled. According to the International Atomic Energy Agency (IAEA) five new reactors began commercial operation in 2019, and 53 reactors are under construction. With a number of reactor construction projects recently approved, and many more planned, the demand for uranium is growing. This growth is largely occurring in Asia and the Middle East. Some of this growth is tempered by early reactor retirements, plans for reduced reliance on nuclear, or phase-out policies in other regions. However, there is growing recognition of the role nuclear power must play in providing safe, reliable, affordable carbon-free baseload electricity and achieving a low-carbon future. Some of the more significant demand developments are:  The World Nuclear Association’s 2019 Nuclear Fuel Report shows demand is forecast to be higher in all scenarios examined over the period 2019 through 2040. In addition, the report shows that under all demand scenarios, the industry needs to at least double projected primary uranium production by 2040, which will require the appropriate market signals to ensure current levels of production continue, the return of idled production capacity, completion of projects under development, and development of currently planned and prospective projects.  In its latest uranium market outlook report, UxC increased its annual demand outlook by 8 million pounds per year and moved its assumed structural deficit from 2026 to 2022.  In May 2019, the International Energy Agency released its first nuclear report in 20 years, “Nuclear Power in a Clean Energy System”. The report highlights that a steep decline in nuclear power would threaten energy security and climate change goals and result in billions of tonnes of additional carbon emissions by 2040.  In October 2019, the IAEA held its first ever conference recognizing the critical role for nuclear power in combating climate change, “International Conference on Climate Change and the Role of Nuclear Power”. The IAEA advocates that it will be difficult to achieve the goal of reducing greenhouse gas emissions without a significant increase in nuclear power.  In November 2019, the European Parliament adopted a resolution recognizing the role of nuclear energy in achieving its 2050 climate plan calling for net zero emissions.  This year, China National Nuclear Company received the first new construction approval in China in about three years for units 1 and 2 at Zhangzhou, and construction began at unit 1 in October 2019.  NextEra Energy’s Turkey Point 3 and 4 in Florida received the first ever subsequent license renewal, allowing them to operate for 80 years.  Duke Energy announced it is seeking to renew the operating licences to 80 years for the 11 reactors it operates in North and South Carolina to support carbon reduction plans. Tennessee Valley Authority also announced plans to extend the licences for its six reactors in Tennessee and Alabama to 80 years.  Three Mile Island nuclear power plant was retired from service by Exelon after 45 years of operation in Pennsylvania.  In Ohio, a bill was passed providing funding to support the ongoing operation of the Perry and Davis-Besse nuclear power plants, similar to incentives enacted by other states including Illinois, New Jersey, New York, Connecticut, and pending legislation in Pennsylvania.  There were reports that Kyushu Electric Power Co. and other utilities in Japan expect to temporarily close their currently operating units over the coming years to complete the implementation of the antiterrorism measures required by the nuclear regulators. Some of these units are expected to shut down starting in 2020 before returning to service within a year.  Brazil announced the possible construction of six more nuclear reactors by 2050, in addition to completion of Angra unit 3, which is currently under construction. Brazil also plans to restart domestic uranium mining in 2019 for the first time in five years, and is open to private sector investment. MANAGEMENT’S DISCUSSION AND ANALYSIS 11 OPPORTUNITIES FOR THOSE WHO CAN WAIT UxC reports that over the last five years only 396 million pounds have been locked-up in the long-term market, while over 831 million pounds have been consumed in reactors. We remain confident that utilities have a growing gap to fill. Like other commodities, the uranium industry is cyclical. History demonstrates that in general, when prices are rising and high, uranium is perceived as scarce, and a lot of contracting activity takes place. The heavy contracting that takes place during price runs, drives investment in higher-cost sources of production. Once that production is in the market, it tends to stay in the market longer than is economically rational, creating the perception that uranium is abundant and always will be, and prices decline. When prices are declining and low, like we have seen over the past eight years, there is no perceived urgency to contract, and contracting activity and investment in new supply drops off. After years of low investment in supply, as has been the case since 2011, security of supply tends to overtake price concerns at some point, and utilities re-enter the long-term market to ensure they have the reliable supply of uranium they need to run their reactors. 12 CAMECO CORPORATION We believe the current backlog of long-term contracting presents a substantial opportunity for commercially motivated suppliers like us that can weather the low-price part of the cycle. As a low-cost producer, we manage our operations with these price cycles in mind. In our industry, customers do not come to the market right before they need to load uranium into their reactors. To operate a reactor that could run for more than 60 years, natural uranium and the downstream services have to be purchased years in advance, allowing time for a number of processing steps before it arrives at the power plant as a finished fuel bundle. At present, we believe there is a significant amount of uranium that needs to be contracted to keep reactors running into the next decade. UxC estimates that cumulative uncovered requirements are about 1.5 billion pounds to the end of 2035. The longer the recovery of the long-term market is delayed, the less certainty there will be about the availability of future supply to fill growing demand. In fact, recent data from the US Energy Information Administration shows that utility inventories are starting to decline and are approaching levels that could put security of supply at risk. Ultimately, we expect the current market uncertainty to give way to increasing concerns about the security of future supply. As utilities’ uncovered requirements grow, annual supply declines, demand for uranium from producers and financial players increases, and with trade policy potentially restricting access to some markets, we believe the pounds available in the spot market will not be adequate to satisfy the growing backlog of long-term demand. As a result, we expect there will be increased competition to secure uranium under long-term contracts on terms that will ensure the availability of reliable primary supply to meet growing demand. MANAGEMENT’S DISCUSSION AND ANALYSIS 13 Global population is on the rise, and with the world's need for safe, clean, reliable baseload energy, nuclear remains an important part of the energy mix. We remain confident in the future of the nuclear industry. With demand coming on in the form of restarts and new reactors, and supply becoming less certain as a result of low prices, production curtailments, lack of investment, and market access and trade policy issues, we’re continuing to expect a market transition. While the timing of a market transition remains uncertain, we will continue to take the actions we believe are necessary to position the company for long-term success. Therefore, we will undertake contracting activity which aligns with the uncertain timing of a market recovery and is intended to ensure we have adequate protection and will benefit from higher prices under our contract portfolio, while maintaining exposure to the rewards that come from having uncommitted, low-cost supply to deliver into a strengthening market. 14 CAMECO CORPORATION Our strategy Our strategy is set within the context of a challenging market environment, which we expect to give way to strong long-term fundamentals driven by increasing populations, and the impact of growing electricity demand on the world’s climate. Nuclear energy must be a central part of the solution to the world’s shift to a low-carbon, climate resilient economy. It is an option that can provide the power needed, not only reliably, but also safely and affordably, and in a way that will help avoid some of the worst consequences of climate change. Tier-one focus We are a pure-play nuclear fuel investment, focused on providing a clean source of energy, and taking advantage of the long-term growth we see coming in our industry. Our strategy is to focus on our tier-one assets and profitably produce at a pace aligned with market signals in order to preserve the value of those assets and increase long-term shareholder value, and to do that with an emphasis on safety, people and the environment. URANIUM Uranium production is central to our strategy, as it is the biggest value driver of the nuclear fuel cycle and our business. In accordance with market conditions, and to mitigate risk, we will evaluate the optimal mix of our production, inventory and purchases in order to satisfy our contractual commitments and in order to return the best value possible. We will not produce from our tier-one assets to sell into an oversupplied spot market. During a prolonged period of uncertainty, this could mean leaving our uranium in the ground. As conditions improve, we expect to meet rising demand with production from our best margin operations. In light of today’s lingering uncertainty as to how long the weak market conditions will persist, we are focused on preserving the value of our lowest cost assets, on maintaining a strong balance sheet, on protecting and extending the value of our contract portfolio and on efficiently managing the company in a low price environment. We have undertaken a number of deliberate and disciplined actions. In 2019, these actions resulted in:  generation of $527 million in cash from operations  retirement of one-third, $500 million, of our outstanding debt  a year-end balance of $1.1 billion in cash on our balance sheet Consistent with our actions, our McArthur River/Key Lake operation remains on care and maintenance for an indeterminate duration, removing 18 million pounds of uranium annually from the market. Some of our actions have a cost in the short term, and we must weigh these costs against the value we expect they will generate over the long term. Accordingly, we will adjust our actions based on market signals with the intent of being able to self-manage risk, and to ensure our tier-one assets are available to us in a market that values them appropriately. FUEL SERVICES Our fuel services division is a source of profit and supports our uranium segment while allowing us to vertically integrate across the fuel cycle. The UF6 conversion market has gone through a transition that has seen the industry average North American spot price increase by more than 280% and the industry average North American term price increase by almost 40% since the end of 2017. In this environment, with our Port Hope facility the only UF6 plant currently operating in North America, we are focused on securing new long-term contracts that reflect today’s prices and that will allow us to continue to consistently support the long-term needs of our customers. In addition, we are pursuing non-traditional markets for our UO2 and fuel fabrication business and have been actively securing new contracts for reactor components to support refurbishment of Canadian reactors. Our focus will continue to be on maintaining and optimizing the profitability of this segment of our business. OTHER FUEL CYCLE INVESTMENTS We continue to explore other opportunities within the nuclear fuel cycle. In particular, we are interested in the second largest value driver of the fuel cycle, enrichment. Having operational control of uranium production, conversion, and enrichment facilities would offer operational synergies that could enhance profit margins. MANAGEMENT’S DISCUSSION AND ANALYSIS 15 In 2019, we signed a binding agreement to increase our interest in Global Laser Enrichment (GLE) from 24% to 49%. GLE is testing a third-generation enrichment technology that, if successful, will use lasers to commercially enrich uranium. Closing of the agreement is conditional upon receipt of US regulatory approval and GLE’s contract with the US Department of Energy (DOE) regarding DOE’s inventory of depleted tails remaining in full force and effect. Capital allocation – focus on value Delivering returns to our long-term shareholders is a top priority. We continually evaluate our investment options to ensure we allocate our capital in a way that we believe will:  create the greatest long-term value for our shareholders  allow us to navigate by our investment-grade rating and mitigate risk  allow us to execute on our dividend while ensuring it is appropriately aligned with the cyclical nature of our earnings To deliver value, free cash flow must be productively reinvested in the business or returned to shareholders, which requires good execution and disciplined allocation. Our decisions are based on the run rate of our business, not one-time events. Cash on our balance sheet that exceeds value-adding growth opportunities and/or is not needed to self-manage risk should be returned to shareholders. We have a multidisciplinary capital allocation team that evaluates all possible uses of investable capital. We start by determining how much cash we have to invest (investable capital), which is based on our expected cash flow from operations minus expenses we consider to be a higher priority, such as dividends and financing costs, and could include others. This investable capital can be reinvested in the company or returned to shareholders. Our capital allocation decisions will continue to pivot on what the market is providing. With the continued market uncertainty we are facing, and our ongoing dispute with CRA, the objective of our capital allocation is to maximize cash flow, while navigating by our investment-grade rating through close management of our balance sheet metrics. With the metrics that inform an investment-grade rating in mind, and in this period of low uranium prices, we have taken steps to improve margin and cash flow by:  responsibly managing our sources of supply thereby preserving the value of our tier-one assets  restructuring our activities to reduce our operating, capital, and general and administrative spending  reducing our annual dividend from $0.40 per share to $0.08 per share in 2018  implementing an initiative intended to provide a greater focus on technology and its applications to improve efficiency and reduce costs across the organization, with a particular focus on innovation and accelerating the adoption of advanced digital and automation technologies As a result, we are well positioned to self-manage risk. REINVESTMENT If a decision is made to reinvest capital in sustaining, capacity replacement, or growth, all opportunities are ranked and only those that meet the required risk-adjusted return criteria are considered for investment. We also must identify, at the corporate level, the expected impact on cash flow, earnings, and the balance sheet. All project risks must be identified, including the risks of not investing. Allocation of capital only occurs once an investment has cleared these hurdles. This may result in some opportunities being held back in favour of higher return investments, and should allow us to generate the best return on investment decisions when faced with multiple prospects, while also controlling our costs. If there are not enough good investment prospects internally or externally, this may result in residual investable capital, which we would then consider returning directly to shareholders. 16 CAMECO CORPORATION We have not yet seen the market transition needed to restart our idled production capacity. Therefore, until we see that transition, our capital expenditures for 2020 through 2022 will be focused primarily on sustaining and capacity replacement capital, and demonstrating our continued commitment to a clean environment through ongoing investment in the Vision in Motion project in Port Hope. In addition, we will focus on improving operational effectiveness across our operations, including the use of digital and automation technologies with a particular goal of substantially reducing operating costs and increasing operational flexibility when it comes time to restart the McArthur River/Key Lake operation. Any opportunities will be rigorously assessed before an investment decision is made. If we get clarity on our CRA dispute prior to a market transition, which generates a one-time cash infusion, we will focus on the debt portion of our ratings metrics. This may mean an even greater emphasis on reducing the debt on our balance sheet. However, if the market does begin to transition and higher uranium prices are beginning to flow through our contract portfolio, and we are able to increase our portfolio of acceptable long-term contracts, the earnings portion of our rating metrics are expected to improve. In that scenario, reducing debt would not be the priority. Our priority would be to invest in restarting our idled tier-one assets, and if warranted, turn to value-adding growth opportunities. RETURN We believe in returning cash to shareholders, but are also focused on protecting the company and rewarding those shareholders who understand and support our strategy to build long-term value. If we have excess cash and determine the best use is to return it to shareholders, we can do that through a share repurchase or dividend—an annual dividend, one-time supplemental dividend or a progressive dividend. When deciding between these options, we consider a number of factors, including the nature of the excess cash (one time or cash generated by our business operations), growth prospects for the company, and growth prospects for the industry. Share buyback: If we were generating excess cash while there were few or no growth prospects for the company or the industry, then a share buyback might make sense. However, our current view is that the long-term fundamentals for Cameco and the industry remain strong. Dividend: The amount and type of dividend paid, annual, progressive or one-time supplemental is evaluated by our board of directors with careful consideration of our cash flow, financial position, strategy, and other relevant factors including appropriate alignment with the cyclical nature of our earnings. Marketing framework – balanced contract portfolio As with our corporate strategy and approach to capital allocation, the purpose of our marketing framework is to deliver value. Our approach is to secure a solid base of earnings and cash flow by maintaining a balanced contract portfolio that optimizes our realized price. We evaluate our strategy in the context of our market environment and continue to adjust our actions in accordance with our marketing framework:  First, we will not produce from our tier-one assets to sell into an oversupplied spot market. We will not produce from these assets unless we can deliver our tier-one pounds under long-term contracts that provide an acceptable rate of return on these assets for our owners.  Second, we do not intend to build up an inventory of excess uranium. Excess inventory serves to contribute to the sense that uranium is abundant and creates an overhang on the market, and it ties up working capital on our balance sheet.  Third, in addition to our committed sales, we will capture demand in the market where we think we can obtain value. We will take advantage of opportunities the market provides, where it makes sense from an economic, logistical and strategic point of view. Those opportunities may come in the form of spot, mid-term or long-term demand, and will be additive to our current committed sales.  Fourth, once we capture demand, we will decide how to best source material to satisfy that demand. Depending on the timing and volume of our production, purchase commitments, and our inventory volumes, this means we will be active buyers in the market in order to meet our demand obligations.  And finally, in general, if we choose to source material to meet demand by purchasing it, we expect the price of that material will be more than offset by the leverage to market prices in our sales portfolio over a rolling 12-month period. In addition to this framework, our contracting decisions always factor in who the customer is, our desire for regional diversification, the product form, and logistical factors. MANAGEMENT’S DISCUSSION AND ANALYSIS 17 Ultimately, our goal is to protect and extend the value of our contract portfolio on terms that recognize the value of our assets and provide adequate protection when prices go down and allow us to benefit when prices rise. We believe using this framework will allow us to create long-term value for our shareholders. Our focus will continue to be on maximizing cash flow, so we can execute on our strategy and self-manage risk. LONG-TERM CONTRACTING Uranium is not traded in meaningful quantities on a commodity exchange. Utilities have historically bought the majority of their uranium and fuel services products under long-term contracts with suppliers, and have met the rest of their needs on the spot market. We sell uranium and fuel services directly to nuclear utilities around the world as uranium concentrates, UO2 and UF6, conversion services, or fuel fabrication. We have a solid portfolio of long-term sales contracts that reflect the long-term, trusting relationships we have with our customers. In general, we are always active in the market, buying and selling uranium when it is beneficial for us and in support of our long-term contract portfolio. We undertake activity in the spot and term markets prudently, looking at the prices and other business factors to decide whether it is appropriate to purchase or sell into the spot or term market. Not only is this activity a source of profit, it gives us insight into underlying market fundamentals. We deliver large volumes of uranium every year, therefore our net earnings and operating cash flows are affected by changes in the uranium price. Market prices are influenced by the fundamentals of supply and demand, market access and trade policy issues, geopolitical events, disruptions in planned supply and demand, and other market factors. The objectives of our contracting strategy are to:  maximize realized price while reducing volatility of our future earnings and cash flow  focus on meeting the nuclear industry’s growing annual uncovered requirements with our future uncommitted supply while ensuring adequate regional diversity  establish and grow market share with strategic customers We target a ratio of 40% fixed-pricing and 60% market-related pricing in our portfolio of long-term contracts, including mechanisms to protect us when the market price is declining and allow us to benefit when market prices go up. This is a balanced and flexible approach that allows us to adapt to market conditions and put a floor on our average realized price, and deliver the best value to shareholders over the long term. This approach has allowed us to realize prices higher than the market prices during periods of weak uranium demand, and we expect it will enable us to realize increases linked to higher market prices in the future. Fixed-price contracts for uranium: are typically based on a term-price indicator at the time the contract is accepted and escalated over the term of the contract. Market-related contracts for uranium: are different from fixed-price contracts in that they may be based on either the spot price or the long-term price, and that price is as quoted at the time of delivery rather than at the time the contract is accepted. These contracts sometimes provide for discounts, and often include floor prices and/or ceiling prices, which are usually escalated over the term of the contract. Fuel services contracts: the majority of our fuel services contracts are at a fixed price per kgU, escalated over the term of the contract, and reflect the market at the time the contract is accepted. OPTIMIZING THE CONTRACT PORTFOLIO We work with our customers to optimize the value of our existing contract portfolio. In cases where a customer is seeking relief due to a challenging policy, operating, or economic environment, we evaluate their specific circumstances and assess their long-term sustainability. Where we deem the customer’s long-term demand to be at risk, we may consider options that allow us to benefit from converting that uncertain future value into certain present value. In contrast, where the customer is considered to have a more certain and predictable future, we may offer relief. For example, in a low price environment, we may blend in more market-related volumes in the near term, but only where the customer is willing to extend the terms and conditions of that contract out into the future, and only where it is beneficial to us. 18 CAMECO CORPORATION CONTRACT PORTFOLIO STATUS We have commitments to sell over 130 million pounds of U3O8 with 31 customers worldwide in our uranium segment, and over 36 million kilograms as UF6 conversion with 28 customers worldwide in our fuel services segment. The annual average sales commitments over the next five years in our uranium segment is around 19 million pounds, with commitment levels in 2020 and 2021 higher than in 2022 through 2024. Customers – U3O8: Five largest customers account for 60% of commitments Customers – UF6 conversion: Five largest customers account for 60% of commitments Note - Chart labels updated February 27, 2020 MANAGING OUR CONTRACT COMMITMENTS To meet our delivery commitments, we use our uranium supply, which includes uranium obtained from:  our existing production  purchases under our JV Inkai agreement, from NUKEM, under long-term agreements and in the spot market  our existing inventory We allow sales volumes to vary year-to-year depending on:  the level of sales commitments in our long-term contract portfolio  our production volumes  purchases under existing and/or new arrangements  discretionary use of inventories  market opportunities MANAGEMENT’S DISCUSSION AND ANALYSIS 19 Managing our costs PRODUCTION COSTS In order to operate efficiently and cost-effectively, we manage operating costs and improve plant reliability by prudently investing in production infrastructure, new technology, and business process improvements. Like all mining companies, our uranium segment is affected by the cost of inputs such as labour and fuel. Given the current market dynamics, in 2020, our only operating property will be Cigar Lake. Our McArthur River/Key Lake, Rabbit Lake, and US operations are currently on care and maintenance. While we have these operations on standby, our annual cash production costs will reflect the operating cost of mining and milling our share of Cigar Lake mineral reserves, which is estimated to be between $15 and $16 per pound over the entire life-of-mine. Operating costs in our fuel services segment are mainly fixed. In 2019, labour accounted for about 44% of the total. The largest variable operating cost is for zirconium, followed by anhydrous hydrogen fluoride, and energy (natural gas and electricity). CARE AND MAINTENANCE COSTS In 2020, we expect to incur between $150 million and $170 million in care and maintenance costs related to the suspension of production at our McArthur River/Key Lake mine and mill, Rabbit Lake mine and mill, and US operations. The largest proportion of these costs will be incurred at McArthur River/Key Lake. Our expected care and maintenance costs have increased compared to 2019 due to planned expenditures that will allow us to fully assess our operating processes at McArthur River/Key Lake. Consistent with our tier-one strategy, we expect that production at McArthur River/Key Lake will be the first of our operations to restart once we see the appropriate market signals. Therefore, we are focused on improving operational effectiveness, including the use of digital and automation technologies with a particular goal of substantially reducing operating costs and increasing operational flexibility when it comes time to restart these operations. As a result, care and maintenance costs are expected to be higher compared to Rabbit Lake and in the US. Our Rabbit Lake and US operations are higher-cost, and with plenty of idle tier-one capacity and tier-one expansion capacity globally that can come back on line relatively quickly, the restart horizon is less certain. While Rabbit Lake and our US operations are in standby, we will continue to evaluate our options in order to minimize costs. 20 CAMECO CORPORATION PURCHASES AND INVENTORY COSTS Our costs are also affected by the purchases of uranium and conversion services we make under long-term contracts and on the spot market. To meet our delivery commitments, we make use of our mined production, inventories, purchases under long-term contracts, and purchases we make on the spot market. In 2020, the price for the majority of our purchases will be quoted at the time of delivery. The cost of purchased material may be higher or lower than our other sources of supply, depending on market conditions. The cost of purchased material affects our cost of sales, which is determined by calculating the average of all of our sources of supply, including opening inventory, production, and purchases, and adding royalties, selling costs, and care and maintenance costs. If market prices exceed our cost of produced material including royalties, we expect the cost of sales to increase accordingly. FINANCIAL IMPACT As greater certainty returns to the uranium market, our view is that the market needs to transition to one where uranium prices reflect the cost of bringing on new primary production to meet growing demand. We have taken a number of deliberate and disciplined actions to reduce supply and streamline operations. Some of these actions come with a cost in the near term, like care and maintenance costs, but we expect the benefit over the long term will far outweigh those costs. We believe our actions will help shield the company from the nearer term risks we face and will reward shareholders for their continued patience and support of our strategy to build long-term value. Committed to our values Our values are at the core of everything we do and define who we are as a company. SAFETY AND ENVIRONMENT The safety of people and protection of the environment are the foundations of everything we do, locally and globally. PEOPLE We value the contribution of every employee and demonstrate respect for individual dignity, creativity and cultural diversity. INTEGRITY We lead by example, earn trust, honour our commitments and conduct our business ethically. EXCELLENCE Through leadership, collaboration and innovation, we strive to achieve our full potential and inspire others to reach theirs. MANAGEMENT’S DISCUSSION AND ANALYSIS 21 Our approach to ESG matters Our uranium is used around the world in the generation of safe, carbon-free, affordable, base-load nuclear energy. As we seek to bring the benefits of carbon-free nuclear energy to the world, we will do so in a manner that reflects our values. We are committed to identifying and addressing the environmental, social and governance (ESG) risks and opportunities that we believe may have a significant impact on our ability to add long-term value for our stakeholders. SUSTAINABILITY: A KEY PART OF OUR STRATEGY, REFLECTING OUR VALUES We view sustainability as an integrated approach to conducting business. We integrate sustainability principles and practices into all stages of our activities, from exploration to decommissioning, including factoring them into our objectives and approach to compensation, our overall corporate strategy, and our day-to-day operations. We adopt established and recognized management system frameworks to guide our integrated approach, which is embedded within ethical business practices and our robust and transparent governance framework. We seek to be transparent with our stakeholders, keeping them updated on the risks and opportunities that we believe may have a significant impact on our ability to add long-term value. We have a sustainability policy that describes our commitments in this regard. We encourage you to review our sustainability policy at cameco.com/about/governance/policies-programs. Safety and the Environment We employ an integrated Safety, Health, Environment and Quality (SHEQ) management system that applies to all phases and aspects of our business. The system is governed by one integrated SHEQ policy that recognizes that the safety and health of our workers and the public, protection of the environment, and quality of our processes are the highest priority during all stages of our activities. The policy is supported by multiple corporate SHEQ management programs. We maintain ISO 14001 certification at a corporate level. We encourage you to review our SHEQ policy at cameco.com/about/governance/policies- programs. Climate change: Nuclear power is part of the solution There is growing recognition that uranium is the cleanest energy fuel in the world and of the role nuclear power must play in ensuring safe, reliable and affordable carbon-free electricity generation from key global agencies, such as the United Nations Economic Commission for Europe, the United Nations Intergovernmental Panel on Climate Change, and the Union of Concerned Scientists. Indeed, for the first time in nearly two decades, the International Energy Agency released a report on nuclear energy in the hopes of bringing it back into the global energy debate. The report highlighted that a steep decline in nuclear power would threaten energy security and climate change goals and result in four billion tonnes of additional carbon emissions by 2040. The nuclear industry recognizes the scale and immediacy of the challenge outlined in the Paris Agreement, and the important role that all low-carbon and carbon-free energy sources have to play. Led by the World Nuclear Association, the nuclear industry has a program and vision for the future of electricity supply called “Harmony”. The Harmony program sets a target for nuclear power to provide 25% of electricity by 2050 to help avoid the worst consequences of climate change. As members of the World Nuclear Association, and through participation in other industry organizations we fully support and are advocates of this initiative. We believe that the reduction of carbon and greenhouse gas (GHG) emissions is important and necessary in Canada and around the world, and that nuclear power must be a central part of the solution to the world’s shift to a low-carbon, climate resilient economy. As one of the world’s largest producers of the uranium fuel needed to fuel nuclear reactors, we believe there is a significant opportunity for us to be part of the solution to combating climate change and that we are well positioned to deliver significant long-term business value, while actively working to reduce our emission profile. We are proud that our the high-grade uranium ores in Saskatchewan’s Athabasca Basin result in our Canadian uranium having among the lowest life cycle greenhouse gas emission intensity internationally, despite the constraints related to our geographic location. In fact, the production of Saskatchewan uranium requires at least one hundred times less greenhouse gas (GHG) emissions than production of the cleanest Canadian natural gas to produce the same amount of electricity and, all of the nuclear power produced is GHG emission free. We have tracked and reported GHG emissions for more than two decades, despite any regulatory requirement to do so. We continue to be focused on improving energy management and the visibility of energy consumption within our organization, with the overall goal of improving the energy intensity of our operations to create business value. 22 CAMECO CORPORATION Stakeholder relations Gaining the support of all our stakeholders is necessary to sustain our business. We have a people policy that describes our commitment to developing and supporting a flexible, skilled, stable and diverse workforce. The policy is supported by multiple corporate human resource programs, standards and practices. We encourage you to review this policy at cameco.com/about/governance/policies-programs. In addition, we strive to earn the support of the communities in which we operate, which is one of our key measures of success. We identify opportunities and initiatives that support and respect these communities and their cultures. We recognize the substantial value in developing and maintaining long-term mutually beneficial relationships with Indigenous communities located within or near our operations and other activities. Over more than 30 years of operation and partnership in northern Saskatchewan, we have developed a comprehensive strategy that applies to all our operations globally, and is aimed at ensuring the support of the communities with whom we work. The global strategy is flexible and is implemented locally to reflect the needs of the communities. The bulk of the strategy has evolved as a result of the commercial benefits we see from ensuring strong support among local communities wherever we operate and focuses on five key areas:  Workforce development: designed to deliver programming that aims to build educational and skills capacity in local communities.  Business development: designed to promote involvement of locally-owned businesses in contracting opportunities at our operations, to provide additional jobs, revenue streams and capacity building at the local community level.  Community engagement: designed with the objective to ensure that we secure support for our operations from local communities and satisfy the obligations placed on us by regulators and laws.  Community investment: designed to help local communities with much-needed funding for community programming and infrastructure for initiatives focused on youth, education and literacy, health and wellness, and community development.  Environmental stewardship: designed to support our overall environmental programming and give communities a voice in both the formal environmental assessment regulatory process, as well as ongoing monitoring activities. We set standards for the measures that we will conform to in maintaining ongoing and meaningful engagement within the communities where we operate. HOW WE ARE DOING We produce a sustainability report for our stakeholders to tell them how we are performing against globally recognized key indicators that measure our environmental, social, governance and financial impacts in the areas that we believe may have a significant impact on our ability to add long-term value for our stakeholders. We use the Global Reporting Initiative’s Sustainability Framework (GRI), in addition to some corporate indicators that are unique to the company to measure and report our performance. This is our report card to our stakeholders. For our most recent performance results, we encourage you to review our sustainability report at cameco.com/about/sustainability. Given the evolving nature of the ESG landscape, we have established a multi-disciplinary working group to review of our current approach in this area, including how we report. The working group is chaired by our Senior Vice-President and Chief Corporate Officer and will report to the relevant committees of the board. GOVERNANCE: SOUND GOVERNANCE IS THE FOUNDATION FOR STRONG PERFORMANCE We believe that sound governance is the foundation for strong corporate performance. Our board of directors is responsible for overseeing management, and our strategy and business affairs and the integration of ESG principles throughout the company. The board’s goal is to ensure we operate as a successful business, optimizing financial returns while effectively managing risk. The board has formal governance guidelines that set out our approach to governance and the board’s governance role and practices. The guidelines ensure we comply with all of the governance rules and legislation in Canada and the United States that are applicable, conduct ourselves in the best interests of our stakeholders, and meet industry best practices. The guidelines are reviewed and updated regularly. MANAGEMENT’S DISCUSSION AND ANALYSIS 23 Risk and Risk Management We have a mature enterprise risk management (ERM) framework that consists of processes and controls to ensure risks are being appropriately managed and mitigated. Decisions to accept, mitigate, or transfer identified risks guide management’s plans in our strategic planning and budgeting process. Employees throughout the company take ownership of the risks specific to their area, and are responsible for developing and implementing the controls to manage and re-assess risk, including ESG risks. Our risk policy sets out a broad, systematic approach to identifying, assessing, reporting and managing the significant risks, including ESG risks, we face in our business and operations. The policy is reviewed annually to ensure that it continues to meet our needs. See Managing the risks, starting on page 56, for a discussion of the risks, including ESG risks, that generally apply to all of our operations and advanced uranium projects, and that could have a material impact on business in the near term. We also recommend you review our most recent annual information form, which includes a discussion of other material risks that could have an impact on our business. The board is responsible for overseeing management’s implementation of appropriate risk management processes and controls. Time is dedicated at board and committee meetings to risk identification, management, and reporting. In consultation with the board, management works on enhancing its enterprise risk oversight practices, processes and controls. While the board oversees the company’s strategic risks, including ESG/climate-related risks, it also allocates oversight of other top-tier risks to specific board committees. Set out below is an overview of the responsibilities allocated to specific board committees. Audit and finance – supports the board in fulfilling its oversight responsibilities regarding the integrity of our accounting and financial reporting, the adequacy and effectiveness of our internal controls and disclosure controls, legal, regulatory (excluding safety, health and the environment) and ethical compliance, the independence and performance of our external and internal auditors, oversight of specific material risks, and prevention and detection of fraudulent activities and financial oversight. Human resources – supports the board in fulfilling its oversight responsibilities regarding human resource policies, employee and labour relations matters, executive compensation, executive succession and development, pension plan governance, and oversight of material risks assigned to the committee. Nominating, corporate governance and risk – supports the board in fulfilling its oversight responsibilities by developing and recommending a set of corporate governance principles, identifying and recommending qualified individuals as members of the board and its committees, assessing the effectiveness of the board and committees, and overseeing the risk program. Reserves oversight - supports the board in fulfilling its oversight responsibilities regarding estimating and disclosing mineral reserves and resources. Safety, health and environment – supports the board in fulfilling its oversight responsibilities regarding safety, health, environmental and climate-related matters, and supportive communities. In addition, the safety, health and environment committee and the nominating, corporate governance and risk committees assist the board in fulfilling its oversight responsibility with respect to ESG matters. More information about our shareholder commitment, our governance principles, how our board operates, its responsibilities, and the profiles of each of our directors can be found in our most recent management proxy circular and on our website at cameco.com/about/board-of-directors. TARGETS AND METRICS: THE LINK BETWEEN ESG FACTORS AND EXECUTIVE PAY We recognize the importance of integrating certain ESG factors, such as safety performance, a clean environment and supportive communities, into our executive compensation strategy as we see success in these areas as critical to the long term success of the company. For more information on our compensable targets and our reported performance against those targets see the Measuring our results section that follows and our most recent management proxy circular. 24 CAMECO CORPORATION Measuring our results Each year, we set corporate objectives that are aligned with our strategic plan. These objectives fall under our four measures of success, and performance against specific targets under these objectives forms the foundation for a portion of annual employee and executive compensation. See our most recent management proxy circular for more information on how executive compensation is determined. 2019 OBJECTIVES1 TARGET RESULTS OUTSTANDING FINANCIAL PERFORMANCE Earnings measure Achieve targeted adjusted net earnings.  adjusted net earnings was above the maximum target Cash flow measure Achieve cash flow from operations (after working capital changes).  cash flow from operations was above the maximum target SAFE, HEALTHY AND REWARDING WORKPLACE Workplace safety measure Strive for no injuries at all Cameco- operated sites. Maintain a long-term downward trend in combined employee and contractor injury frequency and severity, and radiation doses.  best safety performance in the history of the company, however TRIR did not meet the 2019 improvement target  completion of corrective actions and job task observations exceeded the target  average radiation doses remained low and stable CLEAN ENVIRONMENT Environmental performance measures Achieve divisional environmental aspect improvement targets.  performance was within the targeted range  there were no significant environmental incidents in 2019 SUPPORTIVE COMMUNITIES Stakeholder support measure Implement Collaboration Agreements by supporting northern business development opportunities and build corporate reputation.  of our two targets involving sourcing of services from preferred northern Saskatchewan suppliers, one did not meet the minimum target and the other was above the maximum target 1 Detailed results for our 2019 corporate objectives and the related targets will be provided in our 2020 management proxy circular prior to our Annual Meeting of Shareholders on April 30, 2020. 2020 objectives OUTSTANDING FINANCIAL PERFORMANCE  Achieve targeted financial measures focused on controlling costs and generating cash. SAFE, HEALTHY AND REWARDING WORKPLACE  Improve workplace safety performance at all sites. CLEAN ENVIRONMENT  Improve environmental performance at all sites. SUPPORTIVE COMMUNITIES  Build and sustain strong stakeholder support for our activities. MANAGEMENT’S DISCUSSION AND ANALYSIS 25 Financial results This section of our MD&A discusses our performance, financial condition and outlook for the future. 27 2019 CONSOLIDATED FINANCIAL RESULTS 38 OUTLOOK FOR 2020 41 LIQUIDITY AND CAPITAL RESOURCES 46 2019 FINANCIAL RESULTS BY SEGMENT 46 ............... URANIUM 48 ............... FUEL SERVICES 49 FOURTH QUARTER FINANCIAL RESULTS 49 ............... CONSOLIDATED RESULTS 52 ............... URANIUM 54 ............... FUEL SERVICES 26 CAMECO CORPORATION 2019 consolidated financial results This section of our MD&A discusses our performance, financial condition and outlook for the future. As of January 1, 2018, due to restructuring and a change in our ownership interest, we began accounting for JV Inkai on an equity basis, with no restatement of prior periods. HIGHLIGHTS DECEMBER 31 ($ MILLIONS EXCEPT WHERE INDICATED) Revenue Gross profit Net earnings (loss) attributable to equity holders $ per common share (basic) $ per common share (diluted) Adjusted net earnings (non-IFRS, see page 28) $ per common share (adjusted and diluted) Cash provided by operations (after working capital changes) 2019 1,863 242 74 0.19 0.19 41 0.10 527 2018 2,092 296 166 0.42 0.42 211 0.53 668 CHANGE FROM 2017 2018 TO 2019 2,157 436 (205) (0.52) (0.52) 59 0.15 596 (11)% (18)% (55)% (56)% (56)% (81)% (81)% (21)% Net earnings Our net earnings normally trend with revenue, but, in 2017, were significantly influenced by impairment charges due to the weakness in the uranium market. The following table shows what contributed to the change in net earnings in 2019 compared to 2018 and 2017. ($ MILLIONS) Net earnings (losses) - previous year Change in gross profit by segment 2019 166 2018 (205) 2017 (62) (we calculate gross profit by deducting from revenue the cost of products and services sold, and depreciation and amortization (D&A), net of hedging benefits) Uranium Higher (lower) sales volume Higher (lower) realized prices ($US) Foreign exchange impact on realized prices Lower (higher) costs change – uranium Fuel services Higher (lower) sales volume Higher (lower) realized prices ($Cdn) Lower (higher) costs change – fuel services Other changes Lower administration expenditures Lower impairment charges Lower exploration expenditures Change in reclamation provisions Lower loss on disposal of assets Change in gains or losses on derivatives Change in foreign exchange gains or losses Change in earnings from equity-accounted investments Arbitration award in 2019 related to TEPCO contract Gain on sale of interest in Wheeler River Joint Venture in 2018 Gain on restructuring of JV Inkai in 2018 Gain on customer contract restructuring in 2018 Sale of exploration properties in 2018 Gain on customer contract settlements in 2016 Reversal of tax provision in 2018 related to CRA dispute Change in income tax recovery or expense Other Net earnings (losses) - current year (27) (133) 35 10 (115) 13 (11) 29 31 17 - 6 57 - 113 (45) 13 52 (17) (49) (6) (7) - (61) (126) 45 74 18 40 1 (186) (127) 1 (5) (1) (5) 21 358 10 (60) 5 (137) 49 32 - 17 49 6 7 - 61 62 23 166 29 (222) (36) 180 (49) (5) 21 (15) 1 44 4 13 (34) 16 22 (17) - - - - - - (59) - (91) 7 (205) MANAGEMENT’S DISCUSSION AND ANALYSIS 27 Impairment charges In the third quarter of 2017, we made changes to the way our global marketing activities were organized. The changes significantly impacted the marketing activities historically performed by NUKEM. As a result, we recognized an impairment charge for the full carrying value of goodwill of $111 million. During the fourth quarter of 2017, we announced our plan to temporarily suspend production at the McArthur River/Key Lake operation in 2018. As a result, we re-evaluated the project to complete the new calciner at Key Lake, which was undertaken to allow for increased production. Given the production suspension, market conditions, and that we determined the existing calciner had sufficient capacity to reliably meet our ongoing production requirements, it was determined that no further investment would be made to complete the project. As a result, we recognized an impairment charge related to the new calciner of $55 million. Also during the fourth quarter of 2017, we recorded a $184 million write down of our US assets. Due to the continued weakening of the uranium market and the reduction in mineral reserves, we concluded that it was appropriate to recognize an impairment charge for these assets. Non-IFRS measures ADJUSTED NET EARNINGS Adjusted net earnings is a measure that does not have a standardized meaning or a consistent basis of calculation under IFRS (non-IFRS measure). We use this measure as a more meaningful way to compare our financial performance from period to period. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate our performance. Adjusted net earnings is our net earnings attributable to equity holders, adjusted to better reflect the underlying financial performance for the reporting period. The adjusted earnings measure reflects the matching of the net benefits of our hedging program with the inflows of foreign currencies in the applicable reporting period, and is adjusted for impairment charges, reclamation provisions for our Rabbit Lake and US operations, which have been impaired, the gain on restructuring of JV Inkai, and income taxes on adjustments. Adjusted net earnings is non-standard supplemental information and should not be considered in isolation or as a substitute for financial information prepared according to accounting standards. Other companies may calculate this measure differently, so you may not be able to make a direct comparison to similar measures presented by other companies. To facilitate a better understanding of these measures, the table below reconciles adjusted net earnings with our net earnings for the years ended 2019, 2018 and 2017. ($ MILLIONS) Net earnings (loss) attributable to equity holders Adjustments Adjustments on derivatives Impairment charges Reclamation provision adjustments Gain on restructuring of JV Inkai Income taxes on adjustments Adjusted net earnings 2019 74 (49) - 3 - 13 41 2018 166 65 - 60 (49) (31) 211 2017 (205) (108) 358 - - 14 59 Every quarter we are required to update the reclamation provisions for all operations based on new cash flow estimates, discount and inflation rates. This normally results in an adjustment to an asset retirement obligation asset in addition to the provision balance. When the assets of an operation have been written off due to an impairment, as is the case with our Rabbit Lake and US ISR operations, the adjustment is recorded directly to the statement of earnings as “other operating expense (income)”. See note 15 of our annual financial statements for more information. This amount has been excluded from our adjusted net earnings measure. 28 CAMECO CORPORATION The following table shows what contributed to the change in adjusted net earnings (non-IFRS measure, see above) in 2019 compared to the same period in 2018 and 2017. ($ MILLIONS) Adjusted net earnings - previous year Change in gross profit by segment 2019 211 2018 59 2017 143 (we calculate gross profit by deducting from revenue the cost of products and services sold, and depreciation and amortization (D&A), net of hedging benefits) Uranium Higher (lower) sales volume Higher (lower) realized prices ($US) Foreign exchange impact on realized prices Lower (higher) costs change – uranium Fuel services Higher (lower) sales volume Higher (lower) realized prices ($Cdn) Lower (higher) costs change – fuel services Other changes Lower administration expenditures Lower (higher) exploration expenditures Lower loss on disposal of assets Change in gains or losses on derivatives Change in foreign exchange gains or losses Change in earnings from equity-accounted investments Arbitration award in 2019 related to TEPCO contract Gain on sale of interest in Wheeler River Joint Venture in 2018 Gain on customer contract restructuring in 2018 Sale of exploration properties in 2018 Gain on customer contract settlements in 2016 Reversal of tax provision in 2018 related to CRA dispute Change in income tax recovery or expense Other Adjusted net earnings - current year Average realized prices Uranium1 $US/lb $Cdn/lb 2019 33.77 44.85 Fuel services 1 Average realized foreign exchange rate ($US/$Cdn): 2019 – 1.33, 2018 – 1.30 and 2017 – 1.30. $Cdn/kgU 26.21 (27) (133) 35 10 (115) 13 (11) 29 31 17 6 - (1) (45) 13 52 (17) (6) (7) - (61) (82) 45 41 2018 37.01 47.96 26.78 18 40 1 (186) (127) 1 (5) (1) (5) 21 10 5 36 49 32 - 17 6 7 - 61 17 23 211 29 (222) (36) 180 (49) (5) 21 (15) 1 44 13 16 44 (17) - - - - - (59) - (90) 13 59 CHANGE FROM 2017 2018 TO 2019 36.13 46.80 27.20 (9)% (6)% (2)% MANAGEMENT’S DISCUSSION AND ANALYSIS 29 Revenue The following table shows what contributed to the change in revenue for 2019. ($ MILLIONS) Revenue – 2018 Uranium Lower sales volume Lower realized prices ($Cdn) Fuel services Higher sales volume Lower realized prices ($Cdn) Other Revenue – 2019 2,092 (172) (98) 64 (8) (15) 1,863 See 2019 Financial results by segment on page 46 for more detailed discussion. THREE-YEAR TREND In 2018, revenue decreased by 3% compared to 2017 due to a decrease in sales volumes from NUKEM due to the restructuring of our marketing activities in 2017. This was partially offset by an increase in sales volumes and average realized price in our uranium segment. In 2019, revenue decreased by 11% compared to 2018 due to a decrease in sales volume in the uranium segment and a decrease in the Canadian dollar average realized price despite an increase in the uranium spot price. This decrease in the uranium segment was partially offset by an increase in sales volumes in our fuel services segment. REVENUE OUTLOOK FOR 2020 We expect consolidated revenue to be between $1,480 million and $1,630 million, lower than in 2019 due to a decrease in average realized prices in our uranium segment as a result of lower expected prices under our contract portfolio and a decrease in committed sales volumes. We will continue to be active buying and selling uranium in the spot market if it makes sense for us. If we make additional sales with deliveries in 2020, we would expect our revenue outlook to increase. In our uranium and fuel services segments, our customers choose when in the year to receive deliveries. As a result, our quarterly delivery patterns and, therefore, our sales volumes and revenue can vary significantly. We expect the quarterly distribution of uranium deliveries in 2020 to be weighted to the last three quarters of the year as shown below. However, not all delivery notices have been received to date and the expected delivery pattern could change. Typically, we receive notices six months in advance of the requested delivery date. 30 CAMECO CORPORATION Corporate expenses ADMINISTRATION ($ MILLIONS) Direct administration Severance costs Stock-based compensation Total administration 2019 113 1 11 125 2018 112 14 16 142 CHANGE 1% (93)% (31)% (12)% Direct administration costs in 2019 were $1 million higher than 2018. We recorded $11 million in stock-based compensation expenses in 2019 under our stock option, restricted share unit, deferred share unit, performance share unit and phantom stock option plans, $5 million lower than in 2018 due to the decrease in our share price compared to the same period in 2018. See note 24 to the financial statements. Administration outlook for 2020 We expect direct administration costs to be between $110 million to $120 million, similar to 2019. EXPLORATION Our 2019 exploration activities were focused primarily on Canada. Our spending decreased from $20 million in 2018 to $14 million in 2019 due to a planned reduction in expenditures. Exploration outlook for 2020 We expect exploration expenses to be about $13 million in 2020. The focus for 2020 will be on our core projects in Saskatchewan. FINANCE COSTS Finance costs were $99 million, a decrease from $112 million in 2018 due to a reduction in our outstanding debt as we retired our $500 million debenture that matured in September. See note 19 to the financial statements. FINANCE INCOME Finance income was $30 million compared to $22 million in 2018 due to higher cash balances throughout the year. GAINS AND LOSSES ON DERIVATIVES In 2019, we recorded $32 million in gains on our derivatives compared to $81 million in losses in 2018. The increase reflects the strength in the Canadian dollar compared to the US dollar at the end of 2019 compared to 2018. See Foreign exchange on page 36 and note 26 to the financial statements. INCOME TAXES We recorded an income tax expense of $61 million in 2019 compared to a recovery of $126 million in 2018. The increase in expense was primarily due to a change in the distribution of earnings among jurisdictions as well as the reversal in 2018 of the provision related to our CRA dispute in the amount of $61 million (see Tax Court of Canada decision below for more details). See note 21 to the financial statements. In 2019, we recorded earnings of $229 million in Canada compared to losses of $257 million in 2018, while in foreign jurisdictions, we recorded a loss of $94 million compared to earnings of $297 million in 2018. The tax rate in Canada is higher than the average of the rates in the foreign jurisdictions in which our subsidiaries operate. On an adjusted earnings basis, we recognized a tax expense of $48 million in 2019 compared to a recovery of $95 million in 2018. The table below presents our adjusted earnings and adjusted income tax expenses attributable to Canadian and foreign jurisdictions. MANAGEMENT’S DISCUSSION AND ANALYSIS 31 ($ MILLIONS) Pre-tax adjusted earnings1 Canada Foreign Total pre-tax adjusted earnings Adjusted income taxes1 Canada Foreign 2019 2018 183 (94) 89 55 (7) (181) 297 116 (112) 17 Adjusted income tax expense (recovery) 1 Pre-tax adjusted earnings and adjusted income taxes are non-IFRS measures. Our IFRS-based measures have been adjusted by the amounts reflected in the 48 (95) table in adjusted net earnings (non-IFRS measures on page 28). TRANSFER PRICING DISPUTE Tax Court of Canada decision On September 26, 2018, the Tax Court of Canada (Tax Court) ruled unequivocally in our favour in our case with the Canada Revenue Agency (CRA) for the 2003, 2005 and 2006 tax years. The Tax Court ruled that our marketing and trading structure involving foreign subsidiaries and the related transfer pricing methodology used for certain intercompany uranium purchase and sale agreements were in full compliance with Canadian laws for the three tax years in question. While the decision applies only to the three tax years under dispute, we believe there is nothing in the decision that would warrant a materially different outcome for subsequent tax years. The Tax Court has referred the matter back to the Minister of National Revenue in order to issue new reassessments for the 2003, 2005 and 2006 tax years in accordance with the Tax Court’s decision. The total tax amount reassessed for those tax years was $11 million, and we remitted 50%. Therefore, we expect to receive refunds totaling about $5.5 million plus interest. The timing for the revised reassessments along with refunds plus interest may be delayed pending the outcome of the appeal. For further information regarding the appeal, see below. On April 30, 2019, we announced the decision of the Tax Court in our application to recover costs in the amount of about $38 million ($20.5 million for legal fees and $17.9 million in disbursements), which were incurred over the course of this case. The Tax Court awarded $10.25 million in legal fees incurred, plus an amount for disbursements, which is yet to be determined. The amount of the award for disbursements will be determined by an officer of the Tax Court. We are optimistic we will recover all, or substantially all, of the $17.9 million in disbursements. Timing of any payments under the cost award is uncertain. The CRA has asked for the cost award to be overturned should it be successful in the appeals process. Appeal process On October 25, 2018, CRA filed a notice of appeal with the Federal Court of Appeal. In its notice of appeal, CRA is not appealing the Tax Court’s finding that sham was not present, but is appealing the Tax Court’s interpretation and application of the transfer pricing provisions in section 247 of the Income Tax Act. CRA filed its written submissions with the Federal Court of Appeal on May 31, 2019. In its written submission, CRA repeated its trial argument that the transactions should be recharacterized because arm’s length persons would not have entered into the various agreements that underpin the marketing and trading structure. CRA’s alternate argument is that the terms (focused on pricing) of these agreements would have been significantly different if these agreements had been made between arm’s length persons. CRA argues that either approach should result in the disputed reassessments being upheld in their totality. The Federal Court of Appeal hearing is scheduled to be held on March 4, 2020, and we anticipate that we could receive a decision in 2020. We believe there is nothing in the Tax Court’s decision that would warrant a materially different outcome on appeal. The decision of the Federal Court of Appeal can be appealed to the Supreme Court of Canada, but only if the Supreme Court of Canada agrees to hear the appeal. The request to appeal a decision of the Federal Court of Appeal to the Supreme Court of Canada must be made within 60 days of issuance of a Federal Court of Appeal decision. 32 CAMECO CORPORATION In the event that either party appeals the Federal Court of Appeal decision, it would likely take about two years from the date the Federal Court of Appeal decision is issued to receive a decision from the Supreme Court of Canada should that court hear the appeal. We expect to incur additional costs during the appeal process, and in connection with potential reassessments of subsequent years. There could also be costs incurred if a negotiated resolution with CRA is sought or achieved. Potential exposure based on CRA appeal Since 2008, CRA has disputed our marketing and trading structure and the related transfer pricing methodology we used for certain intercompany uranium sale and purchase agreements. To date, we have received notices of reassessment for our 2003 through 2013 tax years. While the Tax Court has ruled unequivocally in our favour for the 2003, 2005 and 2006 tax years, and we believe there is nothing in the decision that would warrant a materially different outcome on appeal, or for subsequent tax years we will continue to report on the potential exposure as we expect it will continue to tie up our financial capacity until the dispute is finally resolved for all years. For the years 2003 to 2013, CRA has shifted Cameco Europe Limited’s income (as recalculated by CRA) back to Canada and applied statutory tax rates, interest and instalment penalties, and, from 2007 to 2011, transfer pricing penalties. We understand CRA is currently considering whether to impose a transfer pricing penalty for 2012 and 2013. Taxes of approximately $326 million for the 2003 to 2019 years have already been paid to date in a jurisdiction outside Canada. If CRA is successful on appeal, we will consider our options under bilateral international tax treaties to limit double taxation of this income. There is a risk that we will not be successful in eliminating all potential double taxation. The income adjustments claimed by CRA in its reassessments are represented by the amounts described below. The Canadian income tax rules include provisions that generally require larger companies like us to remit or otherwise secure 50% of the cash tax plus related interest and penalties at the time of reassessment. We received the 2013 reassessment late in 2019. The CRA has advised that security remitted to date is sufficient to secure the tax debts they consider owing and as such, no further security is required at this time. To date, under these provisions, after applying elective deductions, we have paid or secured the amounts shown in the table below. Of these amounts, we expect to receive refunds totaling approximately $5.5 million plus interest for the years at issue in the Tax Court. The timing of the refund may be delayed pending the outcome of the appeal. INTEREST TRANSFER AND INSTALMENT PRICING CASH SECURED BY YEAR PAID ($ MILLIONS) CASH TAXES PENALTIES PENALTIES TOTAL REMITTANCE Prior to 2014 2014 2015 2016 2017 2018 2019 Total 1 106 202 51 - 17 - 377 22 47 71 38 1 40 2 36 - 79 31 39 - - 221 185 59 153 352 120 40 57 2 783 59 153 20 32 39 - - 303 LC - - 332 88 1 57 2 480 MANAGEMENT’S DISCUSSION AND ANALYSIS 33 While we expect the Tax Court’s decision to be upheld on appeal and believe the decision should apply in principle to subsequent years, until such time as all appeals are exhausted, and a resolution is reached for all tax years in question, we will not be in a position to determine the definitive outcome of this dispute. We expect any further actions regarding the tax years 2007 through 2013 will be suspended until the three years covered under the decision are finally resolved, with the exception of the transfer pricing penalties noted above. The tax years 2014 and beyond have not yet been reassessed, and it is uncertain what approach CRA will take on audit. Despite the fact that we believe there is no basis to do so, and it is not our view of the likely outcome, CRA may continue to reassess us using the methodology it used to reassess the 2003 through 2013 tax years. In that scenario, and including the $5.7 billion already reassessed, we would expect to receive notices of reassessment for a total of approximately $8.7 billion of additional income taxable in Canada for the years 2003 through 2019, which would result in a related tax expense of approximately $2.6 billion. As well, CRA may continue to apply transfer pricing penalties to taxation years subsequent to 2011. In that case, we estimate that cash taxes and transfer pricing penalties claimed by CRA for these years would be between $1.95 billion and $2.15 billion. In addition, CRA may seek to apply interest and instalment penalties that would be material to us. While in dispute, we may be required to remit or otherwise provide security for 50% of the cash taxes and transfer pricing penalties (between $970 million and $1.07 billion), plus related interest and instalment penalties assessed, which would be material to us. However, as noted previously, CRA has informed us that no further security is required for the tax debts it considers owing at this time. We have already paid or secured $562 million in cash taxes and transfer pricing penalties and $221 million in interest and instalment penalties. Under the Canadian federal and provincial tax rules, any amount required to be paid or secured each year will depend on the amount of income reassessed in that year and the availability of elective deductions and tax loss carryovers. CRA has to date disallowed the use of any loss carry-backs for any transfer pricing adjustment, starting with the 2008 tax year. This does not impact the anticipated income tax expense for a particular year, but does impact the timing of any required security or payment. As noted above, for amounts reassessed after 2014, as an alternative to remitting cash, we used letters of credit to satisfy our obligations related to the reassessed income tax and related interest amounts. If required, we believe we will be able to continue to provide security in the form of letters of credit to satisfy these requirements. The amounts summarized in the table below reflect actual amounts paid or secured from 2003 through 2019 along with estimated post-2019 amounts if CRA were to continue to reassess based on the scenario outlined above, and include the expected timing adjustment for the inability to use any loss carry-backs starting with the 2008 tax year. The amounts have not been adjusted to reflect the refund of approximately $5.5 million plus interest we expect to receive based on the ruling of the Tax Court. The timing of such refund may be delayed pending the outcome of the appeal. We plan to update this table annually to include the estimated impact of reassessments expected for completed years subsequent to 2019. $ MILLIONS 2003-2019 Post-2019 TOTAL 50% of cash taxes and transfer pricing penalties paid, secured or potentially owing in the period Cash payments Secured by letters of credit Total paid or potentially owing1 226 336 562 185 - 235 225 - 275 410 - 460 560 - 610 410 - 510 970 - 1070 1 These amounts do not include interest and instalment penalties, which totaled approximately $221 million to December 31, 2019. In light of our view of the likely outcome of the appeal, and the dispute for subsequent years, based on the Tax Court’s decision as described above, we expect to recover the amounts remitted, including the $783 million already paid or otherwise secured to date. 34 CAMECO CORPORATION Caution about forward-looking information relating to our CRA tax dispute This discussion of our expectations relating to our tax dispute with CRA and future tax reassessments by CRA is forward-looking information that is based upon the assumptions and subject to the material risks discussed under the heading Caution about forward-looking information beginning on page 2 and also on the more specific assumptions and risks listed below. Actual outcomes may vary significantly. Assumptions      CRA will reassess us for the years 2014 through 2019 using a similar methodology as for the years 2003 through 2013, and the reassessments will be issued on the basis we expect we will be able to apply elective deductions and utilize letters of credit to the extent anticipated CRA will seek to impose transfer pricing penalties (in a manner consistent with penalties charged in the years 2007 through 2011) in addition to interest charges and instalment penalties we will be substantially successful in our dispute with CRA, including any appeals of the Tax Court’s decision or any decisions regarding other tax years, and we will not incur any significant tax liability resulting from the outcome of the dispute or other costs, potentially including costs associated with a negotiated resolution with CRA a favourable determination by the officer of the Tax Court of the amount of our disbursements award Material risks that could cause actual results to differ materially CRA reassesses us for years 2014 through 2019 using a different methodology than for years 2003 through 2013, or we are unable to utilize elective deductions or letters of credit to the extent anticipated, resulting in the required cash payments or security provided to CRA pending the outcome of the dispute being higher than expected the time lag for the reassessments for each year is different than we currently expect we are unsuccessful in an appeal of the Tax Court’s decision or any tax decisions of the Tax Court for subsequent years, or appeals of those decisions, and the outcome of our dispute with CRA, potentially including costs associated with a negotiated resolution with CRA, results in significant costs, cash taxes, interest charges and penalties which could have a material adverse effect on our liquidity, financial position, results of operations and cash flows cash tax payable increases due to unanticipated adjustments by CRA not related to transfer pricing we are unable to effectively eliminate all double taxation an unfavourable determination of the officer of the Tax Court of the amount of our disbursements award       Tax outlook for 2020 On an adjusted net earnings basis, we expect a tax expense of between $20 million and $30 million in 2020. Our consolidated tax rate is a blend of the statutory rates applicable to taxable income earned or tax losses incurred in Canada and in our foreign subsidiaries. We have a global customer base and we have established a marketing and trading structure involving foreign subsidiaries, which entered into various intercompany purchase and sale arrangements, as well as uranium purchase and sale agreements with third parties. Cameco and its subsidiaries made reasonable efforts to put arm’s- length transfer pricing arrangements in place, and these arrangements expose the parties to the risks and rewards accruing to them under these contracts. The intercompany contract prices are generally comparable to those established in comparable contracts between arm’s-length parties entered into at that time. In 2017, we changed our global marketing organization to consolidate our international activities in Canada in order to achieve efficiencies. The existing purchase and sale arrangements will continue to be in place until they expire. As the existing contracts expire, we anticipate that more income will be earned in Canada. We continue to expect our consolidated tax rate will trend toward the Canadian statutory rate in the longer term. The actual effective tax rate will vary from year-to-year, primarily due to the actual distribution of earnings among jurisdictions and the market conditions at the time transactions occur under both our intercompany and third-party purchase and sale arrangements. MANAGEMENT’S DISCUSSION AND ANALYSIS 35 FOREIGN EXCHANGE The exchange rate between the Canadian dollar and US dollar affects the financial results of our uranium and fuel services segments. We sell the majority of our uranium and fuel services products under long-term sales contracts, which are routinely denominated in US dollars. Our product purchases are denominated in US dollars while our production costs are largely denominated in Canadian dollars. To provide cash flow predictability we hedge a portion of our net US/Cdn exposure (e.g. total US dollar sales less US dollar expenditures and product purchases) to manage shorter term exchange rate volatility. Our risk management policy is based on a 60-month period and permits us to hedge 35% to 100% of our expected net exposure in the first 12 month period. Our normal practice is to layer in hedge contracts over a three- to four-year period with the hedge percentage being highest in the first 12 months and decreasing hedge percentages in subsequent years. The portion of our net exposure that remains unhedged is subject to prevailing market exchange rates for the period. Therefore, our results are affected by the movements in the exchange rate on our hedge portfolio (explained below), and on the unhedged portion of our net exposure. A weakening Canadian dollar would have a positive effect on the unhedged exposure, and a strengthening Canadian dollar would have a negative effect. See Revenue, adjusted net earnings, and cash flow sensitivity analysis on page 40 for more information on how a change in the exchange rate will impact our revenue, cash flow, adjusted net earnings (ANE), and gains and losses on derivatives, presented on an ANE basis. Impact of hedging on IFRS earnings We do not use hedge accounting under IFRS and, therefore, we are required to report gains and losses on all hedging activity, both for contracts that close in the period and those that remain outstanding at the end of the period. For the contracts that remain outstanding, we must treat them as though they were settled at the end of the reporting period (mark-to-market). However, we do not believe the gains and losses that we are required to report under IFRS appropriately reflect the intent of our hedging activities, so we make adjustments in calculating our ANE to better reflect the impact of our hedging program in the applicable reporting period. Impact of hedging on ANE We designate contracts for use in particular periods, based on our expected net exposure in that period. Hedge contracts are layered in over time based on this expected net exposure. The result is that our current hedge portfolio is made up of a number of contracts which are currently designated to net exposures we expect in 2020 and future years and we will recognize the gains or losses in ANE in those periods. For the purposes of ANE, gains and losses on derivatives are reported based on the difference between the effective hedge rate of the contracts designated for use in the particular period and the exchange rate at the time of settlement. This results in an adjustment to current period IFRS earnings to effectively remove reported gains or losses on derivatives that arise from contracts put in place for use in future periods. The effective hedge rate will lag the market in periods of rapid currency movement. See Non-IFRS measures on page 28. The table below provides a summary of our hedge portfolio at December 31, 2019. You can use this information to estimate the expected gains or losses on derivatives for 2020 on an ANE basis. However, if we add contracts to the portfolio that are designated for use in 2020 or if there are changes in the US/Cdn exchange rates in the year, those expected gains or losses could change. 36 CAMECO CORPORATION HEDGE PORTFOLIO SUMMARY DECEMBER 31, 2019 ($ MILLIONS) US dollar forward contracts Average contract rate 1 US dollar option contracts Average contract rate range1 Total US dollar hedge contracts Effective hedge rate range2 ($ millions) (US/Cdn dollar) ($ millions) (US/Cdn dollar) ($ millions) 2020 190 1.27 170 AFTER 2020 140 1.30 175 TOTAL 330 1.28 345 1.29 to 1.33 1.29 to 1.33 1.29 to 1.33 360 315 675 (US/Cdn dollar) 1.28 to 1.30 1.29 to 1.32 1.29 to 1.31 Hedge ratio3 1 The average contract rate is the weighted average of the rates stipulated in the outstanding contracts. 2 The effective hedge rate is the exchange rate on the original hedge contract at the time it was established and designated for use. Therefore the effective hedge rate range shown reflects an average of contract exchange rates at the time of designation. 3 Hedge ratio is calculated by dividing the amount (in foreign currency) of outstanding derivative contracts by estimated future net exposures. 44% 14% 8% At December 31, 2019:  The value of the US dollar relative to the Canadian dollar was $1.00 (US) for $1.30 (Cdn), down from $1.00 (US) for $1.36 (Cdn) at December 31, 2018. The exchange rate averaged $1.00 (US) for $1.33 (Cdn) over the year.  The mark-to-market position on all foreign exchange contracts was a $4 million loss compared to a $53 million loss at December 31, 2018. We manage counterparty risk associated with hedging by dealing with highly rated counterparties and limiting our exposure. At December 31, 2019, all of our hedging counterparties had a Standard & Poor’s (S&P) credit rating of A or better. For information on the impact of foreign exchange on our intercompany balances, see note 26 to the financial statements. MANAGEMENT’S DISCUSSION AND ANALYSIS 37 Outlook for 2020 Our strategy is to focus on our tier-one assets and profitably produce at a pace aligned with market signals, in order to preserve the value of those assets and increase long-term shareholder value, and to do that with a focus on safety, people and the environment. Our outlook for 2020 reflects the expenditures necessary to help us achieve our strategy. We have made significant progress in reducing our administration, exploration and operating costs, as well as our capital expenditures. We have also made a number of strategic decisions that come with significant costs in the near term, costs we factored into our decisions. As a result, and based on what we know today, including committed delivery volumes, from a gross profit point of view, 2020 is expected to be a weaker year for us. The lower delivery commitments and changing pricing terms under our existing contract portfolio are expected to adversely impact our revenue and average realized price in 2020 relative to 2019. In addition, our outlook for the average unit cost of sales in 2020 continues to be impacted by the proportion of purchased material compared to produced material making up our uranium supply and care and maintenance costs, which are expected to be between $150 million and $170 million. Despite the impact on our expected results, we continue to believe these are the right decisions to create long-term shareholder value. In contrast, from a cash perspective, we expect to continue to maintain a significant cash balance. We expect to continue to generate cash from operations however, the amount of cash generated will be dependent on the timing and magnitude of our purchasing activity and therefore, cash balances may fluctuate throughout the year. We report our results and outlook based on a calendar-year view, at a point in time. However, under our marketing framework, we plan on a rolling 12-month basis, which means our production, sales, inventory and purchases are all variables. Therefore, in accordance with market opportunities and as the year unfolds, we expect our actual production, sales, purchases and inventory may vary from what we are reporting in the 2020 Financial Outlook table. In addition, there are a number of moving pieces both internally and externally, that could have a significant impact on the market and on our results, and it is important to keep them in mind. Some of the more significant items are:  the decision by the President of the United States to implement any of the recommendations contained in the NFWG report, and the impact, if any, on the uranium market and uranium prices  whether the Russian Suspension Agreement gets amended or extended prior to its expiry at the end of 2020  the impact if sanctions on Iran are expanded and extend to countries providing nuclear fuel products and services to Iran, and therefore disrupt Russian nuclear fuel imports into the US  a potential decision from the Federal Court of Appeal in our tax dispute with CRA See 2019 Financial results by segment on page 46 for details. 2019 outlook compared to actual results Our actual results were largely in-line with the outlook provided in our third quarter MD&A. However, our total purchases for the year were 19 million pounds compared to our outlook of 21 million to 23 million pounds. Based on what we were seeing in the market, we decided to reduce our spot purchases in 2019 and to draw our inventory down. With the expected delivery pattern in 2020 heavily weighted to the last three quarters of the year and the timing of our 2020 purchase commitments, we are confident in our ability to meet our delivery commitments. 38 CAMECO CORPORATION 2020 FINANCIAL OUTLOOK EXPECTED CONTRIBUTION TO GROSS PROFIT Production (owned and operated properties) Purchases Sales/delivery volume Revenue Average realized price Average unit cost of sales (including D&A) CONSOLIDATED 100% URANIUM 36% FUEL SERVICES 64% - - - 9.0 million lbs 13 to 14 million kgU 20 to 22 million lbs - 28 to 30 million lbs 12 to 13 million kgU $1,480-1,630 million $1,120-1,210 million $340-370 million - - $40.90/lb - $38.50-40.50/lb $19.70-20.70/kgU Direct administration costs $110-120 million - Exploration costs - $13 million Expected loss on derivatives - ANE basis Tax expense - ANE basis Capital expenditures $0-10 million $20-30 million $120 million - - - - - - - - We do not provide an outlook for the items in the table that are marked with a dash. The following assumptions were used to prepare the outlook in the table above:  Purchases – are based on the volumes we currently have commitments to acquire under contract in 2020, including our JV Inkai purchases and the purchase of NUKEM’s excess inventory, and it includes the additional volumes we are required to purchase in order to meet the sales/delivery commitments we have under contract in 2020 and maintain our desired working inventory.  Our 2020 outlook for sales/delivery volume and revenue does not include sales between our uranium and fuel services segments.  Sales/delivery volume is based on the volumes we currently have commitments to deliver under contract in 2020.  Uranium revenue and average realized price are based on a uranium spot price of $24.35 (US) per pound (the UxC spot price as of January 27, 2020), a long-term price indicator of $32.00 (US) per pound (the UxC long-term indicator on January 27, 2020) and an exchange rate of $1.00 (US) for $1.30 (Cdn).  Uranium average unit cost of sales (including D&A) is based on the expected unit cost of sales for produced material, the planned purchases noted in the outlook at an anticipated average purchase price of $31.40 per pound, and includes care and maintenance costs of between $150 million and $170 million. If purchase volumes and/or uranium spot prices vary in 2020, then we expect the overall unit cost of sales may be affected.  Direct administration costs do not include stock-based compensation expenses. See page 31 for more information.  Our outlook for the tax expense is based on adjusted net earnings and the other assumptions listed in the table. The outlook does not include our share of taxes on JV Inkai profits as the income from JV Inkai is net of taxes. If other assumptions change then the expected expense may be affected. Our 2020 financial outlook is presented on the basis of equity accounting for our minority ownership interest in JV Inkai. Under equity accounting, our share of the profits earned by JV Inkai on the sale of its production will be included in “income from equity-accounted investees” on our consolidated statement of earnings. Our share of production will be purchased at a discount to the spot price and included at this value in inventory. In addition, JV Inkai capital is not included in our outlook for capital expenditures. Please see Inkai Planning for the future on page 70 and Capital spending on page 42 for more details. For more information on how changes in the exchange rate or uranium prices can impact our outlook see Revenue, adjusted net earnings, and cash flow sensitivity analysis below, and Foreign exchange on page 36. MANAGEMENT’S DISCUSSION AND ANALYSIS 39 REVENUE, ADJUSTED NET EARNINGS, AND CASH FLOW SENSITIVITY ANALYSIS IMPACT ON: FOR 2020 ($ MILLIONS) CHANGE REVENUE Uranium spot and term price1 Value of Canadian dollar vs US dollar $5(US)/lb increase $5(US)/lb decrease One cent decrease in CAD One cent increase in CAD 78 (74) 10 (10) ANE 12 (9) 3 (3) CASH FLOW (10) 14 2 (2) 1 Assuming change in both UxC spot price ($24.35 (US) per pound on January 27, 2020) and the UxC long-term price indicator ($32.00 (US) per pound on January 27, 2020). In 2020, our cash flow is expected to move in the opposite direction from price. Cash inflows from revenue are expected to be relatively less sensitive to an increase in the spot price than cash outflows from purchases due the volume of planned deliveries at prices that have been fixed compared to the volume of spot purchases remaining based on our outlook. PRICE SENSITIVITY ANALYSIS: URANIUM SEGMENT The following table is not a forecast of prices we expect to receive. The prices we actually realize will be different from the prices shown in the table. It is designed to indicate how the portfolio of long-term contracts we had in place on December 31, 2019 would respond to different spot prices. In other words, we would realize these prices only if the contract portfolio remained the same as it was on December 31, 2019, and none of the assumptions we list below change. We intend to update this table each quarter in our MD&A to reflect deliveries made and changes to our contract portfolio. As a result, we expect the table to change from quarter to quarter. Expected realized uranium price sensitivity under various spot price assumptions (rounded to the nearest $1.00) SPOT PRICES ($US/lb U3O8) 2021 2022 2023 2024 $20 27 27 28 30 $40 40 40 40 41 $60 53 54 54 53 $80 60 62 62 60 $100 $120 $140 65 66 66 62 69 69 69 63 73 71 72 63 The table illustrates the mix of long-term contracts in our December 31, 2019 portfolio, and is consistent with our marketing strategy. It has been updated to reflect contracts entered into up to December 31, 2019. Our portfolio includes a mix of fixed-price and market-related contracts, which we target at a 40:60 ratio. Those that are fixed at lower prices or have low ceiling prices will yield prices that are lower than current market prices. ________________________ Our portfolio is affected by more than just the spot price. We made the following assumptions (which are not forecasts) to create the table: Sales   sales volumes on average of 19 million pounds per year, with commitment levels in 2020 and 2021 higher than in 2022 through 2024 excludes sales between our segments Deliveries  deliveries include best estimates of requirements contracts and contracts with volume flex provisions 40 CAMECO CORPORATION Annual inflation  is 2% in the US Prices  the average long-term price indicator is the same as the average spot price for the entire year (a simplified approach for this purpose only). Since 1996, the long-term price indicator has averaged 21% higher than the spot price. This differential has varied significantly. Assuming the long-term price is at a premium to spot, the prices in the table will be higher. Liquidity and capital resources Our financial objective is to ensure we have the cash and debt capacity to fund our operating activities, investments and other financial obligations. At the end of 2019, we had cash and short-term investments of $1.1 billion, while our total debt amounted to $1 billion. We have large, creditworthy customers that continue to need uranium even during weak economic conditions, and we expect the uranium contract portfolio we have built to continue to provide a solid revenue stream. From 2020 through 2024, we have commitments to deliver an average of 19 million pounds per year, with commitment levels in 2020 and 2021 higher than in 2022 through 2024. In the currently weak uranium price environment, our focus is on preserving the value of our tier-one assets and reducing our operating, capital and general and administrative spending. We have a number of alternatives to fund future capital requirements, including using our operating cash flow, drawing on our existing credit facilities, entering new credit facilities, and raising additional capital through debt or equity financings. We are always considering our financing options so we can take advantage of favourable market conditions when they arise. In addition, due to the deliberate cost reduction measures implemented over the past five years, the reduction in our dividend, and the drawdown of inventory in 2018 as a result of the suspension of production at our McArthur River/Key Lake operation, we have significant cash balances. We expect to continue to generate cash from operations however, the amount of cash generated will be dependent on the timing and magnitude of our purchasing activity and therefore, cash balances may fluctuate throughout the year. We expect our cash balances and operating cash flows to meet our capital requirements during 2020. We received a favourable ruling in our case with CRA for the 2003, 2005 and 2006 tax years. We expect the ruling to be upheld on appeal, and we believe the ruling should apply in principle to subsequent tax years. However, until such time as all appeals are exhausted, and a resolution is reached for all tax years in question, in accordance with Canadian income tax rules we may be required to remit or otherwise secure 50% of any cash taxes plus related interest and penalties CRA may continue to reassess, even though we believe there is no basis for them to do so. See page 32 for more information. In the above scenario, the table on page 34 provides the amount and timing of the cash taxes and transfer pricing penalties paid or secured to date. In addition, it provides an estimate of the amounts we may potentially have to pay or secure upfront if CRA continues to reassess us using the same methodology it reassessed the 2003 to 2013 tax years. The timing of these amounts is uncertain. FINANCIAL CONDITION Cash position ($ millions) (cash and cash equivalents and short-term investments) Cash provided by operations ($ millions) (net cash flow generated by our operating activities after changes in working capital) Cash provided by operations/net debt1 (net debt is total consolidated debt, less cash position) Net debt/total capitalization1 (total capitalization is net debt and equity) 1 As at December 31, 2019, Cameco’s net debt is negative due to its strong cash position. CREDIT RATINGS 2019 2018 1,062 1,103 527 668 n/a n/a 170% 7% The credit ratings assigned to our securities by external ratings agencies are important to our ability to raise capital at competitive pricing to support our business operations. We navigate by our investment-grade credit rating. Third-party ratings for our commercial paper and senior debt as of February 6, 2020: SECURITY Commercial paper Senior unsecured debentures Rating trend / rating outlook DBRS R-2 (middle)1 BBB1 Negative S&P A-32 BBB-2 Stable2 1 On May 24, 2019, DBRS lowered its long term corporate credit rating from BBB (high) to BBB and commercial paper to R-2 (middle). MANAGEMENT’S DISCUSSION AND ANALYSIS 41 2 On March 1, 2019 S&P lowered its long term corporate credit rating from BBB to BBB-, commercial paper to A-3 and changed Cameco’s rating outlook to stable from negative. The rating agencies may revise or withdraw these ratings if they believe circumstances warrant. The rating trend/outlook represents the rating agency’s assessment of the likelihood and direction that the rating could change in the future. A change in our credit ratings could affect our cost of funding and our access to capital through the capital markets. Liquidity ($ MILLIONS) Cash and cash equivalents at beginning of year Cash from operations Investment activities Additions to property, plant and equipment and acquisitions Other investing activities Financing activities Change in debt Interest paid Other financing activities Dividends Exchange rate on changes on foreign currency cash balances Cash and cash equivalents and short-term investments at end of year CASH FROM OPERATIONS 2019 1,103 527 (75) 121 (500) (72) (3) (32) (7) 2018 592 668 (55) 34 - (73) - (71) 8 1,062 1,103 Cash from operations was 21% lower than in 2018 due largely to the drawdown of inventory in 2018 in accordance with our strategy. Working capital provided $87 million less in 2019. Not including working capital requirements, our operating cash flows in the year were down $54 million. See note 23 to the financial statements. INVESTING ACTIVITIES Cash used in investing includes acquisitions and capital spending. Capital spending We classify capital spending as sustaining, capacity replacement or growth. As a mining company, sustaining capital is the money we spend to keep our facilities running in their present state, which would follow a gradually decreasing production curve, while capacity replacement capital is spent to maintain current production levels at those operations. Growth capital is money we invest to generate incremental production, and for business development. CAMECO’S SHARE ($ MILLIONS) Sustaining capital McArthur River/Key Lake Cigar Lake Fuel services Other Total sustaining capital Capacity replacement capital Cigar Lake Total capacity replacement capital Total uranium & fuel services 2019 PLAN 2019 ACTUAL 2020 PLAN 5 15 30 - 50 45 45 95 2 9 28 1 40 35 35 75 10 15 45 - 70 50 50 120 Total capital expenditures for 2019 were lower than our outlook of $95 million as a result of the rescheduling of some expenditures at Cigar Lake to 2020. 42 CAMECO CORPORATION Outlook for investing activities CAMECO’S SHARE ($ MILLIONS) Total uranium & fuel services Sustaining capital Capacity replacement capital Growth capital 2021 PLAN 2022 PLAN 75-125 60-85 15-40 - 50-100 35-60 15-40 - We expect total 2020 capital expenditures for uranium and fuel services to be about 58% higher than in 2019 due to ongoing investment in the Vision in Motion project at fuel services, increased mine development activity at Cigar Lake, and the rescheduling of some expenditures planned at Cigar Lake in 2019 to 2020. Capital expenditures for JV Inkai are expected to be covered by JV Inkai cash flows in 2020, and are included in our overall equity investment. Major sustaining and capacity replacement expenditures in 2020 include:  Fuel services – continuation of work on our Vision in Motion project  Cigar Lake – underground development and necessary ground freezing infrastructure to meet production targets Our 2020, 2021 and 2022 capital spending estimates assume that market conditions remain such that McArthur River and Key Lake remain in a state of ongoing care and maintenance. Capital spending could increase if we identify and approve investment in projects we expect will reduce costs and improve operational effectiveness and efficiency. This information regarding currently expected capital expenditures for future periods is forward-looking information, and is based upon the assumptions and subject to the material risks discussed on pages 2 and 3. Our actual capital expenditures for future periods may be significantly different. FINANCING ACTIVITIES Cash from financing includes borrowing and repaying debt, and other financial transactions including paying dividends and providing financial assurance. Long-term contractual obligations 2021 AND 2023 AND DECEMBER 31 ($ MILLIONS) Long-term debt Interest on long-term debt Provision for reclamation Provision for waste disposal Other liabilities Capital commitments Total 2020 - 41 55 1 5 38 140 2022 400 82 53 3 10 - 548 2024 500 52 98 3 4 - 2025 AND BEYOND 100 92 921 1 75 - TOTAL 1,000 267 1,127 8 94 38 657 1,189 2,534 We have contractual capital commitments of approximately $38 million at December 31, 2019. Certain of the contractual commitments may contain cancellation clauses; however, we disclose the commitments based on management’s intent to fulfil the contracts. We have unsecured lines of credit of about $2.5 billion, which include the following:  A $1.0 billion unsecured revolving credit facility that matures November 1, 2023. Each year on the anniversary date, and upon mutual agreement, the facility can be extended for an additional year. In addition to borrowing directly from this facility, we can use up to $100 million of it to issue letters of credit. We may increase the revolving credit facility above $1.0 billion, by increments of no less than $50 million, up to a total of $1.25 billion. The facility ranks equally with all of our other senior debt. At December 31, 2019, there were no amounts outstanding under this facility.  At December 31, 2019, we had approximately $1.5 billion outstanding in financial assurances provided by various financial institutions. We use these facilities mainly to provide financial assurance for future decommissioning and reclamation of our operating sites, for our obligations relating to the CRA dispute, and as overdraft protection. MANAGEMENT’S DISCUSSION AND ANALYSIS 43 In total we have $1.0 billion in senior unsecured debentures outstanding:  $400 million bearing interest at 3.75% per year, maturing on November 14, 2022  $500 million bearing interest at 4.19% per year, maturing on June 24, 2024  $100 million bearing interest at 5.09% per year, maturing on November 14, 2042 Debt covenants Our revolving credit facility includes the following financial covenants:  our funded debt to tangible net worth ratio must be 1:1 or less  other customary covenants and events of default Funded debt is total consolidated debt less non-recourse debt, $100 million in letters of credit, cash and short-term investments. Not complying with any of these covenants could result in accelerated payment and termination of our revolving credit facility. At December 31, 2019, we complied with all covenants, and we expect to continue to comply in 2020. OFF-BALANCE SHEET ARRANGEMENTS We had three kinds of off-balance sheet arrangements at the end of 2019:  purchase commitments  financial assurances  other arrangements Purchase commitments We make purchases under long-term contracts where it is beneficial for us to do so and in order to support our long-term contract portfolio. The following table is based on our purchase commitments in our uranium and fuel services segments, as well as commitments previously contracted by NUKEM, at December 31, 20192 but does not include purchases of our share of Inkai production. These commitments include a mix of fixed-price and market-related contracts. Actual payments will be different as a result of changes to our purchase commitments and, in the case of contracts with market-related pricing, the market prices in effect at the time of delivery. We will update this table as required in our MD&A to reflect material changes to our purchase commitments and changes in the prices used to estimate our commitments under market-related contracts. DECEMBER 31, 2019 ($ MILLIONS) 2020 2022 2024 2021 AND 2023 AND 2025 AND BEYOND TOTAL Purchase commitments1,2 773 1 Denominated in US dollars and Japanese yen, converted from US dollars to Canadian dollars at the rate of 1.30 and from Japanese yen to Canadian dollars at 180 216 126 251 the rate of $0.01. 2 These amounts have been adjusted for any additional purchase commitments that we have entered into since December 31, 2019, but does not include deliveries taken under contract since December 31, 2019. We have commitments of $773 million (Cdn) for the following:  approximately 18 million pounds of U3O8 equivalent from 2020 to 2028  approximately 0.3 million kgU as UF6 in conversion services in 2020  about 0.1 million Separative Work Units (SWU) of enrichment services to meet existing forward sales commitments under agreements with a non-Western supplier The suppliers do not have the right to terminate agreements other than pursuant to customary events of default provisions. Financial assurances Standby letters of credit and surety bonds provide financial assurance for the decommissioning and reclamation of our mining and conversion facilities as well as for our obligations relating to the CRA dispute. We are required to provide financial assurances to various regulatory agencies until decommissioning and reclamation activities are complete. We are also providing letters of credit until the CRA dispute is resolved. Our financial assurances renew automatically on an annual basis, unless otherwise advised by the issuing institution. At December 31, 2019 our financial assurances totaled $1.5 billion, down from $1.6 billion at December 31, 2018. The decrease in 2019 was mainly due to small changes in reclamation requirements as well as the change in foreign exchange rates. 44 CAMECO CORPORATION Other arrangements We have arranged for standby product loan facilities with three different counterparties. The arrangements allow us to borrow up to 1.2 million kgU of UF6 conversion services over the period 2020 to 2022 with repayment in kind up to March 31, 2023. Under the loan facilities, standby fees of up to 1% are payable based on the market value of the facilities and interest is payable on the market value of any amounts drawn at rates ranging from 0.5% to 2.0%. BALANCE SHEET DECEMBER 31, 2019 ($ MILLIONS EXCEPT PER SHARE AMOUNTS) Inventory Total assets Long-term financial liabilities Dividends per common share 2019 321 7,427 2,099 0.08 2018 468 8,019 2,102 0.08 CHANGE 2017 2018 TO 2019 950 7,779 2,448 0.40 (31)% (7)% - - Total product inventories decreased by 31% to $321 million this year due to higher sales volumes than the quantities produced and purchased during the year. At December 31, 2019, our average cost for uranium was $33.41 per pound, up from $32.62 per pound at December 31, 2018. As of December 31, 2019, we held an inventory of 6.1 million pounds of U3O8 equivalent (excluding broken ore). At the end of 2019, our total assets amounted to $7.4 billion, a decrease of $0.6 billion compared to 2018, due to a decrease in cash and investment balances resulting from the repayment of long term debt, offset by strong cash flow from operations. In addition, lower inventories, the repayment of our loan to JV Inkai and ongoing depreciation on our property plant and equipment impacted our total assets. In 2018, the total asset balance increased by $0.2 billion compared to 2017, primarily due to an increase in cash and investment balances. The major components of long-term financial liabilities are long-term debt, the provision for reclamation, deferred sales and financial derivatives. MANAGEMENT’S DISCUSSION AND ANALYSIS 45 2019 financial results by segment Uranium HIGHLIGHTS Production volume (million lbs) Sales volume (million lbs) Average spot price Average long-term price Average realized price Average unit cost of sales (including D&A) Revenue ($ millions) Gross profit ($ millions) Gross profit (%) ($US/lb) ($US/lb) ($US/lb) ($Cdn/lb) ($Cdn/lb) 2019 9.0 31.5 25.64 31.75 33.77 44.85 39.99 1,414 153 11 2018 9.2 35.1 24.59 30.38 37.01 47.96 40.33 1,684 268 16 CHANGE (2)% (10)% 4% 5% (9)% (6)% (1)% (16)% (43)% (31)% Production volumes in 2019 decreased by 2% compared to 2018. See Uranium – production overview on page 59 for more information. Uranium revenues this year were down 16% compared to 2018 due to a decrease in sales volumes of 10% and a decrease of 6% in the Canadian dollar average realized price. Although the spot price for uranium averaged $25.64 (US) per pound in 2019, an increase of 4% compared to the 2018 average price of $24.59 (US) per pound, the average realized price decreased due to a lower proportion of sales from higher priced fixed-price contracts and lower prices on market-related contracts due to a change in the protection from floor prices compared to 2018 partially offset by the weakening of the Canadian dollar compared to the prior year. Total cost of sales (including D&A) decreased by 11% ($1.26 billion compared to $1.42 billion in 2018) mainly due to a decrease in sales volume of 10%. The net effect was a $115 million decrease in gross profit for the year. The following table shows the costs of produced and purchased uranium incurred in the reporting periods (non-IFRS measures, see below). These costs do not include care and maintenance costs, selling costs such as royalties, transportation and commissions, nor do they reflect the impact of opening inventories on our reported cost of sales. ($CDN/LB) Produced Cash cost Non-cash cost Total production cost 1 Quantity produced (million lbs)1 Purchased Cash cost1 Quantity purchased (million lbs)1 Totals Produced and purchased costs Quantities produced and purchased (million lbs) 2019 2018 CHANGE 15.70 16.09 31.79 9.0 35.26 19.0 34.14 28.0 15.31 15.90 31.21 9.2 36.01 14.0 34.11 23.2 3% 1% 2% (2)% (2)% 36% 0% 21% 1 Our share of Inkai production was 3.7 million pounds (amended on Feb 13, 2020; previously 3.3 million pounds) for 2019 (2018 - 2.9 million pounds). Due to equity accounting, our share of production is shown as a purchase at the time of delivery. JV Inkai purchases will fluctuate during the quarters and timing of purchases will not match production. In 2019 we purchased 3.5 million pounds at a purchase price per pound of $32.43 ($24.37 (US)). The average cash cost of production was 3% higher in the year than in 2018. While McArthur River and Key Lake are shut down, our annual cash cost of production is expected to reflect the estimated life-of-mine operating cost, between $15 and $16 per pound, of mining and milling our share of Cigar Lake mineral reserves, but it may fluctuate from quarter-to-quarter. The benefit of the estimated life-of-mine operating cost for Inkai’s production of between $8 and $9 per pound, is expected to be reflected in the line item on our statement of earnings called “share of earnings from equity-accounted investee”. 46 CAMECO CORPORATION Although purchased pounds are transacted in US dollars, we account for the purchases in Canadian dollars. In the year, the average cash cost of purchased material was $35.26 (Cdn), or $26.49 (US) per pound, compared to $36.01 (Cdn), or $27.68 (US) per pound in the same period in 2018. Cash cost per pound, non-cash cost per pound and total cost per pound for produced and purchased uranium presented in the above table are non-IFRS measures. These measures do not have a standardized meaning or a consistent basis of calculation under IFRS. We use these measures in our assessment of the performance of our uranium business. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate our performance and ability to generate cash flow. These measures are non-standard supplemental information and should not be considered in isolation or as a substitute for measures of performance prepared according to accounting standards. These measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently, so you may not be able to make a direct comparison to similar measures presented by other companies. To facilitate a better understanding of these measures, the following table presents a reconciliation of these measures to our unit cost of sales for the years ended 2019 and 2018 as reported in our financial statements. CASH AND TOTAL COST PER POUND RECONCILIATION ($ MILLIONS) Cost of product sold Add / (subtract) Royalties Other selling costs Care and maintenance and severance costs Change in inventories Cash operating costs (a) Add / (subtract) Depreciation and amortization Care and maintenance costs Change in inventories Total operating costs (b) Uranium produced & purchased (million lbs) (c) Cash costs per pound (a ÷ c) Total costs per pound (b ÷ c) 2019 1,041.9 2018 1,138.9 (32.5) (10.5) (109.5) (78.2) 811.2 218.8 (44.4) (29.6) 956.0 28.0 28.97 34.14 (39.1) (12.6) (168.3) (273.9) 645.0 277.2 (44.2) (86.7) 791.3 23.2 27.80 34.11 MANAGEMENT’S DISCUSSION AND ANALYSIS 47 ROYALTIES We pay royalties on the sale of all uranium extracted at our mines in the province of Saskatchewan. Two types of royalties are paid:  Basic royalty: calculated as 5% of gross sales of uranium, less the Saskatchewan resource credit of 0.75%.  Profit royalty: a 10% royalty is charged on profit up to and including $23.76/kg U3O8 ($10.78/lb) and a 15% royalty is charged on profit in excess of $23.76/kg U3O8. Profit is determined as revenue less certain operating, exploration, reclamation and capital costs. Both exploration and capital costs are deductible at the discretion of the producer. As a resource corporation in Saskatchewan, we also pay a corporate resource surcharge of 3% of the value of resource sales. URANIUM SEGMENT OUTLOOK In July 2018 we announced the extension of the suspension of production at the McArthur River/Key Lake operation for an indeterminate duration and therefore, we expect to produce 9 million pounds in 2020. In addition, we expect to purchase between 20 million and 22 million pounds in 2020 to meet our sales commitments and achieve our desired inventory level. This includes our spot market purchases and other purchase commitments, including from JV Inkai and the purchase of NUKEM’s excess inventory. We anticipate an average purchase price of $31.40 per pound for our planned purchases, based on the uranium price and foreign exchange rate assumptions used in our outlook table on page 38. Based on the contracts we have in place, and not including sales between our segments, we expect to deliver between 28 million and 30 million pounds of U3O8 in 2020. We expect the unit cost of sales to be between $38.50 per pound and $40.50per pound, about the same as in 2019. The required spot market purchases and any additional discretionary purchases we may make in 2020 are subject to market prices throughout the year. If they are at a cost different than the assumptions noted, then we expect the overall unit cost of sales to be affected, as well as our revenue. We expect revenue to be between $1,120 million to $1,210 million, lower than in 2019 as a result of a lower expected average realized price and lower sales volumes. Fuel services (includes results for UF6, UO2, UO3 and fuel fabrication) HIGHLIGHTS Production volume (million kgU) Sales volume (million kgU) Average realized price Average unit cost of sales (including D&A) Revenue ($ millions) Gross profit ($ millions) Gross profit (%) ($Cdn/kgU) ($Cdn/kgU) 2019 13.3 14.1 26.21 19.84 370 90 24 2018 10.5 11.6 26.78 21.86 313 59 19 CHANGE 27% 22% (2)% (9)% 18% 53% 26% Total revenue increased by 18% from 2018 due to a 22% increase in sales volume that was partially offset by a 2% decrease in the realized price. Total cost of products and services sold (including D&A) increased by 10% ($280 compared to $255 in 2018), due to the 22% increase in sales volume, partially offset by a 9% decrease in average unit cost of sales compared to 2018. The net effect was a $31 million increase in gross profit. FUEL SERVICES OUTLOOK In 2020, we plan to produce 13 million to 14 million kgU, and we expect sales volumes, not including intersegment sales, to be 12 million to 13 million kgU. Overall revenue is expected to be between $340 million and $370 million, slightly lower than 2019 due to lower committed sales volumes. We expect the average unit cost of sales (including D&A) to be between $19.70/kgU and $20.70/kgU. 48 CAMECO CORPORATION Fourth quarter financial results Consolidated results HIGHLIGHTS ($ MILLIONS EXCEPT WHERE INDICATED) Revenue Gross profit Net earnings attributable to equity holders $ per common share (basic) $ per common share (diluted) Adjusted net earnings (non-IFRS, see page 28) $ per common share (adjusted and diluted) Cash provided by operations (after working capital changes) NET EARNINGS THREE MONTHS ENDED DECEMBER 31 2019 874 184 128 0.32 0.32 94 0.24 274 2018 831 207 160 0.40 0.40 202 0.51 57 CHANGE 5% (11)% (20)% (20)% (20)% (53)% (53)% >100% The following table shows what contributed to the change in net earnings and adjusted net earnings (non-IFRS measure, see page 28) in the fourth quarter of 2019 compared to the same period in 2018. ($ MILLIONS) Net earnings - 2018 Change in gross profit by segment IFRS ADJUSTED 160 202 (we calculate gross profit by deducting from revenue the cost of products and services sold, and depreciation and amortization (D&A), net of hedging benefits) Uranium Higher sales volume Lower realized prices ($US) Foreign exchange impact on realized prices Lower costs change – uranium Fuel services Higher sales volume Higher realized prices ($Cdn) Lower costs change – fuel services Other changes Lower administration expenditures Lower exploration expenditures Change in reclamation provisions Change in gains or losses on derivatives Change in foreign exchange gains or losses Change in earnings from equity-accounted investments Gain on sale of interest in Wheeler River Joint Venture in 2018 Change in income tax recovery or expense Other Net earnings - 2019 20 (84) 6 15 (43) 5 5 11 21 2 1 36 64 (25) 7 (17) (69) (9) 128 20 (84) 6 15 (43) 5 5 11 21 2 1 - (1) (25) 7 (17) (44) (9) 94 MANAGEMENT’S DISCUSSION AND ANALYSIS 49 ADJUSTED NET EARNINGS We use adjusted net earnings, a non-IFRS measure, as a more meaningful way to compare our financial performance from period to period. See page 28 for more information. The following table reconciles adjusted net earnings with our net earnings. ($ MILLIONS) Net earnings attributable to equity holders Adjustments Adjustments on derivatives Reclamation provision adjustments Income taxes on adjustments Adjusted net earnings THREE MONTHS ENDED DECEMBER 31 2019 128 (18) (26) 10 94 2018 160 47 10 (15) 202 Every quarter we are required to update the reclamation provisions for all operations based on new cash flow estimates, discount and inflation rates. This normally results in an adjustment to an asset retirement obligation asset in addition to the provision balance. When the assets of an operation have been written off due to an impairment, as is the case with our Rabbit Lake and US ISR operations, the adjustment is recorded directly to the statement of earnings as “other operating expense (income)”. See note 15 of our annual financial statements for more information. This amount has been excluded from our adjusted net earnings measure. ADMINISTRATION ($ MILLIONS) Direct administration Stock-based compensation Total administration THREE MONTHS ENDED DECEMBER 31 2019 32 2 34 2018 CHANGE 33 3 36 (3)% (33)% (6)% Direct administration costs were $32 million in the quarter, $1 million lower than the same period last year. Stock-based compensation expenses were $1 million lower from the fourth quarter of 2018. See note 24 to the financial statements. Quarterly trends HIGHLIGHTS ($ MILLIONS EXCEPT PER SHARE AMOUNTS) Revenue Net earnings (loss) attributable to equity holders $ per common share (basic) $ per common share (diluted) Q4 874 128 Q3 303 (13) Q2 388 (23) 2019 Q1 298 (18) 0.32 (0.03) (0.06) (0.05) 0.32 (0.03) (0.06) (0.05) Adjusted net earnings (loss) (non-IFRS, see page 28) 94 (2) (18) (33) Q4 831 160 0.40 0.40 202 Q3 488 28 Q2 333 (76) 0.07 (0.19) 0.07 (0.19) 15 (28) 2018 Q1 439 55 0.14 0.14 23 $ per common share (adjusted and diluted) 0.24 (0.01) (0.04) (0.08) 0.51 0.04 (0.07) 0.06 Cash provided by (used in) operations (after working capital changes) 274 232 (59) 80 57 278 57 275 Key things to note:  Our financial results are strongly influenced by the performance of our uranium segment, which accounted for 76% of consolidated revenues in the fourth quarter of 2019 and 81% of consolidated revenues in the fourth quarter of 2018.  The timing of customer requirements, which tends to vary from quarter to quarter, drives revenue in the uranium and fuel services segments.  Net earnings do not trend directly with revenue due to unusual items and transactions that occur from time to time. We use adjusted net earnings, a non-IFRS measure, as a more meaningful way to compare our results from period to period (see page 28 for more information). 50 CAMECO CORPORATION  Cash from operations tends to fluctuate as a result of the timing of deliveries and product purchases in our uranium and fuel services segments.  Quarterly results are not necessarily a good indication of annual results due to the variability in customer requirements noted above. The table that follows presents the differences between net earnings and adjusted net earnings for the previous seven quarters. HIGHLIGHTS ($ MILLIONS EXCEPT PER SHARE AMOUNTS) Net earnings (loss) attributable to equity holders Adjustments Adjustments on derivatives Reclamation provision adjustments Gain on restructuring of JV Inkai Income taxes on adjustments Adjusted net earnings (losses) (non-IFRS, see page 28) Q4 128 (18) (26) - 10 Q3 Q2 2019 Q1 (13) (23) (18) 9 3 - (1) (17) (23) 24 - (2) 2 - 6 Q4 160 47 10 - (15) Q3 28 (24) 5 - 6 Q2 (76) 20 44 - (16) 2018 Q1 55 22 1 (49) (6) 94 (2) (18) (33) 202 15 (28) 23 MANAGEMENT’S DISCUSSION AND ANALYSIS 51 Fourth quarter financial results by segment Uranium HIGHLIGHTS Production volume (million lbs) Sales volume (million lbs) Average spot price Average long-term price Average realized price Average unit cost of sales (including D&A) Revenue ($ millions) Gross profit ($ millions) Gross profit (%) ($US/lb) ($US/lb) ($US/lb) ($Cdn/lb) ($Cdn/lb) THREE MONTHS ENDED DECEMBER 31 2019 2.7 14.0 25.08 32.17 35.92 47.50 37.80 666 136 20 2018 2.4 12.6 28.27 31.50 40.50 53.11 38.89 670 179 27 CHANGE 13% 11% (11)% 2% (11)% (11)% (3)% (1)% (24)% (26)% Production volumes this quarter were 13% higher compared to the fourth quarter of 2018. See Uranium – production overview on page 59 for more information. Uranium revenues were down 1% due to an 11% decrease in the Canadian dollar average realized price offset by an 11% increase in sales volume. The US dollar average realized price decreased by 11% compared to 2018. Average realized price decreased due to a lower proportion of sales from higher priced fixed-price contracts compared to the same period in 2018 and lower prices on both fixed and market-related contracts. The Canadian dollar was slightly weaker compared to the same period last year, $1.00 (US) for $1.32 (Cdn) compared to $1.00 (US) for $1.31 (Cdn) in the fourth quarter of 2018. Total cost of sales (including D&A) increased by 9% ($519 million compared to $477 million in 2018). This was primarily the result of the 11% increase in sales volume as the average unit cost of sales decreased by 3%. The net effect was a $43 million decrease in gross profit for the quarter. The following table shows the costs of produced and purchased uranium incurred in the reporting periods (which are non-IFRS measures, see the paragraphs below the table). These costs do not include care and maintenance costs, selling costs such as royalties, transportation and commissions, nor do they reflect the impact of opening inventories on our reported cost of sales. ($CDN/LB) Produced Cash cost Non-cash cost Total production cost 1 Quantity produced (million lbs)1 Purchased Cash cost1 Quantity purchased (million lbs)1 Totals Produced and purchased costs Quantities produced and purchased (million lbs) THREE MONTHS ENDED DECEMBER 31 2019 2018 CHANGE 17.21 15.54 32.75 2.7 34.17 4.3 33.62 7.0 14.91 15.07 29.98 2.4 38.13 7.3 36.11 9.7 15% 3% 9% 13% (10)% (41)% (7)% (28)% 1 Our share of Inkai production was 1.3 million pounds (amended on Feb 13, 2020; previously 0.9 million pounds) for Q4, 2019. Due to equity accounting, our share of production will be shown as a purchase at the time of delivery. JV Inkai purchases will fluctuate during the quarters and timing of purchases will not match production. During the quarter, we purchased 1.4 million pounds at a purchase price per pound of $32.18 ($24.40 (US)). 52 CAMECO CORPORATION The average cash cost of production was 15% higher for the quarter than in the comparable period in 2018. While McArthur River and Key Lake are shut down, our annual cash cost of production is expected to reflect the estimated life-of-mine operating cost, between $15 and $16 per pound, of mining and milling our share of Cigar Lake mineral reserves, but it may fluctuate from quarter-to-quarter. The benefit of the estimated life-of-mine operating cost for Inkai’s production of between $8 and $9 per pound, is expected to be reflected in the line item on our statement of earnings called “share of earnings from equity-accounted investee”. Although purchased pounds are transacted in US dollars, we account for the purchases in Canadian dollars. In the fourth quarter, the average cash cost of purchased material was $34.17 (Cdn) per pound, or $25.87 (US) per pound in US dollar terms, compared to $38.13 (Cdn) per pound, or $29.08 (US) per pound in the fourth quarter of 2018. Cash cost per pound, non-cash cost per pound and total cost per pound for produced and purchased uranium presented in the above table are non-IFRS measures. These measures do not have a standardized meaning or a consistent basis of calculation under IFRS. We use these measures in our assessment of the performance of our uranium business. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate our performance and ability to generate cash flow. These measures are non-standard supplemental information and should not be considered in isolation or as a substitute for measures of performance prepared according to accounting standards. These measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently, so you may not be able to make a direct comparison to similar measures presented by other companies. To facilitate a better understanding of these measures, the following table presents a reconciliation of these measures to our unit cost of sales for the fourth quarters of 2019 and 2018. CASH AND TOTAL COST PER POUND RECONCILIATION ($ MILLIONS) Cost of product sold Add / (subtract) Royalties Other selling costs Care and maintenance and severance costs Change in inventories Cash operating costs (a) Add / (subtract) Depreciation and amortization Care and maintenance costs Change in inventories Total operating costs (b) Uranium produced & purchased (million lbs) (c) Cash costs per pound (a ÷ c) Total costs per pound (b ÷ c) THREE MONTHS ENDED DECEMBER 31 2019 442.8 (14.3) (4.4) (29.7) (201.0) 193.4 87.4 (11.5) (33.9) 235.4 7.0 27.63 33.62 2018 409.2 (2.6) (4.4) (38.6) (49.5) 314.1 81.1 (13.4) (31.5) 350.3 9.7 32.38 36.11 MANAGEMENT’S DISCUSSION AND ANALYSIS 53 Fuel services (includes results for UF6, UO2, UO3 and fuel fabrication) HIGHLIGHTS Production volume (million kgU) Sales volume (million kgU) Average realized price Average unit cost of sales (including D&A) Revenue ($ millions) Gross profit ($ millions) Gross profit (%) ($Cdn/kgU) ($Cdn/kgU) THREE MONTHS ENDED DECEMBER 31 2019 4.0 6.2 24.61 17.11 152 47 31 2018 3.5 5.1 23.56 18.76 120 24 20 CHANGE 14% 22% 4% (9)% 27% 96% 55% Total revenue increased by 27% due to a 22% increase in sales volumes and a 4% increase in average realized price. The increase in average realized price was due to higher realized prices for all product lines. Total cost of sales (including D&A) increased by 12% to $106 million compared to the fourth quarter of 2018 due to the 22% increase in sales volumes partially offset by a decrease of 9% in the average unit cost of sales, primarily as a result lower costs for UF6 due to higher production rates. The net effect was a $23 million increase in gross profit. 54 CAMECO CORPORATION Operations and projects This section of our MD&A is an overview of the mining properties we operate or have an interest in, our curtailed operations and our projects, what we accomplished this year, our plans for the future and how we manage risk. 56 MANAGING THE RISKS 59 URANIUM – PRODUCTION OVERVIEW 59 ............... PRODUCTION OUTLOOK 60 URANIUM – TIER-ONE OPERATIONS 60 ............... MCARTHUR RIVER MINE / KEY LAKE MILL 64 ............... CIGAR LAKE 68 ............... INKAI 71 URANIUM – TIER-TWO OPERATIONS 71 ............... RABBIT LAKE 72 ............... US ISR 73 URANIUM – ADVANCED PROJECTS 73 ............... MILLENNIUM 73 ............... YEELIRRIE 73 ............... KINTYRE 74 URANIUM – EXPLORATION AND CORPORATE DEVELOPMENT 75 FUEL SERVICES 75 ............... BLIND RIVER REFINERY 76 ............... PORT HOPE CONVERSION SERVICES 76 ............... CAMECO FUEL MANUFACTURING INC. (CFM) MANAGEMENT’S DISCUSSION AND ANALYSIS 55 Managing the risks The nature of our operations means we face many potential risks and hazards that could have a significant impact on our business. Our risk policy and program involves a broad, systematic approach to identifying, assessing, reporting and managing the significant risks we face in our business and operations, including ESG risks. The policy establishes clear accountabilities for enterprise risk management. We use a common risk matrix throughout the company and consider any risk that has the potential to significantly affect our ability to achieve our corporate objectives or strategic plan as an enterprise risk. However, there is no assurance we will be successful in preventing the harm any of these risks and hazards could cause. We recommend you read our most recent management proxy circular for more information about our risk oversight. Below we list the risks that generally apply to all of our operations and advanced projects. We also talk about how we manage specific risks in each operation or project update. These risks could have a material impact on our business in the near term. We recommend you also review our annual information form, which includes a discussion of other material risks that could have an impact on our business. Regulatory risks A significant part of our economic value depends on our ability to:  obtain and renew the licences and other approvals we need to operate, to increase production at our mines and to develop new mines. If we do not receive the regulatory approvals we need, or do not receive them at the right time, then we may have to delay, modify or cancel a project, which could increase our costs and delay or prevent us from generating revenue from the project. Regulatory review, including the review of environmental matters, is a long and complex process.  comply with the conditions in these licences and approvals. Our right to continue operating facilities, increase production at our mines and develop new mines depends on our compliance with these conditions.  comply with the extensive and complex laws and regulations that govern our activities. Environmental legislation imposes strict standards and controls on almost every aspect of our operations and projects, and is not only introducing new requirements, but also becoming more stringent. For example:  we must complete the environmental assessment process before we can begin developing a new mine or make any significant change to our operations  we may need regulatory approval to make changes to our operational processes, which can take a significant amount of time because it may require an extensive review of supporting technical information. The complexity of this process can be further compounded when regulatory approvals are required from multiple agencies.  the federal government has recently introduced a new Impact Assessment Act as well as a Canadian Navigable Waters Act along with significant revisions to the federal Fisheries Act. This new legislation will impact the scope and timeliness of approvals for projects and the revisions could impact existing operations.  Environment and Climate Change Canada has brought forward an amended national recovery plan for woodland caribou that has the potential to impact economic and social development in northern Saskatchewan. Research completed in northern Saskatchewan has resulted in a report indicating the range in which our northern Saskatchewan operations are located, hosts a secure and self-sustaining population of woodland caribou, perhaps one of the most secure boreal caribou populations in Canada. The population status was incorporated by Environment and Climate Change Canada into the amended national recovery plan; however, potential habitat protection measures could still have an impact on our Saskatchewan operations and advanced projects. We use significant management and financial resources to manage our regulatory risks. Environmental risks We have the safety, health and environmental risks associated with any mining and chemical processing company. Our uranium and fuel services segments also face unique risks associated with radiation. 56 CAMECO CORPORATION Laws to protect the environment are becoming more stringent for members of the nuclear energy industry, including mining, milling and processing facilities, and have inter-jurisdictional aspects (both federal and provincial/state regimes are applicable). Once we have permanently stopped mining and processing activities at an operating site, we are required to decommission the site to the satisfaction of the regulators. We have developed preliminary decommissioning plans for our operating sites and use them to estimate our decommissioning costs. Regulators review and accept our preliminary decommissioning plans on a regular basis. As the site approaches or goes into decommissioning, regulators review the detailed decommissioning plans. This can result in further regulatory process, as well as additional requirements, costs and financial assurances. Currently, Cameco has submitted updates to all Saskatchewan operations’ Preliminary Decommissioning Plan (PDP) and Preliminary Decommissioning Cost Estimate (PDCE) documents in accordance with the five year timeline specified in the regulations. Upon acceptance of the final PDP and PDCE documents by the Saskatchewan Ministry of Environment and Canadian Nuclear Safety Commission (CNSC) staff, a formal Commission proceeding will be required for final approval of the PDP and PDCE by the Commission. We have received the required approvals for the revised PDP and the letters of credit have been updated for McArthur River. For Cigar Lake and Key Lake, the revised PDP has been reviewed and accepted by staff and we are awaiting Commission proceedings to formally approve them. The revised PDP for Rabbit Lake is still under review by CNSC staff. At the end of 2019, our estimate of total decommissioning and reclamation costs was $1.13 billion. This is the undiscounted value of the obligation and is based on our current operations. We had accounting provisions of $1.05 billion at the end of 2019 (the present value of the $1.13 billion). Regulatory approval is required prior to beginning decommissioning. Since we expect to incur most of these expenditures at the end of the useful lives of the operations they relate to, and none of our assets have approval for decommissioning, our expected costs for decommissioning and reclamation for the next five years are not material. We provide financial assurances for decommissioning and reclamation such as letters of credit or surety bonds to regulatory authorities, as required. We had a total of about $994 million in financial assurances supporting our reclamation liabilities at the end of 2019. All of our North American operations have financial assurances in place in connection with our preliminary plans for decommissioning of the sites. Some of the sites we own or operate have been under ongoing investigation and/or remediation and planning as a result of historic soil and groundwater conditions. We use significant management and financial resources to manage our environmental risks. We manage environmental risks through our safety, health, environment and quality (SHEQ) management system. Our chief executive officer is responsible for ensuring that our SHEQ management system is implemented. Our board’s safety, health and environment committee also oversees how we manage our environmental risks. In 2019, we invested:  $73 million in environmental protection, monitoring and assessment programs, approximately 4% more than in 2018  $18 million in health and safety programs, or 10% less than 2018 The increase in environmental expenditures in 2019 was largely due to expenditures related to the Vision in Motion projects, but also some spending on projects involving tailings and waste rock in northern Saskatchewan. The decrease in health and safety related expenditures were due to overall cost reductions across Cameco operations. Spending on environmental and health and safety programs is expected to level off in 2020 as a result of the continued impacts of the decisions to transition Rabbit Lake into care and maintenance and to curtail production at the US operations, as well as the continued shutdown of the McArthur River and Key Lake operations for an indeterminate duration. MANAGEMENT’S DISCUSSION AND ANALYSIS 57 Operational risks Other operational risks and hazards include:  environmental damage  industrial and transportation accidents  labour shortages, disputes or strikes  cost increases for labour, contracted or purchased  fires  blockades or other acts of social or political activism  natural phenomena, such as inclement weather conditions, floods and earthquakes materials, supplies and services  unusual, unexpected or adverse mining or geological  shortages of required materials, supplies and conditions equipment  transportation and delivery disruptions  interruptions in the supply of electricity, water, and other utilities  equipment failures  non-compliance with laws and licences  catastrophic accidents  underground floods  ground movement or cave-ins  tailings pipeline or dam failures  technological failure of mining methods  unanticipated consequences of our cost reduction strategies We have insurance to cover some of these risks and hazards, but not all of them, and not to the full amount of losses or liabilities that could potentially arise. 58 CAMECO CORPORATION Uranium – production overview Production in our uranium segment in the fourth quarter was 2.7 million pounds, 13% higher compared to the same period in 2018, while production for the year was 9.0 million pounds, 2% lower than in 2018. See Uranium – Tier-one operations starting on page 60 for more information. Uranium production CAMECO SHARE (MILLION LBS) McArthur River/Key Lake Cigar Lake US ISR Total THREE MONTHS ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 2019 - 2.7 - 2.7 2018 - 2.4 - 2.4 2019 - 9.0 - 9.0 2018 2019 PLAN 2020 PLAN 0.1 9.0 0.1 9.2 - 9.0 - 9.0 - 1 9.0 - 1 9.0 1 The McArthur River/Key Lake and Rabbit Lake operations are in a safe and sustainable state of care and maintenance, and we are no longer developing new wellfields at Crow Butte and Smith Ranch-Highland. Please see Uranium – Tier-one operations beginning on page 60 and Uranium – Tier-two operations beginning on page 71 for more information. We expect total production from Inkai to be 8.3 million pounds in 2020 on a 100% basis. Due to equity accounting, our share of production is shown as a purchase. Production Outlook We remain focused on taking advantage of the long-term growth we see coming in our industry, while maintaining the ability to respond to market conditions as they evolve. Our strategy is to focus on our tier-one assets and profitably produce at a pace aligned with market signals in order to preserve the value of those assets and increase long-term shareholder value, and to do that with an emphasis on safety, people and the environment. Given today’s weak market conditions and to mitigate risk, we plan to:  ensure we continue to operate safely  evaluate the optimal mix of production, inventory and purchases in order to retain the flexibility to deliver long-term value  focus on technology and its applications to improve efficiency, reduce costs and improve operational effectiveness across our operations, including the use of digital and automation technologies MANAGEMENT’S DISCUSSION AND ANALYSIS 59 Uranium – Tier-one operations McArthur River mine / Key Lake mill 2019 Production (our share) 0.0M lbs 2020 Production Outlook (our share) 0.0M lbs Estimated Reserves (our share) 273.6M lbs Estimated Mine Life1 23 years 1Estimated mine life based on the production schedule presented in the National Instrument 43-101 Technical Report dated March 29, 2019. McArthur River is the world’s largest, high-grade uranium mine, and Key Lake is the world’s largest uranium mill. Ore grades at the McArthur River mine are 100 times the world average, which means it can produce more than 18 million pounds per year by mining only 300 to 400 tonnes of ore per day. We are the operator of both the mine and mill. In 2018, a decision was made to suspend production and place the mine and mill in care and maintenance, which will continue for an indeterminate duration. McArthur River is considered a material uranium property for us. There is a technical report dated March 29, 2019 (effective December 31, 2018) that can be downloaded from SEDAR (sedar.com) or from EDGAR (sec.gov). Location Ownership Mine type Mining methods End product Certification Estimated reserves Estimated resources Licensed capacity Licence term Saskatchewan, Canada McArthur River – 69.805% Key Lake – 83.33% Underground Primary: blasthole stoping Secondary: raiseboring Uranium concentrate ISO 14001 certified 273.6 million pounds (proven and probable), average grade U3O8: 6.91% 6.7 million pounds (measured and indicated), average grade U3O8: 2.36% 1.8 million pounds (inferred), average grade U3O8: 2.85% Mine and mill: 25.0 million pounds per year Through October, 2023 Total packaged production: 2000 to 2019 325.4 million pounds (McArthur River/Key Lake) (100% basis) 1983 to 2002 209.8 million pounds (Key Lake) (100% basis) 2019 production 0 million pounds (0.0 million pounds on 100% basis) 2020 production outlook 0.0 million pounds (0.0 million pounds on 100% basis) Estimated decommissioning cost1 $42 million – McArthur River (100% basis) $223 million – Key Lake (100% basis) All values shown, including reserves and resources, represent our share only, unless indicated. 1 The Key Lake estimate is currently under regulatory review. 60 CAMECO CORPORATION BACKGROUND Mine description The McArthur River reported mineral reserves are contained within seven zones: Zones 1, 2, 3, 4, 4 South, A and B. Prior to care and maintenance, there were two active mining zones and one where development was significantly advanced. Zone 2 has been actively mined since production began in 1999. The ore zone was initially divided into three freeze panels. As the freeze wall was expanded, the inner connecting freeze walls were decommissioned in order to recover the inaccessible uranium around the active freeze pipes. Mining of zone 2 is almost complete. About 4.8 million pound of mineral reserves remain and we expect to recover them using a combination of raisebore and blasthole stope mining. Zone 4 has been actively mined since 2010. The zone was divided into four freeze panels, and like in zone 2, as the freeze wall was expanded, the inner connecting freeze walls were decommissioned. Zone 4 has 117.5 million pounds of mineral reserves secured behind freeze walls and it will be the main source of production when mine production restarts. Raisebore mining and blasthole stoping will be used to recover the mineral reserves. Zone 1 is the next planned mine area to be brought into production. Freezehole drilling was 90% complete and brine distribution construction was approximately 10% complete when work was suspended in 2018 as part of the production suspension. Work remaining before production can begin includes completion of the freezehole drilling, brine distribution construction, ground freezing and drill and extraction chamber development. Once complete, an additional 46.6 million pounds of mineral reserves will be secured behind freeze walls. Blasthole stope mining is currently planned as the main extraction method. We have successfully extracted over 325 million pounds (100% basis) since we began mining in 1999. Mining methods and techniques The McArthur River deposit presents unique challenges that are not typical of traditional hard or soft rock mines. These challenges are the result of mining in or near high pressure ground water in challenging ground conditions with significant radiation concerns due to the high-grade uranium ore. Therefore, mine designs and mining methods are selected based on their ability to mitigate hydrological, radiological and geotechnical risks. There are three approved mining methods at McArthur River: raisebore mining, blasthole stope mining and boxhole mining. However, only raisebore and blasthole stope mining remain in use. In addition, we use ground freezing to mine the McArthur River deposit. Ground freezing All the mineralized areas discovered to date at McArthur River are in, or partially in, water-bearing ground with significant pressure at mining depths. This high pressure water source is isolated from active development and production areas in order to reduce the inherent risk of an inflow. To date, McArthur River has relied on pressure grouting and ground freezing to successfully mitigate the risks of the high pressure ground water. Chilled brine is circulated through freeze holes to form an impermeable freeze barrier around the area being mined. This prevents water from entering the mine, and helps stabilize weak rock formations. Blasthole stoping Our use of blasthole stoping began in 2011 and has expanded; the majority of ore extraction is now carried out using this method. It is planned in areas where blastholes can be accurately drilled and small stable stopes excavated without jeopardizing the freeze wall integrity. The use of this method has allowed the site to improve operating costs by increasing overall extraction efficiency by reducing underground development, concrete consumption, mineralized waste generation and improving extraction cycle time. Raisebore mining Raisebore mining is an innovative non-entry approach that we adapted to meet the unique challenges at McArthur River, and it has been used since mining began in 1999. This method is favourable for mining the weaker rock mass areas of the deposit, and is suitable for massive high-grade zones where there is access both above and below the ore zone. MANAGEMENT’S DISCUSSION AND ANALYSIS 61 Initial processing McArthur River produces two product streams which are both shipped to the Key Lake mill to produce uranium ore concentrates. We carry out initial processing of two product streams at McArthur River: high-grade slurry and low-grade mineralization. Both product streams are shipped to Key Lake mill to produce uranium ore concentrate. High-grade slurry is pumped to surface and, after blending and further thickening it is transported to Key Lake in slurry trucks. The low-grade mineralization is hoisted to surface and hauled to Key Lake, where it is mixed with water, ground, thickened and blended with the high-grade slurry to a nominal 5% U3O8 mill feed grade. It is then processed into uranium ore concentrates and packaged. Tailings capacity Based on the current licence conditions, tailings capacity at Key Lake is sufficient to mill all the known McArthur River mineral reserves and resources, should they be converted to reserves, with additional capacity to toll mill ore from other regional deposits. Licensed annual production capacity The McArthur River mine and Key Lake mill are both licensed to produce up to 25 million pounds (100% basis) per year. The current production capacity of the Key Lake mill is sufficient to process McArthur River mineral reserves at a production rate of 18 million pounds U3O8 per year. 2019 UPDATE Production suspension The facilities remained in a state of safe and sustainable care and maintenance throughout 2019. Approximately 175 employees remain at the McArthur River and Key Lake sites. Care and maintenance activities include mine dewatering, water treatment, freeze wall maintenance, and environmental monitoring. In addition, preservation maintenance and monitoring of the critical facilities continues. Our objective is that the McArthur River and Key Lake operations are available to return to production in a timely manner once a decision is made to end the production suspension. Exploration As a result of the production suspension, there was no exploration activity in 2019. Labour relations We reached a new collective agreement with unionized employees at our McArthur River/Key Lake operations. The new agreement expires on December 31, 2022. PLANNING FOR THE FUTURE Production Due to continued uranium price weakness, we have suspended production for an indeterminate duration. As a result of the suspension, and the time required to restart the mine and mill, we do not expect the operation to produce any uranium in 2020. Our share of the cash and non-cash costs to maintain both operations during the suspension is expected to range between $8 million and $10 million per month. The increase in care and maintenance costs compared to 2019 is related to planned expenditures to fully assess our operating processes. See Innovation below. Expansion potential Once the market signals that new supply is needed and a decision is made to restart production, we will undertake the work necessary to optimize the capacity of both the McArthur River mine and Key Lake mill, up to a maximum of 25 million pounds per year (100% basis), the annual production licence limit. We expect that this paced approach will allow us to extract maximum value from the operation as the market transitions. 62 CAMECO CORPORATION Innovation While McArthur River/Key Lake is in a state of care and maintenance, we are taking the opportunity to fully assess our operating processes with the objective of enhancing the efficiency of these operations. Our goal is to streamline our processes and leverage digital and automation technologies to significantly reduce our future operating costs and increase operational flexibility when the time comes to restart. Any opportunities will be rigorously assessed before an investment decision is made. MANAGING OUR RISKS Production at McArthur River/Key Lake poses many challenges. These challenges include control of groundwater, weak rock formations, radiation protection, water inflow, mine area transitioning, regulatory approvals, surface and underground fires and other mining related challenges. Operational experience gained since the start of production has resulted in a significant reduction in risk. Mine and mill restart The operational changes we have made, including the suspension of production in 2018 for an indeterminate duration and the accompanying workforce reduction, carry with them the risks of a delay in restarting operations and subsequent production disruption. There is increased uncertainty regarding the timing of a successful restart of the operations and the associated costs the longer the mine and mill are on care and maintenance. Water inflow risk Water inflows pose a significant risk to mine production. In 2003, a water inflow resulted in a three-month suspension of production. We also had a small water inflow in 2008 that did not impact production, but did cause significant development delays. The consequences of another water inflow at McArthur River would depend on its magnitude, location and timing, but could include a significant interruption or reduction in production, a material increase in costs or a loss of mineral reserves. We take significant steps and precautions to reduce the risk of inflows, but there is no guarantee that these will be successful. In the event that an inflow does occur, we believe we have sufficient pumping, water treatment and surface storage capacity to handle the estimated maximum sustained inflow. We also manage the risks listed on pages 56 to 58. MANAGEMENT’S DISCUSSION AND ANALYSIS 63 Uranium – Tier-one operations Cigar Lake 2019 Production (our share) 9.0M lbs 2020 Production Outlook (our share) 9.0M lbs Estimated Reserves (our share) 86.3M lbs Estimated Mine Life 2029 Cigar Lake is the world’s highest grade uranium mine, with grades that are 100 times the world average. We are a 50% owner and the mine operator. Cigar Lake uranium is milled at Orano’s (previously AREVA) McClean Lake mill. Cigar Lake is considered a material uranium property for us. There is a technical report dated March 29, 2016 (effective December 31, 2015) that can be downloaded from SEDAR (sedar.com) or from EDGAR (sec.gov). Location Ownership Mine type Mining method End product Certification Estimated reserves Estimated resources Licensed capacity Licence term Saskatchewan, Canada 50.025% Underground Jet boring system Uranium concentrate ISO 14001 certified 86.3 million pounds (proven and probable), average grade U3O8: 14.69% 50.8 million pounds (measured and indicated), average grade U3O8: 14.44% 11.9 million pounds (inferred), average grade U3O8: 5.92% 18.0 million pounds per year (our share 9.0 million pounds per year) Through June, 2021 Total packaged production: 2014 to 2019 82.9 million pounds (100% basis) 2019 production 9.0 million pounds (18.0 million pounds on 100% basis) 2020 production outlook 9.0 million pounds (18.0 million pounds on 100% basis) Estimated decommissioning cost1 All values shown, including reserves and resources, represent our share only, unless otherwise indicated. 1 This updated estimate is currently under regulatory review. $62 million (100% basis) BACKGROUND Development We began developing the Cigar Lake underground mine in 2005, but development was delayed due to water inflows in 2006 and 2008. The underground workings were successfully remediated and secured in 2011 and, in October 2014 the McClean Lake mill produced the first uranium concentrate from ore mined at the Cigar Lake operation. Commercial production was declared in May 2015. 64 CAMECO CORPORATION Mine description Cigar Lake’s geological setting is similar to McArthur River’s: the permeable sandstone, which overlays the deposit and basement rocks, contains large volumes of water at significant pressure. However, unlike McArthur River, the Cigar Lake deposit has the shape of a flat- to cigar-shaped lens. As a result of these challenging geological conditions, we are unable to utilize traditional mining methods that require access above the ore, necessitating the development of a non-entry mining method specifically adapted for this deposit: the Jet Boring System (JBS). Mine development is carried out uniquely in the basement rocks below the ore horizon. New mine development is required throughout the mine life to gain access to the ore above. Mining method Bulk ground freezing The sandstone that overlays the deposit and basement rocks is water-bearing, and to prevent water from entering the mine, help stabilize weak rock formations, and meet our production schedule, we freeze the ground from surface. The ore zone and surrounding ground in the area to be mined must meet specific ground freezing requirements before we begin jet boring. Jet boring system (JBS) mining After many years of test mining, we selected jet boring, a non-entry mining method, which we have developed and adapted specifically for this deposit. This method involves:  drilling a pilot hole into the frozen orebody, inserting a high pressure water jet and cutting a cavity out of the frozen ore  collecting the ore and water mixture (slurry) from the cavity and pumping it to storage (sump storage), allowing it to settle  using a clamshell, transporting the ore from sump storage to an underground grinding and processing circuit  once mining is complete, filling each cavity in the orebody with concrete  starting the process again with the next cavity We have divided the orebody into production panels and at least three production panels need to be frozen at one time to achieve the full annual production rate of 18 million pounds. One JBS machine is located below each frozen panel. Three JBS machines are currently in operation. Two machines actively mine at any given time while the third is moving, setting up, or undergoing maintenance. Initial processing We carry out initial processing of the extracted ore at Cigar Lake:  the underground circuit grinds the ore and mixes it with water to form a slurry  the slurry is pumped 500 metres to the surface and stored in one of two ore slurry holding tanks  it is blended and thickened, removing excess water  the final slurry, at an average grade of approximately 14% U3O8, is pumped into transport truck containers and shipped to McClean Lake mill on a 69 kilometre all-weather road MANAGEMENT’S DISCUSSION AND ANALYSIS 65 Water from this process, including water from underground operations, is treated on the surface. Any excess treated water is released into the environment. Milling All of Cigar Lake’s ore slurry is being processed at the McClean Lake mill, operated by Orano. Given the McClean Lake mill’s capacity, it is able to:  operate at Cigar Lake’s targeted annual production level of 18.0 million pounds U3O8  process and package all of Cigar Lake’s current mineral reserves Licensing annual production capacity The Cigar Lake mine is licensed to produce up to 18 million pounds (100% basis) per year. Orano’s McClean Lake mill is licensed to produce 24 million pounds annually. 2019 UPDATE Production Total packaged production from Cigar Lake was 18.0 million pounds U3O8; our share was 9.0 million pounds, achieving our forecast. During the year, we:  completed and commissioned the freeze plant expansion project  implemented an extended summer shutdown, during which maintenance activities were completed as well as a capital upgrade to the mine exhaust fans  executed production activities from three production tunnels in the eastern part of the ore body  extended our surface brine distribution infrastructure and expanded our ground freezing program ensuring continued frozen ore inventory growth in alignment with our long-term production plans Underground development In alignment with our production plans, underground mine development restarted in 2019. Development included focus on two new production panels in the eastern portion of the ore body along with initial access development towards the western portion. Development in these specific areas will continue in 2020 to ensure new production panels are available in alignment with long-term production plans. Labour relations Orano reached a new three-year collective agreement with unionized employees at the McClean Lake mill. The previous contract expired on May 31, 2019. PLANNING FOR THE FUTURE Production In 2020, we expect to produce 18 million packaged pounds at Cigar Lake; our share is 9.0 million pounds. Our 2020 production plan for the Cigar Lake mine includes an extended shutdown during the third quarter. The shut-down will consist of a four-week production outage, preceded by a two-week maintenance period with mine start-up planned before the end of the third quarter. 66 CAMECO CORPORATION In 2020, we expect to:  continue surface freeze drilling and complete construction and commissioning of the freeze distribution infrastructure expansion in support of future production  continue underground mine development and complete three new production tunnels as well as expand ventilation and access drifts in alignment with the long-term mine plan  expand underground piping and infrastructure towards new production panels required to sustain production MANAGING OUR RISKS Cigar Lake is a challenging deposit to develop and mine. These challenges include control of groundwater, weak rock formations, radiation protection, chemical ore characteristics, performance of the water treatment system, water inflow, regulatory approvals, surface and underground fires and other mining-related challenges. To reduce this risk, we are applying our operational experience and the lessons we have learned about water inflows at McArthur River and Cigar Lake. Operational changes The operational changes we have made, including the extended summer shutdown, the workforce reduction, changes to the shift rotation schedule, and changes to the commuter flight services at the site, which are intended to achieve cost savings and improve efficiency, carry with them increased risk of production disruption. Transition to new mining areas In order to successfully achieve the planned production schedule, we must continue to successfully transition into new mining areas, which includes mine development and investment in critical support infrastructure. Ground freezing To manage our risks and meet our production schedule, the areas being mined must meet specific ground freezing requirements before we begin jet boring. We have identified greater variation of the freeze rates of different geological formations encountered in the mine, based on information obtained through surface freeze drilling. As a mitigation measure, we have increased the site freeze capacity to facilitate the mining of ore cavities as planned. Environmental performance The Cigar Lake orebody contains elements of concern with respect to the water quality and the receiving environment. The distribution of elements such as arsenic, molybdenum, selenium and others is non-uniform throughout the ore body, and this can present challenges in attaining and maintaining the required effluent concentrations. There have been ongoing efforts to optimize the current water treatment process and water handling systems to ensure acceptable environmental performance, which is expected to avoid the need for additional capital upgrades and potential deferral of production. Water inflow risk A significant risk to development and production is from water inflows. The 2006 and 2008 water inflows were significant setbacks. The consequences of another water inflow at Cigar Lake would depend on its magnitude, location and timing, but could include a significant delay or disruption in Cigar Lake production, a material increase in costs or a loss of mineral reserves. We take the following steps to reduce the risk of inflows, but there is no guarantee that these will be successful:  Bulk freezing: Two of the primary challenges in mining the deposit are control of groundwater and ground support. Bulk freezing reduces but does not completely eliminate the risk of water inflows.  Mine development: We plan for our mine development to take place away from known groundwater sources whenever possible. In addition, we assess all planned mine development for relative risk and apply extensive additional technical and operating controls for all higher risk development.  Pumping capacity and treatment limits: We have pumping capacity to meet our standard for this operation of at least one and a half times the estimated maximum inflow. We believe we have sufficient pumping, water treatment and surface storage capacity to handle the estimated maximum inflow. We also manage the risks listed on pages 56 to 58. MANAGEMENT’S DISCUSSION AND ANALYSIS 67 Uranium – Tier-one operations Inkai 2019 Production (100% basis) 8.3 M lbs 2020 Production Outlook (100% basis) 8.3 M lbs Estimated Reserves (our share) 100.7M lbs Estimated Mine Life 2045 (based on licence term) Inkai is a very significant uranium deposit, located in Kazakhstan. The operator is JV Inkai limited liability partnership, which we jointly own (40%) with Kazatomprom (60%)1. Inkai is considered a material uranium property for us. There is a technical report dated January 25, 2018 (effective January 1, 2018) that can be downloaded from SEDAR (sedar.com) or from EDGAR (sec.gov). Location Ownership Mine type End product Certifications Estimated reserves Estimated resources South Kazakhstan 40%1 In situ recovery (ISR) Uranium concentrate BSI OHSAS 18001 ISO 14001 certified 100.7 million pounds (proven and probable), average grade U3O8: 0.03% 12.8 million pounds (measured and indicated), average grade U3O8: 0.03% 30 million pounds (inferred), average grade U3O8: 0.03% Licensed capacity (wellfields) 10.4 million pounds per year (our share 4.2 million pounds per year)1 Licence term Through July 2045 Total packaged production: 2009 to 2019 57.5 million pounds (100% basis) 2019 production 2020 production outlook 8.3 million pounds (100% basis) 8.3 million pounds (100% basis)1 Estimated decommissioning cost (100% basis) All values shown, including reserves and resources, represent our share only, unless indicated. 1 Effective January 1, 2018, our ownership interest in the joint venture dropped to 40% and we now equity account for our investment. Due to the transition to equity accounting, our share of production is shown as a purchase. $11 million (US) (100% basis) (this estimate is currently under review) BACKGROUND Mine description The Inkai uranium deposit is a roll-front type orebody within permeable sandstones. The more porous and permeable units host several stacked and relatively continuous, sinuous “roll-fronts” of low-grade uranium forming a regional system. Superimposed over this regional system are several uranium projects and active mines. Inkai’s mineralization ranges in depths from about 260 metres to 530 metres. The deposit has a surface projection of about 40 kilometres in length, and the width ranges from 40 to 1600 metres. The deposit has hydrogeological and mineralization conditions favourable for use of in-situ recovery (ISR) technology. 68 CAMECO CORPORATION Mining and milling method JV Inkai uses conventional, well-established, and very efficient ISR technology, developed after extensive test work and operational experience. The process involves five major steps:  leach the uranium in-situ by circulating an acid-based solution through the host formation  recover it from solution with ion exchange resin (takes place at both main and satellite processing plants)  precipitate the uranium with hydrogen peroxide  thicken, dewater, and dry it  package the uranium peroxide product in drums Production Total 2019 production from Inkai was 8.3 million pounds (100% basis), an increase from 2018. While the production volume was in accordance with Kazatomprom’s planned 20% decrease to the licensed production profile under the terms of the subsoil use contract, the subsoil use contract called for higher production in 2019 compared to 2018. The subsoil use law in Kazakhstan allows producers to produce within 20% (above or below) of their licensed capacity in a year. Project funding and cash distribution We had an outstanding loan for Inkai’s work on block 3 prior to the restructuring. Under the restructuring agreement, the partners agreed that JV Inkai would distribute excess cash, after working capital requirements, as priority repayment of this loan. In 2019, principal and interest payments of $92.7 million (US) were received, which repaid the loan in full. As a result, excess cash, after working capital requirements, will be distributed to the partners as dividends. Our share of dividends follows our production purchase entitlements as described below. JV Inkai Restructuring Agreement In 2016, we signed an agreement with our partner Kazatomprom and JV Inkai to restructure and enhance JV Inkai. The restructuring closed in December 2017 and took effect January 1, 2018. This restructuring was subject to obtaining all required government approvals including an amendment to JV Inkai’s Resource Use Contract, which were obtained. The restructuring consisted of the following:  JV Inkai has the right to produce 10.4 million pounds of U3O8 per year, an increase from the prior licensed annual production of 5.2 million pounds  JV Inkai has the right to produce until 2045 (previously, the licence terms, based on the boundaries prior to the restructuring, were to 2024 and 2030)  our ownership interest in JV Inkai is 40% and Kazatomprom’s share is 60%. However, during production rampup, we are entitled to purchase 57.5% of the first 5.2 million pounds of annual production, and, as annual production increases over 5.2 million pounds, we are entitled to purchase 22.5% of such incremental production, to the maximum annual share of 4.2 million pounds. Once the rampup to 10.4 million pounds annually is complete, we will be entitled to purchase 40% of such annual production, matching our ownership interest.  a governance framework that provides protection for us as a minority owner  the boundaries of the mining area match the agreed production profile for JV Inkai to 2045  priority payment of the loan that our subsidiary made to JV Inkai to fund exploration and evaluation of the historically defined block 3 area With Kazatomprom, we completed and reviewed a feasibility study for the purpose of evaluating the design, construction and operation of a uranium refinery in Kazakhstan. In accordance with the agreement, a decision was made not to proceed with construction of the uranium refinery as contemplated in the feasibility study. We subsequently signed an agreement to licence our proprietary UF6 conversion technology to Kazatomprom, which will allow Kazatomprom to examine the feasibility of constructing and operating its own UF6 conversion facility in Kazakhstan. Our 2020 financial outlook is presented on the basis of equity accounting for our minority ownership interest in JV Inkai. Under equity accounting, our share of the profits earned by JV Inkai on the sale of its production are included in “income from equity- accounted investees” on our consolidated statement of earnings. Our share of production is purchased at a discount to the spot price and included at this value in inventory. In addition, JV Inkai capital is not included in our outlook for capital expenditures. Please see Planning for the future below for more details. MANAGEMENT’S DISCUSSION AND ANALYSIS 69 PLANNING FOR THE FUTURE Production We expect total production from Inkai to be 8.3 million pounds (100% basis) in 2020. Due to Kazatomprom’s announced plans to maintain its aggregate production reduction of 20%, an adjustment to the restructuring agreement, as described above, has been made. As a result of this adjustment, we are entitled to purchase 59.4% of JV Inkai’s planned production in 2020 which equates to 4.9 million pounds. Our share of the profits earned by JV Inkai on the sale of its production will be included in “income from equity-accounted investees” on our consolidated statement of earnings. MANAGING OUR RISKS Political risk Kazakhstan declared itself independent in 1991 after the dissolution of the Soviet Union. Our investment in JV Inkai is subject to the greater risks associated with doing business in developing countries, which have significant potential for social, economic, political, legal and fiscal instability. Kazakh laws and regulations are complex and still developing and their application can be difficult to predict. The other owner of JV Inkai is Kazatomprom, an entity majority owned by the government of Kazakhstan. We have entered into agreements with JV Inkai and Kazatomprom intended to mitigate political risk. This risk includes the imposition of governmental laws or policies that could restrict or hinder JV Inkai paying us dividends, or selling us our share of JV Inkai production, or that impose discriminatory taxes or currency controls on these transactions. The restructuring of JV Inkai, which took effect January 1, 2018, was undertaken with the objective to better align the interests of Cameco and Kazatomprom and includes a governance framework that provides for protection for us as a minority owner of JV Inkai. We believe the political risk related to our investment in JV Inkai is manageable. For more details on this risk, please our most recent annual information form under the heading political risks. JV Inkai manages risks listed on pages 56 to 58. 70 CAMECO CORPORATION Uranium – Tier-two operations Rabbit Lake Located in Saskatchewan, Canada, our 100% owned Rabbit Lake operation opened in 1975, and has the second largest uranium mill in the world. Due to market conditions, we suspended production at Rabbit Lake during the second quarter of 2016. Location Ownership End product ISO certification Mine type Estimated reserves Estimated resources Mining methods Licensed capacity Licence term Total production: 1975 to 2019 2019 production 2020 production outlook Estimated decommissioning cost1 1 This updated estimate is currently under regulatory review. PRODUCTION SUSPENSION Saskatchewan, Canada 100% Uranium concentrates ISO 14001 certified Underground - 38.6 million pounds (indicated), average grade U3O8: 0.95% 33.7 million pounds (inferred), average grade U3O8: 0.62% Vertical blasthole stoping Mill: maximum 16.9 million pounds per year; currently 11 million Through October, 2023 202.2 million pounds 0 million pounds 0 million pounds $213 million The facilities remained in a state of safe and sustainable care and maintenance throughout 2019. While in standby, we continue to evaluate our options in order to minimize care and maintenance costs. We expect care and maintenance costs to range between $30 million and $35 million annually. MANAGING OUR RISKS We also manage the risks listed on pages 56 to 58. MANAGEMENT’S DISCUSSION AND ANALYSIS 71 US ISR Operations Located in Nebraska and Wyoming in the US, the Crow Butte and Smith Ranch-Highland (including the North Butte satellite) operations began production in 1991 and 1975. Each operation has its own processing facility. Due to market conditions, we curtailed production and deferred all wellfield development at these operations during the second quarter of 2016. Ownership End product ISO certification Estimated reserves Smith Ranch-Highland: North Butte-Brown Ranch: Crow Butte: Estimated resources Smith Ranch-Highland: 100% Uranium concentrates ISO 14001 certified - - - 24.9 million pounds (measured and indicated), average grade U3O8: 0.06% 7.7 million pounds (inferred), average grade U3O8: 0.05% North Butte-Brown Ranch: 9.5 million pounds (measured and indicated), average grade U3O8: 0.07% Crow Butte: 0.4 million pounds (inferred), average grade U3O8: 0.07% 13.9 million pounds (measured and indicated), average grade U3O8: 0.25% 1.8 million pounds (inferred), average grade U3O8: 0.16% In situ recovery (ISR) Smith Ranch-Highland:1 Crow Butte: Wellfields: 3 million pounds per year; processing plants: 5.5 million pounds per year Processing plants and wellfields: 2 million pounds per year Mining methods Licensed capacity Licence term Smith Ranch-Highland: Through September, 2028 Crow Butte: Through October, 2024 Total production: 2002 to 2019 2019 production 2020 production outlook 33.0 million pounds 0 million pounds 0 million pounds Estimated decommissioning cost2 Smith Ranch-Highland: $219 million (US), including North Butte Crow Butte: $52 million (US) 1 Including Highland mill 2This updated estimate is currently under regulatory review. PRODUCTION CURTAILMENT As a result of our 2016 decision, production at the US operations ceased in 2018. We expect ongoing cash and non-cash care and maintenance costs to range between $14 million (US) and $16 million (US) for 2020. FUTURE PRODUCTION We do not expect any production in 2020. IMPAIRMENT In 2017, due to the continued weakening of the uranium market and a reduction in mineral reserves, we recorded a $184 million write down of our US assets. MANAGING OUR RISKS We manage the risks listed on pages 56 to 58. 72 CAMECO CORPORATION Uranium – advanced projects Work on our advanced projects has been scaled back and will continue at a pace aligned with market signals. Millennium Location Ownership End product Potential mine type Estimated resources (our share) BACKGROUND Saskatchewan, Canada 69.9% Uranium concentrates Underground 53.0 million pounds (indicated), average grade U3O8: 2.39% 20.2 million pounds (inferred), average grade U3O8: 3.19% The Millennium deposit was discovered in 2000, and was delineated through geophysical survey and surface drilling work between 2000 and 2013. Yeelirrie Location Ownership End product Potential mine type Estimated resources BACKGROUND Western Australia 100% Uranium concentrates Open pit 128.1 million pounds (measured and indicated), average grade U3O8: 0.15% The deposit was discovered in 1972 and is a near-surface calcrete-style deposit that is amenable to open pit mining techniques. It is one of Australia’s largest undeveloped uranium deposits. Kintyre Location Ownership End product Potential mine type Estimated resources BACKGROUND Western Australia 100% Uranium concentrates Open pit 53.5 million pounds (indicated), average grade U3O8: 0.62% 6.0 million pounds (inferred), average grade U3O8: 0.53% The Kintyre deposit was discovered in 1985 and is amenable to open pit mining techniques. 2019 PROJECT UPDATES We believe that we have some of the best undeveloped uranium projects in the world. However, in the current market environment our primary focus is on preserving the value of our tier-one uranium assets. We continue to await a signal from the market that additional production is needed prior to making any new development decisions. PLANNING FOR THE FUTURE 2020 Planned activity No work is planned at Millennium, Yeelirrie or Kintyre. Further progress towards a development decision is not expected until market conditions improve. MANAGING THE RISKS For all of our advanced projects, we manage the risks listed on pages 56 to 58. MANAGEMENT’S DISCUSSION AND ANALYSIS 73 Uranium – exploration and corporate development Our exploration program is directed at replacing mineral reserves as they are depleted by our production, and is key to sustaining our business. However, during this period of weak uranium prices, and as we have ample idled production capacity, we have reduced our spending to focus only on exploration near our existing operations where we have established infrastructure and capacity to expand. Globally, we have land with exploration and development prospects that are among the best in the world, mainly in Canada, Australia and the US. Our land holdings total about 0.8 million hectares (1.9 million acres). In northern Saskatchewan alone, we have direct interests in about 0.7 million hectares (1.7 million acres) of land covering many of the most prospective exploration areas of the Athabasca Basin. 2019 UPDATE Brownfield exploration Brownfield exploration is uranium exploration near our existing operations, and includes expenses for advanced exploration on the evaluation of projects where uranium mineralization is being defined. In 2019, we spent about $4 million on brownfields and advanced uranium projects in Saskatchewan and Australia. At the US operations we spent $1 million. Regional exploration We spent about $9 million on regional exploration programs (including support costs), primarily in Saskatchewan’s Athabasca Basin. PLANNING FOR THE FUTURE We will continue to focus on our core projects in Saskatchewan under our long-term exploration strategy. Long-term, we look for properties that meet our investment criteria. We may partner with other companies through strategic alliances, equity holdings and traditional joint venture arrangements. Our leadership position and industry expertise in both exploration and corporate social responsibility make us a partner of choice. ACQUISITION PROGRAM Currently, given the conditions in the uranium market, our extensive portfolio of reserves and resources and our belief that we have ample idle production capacity, our focus is on navigating by our investment-grade rating and preserving the value of our tier-one assets. We expect that these assets will allow us to meet rising uranium demand with increased production from our best margin operations, and will help to mitigate risk in the event of prolonged uncertainty. However, we continually evaluate acquisition opportunities within the nuclear fuel cycle that could add to our future supply options, support our sales activities, and complement and enhance our business in the nuclear industry. We will invest when an opportunity is available at the right time and the right price. We strive to pursue corporate development initiatives that will leave us and our shareholders in a fundamentally stronger position. As such, an acquisition opportunity is never assessed in isolation. Acquisitions must compete for investment capital with our own internal growth opportunities. They are subject to our capital allocation process described in the strategy section, starting on page 15. 74 CAMECO CORPORATION Fuel services Refining, conversion and fuel manufacturing We have about 25% of world UF6 primary conversion capacity and are a supplier of natural UO2. Our focus is on cost- competitiveness and operational efficiency. Our fuel services segment is strategically important because it helps support the growth of the uranium segment. Offering a range of products and services to customers helps us broaden our business relationships and expand our uranium market share. Blind River Refinery Licensed Capacity 24.0M kgU as UO3 Licence renewal in Feb, 2022 Blind River is the world’s largest commercial uranium refinery, refining uranium concentrates from mines around the world into UO3. Location Ownership End product ISO certification Licensed capacity Ontario, Canada 100% UO3 ISO 14001 certified 18.0 million kgU as UO3 per year, approved to 24.0 million subject to the completion of certain equipment upgrades (advancement depends on market conditions) Licence term Through February, 2022 Estimated decommissioning cost $48 million MANAGEMENT’S DISCUSSION AND ANALYSIS 75 Port Hope Conversion Services Licensed Capacity 12.5M kgU as UF6 2.8M kgU as UO2 Licence renewal in Feb, 2027 Port Hope is the only uranium conversion facility in Canada and a supplier of UO2 for Canadian-made CANDU reactors. Location Ownership End product ISO certification Licensed capacity Licence term Ontario, Canada 100% UF6, UO2 ISO 14001 certified 12.5 million kgU as UF6 per year 2.8 million kgU as UO2 per year Through February, 2027 Estimated decommissioning cost $129 million Cameco Fuel Manufacturing Inc. (CFM) Licensed Capacity 1.2M kgU as UO2 fuel pellets Licence renewal in Feb, 2022 CFM produces fuel bundles and reactor components for CANDU reactors. Location Ownership End product ISO certification Licensed capacity Licence term Ontario, Canada 100% CANDU fuel bundles and components ISO 9001 certified, ISO 14001 certified 1.2 million kgU as UO2 fuel pellets Through February, 2022 Estimated decommissioning cost $21 million 76 CAMECO CORPORATION 2019 UPDATE Production Fuel services produced 13.3 million kgU, 27% higher than 2018. This was a result of increased demand. Port Hope conversion facility cleanup and modernization (Vision in Motion) Vision in Motion is a unique opportunity that demonstrates our continued commitment to a clean environment. It has been made possible by the opening of a long-term waste management facility by the government of Canada’s Port Hope Area Initiative project. There is a limited opportunity during the life of this project to engage in clean-up and renewal activities that address legacy waste at the Port Hope Conversion facility inherited from historic operations. We made significant progress on the Vision in Motion project in 2019 and will continue with the implementation work in 2020. PLANNING FOR THE FUTURE Production We plan to produce between 13 million and 14 million kgU in 2020. In addition, in conjunction with our initiative intended to provide a greater focus on technology and its applications to improve efficiency and reduce costs across the organization, we will continue to look for opportunities to improve operational effectiveness, including the use of digital and automation technologies. MANAGING OUR RISKS Labour relations A new collective agreement with unionized employees at our conversion facility in Port Hope was reached. The new agreement is for three years and expires on July 1, 2022. We also manage the risks listed on pages 56 to 58. MANAGEMENT’S DISCUSSION AND ANALYSIS 77 Mineral reserves and resources Our mineral reserves and resources are the foundation of our company and fundamental to our success. We have interests in a number of uranium properties. The tables in this section show the estimates of the proven and probable mineral reserves, and measured, indicated, and inferred mineral resources at those properties. However, only three of the properties listed in those tables are material uranium properties for us: McArthur River/Key Lake, Cigar Lake and Inkai. Mineral reserves and resources are all reported as of December 31, 2019. We estimate and disclose mineral reserves and resources in five categories, using the definition standards adopted by the Canadian Institute of Mining, Metallurgy and Petroleum Council, and in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects (NI 43-101), developed by the Canadian Securities Administrators. You can find out more about these categories at www.cim.org. About mineral resources Mineral resources do not have to demonstrate economic viability, but have reasonable prospects for eventual economic extraction. They fall into three categories: measured, indicated and inferred. Our reported mineral resources are exclusive of mineral reserves.  Measured and indicated mineral resources can be estimated with sufficient confidence to allow the appropriate application of technical, economic, marketing, legal, environmental, social and governmental factors to support evaluation of the economic viability of the deposit.  measured resources: we can confirm both geological and grade continuity to support detailed mine planning  indicated resources: we can reasonably assume geological and grade continuity to support mine planning  Inferred mineral resources are estimated using limited geological evidence and sampling information. We do not have enough confidence to evaluate their economic viability in a meaningful way. You should not assume that all or any part of an inferred mineral resource will be upgraded to an indicated or measured mineral resource, but it is reasonably expected that the majority of inferred mineral resources could be upgraded to indicated mineral resources with continued exploration. Our share of uranium in the following mineral resource tables is based on our respective ownership interests. Mineral resources that are not mineral reserves have no demonstrated economic viability. About mineral reserves Mineral reserves are the economically mineable part of measured and/or indicated mineral resources demonstrated by at least a preliminary feasibility study. The reference point at which mineral reserves are defined is the point where the ore is delivered to the processing plant, except for ISR operations where the reference point is where the mineralization occurs under the existing or planned wellfield patterns. Mineral reserves fall into two categories:  proven reserves: the economically mineable part of a measured resource for which at least a preliminary feasibility study demonstrates that, at the time of reporting, economic extraction could be reasonably justified with a high degree of confidence  probable reserves: the economically mineable part of a measured and/or indicated resource for which at least a preliminary feasibility study demonstrates that, at the time of reporting, economic extraction could be reasonably justified with a degree of confidence lower than that applying to proven reserves We use current geological models, an average uranium price of $44 (US) per pound U3O8, and current or projected operating costs and mine plans to report our mineral reserves, allowing for dilution and mining losses. We apply our standard data verification process for every estimate. Our share of uranium in the mineral reserves table below is based on our respective ownership interests. 78 CAMECO CORPORATION Changes this year Our share of proven and probable mineral reserves decreased from 467 million pounds U3O8 at the end of 2018, to 461 million pounds at the end of 2019. The change was primarily the result of:  production at Cigar Lake and Inkai, which removed 13 million pounds from our mineral inventory partially offset by:  a mineral resource and reserve estimate update at Cigar Lake, which added approximately 7 million pounds of proven and probable reserves Our share of measured and indicated mineral resources slightly increased from 423 million pounds U3O8 at the end of 2018, to 424 million pounds at the end of 2019. Our share of inferred mineral resources is 175 million pounds U3O8, a slight decrease of 1 million pounds from the end of 2018. The variance in mineral resources was primarily the result of the Cigar Lake mineral resource estimate update and minor mineral resource estimation work at McArthur River. MANAGEMENT’S DISCUSSION AND ANALYSIS 79 Qualified persons The technical and scientific information discussed in this MD&A for our material properties (McArthur River/Key Lake, Cigar Lake and Inkai) was approved by the following individuals who are qualified persons for the purposes of NI 43-101: MCARTHUR RIVER/KEY LAKE  Greg Murdock, general manager, McArthur River/Key  Scott Bishop, director, technical services, Cameco  Alain D. Renaud, lead geologist, technical services, Lake, Cameco  Alain D. Renaud, lead geologist, technical services, Cameco  Scott Bishop, director, technical services, Cameco Cameco INKAI  Alain D. Renaud, lead geologist, technical services, Cameco CIGAR LAKE  Scott Bishop, director, technical services, Cameco  Lloyd Rowson, general manager, Rabbit Lake/Cigar Lake, Cameco Important information about mineral reserve and resource estimates Although we have carefully prepared and verified the mineral reserve and resource figures in this document, the figures are estimates, based in part on forward-looking information. Estimates are based on knowledge, mining experience, analysis of drilling results, the quality of available data and management’s best judgment. They are, however, imprecise by nature, may change over time, and include many variables and assumptions, including:  geological interpretation  extraction plans  commodity prices and currency exchange rates  recovery rates  operating and capital costs There is no assurance that the indicated levels of uranium will be produced, and we may have to re-estimate our mineral reserves based on actual production experience. Changes in the price of uranium, production costs or recovery rates could make it unprofitable for us to operate or develop a particular site or sites for a period of time. See page 2 for information about forward-looking information. Please see our mineral reserves and resources section of our annual information form for the specific assumptions, parameters and methods used for McArthur River, Inkai and Cigar Lake mineral reserve and resource estimates. Important information for US investors We present information about mineralization, mineral reserves and resources as required by National Instrument 43-101 – Standards of Disclosure for Mineral Projects of the Canadian Securities Administrators (NI 43-101), in accordance with applicable Canadian securities laws. As a foreign private issuer filing reports with the US Securities and Exchange Commission (SEC) under the Multijurisdictional Disclosure System, we are not required to comply with the SEC’s disclosure requirements relating to mining properties. Investors in the United States should be aware that the disclosure requirements of NI 43-101 are different from those under applicable SEC rules, and the information that we present concerning mineralization, mineral reserves and resources may not be comparable to information made public by companies that comply with the SEC’s reporting and disclosure requirements for mining companies. 80 CAMECO CORPORATION Mineral reserves As at December 31, 2019 (100% – only the shaded column shows our share) PROVEN AND PROBABLE (tonnes in thousands; pounds in millions) PROVEN PROBABLE TOTAL MINERAL RESERVES RESERVES MINING METHOD TONNES % U3O8 GRADE CONTENT (LBS U3O8) TONNES GRADE CONTENT (LBS U3O8) % U3O8 GRADE CONTENT CONTENT METALLURGICAL TONNES % U3O8 (LBS U3O8) (LBS U3O8) RECOVERY (%) OUR SHARE UG OP UG 261.9 15.50 61.1 2,034.0 0.52 7.14 89.5 0.7 320.2 538.5 ISR 204,440.9 0.04 160.0 152,994.7 270.8 13.90 83.0 532.7 14.69 172.5 - - 6.04 0.03 - 61.1 71.7 2,572.5 91.8 357,435.6 0.52 6.91 0.03 0.7 391.9 251.8 86.3 0.6 273.6 100.7 206,797.9 - 570.4 153,804.0 - 246.5 360,601.9 - 816.9 461.2 98.5 99 99 85 - PROPERTY Cigar Lake Key Lake McArthur River Inkai Total (UG – underground, OP – open pit, ISR – in situ recovery) Note that the estimates in the above table:   Use a constant dollar average uranium price of approximately $44 (US) per pound U3O8 are based on exchange rates of $1.00 US=$1.25 Cdn and 405 Kazakhstan Tenge to $1.00 Cdn Our estimate of mineral reserves and mineral resources may be positively or negatively affected by the occurrence of one or more of the material risks discussed under the heading Caution about forward-looking information beginning on page 2, as well as certain property-specific risks. See Uranium – Tier-one operations starting on page 60. Metallurgical recovery We report mineral reserves as the quantity of contained ore supporting our mining plans, and provide an estimate of the metallurgical recovery for each uranium property. The estimate of the amount of valuable product that can be physically recovered by the metallurgical extraction process is obtained by multiplying the quantity of contained metal (content) by the planned metallurgical recovery percentage. The content and our share of uranium in the table above are before accounting for estimated metallurgical recovery. MANAGEMENT’S DISCUSSION AND ANALYSIS 81 Mineral resources As at December 31, 2019 (100% – only the shaded columns show our share) MEASURED, INDICATED AND INFERRED (tonnes in thousands; pounds in millions) MEASURED RESOURCES (M) INDICATED RESOURCES (I) OUR SHARE INFERRED RESOURCES OUR SHARE TONNES % U3O8 GRADE CONTENT (LBS U3O8) TOTAL M+I TOTAL M+I GRADE CONTENT CONTENT CONTENT (LBS U3O8) (LBS U3O8) (LBS U3O8) TONNES % U3O8 INFERRED GRADE CONTENT CONTENT (LBS U3O8) % U3O8 (LBS U3O8) TONNES 11.6 8.54 2.2 307.1 14.66 99.3 101.5 50.8 182.1 5.92 PROPERTY Cigar Lake Fox Lake Kintyre - - - - - - - - 3,897.7 0.62 McArthur River 97.8 2.57 5.5 85.0 2.12 Millennium Rabbit Lake Tamarack Yeelirrie - - - - - - - - - 1,442.6 2.39 1,836.5 0.95 183.8 4.42 27,172.9 0.16 95.9 12,178.3 0.12 Crow Butte 1,601.0 0.19 Gas Hills - Peach 687.2 0.11 6.7 1.7 939.3 0.35 3,626.1 0.15 Inkai 36,680.9 0.03 21.3 21,132.2 0.02 - 53.5 9.5 75.9 38.6 17.9 - 386.7 7.99 53.5 6.7 53.0 517.1 0.53 41.0 2.85 412.4 3.19 38.6 2,460.9 0.62 10.3 45.6 1.02 128.1 128.1 - - 14.0 531.4 0.16 13.3 3,307.5 0.08 - 53.5 4.0 75.9 38.6 17.9 32.2 7.3 11.6 10.7 8.4 4.1 4.1 14.0 13.3 32.0 9.5 4.1 4.4 23.8 68.1 6.0 2.6 29.0 33.7 1.0 - 1.8 6.0 11.9 53.3 6.0 1.8 20.2 33.7 0.6 - 1.8 6.0 0.4 0.2 1.1 7.7 0.4 0.2 1.1 7.7 12.8 116,394.6 0.03 75.0 30.0 North Butte - Brown Ranch Ruby Ranch Shirley Basin Smith Ranch - Highland 621.3 0.08 1.1 5,530.3 0.07 - - - 2,215.3 0.08 89.2 0.16 0.3 1,638.2 0.11 9.5 294.5 0.07 4.1 4.4 56.2 0.14 508.0 0.10 3,711.3 0.10 7.9 14,372.3 0.05 17.0 24.9 24.9 6,861.0 0.05 70,673.2 - 142.6 69,384.7 - 384.6 527.2 424.0 131,999.0 - 256.4 174.7 Total Note that mineral resources:   do not include amounts that have been identified as mineral reserves do not have demonstrated economic viability 82 CAMECO CORPORATION Additional information Due to the nature of our business, we are required to make estimates that affect the amount of assets and liabilities, revenues and expenses, commitments and contingencies we report. We base our estimates on our experience, our best judgment, guidelines established by the Canadian Institute of Mining, Metallurgy and Petroleum and on assumptions we believe are reasonable. We believe the following critical accounting estimates reflect the more significant judgments used in the preparation of our financial statements. These estimates affect all of our segments, unless otherwise noted. Decommissioning and reclamation In our uranium and fuel services segments, we are required to estimate the cost of decommissioning and reclamation for each operation, but we normally do not incur these costs until an asset is nearing the end of its useful life. Regulatory requirements and decommissioning methods could change during that time, making our actual costs different from our estimates. A significant change in these costs or in our mineral reserves could have a material impact on our net earnings and financial position. See note 15 to the financial statements. Property, plant and equipment We depreciate property, plant and equipment primarily using the unit-of-production method, where the carrying value is reduced as resources are depleted. A change in our mineral reserves would change our depreciation expenses, and such a change could have a material impact on amounts charged to earnings. We assess the carrying values of property, plant and equipment and goodwill every year, or more often if necessary. If we determine that we cannot recover the carrying value of an asset or goodwill, we write off the unrecoverable amount against current earnings. We base our assessment of recoverability on assumptions and judgments we make about future prices, production costs, our requirements for sustaining capital and our ability to economically recover mineral reserves. A material change in any of these assumptions could have a significant impact on the potential impairment of these assets. In performing impairment assessments of long-lived assets, assets that cannot be assessed individually are grouped together into the smallest group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Management is required to exercise judgment in identifying these cash generating units. Taxes When we are preparing our financial statements, we estimate taxes in each jurisdiction we operate in, taking into consideration different tax rates, non-deductible expenses, valuation of deferred tax assets, changes in tax laws and our expectations for future results. We base our estimates of deferred income taxes on temporary differences between the assets and liabilities we report in our financial statements, and the assets and liabilities determined by the tax laws in the various countries we operate in. We record deferred income taxes in our financial statements based on our estimated future cash flows, which includes estimates of non-deductible expenses, future market conditions, production levels and intercompany sales. If these estimates are not accurate, there could be a material impact on our net earnings and financial position. Controls and procedures We have evaluated the effectiveness of our disclosure controls and procedures and internal control over financial reporting as of December 31, 2019, as required by the rules of the US Securities and Exchange Commission and the Canadian Securities Administrators. MANAGEMENT’S DISCUSSION AND ANALYSIS 83 Management, including our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), supervised and participated in the evaluation, and concluded that our disclosure controls and procedures are effective to provide a reasonable level of assurance that the information we are required to disclose in reports we file or submit under securities laws is recorded, processed, summarized and reported accurately, and within the time periods specified. It should be noted that, while the CEO and CFO believe that our disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect the disclosure controls and procedures or internal control over financial reporting to be capable of preventing all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Management, including our CEO and our CFO, is responsible for establishing and maintaining internal control over financial reporting and conducted an evaluation of the effectiveness of our internal control over financial reporting based on the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2019. During the first quarter of 2019, we implemented a new marketing system resulting in a material change in internal controls over financial reporting. The new system provides for contract administration, including the processing and recording of delivery obligations as well as revenue forecasting and reporting. The implementation process included extensive involvement by key end users and management and incorporated user acceptance testing, change management procedures, data migration strategies and a parallel run period where users validated the new system. Post-implementation reviews and testing were conducted by management to ensure that internal controls surrounding the implementation process were properly designed to prevent material financial statement errors. There have been no other changes in our internal control over financial reporting during the year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. New standards adopted On January 1, 2019, we adopted the following new standards as issued by the International Accounting Standards Board (IASB). IFRS 16, Leases, eliminates the dual model for lessees, which distinguishes between on-balance sheet finance leases and off- balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. We adopted IFRS 16 using the modified retrospective approach which does not require comparative information to be restated. IFRIC 23, Uncertainty over Income Tax Treatments provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The adoption of the standard did not have a material impact on the financial statements. 84 CAMECO CORPORATION Cameco Corporation 2019 consolidated financial statements February 6, 2020 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 85   Report of management’s accountability The accompanying consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Management is responsible for ensuring that these statements, which include amounts based upon estimates and judgments, are consistent with other information and operating data contained in the annual financial review and reflect the corporation's business transactions and financial position. Management is also responsible for the information disclosed in the management’s discussion and analysis including responsibility for the existence of appropriate information systems, procedures and controls to ensure that the information used internally by management and disclosed externally is complete and reliable in all material respects. In addition, management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. The internal control system includes an internal audit function and a code of conduct and ethics, which is communicated to all levels in the organization and requires all employees to maintain high standards in their conduct of the Company's affairs. Such systems are designed to provide reasonable assurance that the financial information is relevant, reliable and accurate and that the Company’s assets are appropriately accounted for and adequately safeguarded. Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the criteria established in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s system of internal control over financial reporting was effective as at December 31, 2019. KPMG LLP has audited the consolidated financial statements in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). The board of directors annually appoints an audit and finance committee comprised of directors who are not employees of the corporation. This committee meets regularly with management, the internal auditor and the shareholders' auditors to review significant accounting, reporting and internal control matters. Both the internal and shareholders' auditors have unrestricted access to the audit and finance committee. The audit and finance committee reviews the consolidated financial statements, the report of the shareholders' auditors, and management’s discussion and analysis and submits its report to the board of directors for formal approval. Original signed by Tim S. Gitzel President and Chief Executive Officer February 6, 2020 Original signed by Grant E. Isaac Senior Vice-President and Chief Financial Officer February 6, 2020 86 CAMECO CORPORATION   Report of independent registered public accounting firm To the Shareholders and Board of Directors of Cameco Corporation: Opinion on the consolidated financial statements We have audited the accompanying consolidated statements of financial position of Cameco Corporation (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of earnings, comprehensive income, changes in equity, and cash flows for each of the years then ended, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 6, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit and finance committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate. Assessment of recoverability of deferred tax assets As discussed in note 21 to the consolidated financial statements, as at December 31, 2019 the Company recorded deferred tax assets of $956,376,000 relating to tax losses incurred in certain jurisdictions and temporary differences. The assessment of the recoverability of these deferred tax assets is dependent on the generation of future taxable income. Significant judgment and estimation is required to assess the sufficiency of future taxable income to utilize the recognized deferred tax assets. The Company uses projections of future taxable income in order to assess the probability that the deferred tax assets will be realized. Predicting future taxable income is dependent on assumptions and judgments regarding future market conditions, production rates, and intercompany sales. The Company determined that the realization of these deferred tax assets is probable. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 87   We identified the assessment of the recoverability of deferred tax assets as a critical audit matter due to the high degree of judgment required in assessing the significant assumptions and judgments that are reflected in the projections of future taxable income. The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s assessment of the recoverability of the deferred tax asset, including controls over the assumptions and judgments used in the projections of future taxable income. To assess the Company’s ability to estimate future taxable income, we compared the Company’s previous forecasts to actual results. To assess the Company’s estimate of future taxable income, we evaluated key assumptions in the model by comparing (1) forecast uranium sales prices to published views of independent market participants, (2) foreign exchange rates to external analyst estimates, (3) forecast sales to historical trends, board approved budgets and committed sales volumes, including to a sample of committed sales contracts, and (4) forecast production volumes to historical data, board approved budgets and life of mine plans. We performed a sensitivity analysis over the key assumptions to assess their impact on the Company’s determination that the deferred tax assets were realizable. We involved income tax professionals with specialized skills and knowledge in assessing the Company’s application of the tax regulations in relevant jurisdictions. Original signed by KPMG LLP Chartered Professional Accountants We have served as the Company’s auditor since 1988. Saskatoon, Canada February 6, 2020 88 CAMECO CORPORATION   Consolidated statements of earnings For the years ended December 31 ($Cdn thousands, except per share amounts) Revenue from products and services Cost of products and services sold Depreciation and amortization Cost of sales Gross profit Administration Exploration Research and development Other operating expense Loss on disposal of assets Earnings from operations Finance costs Gain (loss) on derivatives Finance income Share of earnings from equity-accounted investee Other income Earnings before income taxes Income tax expense (recovery) Net earnings Net earnings (loss) attributable to: Equity holders Non-controlling interest Net earnings Earnings per common share attributable to equity holders: Basic Diluted See accompanying notes to consolidated financial statements. Note 2019 2018 17 $ 1,862,925 $ 2,091,661 1,345,551 275,749 1,467,940 327,973 1,621,300 1,795,913 15 19 26 11 20 21 241,625 124,869 13,686 6,058 2,732 1,869 92,411 (98,622) 32,269 29,760 45,360 33,840 135,018 61,077 295,748 141,552 20,283 1,757 59,616 2,303 70,237 (111,779) (81,081) 22,071 32,321 108,160 39,929 (126,306) $ 73,941 $ 166,235 74,000 (59) 166,323 (88) $ 73,941 $ 166,235 22 22 $ $ 0.19 $ 0.19 $ 0.42 0.42 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 89   Consolidated statements of comprehensive income For the years ended December 31 ($Cdn thousands) Net earnings Other comprehensive income (loss), net of taxes: Items that will not be reclassified to net earnings: Remeasurements of defined benefit liability1 Equity investments at FVOCI - net change in fair value2 Equity investments at FVOCI - net change in fair value - equity-accounted investee Items that are or may be reclassified to net earnings: Exchange differences on translation of foreign operations Reclassification of foreign currency translation reserve to net earnings Other comprehensive loss, net of taxes Total comprehensive income Other comprehensive income (loss) attributable to: Equity holders Non-controlling interest Other comprehensive loss for the year Total comprehensive income (loss) attributable to: Equity holders Non-controlling interest Total comprehensive income for the year 1 Net of tax (2019 - $2,301; 2018 - $(2,200)) 2 Net of tax (2019 - $453; 2018 - $1,349) See accompanying notes to consolidated financial statements. Note 2019 2018 $ 73,941 $ 166,235 25 (8,112) (4,044) 6,226 (9,728) (709) - (27,888) (1,875) 20 - (5,450) (40,753) (10,827) 33,188 $ 155,408 (40,740) $ (13) (10,854) 27 (40,753) $ (10,827) 33,260 $ (72) 155,469 (61) 33,188 $ 155,408 $ $ $ $ $ 90 CAMECO CORPORATION   Consolidated statements of financial position As at December 31 ($Cdn thousands) Assets Current assets Cash and cash equivalents Short-term investments Accounts receivable Current tax assets Inventories Supplies and prepaid expenses Current portion of long-term receivables, investments and other Total current assets Property, plant and equipment Intangible assets Long-term receivables, investments and other Investment in equity-accounted investee Deferred tax assets Total non-current assets Total assets Liabilities and shareholders' equity Current liabilities Accounts payable and accrued liabilities Current tax liabilities Current portion of long-term debt Current portion of other liabilities Current portion of provisions Total current liabilities Long-term debt Other liabilities Provisions Total non-current liabilities Shareholders' equity Share capital Contributed surplus Retained earnings Other components of equity Total shareholders' equity attributable to equity holders Non-controlling interest Total shareholders' equity Note 2019 2018 6 7 10 8 9 10 11 21 $ 1,062,431 $ - 328,044 3,667 320,770 85,502 6,564 1,806,978 711,528 391,025 402,350 6,996 467,795 89,206 13,826 2,082,726 3,720,672 60,410 630,131 252,681 956,376 5,620,270 3,881,926 65,602 751,868 230,502 1,006,012 5,935,910 $ 7,427,248 $ 8,018,636 12 $ 13 14 15 13 14 15 181,799 $ 6,290 - 33,073 56,248 277,410 996,718 153,927 1,004,230 2,154,875 1,862,749 234,681 2,825,596 71,699 4,994,725 238 4,994,963 224,754 19,633 499,599 79,573 52,316 875,875 996,072 142,061 1,011,036 2,149,169 1,862,652 234,982 2,791,321 104,327 4,993,282 310 4,993,592 Total liabilities and shareholders' equity $ 7,427,248 $ 8,018,636 Commitments and contingencies [notes 8, 15, 21] See accompanying notes to consolidated financial statements. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 91   Consolidated statements of changes in equity ($Cdn thousands) capital surplus earnings translation at FVOCI Total interest Attributable to equity holders Foreign Equity Share Contributed Retained currency investments Non- controlling Total equity Balance at January 1, 2019 $ 1,862,652 $ 234,982 $ 2,791,321 $ 104,989 $ (662) $ 4,993,282 $ 310 $ 4,993,592 Net earnings (loss) Other comprehensive loss Total comprehensive income (loss) Share-based compensation Stock options exercised Restricted and performance share units released Modification of share-based arrangement [note 24] Dividends - - - - 97 - - - - - - 14,342 (16) (6,258) (8,369) - 74,000 (8,112) - (27,875) - (4,753) 74,000 (40,740) 65,888 (27,875) (4,753) - - - - (31,613) - - - - - - - - - - 33,260 14,342 81 (6,258) (8,369) (31,613) (59) (13) (72) - - - - - 73,941 (40,753) 33,188 14,342 81 (6,258) (8,369) (31,613) Balance at December 31, 2019 $ 1,862,749 $ 234,681 $ 2,825,596 $ 77,114 $ (5,415) $ 4,994,725 $ 238 $ 4,994,963 Balance at January 1, 2018 $ 1,862,652 $ 224,812 $ 2,650,417 $ 112,341 $ 9,066 $ 4,859,288 $ 371 $ 4,859,659 Net earnings (loss) Other comprehensive income (loss) Total comprehensive income (loss) Share-based compensation Restricted and performance share units released Dividends - - - - - - - - - 166,323 - - 166,323 (88) 166,235 6,226 (7,352) (9,728) (10,854) 27 (10,827) 172,549 (7,352) (9,728) 155,469 (61) 155,408 14,976 - (4,806) - - (31,645) - - - - - - 14,976 (4,806) (31,645) - - - 14,976 (4,806) (31,645) Balance at December 31, 2018 $ 1,862,652 $ 234,982 $ 2,791,321 $ 104,989 $ (662) $ 4,993,282 $ 310 $ 4,993,592 See accompanying notes to consolidated financial statements. 92 CAMECO CORPORATION Consolidated statements of cash flows For the years ended December 31 ($Cdn thousands) Operating activities Net earnings Adjustments for: Depreciation and amortization Deferred charges Unrealized loss (gain) on derivatives Share-based compensation Loss on disposal of assets Finance costs Finance income Share of earnings from equity-accounted investee Other expense (income) Other operating expense Income tax expense (recovery) Interest received Income taxes paid Dividends from equity-accounted investee Other operating items Net cash provided by operations Investing activities Additions to property, plant and equipment Decrease (increase) in short-term investments Decrease in long-term receivables, investments and other Proceeds from sale of property, plant and equipment Net cash provided by (used in) investing Financing activities Decrease in long-term debt Interest paid Proceeds from issuance of shares, stock option plan Lease principal payments Dividends paid Net cash used in financing Increase in cash and cash equivalents, during the year Exchange rate changes on foreign currency cash balances Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Cash and cash equivalents is comprised of: Cash Cash equivalents Cash and cash equivalents See accompanying notes to consolidated financial statements. Note 2019 2018 $ 73,941 $ 166,235 24 19 11 20 15 21 31 23 275,749 (13,013) (55,048) 14,342 1,869 98,622 (29,760) (45,360) 18,961 2,732 61,077 30,944 (18,589) 14,079 96,478 527,024 (75,211) 391,025 120,913 679 437,406 (500,000) (72,484) 81 (2,904) (31,613) (606,920) 357,510 (6,607) 711,528 $ 1,062,431 $ 327,973 10,683 74,295 14,976 2,303 111,779 (22,071) (32,321) (100,310) 59,616 (126,306) 18,311 (20,709) - 183,062 667,516 (55,362) (391,025) 33,508 1,249 (411,630) - (72,976) - - (71,224) (144,200) 111,686 8,222 591,620 711,528 $ 427,986 $ 634,445 $ 1,062,431 $ 317,296 394,232 711,528 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 93 Notes to consolidated financial statements For the years ended December 31, 2019 and 2018 1. Cameco Corporation Cameco Corporation is incorporated under the Canada Business Corporations Act. The address of its registered office is 2121 11th Street West, Saskatoon, Saskatchewan, S7M 1J3. The consolidated financial statements as at and for the year ended December 31, 2019 comprise Cameco Corporation and its subsidiaries (collectively, the Company or Cameco) and the Company’s interests in associates and joint arrangements. Cameco is one of the world’s largest providers of the uranium needed to generate clean, reliable baseload electricity around the globe. The Company currently has one mine operating in northern Saskatchewan, Cigar Lake, as well as a 40% interest in Joint Venture Inkai LLP (JV Inkai), a joint arrangement with Joint Stock Company National Atomic Company Kazatomprom (Kazatomprom), located in Kazakhstan. JV Inkai is accounted for on an equity basis (see note 11). It also has two operations in Northern Saskatchewan which are in care and maintenance. Rabbit Lake was placed in care and maintenance in the second quarter of 2016 while operations at McArthur River/Key Lake were suspended indefinitely in the third quarter of 2018 (see note 28 for financial statement impact). Cameco’s operations in the United States, Crow Butte and Smith Ranch-Highland, are also not currently producing as the decision was made in 2016 to curtail production and defer all wellfield development. The Company is also a leading provider of nuclear fuel processing services, supplying much of the world’s reactor fleet with the fuel to generate one of the cleanest sources of electricity available today. It operates the world’s largest commercial refinery in Blind River, Ontario, controls about 25% of the world UF6 primary conversion capacity in Port Hope, Ontario and is a leading manufacturer of fuel assemblies and reactor components for CANDU reactors at facilities in Port Hope and Cobourg, Ontario. 2. Significant accounting policies These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). These consolidated financial statements were authorized for issuance by the Company’s board of directors on February 6, 2020. These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency. All financial information is presented in Canadian dollars, unless otherwise noted. Amounts presented in tabular format have been rounded to the nearest thousand except per share amounts and where otherwise noted. The consolidated financial statements have been prepared on the historical cost basis except for the following material items which are measured on an alternative basis at each reporting date: 94 CAMECO CORPORATION Derivative financial instruments Equity investments Liabilities for cash-settled share-based payment arrangements Net defined benefit liability Fair value through profit or loss (FVTPL) Fair value through other comprehensive income (FVOCI) FVTPL Fair value of plan assets less the present value of the defined benefit obligation The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenue and expenses. Actual results may vary from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 5. This summary of significant accounting policies is a description of the accounting methods and practices that have been used in the preparation of these consolidated financial statements and is presented to assist the reader in interpreting the statements contained herein. These accounting policies have been applied consistently to all entities within the consolidated group. i. Business combinations The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Company. The Company measures goodwill at the acquisition date as the fair value of the consideration transferred, including the recognized amount of any non-controlling interests in the acquiree, less the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in earnings. In a business combination achieved in stages, the acquisition date fair value of the Company’s previously held equity interest in the acquiree is also considered in computing goodwill. Consideration transferred includes the fair values of the assets transferred, liabilities incurred and equity interests issued by the Company. Consideration also includes the fair value of any contingent consideration and share-based compensation awards that are replaced mandatorily in a business combination. The Company elects on a transaction-by-transaction basis whether to measure any non-controlling interest at fair value, or at their proportionate share of the recognized amount of the identifiable net assets of the acquiree, at the acquisition date. Acquisition-related costs are expensed as incurred, except for those costs related to the issue of debt or equity instruments. ii. Subsidiaries The consolidated financial statements include the accounts of Cameco and its subsidiaries. Subsidiaries are entities over which the Company has control. Subsidiaries are fully consolidated from the date on which control is acquired by the Company and are deconsolidated from the date that control ceases. iii. Investments in equity-accounted investees Cameco’s investments in equity-accounted investees include investments in associates. Associates are those entities over which the Company has significant influence, but not control or joint control, over the financial and operating policies. Significant influence is presumed to exist when the Company holds between 20% and 50% of the voting power of another entity, but can also arise where the Company holds less than 20% if it has the power to be actively involved and influential in policy decisions affecting the entity. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 95 Investments in associates are accounted for using the equity method. The equity method involves the recording of the initial investment at cost and the subsequent adjusting of the carrying value of the investment for Cameco’s proportionate share of the earnings or loss and any other changes in the associates’ net assets, such as dividends. The cost of the investment includes transaction costs. Adjustments are made to align the accounting policies of the associate with those of the Company before applying the equity method. When the Company’s share of losses exceeds its interest in an equity-accounted investee, the carrying amount of that interest is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of the associate. If the associate subsequently reports profits, Cameco resumes recognizing its share of those profits only after its share of the profits equals the share of losses not recognized. iv. Joint arrangements A joint arrangement can take the form of a joint operation or joint venture. All joint arrangements involve a contractual arrangement that establishes joint control. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint operation may or may not be structured through a separate vehicle. These arrangements involve joint control of one or more of the assets acquired or contributed for the purpose of the joint operation. The consolidated financial statements of the Company include its share of the assets in such joint operations, together with its share of the liabilities, revenues and expenses arising jointly or otherwise from those operations. All such amounts are measured in accordance with the terms of each arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venture is always structured through a separate vehicle. It operates in the same way as other entities, controlling the assets of the joint venture, earning its own revenue and incurring its own liabilities and expenses. Interests in joint ventures are accounted for using the equity method of accounting, whereby the Company’s proportionate interest in the assets, liabilities, revenues and expenses of jointly controlled entities are recognized on a single line in the consolidated statements of financial position and consolidated statements of earnings. The share of joint ventures results is recognized in the Company’s consolidated financial statements from the date that joint control commences until the date at which it ceases. v. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Company’s interest in the investee. Unrealized losses are eliminated in the same manner as unrealized gains, but only to the extent that there is no evidence of impairment. Items included in the financial statements of each of Cameco’s subsidiaries, associates and joint arrangements are measured using their functional currency, which is the currency of the primary economic environment in which the entity operates. The consolidated financial statements are presented in Canadian dollars, which is Cameco’s functional and presentation currency. 96 CAMECO CORPORATION i. Foreign currency transactions Foreign currency transactions are translated into the respective functional currency of the Company and its entities using the exchange rates prevailing at the dates of the transactions. At the reporting date, monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. The applicable exchange gains and losses arising on these transactions are reflected in earnings with the exception of foreign exchange gains or losses on provisions for decommissioning and reclamation activities that are in a foreign currency, which are capitalized in property, plant and equipment. ii. Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Canadian dollars at exchange rates at the reporting dates. The revenues and expenses of foreign operations are translated to Canadian dollars at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income. When a foreign operation is disposed of, in whole, the relevant amount in the foreign currency translation account is transferred to earnings as part of the gain or loss on disposal. When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of the net investment in a foreign operation, and are recognized in other comprehensive income and presented within equity in the foreign currency translation account. Cash and cash equivalents consists of balances with financial institutions and investments in money market instruments, which have a term to maturity of three months or less at the time of purchase and are classified as at amortized cost. F. Short-term investments Short-term investments are comprised of money market instruments with terms to maturity between three and 12 months and are classified as at amortized cost. Inventories of broken ore, uranium concentrates, and refined and converted products are measured at the lower of cost and net realizable value. Cost includes direct materials, direct labour, operational overhead expenses and depreciation. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Consumable supplies and spares are valued at the lower of cost or replacement value. i. Buildings, plant and equipment and other Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment charges. The cost of self-constructed assets includes the cost of materials and direct labour, borrowing costs and any other costs directly attributable to bringing the assets to the location and condition necessary for them to be capable of operating in the manner intended by management, including the initial estimate of the cost of dismantling and removing the items and restoring the site on which they are located. When components of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment and depreciated separately. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 97 Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognized in earnings. ii. Mineral properties and mine development costs The decision to develop a mine property within a project area is based on an assessment of the commercial viability of the property, the availability of financing and the existence of markets for the product. Once the decision to proceed to development is made, development and other expenditures relating to the project area are deferred as part of assets under construction and disclosed as a component of property, plant and equipment with the intention that these will be depreciated by charges against earnings from future mining operations. No depreciation is charged against the property until the production stage commences. After a mine property has been brought into the production stage, costs of any additional work on that property are expensed as incurred, except for large development programs, which will be deferred and depreciated over the remaining life of the related assets. The production stage is reached when a mine property is in the condition necessary for it to be capable of operating in the manner intended by management. The criteria used to assess the start date of the production stage are determined based on the nature of each mine construction project, including the complexity of a mine site. A range of factors is considered when determining whether the production stage has been reached, which includes, but is not limited to, the demonstration of sustainable production at or near the level intended (such as the demonstration of continuous throughput levels at or above a target percentage of the design capacity). iii. Depreciation Depreciation is calculated over the depreciable amount, which is the cost of the asset less its residual value. Assets which are unrelated to production are depreciated according to the straight-line method based on estimated useful lives as follows: Land Buildings Plant and equipment Furniture and fixtures Other Not depreciated 15 - 25 years 3 - 15 years 3 - 10 years 3 - 5 years Mining properties and certain mining and conversion assets for which the economic benefits from the asset are consumed in a pattern which is linked to the production level are depreciated according to the unit-of-production method. For conversion assets, the amount of depreciation is measured by the portion of the facilities' total estimated lifetime production that is produced in that period. For mining assets and properties, the amount of depreciation or depletion is measured by the portion of the mines' proven and probable mineral reserves recovered during the period. Depreciation methods, useful lives and residual values are reviewed at each reporting period and are adjusted if appropriate. iv. Borrowing costs Borrowing costs on funds directly attributable to finance the acquisition, production or construction of a qualifying asset are capitalized until such time as substantially all the activities necessary to prepare the qualifying asset for its intended use are complete. A qualifying asset is one that takes a substantial period of time to prepare for its intended use. Capitalization is discontinued when the asset enters the production stage or development ceases. Where the funds used to finance a project form part of general borrowings, interest is capitalized based on the weighted average interest rate applicable to the general borrowings outstanding during the period of construction. v. Repairs and maintenance The cost of replacing a component of property, plant and equipment is capitalized if it is probable that future economic benefits embodied within the component will flow to the Company. The carrying amount of the replaced component is derecognized. Costs of routine maintenance and repair are charged to products and services sold. 98 CAMECO CORPORATION Goodwill arising from the acquisition of subsidiaries is initially recognized at cost, measured as the excess of the fair value of the consideration paid over the fair value of the identifiable net assets acquired. At the date of acquisition, goodwill is allocated to the cash generating unit (CGU), or group of CGUs that is expected to receive the economic benefits of the business combination. Goodwill is subsequently measured at cost, less accumulated impairment losses. Intangible assets acquired individually or as part of a group of assets are initially recognized at cost and measured subsequently at cost less accumulated amortization and impairment losses. Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. The cost of a group of intangible assets acquired in a transaction, including those acquired in a business combination that meet the specified criteria for recognition apart from goodwill, is allocated to the individual assets acquired based on their relative fair values. Intangible assets that have finite useful lives are amortized over their estimated remaining useful lives. Amortization methods and useful lives are reviewed at each reporting period and are adjusted if appropriate. Commencing in 2019 (see note 8), Cameco recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which is the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred, less any lease incentives received, and subsequently at cost less any accumulated depreciation and impairment losses. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the cost of the right-of-use asset reflects that the Company will exercise a purchase option, in which case the right-of-use asset will be depreciated on the same basis as that of property, plant and equipment. The lease liability is measured at amortized cost using the effective interest method. It is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease, or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, Cameco uses its incremental borrowing rate as the discount rate. Current borrowing rates available for classes of leased assets are compared with the rates of Cameco’s existing debt facilities to ensure that use of the Company’s incremental borrowing rate is reasonable. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised. Cameco uses judgement in determining the lease term for some lease contracts that include renewal options. The assessment of whether the Company is reasonably certain to exercise such options impacts the lease term, which affects the amount of lease liabilities and right-of-use assets recognized. The Company has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short- term leases that have a lease term of 12 months or less. The lease payments associated with these leases are recognized as an expense on a straight-line basis over the lease term. Finance income comprises interest income on funds invested. Interest income and interest expense are recognized in earnings as they accrue, using the effective interest method. Finance costs comprise interest and fees on borrowings, unwinding of the discount on provisions and costs incurred on redemption of debentures. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are expensed in the period incurred. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 99 Expenditures on research are charged against earnings when incurred. Development costs are recognized as assets when the Company can demonstrate technical feasibility and that the asset will generate probable future economic benefits. i. Non-derivative financial assets Cameco recognizes loss allowances for expected credit losses (ECLs) on financial assets measured at amortized cost, debt investments measured at FVOCI, and contract assets. It measures loss allowances at an amount equal to lifetime ECLs, except for debt securities that are determined to have low credit risk at the reporting date and other debt securities, loans advanced and bank balances for which credit risk has not increased significantly since initial recognition. For these, loss allowances are measured equal to 12-month ECLs. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument while 12- month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk. ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive. ECLs are discounted at the effective interest rate of the financial asset. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment and including forward-looking information. The Company considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations in full, without recourse by Cameco to actions such as realizing security (if any is held). The Company considers a debt security to have low credit risk when it is at least an A (low) DBRS or A- S&P rating. Financial assets carried at amortized cost and debt securities at FVOCI are assessed at each reporting date to determine whether they are ‘credit-impaired’. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental effect on the estimated future cash flows of the financial asset have occurred. Evidence can include significant financial difficulty of the borrower or issuer, a breach of contract, restructuring of an amount due to the Company on terms that the Company would not consider otherwise, indications that a debtor or issuer will enter bankruptcy or other financial reorganization, or the disappearance of an active market for a security. Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is charged to earnings and is recognized in OCI. The gross carrying amount of a financial asset is written off when the Company has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. ii. Non-financial assets The carrying amounts of Cameco’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill is tested annually for impairment. 100 CAMECO CORPORATION For impairment testing, assets are grouped together into CGUs which are the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. Fair value is determined as the amount that would be obtained from the sale of the asset or CGU in an arm’s-length transaction between knowledgeable and willing parties. For exploration properties, fair value is based on the implied fair value of the resources in place using comparable market transaction metrics. An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its recoverable amount. Impairment losses are recognized in earnings. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. Impairment losses recognized in prior periods are assessed at each reporting date whenever events or changes in circumstances indicate that the impairment may have reversed. If the impairment has reversed, the carrying amount of the asset is increased to its recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. A reversal of an impairment loss is recognized immediately in earnings. An impairment loss in respect of goodwill is not reversed. Exploration and evaluation expenditures are those expenditures incurred by the Company in connection with the exploration for and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. These expenditures include researching and analyzing existing exploration data, conducting geological studies, exploratory drilling and sampling, and compiling prefeasibility and feasibility studies. Exploration and evaluation expenditures are charged against earnings as incurred, except when there is a high degree of confidence in the viability of the project and it is probable that these costs will be recovered through future development and exploitation. The technical feasibility and commercial viability of extracting a resource is considered to be determinable based on several factors, including the existence of proven and probable reserves and the demonstration that future economic benefits are probable. When an area is determined to be technically feasible and commercially viable, the exploration and evaluation assets attributable to that area are first tested for impairment and then transferred to property, plant and equipment. Exploration and evaluation costs that have been acquired in a business combination or asset acquisition are capitalized under the scope of IFRS 6, Exploration for and Evaluation of Mineral Resources, and are reported as part of property, plant and equipment. A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the risk-adjusted expected future cash flows at a pre-tax risk-free rate that reflects current market assessments of the time value of money. The unwinding of the discount is recognized as a finance cost. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 101 i. Environmental restoration The mining, extraction and processing activities of the Company normally give rise to obligations for site closure and environmental restoration. Closure and restoration can include facility decommissioning and dismantling, removal or treatment of waste materials, as well as site and land restoration. The Company provides for the closure, reclamation and decommissioning of its operating sites in the financial period when the related environmental disturbance occurs, based on the estimated future costs using information available at the reporting date. Costs included in the provision comprise all closure and restoration activity expected to occur gradually over the life of the operation and at the time of closure. Routine operating costs that may impact the ultimate closure and restoration activities, such as waste material handling conducted as a normal part of a mining or production process, are not included in the provision. The timing of the actual closure and restoration expenditure is dependent upon a number of factors such as the life and nature of the asset, the operating licence conditions and the environment in which the mine operates. Closure and restoration provisions are measured at the expected value of future cash flows, discounted to their present value using a current pre-tax risk-free rate. Significant judgments and estimates are involved in deriving the expectations of future activities and the amount and timing of the associated cash flows. At the time a provision is initially recognized, to the extent that it is probable that future economic benefits associated with the reclamation, decommissioning and restoration expenditure will flow to the Company, the corresponding cost is capitalized as an asset. The capitalized cost of closure and restoration activities is recognized in property, plant and equipment and depreciated on a unit-of-production basis. The value of the provision is gradually increased over time as the effect of discounting unwinds. The unwinding of the discount is an expense recognized in finance costs. Closure and rehabilitation provisions are also adjusted for changes in estimates. The provision is reviewed at each reporting date for changes to obligations, legislation or discount rates that effect change in cost estimates or life of operations. The cost of the related asset is adjusted for changes in the provision resulting from changes in estimated cash flows or discount rates, and the adjusted cost of the asset is depreciated prospectively. ii. Waste disposal The refining, conversion and manufacturing processes generate certain uranium-contaminated waste. The Company has established strict procedures to ensure this waste is disposed of safely. A provision for waste disposal costs in respect of these materials is recognized when they are generated. Costs associated with the disposal, the timing of cash flows and discount rates are estimated both at initial recognition and subsequent measurement. i. Pension obligations The Company accrues its obligations under employee benefit plans. The Company has both defined benefit and defined contribution plans. A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan other than a defined contribution plan. Typically, defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. 102 CAMECO CORPORATION The liability recognized in the consolidated statements of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the reporting date less the fair value of plan assets. The defined benefit obligation is calculated annually, by qualified independent actuaries using the projected unit credit method prorated on service and management's best estimate of expected plan investment performance, salary escalation, retirement ages of employees and expected health care costs. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. The Company recognizes all actuarial gains and losses arising from defined benefit plans in other comprehensive income, and reports them in retained earnings. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized immediately in earnings. For defined contribution plans, the contributions are recognized as employee benefit expense in earnings in the periods during which services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available. ii. Other post-retirement benefit plans The Company provides certain post-retirement health care benefits to its retirees. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as used for defined benefit pension plans. Actuarial gains and losses are recognized in other comprehensive income in the period in which they arise. These obligations are valued annually by independent qualified actuaries. iii. Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be measured reliably. iv. Termination benefits Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or whenever an employee accepts an entity’s offer of benefits in exchange for termination of employment. Cameco recognizes termination benefits as an expense at the earlier of when the Company can no longer withdraw the offer of those benefits and when the Company recognizes costs for a restructuring. If benefits are payable more than 12 months after the reporting period, they are discounted to their present value. v. Share-based compensation For equity-settled plans, the grant date fair value of share-based compensation awards granted to employees is recognized as an employee benefit expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For cash-settled plans, the fair value of the amount payable to employees is recognized as an expense, with a corresponding increase in liabilities, over the period that the employees unconditionally become entitled to payment. The liability is re- measured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognized as employee benefit expense in earnings. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 103 When the terms and conditions of equity-settled plans at the time they were granted are subsequently modified, the fair value of the share-based payment under the original terms and conditions and under the modified terms and conditions are both determined at the date of the modification. Any excess of the modified fair value over the original fair value is recognised over the remaining vesting period in addition to the grant date fair value of the original share-based payment. The share-based payment expense is not adjusted if the modified fair value is less than the original fair value. Cameco’s contributions under the employee share ownership plan are expensed during the year of contribution. Shares purchased with Company contributions and with dividends paid on such shares become unrestricted on January 1 of the second plan year following the date on which such shares were purchased. Cameco supplies uranium concentrates, uranium conversion services, fabrication services and other services. Revenue is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it transfers control, as described below, over a good or service to a customer. Customers do not have the right to return products. Cameco’s sales arrangements with its customers are pursuant to enforceable contracts that indicate the nature and timing of satisfaction of performance obligations, including significant payment terms, where payment is usually due in 30 days. Each delivery is considered a separate performance obligation under the contract. Uranium supply In a uranium supply arrangement, Cameco is contractually obligated to provide uranium concentrates to its customers. Cameco-owned uranium may be physically delivered to either the customer or to conversion facilities (Converters). For deliveries to customers, terms in the sales contract specify the location of delivery. Revenue is recognized when the uranium has been delivered and accepted by the customer at that location. When uranium is delivered to Converters, the Converter will credit Cameco’s account for the volume of accepted uranium. Based on delivery terms in the sales contract with its customer, Cameco instructs the Converter to transfer title of a contractually specified quantity of uranium to the customer’s account at the Converter’s facility. At this point, control has been transferred and Cameco recognizes revenue for the uranium supply. Toll conversion services In a toll conversion arrangement, Cameco is contractually obligated to convert customer-owned uranium to a chemical state suitable for enrichment. Based on delivery terms in a sales contract with its customer, Cameco either (i) physically delivers converted uranium to enrichment facilities (Enrichers) where it instructs the Enricher to transfer title of a contractually specified quantity of converted uranium to the customer’s account at the Enricher’s facility, or (ii) transfers title of a contractually specified quantity of converted uranium to either an Enricher’s account or the customer’s account at Cameco’s Port Hope conversion facility. At this point, the customer obtains control and Cameco recognizes revenue for the toll conversion services. Conversion supply A conversion supply arrangement is a combination of uranium supply and toll conversion services. Cameco is contractually obligated to provide converted uranium to its customers. Based on delivery terms in the sales contract, Cameco either (i) physically delivers converted uranium to the Enricher where it instructs the Enricher to transfer title of a contractually specified quantity of converted uranium to the customer’s account at the Enricher’s facility, or (ii) transfers title of a contractually specified quantity of converted uranium to either an Enricher’s account or a customer’s account at Cameco’s Port Hope conversion facility. At this point, the customer obtains control and Cameco recognizes revenue for both the uranium supplied and the conversion service provided. 104 CAMECO CORPORATION Fabrication services In a fabrication services arrangement, Cameco is contractually obligated to provide fuel bundles or reactor components to its customers. In a contract for fuel bundles, the bundles are inspected and accepted by the customer at Cameco’s Port Hope fabrication facility or another location based on delivery terms in the sales contract. At this point, the customer obtains control and Cameco recognizes revenue for the fabrication services. In some contracts for reactor components, the components are made to a customer’s specification and if a contract is terminated by the customer, Cameco is entitled to reimbursement of the costs incurred to date, including a reasonable margin. Since the customer controls all of the work in progress as the products are being manufactured, revenue and associated costs are recognized over time, before the goods are delivered to the customer’s premises. Revenue is recognized on the basis of units produced as the contracts reflect a per unit basis. Revenue from these contracts represents an insignificant portion of Cameco’s total revenue. In other contracts where the reactor components are not made to a specific customer’s specification, when the components are delivered to the location specified in the contract, the customer obtains control and Cameco recognizes revenue for the services. Other services Uranium concentrates and converted uranium are regulated products and can only be stored at regulated facilities. In a storage arrangement, Cameco is contractually obligated to store uranium products at its facilities on behalf of the customer. Cameco invoices the customer in accordance with the contract terms and recognizes revenue on a monthly basis. Cameco also provides customers with transportation of its uranium products. In the contractual arrangements where Cameco is acting as the principal, revenue is recognized as the product is delivered. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another. Trade receivables and debt securities are initially recognized when they are originated. All other financial assets and liabilities are initially recognized when the company becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price. i. Financial assets On initial recognition, financial assets are classified as measured at: amortized cost, fair value through other comprehensive income, or fair value through profit or loss based on the Company’s business model for managing its financial assets and their cash flow characteristics. Classifications are not changed subsequent to initial recognition unless the Company changes its business model for managing its financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in business model. Amortized cost A financial asset is measured at amortized cost if it is not designated as at fair value through profit or loss, is held within a business model whose objective is to hold assets to collect contractual cash flows and its contractual terms give rise to cash flows on specified dates that are solely payments of principal and interest on the principal amount outstanding. Assets in this category are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss, as is any gain or loss on derecognition. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 105 Fair value through other comprehensive income (FVOCI) A debt investment is measured at FVOCI if it is not designated as at fair value through profit or loss, is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and its contractual terms give rise to cash flows on specified dates that are solely payments of principal and interest on the principal amount outstanding. These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in other comprehensive income (OCI). On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss. On initial recognition of an equity investment that is not held for trading, Cameco may irrevocably elect to present subsequent changes in the investments fair value in OCI. This election is made on an investment by investment basis. These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss. Fair value through profit or loss (FVTPL) All financial assets not classified as measured at amortized cost or FVOCI are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss. Derecognition of financial assets Cameco derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which it neither transfers or retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. If the Company enters into a transaction whereby it transfers assets recognized in its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets, the transferred assets would not be derecognized. ii. Financial liabilities On initial recognition, financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as FVTPL if it is classified as held-for-trading, is a derivative or is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss as is any gain or loss on derecognition. A financial liability is derecognized when its contractual obligations are discharged or cancelled, or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss. iii. Derivative financial instruments The Company holds derivative financial instruments to reduce exposure to fluctuations in foreign currency exchange rates and interest rates. Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met. 106 CAMECO CORPORATION Derivative financial instruments are initially measured at fair value in the consolidated statements of financial position, with any directly attributable transaction costs recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes in fair value are recognized in profit or loss. The purpose of hedging transactions is to modify the Company’s exposure to one or more risks by creating an offset between changes in the fair value of, or the cash flows attributable to, the hedged item and the hedging item. When hedge accounting is appropriate, the hedging relationship is designated as a fair value hedge, a cash flow hedge, or a foreign currency risk hedge related to a net investment in a foreign operation. The Company does not have any instruments that have been designated as hedge transactions at December 31, 2019 and 2018. Income tax expense is comprised of current and deferred taxes. Current tax and deferred tax are recognized in earnings except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustments to tax payable in respect of previous years. Current tax assets and liabilities are measured at the amount expected to be paid or recovered from the taxation authorities. Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable income will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. The Company’s exposure to uncertain tax positions is evaluated and a provision is made where it is probable that this exposure will materialize. Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares are recognized as a reduction of equity, net of any tax effects. The Company presents basic and diluted earnings per share data for its common shares. Earnings per share is calculated by dividing the net earnings attributable to equity holders of the Company by the weighted average number of common shares outstanding. Diluted earnings per share is determined by adjusting the net earnings attributable to equity holders of the Company and the weighted average number of common shares outstanding, for the effects of all dilutive potential common shares. The calculation of diluted earnings per share assumes that outstanding options which are dilutive to earnings per share are exercised and the proceeds are used to repurchase shares of the Company at the average market price of the shares for the period. The effect is to increase the number of shares used to calculate diluted earnings per share. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 107 An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other segments. To be classified as a segment, discrete financial information must be available and operating results must be regularly reviewed by the Company’s executive team. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. 3. Accounting standards On January 1, 2019, Cameco adopted the new standard, IFRS 16, Leases (IFRS 16) and the interpretation, IFRIC 23, Uncertainty over Income Tax Treatments (IFRIC 23) as issued by the IASB. i. Leases IFRS 16 eliminates the dual model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to finance lease accounting under IAS 17. Cameco adopted IFRS 16 using the modified retrospective approach which does not require comparative information to be restated. The following practical expedients were used during initial application:  No reassessment of whether a contract is, or contains, a lease at the date of initial application. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease under IFRS 16;  Reliance on an assessment under IAS 37 for onerous contracts as an alternative to performing an impairment review;  No recognition of right-of-use assets and liabilities for leases for which the lease term ends within 12 months of the date of initial application or for leases of low value assets; and  Use of hindsight when determining the lease terms. When measuring lease liabilities for leases that were classified as operating, lease payments were discounted using Cameco’s incremental borrowing rate at January 1, 2019, which was 4.65%. Adoption of the standard did not have a material impact on the consolidated financial statements. See notes 8, 14 and 26. ii. Income tax IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The adoption of the standard did not have a material impact on the financial statements: 4. Determination of fair values A number of the Company’s accounting policies and disclosures require the measurement of fair value, for both financial and non-financial assets and liabilities. The fair value of an asset or liability is generally estimated as the amount that would be received on sale of an asset, or paid to transfer a liability in an orderly transaction between market participants at the reporting date. Fair values of assets and liabilities traded in an active market are determined by reference to last quoted prices, in the principal market for the asset or liability. In the absence of an active market for an asset or liability, fair values are determined based on market quotes for assets or liabilities with similar characteristics and risk profiles, or through other valuation techniques. Fair values determined using valuation techniques require the use of inputs, which are obtained from external, readily observable market data when available. In some circumstances, inputs that are not based on observable data must be used. In these cases, the estimated fair values may be adjusted in order to account for valuation uncertainty, or to reflect the assumptions that market participants would use in pricing the asset or liability. 108 CAMECO CORPORATION All fair value measurements are categorized into one of three hierarchy levels, described below, for disclosure purposes. Each level is based on the transparency of the inputs used to measure the fair values of assets and liabilities: Level 1 – Values based on unadjusted quoted prices in active markets that are accessible at the reporting date for identical assets or liabilities. Level 2 – Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 3 – Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. When the inputs used to measure fair value fall within more than one level of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period during which the transfer occurred. There were no transfers between level 1, level 2, or level 3 during the period. Cameco does not have any recurring fair value measurements that are categorized as level 3 as of the reporting date. Further information about the techniques and assumptions used to measure fair values is included in the following notes: Note 24 - Share-based compensation plans Note 26 - Financial instruments and risk management 5. Use of estimates and judgments The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future period affected. Information about critical judgments in applying the accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is discussed below. Further details of the nature of these judgments, estimates and assumptions may be found in the relevant notes to the consolidated financial statements. Cameco assesses the carrying values of property, plant and equipment, and intangible assets when there is an indication of possible impairment. Goodwill and intangible assets not yet available for use or with indefinite useful lives are tested for impairment annually. If it is determined that carrying values of assets or goodwill cannot be recovered, the unrecoverable amounts are charged against current earnings. Recoverability is dependent upon assumptions and judgments regarding market conditions, costs of production, sustaining capital requirements and mineral reserves. Other assumptions used in the calculation of recoverable amounts are discount rates, future cash flows and profit margins. A material change in assumptions may significantly impact the potential impairment of these assets. In performing impairment assessments of long-lived assets, assets that cannot be assessed individually are grouped together into the smallest group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Management is required to exercise judgment in identifying these CGUs. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 109 Significant decommissioning and reclamation activities are often not undertaken until near the end of the useful lives of the productive assets. Regulatory requirements and alternatives with respect to these activities are subject to change over time. A significant change to either the estimated costs, timing of the cash flows or mineral reserves may result in a material change in the amount charged to earnings. Cameco operates in a number of tax jurisdictions and is, therefore, required to estimate its income taxes in each of these tax jurisdictions in preparing its consolidated financial statements. In calculating income taxes, consideration is given to factors such as tax rates in the different jurisdictions, non-deductible expenses, changes in tax law and management’s expectations of future operating results. Cameco estimates deferred income taxes based on temporary differences between the income and losses reported in its consolidated financial statements and its taxable income and losses as determined under the applicable tax laws. The tax effect of these temporary differences is recorded as deferred tax assets or liabilities in the consolidated financial statements. The calculation of income taxes requires the use of judgment and estimates. The determination of the recoverability of deferred tax assets is dependent on assumptions and judgments regarding future market conditions, production rates and intercompany sales, which can materially impact estimated future taxable income. If these judgments and estimates prove to be inaccurate, future earnings may be materially impacted. Depreciation 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 mineral reserves. Estimates of life-of-mine and amounts of mineral reserves are updated annually and are subject to judgment and significant change over time. If actual mineral reserves prove to be significantly different than the estimates, there could be a material impact on the amounts of depreciation charged to earnings. The gain recorded on the restructuring of JV Inkai was calculated based on the fair value of the asset being given up. The determination of fair value requires Cameco to make assumptions, estimates and judgments, some of which are inherently subjective. 6. Accounts receivable Trade receivables GST/VAT receivables Other receivables Total 2019 2018 $ 321,638 $ 4,614 1,792 392,865 3,711 5,774 $ 328,044 $ 402,350 The Company’s exposure to credit and currency risks as well as credit losses related to trade and other receivables, excluding goods and services tax (GST)/value added tax (VAT) receivables, is disclosed in note 26. 110 CAMECO CORPORATION 7. Inventories Uranium Concentrate Broken ore Fuel services Other Total 2019 2018 $ 204,123 $ 51,094 255,217 335,276 51,545 386,821 62,701 75,541 2,852 5,433 $ 320,770 $ 467,795 Cameco expensed $1,398,000,000 of inventory as cost of sales during 2019 (2018 - $1,501,000,000). Included in cost of sales for the year ended December 31, 2018 is a $29,296,000 net write-down to reflect net realizable value. No write-down was recorded in the current year. 8. Property, plant and equipment At December 31, 2019 Land and buildings Plant and equipment Furniture and fixtures Under construction Exploration and evaluation Total Cost Beginning of year Additions Transfers Change in reclamation provision [note 15] Disposals Effect of movements in exchange rates $ 5,089,908 $ 2,654,944 $ 80,083 $ 63,465 $ 1,121,061 $ 9,009,461 2,327 17,157 24,883 (923) (32,642) 7,179 28,453 - (3,486) (8,925) 158 951 - (142) (181) 65,482 (46,561) - (507) (17) 65 - - (693) (48,593) 75,211 - 24,883 (5,751) (90,358) End of year 5,100,710 2,678,165 80,869 81,862 1,071,840 9,013,446 Accumulated depreciation and impairment Beginning of year Depreciation charge Change in reclamation provision [note 15] Disposals Effect of movements in exchange rates 2,835,037 1,697,178 128,579 105,700 2,732 (225) (30,035) - (2,194) (7,635) 74,860 2,057 - (139) (177) 36,799 483,661 5,127,535 - - - - - - (639) 236,336 2,732 (3,197) (24,636) (62,483) End of year 2,936,088 1,793,049 76,601 36,799 458,386 5,300,923 Right-of-use assets Beginning of year Additions Disposals Depreciation charge End of year - 3,517 - (871) 2,646 - 5,768 (9) (675) 5,084 - 851 - (432) 419 - - - - - - - - - - - 10,136 (9) (1,978) 8,149 Net book value at December 31, 2019 $ 2,167,268 $ 890,200 $ 4,687 $ 45,063 $ 613,454 $ 3,720,672 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 111 At December 31, 2018 Cost Beginning of year Additions Transfers Change in reclamation provision Disposals JV Inkai restructuring(a) Effect of movements in exchange rates Land and buildings Plant and equipment Furniture and fixtures Under construction Exploration and evaluation Total $ 5,045,112 $ 2,729,635 $ 90,817 $ 154,731 $ 1,120,280 $ 9,140,575 1,944 104,760 132,317 7,274 20,044 - (186) (7,355) (245,882) (109,748) 51,843 15,094 - 45,516 288 (129,436) - (4,714) (6,624) 316 - (1,663) (5,739) 628 4,344 55,362 - - 132,317 (414) (14,332) - (367,993) 56 (3,777) 63,532 End of year 5,089,908 2,654,944 80,083 63,465 1,121,061 9,009,461 Accumulated depreciation and impairment Beginning of year Depreciation charge Transfers Change in reclamation provision Disposals JV Inkai restructuring(a) Effect of movements in exchange rates 2,717,249 1,611,460 80,752 55,832 483,390 4,948,683 120,754 111,465 13,036 59,616 (185) (123,919) 48,486 6,333 - (5,853) (38,783) 12,556 3,217 (322) - (4,647) (4,441) 301 - (19,047) - - - 14 - - - - - 235,436 - 59,616 (10,685) (167,143) 271 61,628 End of year 2,835,037 1,697,178 74,860 36,799 483,661 5,127,535 Net book value at December 31, 2018 $ 2,254,871 $ 957,766 $ 5,223 $ 26,666 $ 637,400 $ 3,881,926 Cameco has contractual capital commitments of approximately $38,000,000 at December 31, 2019. Certain of the contractual commitments may contain cancellation clauses, however the Company discloses the commitments based on management’s intent to fulfill the contract. The majority of this amount is expected to be incurred in 2020. (a) Effective January 1, 2018, Cameco’s ownership interest in JV Inkai was reduced to 40% resulting in JV Inkai being accounted for on an equity basis instead of proportionate consolidation (see note 11). 112 CAMECO CORPORATION 9. Intangible assets At December 31, 2019 Cost Beginning of year Effect of movements in exchange rates End of year Accumulated amortization and impairment Beginning of year Amortization charge Effect of movements in exchange rates End of year Contracts Intellectual property Total $ 119,371 $ (5,664) 118,819 $ - 238,190 (5,664) 113,707 118,819 232,526 115,434 1,181 (5,521) 57,154 3,868 - 172,588 5,049 (5,521) 111,094 61,022 172,116 Net book value at December 31, 2019 $ 2,613 $ 57,797 $ 60,410 At December 31, 2018 Cost Beginning of year Effect of movements in exchange rates End of year Accumulated amortization and impairment Beginning of year Amortization charge Effect of movements in exchange rates End of year Intellectual Contracts property Total $ 109,812 $ 9,559 118,819 $ - 228,631 9,559 119,371 118,819 238,190 104,939 1,325 9,170 53,680 3,474 - 158,619 4,799 9,170 115,434 57,154 172,588 Net book value at December 31, 2018 $ 3,937 $ 61,665 $ 65,602 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 113 The intangible asset values relate to intellectual property acquired with Cameco Fuel Manufacturing Inc. (CFM) and purchase and sales contracts acquired with NUKEM. The CFM intellectual property is being amortized on a unit-of-production basis over its remaining life. Amortization is allocated to the cost of inventory and is recognized in cost of products and services sold as inventory is sold. The NUKEM purchase and sales contracts will be amortized to earnings over the remaining terms of the underlying contracts, which extend to 2022. Amortization of the purchase contracts is allocated to the cost of inventory and is included in cost of products and services sold as inventory is sold. Sales contracts are amortized to revenue. 10. Long-term receivables, investments and other Investments in equity securities [note 26](a) Derivatives [note 26] Advances receivable from JV Inkai [note 31] Investment tax credits Amounts receivable related to tax dispute [note 21] Product loan(b) Other Less current portion Net 2019 2018 $ 24,408 10,504 - 95,474 303,222 176,904 26,183 636,695 (6,564) $ 28,916 3,881 124,533 95,246 303,222 176,904 32,992 765,694 (13,826) $ 630,131 $ 751,868 (a) At January 1, 2018, Cameco designated the investments shown below as equity securities at FVOCI because these equity securities represent investments that the Company intends to hold for the long term for strategic purposes. There were no dividends recognized on any of these investments during the year. Investment in Denison Mines Corp. Investment in UEX Corporation Investment in ISO Energy Ltd. Investment in GoviEx Other $ 2019 13,292 7,253 1,481 2,000 382 $ 2018 15,507 8,754 1,777 2,313 565 $ 24,408 $ 28,916 (b) During 2018, as a result of the decision to temporarily suspend production at the McArthur River mine, Cameco loaned 5,400,000 pounds of uranium concentrate to its joint venture partner, Orano Canada Inc., (Orano). Orano is obligated to repay us in kind with uranium concentrate no later than December 31, 2023. The loan was recorded at Cameco’s weighted average cost of inventory. 11. Equity-accounted investee JV Inkai is the operator of the Inkai uranium deposit located in Kazakhstan. Cameco holds a 40% interest and Kazatomprom holds a 60% interest in JV Inkai. Cameco does not have joint control over the joint venture and as a result, Cameco accounts for JV Inkai on an equity basis. JV Inkai is a uranium mining and milling operation that utilizes in-situ recovery (ISR) technology to extract uranium. The participants in JV Inkai purchase uranium from Inkai and, in turn, derive revenue directly from the sale of such product to third- party customers. 114 CAMECO CORPORATION The following tables summarize the financial information of JV Inkai (100%): Cash and cash equivalents Other current assets Non-current assets Current liabilities Non-current liabilities Net assets Revenue from products and services Cost of products and services sold Depreciation and amortization Finance income Finance costs Other expense Income tax expense Net earnings Other comprehensive loss Total comprehensive income $ 2019 16,699 139,324 398,721 (71,162) (41,508) $ 2018 41,717 160,784 407,816 (151,728) (41,746) $ 442,074 $ 416,843 2019 2018 $ 261,860 (64,199) (27,740) 651 (2,939) (23,767) (30,999) 112,867 (1,773) $ 203,359 (52,172) (27,504) 160 (6,251) (30,419) (20,860) 66,313 - $ 111,094 $ 66,313 The following table reconciles the summarized financial information to the carrying amount of Cameco’s interest in JV Inkai: Opening net assets Total comprehensive income(a) Dividends declared Impact of foreign exchange Closing net assets Cameco's share of net assets Consolidating adjustments(b) Fair value increment(c) Dividends declared but not received Impact of foreign exchange 2019 2018 $ 416,843 111,094 (66,369) (19,494) 442,074 176,830 (30,633) 91,697 13,859 928 $ 374,650 66,313 - (24,120) 416,843 166,737 (33,978) 94,633 - 3,110 Carrying amount in the statement of financial position at December 31, 2019 $ 252,681 $ 230,502 (a) Cameco’s share of earnings from equity-accounted investee as reported on the statement of earnings will not equal its share of JV Inkai’s other comprehensive income when Cameco receives dividends from JV Inkai that are not in proportion to its 40% ownership interest. (b) In addition to its proportionate share of earnings from JV Inkai, Cameco records certain consolidating adjustments to eliminate unrealized profit and amortize historical differences in accounting policies. This amount is amortized to earnings over units of production. (c) Following the restructuring, in addition to the adjustments noted in (b), Cameco also amortizes the fair values assigned to assets and liabilities at the time of the restructuring over units of production. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 115 12. Accounts payable and accrued liabilities Trade payables Non-trade payables Payables due to related parties Total 2019 2018 $ 100,407 66,815 14,577 $ 123,219 92,183 9,352 $ 181,799 $ 224,754 The Company’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 26. 13. Long-term debt Unsecured debentures Series D - 5.67% debentures due September 2, 2019 Series E - 3.75% debentures due November 14, 2022 Series F - 5.09% debentures due November 14, 2042 Series G - 4.19% debentures due June 24, 2024 Less current portion Total 2019 2018 $ - 399,152 99,302 498,264 996,718 - $ 499,599 398,873 99,286 497,913 1,495,671 (499,599) $ 996,718 $ 996,072 Cameco has a $1,000,000,000 unsecured revolving credit facility that is available until November 1, 2023. Upon mutual agreement, the facility can be extended for an additional year on the anniversary date. In addition to direct borrowings under the facility, up to $100,000,000 can be used for the issuance of letters of credit and, to the extent necessary, it may be used to provide liquidity support for the Company’s commercial paper program. The agreement also provides the ability to increase the revolving credit facility above $1,000,000,000 by increments no less than $50,000,000, to a total of $1,250,000,000. The facility ranks equally with all of Cameco’s other senior debt. As of December 31, 2019 and 2018, there were no amounts outstanding under this facility. Cameco has $1,719,120,000 (2018 - $1,716,473,000) in letter of credit facilities. Outstanding and committed letters of credit at December 31, 2019 amounted to $1,528,603,000 (2018 - $1,572,984,000), the majority of which relate to future decommissioning and reclamation liabilities (note 15). Cameco is bound by a covenant in its revolving credit facility. The covenant requires a funded debt to tangible net worth ratio equal to or less than 1:1. Non-compliance with this covenant could result in accelerated payment and termination of the revolving credit facility. At December 31, 2019, Cameco was in compliance with the covenant and does not expect its operating and investing activities in 2020 to be constrained by it. The Company has arranged for standby product loan facilities with three different counterparties. The arrangements allow it to borrow up to 1.2 million kgU of UF6 conversion services over the period 2020 to 2022 with repayment in kind up to March 31, 2023. Under the loan facilities, standby fees of up to 1% are payable based on the market value of the facilities and interest is payable on the market value of any amounts drawn at rates ranging from 0.5% to 2.0%. 116 CAMECO CORPORATION The table below represents currently scheduled maturities of long-term debt: 2020 2021 2022 2023 2024 Thereafter Total $ - - 399,152 - 498,264 99,302 $ 996,718 14. Other liabilities Deferred sales [note 17] Derivatives [note 26] Accrued pension and post-retirement benefit liability [note 25] Lease obligation Other Less: current portion Net $ 2019 17,418 12,524 80,737 12,869 63,452 187,000 (33,073) $ 2018 30,727 61,387 68,255 - 61,265 221,634 (79,573) $ 153,927 $ 142,061 Expenses related to short-term leases and leases of low-value assets were insignificant during 2019. 15. Provisions Beginning of year Changes in estimates and discount rates [note 8] Capitalized in property, plant and equipment Recognized in earnings Provisions used during the period Unwinding of discount [note 19] Effect of movements in exchange rates End of period Current Non-current Reclamation Waste disposal Total $ 1,053,892 $ 9,460 $ 1,063,352 22,151 2,732 (31,933) 20,634 (16,801) - 645 (457) 155 - 22,151 3,377 (32,390) 20,789 (16,801) $ 1,050,675 $ 54,806 995,869 $ 1,050,675 $ $ $ 9,803 $ 1,060,478 1,442 8,361 $ 56,248 1,004,230 9,803 $ 1,060,478 Cameco's estimates of future decommissioning obligations are based on reclamation standards that satisfy regulatory requirements. Elements of uncertainty in estimating these amounts include potential changes in regulatory requirements, decommissioning and reclamation alternatives and amounts to be recovered from other parties. Cameco estimates total undiscounted future decommissioning and reclamation costs for its existing operating assets to be $1,127,487,000 (2018 - $1,157,208,000). The expected timing of these outflows is based on life-of-mine plans with the majority of expenditures expected to occur after 2024. These estimates are reviewed by Cameco technical personnel as required by regulatory agencies or more frequently as circumstances warrant. In connection with future decommissioning and reclamation costs, Cameco has provided financial assurances of $994,129,000 (2018 - $1,050,546,000) in the form of letters of credit to satisfy current regulatory requirements. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 117 The reclamation provision relates to the following segments: Uranium Fuel services Total 2019 2018 $ 831,352 219,323 $ 828,781 225,111 $ 1,050,675 $ 1,053,892 The fuel services segment consists of the Blind River refinery, Port Hope conversion facility and Cameco Fuel Manufacturing Inc.. The refining, conversion and manufacturing processes generate certain uranium contaminated waste. These include contaminated combustible material (paper, rags, gloves, etc.) and contaminated non-combustible material (metal parts, soil from excavations, building and roofing materials, spent uranium concentrate drums, etc.). These materials can in some instances be recycled or reprocessed. A provision for waste disposal costs in respect of these materials is recognized when they are generated. Cameco estimates total undiscounted future costs related to existing waste disposal to be $8,451,000 (2018 - $9,617,000). The majority of these expenditures are expected to occur within the next five years. 16. Share capital Authorized share capital:  Unlimited number of first preferred shares  Unlimited number of second preferred shares  Unlimited number of voting common shares, no stated par value, not convertible or redeemable, and  One Class B share Number issued (number of shares) Beginning of year Issued: Stock option plan [note 24] End of year 2019 2018 395,792,732 395,792,732 5,000 - 395,797,732 395,792,732 All issued shares are fully paid. Holders of the common shares are entitled to exercise one vote per share at meetings of shareholders, are entitled to receive dividends if, as and when declared by our Board of Directors and are entitled to participate in any distribution of remaining assets following a liquidation. The shares of Cameco are widely held and no shareholder, resident in Canada, is allowed to own more than 25% of the Company’s outstanding common shares, either individually or together with associates. A non-resident of Canada is not allowed to own more than 15%. In addition, no more than 25% of total shareholder votes cast may be cast by non-resident shareholders. One Class B share issued during 1988 and assigned $1 of share capital entitles the shareholder to vote separately as a class in respect of any proposal to locate the head office of Cameco to a place not in the province of Saskatchewan. Dividends on Cameco Corporation common shares are declared in Canadian dollars. For the year ended December 31, 2019, the dividend declared per share was $0.08 (December 31, 2018 - $0.08). 118 CAMECO CORPORATION 17. Revenue Cameco’s sales contracts with customers contain both fixed and market-related pricing. Fixed-price contracts are typically based on a term-price indicator at the time the contract is accepted and escalated over the term of the contract. Market-related contracts are based on either the spot price or long-term price, and the price is quoted at the time of delivery rather than at the time the contract is accepted. These contracts often include a floor and/or ceiling prices, which are usually escalated over the term of the contract. Escalation is generally based on a consumer price index. The Company’s contracts contain either one of these pricing mechanisms or a combination of the two. There is no variable consideration in the contracts and therefore no revenue is considered constrained at the time of delivery. Cameco expenses the incremental costs of obtaining a contract as incurred as the amortization period is less than a year. The following table summarizes Cameco’s sales disaggregated by geographical region and contract type and includes a reconciliation to the Company’s reportable segments (note 28): For the year ended December 31, 2019 Customer geographical region Americas Europe Asia Contract type Fixed-price Market-related For the year ended December 31, 2018 Customer geographical region Americas Europe Asia Contract type Fixed-price Market-related Uranium Fuel services Other Total $ 569,535 288,134 556,140 $ 206,226 79,629 84,422 $ 59,300 3,587 15,952 $ 835,061 371,350 656,514 $ 1,413,809 $ 370,277 $ 78,839 $ 1,862,925 $ 349,021 1,064,788 $ 305,383 64,894 $ 1,413,809 $ 370,277 $ $ 69,703 9,136 $ 724,107 1,138,818 78,839 $ 1,862,925 Uranium Fuel services Other Total $ 695,678 275,096 713,282 $ 191,791 50,000 72,198 $ 69,012 10,693 13,911 $ 956,481 335,789 799,391 $ 1,684,056 $ 313,989 $ 93,616 $ 2,091,661 $ 577,143 1,106,913 $ 293,400 20,589 $ 1,684,056 $ 313,989 $ $ 83,706 9,910 $ 954,249 1,137,412 93,616 $ 2,091,661 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 119 Deferred sales The following table provides information about contract liabilities (note 14) from contracts with customers: Beginning of year Additions Recognized in revenue Effect of movements in exchange rates End of year 2019 2018 $ $ 30,727 9,783 (23,067) (25) 29,148 25,695 (24,025) (91) $ 17,418 $ 30,727 Deferred sales primarily relates to advance consideration received from customers for future conversion deliveries and fuel fabrication services as well as revenue related to the storage of uranium and converted uranium held at Cameco facilities. The revenue related to the fuel fabrication services and storage is recognized over time while the revenue related to future conversion deliveries is expected to be recognized between 2020 and 2025. Cameco recognized $78,000 of revenue (2018 - $5,468,000 reduction of revenue) during 2019 from performance obligations satisfied (or partially satisfied) in previous periods. This is due to the difference between actual pricing indices and the estimates at the time of invoicing. Future sales commitments Cameco’s sales portfolio consists of short and long-term sales commitments. The contracts can be executed well in advance of a delivery and include both fixed and market-related pricing. The following table summarizes the expected future revenue, by segment, related to only fixed-price contracts with remaining future deliveries as follows: 2020 2021 2022 2023 2024 Thereafter Total Uranium Fuel services Other Total $ 271,642 $ 183,422 $ 145,920 $ 169,234 $ 166,015 $ 532,429 $ 1,468,662 1,647,094 8,242 265,126 4,212 212,562 - 150,266 - 150,773 - 593,612 - 274,755 4,030 $ 550,427 $ 452,760 $ 358,482 $ 319,500 $ 316,788 $ 1,126,041 $ 3,123,998 The sales contracts are denominated largely in US dollars and converted from US to Canadian dollars at a rate of $1.30. The amounts in the table represent the consideration the Company will be entitled to receive when it satisfies the remaining performance obligations in the contracts. The amounts include assumptions about volumes for contracts that have volume flexibility. Cameco’s total revenue that will be earned will also include revenue from contracts with market-related pricing. The Company has elected to exclude these amounts from the table as the transaction price will not be known until the time of delivery. Contracts with an original duration of one year or less have been included in the table. 120 CAMECO CORPORATION 18. Employee benefit expense The following employee benefit expenses are included in cost of products and services sold, administration, exploration, research and development and property, plant and equipment: Wages and salaries Statutory and company benefits Expenses related to defined benefit plans [note 25] Expenses related to defined contribution plans [note 25] Equity-settled share-based compensation [note 24] Cash-settled share-based compensation [note 24] Total 19. Finance costs Interest on long-term debt Unwinding of discount on provisions [note 15] Other charges Total No borrowing costs were determined to be eligible for capitalization during the year. 20. Other income (expense) Arbitration award(a) Foreign exchange gains Gain on restructuring of JV Inkai(b) Sale of exploration interests(c) Contract restructuring Other Total 2019 2018 $ 238,000 41,972 4,790 11,767 17,469 (1,437) $ 305,367 50,477 3,527 13,431 18,821 3,597 $ 312,561 $ 395,220 2019 2018 $ 63,136 20,789 14,697 $ 73,039 23,681 15,059 $ 98,622 $ 111,779 2019 2018 $ 52,801 (18,961) - - - - $ - 26,205 48,570 25,027 6,201 2,157 $ 33,840 $ 108,160 (a) In the third quarter of 2019, Cameco received an award from the tribunal of international arbitrators (Tribunal) with respect to its contract dispute with Tokyo Electric Power Company Holdings, Inc. (TEPCO). The Tribunal rejected TEPCO’s assertion that it had the right to terminate its uranium supply agreement and awarded damages of $40,300,000 (US). Damages were based on the Tribunal’s interpretation of losses under this supply agreement. (b) Effective January 1, 2018, Cameco’s ownership interest in JV Inkai was reduced from 60% to 40% based on an implementation agreement with Kazatomprom. Cameco recognized a gain on the change in ownership interests of $48,570,000. Included in this gain is $5,450,000 which has been reclassified from the foreign currency translation reserve to net earnings. (c) In 2018, Cameco sold its interest in the Wheeler River Joint Venture to Denison Mines Corp. in exchange for 24,615,000 common shares (note 10). Cameco recorded a gain of $17,231,000 on the transaction. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 121 21. Income taxes Assets Property, plant and equipment Provision for reclamation Inventories Foreign exploration and development Income tax losses (gains) Defined benefit plan actuarial losses Long-term investments and other Deferred tax assets Liabilities Inventories Deferred tax liabilities Recognized in earnings 2019 2018 As at December 31 2019 2018 $ 74,039 2,325 (2,163) (14) (108,839) - (17,377) (52,029) 301 301 $ 119,132 (36,622) 1,137 (14) 39,289 - 24,169 147,091 - - $ 319,185 193,514 - 5,267 390,341 7,947 40,423 956,677 301 301 $ 245,206 191,189 2,163 5,281 499,180 5,646 57,347 1,006,012 - - Net deferred tax asset (liability $ (52,330) $ 147,091 $ 956,376 $ 1,006,012 Deferred tax allocated as Deferred tax assets Deferred tax liabilities Net deferred tax asset 2019 2018 $ 956,376 - $ 1,006,012 - $ 956,376 $ 1,006,012 Cameco has recorded a deferred tax asset of $956,376,000 (December 31, 2018 - $1,006,012,000). The realization of this deferred tax asset is dependent upon the generation of future taxable income in certain jurisdictions during the periods in which the Company’s deferred tax assets are available. The Company considers whether it is probable that all or a portion of the deferred tax assets will not be realized. In making this assessment, management considers all available evidence, including recent financial operations, projected future taxable income and tax planning strategies. Based on projections of future taxable income over the periods in which the deferred tax assets are available, realization of these deferred tax assets is probable and consequently the deferred tax assets have been recorded. 122 CAMECO CORPORATION Deferred tax asset at beginning of year Recovery (expense) for the year in net earnings Recovery (expense) for the year in other comprehensive income Change to equity accounting - JV Inkai Effect of movements in exchange rates End of year Income tax losses Property, plant and equipment Provision for reclamation Long-term investments and other Total 2019 2018 $ 1,006,012 (52,330) 2,754 - (60) $ 848,704 147,091 (851) 10,849 219 $ 956,376 $ 1,006,012 2019 2018 $ 280,330 2,321 75,082 70,380 $ 270,154 2,344 88,036 72,500 $ 428,113 $ 433,034 The provision for income taxes differs from the amount computed by applying the combined expected federal and provincial income tax rate to earnings before income taxes. The reasons for these differences are as follows: Earnings before income taxes and non-controlling interest Combined federal and provincial tax rate $ Computed income tax expense Increase (decrease) in taxes resulting from: Difference between Canadian rates and rates applicable to subsidiaries in other countries Change in unrecognized deferred tax assets Share-based compensation plans Change in tax provision related to transfer pricing Non-deductible (non-taxable) capital amounts Income in equity-accounted investee Change in uncertain tax positions Other permanent differences Income tax expense (recovery) 2019 135,018 26.9% 36,320 5,558 19,646 1,146 - - (12,074) 2,572 7,909 $ 2018 39,929 26.9% 10,741 (78,138) 18,027 1,292 (61,000) (13,249) - (3,517) (462) $ 61,077 $ (126,306) 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 123 Earnings (loss) before income taxes Canada Foreign Current income taxes Canada Foreign Deferred income taxes (recovery) Canada Foreign Income tax expense (recovery) 2019 2018 $ 229,429 (94,411) $ 135,018 $ $ $ $ $ 7,969 778 8,747 60,010 (7,680) 52,330 61,077 $ $ $ $ $ $ $ (257,291) 297,220 39,929 5,913 14,872 20,785 (149,284) 2,193 (147,091) (126,306) In 2008, as part of the ongoing annual audits of Cameco's Canadian tax returns, Canada Revenue Agency (CRA) disputed the transfer pricing structure and methodology used by Cameco and its wholly owned Swiss subsidiary, Cameco Europe Ltd., in respect of sale and purchase agreements for uranium products. From December 2008 to date, CRA issued notices of reassessment for the taxation years 2003 through 2013, which in aggregate have increased Cameco's income for Canadian tax purposes by approximately $5,700,000,000. CRA has also issued notices of reassessment for transfer pricing penalties for the years 2007 through 2011 in the amount of $371,000,000. It is uncertain whether CRA will reassess Cameco's tax returns for subsequent years on a similar basis and if these will require Cameco to make future remittances or provide security on receipt of the reassessments. On September 26, 2018, the Tax Court of Canada (Tax Court) ruled in our favour in our case with the Canada Revenue Agency (CRA) for the 2003, 2005 and 2006 tax years. The Tax Court ruled that our marketing and trading structure involving foreign subsidiaries and the related transfer pricing methodology used for certain intercompany uranium purchase and sale agreements were in full compliance with Canadian laws for the three tax years in question. While the decision applies only to the three tax years in question, we believe there is nothing in the decision that would warrant a materially different outcome for subsequent tax years. We expect to recover any amounts remitted or secured as a result of the reassessments. On October 25, 2018, CRA filed a notice of appeal with the Federal Court of Appeal. We anticipate that it will take about two years from the start of the appeal process to receive a decision from the Federal Court of Appeal. 124 CAMECO CORPORATION We expect the Tax Court’s decision to be upheld on appeal. We expect any further actions regarding the tax years 2007 through 2013 will be suspended until the three years covered in the decision are finally resolved. Despite the fact that we believe there is no basis to do so, and it is not our view of the likely outcome, CRA may continue to reassess us using the methodology it used to reassess the 2003 through 2013 tax years. In that scenario, and including the $5,700,000,000 already reassessed, we expect to receive notices of reassessment for a total of approximately $8,700,000,000 for the years 2003 through 2019, which would increase Cameco’s income for Canadian tax purposes and result in a related tax expense of approximately $2,600,000,000. In addition to penalties already imposed, CRA may continue to apply penalties to taxation years subsequent to 2011. As a result, we estimate that cash taxes and transfer pricing penalties would be between $1,950,000,000 and $2,150,000,000. In addition, we estimate there would be interest and instalment penalties applied that would be material to Cameco. While in dispute, we would be responsible for remitting or otherwise securing 50% of the cash taxes and transfer pricing penalties (between $970,000,000 and $1,070,000,000), plus related interest and instalment penalties assessed, which would be material to Cameco. Under Canadian federal and provincial tax rules, the amount required to be remitted each year will depend on the amount of income reassessed in that year and the availability of elective deductions. CRA disallowed the use of any loss carry-backs to be applied to any transfer pricing adjustment, starting with the 2008 tax year. In light of our view of the likely outcome of the case, we expect to recover the amounts remitted to CRA, including cash taxes, interest and penalties totalling $303,222,000 already paid as at December 31, 2019 (December 31, 2018 - $303,222,000) (note 10). In addition to the cash remitted, we have provided $480,000,000 in letters of credit to secure 50% of the cash taxes and related interest. Management believes that the ultimate resolution will not be material to Cameco's financial position, results of operations or liquidity in the year(s) of resolution. Resolution of this matter as stipulated by CRA would be material to Cameco’s financial position, results of operations or liquidity in the year(s) of resolution and other unfavourable outcomes for the years 2003 to date could be material to Cameco's financial position, results of operations and cash flows in the year(s) of resolution. At December 31, 2019, income tax losses carried forward of $2,509,669,000 (2018 - $2,809,926,000) are available to reduce taxable income. These losses expire as follows: Date of expiry Canada US Other Total 2026 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 No expiry $ $ - 47 - 272 173,691 322,359 372,558 209,265 143 5,581 6,524 - - - 20,859 22,464 38,296 21,125 14,699 44,674 33,462 51,896 40,559 - $ 80,000 - - - - - - - - - - 1,051,195 $ 80,000 47 20,859 22,736 211,987 343,484 387,257 253,939 33,605 57,477 47,083 1,051,195 $ 1,090,440 $ 288,034 $ 1,131,195 $ 2,509,669 Included in the table above is $1,048,264,000 (2018 - $987,639,000) of temporary differences related to loss carry forwards where no future benefit has been recognized. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 125 22. Per share amounts Per share amounts have been calculated based on the weighted average number of common shares outstanding during the period. The weighted average number of paid shares outstanding in 2019 was 395,796,677 (2018 - 395,792,732). Basic earnings per share computation Net earnings attributable to equity holders Weighted average common shares outstanding Basic earnings per common share Diluted earnings per share computation Net earnings attributable to equity holders Weighted average common shares outstanding Dilutive effect of stock options Weighted average common shares outstanding, assuming dilution 2019 2018 $ 74,000 $ 166,323 395,797 395,793 $ 0.19 $ 0.42 $ 74,000 $ 166,323 395,797 258 396,055 395,793 257 396,050 Diluted earnings per common share $ 0.19 $ 0.42 23. Supplemental cash flow information Other operating items included in the statements of cash flows are as follows: Changes in non-cash working capital: Accounts receivable Inventories Supplies and prepaid expenses Accounts payable and accrued liabilities Reclamation payments Other Total 2019 2018 $ 58,488 113,388 3,612 (62,250) (32,390) 15,630 $ (44,353) 241,496 52,192 (39,616) (31,311) 4,654 $ 96,478 $ 183,062 126 CAMECO CORPORATION The changes arising from financing activities were as follows: Balance at January 1, 2019 Changes from financing cash flows: Dividends paid Interest paid Shares issued, stock option plan Repayment of long-term debt Long-term debt(a) Interest payable Dividends payable Share capital Total $ 1,495,671 $ 13,539 $ - $ 1,862,652 $ 3,371,862 - - - (500,000) - (72,484) - - (31,613) - - - - - 81 - (31,613) (72,484) 81 (500,000) Total cash changes (500,000) (72,484) (31,613) 81 (604,016) Non-cash changes: Amorization of issue costs Dividends declared Interest expense Lease interest expense Shares issued, stock option plan Foreign exchange Total non-cash changes 1,047 - - - - - 1,047 - - 61,780 309 - (114) 61,975 - 31,613 - - - - 31,613 - - - - 16 - 16 1,047 31,613 61,780 309 16 (114) 94,651 Balance at December 31, 2019 $ 996,718 $ 3,030 $ - $ 1,862,749 $ 2,862,497 (a) Includes current portion of long-term debt 24. Share-based compensation plans The Company has the following equity-settled plans: The Company has established a stock option plan under which options to purchase common shares may be granted to employees of Cameco. Options granted under the stock option plan have an exercise price of not less than the closing price quoted on the Toronto Stock Exchange (TSX) for the common shares of Cameco on the trading day prior to the date on which the option is granted. The options carry vesting periods of one to three years, and expire eight years from the date granted. The aggregate number of common shares that may be issued pursuant to the Cameco stock option plan shall not exceed 43,017,198 of which 27,875,289 shares have been issued. Stock option transactions for the respective years were as follows: (Number of options) Beginning of year Options granted Options forfeited Options expired Options exercised [note 16] End of year Exercisable 2019 2018 8,820,805 886,740 (270,025) (815,423) (5,000) 8,324,666 1,473,430 (315,340) (661,951) - 8,617,097 8,820,805 6,290,380 6,007,557 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 127 Weighted average exercise prices were as follows: Beginning of year Options granted Options forfeited Options expired Options exercised End of year Exercisable 2019 2018 $19.75 15.27 22.59 38.43 16.38 $17.44 $18.90 $22.19 11.32 25.43 28.90 - $19.75 $22.83 Total options outstanding and exercisable at December 31, 2019 were as follows: Option price per share Number $11.32 - 15.83 $15.84 - 26.81 3,733,210 4,883,887 8,617,097 Options outstanding Options exercisable Weighted average remaining life Weighted average exercisable price 5.7 1.9 $13.50 $20.45 Weighted average exercisable price $13.52 $20.45 Number 1,406,493 4,883,887 6,290,380 The foregoing options have expiry dates ranging from May 14, 2020 to February 28, 2027. B The Company has established an RSU plan whereby it provides each plan participant an annual grant of RSUs in an amount determined by the board. Each RSU represents one phantom common share that entitles the participant to a payment of one Cameco common share purchased on the open market, or cash with an equivalent market value, at the board’s discretion. The RSUs carry vesting periods of one to three years, and the final value of the units will be based on the value of Cameco common shares at the end of the vesting periods. During the vesting period, dividend equivalents accrue to the participants in the form of additional share units as of each normal cash dividend payment date of Cameco’s common shares. As of December 31, 2019, the total number of RSUs held by the participants was 443,274, (2018 - 456,704). Cameco also has an employee share ownership plan, whereby both employee and Company contributions are used to purchase shares on the open market for employees. The Company’s contributions are expensed during the year of contribution. Under the plan, employees have the opportunity to participate in the program to a maximum of 6% of eligible earnings each year with Cameco matching the first 3% of employee-paid shares by 50%. Cameco contributes $1,000 of shares annually to each employee that is enrolled in the plan. Shares purchased with Company contributions and with dividends paid on such shares become unrestricted 12 months from the date on which such shares were purchased. At December 31, 2019, there were 2,253 participants in the plan (2018 - 2,317). The total number of shares purchased in 2019 with Company contributions was 235,915 (2018 - 304,147). In 2019, the Company’s contributions totaled $3,127,000 (2018 - $3,845,000). 128 CAMECO CORPORATION Cameco records compensation expense under its equity-settled plans with an offsetting credit to contributed surplus, to reflect the estimated fair value of units granted to employees. During the year, the Company recognized the following expenses under these plans: Stock option plan Performance share unit plan(a) Restricted share unit plan Employee share ownership plan Total $ 2019 4,418 7,245 2,679 3,127 $ 2018 4,744 7,690 2,542 3,845 $ 17,469 $ 18,821 (a) In the fourth quarter, the performance share unit plan was amended to allow eligible participants to elect payout of their grants in cash or shares, provided they have met their share ownership requirements. As a result, this plan is now considered cash-settled. This amount represents the expense recorded prior to the plan modification. Fair value measurement of equity-settled plans The fair value of the units granted through the performance share unit plan was determined based on Monte Carlo simulation and the fair value of options granted under the stock option plan was measured based on the Black-Scholes option-pricing model. The fair value of RSUs granted was determined based on their intrinsic value on the date of grant. Expected volatility was estimated by considering historic average share price volatility. The inputs used in the measurement of the fair values at grant date of the equity-settled share-based payment plans were as follows: Number of options granted Expected vesting Average strike price Expected dividend Expected volatility Risk-free interest rate Expected life of option Expected forfeitures Weighted average grant date fair values The Company has the following cash-settled plans: Stock option plan PSU RSU 886,740 - $15.27 $0.08 36% 1.8% 4.9 years 7% $4.92 477,250 106% - - 38% 1.8% 3.0 years 12% $15.33 212,496 - $15.33 - - - - 15% $15.33 Cameco offers a DSU plan to non-employee directors. A DSU is a notional unit that reflects the market value of a single common share of Cameco. 60% of each director’s annual retainer is paid in DSUs. In addition, on an annual basis, directors can elect to receive 25%, 50%, 75% or 100% of the remaining 40% of their annual retainer and any additional fees in the form of DSUs. If a director meets their ownership requirements, the director may elect to take 25%, 50%, 75% or 100% of their annual retainer and any fees in cash, with the balance, if any, to be paid in DSUs. Each DSU fully vests upon award. Dividend equivalents accrue to the participants in the form of additional share units as of each normal cash dividend payment date of Cameco’s common shares. The DSUs will be redeemed for cash upon a director leaving the board. The redemption amount will be based upon the weighted average of the closing prices of the common shares of Cameco on the TSX for the last 20 trading days prior to the redemption date multiplied by the number of DSUs held by the director. As of December 31, 2019, the total number of DSUs held by participating directors was 474,266 (2018 - 528,483). 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 129 The Company has established a PSU plan whereby it provides each plan participant an annual grant of PSUs in an amount determined by the board. Each PSU represents one phantom common share that entitles the participant to a payment of one Cameco common share purchased on the open market, or cash with an equivalent market value, at the participant’s discretion, at the end of each three-year period if certain performance and vesting criteria have been met. The final value of the PSUs will be based on the value of Cameco common shares at the end of the three-year period and the number of PSUs that ultimately vest. During the vesting period, dividend equivalents accrue to the participants in the form of additional share units as of each normal cash dividend payment date of Cameco’s common shares. Vesting of PSUs at the end of the three- year period will be based on total shareholder return over the three years, Cameco’s ability to meet its annual operating targets and whether the participating executive remains employed by Cameco at the end of the three-year vesting period. If the participant elects a cash payout, the redemption amount will be based on the volume-weighted average trading price of Cameco’s common shares on March 1 or, if March 1 is not a trading day, on the first trading day following March 1. As of December 31, 2019, the total number of PSUs held by the participants, after adjusting for forfeitures on retirement, was 1,465,618 (2018 - 1,343,971). Cameco makes annual grants of bonuses to eligible non-North American employees in the form of phantom stock options. Employees receive the equivalent value of shares in cash when exercised. Options granted under the phantom stock option plan have an award value equal to the closing price quoted on the TSX for the common shares of Cameco on the trading day prior to the date on which the option is granted. The options vest over three years and expire eight years from the date granted. As of December 31, 2019, the number of options held by participating employees was 406,270 (2018 - 353,580) with exercise prices ranging from $11.32 to $26.81 per share (2018 - $11.32 to $39.53) and a weighted average exercise price of $16.48 (2018 - $17.74). Cameco has recognized the following expenses (recoveries) under its cash-settled plans: Deferred share unit plan Performance share unit plan(a) Phantom stock option plan Total 2019 2018 $ $ (1,001) - (436) $ (1,437) $ 2,922 - 675 3,597 (a) The modification to the PSU plan resulted in a reclassification, at the date of modification, of $8,369,000 from equity to liabilities. The liability recognized on the date of the modification was less than the amount previously recognized as an increase in equity. Since the plan modification did not change the performance and vesting criteria, no incremental fair value was granted. At December 31, 2019, a liability of $14,577,000 (2018 - $9,352,000) was included in the consolidated statements of financial position to recognize accrued but unpaid expenses for cash-settled plans. Fair value measurement of cash-settled plans The fair value of the units granted through the PSU plan was determined based on Monte Carlo simulation and the fair value of the phantom stock option plan was measured based on the Black-Scholes option-pricing model. Expected volatility is estimated by considering historic average share price volatility. The inputs used in the measurement of the fair values of the cash-settled share-based payment plans at the grant and reporting dates were as follows: 130 CAMECO CORPORATION PSUs Phantom stock options Grant date Reporting date Grant date Reporting date Mar 1, 2019 Dec 31, 2019 Mar 1, 2019 Dec 31, 2019 Number of units Expected vesting Average strike price Expected dividend Expected volatility Risk-free interest rate Expected life of option Expected forfeitures Weighted average measurement date fair values 477,250 106% - - 38% 1.8% 3.0 years 12% $15.33 1,465,618 80% - - 31% 1.7% 1.4 years 10% $10.07 68,890 - $15.27 $0.08 37% 1.5% 4.5 years 8% $5.07 406,720 - $16.48 $0.08 35% 1.7% 4.0 years 8% $2.14 In addition to these inputs, other features of the PSU grant were incorporated into the measurement of fair value. The market condition based on total shareholder return was incorporated by utilizing a Monte Carlo simulation. The non-market criteria relating to realized selling prices and operating targets have been incorporated into the valuation at both grant and reporting date by reviewing prior history and corporate budgets. 25. Pension and other post-retirement benefits Cameco maintains both defined benefit and defined contribution plans providing pension benefits to substantially all of its employees. All regular and temporary employees participate in a registered defined contribution plan. This plan is registered under the Pension Benefits Standard Act, 1985. In addition, all Canadian-based executives participate in a non-registered supplemental executive pension plan which is a defined benefit plan. Under the supplemental executive pension plan (SEPP), Cameco provides a lump sum benefit equal to the present value of a lifetime pension benefit based on the executive’s length of service and final average earnings. The plan provides for unreduced benefits to be paid at the normal retirement age of 65, however unreduced benefits could be paid if the executive was at least 60 years of age and had 20 years of service at retirement. This program provides for a benefit determined by a formula based on earnings and service, reduced by the benefits payable under the registered base plan. Security is provided for the SEPP benefits through a letter of credit held by the plan’s trustee. The face amount of the letter of credit is determined each year based on the wind-up liabilities of the supplemental plan, less any plan assets currently held with the trustee. A valuation is required annually to determine the letter of credit amount. Benefits will continue to be paid from plan assets until the fund is exhausted, at which time Cameco will begin paying benefits from corporate assets. Cameco also maintains non-pension post-retirement plans (“other benefit plans”) which are defined benefit plans that cover such benefits as group life insurance and supplemental health and dental coverage to eligible employees and their dependents. The costs related to these plans are charged to earnings in the period during which the employment services are rendered. These plans are funded by Cameco as benefit claims are made. The board of directors of Cameco has final responsibility and accountability for the Cameco retirement programs. The board is ultimately responsible for managing the programs to comply with applicable legislation, providing oversight over the general functions and setting certain policies. Cameco expects to pay $1,106,000 in contributions and letter of credit fees to its defined benefit plans in 2020. The post-retirement plans expose Cameco to actuarial risks, such as longevity risk, market risk, interest rate risk, liquidity risk and foreign currency risk. The other benefit plans expose Cameco to risks of higher supplemental health and dental utilization than expected. However, the other benefit plans have limits on Cameco’s annual benefits payable. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 131 The effective date of the most recent valuation for funding purposes on the registered defined benefit pension plans is January 1, 2018. The next planned effective date for valuations is January 1, 2021. Cameco has more than one defined benefit plan and has generally provided aggregated disclosures in respect of these plans, on the basis that these plans are not exposed to materially different risks. Information relating to Cameco’s defined benefit plans is shown in the following table: Pension benefit plans 2019 2018 Other benefit plans 2019 2018 $ 7,177 $ 8,061 $ Fair value of plan assets, beginning of year Interest income on plan assets Return on assets excluding interest income Employer contributions Benefits paid Administrative costs paid Fair value of plan assets, end of year Defined benefit obligation, beginning of year Current service cost Interest cost Actuarial loss (gain) arising from: - demographic assumptions - financial assumptions - experience adjustment Past service cost Benefits paid Foreign exchange Defined benefit obligation, end of year Defined benefit liability [note 14] 262 280 - (912) (1) 6,806 54,271 1,586 1,807 - 6,925 777 - (1,705) (1,073) 62,588 (55,782) $ $ $ $ 259 (292) 61 (910) (2) 7,177 55,972 1,670 1,668 - (3,776) 56 - (2,028) 709 54,271 (47,094) $ $ $ $ $ $ $ $ $ - - - - - - - 21,161 817 841 - 2,877 114 - (855) - $ $ 24,955 (24,955) $ $ - - - - - - - 26,893 1,429 946 (192) (1,887) (2,919) (1,929) (1,180) - 21,161 (21,161) The percentages of the total fair value of assets in the pension plans for each asset category at December 31 were as follows: Asset category(a) Canadian equity securities U.S. equity securities Global equity securities Canadian fixed income Other(b) Total Pension benefit plans 2019 2018 9% 12% 9% 30% 40% 100% 9% 0% 21% 29% 41% 100% (a) The defined benefit plan assets contain no material amounts of related party assets at December 31, 2019 and 2018 respectively. (b) Relates to the value of the refundable tax account held by the Canada Revenue Agency. The refundable total is approximately equal to half of the sum of the realized investment income plus employer contributions less half of the benefits paid by the plan. 132 CAMECO CORPORATION The following represents the components of net pension and other benefit expense included primarily as part of administration: Pension benefit plans Other benefit plans 2019 2018 2019 2018 Current service cost Net interest cost Past service cost Administration cost Defined benefit expense [note 18] Defined contribution pension expense [note 18] $ $ $ 1,586 1,545 - 1 3,132 11,767 1,670 1,409 - 2 3,081 13,431 $ 817 841 - - 1,658 - Net pension and other benefit expense $ 14,899 $ 16,512 $ 1,658 $ The total amount of actuarial losses (gains) recognized in other comprehensive income is: 1,429 946 (1,929) - 446 - 446 Actuarial loss (gain) Return on plan assets excluding interest income Pension benefit plans Other benefit plans 2019 2018 2019 2018 $ 7,702 $ (3,720) $ 2,991 $ (4,998) (280) 292 - - $ 7,422 $ (3,428) $ 2,991 $ (4,998) The assumptions used to determine the Company’s defined benefit obligation and net pension and other benefit expense were as follows at December 31 (expressed as weighted averages): Discount rate - obligation Discount rate - expense Rate of compensation increase Initial health care cost trend rate Cost trend rate declines to Year the rate reaches its final level Dental care cost trend rate Pension benefit plans Other benefit plans 2019 3.0% 3.7% 3.0% - - - - 2018 3.7% 3.4% 3.0% - - - - 2019 3.1% 3.9% - 6.0% 5.0% 2022 5.0% 2018 3.9% 3.4% - 6.0% 5.0% 2022 5.0% At December 31, 2019, the weighted average duration of the defined benefit obligation for the pension plans was 20.0 years (2018 - 19.4 years) and for the other benefit plans was 15.2 years (2018 - 14.3 years). 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 133 A 1% change at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the following: Pension benefit plans Increase Decrease Other benefit plans Increase Decrease Discount rate Rate of compensation increase $ (8,141) 2,832 $ 10,595 (2,608) $ (3,284) n/a $ 4,133 n/a A 1% change in any of the other assumptions would not have a significant impact on the defined benefit obligation. The methods and assumptions used in preparing the sensitivity analyses are the same as the methods and assumptions used in determining the financial position of Cameco’s plans as at December 31, 2019. The sensitivity analyses are determined by varying the sensitivity assumption and leaving all other assumptions unchanged. Therefore, the sensitivity analyses do not recognize any interdependence in the assumptions. The methods and assumptions used in determining the above sensitivity are consistent with the methods and assumptions used in the previous year. In addition, an increase of one year in the expected lifetime of plan participants in the pension benefit plans would increase the defined benefit obligation by $1,621,000. To measure the longevity risk for these plans, the mortality rates were reduced such that the average life expectancy for all members increased by one year. The reduced mortality rates were subsequently used to re-measure the defined benefit obligation of the entire plan. 26. Financial instruments and related risk management Cameco is exposed in varying degrees to a variety of risks from its use of financial instruments. Management and the board of directors, both separately and together, discuss the principal risks of our businesses. The board sets policies for the implementation of systems to manage, monitor and mitigate identifiable risks. Cameco’s risk management objective in relation to these instruments is to protect and minimize volatility in cash flow. The types of risks Cameco is exposed to, the source of risk exposure and how each is managed is outlined below. Market risk Market risk is the risk that changes in market prices, such as commodity prices, foreign currency exchange rates and interest rates, will affect the Company’s earnings or the fair value of its financial instruments. Cameco engages in various business activities which expose the Company to market risk. As part of its overall risk management strategy, Cameco uses derivatives to manage some of its exposures to market risk that result from these activities. Derivative instruments may include financial and physical forward contracts. Such contracts may be used to establish a fixed price for a commodity, an interest-bearing obligation or a cash flow denominated in a foreign currency. Market risks are monitored regularly against defined risk limits and tolerances. Cameco’s actual exposure to these market risks is constantly changing as the Company’s portfolios of foreign currency, interest rate and commodity contracts change. The types of market risk exposure and the way in which such exposure is managed are as follows: As a significant producer and supplier of uranium and nuclear fuel processing services, Cameco bears significant exposure to changes in prices for these products. A substantial change in prices will affect the Company’s net earnings and operating cash flows. Prices for Cameco’s products are volatile and are influenced by numerous factors beyond the Company’s control, such as supply and demand fundamentals and geopolitical events. 134 CAMECO CORPORATION Cameco’s sales contracting strategy focuses on reducing the volatility in future earnings and cash flow, while providing both protection against decreases in market price and retention of exposure to future market price increases. To mitigate the risks associated with the fluctuations in the market price for uranium products, Cameco seeks to maintain a portfolio of uranium product sales contracts with a variety of delivery dates and pricing mechanisms that provide a degree of protection from pricing volatility. The relationship between the Canadian and US dollar affects financial results of the uranium business as well as the fuel services business. Sales of uranium product, conversion and fuel manufacturing services are routinely denominated in US dollars while production costs are largely denominated in Canadian dollars. Cameco attempts to provide some protection against exchange rate fluctuations by planned hedging activity designed to smooth volatility. To mitigate risks associated with foreign currency, Cameco enters into forward sales and option contracts to establish a price for future delivery of the foreign currency. These foreign currency contracts are not designated as hedges and are recorded at fair value with changes in fair value recognized in earnings. Cameco also has a natural hedge against US currency fluctuations because a portion of its annual cash outlays, including purchases of uranium and conversion services, is denominated in US dollars. Cameco holds a number of financial instruments denominated in foreign currencies that expose the Company to foreign exchange risk. Cameco measures its exposure to foreign exchange risk on financial instruments as the change in carrying values that would occur as a result of reasonably possible changes in foreign exchange rates, holding all other variables constant. As of the reporting date, the Company has determined its pre-tax exposure to foreign currency exchange risk on financial instruments to be as follows based on a 5% weakening of the Canadian dollar: Cash and cash equivalents Accounts receivable Net foreign currency derivatives Currency Carrying value (Cdn) Gain (loss) $ USD USD USD $ 120,675 280,877 (4,333) 6,034 14,044 (30,851) A 5% strengthening of the Canadian dollar against the currencies above at December 31, 2019 would have had an equal but opposite effect on the amounts shown above, assuming all other variables remained constant. The Company has a strategy of minimizing its exposure to interest rate risk by maintaining target levels of fixed and variable rate borrowings. The proportions of outstanding debt carrying fixed and variable interest rates are reviewed by senior management to ensure that these levels are within approved policy limits. At December 31, 2019, the proportion of Cameco’s outstanding debt that carries fixed interest rates is 85% (2018 - 67%). Cameco is exposed to interest rate risk through its interest rate swap contracts whereby fixed rate payments on a notional amount of $150,000,000 of the Series E senior unsecured debentures were swapped for variable rate payments. The Series E swaps terminate on November 14, 2022. Under the terms of the swaps, Cameco makes interest payments based on the three- month Canada Dealer Offered Rate plus an average margin of 1.2% and receives fixed interest payments of 3.75%. The Series D swaps terminated on September 2, 2019. At December 31, 2019, the fair value of Cameco’s interest rate swap net asset was $2,313,000 (2018 - $856,000). 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 135 Cameco measures its exposure to interest rate risk as the change in cash flows that would occur as a result of reasonably possible changes in interest rates, holding all other variables constant. As of the reporting date, the Company has determined the impact on earnings of a 1% increase in interest rate on its interest rate contracts to be a loss of $1,524,000. Counterparty credit risk Counterparty credit risk is associated with the ability of counterparties to satisfy their contractual obligations to Cameco, including both payment and performance. The maximum exposure to credit risk, as represented by the carrying amount of the financial assets, at December 31 was: Cash and cash equivalents Short-term investments Accounts receivable [note 6] Advances receivable from JV Inkai [note 31] Derivative assets [note 10] Cash and cash equivalents 2019 2018 $ $ 1,062,431 - 323,430 - 10,504 711,528 391,025 398,639 124,533 3,881 Cameco held cash and cash equivalents of $1,062,000,000 at December 31, 2019 (2018 - $712,000,000). Cameco mitigates its credit risk by ensuring that balances are held with counterparties with high credit ratings. The Company monitors the credit rating of its counterparties on a monthly basis and has controls in place to ensure prescribed exposure limits with each counterparty are adhered to. Impairment on cash and cash equivalents has been measured on a 12-month ECL basis and reflects the short maturities of the exposures. The Company considers that its cash and cash equivalents have low credit risk based on the external credit ratings of the counterparties. Cameco has assessed its counterparty credit risk on cash and cash equivalents by applying historic global default rates to outstanding cash balances based on S&P rating. The conclusion of this assessment is that the loss allowance is insignificant. Accounts receivable Cameco’s sales of uranium product, conversion and fuel manufacturing services expose the Company to the risk of non- payment. Cameco manages the risk of non-payment by monitoring the credit-worthiness of its customers and seeking pre- payment or other forms of payment security from customers with an unacceptable level of credit risk. A summary of the Company’s exposure to credit risk for trade receivables is as follows: Investment grade credit rating Non-investment grade credit rating Total gross carrying amount Loss allowance Net Carrying value $ 244,315 77,323 $ 321,638 - $ 321,638 At December 31, 2019, there were no significant concentrations of credit risk and no amounts were held as collateral. Historically, Cameco has experienced minimal customer defaults and, as a result, considers the credit quality of its accounts receivable to be high. 136 CAMECO CORPORATION Cameco uses customer credit rating data, historic default rates and aged receivable analysis to measure the ECLs of trade receivables from corporate customers, which comprise a small number of large balances. Since the Company has not experienced customer defaults in the past, applying historic default rates in calculating ECLs, as well as considering forward- looking information, resulted in an insignificant allowance for losses. The following table provides information about Cameco’s aged trade receivables as at December 31, 2019: Current (not past due) 1-30 days past due More than 30 days past due Total Liquidity risk Corporate customers Other customers $ $ 274,249 39,690 301 $ 314,240 $ 5,306 1,221 871 7,398 Total 279,555 40,911 1,172 321,638 Financial liquidity represents Cameco’s ability to fund future operating activities and investments. Cameco ensures that there is sufficient capital in order to meet short-term business requirements, after taking into account cash flows from operations and the Company’s holdings of cash and cash equivalents. The Company believes that these sources will be sufficient to cover the likely short-term and long-term cash requirements. The table below outlines the Company’s available debt facilities at December 31, 2019: Outstanding and Total amount committed Amount available Unsecured revolving credit facility Letter of credit facilities [note 13] $ 1,000,000 1,719,120 $ - 1,528,603 $ 1,000,000 190,517 The tables below present a maturity analysis of Cameco’s financial liabilities, including principal and interest, based on the expected cash flows from the reporting date to the contractual maturity date: Carrying amount Contractual cash flows less than Due in 1-3 Due in 3-5 Due after 5 1 year years years years Due in Accounts payable and accrued liabilities $ 181,799 $ 181,799 $ 181,799 $ Long-term debt Foreign currency contracts Lease obligation [note 14] 1,000,000 4,333 14,004 996,718 4,333 12,869 - 4,168 3,967 - $ - $ 400,000 165 8,031 500,000 - 2,006 - 100,000 - - Total contractual repayments $ 1,195,719 $ 1,200,136 $ 189,934 $ 408,196 $ 502,006 $ 100,000 Total interest payments on long-term debt $ 266,820 $ 41,040 $ 82,080 $ 52,080 $ 91,620 Due in less than Due in 1-3 Due in 3-5 Due after 5 Total 1 year years years years 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 137 Measurement of fair values The following tables summarize the carrying amounts and accounting classifications of Cameco’s financial instruments at the reporting date: At December 31, 2019 Financial assets Cash and cash equivalents Accounts receivable [note 6] Derivative assets [note 10] Foreign currency contracts Interest rate contracts Investments in equity securities [note 10] Financial liabilities Accounts payable and accrued liabilities [note 12] Lease obligation [note 14] Derivative liabilities [note 14] Foreign currency contracts Long-term debt [note 13] FVTPL Amortized cost FVOCI - designated Total $ $ $ - $ 1,062,431 $ - 328,044 - $ 1,062,431 328,044 - 8,191 2,313 - - - - - - 24,408 8,191 2,313 24,408 10,504 $ 1,390,475 $ 24,408 $ 1,425,387 - $ - 181,799 $ 12,869 - $ - 181,799 12,869 12,524 - - 996,718 12,524 1,191,386 - - - 12,524 996,718 1,203,910 Net $ (2,020) $ 199,089 $ 24,408 $ 221,477 At December 31, 2018 Financial assets Cash and cash equivalents Short-term investments Accounts receivable [note 6] Derivative assets [note 10] Foreign currency contracts Interest rate contracts Investments in equity securities [note 10] Advances receivable from Inkai [note 31] Financial liabilities Accounts payable and accrued liabilities [note 12] Current portion of long-term debt [note 13] Derivative liabilities [note 14] Foreign currency contracts Interest rate contracts Uranium contracts Long-term debt [note 13] FVTPL Amortized cost FVOCI - designated Total $ $ $ - $ - - 711,528 $ 391,025 402,350 - $ - - 711,528 391,025 402,350 2,201 1,680 - - - - - 124,533 - - 28,916 - 2,201 1,680 28,916 124,533 3,881 $ 1,629,436 $ 28,916 $ 1,662,233 - $ - 224,754 $ 499,599 - $ - 224,754 499,599 54,866 823 5,698 - - - - 996,072 61,387 1,720,425 - - - - - 54,866 823 5,698 996,072 1,781,812 Net $ (57,506) $ (90,989) $ 28,916 $ (119,579) 138 CAMECO CORPORATION Cameco has pledged $195,729,000 of cash as security against certain of its letter of credit facilities. This cash is being used as collateral for an interest rate reduction on the letter of credit facilities. The collateral account has a term of five years effective July 1, 2018. Cameco retains full access to this cash. The investments in equity securities represent investments that Cameco intends to hold for the long-term for strategic purposes. As permitted by IFRS 9, these investments have been designated at the date of initial application as measured at FVOCI. The accumulated fair value reserve related to these investments will never be reclassified to profit or loss. Cameco has not irrevocably designated a financial asset that would otherwise meet the requirements to be measured at amortized cost at FVOCI or FVTPL to eliminate or significantly reduce an accounting mismatch that would otherwise arise. The following tables summarize the carrying amounts and fair values of Cameco’s financial instruments, including their levels in the fair value hierarchy: As at December 31, 2019 Derivative assets [note 10] Foreign currency contracts Interest rate contracts Investments in equity securities [note 10] Derivative liabilities [note 14] Foreign currency contracts Long-term debt [note 13] Carrying value Level 1 Level 2 Total Fair value $ $ 8,191 2,313 24,408 $ - - 24,408 $ 8,191 2,313 - 8,191 2,313 24,408 (12,524) (996,718) - - (12,524) (1,111,923) (12,524) (1,111,923) Net $ (974,330) $ 24,408 $ (1,113,943) $ (1,089,535) As at December 31, 2018 Derivative assets [note 10] Foreign currency contracts Interest rate contracts Investments in equity securities [note 10] Current portion of long-term debt [note 13] Derivative liabilities [note 14] Foreign currency contracts Interest rate contracts Uranium contracts Long-term debt [note 13] Net Carrying value Level 1 Level 2 Total Fair value $ 2,201 1,680 28,916 (499,599) (54,866) (823) (5,698) (996,072) $ $ - - 28,916 - $ 2,201 1,680 - (511,210) 2,201 1,680 28,916 (511,210) - - - - (54,866) (823) (5,698) (1,111,782) (54,866) (823) (5,698) (1,111,782) $ (1,524,261) $ 28,916 $ (1,680,498) $ (1,651,582) The preceding tables exclude fair value information for financial instruments whose carrying amounts are a reasonable approximation of fair value. The carrying value of Cameco’s cash and cash equivalents, short-term investments, accounts receivable, and accounts payable and accrued liabilities approximates its fair value as a result of the short-term nature of the instruments. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 139 There were no transfers between level 1 and level 2 during the period. Cameco does not have any financial instruments that are classified as level 3 as of the reporting date. Cameco measures its derivative financial instruments, material investments in equity securities, current portion of long-term debt and long-term debt at fair value. Investments in publicly held equity securities are classified as a recurring level 1 fair value measurement while derivative financial instruments and long-term debt are classified as a recurring level 2 fair value measurement. The fair value of investments in equity securities is determined using quoted share prices observed in the principal market for the securities as of the reporting date. The fair value of Cameco’s long-term debt is determined using quoted market yields as of the reporting date, which ranged from 1.7% to 1.8% (2018 - 1.9% to 2.2%). Foreign currency derivatives consist of foreign currency forward contracts, options and swaps. The fair value of foreign currency options is measured based on the Black Scholes option-pricing model. The fair value of foreign currency forward contracts and swaps is measured using a market approach, based on the difference between contracted foreign exchange rates and quoted forward exchange rates as of the reporting date. Interest rate derivatives consist of interest rate swap contracts. The fair value of interest rate swaps is determined by discounting expected future cash flows from the contracts. The future cash flows are determined by measuring the difference between fixed interest payments to be received and floating interest payments to be made to the counterparty based on Canada Dealer Offer Rate forward interest rate curves. Uranium contract derivatives consist of price swaps. The fair value of uranium price swaps is determined by discounting expected future cash flows from the contracts. The future cash flows are determined by measuring the difference between fixed purchases or sales under contracted prices, and floating purchases or sales based on Numerco forward uranium price curves. The swaps were settled during the year so there were none outstanding at the reporting date. Where applicable, the fair value of the derivatives reflects the credit risk of the instrument and includes adjustments to take into account the credit risk of the Company and counterparty. These adjustments are based on credit ratings and yield curves observed in active markets at the reporting date. 140 CAMECO CORPORATION Derivatives The following table summarizes the fair value of derivatives and classification on the consolidated statements of financial position: Non-hedge derivatives: Foreign currency contracts Interest rate contracts Uranium contracts Net Classification: Current portion of long-term receivables, investments and other [note 10] Long-term receivables, investments and other [note 10] Current portion of other liabilities [note 14] Other liabilities [note 14] Net $ $ $ 2019 2018 $ (4,333) 2,313 - (52,665) 857 (5,698) (2,020) $ (57,506) $ 4,144 6,360 (7,505) (5,019) 1,028 2,853 (35,534) (25,853) $ (2,020) $ (57,506) The following table summarizes the different components of the gains (losses) on derivatives included in net earnings: Non-hedge derivatives: Foreign currency contracts Interest rate contracts Uranium contracts Net 27. Capital management 2019 2018 $ $ 31,863 2,068 (1,662) (85,967) 2,032 2,854 $ 32,269 $ (81,081) Cameco’s management considers its capital structure to consist of bank overdrafts, long-term debt, short-term debt (net of cash and cash equivalents and short-term investments), non-controlling interest and shareholders’ equity. Cameco’s capital structure reflects its strategy and the environment in which it operates. Delivering returns to long-term shareholders is a top priority. The Company’s objective is to maximize cash flow while maintaining its investment grade rating through close capital management of our balance sheet metrics. Capital resources are managed to allow it to support achievement of its goals while managing financial risks such as the continued weakness in the market, litigation risk and refinancing risk. The overall objectives for managing capital in 2019 reflect the environment that the Company is operating in, similar to the prior comparative period. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 141 The capital structure at December 31 was as follows: Current portion of long-term debt [note 13] Long-term debt [note 13] Cash and cash equivalents Short-term investments Net debt Non-controlling interest Shareholders' equity Total equity Total capital 2019 2018 $ $ - 996,718 (1,062,431) - 499,599 996,072 (711,528) (391,025) (65,713) 393,118 238 4,994,725 310 4,993,282 4,994,963 4,993,592 $ 4,929,250 $ 5,386,710 Cameco is bound by certain covenants in its general credit facilities. These covenants place restrictions on total debt, including guarantees and set minimum levels for net worth. As of December 31, 2019, Cameco met these requirements. 28. Segmented information Cameco has two reportable segments: uranium and fuel services. Cameco's reportable segments are strategic business units with different products, processes and marketing strategies. The uranium segment involves the exploration for, mining, milling, purchase and sale of uranium concentrate. The fuel services segment involves the refining, conversion and fabrication of uranium concentrate and the purchase and sale of conversion services. Cost of sales in the uranium segment includes care and maintenance costs for our operations that currently have production suspensions. Cameco expensed $153,924,000 (2018 - $212,511,000) of care and maintenance costs during the year, including $260,000 (2018 - $32,111,000) of severance costs. This had a negative impact on gross profit in the uranium segment. Accounting policies used in each segment are consistent with the policies outlined in the summary of significant accounting policies. Segment revenues, expenses and results include transactions between segments incurred in the ordinary course of business. These transactions are priced on an arm’s length basis, are eliminated on consolidation and are reflected in the “other” column. 142 CAMECO CORPORATION A. Business segments - 2019 For the year ended December 31, 2019 Revenue $ 1,413,809 $ 370,277 $ 78,839 $ 1,862,925 Uranium Fuel services Other Total Expenses Cost of products and services sold Depreciation and amortization Cost of sales Gross profit (loss) Administration Exploration Research and development Other operating expense Loss on disposal of assets Finance costs Gain on derivatives Finance income Share of earnings from equity-accounted investee Other expense (income) 1,041,922 218,832 1,260,754 234,423 45,856 280,279 69,206 11,061 1,345,551 275,749 80,267 1,621,300 153,055 89,998 (1,428) 241,625 - 13,686 - 2,732 1,869 - - - (45,360) (52,801) - - - - - - - - - - 124,869 - 6,058 - - 98,622 (32,269) (29,760) - 18,961 124,869 13,686 6,058 2,732 1,869 98,622 (32,269) (29,760) (45,360) (33,840) 135,018 61,077 73,941 Earnings (loss) before income taxes 232,929 89,998 (187,909) Income tax expense Net earnings Capital expenditures for the year $ 48,092 $ 27,117 $ 2 $ 75,211 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 143 For the year ended December 31, 2018 Revenue $ 1,684,056 $ 313,989 $ 93,616 $ 2,091,661 Uranium Fuel services Other Total Expenses Cost of products and services sold Depreciation and amortization Cost of sales Gross profit (loss) Administration Exploration Research and development Other operating expense Loss on disposal of assets Finance costs Loss on derivatives Finance income Share of earnings from equity-accounted investee Other income 1,138,940 277,171 1,416,111 219,240 35,977 255,217 109,760 14,825 1,467,940 327,973 124,585 1,795,913 267,945 58,772 (30,969) 295,748 - 20,283 - 59,616 1,008 - - - (32,321) (81,955) - - - - 1,264 - - - - - 141,552 - 1,757 - 31 111,779 81,081 (22,071) - (26,205) 141,552 20,283 1,757 59,616 2,303 111,779 81,081 (22,071) (32,321) (108,160) 39,929 (126,306) 166,235 Earnings (loss) before income taxes 301,314 57,508 (318,893) Income tax recovery Net earnings Capital expenditures for the year $ 44,114 $ 11,226 $ 22 $ 55,362 Revenue is attributed to the geographic location based on the location of the entity providing the services. The Company’s revenue from external customers is as follows: United States Canada Switzerland Germany 2019 2018 $ 1,295,195 567,730 - - $ 1,660,727 424,079 4,038 2,817 $ 1,862,925 $ 2,091,661 The Company’s non-current assets, excluding deferred tax assets and financial instruments, by geographic location are as follows: Canada Australia United States Kazakhstan Germany 144 CAMECO CORPORATION 2019 2018 $ 3,267,376 392,500 121,102 80 24 $ 3,401,828 414,084 131,526 49 41 $ 3,781,082 $ 3,947,528 Cameco relies on a small number of customers to purchase a significant portion of its uranium concentrates and uranium conversion services. During 2019, revenues from two customers of Cameco’s uranium and fuel services segments represented approximately $422,740,000 (2018 - $204,594,000), approximately 24% (2018 - 10%) of Cameco’s total revenues from these segments. As customers are relatively few in number, accounts receivable from any individual customer may periodically exceed 10% of accounts receivable depending on delivery schedule. 29. Group entities The following are the principal subsidiaries and associates of the Company: Subsidiaries: Cameco Fuel Manufacturing Inc. Cameco Marketing Inc. Cameco Inc. Power Resources, Inc. Crow Butte Resources, Inc. NUKEM, Inc. Cameco Australia Pty. Ltd. Cameco Europe Ltd. Associates: JV Inkai Principal place of business Ownership interest 2019 2018 Canada Canada US US US US Australia Switzerland 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Kazakhstan 40% 40% 30. Joint operations Cameco conducts a portion of its exploration, development, mining and milling activities through joint operations located around the world. Operations are governed by agreements that provide for joint control of the strategic operating, investing and financing activities among the partners. These agreements were considered in the determination of joint control. Cameco’s significant Canadian uranium joint operation interests are McArthur River, Key Lake and Cigar Lake. The Canadian uranium joint operations allocate uranium production to each joint operation participant and the joint operation participant derives revenue directly from the sale of such product. Mining and milling expenses incurred by joint operations are included in the cost of inventory. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 145 Cameco reflects its proportionate interest in these assets and liabilities as follows: Total assets McArthur River Key Lake Cigar Lake Total liabilities McArthur River Key Lake Cigar Lake 31. Related parties Principal place of business Ownership 2019 2018 Canada Canada Canada 69.81% 83.33% 50.03% $ 1,046,556 524,324 1,354,399 $ 1,065,562 537,233 1,503,863 $ 2,925,279 $ 3,106,658 $ 69.81% 83.33% 50.03% 32,132 227,562 47,396 $ 32,829 222,369 38,478 $ 307,090 $ 293,676 Key management personnel are those persons that have the authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel of the Company include executive officers, vice-presidents, other senior managers and members of the board of directors. In addition to their salaries, Cameco also provides non-cash benefits to executive officers and vice-presidents and contributes to pension plans on their behalf (note 25). Senior management and directors also participate in the Company’s share-based compensation plans (note 24). Executive officers are subject to terms of notice ranging from three to six months. Upon resignation at the Company’s request, they are entitled to termination benefits of up to the lesser of 18 to 24 months or the period remaining until age 65. The termination benefits include gross salary plus the target short-term incentive bonus for the year in which termination occurs. Compensation for key management personnel was comprised of: Short-term employee benefits Share-based compensation(a) Post-employment benefits Termination benefits Total 2019 2018 $ $ 21,225 12,034 5,542 272 24,821 12,796 4,323 860 $ 39,073 $ 42,800 (a) Excludes deferred share units held by directors (see note 24). B. Other related party transactions Cameco funded JV Inkai’s project development costs through an unsecured shareholder loan. The limit of the loan facility is $175,000,000 (US) and advances under the facility bear interest at a rate of LIBOR plus 2%. At December 31, 2019, there was no balance outstanding as the loan was fully repaid in the third quarter (2018 - $124,533,000 ($91,320,000 (US)) (notes 10 and 30). For the year ended December 31, 2019, Cameco recorded interest income of $1,878,000 relating to this balance (2018 - $5,603,000). 146 CAMECO CORPORATION Cameco purchases uranium concentrates from JV Inkai. For the year ended December 31, 2019, Cameco had purchases of $112,861,000 ($84,827,000 (US)) (2018 - $94,063,000 ($72,007,000 (US))). Cameco received a cash dividend from JV Inkai of $14,079,000 ($10,635,000 (US)) (2018 - nil). 32. Comparative Figures Certain prior year balances have been reclassified to conform to the current financial statement presentation. 2019 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 147 Investor Information Common Shares Toronto (CCO) | New York (CCJ) Transfer Agents and Registrars The registrar and transfer agent for Cameco’s common shares is AST Trust Company. For information on common shareholdings, dividend cheques, lost share certificates and address changes, contact: Canada AST Trust Company (Canada) P.O. Box 700, Station B Montreal, Quebec H3B 3K3 Telephone 1-800-387-0825 or 1-416-682-3860 (outside of North America) www.astfinancial.com/ca-en USA American Stock Transfer & Trust Company, LLC 6201 15th Avenue Brooklyn, NY 11219 Inquiries Cameco Corporation 2121 - 11th Street West Saskatoon, Saskatchewan S7M 1J3 Phone: 306-956-6200 Fax: 306-956-6201 For comprehensive financial information, visit: cameco.com Annual Meeting Dividends The annual meeting of shareholders of Cameco In 2019, our board of directors declared a dividend of Corporation is scheduled to be held on April 30, 2020 at $0.08 per common share, which was paid December 13, Cameco’s head office in Saskatoon, Saskatchewan. 2019. The decision to declare a dividend by our board is based on our cash flow, financial position, strategy and other relevant factors including appropriate alignment with the cyclical nature of our earnings. 

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