UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





F
O R M  2 0 - F





£               REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE


SECURITIES
EXCHANGE ACT OF 1934





OR





T               ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934


For the
fiscal year ended December 31,
2007





OR





£
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  SECURITIES


EXCHANGE
ACT OF 1934


For the
transition period from
__________   to  ______________





OR





£
            SHELL
      COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934





Commission
file number  000-22216





CANADIAN
      ZINC CORPORATION


(Exact
name of Registrant as specified in its charter)
 Not
      applicable
 (Translation
of Company’s name into English)
  British
      Columbia,
Canada
 (Jurisdiction
of incorporation or organization)
  650  West
      Georgia Street, Suite 1710, Vancouver, British Columbia, V6B
      4N9
 (Address
of principal executive offices)
 
 Securities to be
      registered pursuant to Section 12(b) of the Act:
                Not
      applicable
 
  
 Securities to
      be registered pursuant to Section 12(g) of the Act:
                Common Shares without par
      value
 (Title of
Class)


Securities
      for which there is a reporting obligation pursuant to Section 15(d) of the
      Act:
                  Not
      applicable


Indicate
the number of outstanding shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the Annual Report:




120,213,962
      Common Shares, without par
value








Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes
      £
            No
      T





If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.





Yes
      £
            No
      T





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 12 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes
      T
            No
      £





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):





Large
      accelerated filer £
            Accelerated
      filer T
            Non-accelerated
      filer £





Indicate
by check mark which financial statement item the Company has elected to
follow:





Item
      17 T
            Item
      18£





If this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).


Yes
      £
            No
      T








TABLE
OF CONTENTS





CONVENTION





MEASUREMENT CONVERSION INFORMATION





GLOSSARY OF NAMES AND TERMS





FORWARD-LOOKING STATEMENTS






PART IITEM 1.
              IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
      ADVISERSITEM 2.
              OFFER STATISTICS AND EXPECTED TIMETABLEITEM 3.
              KEY INFORMATIONITEM 4.
              INFORMATION ON THE COMPANYITEM 4A.
              UNRESOLVED STAFF COMMENTSITEM 5.
              OPERATING AND FINANCIAL REVIEW AND
    PROSPECTSITEM 6.
              DIRECTORS, SENIOR MANAGEMENT AND
    EMPLOYEESITEM 7.
              MAJOR SHAREHOLDERS AND RELATED PARTY
      TRANSACTIONSITEM 8.
              FINANCIAL INFORMATIONITEM 9.
              THE OFFER AND LISTINGITEM 10.
              ADDITIONAL INFORMATIONITEM 11.
              QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
      MARKET
                RISKPART IIITEM 12.
              DESCRIPTION OF SECURITIES OTHER THAN EQUITY
      SECURITIESITEM 13.
              DEFAULTS, DIVIDEND ARREARS AND
      DELINQUENCIESITEM 14.
              MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
      HOLDERS
                AND USE OF PROCEEDSITEM 15.
              CONTROLS AND PROCEDURESITEM 16.
              [RESERVED]ITEM 16A.
              AUDIT COMMITTEE FINANCIAL EXPERTITEM 16B.
              CODE OF ETHICSITEM 16C.
              PRINCIPAL ACCOUNTANT FEES AND SERVICESITEM 16D.
              EXEMPTIONS FROM THE LISTINGS STANDARDS FOR
      AUDITITEM 16E.
              PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
      AFFILIATED PURCHASERPART IIIITEM 17.
              FINANCIAL STATEMENTSITEM 18.
              FINANCIAL STATEMENTSITEM 19.
              EXHIBITSSIGNATURES


Convention





The terms
“Canadian Zinc,” the “Company,” “we,” “us” and “our” as used in this Annual
Report on Form 20-F, or “Annual Report,” refer to Canadian Zinc Corporation, a
corporation organized under the laws of the province of British Columbia,
Canada, except where the context requires otherwise.





References
throughout this Annual Report to a fiscal year refer to the fiscal year ended on
December 31 of that year.  “Fiscal 2007,” for example, refers to the
fiscal year ended December 31, 2007.





The
Company’s financial statements are prepared in Canadian dollars and in
accordance with Canadian generally accepted accounting principles (“Canadian
GAAP”). These accounting principles conform in all material respects to
accounting principles generally accepted in the United States of America (“U.S.
GAAP”), except as disclosed in Note 14 to the financial statements for the
fiscal year ended December 31, 2007.  All references to “dollars” or
“$” in this Annual Report are to Canadian dollars (“CDN”) and all references to
“U.S. Dollars” or “US$” are to the currency of the United States of America.
Solely for the convenience of the reader, this Annual Report contains
translations of certain Canadian dollar amounts into U.S. Dollar amounts at
specified rates.





Measurement Conversion Information





In this
Annual Report, metric measures are used with respect to mineral properties
described herein. For ease of reference, the following conversion factors are
provided:





1 mile =
1.6093 kilometres


1 metric
ton (tonne) = 2,205 pounds


1 foot -
0.305 metres


1 troy
ounce = 31.103 grams


1 acre =
0.4047 hectare


1
imperial gallon = 4.546 litres


1 long
ton = 2,240 pounds


1
imperial gallon = 1.2010 U.S. gallons





Glossary of Names and Terms





“Deposit” -- A mineralized
body which has been physically delineated by sufficient drilling, trenching,
and/or underground work, and found to contain a sufficient average grade of a
commodity, metal or metals to warrant further exploration and/or development
expenditures. Such a deposit does not qualify as a commercially mineable ore
body or as containing reserves of ore, unless final legal, technical, and
economic factors are resolved.





“Net Profits”
--  Profits resulting from metal production from the property, less
deduction of certain limited costs including smelting, refining, transportation
and insurance costs.





“Ore” -- A natural aggregate
of one or more minerals which, at a specified time and place, may be mined and
sold at a profit or from which some part may be profitably
separated.





“Reclamation” -- Means the
restoration of land and the surrounding environment of a mining site after the
metal is extracted.





“Ton” -- Short ton (2,000
lbs.).  1 Ton equals 0.907185 Metric Tons.





“Tonne (t)” -- Metric ton
(1,000 kilograms).  1 Tonne equals 1.10231 Tons.








CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS





This
Annual Report contains forward-looking statements that are made under the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995 and
under Canadian securities laws that involve a number of risks and
uncertainties.  Such statements are based on the Company’s current
expectations, estimates and projections about the industry, management’s beliefs
and certain assumptions made by it. We use words such as “expect,” “anticipate,”
“project,” “believe,” “plan,” “intend,” “seek,” “should,” “estimate,” “future”
and other similar expressions to identify forward-looking
statements.  The Company’s actual results could differ materially and
adversely from those expressed in any forward-looking statements as a result of
various factors.





Statements
about expected completion dates of feasibility studies, anticipated commencement
dates of mining or metal production operations, projected quantities of future
metal production and anticipated production rates, operating efficiencies, costs
and expenditures, business development efforts, the need for additional capital
and the Company's production capacity are not guarantees of future performance
and are subject to certain risks, uncertainties and assumptions that are
difficult to predict.  Therefore, the Company's actual results could
differ materially and adversely from those expressed in any forward-looking
statements as a result of various factors. You should not place undue reliance
on these forward-looking statements.





Information
relating to the magnitude or quality of mineral deposits is deemed to be
forward-looking information. The reliability of such information is affected by,
among other things, uncertainty involving geology of mineral deposits;
uncertainty of estimates of their size or composition; uncertainty of
projections relating to costs of production or estimates of market prices for
the mineral; the possibility of delays in mining activities; changes in plans
with respect to exploration, development projects or capital expenditures; and
various other risks including those relating to health, safety and environmental
matters.





The
Company cautions that the list of factors set forth above is not exhaustive.
Some of the risks, uncertainties and other factors which negatively affect the
reliability of forward-looking information are discussed in the Company's public
filings with the Canadian securities regulatory authorities, including its most
recent annual report, quarterly reports, material change reports and press
releases, and with the United States Securities and Exchange Commission (the
“SEC”).  In particular, your attention is directed to the risks
detailed in “Item 3.D.--Key Information--Risk Factors” and similar discussions
in the Company's other SEC and Canadian  filings concerning some of
the important risk factors that may affect its business, results of operations
and financial conditions.  You should carefully consider those risks,
in addition to the other information in this Annual Report and in the Company's
other filings and the various public disclosures before making any business or
investment decisions involving the Company and its securities.





The
Company undertakes no obligation to revise or update any forward-looking
statement, or any other information contained or referenced in this Annual
Report to reflect future events and circumstances for any reason. In addition,
any forecasts or guidance provided by the Company are based on the beliefs,
estimates and opinions of the Company’s management as at the date of this Annual
Report and, accordingly, they involve a number of risks and uncertainties.
Consequently, there can be no assurances that such statements will prove to be
accurate and actual results and future events could differ materially from those
anticipated in such statements. The Company undertakes no obligation to update
such projections if management’s beliefs, estimates or opinions, or other
factors should change.











NOTE
TO INVESTORS CONCERNING ESTIMATES OF MINERAL RESOURCES





Cautionary
Note to Investors concerning estimates of Measured and Indicated
Resources





This
document uses the terms “measured resources” and “indicated resources”.
Investors are advised that while those terms are recognized and required by
Canadian regulations, the U.S. Securities and Exchange Commission does not
recognize them.


Investors
are cautioned not to assume that any part or all of mineral deposits in these
categories will ever be converted into reserves.








Cautionary
Note to Investors concerning estimates of Inferred Resources





This
document uses the term “inferred resources.” Investors are advised that while
those terms are recognized and required by Canadian regulations, the U.S.
Securities and Exchange Commission does not recognize them. “Inferred Resources”
have a great amount of uncertainty as to their existence, and great uncertainty
as to their economic feasibility. It cannot be assumed that all or any part of
an inferred mineral resource will ever be upgraded to a higher category. Under
Canadian rules, estimates of inferred mineral resources may not form the basis
of feasibility or pre-feasibility studies, except in rare cases.


Investors
are cautioned not to assume that all or part of an inferred resource exists, or
is economically mineable.








PART I








ITEM
      1.
            IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
      ADVISERS







A.
            Directors
      and senior management.


Not
applicable.





B.
            Advisers




Not
applicable.





C.
            Auditors




Not
applicable.








ITEM
      2.
            OFFER STATISTICS AND EXPECTED
  TIMETABLE





A.
            Offer
      statistics.




Not
applicable.




B.
            Method
      and expected timetable




Not
applicable.







ITEM
      3.
            KEY INFORMATION





A.           Selected
Financial Data





The
following table sets forth our selected financial data of the Company. This
selected financial data is derived from the Company’s audited financial
statements and notes thereto as at December 31, 2007, 2006, 2005, 2004 and 2003.
A discussion of the differences between Canadian GAAP and U.S. GAAP is contained
in Note 14 to the audited financial statements. The selected financial data
provided below is not necessarily indicative of the future results of operations
or financial performance of the Company.  The Company has not paid any
dividends on its common shares and it does not expect to pay dividends in the
foreseeable future.  The selected financial data set forth below
should be read in conjunction with “Item 5--Operating and Financial Review and
Prospects,” and the financial statements and the notes thereto and other
financial information which appear elsewhere in this Annual Report.








Selected
Financial Data


(CDN$
in thousands, except share and per share data)





Year
      ended December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Amounts
      in accordance with Canadian GAAP:Net
      income (loss)
            
            $
            (920
            )
            
            $
            (1,486
            )
            
            $
            (1,967
            )
            
            $
            (679
            )
            
            $
            (905
            )Basic
      and diluted income (loss) per share
            
            
            (0.01
            )
            
            
            (0.02
            )
            
            
            (0.03
            )
            
            
            (0.01
            )
            
            
            (0.02
            )Total
      assets
            
            
            66,931
            
            
            
            56,762
            
            
            
            34,695
            
            
            
            29,994
            
            
            
            26,745Prairie
      Creek Mine Property
            
            
            37,797
            
            
            
            26,700
            
            
            
            18,495
            
            
            
            16,928
            
            
            
            13,216Net
      assets
            
            
            60,828
            
            
            
            53,784
            
            
            
            33,344
            
            
            
            28,591
            
            
            
            26,417Net
      working capital
            
            
            27,432
            
            
            
            29,143
            
            
            
            16,040
            
            
            
            12,758
            
            
            
            13,185Capital
      stock
            
            
            66,593
            
            
            
            59,994
            
            
            
            43,067
            
            
            
            37,790
            
            
            
            34,937Contributed
      surplus
            
            
            7,844
            
            
            
            6,479
            
            
            
            1,479
            
            
            
            36
            
            
            
            36Dividends
      declared (per share)
            
            $
            0.00
            
            
            $
            0.00
            
            
            $
            0.00
            
            
            $
            0.00
            
            
            $
            0.00Weighted
      average number of common shares outstanding – basic and
      diluted
            
            
            113,429,078
            
            
            
            94,734,979
            
            
            
            71,378,444
            
            
            
            67,174,891
            
            
            
            39,889,341Number
      of common shares outstanding
            
            
            120,213,962
            
            
            
            107,590,212
            
            
            
            79,747,212
            
            
            
            69,394,942
            
            
            
            64,482,932Amounts
      in accordance with U.S. GAAP:
            
            
            
            
            
            (Restated)Net
      income (loss)
            
            $
            (10,567
            )
            
            $
            (9,615
            )
            
            $
            (3,633
            )
            
            $
            (3,038
            )
            
            $
            (1,155
            )Basic
      and diluted income (loss) per share
            
            
            (0.09
            )
            
            
            (0.10
            )
            
            
            (0.05
            )
            
            
            (0.05
            )
            
            
            (0.03
            )Total
      assets
            
            
            33,852
            
            
            
            34,861
            
            
            
            20,923
            
            
            
            17,888
            
            
            
            16,998Prairie
      Creek Mine Property
            
            
            4,718
            
            
            
            4,799
            
            
            
            4,723
            
            
            
            4,822
            
            
            
            3,470Net
      assets
            
            
            31,370
            
            
            
            31,486
            
            
            
            19,572
            
            
            
            16,485
            
            
            
            16,671Net
      working capital
            
            
            27,432
            
            
            
            29,143
            
            
            
            16,040
            
            
            
            12,758
            
            
            
            13,185Capital
      stock
            
            
            65,062
            
            
            
            58,463
            
            
            
            43,067
            
            
            
            37,790
            
            
            
            34,937Contributed
      surplus
            
            
            7,844
            
            
            
            6,479
            
            
            
            1,479
            
            
            
            36
            
            
            
            36Dividends
      declared (per share)
            
            $
            0.00
            
            
            $
            0.00
            
            
            $
            0.00
            
            
            $
            0.00
            
            
            $
            0.00Weighted
      average number of common shares outstanding – basic and
      diluted
            
            
            113,429,078
            
            
            
            94,734,979
            
            
            
            71,378,444
            
            
            
            67,174,891
            
            
            
            39,889,341Number
      of common shares outstanding
            
            
            120,213,962
            
            
            
            107,590,212
            
            
            
            79,747,212
            
            
            
            69,394,942
            
            
            
            64,482,932





See “Item
5.A.--Operating Results--Comparison of Canadian GAAP and United States GAAP as
applicable to the Company’s operations” for comments on the reconciliation of
Canadian and United States Generally Accepted Accounting Principles in this
Annual Report and the 2006 restatement.





Exchange
Rates





In this
Annual Report, unless otherwise specified, all dollar amounts are expressed in
Canadian dollars (“CDN”).





Since
June 1, 1970, the Government of Canada has permitted a floating exchange rate to
determine the value of the Canadian dollar against the U.S. dollar. The high and
low exchange rates, the average rates (average of the exchange rates on the last
day of each month during the period), and the end of the period rates for
Canadian dollars, expressed in U.S. dollars, from January 1, 2003 to December
31, 2007 were as follows:





U.S.
      DOLLARS PER $1.00 (CDN.)Years
      ended December 312007
            2006
            2005
            2004
            2003High
            1.0852
            0.9105
            0.8682
            0.8504
            0.7726Low
            0.8435
            0.8531
            0.7876
            0.7165
            0.6381Average
            0.9303
            0.8817
            0.8254
            0.7684
            0.7138End
      of Period
            1.0088
            0.8581
            0.8598
            0.8319
            0.7713





The high
and low exchange rates for Canadian dollars, expressed in U.S. dollars for each
of the most recent six months were as follows:





U.S.
      DOLLARS PER $1.00 (CDN.)MonthlyOctober
              ‘07
            November
      ‘07
            December
      ‘07
            January
      ‘08
            February
      ‘08
            March
              ‘08High
            1.0585
            1.0852
            1.0199
            1.0092
            1.0241
            1.0146Low
            1.0016
            1.0000
            0.9803
            0.9681
            0.9832
            0.9742





The
exchange rate on April 9, 2008 was 0.9814.








B.           Capitalization
and Indebtedness





Not
applicable.





C.           Reasons
For The Offer and Use of Proceeds





Not
applicable.





D.           Risk
Factors





The
following is a discussion of those distinctive or special characteristics of the
Company’s operations and industry which may have a material impact on, or
constitute risk factors in respect of, the Company’s future financial
performance. This discussion is also described in Section 4 of the Company’s
Annual Information Form dated March 28, 2008 filed as Exhibit 15.1 hereto and
incorporated herein by reference.





Political
and Legislative





Canadian
Zinc conducts its operations in the Mackenzie Valley in the Northwest
Territories of Canada in an area which is claimed by the Dehcho First Nations as
their traditional territory. The Dehcho have not settled their land claim with
the Federal Government of Canada. The Dehcho and the Federal Government both
claim legal title to this territory and legal title to the land remains in
dispute. The Company’s operations are potentially subject to a number of
political, legislative and other risks. Canadian Zinc is not able to determine
the impact of political, legislative or other risks on its business or its
future financial position.





Canadian
Zinc’s operations are exposed to various levels of political, legislative and
other risks and uncertainties. These risks and uncertainties include, but are
not limited to, cancellation, renegotiation or nullification of existing leases,
claims, permits and contracts; expropriation or nationalization of property;
changes in laws or regulations; changes in taxation laws or policies; royalty
and tax increases or claims by governmental, Aboriginal or other entities;
retroactive tax or royalty claims and changing political conditions; government
mandated social expenditures; governmental regulations or policies that favour
or require the awarding of contracts to local or Aboriginal contractors or
require contractors to employ residents of, or purchase supplies from, a
particular jurisdiction or area; or that require that an operating project have
a local joint venture partner, which may require to be subsidized; and other
risks arising out of sovereignty or land claims over the area in which Canadian
Zinc’s operations are conducted.





The
mining, processing, development and mineral exploration activities of Canadian
Zinc are subject to extensive federal, territorial and local laws and
regulations, including various laws governing prospecting, development,
production, taxes, labour standards and occupational health, mine safety, toxic
substances, land use, water use and other matters. Such laws and regulations are
subject to change and can become more stringent and costly over time. No
assurance can be given that new rules and regulations will not be enacted or
that existing rules and regulations will not be applied in a manner which could
limit or curtail exploration, production or development. Amendments to current
laws and regulations governing operations and activities of exploration and
mining, or more stringent implementation thereof, could have a substantial
adverse impact on Canadian Zinc Corporation.





In
1998/2000, there was a major change to the legislative and regulatory framework
and regulations in the Mackenzie Valley. There can be no assurance that these
laws and regulations will not change in the future in a manner that could have
an adverse effect on the Company’s activities and/or its financial
condition.





In
relation to Northwest Territories specifically, a number of policy and social
issues exist which increase Canadian Zinc’s political and legislative risk. The
Government of Canada is facing legal and political issues, such as land claims
and social issues, all of which may impact future operations. This political
climate increases the risk of the Government making changes in the future to its
position on issues such as mining rights and land tenure, which in turn may
adversely affect Canadian Zinc’s operations. Future government actions cannot be
predicted, but may impact the operation and regulation of the Prairie Creek
mine. Changes, if any, in Government policies, or shifts in local political
attitude in the Northwest Territories may adversely affect Canadian Zinc
Corporation’s operations or business.





As noted
in section “Item 4.D.--Property, Plant and Equipment--10. Environmental
Considerations--Nahanni National Park Reserve” of this Annual Report, in August
2007, the Prime Minister of Canada visited Fort Simpson to announce the proposed
expansion of Nahanni National Park Reserve. The Prime Minister announced that
the Government of Canada had approved an Order in Council (PC-2007-1202 July 31,
2007), withdrawing certain lands for the proposed park expansion. The area
surrounding the Prairie Creek mine, containing approximately 367 square
kilometres, is not included in the interim land withdrawal area and, as
specified in Schedule 2 to the Order, is specifically excluded and exempted.
While Canadian Zinc has been assured that its current rights will be respected,
there is a risk that the Park Expansion will detrimentally impact the existing
mining and access rights of Canadian Zinc.





Canadian
Zinc’s exploration, development and production activities may be substantially
affected by factors beyond Canadian Zinc’s control, any of which could
materially adversely affect Canadian Zinc’s financial position or results of
operations. The occurrence of these various factors and uncertainties cannot be
accurately predicted. The Company is not able to determine the impact of these
risks on its business.





Permitting, Environmental and Other
Regulatory Requirements





The
operations of Canadian Zinc require licenses and permits from various
governmental and regulatory authorities. Canadian Zinc believes that it is
presently complying in all material respects with the terms of its current
licenses and permits. However, such licenses and permits are subject to change
in various circumstances. Canadian Zinc does not hold all necessary licenses and
permits under applicable laws and regulations for the operation of the Prairie
Creek mine. There can be no guarantee Canadian Zinc will be able to obtain or
maintain all necessary licenses and permits as are required to explore and
develop its properties, commence construction or operation of mining facilities
or properties under exploration or development, or to obtain them within a
reasonable time.





The
Prairie Creek Project is located in an environmentally sensitive remote area in
the Mackenzie Mountains, within the watershed of the South Nahanni River and in
proximity to, but outside, the Nahanni National Park Reserve. The Company has
experienced long delays in obtaining permits to date. The Company expects
continuing difficulties and delays with its permitting activities and faces
ongoing opposition and legal challenges from certain interests.





Canadian
Zinc’s activities are subject to extensive federal, provincial, territorial and
local laws and regulations governing environmental protection and employee
health and safety. Canadian Zinc is required to obtain governmental permits and
provide bonding requirements under federal and territorial water and mine rules
and permits. All phases of Canadian Zinc’s operations are subject to
environmental regulation. These regulations mandate, among other things, the
maintenance of water and air quality standards and land reclamation. They also
set forth limitations on the generation, transportation, storage and disposal of
solid and hazardous waste. Environmental legislation is evolving in a manner,
which will require stricter standards and enforcement, increased fines and
penalties for non-compliance, and more stringent environmental assessments of
proposed projects. There is no assurance that future changes in environmental
regulation, if any, will not adversely affect Canadian Zinc’s
operations.





Environmental
laws and regulations are complex and have tended to become more stringent over
time. These laws are continuously evolving. Any changes in such laws, or in the
environmental conditions at Prairie Creek, could have a material adverse effect
on Canadian Zinc’s financial condition, liquidity or results of operations.
Canadian Zinc is not able to determine the impact of any future changes in
environmental laws and regulations on its future financial position due to the
uncertainty surrounding the ultimate form such changes may take. The Company
does not currently consider that its expenditures required to maintain ongoing
environmental monitoring obligations at the Prairie Creek mine are material to
the results and financial condition of the Company. However, these costs could
become material in the future and would be reported in the Company’s public
filings at that time.





Although
Canadian Zinc makes provision for reclamation costs, it cannot be assured that
these provisions will be adequate to discharge its obligations for these costs.
As environmental protection laws and administrative policies change, Canadian
Zinc will revise the estimate of its total obligations and may be obliged to
make further provisions or provide further security for mine reclamation costs.
The ultimate amount of reclamation to be incurred for existing and past mining
interests is uncertain. Additional discussion on the impact of reclamation costs
is included in this Annual Report at “Item 4.D.--Property, Plant and
Equipment--10. Environmental Considerations--Environmental
Obligations.”





Existing
and possible future environmental legislation, regulations and actions could
cause additional expense, capital expenditures, restrictions and delays in the
activities of the Company, the extent of which cannot be predicted. Before
production can commence on the Prairie Creek Property, the Company must obtain
regulatory approval, permits and licenses and there is no assurance that such
approvals will be obtained. No assurance can be given that new rules and
regulations will not be enacted or made, or that existing rules and regulations
will not be applied, in a manner which could limit or curtail production or
development.





Regulatory
approvals and permits are currently, and will in the future be, required in
connection with Canadian Zinc’s operations. To the extent such approvals are
required and not obtained, Canadian Zinc may be curtailed or prohibited from
proceeding with planned exploration or development of its mineral properties or
from continuing its mining operations.





Failure
to comply with applicable laws, regulations and permitting requirements may
result in enforcement actions thereunder, including orders issued by regulatory
or judicial authorities causing operations to cease or be curtailed, and may
include corrective measures requiring capital expenditures, installation of
additional equipment, or remedial actions. The Company may have civil or
criminal fines or penalties imposed for violations of applicable laws or
regulations.





Failure
to comply with applicable environmental and health and safety laws can result in
injunctions, damages, suspension or revocation of permits and imposition of
penalties. There can be no assurance that Canadian Zinc has been or will be at
all times in complete compliance with all such laws, regulations and permits, or
that the costs of complying with current and future environmental and health and
safety laws and permits will not materially adversely affect Canadian Zinc’s
business, results of operations or financial condition. Environmental hazards
may exist on the properties on which Canadian Zinc holds interests which are
unknown to Canadian Zinc at present and which have been caused by previous
owners or operators of the properties.





Amendments
to current laws, regulations and permits governing operations and activities of
mining and exploration companies, or more stringent implementation thereof,
could have a material adverse impact on Canadian Zinc Corporation and cause
increases in exploration expenses, capital expenditures or production costs or
require abandonment or delays in the development of mining
properties.





The
Prairie Creek project has, on numerous occasions, experienced significant delays
in obtaining permits and licenses necessary for the conduct of its operations.
If at any time in the future permits essential to operations are not obtained,
or not obtained in a timely manner, or exemptions not granted, there is a risk
that the Prairie Creek mine may not be able to operate.





Exploration and
Development





The
business of exploring for minerals and mining involves a high degree of risk.
There is no assurance the Company’s mineral exploration activities will be
successful. Few properties that are explored are ultimately developed into
producing mines. In exploring and developing its mineral deposits the Company is
subjected to an array of complex economic factors and technical considerations.
Unusual or unexpected formations, formation pressures, power outages, labour
disruptions, flooding, explosions, cave-ins, landslides, environmental hazards,
and the inability to obtain suitable or adequate machinery, equipment or labour
are other risks involved in the conduct of exploration and development programs.
Such risks could materially adversely affect the business or the financial
performance of the Company.





There is
no certainty that the expenditures made by Canadian Zinc towards the search and
evaluation of mineral deposits will result in discoveries of commercial
quantities of ore. The exploration for and development of mineral deposits
involves significant risks which even a combination of careful evaluation,
experience and knowledge may not eliminate. Major expenses may be required to
locate and establish mineral reserves, to develop metallurgical processes and to
construct mining and processing facilities at a particular site. It is
impossible to ensure that the exploration or development programs planned by
Canadian Zinc will result in a profitable commercial mining operation. Whether a
mineral deposit will be commercially viable depends on a number of factors, some
of which are: the particular attributes of the deposit, such as size, grade and
proximity to infrastructure; metal prices which are highly cyclical; and
government regulations, including regulations relating to prices, taxes,
royalties, land tenure, land use, importing and exporting of minerals and
environmental protection. The exact effect of these factors cannot be accurately
predicted, but the combination of these factors may result in Canadian Zinc not
receiving an adequate return on invested capital.





A
specific risk associated with the Prairie Creek Property is its remote location.
Mining, processing, development and exploration activities depend, to one degree
or another, on adequate infrastructure. Reliable roads, bridges, power sources
and water supply are important factors, which affect capital and operating
costs. Unusual or infrequent weather phenomena, government or other interference
in the maintenance or provision of such infrastructure could adversely affect
Canadian Zinc’s operations, financial condition and results of
operations.





Exploration
for minerals and development of mining operations involve many risks, most of
which are outside the Company’s control. In addition to the normal and usual
risks of exploration and mining, the Prairie Creek Property is situated in a
remote location and does not have the benefit of infrastructure or easy
access.





The
development plan for the Prairie Creek Project is based upon a Scoping Study
prepared internally by the Company in 2001 and which is now considered to be out
of date and which should not be relied upon. A Scoping Study is not a
Feasibility Study. The Scoping Study outlined the plan for the development of
the Prairie Creek Project based on the historical development and existing
infrastructure at the Prairie Creek Property and on a Resource Estimation
carried out in 1998. The Resource Estimation does not constitute mineable
reserves. The historical development was carried out principally in 1980 to 1982
and the infrastructure, including the mill, was constructed in the same period
based on a feasibility study prepared by Kilborn Engineering (Pacific) Limited
in 1980. The Kilborn feasibility study is outdated and cannot be relied upon.
The existing infrastructure, including the mill, buildings, camp etc. is now
over twenty-five years old and, although it has been held under care and
maintenance, it has lain idle for more than twenty-five years and was never
operated. There is significant risk attached to the proposed operation of aged
equipment. The Company is also examining the various operating alternatives
outlined in the 2001 preliminary Scoping Study (which is now considered to be
out of date and should not be relied upon) and is working towards updating and
converting the Scoping Study into a Pre-Feasibility study. The Pre-Feasibility
study, which is being undertaken by SNC-Lavalin Inc., is scheduled to be
completed in 2008.





Mining
operations generally involve a high degree of risk. Canadian Zinc’s mining
operations will be subject to all the hazards and risks normally encountered in
the development and production of minerals, including unusual and unexpected
geologic formations, seismic activity, rock bursts, cave-ins, flooding and other
conditions involved in the drilling and removal of material, any of which could
result in damage to, or destruction of, mines and other producing facilities,
damage to life or property, environmental damage and possible legal liability.
Mining and milling operations are subject to hazards such as equipment failure
or failure of retaining dams around tailings disposal areas, which may result in
environmental pollution and consequent liability.





Metal Prices and Market
Sentiment





The
market price of metals and minerals is volatile and cannot be controlled. Metal
prices have fluctuated widely, particularly in recent years. If the price of
metals and minerals should drop significantly, the economic prospects for the
Prairie Creek Project could be significantly reduced or rendered uneconomic.
There is no assurance that, even if commercial quantities of ore are delineated,
a profitable market may exist for the sale of products, including concentrates
from that ore. Factors beyond the control of the Company may affect the
marketability of any minerals discovered or concentrates produced. The
marketability of minerals is affected by numerous other factors beyond the
control of the Company, including quality issues, impurities, government
regulations, royalties, allowable production and importing and exporting of
minerals, the effect of which cannot be accurately predicted. Factors tending to
affect the price of metals include:





•
      The relative strength of the U.S. dollar against other
      currencies;


•
      Government monetary and fiscal
policies;


•
      Expectations of the future rate of global monetary inflation and interest
      rates;


•
      General economic conditions and the perception of risk in capital
      markets;


•
      Political conditions including the threat of terrorism or
    war;


•
      Speculative trading;


•
      Investment and industrial demand;
and


•
      Global production and inventory
stocks.





The
effects of these factors, individually or in aggregate, on the prices of zinc,
lead and/or silver is impossible to predict with accuracy. Fluctuations in metal
prices may adversely affect Canadian Zinc’s financial performance and results of
operations. Further, if the market price of zinc, lead and/or silver falls,
Canadian Zinc may experience losses or asset write-downs and may curtail or
suspend some or all of its exploration, development and mining
activities.





Furthermore,
sustained low metal prices can halt or delay the development of new projects;
reduce funds available for mineral exploration and may result in the recording
of a write-down of mining interests due to the determination that future cash
flows would not be expected to recover the carrying value.





Metal
prices fluctuate widely and are affected by numerous factors beyond Canadian
Zinc’s control such as the sale or purchase of such commodities by various
central banks and financial institutions, interest rates, exchange rates,
inflation or deflation, fluctuation in the value of the United States dollar and
foreign currencies, global and regional supply and demand, and the political and
economic conditions of major mineral and metal producing countries throughout
the world. Future production from Canadian Zinc’s mining properties is dependent
on mineral prices that are adequate to make these properties economic. The
prices of metals have fluctuated widely in recent years, and future serious
price declines could cause continued development of and commercial production
from Canadian Zinc’s properties to be impracticable. Depending on the price of
metal, cash flow from mining operations may not be sufficient and Canadian Zinc
could be forced to discontinue production and may lose its interest in, or may
be forced to sell, its properties.





In
addition to adversely affecting Canadian Zinc’s reserve or resource estimates
and its financial condition, declining commodity prices can impact operations by
requiring a reassessment of the feasibility of a particular project. The need to
conduct such a reassessment may cause substantial delays or may interrupt
operations until the reassessment can be completed.





Currency
fluctuations may affect the costs that Canadian Zinc incurs at its operations.
Zinc, lead and silver are sold throughout the world based principally on the
U.S. dollar price, but operating expenses are incurred in currencies other than
the U.S. dollar. The appreciation of the Canadian dollar against the U.S. dollar
increases the cost of production in U.S. dollar terms at mines located in
Canada.





The
development of the Company’s properties will depend upon the Company’s ability
to obtain financing through private placement financing, public financing, the
joint venturing of projects, bank financing or other means. There is no
assurance that the Company will be successful in obtaining the required
financing.





Securities
of junior and small-cap companies have experienced substantial volatility in the
past, often based on factors unrelated to the financial performance or prospects
of the companies involved. These factors include macroeconomic developments in
North America and global and market perceptions of the attractiveness of
particular industries. The share price of Canadian Zinc is likely to be
significantly affected by short-term changes in metal prices. Other factors
unrelated to Canadian Zinc’s performance that may have an effect on the price of
its Common Shares include the following: the extent of analytical coverage
available to investors concerning Canadian Zinc’s business may be limited if
investment banks with research capabilities do not follow the Company’s
securities; lessening in trading volume and general market interest in the
Company’s securities may affect an investor’s ability to trade significant
numbers of Common Shares; the size of Company’s public float may limit the
ability of some institutions to invest in the Company’s securities; and a
substantial decline in the price of the Common Shares that persists for a
significant period of time could cause the Company’s securities to be delisted
from an exchange, further reducing market liquidity.





As a
result of any of these factors, the market price of its Shares at any given
point in time may not accurately reflect Canadian Zinc’s long-term value.
Securities class action litigation often has been brought against companies
following periods of volatility in the market price of their securities.
Canadian Zinc may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and damages and divert management’s
attention and resources.





The
development and exploration of Canadian Zinc’s Properties, will require
substantial additional financing. Failure to obtain sufficient financing will
result in delaying or indefinite postponement of exploration, development or
production on Canadian Zinc’s properties or even a loss of property interest.
There can be no assurance that additional capital or other types of financing
will be available when needed or that, if available, the terms of such financing
will be favourable to Canadian Zinc.





Uncertainty in the Estimation of
Mineral Resources





The
figures for Mineral Resources contained in this Annual Report are estimates only
and no assurance can be given that the anticipated tonnages and grades will be
achieved, that the indicated level of recovery will be realized or that Mineral
Resources can be mined or processed profitably. There are numerous uncertainties
inherent in estimating Mineral Resources, including many factors beyond Canadian
Zinc Corporation’s control. Such estimation is a subjective process, and the
accuracy of any resource estimate is a function of the quantity and quality of
available data and of the assumptions made and judgments used in engineering and
geological interpretation. In addition, there can be no assurance that mineral
or metal recoveries in small scale laboratory tests will be duplicated in larger
scale tests under on-site conditions or during production.





Inferred
mineral resources do not have demonstrated economic viability. Due to the
uncertainty which may attach to inferred mineral resources, there is no
assurance that inferred mineral resources will be upgraded to proven and
probable mineral reserves as a result of continued exploration.





Fluctuation
in metal prices, results of drilling, metallurgical testing and production and
the evaluation of mine plans subsequent to the date of any estimate may require
revision of any such resource or reserve estimate. The volume and grade of
resources mined and processed and recovery rates may not be the same as
currently anticipated. Any material reductions in estimates of Mineral
Resources, or of Canadian Zinc’s ability to extract these Mineral Resources,
could have a material adverse effect on Canadian Zinc’s results of operations
and financial condition.





Mineral
reserve and mineral resource estimates are imprecise and depend partly on
statistical inferences drawn from drilling and other data which may prove to be
unreliable. Future production could differ dramatically from mineral resource
estimates for the following reasons:


•
      Mineralization or formations could be different from those predicted by
      drilling, sampling and similar
examinations;


•
      Declines in the market price of metals may render the mining of some or
      all of Canadian Zinc’s mineral resources
  uneconomic;


•
      Increases in operating mining costs and processing costs could adversely
      affect mineral reserves or resources;
and


•
      The grade of mineral reserves or resources may vary significantly from
      time to time and there can be no assurance that any particular level of
      metal may be recovered from the mineral
  reserves.





Any of
these factors may require Canadian Zinc to reduce its mineral reserve and
mineral resources estimates.





Insurance and Uninsured
Risks





Canadian
Zinc’s business is subject to a number of risks and hazards generally, including
adverse environmental conditions, industrial accidents, labour disputes, unusual
or unexpected geological conditions, ground or slope failures, cave-ins, changes
in the regulatory environment and natural phenomena such as inclement weather
conditions, floods and earthquakes. Such occurrences could result in damage to
mineral properties or production facilities, personal injury or death,
environmental damage to Canadian Zinc’s properties or the properties of others,
delays in mining, monetary losses and possible legal liability.





Although
Canadian Zinc maintains insurance to protect against certain risks in such
amounts as it considers to be reasonable, its insurance will not cover all the
potential risks associated with the Company’s mining operations. Canadian Zinc
may also be unable to maintain insurance to cover these risks at economically
feasible premiums. Insurance coverage may not continue to be available or may
not be adequate to cover any resulting liability. Moreover, insurance against
risks such as environmental pollution or other hazards as a result of
exploration and production is not generally available to Canadian Zinc or to
other companies in the mining industry on acceptable terms. In particular, the
Company is not insured for environmental liability or earthquake
damage.





Canadian
Zinc might also become subject to liability for pollution or other hazards which
may not be insured against, or which Canadian Zinc may elect not to insure
against, because of premium costs or other reasons. Losses from these events may
cause Canadian Zinc to incur significant costs that could have a material
adverse effect upon its financial performance and results of
operations.





Key Executives and Conflicts of
Interest





Canadian
Zinc is dependent on the services of key executives, including the President and
Chief Executive Officer and the Vice President of Exploration and Chief
Operating Officer of the Company, and a small number of other skilled and
experienced executives and personnel. Due to the relatively small size of the
Company, the loss of these persons or Canadian Zinc’s inability to attract and
retain additional highly skilled or experienced employees may adversely affect
its business and future operations.





Certain
of the directors and officers of the Company also serve as directors and/or
officers of, or have significant shareholdings in, other companies involved in
natural resource exploration and development and consequently there exists the
possibility for such directors and officers to be in a position of conflict. Any
decision made by any of such directors and officers involving Canadian Zinc will
be made in accordance with their duties and obligations to deal fairly and in
good faith with a view to the best interests of the Company and its
shareholders. In addition, each of the directors is required to declare and
refrain from voting on any matter in which such directors may have a conflict of
interest in accordance with the procedures set forth in the Business Corporations Act
(British Columbia) and other applicable laws.





To the
extent that such other companies may participate in ventures in which Canadian
Zinc may participate, the directors of Canadian Zinc may have a conflict of
interest in negotiating and concluding terms respecting the extent of such
participation. In the event that such a conflict of interest arises at a meeting
of the Company’s directors, a director who has such a conflict will abstain from
voting for the approval of such participation or such terms.





From time
to time several companies may collectively participate in the acquisition,
exploration and development of natural resource properties thereby allowing for
their participation in larger programs, permitting involvement in a greater
number of programs and reducing financial exposure in respect of any one
program. It may also occur that a particular company will assign all or a
portion of its interest in a particular program to another of these companies
due to the financial position of the company making the assignment. Under the
laws of the Province of British Columbia, the directors of the Company are
required to act honestly, in good faith and in the best interests of the
Company. In determining whether or not Canadian Zinc will participate in a
particular program and the interest therein to be acquired by it, the directors
will primarily consider the degree of risk to which the Company may be exposed
and its financial position at that time.





Title Matters





Mining
leases and surface leases issued to the Company by the Federal Government have
been surveyed but other parties may dispute the Company’s title to its mining
properties. The mining claims in which the Company has an interest have not been
surveyed and, accordingly, the precise location of the boundaries of the claims
and ownership of mineral rights on specific tracts of land comprising the claims
may be in doubt. These claims have not been converted to lease, and are,
accordingly, subject to regular compliance with assessment work
requirements.





Failure
to comply strictly with applicable laws, regulations and local practices
relating to mineral right applications and tenure, could result in loss,
reduction or expropriation of entitlements.





While the
Company has investigated its title to all its mining leases, surface leases and
mining claims and, to the best of its knowledge, title to all properties is in
good standing, this should not be construed as a guarantee of title and title
may be affected by undetected defects. The validity and ownership of mining
property holdings can be uncertain and may be contested. There are currently a
number of pending Native title or traditional land ownership claims relating to
Northwest Territories. The Company’s properties at Prairie Creek are subject to
Native land claims. Title insurance generally is not available, and Canadian
Zinc’s ability to ensure that it has obtained secure title to individual mineral
properties or mining concessions may be severely constrained. Canadian Zinc’s
mineral properties may be subject to prior unregistered liens, agreements,
transfers or claims, including Native land claims, and title may be affected by,
among other things, undetected defects. No assurances can be given that there
are no title defects affecting such properties.





Competition





The
mining industry is competitive in all of its phases. There is aggressive
competition within the mining industry for the discovery and acquisition of
properties considered to have commercial potential. Canadian Zinc faces strong
competition from other mining companies in connection with the acquisition of
properties, mineral claims, leases and other mineral interests as well as for
the recruitment and retention of qualified employees and other personnel. Many
of these companies have greater financial resources, operational experience and
technical capabilities than Canadian Zinc. As a result of this competition,
Canadian Zinc may be unable to maintain or acquire attractive mining properties
on terms it considers acceptable or at all. Consequently, Canadian Zinc’s
operations and financial condition could be materially adversely
affected.





Acquisitions




From time
to time, Canadian Zinc undertakes evaluations of opportunities to acquire
additional mining assets and businesses. Any resultant acquisitions may be
significant in size, may change the scale of Canadian Zinc’s business, and may
expose Canadian Zinc to new geographic, political, operating financial and
geological risks. Canadian Zinc’s success in its acquisition activities depends
on its ability to identify suitable acquisition candidates, to acquire them on
acceptable terms, and integrate their operations successfully with those of
Canadian Zinc. Any acquisition would be accompanied by risks, such as a
significant decline in metal prices; the ore body proving to be below
expectations; the difficulty of assimilating the operation and personnel; the
potential disruption of Canadian Zinc’s ongoing business; the inability of
management to maximize the financial and strategic position of Canadian Zinc
through the successful integration of acquired assets and businesses; the
maintenance of uniform standards, controls, procedures and policies; the
impairment of relationships with employees, customers and contractors as a
result of any integration of new management personnel; and the potential unknown
liabilities associated with acquired assets and business. In addition, Canadian
Zinc may need additional capital to finance an acquisition. Debt financing
related to any acquisition will expose Canadian Zinc to the risk of leverage,
while equity financing may cause existing shareholders to suffer dilution. There
can be no assurance that Canadian Zinc would be successful in overcoming these
risks or any other problems encountered in connection with such
acquisitions.







Dividend Policy





No
dividends have been paid by the Company to date. The Company anticipates that it
will retain all future earnings and other cash resources for the future
operation and development of its business and the Company does not intend to
declare or pay any cash dividends in the foreseeable future. Payment of any
future dividends will be at the discretion of the Company’s board of directors
after taking into account many factors, including the Company’s operating
results, financial condition and current and anticipated cash
needs.





History of Losses and No Assurance of
Profitable Operations





The
Company has incurred losses since inception of $13.609 million through December
31, 2007.  There can be no assurance that the Company will be able to
operate profitably during future periods.





Shareholder Dilution





As of the
date hereof, the Company had share purchase options outstanding allowing the
holders of these options to purchase 4,815,000 common shares and share purchase
warrants outstanding allowing the holders to purchase 9,715,012 common
shares.  Directors and officers of the Company (including former
directors) hold 4,200,000 of these share purchase options and 615,000 share
purchase options are held by employees of the Company.  None of the
share purchase warrants are held by directors and officers. As of December 31,
2007 there were 120,213,962 common shares outstanding, the exercise of all of
the existing share purchase options and warrants would result in percentage
ownership dilution to the existing shareholders.





Potential Future Equity
Financings





The
Company has used equity financing in order to meet its needs for capital and may
engage in equity financings during future periods. Subsequent issuances of
equity securities or securities convertible into or exchangeable or exercisable
for equity securities would result in further percentage ownership dilution to
existing shareholders and could depress the price of the Company’s
shares.





Requirements of the Sarbanes-Oxley
Act





In 2007,
the Company documented and tested its internal control procedures in order to
satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002
(“SOX”). As of December 31, 2007, SOX requires an annual assessment by
management of the effectiveness of the Company’s internal control over financial
reporting and an attestation by the Company’s independent auditors addressing
this assessment.





If the
Company fails to maintain the adequacy of its internal control over financial
reporting, as such standards are modified, supplemented, or amended from time to
time, the Company may not be able to ensure that it can conclude on an ongoing
basis that it has effective internal controls over financial reporting in
accordance with Section 404 of SOX. The Company’s failure to satisfy the
requirements of Section 404 of SOX on an ongoing, timely basis could result in
the loss of investor confidence in the reliability of its financial statements,
which in turn could harm the Company’s business and negatively impact the
trading price of its common shares. In addition, any failure to implement
required new or improved controls, or difficulties encountered in their
implementation, could impact the Company’s operating results or cause it to fail
to meet its reporting obligations. Future acquisitions of companies (if any) may
provide the Company with challenges in implementing the required processes,
procedures and controls in its acquired operations. Acquired companies may not
have disclosure controls and procedures or internal control over financial
reporting that are as thorough or effective as those required by securities laws
currently applicable to the Company.





No
evaluation can provide complete assurance that the Company’s internal control
over financial reporting will detect or uncover all failures of persons within
the Company to disclose material information otherwise required to be reported.
The effectiveness of the Company’s controls and procedures could also be limited
by simple errors or faulty judgments. In addition, as the Company continues to
develop, the challenges involved in implementing appropriate internal controls
over financial reporting will increase and will require that the Company
continue to improve its internal controls over financial reporting. Although the
Company intends to devote substantial time and incur substantial costs, as
necessary, to ensure ongoing compliance, the Company cannot be certain that it
will be successful in continuing to comply with Section 404 of SOX.






Enforcement of Foreign
Judgments





Canadian
Zinc is organized under the law of, and headquartered in, British Columbia,
Canada, and none of its directors and officers are citizens or residents of the
United States.  In addition, all of its assets are located outside the
United States.  As a result, it may be difficult or impossible for an
investor to (i) enforce in courts outside the United States judgments against
the Company and its directors and officers obtained in United States courts
based upon the civil liability provisions of United States federal securities
law or (ii) bring in courts outside the United States an original action against
the Company and/or its directors and officers to enforce liabilities based upon
such United States securities laws.





ITEM
      4.
            INFORMATION ON THE
COMPANY





A.           History
and Development of the Company





General
Information.The Company was
incorporated in British Columbia, Canada, on December 16, 1965 under the name
"Pizza Patio Management Ltd." The Company changed its name to "San Andreas
Resources Corporation" on August 29, 1991 and to "Canadian Zinc Corporation" on
May 25, 1999. The Company's principal place of business (which is also the
registered office) is located at Suite 1710, 650 West Georgia Street, Vancouver,
British Columbia, Canada V6B 4N9. The office telephone number is (604)
688-2001.





The
Company’s common shares trade on the Toronto Stock Exchange (“TSX”) in Toronto,
Ontario, Canada under the symbol "CZN” and on the OTC Bulletin Board in the
United States under the symbol “CZICF.” Canada is the place of domicile for the
Company. The Company’s fiscal year end is December 31st in each
year.





The
Company is engaged in the business of exploration and, when warranted,
development of natural resource properties.  The Company is exploring
the Prairie Creek Property and adjacent ground (a zinc/lead/silver property)
located approximately 500 kilometres west of Yellowknife in the Northwest
Territories, Canada.





For the
purposes of the United States regulatory requirements and United States
Generally Accepted Accounting Principles the Company is considered to be an
exploration stage enterprise.





Acquisition of
interest in Prairie Creek Property. Pursuant to an August 23, 1991 Option
Agreement, the Company entered into an option to acquire a 60% interest in the
Prairie Creek Property (“Prairie Creek”) from Nanisivik Mines Ltd. (an
unaffiliated third party) (“Nanisivik”). Subsequently, pursuant to a March 29,
1993 Asset Purchase Agreement that superseded the Option Agreement, the Company
acquired a 100% interest in Prairie Creek, and a 60% interest in the plant and
equipment,  subject to a net smelter royalty of 2%, in favour of Titan
Pacific Resources Ltd. (“Titan”) with a maximum payout of $8.2
million.





The
purchase price for the mineral interests was $3.25 million paid between 1993 and
1995 in full, in cash and shares. The purchase price was allocated $2.75 million
to the land and $0.5 million to the plant and equipment.





In
January 2004, the Company completed an agreement with Titan to purchase Titan's
interest in Prairie Creek. Under the Agreement, the Company acquired
the outstanding 40% interest in the physical plant and equipment at Prairie
Creek, which it did not already own, and also repurchased the 2% net smelter
royalty interest with a face value of $8.2 million. The consideration was the
issue to Titan of 300,000 common shares and 250,000 share purchase warrants
exercisable at $1.25 per share until June 22, 2005. The transaction simplified
and consolidated the Company's 100% royalty free ownership interest of the
Prairie Creek Property.





Summary of recent
financing activities. The Company relies on equity financings to fund its
financial commitments.  Over the past five years the following, in
overview, has occurred:


- 2003:
The Company completed a number of financings to fund its ongoing programs,
resulting in a total of $15.6 million being raised.


- 2004:
The Company raised $2.4 million through the exercise of share purchase warrants
and employee stock options.


- 2005:
The Company raised $5.4 million through the private placement of shares and the
exercise of share purchase warrants.


- 2006:
The Company raised $22 million (net of share issue costs) through the private
placement of shares and the exercise of share purchase warrants and employee
stock options.


- 2007:
The Company raised $10.2 million (net of share issue costs) through the private
placement of shares and the exercise of share purchase warrants and employee
stock options.





Principal Capital
Expenditures. The Company’s principal capital expenditures during the
three most recent fiscal years have focused on additional exploration and
permitting activities at Prairie Creek. From January 1, 2005 to December 31,
2007, the Company incurred total cash expenditures of $20.1 million on Prairie
Creek. During that period, a total of $10.3 million related to drilling and
underground exploration while $5.6 million related to camp operation and project
development. These expenditures have been capitalized for Canadian GAAP as
reported in the Company’s financial statements. For U.S. GAAP purposes these
expenditures are expensed as incurred.





B.           
Business Overview





The
Company’s principal focus is the exploration and development of the Prairie
Creek mine, a large high-grade zinc/lead/silver property located in the
Northwest Territories of Canada.





History of
Prairie Creek. The original discovery of mineralization on the Prairie
Creek Property was made in 1928 at the showing known as the “No. 5 Zone.” In
1958, a limited mapping program was undertaken by Fort Reliance Minerals Ltd.
The claims lapsed in 1965 and were restaked by a prospector and subsequently
conveyed to Cadillac Explorations Ltd. (“Cadillac“) in 1966. Cadillac also
acquired a 182,590 acre prospecting permit. This permit expired in 1969 and
6,659 acres (210 claims) were selected by Cadillac and brought to
lease.





During
1966 to 1969, trenching was carried out on a number of zones and underground
exploration commenced. The property was optioned to Penarroya Canada Ltee.
(“Penarroya”) in 1970 and the underground development was extended. Surface
drilling and preliminary metallurgical testing was also conducted. Penarroya
discontinued their work in late 1970 and Cadillac resumed full operation of the
project. Cadillac further developed the underground workings and resampled the
crosscuts in 1979.





In 1980,
an independent feasibility study was completed by Kilborn Engineering (Pacific)
Limited which resulted in a decision to put the property into production. In
December 1980, Procan Exploration Company Ltd. (“Procan”) (a company associated
with Nelson and Bunker Hunt of Texas) agreed to provide financing for
construction, mine development and working capital necessary to attain
production based on the Kilborn feasibility study. Between 1980 and 1982,
extensive mine development took place. Cadillac acquired a 1,000-ton per day
concentrator and transported it to the minesite. The mill was erected and a camp
constructed. Two adits were established and extensive underground development
took place. During this time, the site was serviced by winter road and over 500
loads of supplies were transported to the site. Construction activities
continued until May 1982 and were almost complete when they were suspended due
to lack of financing. Subsequently, Cadillac went into bankruptcy in May 1983
and site maintenance and operations were taken over by Procan.





In 1991,
Nanisivik acquired the property through the bankruptcy proceedings. In August
1991, Nanisivik granted the Company an option to earn a 60% interest in the
property and in March 1993, the Company acquired a 100% interest in Prairie
Creek, subject to a 2% net smelter return royalty in favour of Titan Pacific
Resources Ltd. In January 2004, the Company acquired Titan’s 2% royalty and
consolidated the Company’s 100% royalty free ownership interest in the Prairie
Creek Property.





Between
1991 and 2000 the Company carried out various exploration programs on the
Prairie Creek Property. In January 2001, the Company completed a Scoping Study
designed to outline and guide the re-development of the existing mine and mill
on the Prairie Creek Property. The preliminary study indicated the feasibility
of a mining and milling operation on the site and identified a number of
different development and production scenarios. The operation would utilize the
existing mine and mill infrastructure that had been put in place in 1982, but
which had never been operated.  Indicated capital costs for the new
operation were estimated in 2000 to be $40.5 million, including the construction
of an all weather access road to the site. The Scoping Study has not been
updated and is now considered to be out of date. It is now anticipated that the
capital costs to place the Prairie Creek Mine into production will be
significantly higher than indicated in the 2001 Scoping Study.





In October 2007, an updated Technical
Report (the “Report”) with regard to Mineral Resource Estimation on the Main
Zone at Prairie Creek was independently prepared by Minefill Services Inc., in
compliance with National Instrument 43-101, following the results of the
2006/2007 underground drilling program, This report verifies and confirms the
previous historical resource estimate completed by MRDI in 1998 and notes
significant upgrades in resource categories. The Report indicates that the
Prairie Creek Property hosts total Measured and Indicated Resources of 5,840,329
tonnes grading 10.71% zinc, 9.90% lead, 161.12 grams silver per tonne and 0.326%
copper. In addition, the Report confirms that there remains a large Inferred
Resource of 5,541,576 tonnes grading at 13.53% zinc, 11.43% lead, 215 grams per
tonne silver and 0.514% copper and additional exploration
potential.





Permitting at
Prairie Creek. The Prairie Creek Project is located in an environmentally
sensitive remote area in the Mackenzie Mountains, within the watershed of the
South Nahanni River and in proximity to, but outside, the Nahanni National Park
Reserve. The Company is required to obtain various permits to carry on its
activities and is subject to various reclamation and environmental conditions.
Canadian Zinc does not have all of the permits necessary to operate the Prairie
Creek Mine and there can be no assurance that it will be able to obtain those
permits or obtain them within a reasonable time. The Company has experienced
long delays in obtaining permits to date. The Company expects continuing
difficulties with its permitting activities and faces ongoing opposition and
legal challenges from certain interests.





Throughout
the years 2003 through 2007, the Company’s principal focus was its efforts to
advance the Prairie Creek Project towards development, principally in the
permitting process. In 2001, the Company applied for two surface exploration
drilling permits, an underground exploration permit, a pilot plant metallurgical
permit and a permit for use of part of the road from the Property. Following
Environmental Assessment the two surface exploration land use permits were
issued in 2001. The underground exploration and pilot plant permit applications
were referred for Environmental Assessment which lasted throughout all of 2001,
2002 and into June of 2003.





In
September 2003, a Land Use Permit and Water License for underground exploration
and development and for metallurgical testing in a pilot plant were issued to
the Company by the Mackenzie Valley Land and Water Board. An appeal to the
Federal Court seeking judicial review of the decision of the Water Board to
issue the Water License was filed in October 2003 by the Dehcho First Nations
and heard by the Court in August 2005. In December 2005, the Court issued its
Judgment directing the Water Board to reissue the License containing modified
language which had been agreed between the Company and the Minister of Indian
and Northern Affairs Canada. The License was reissued by the Board in February
2006.





In 2003,
the Company submitted a separate application for a Land Use Permit for use of
the existing road from the Liard Highway to the mine site and claimed legal
exemption from the Environmental Assessment process. The claim for exemption was
denied by the Water Board and the Company filed an appeal to the Supreme Court
of the Northwest Territories. That Appeal was heard by the Court in December
2004. In May 2005, the Court issued its Judgment, ruling that the proposed
development is exempt under the Act from Environmental Assessment. The Land Use
Permit was issued in April 2007 and is valid for a period of five years to April
10, 2012.





In
the spring of 2004, the Company applied to the Mackenzie Valley Land and Water
Board for an amendment to expand the area of the existing surface exploration
Land Use Permit. The application was referred for Environmental Assessment and
this assessment was conducted by the Mackenzie Valley Impact Review Board
throughout 2005, culminating in a decision dated December 20, 2005 in which the
Review Board recommended to the Minister of Indian Affairs and Northern
Development  that the development proceed to the regulatory phase of
approvals. On February 3, 2006, the Minister accepted the recommendations of the
Review Board and the application was referred back to the Water Board to
finalize the terms and conditions of the permit. The Land Use Permit was issued
by the Board in May 2006, is valid for a period of five years and permits the
Company to conduct exploration, including drilling, anywhere on the Prairie
Creek Property.





In June
2007, the Company applied to the Mackenzie Valley Land and Water Board for a
Class B water license to rehabilitate a portion of the road in the proximity of
the mine site and sought authorization from the Department of Fisheries and
Oceans to carry out the work. Also in June 2007, the Company applied to Indian
and Northern Affairs Canada for a quarrying permit to obtain rock to be used in
the road rehabilitation. The issuance of these permits was delayed as they were
referred to consultation between the Crown and the Nahanni Butte Dene Band. The
Company received the quarry permit on February 29, 2008 and the Water License on
March 20, 2008; the Water License is valid for a period of five years expiring
March 19, 2013.





The
Company is finalizing an application for a Class A Water License and related
Land Use Permit to enable the operation of the Prairie Creek Mine and expects to
file its application with the Mackenzie Valley Land and Water Board in
2008.





Other business
opportunities. The Company continues to search for projects of merit and
has examined a number of opportunities during the past couple of years, none of
which have come to fruition at this time. The Company will scrutinize all new
projects and carry out a thorough investigation of each property, before
committing the Company’s capital and resources on any project.





C.           
Organizational Structure





The
Company has no subsidiaries.





D.           Property,
Plant and Equipment





The
properties of the Company are in the exploration and development stage
only.  The Company has no producing properties and has not had any
revenue from mining since incorporation. The existing infrastructure, including
the mill, buildings, camp etc. is now more than twenty-five years old and,
although it has been held under care and maintenance, it has lain idle for
twenty-five plus years and was never operated.











Principal Property – Prairie
Creek, Northwest Territories





The
Prairie Creek Property consists of a 100% interest in the mining leases, surface
leases and staked mineral claims described below.





1.
            Land
      Tenure





The
Prairie Creek Property is comprised of:





·
            Mining Leases Numbers
      2854, 2931, 2932, 2933, 3313, 3314, 3315, and 3338; (8,749.4 acres,
      expiring from July 13, 2010 to August 5,
2020).




·
            Surface Leases Numbers
      95 F/10-5-5 and 95 F/10-7-4; (325.81 acres). The Surface Leases are held
      from the Department of Indian Affairs and Northern Development and expire
      March 31, 2012.




·
            Mineral
      Claims:  Four additional mineral claims, referred to as
      the Gate Claims, were staked in 1999 in the vicinity of the Prairie Creek
      Property.  These claims consist of the Gate 1-4 Claims covering
      an area of 9,245.35 hectares. Sufficient assessment work has been filed on
      these claims to hold them in good standing until July 19, 2008. Six
      additional mineral claims Way 1–6 covering an area of 10,196.18 acres were
      staked in 2006 adjacent to existing mining leases or mineral claims to
      enlarge the size of the Prairie Creek property and are in good standing
      until November 11, 2008.




All of
the above leases and claims are in good standing at the date
hereof.




The
Prairie Creek Mine is located on land claimed by the Nahanni Butte Dene Band of
the Dehcho First Nations (“DCFN”) as their traditional territory.  The
DCFN are engaged in ongoing land settlement negotiations with the Government of
Canada and the Government of the Northwest Territories in what is referred to as
the Dehcho Process.  [Refer to “Item 4.D.--Property, Plant and
Equipment--11. First Nations”].





In July
2003, as part of the Interim Measures Agreement between Canada and the DCFN as
part of the Dehcho Process, Canada made an interim withdrawal of certain lands
for a period of five years. Part of the lands withdrawn under the interim
withdrawal order include the area represented by the Company’s Mining Lease No.
2854, a portion of Mining Leases No. 2931, 3314 and 3313 and part of the area
over which the road that connects the Property to the highway passes. In
accordance with Sections 19 and 23 of the Interim Measures Agreement, such
withdrawal is subject to the continuing exercise of existing rights, titles,
interests, entitlements, licenses, permits, reservations, benefits and
privileges  and does not affect access to or across withdrawn
land.





In July
2007, Canada made a further interim withdrawal of certain lands for the purpose
of the potential expansion of Nahanni National Park Reserve. The lands withdrawn
cover 28,000 square kilometres and completely surround but do not include the
area of approximately 367 square kilometres surrounding the Prairie Creek Mine,
which by Schedule 2 is specifically excluded from the Interim Land Withdrawal
Order.





Both
Interim Land Withdrawals expire in October 2008. See the details in “Item
4.D.--Property, Plant and Equipment--10. Environmental Considerations--Nahanni
National Park Reserve.”





2.           Location,
Access and Climate





The
Prairie Creek Property is situated approximately 500 kilometres west of
Yellowknife, the administrative centre of the Northwest Territories, in the
Mackenzie mountain range that locally has an average relief of approximately 300
metres and comprises low mountains with moderate to steep sides and intervening
narrow valleys. The Prairie Creek Property is located at an elevation of 850
metres above mean sea level. The valleys are well incised and the area is
located within the Alpine forest-tundra section of the boreal forest,
characterized by stunted fir and limited undergrowth. The trees, that grow at
the lower elevations, give way to mossy, open Alpine-type country in the upper
parts of the mountains.








Year
round access to the Property is provided by aircraft to a 3,000-foot gravel
airstrip immediately adjacent to the camp. The Prairie Creek Property is also
accessible by road which extends from the Property to the Liard Highway, a
distance of 170 kilometres and which was originally permitted for use in the
winter months throughout its full length and for year round use for the first 40
kilometres out from the mine site. In April 2007, the Company received a five
year permit to use the road in the winter months. However, the road needs to be
re-established and as described in this Annual Report at “Item 4.B.--Business
Overview--Permitting at Prairie Creek”, the Company plans to rehabilitate part
of the road during 2008 upon receipt of pertinent permits and authorization. The
Liard Highway #7 is the major north-south transportation route, which connects
Fort Nelson, British Columbia to Fort Simpson, Northwest
Territories.





The
climate is sub-Arctic, being characterized by long cold winters with pleasant
summers. Snowfall is moderate and only minor difficulty has been experienced in
operating throughout the winter months.





3.
            Geological
      Setting





Regional
Geology.





The 1987
Geological Survey of Canada Memoir 412 by Morrow and Cook provides the best
description of the regional geological setting of the Property. Morrow and Cook
describe the stratigraphy that accumulated during Siluro-Devonian time and
formed in a paleo-basin adjacent to the ancient North American Platformal
sediments. The east-dipping Tundra Thrust (that is located on the Property) and,
30 kilometres to the west, the west-dipping Arnica Thrust, define the present
margins of the Prairie Creek paleo-basin in which accumulated a thick Devonian
sequence of sediments, including the Cadillac and Funeral
Formations.





Units
within the Prairie Creek paleo-basin underwent structural deformation in the
form of folds and faults during regional Laramide deformation. The prevalent
regional structural trend is approximately north-south; the Prairie Creek
paleo-basin is broken into a series of north-south trending, 5 to 20 kilometre
wide fault blocks.





Property
Geology.





Canadian
Zinc’s existing mineral claims and leases overlie two major fault blocks of
sediments: the Prairie Creek Block and western Gate Block. The north-eastern
part of the Property also includes some of the marginal platformal sequence of
rocks that are relatively undeformed by the faulting and folding that is
apparent within the Prairie Creek paleo-basin sequence.





Marginal Platform. The
northern part of the Company’s claims, from Lease 3313 south to the Way 2
mineral claim, straddles the Tundra Thrust, which separates the Prairie Creek
paleo-basin sequence to the west from the platformal series of sedimentary
formations to the east. The platformal sediments are relatively undeformed and
comprise a stratigraphic sequence starting with the Road River Formation that is
overlain by the Root River, Camsell and Sombre Formations (listed from oldest to
youngest). Mississippi Valley-type mineralization is hosted in biohermal reefs
of the Root River Formation, or facies equivalent.





In the
southern part of the Company’s claims, a reverse fault continuation of the
Tundra Thrust separates the Prairie Creek Block from the marginal platform,
approximately two kilometres east of the Mine Site. The Platformal sequence in
this area is dominated by a thick assemblage of Sombre Formation
dolomites.





Prairie Creek Block. Overall,
the southern part of the Property is outlined by a one to two kilometre wide,
doubly plunging antiform with a north-south trending fold axis that is referred
to as the Prairie Creek Block. It is bordered to the west by the so-called Gate
Fault and to the east by the Tundra Thrust. It is underlain by a conformable
sedimentary sequence including the Lower Ordovician Whittaker Formation
dolomites, Silurian Road River Formation shales and the thinly bedded, limy
shales of the Cadillac Formation. Lower to Middle Devonian Arnica and Funeral
Formation dolomites and limestone overlie this assemblage on the northern part
of the Property.





Structurally,
the longitudinal arch of the antiform occurs approximately five kilometres south
of the Mine Site. A local fault, referred to as the Prairie Creek fault, offsets
the eastern flank of the antiformal fold and juxtaposes Cadillac stratigraphy
against the Road River Formation. Erosion of the antiformal structure has
resulted in windows of older Road River shales, cored by the Whittaker Formation
dolomites. The antiform plunges at about 15 degrees to the north, so the
geological units young in age to the north, which is also the case
underground.





Gate Mineral Claims. The six
contiguous Gate claims (that together define what is termed the Gate Block) are
located to the west of the main mining leases and overlie similar type rock
assemblages to those found on the Prairie Creek Block. Grassroots exploration
was completed on this ground to test for mineralization similar to that found in
the Prairie Creek Block.





The
geological formations of the Whittaker and Road River Formations are known to
occur within the Gate Block, as relatively flat-lying to gently dipping units.
Compared to the Prairie Creek Block, there is much more exposure of the
prospective Whittaker Formation in the Gate Block.





Main Zone Geology. The Mine
Site is situated on the western flank of the Prairie Creek antiform, referred to
as the Main Zone. It is Main Zone mineralization that was and is the focus for
Mine development and exploitation








The three
levels of available underground development assist in identifying the detail of
Main Zone geology:


• 870
metre Level is collared in the Ordovician, Upper Whittaker Formation, which is
the oldest geological formation in the Main Zone area and which forms the core
of the Prairie Creek antiform;


• the
Whittaker Formation is in turn overlain by a large exposure of the carbon-rich
graphitic shales/dolomites of the Road River Formation;


• the
iron-bearing Cadillac Formation shales overly the Road River Formation and are
located immediately adjacent to the Mine Site; and


• the
bluff-forming rocks immediately to the west of the Mine Site are formed by the
cherty Arnica Formation which overlie the Cadillac Formation and form the more
resistant hilltops in the immediate vicinity of the Mine Site.





Property Base
MetalMineralization.





Three
main styles of base metal mineralization have been identified on the
Property:  Vein mineralization (sulphide with secondary oxide),
Stratabound sulphides and Mississippi Valley type sulphides (“MVT”). Exploration
at Prairie Creek has revealed many base metal mineral showings along the entire
17-kilometre length of the Property. Historical exploration of the property has
led to referencing some of these surface mineral showings by name and some by
numbers.





• Quartz
vein mineralization occurs in a north-south trending, 16 kilometre long corridor
in the southern portion of the Property where the occurrences are exposed on
surface;


• the
mineralized vein showings are referred to as sequentially numbered Zones, some
ofwhich are known to contain sub-surface stratabound
mineralization:


- the
subsurface area above the underground workings is referred to as Zone 3 or the
Main Zone,


-
extending for about ten kilometres to the south of the Mine Site is a
semi-continuous pattern of other vein exposures referred to as Zones 4 to 12,
inclusive,


- a
further expression of vein mineralization, known as the Rico showing, is located
approximately four kilometres to the north of the Main Zone; and


• the MVT
showings in northern section of the Property are developed over a distance of
approximately ten kilometres. They are referred to, from north to south, as the
Samantha, Joe, Horse, Zulu, Zebra and Road showings.





Stockwork
and stratabound mineralization is not exposed on surface; it has only been
intersected in drillholes. These mineralized bodies have not been individually
named.





VeinMineralization. Vein
mineralization comprises massive to disseminated galena and sphalerite with
lesser pyrite and tennantite-tetrahedrite in a quartz-carbonate-dolomite matrix.
Secondary oxidation is locally developed to variable levels of severity,
yielding mainly cerussite (lead oxide) and smithsonite (zinc oxide); minor
oxidation only of tetrahedrite-tennantite has been found. Silver is present in
solid solution with tennantite-tetrahedrite and to a lesser extent with galena.
Vein widths vary between less than 0.1 metre and more than five metres; overall
averages indicate a horizontal thickness (i.e. not true thickness) of
approximately 2.7 metres.





The most
extensively developed vein is the Main Quartz Vein which trends approximately
north-south and dips between the vertical and 40 degrees east (average = 65
degrees east). It remains open to the north and is expected to continue for a
further four kilometres to the south, evidence for which is the so-called Rico
showing. Diamond drilling to depth has indicated its transverse continuance, but
little information is currently available below an elevation of 600 metres above
mean sea level (i.e. about 250 metres below the Mine Site
elevation).





Vein
mineralization developed within the cherty dolomites of the Ordovician-Silurian,
Upper Whittaker Formation and shaley dolomites of the lower Road River
Formation. It apparently formed in axial plane of weakness within the Prairie
Creek structural antiform:





• it is
thought that the more competent units of the Lower Road River and Whittaker
Formations more readily formed tension features in which vein sulphide
mineralization is hosted; and


• the
rock type changes to a much more graphitic shale in the mid- and upper-parts of
the Road River Formation, which units are less competent and provide a poor host
for the vein-type formation.





For
example, at the end of 930 metre Level the Main Quartz Vein can be seen to
dissipate into the mid- Road River shales. The vein does not appear to be well
developed in either the upper shales of the Road River and Cadillac
Formations.





Preliminary
structural evidence suggests that the various mineralized vein showings might be
structurally linked, as a series of en-echelon segments comprising a single, but
nevertheless structurally complex, mineralized vein structure. The presence of
an en-echelon vein structure might go a long way to explaining the apparent
off-sets between the various vein showings.





Towards
the end of 930 metre Level (at Crosscut 30) a series of narrow (average 0.5
metre wide), massive sphalerite-tennantite veins are developed at about 40
degrees to the average trend of the Main Quartz Vein. This mineralization is
referred to as the (vein) stockwork that is postulated to have developed in
tensional openings formed by primary movement along the main vein structure.
Oxidation is not apparent; the sulphide mineral assemblages are reported by the
Company to be similar to those outlined for Main Quartz Vein
material





Stratabound Mineralization.
Stratabound mineralization was discovered in 1992 while drilling to extend Vein
resources at depth. So far indications of Stratabound mineralization have been
found by drilling along the trend of the Prairie Creek Vein System over a strike
length of more than 3 kilometres. This type of deposit has so far been located
by drill holes in the Main Zone as well as in Zones 4, 5 and 6.





Oxidation
is low in stratabound mineralized material, the sulphide
mineralization:


• is
generally fine-grained, banded to semi-massive and comprises massive
fine-grained sphalerite, coarse-grained galena and disseminated to massive
pyrite (silver is contained in solid solution within galena);


•
contains no tennantite-tetrahedrite and very little copper; and


•
contains only half as much galena as, but substantially more iron
sulphide/pyrite than, typical vein material.





The
majority of stratabound massive sulphides located thus far occur mainly within a
Mottled Dolomite unit of the Whittaker Formation, which the mineralization
totally replaces without any significant alteration. The stratabound sulphides
are developed close to both the vein system and the axis of the Prairie Creek
anticline; the vein structure cuts through the stratabound indicating the vein
to be younger than the stratabound deposit. An apparent thickness of 28 metres
of stratabound mineralization has been intersected in Main Zone drillholes where
it occurs approximately 200 metres below 870 metre Level.





Mississippi Valley Type
Sulphides–
(“MVT”). The MVT mineralization found on the Property is comprised of
colliform rims of sphalerite, brassy pyrite-marcasite and minor galena, with or
without later dolomite infilling. The mineralization appears to occur
discontinuously within coarse biohermal reefs of the Root River Formation, and
always at approximately the same stratigraphic horizon. It appears to be classic
MVT mineralization, insofar as it occurs in open cavity-type
settings.





4.           Gate Claims





During
1999, the Gate 1-4 Mineral Claims were staked covering an area of 9,245.35 acres
to the west of the main property adjacent to the existing land holdings. A small
exploration program on the newly staked mineral claims consisted of geological
mapping, soil and rock sampling over areas that contain similar geology with
that of the Prairie Creek Property. This exploration resulted in the discovery
of a Vein in outcrop, with select samples grading similar with that of the main
established Vein at the Prairie Creek Property. Also, a large zinc soil anomaly
was located over favourable geology. A small heli-portable drilling program was
carried out on part of the Gate Claims during 2007, but revealed no significant
mineralization in drillcore.





5.           2001 Scoping
Study





In
2000/2001, the Company completed a preliminary Scoping Study designed to outline
and guide the re-development of the existing mine and mill on the Prairie Creek
Property.





The Study
took six months to complete and included metallurgical testwork, mill re-design,
alternative mining methods, inclusion of paste backfill in the mine design,
capital and operating cost estimates, a review of smelter terms and conditions
for the Prairie Creek concentrates and other operating parameters. In connection
with the Scoping Study, further metallurgical samples were collected and the
mill equipment was reassessed. The road access corridor, tailings pond and the
underground workings were re-examined for future production considerations and
capital cost estimates. The Scoping Study was prepared in house using
consultants and contractors at a cost of approximately $0.4 million. The Scoping
Study has not been updated.





The
complete Scoping Study, dated January 29, 2001, has been filed in Canada on
SEDAR, and may be found under the Company’s profile on SEDAR at www.sedar.com
[Technical Reports April 24, 2001].





It
should be noted that the economic assessment in the Scoping Study was
preliminary and based, in part, on mineral resources that are considered too
speculative geologically to have the economic considerations applied to them
that would enable them to be categorized as reserves in accordance with National
Instrument 43-101. Mineral resources that are not mineral reserves do not have
demonstrated economic viability. In addition, the Scoping Study was preliminary
in nature, despite the existing underground development and the on-site mill,
and the assumptions made within the Scoping Study and its subsequent results may
not be attained.





The
Scoping Study outlined the plan for the development of the Prairie Creek Project
was based on the historical development and existing infrastructure at the
Prairie Creek Property and on the Resource Estimation. The Resource Estimation
does not constitute mineable reserves. The historical development was carried
out principally in 1980 to 1982 and the infrastructure, including the mill, was
constructed in the same period based on a feasibility study prepared by Kilborn
Engineering (Pacific) Limited in 1980. The Kilborn feasibility study is outdated
and cannot be relied upon. The existing infrastructure, including the mill,
buildings, camp etc. is now over twenty-five years old and although it has been
held under care and maintenance it has lain idle for more than twenty-five years
and was never operated. There is a significant risk attaching to the proposed
operation of aged equipment.





The
Scoping Study is now considered to be out of date and should not be relied upon.
The indicated capital costs were estimated in 2000 and are now outdated. The
Company anticipates that the capital costs to place the Prairie Creek Mine into
production will be significantly greater than estimated in the Scoping
Study.





6.           2006/2007 Work Program and
Exploration Activities





During
2006, the Company undertook a major underground exploration and development
program driving a new decline about 400 metres within the underground mine, from
which a detailed underground drilling program was initiated.  A
surface exploration program was carried out on Zone 5 about five kilometres
south of the minesite.





During
2007, the Company continued the underground drilling program which commenced in
2006. Underground drilling was carried out from drill stations at 50 metre
intervals along a new 400 metre internal decline. Phase 1 of the drilling
program was completed in early June 2007 and consisted of 400 metres of decline
development from which 41 drill holes, of which 40 intersected mineralization,
totaling 8,217 metres of drilling from six drill stations have been completed.
The results of the Phase 1 program were incorporated into a Technical Report
dated October 12, 2007 which was prepared in accordance with the standards in
National Instrument 43-101 as described below at “Item 4.D.--Property, Plant and
Equipment--7. 2007 Resource Estimation.”





Phase 2
of the underground exploration program commenced in August 2007 with the
completion of a further 200 metre extension of the underground decline to create
additional underground drill stations. The underground drilling program from the
new drill stations commenced in late September 2007 and continued until December
2007. Ten holes totaling 2,407 metres of coring were completed, all of which
intersected mineralization.





Further
details with regard to the work undertaken in 2007 are detailed in this Annual
Report at “Item5.A.--Operating Results.”





7.           2007 Resource
Estimation





In
October 2007, an updated Technical Report (the “Report”) with regard to Mineral
Resource Estimation on the Main Zone at Prairie Creek was independently prepared
by Minefill Services Inc. (David Stone and Stephen Godden – Qualified
Independent Persons) in compliance with the standards in National Instrument
43-101, following the results of part of the 2006/2007 underground drilling
program,. This report verifies and confirms the previous historical resource
estimate completed in 1998 and notes significant upgrades in resource categories
resulting from the 2006/2007 underground drilling.





The
Report indicates that the Prairie Creek Property hosts total Measured and
Indicated Resources of 5,840,329 tonnes grading 10.71% zinc, 9.90% lead, 161.12
grams silver per tonne and 0.326% copper. In addition, the Report confirms that
there remains a large Inferred Resource of 5,541,576 tonnes grading at 13.53%
zinc, 11.43% lead, 215 grams per tonne silver and 0.514% copper and additional
exploration potential. A summary table is presented below:





Zone
            Classification
            Tonnes
            Ag
      (g/t)
            Cu
      (%)
            Pb
      (%)
            Zn
      (%)Main
      Quartz Vein
            Measured
            938,624
            211.89
            0.465
            11.63
            13.11Indicated
            2,944,862
            212.39
            0.472
            12.67
            11.16Measured
      + Indicated
            3,883,486
            212.27
            0.470
            12.41
            11.63Inferred
            5,516,297
            215.53
            0.516
            11.46
            13.55Stockwork
            Indicated
            682,165
            50.15
            0.112
            2.68
            5.85Inferred
            4,045
            51.31
            0.126
            2.51
            5.54Stratabound
            Measured
            611,417
            67.60
            -
            6.68
            10.85Indicated
            663,261
            62.00
            -
            5.53
            10.15Measured
      + Indicated
            1,274,678
            64.70
            -
            6.08
            10.49Inferred
            21,234
            55.70
            -
            5.65
            10.49Combined
            Measured
            1,550,041
            154.90
            0.282
            9.67
            12.22Indicated
            4,290,288
            163.30
            0.342
            9.98
            10.16Measured
      + Indicated
            5,840,329
            161.10
            0.326
            9.89
            10.71Inferred
            5,541,576
            214.80
            0.514
            11.43
            13.54


Note:
copper grades for stratabound material were not estimated due to the
consistently low to negligible assay grades reported in the available
database.





Cautionary note: Mineral
Resources that are not mineral reserves do not have demonstrated economic
viability. Inferred mineral resources are considered too speculative
geologically to have economic considerations applied to them that would enable
them to be categorized as mineral reserves and there is no certainty that all or
any part of an inferred mineral resource will ever be upgraded to a measured or
indicated mineral resource or to a mineral reserve.








Highlights
of the Report include:


·
            Total
      Measured and Indicated Resource calculated at 5.8 million tonnes at
      >20% combined lead and zinc;


·
            Measured
      Resources in Vein tonnage increased 73% at 25% combined lead and zinc with
      212 grams per tonne silver;


·
            Indicated
      Resources in Vein tonnage increased 105% at 24% combined lead and zinc
      with 212 grams per tonne silver;


·
            Inferred
      Resource in Vein calculated at 5.5 million tonnes at 25% combined lead
      with silver with 216 grams per tonne
silver;


·
            Average
      increase of 10% in silver grades;
and


·
            Confirmation
      of grade and continuity in a NI 43-101 compliant resource
      report.





The
Measured and Indicated Resource is now capable of supporting a mine life in
excess of ten years at the planned 1,000 – 1,300 tonnes per day production
rate.





The
complete Technical Report has been filed on SEDAR, and may be found under the
Company’s profile on SEDAR at www.SEDAR.com  [Technical
Report (NI 43-101) October 16, 2007].





Cautionary
Note to United States Investors Concerning Estimates of Measured, Indicated or
Inferred Resources:





The
information presented herein uses the terms “measured”, “indicated” and
“inferred” mineral resources.  United States investors are advised
that while such terms are recognized and required by Canadian regulations, the
United States Securities and Exchange Commission does not recognize these
terms.  “Inferred mineral resources” have significant uncertainty as
to their existence, and as to their economic feasibility. United States
investors are cautioned not to assume that all or any part of an inferred
mineral resource exists or is economically mineable. It cannot be assumed that
all or any part of an inferred mineral resource would ever be upgraded to a
higher category.  United States investors are cautioned not to assume
that all or any part of measured or indicated mineral resources will ever be
converted into mineral reserves.





National Instrument 43-101
Definitions





National Instrument 43-101 requires
mining companies to disclose reserves and resources using the subcategories of
proven reserves, probable reserves, measured resources, indicated resources and
inferred resources. Mineral resources that are not mineral reserves do not have
demonstrated economic viability.





A “mineral reserve” is the
economically mineable part of a measured or indicated resource demonstrated by
at least a preliminary feasibility study. This study must include adequate
information on mining, processing, metallurgical, economic and other relevant
factors that demonstrate, at the time of reporting, that economic extraction can
be justified. A mineral reserve includes diluting materials and allows for
losses that may occur when the material is mined. A “proven mineral reserve” is
the economically mineable part of a measured resource for which quantity, grade
or quality, densities, shape and physical characteristics are so well
established that they can be estimated with confidence sufficient to allow the
appropriate application of technical and economic parameters, to support
production planning and evaluation of the economic viability of the deposit. A
“probable mineral
reserve” is the economically mineable part of an indicated mineral
resource for which quantity, grade or quality, densities, shape and physical
characteristics can be estimated with a level of confidence sufficient to allow
the appropriate application of technical and economic parameters, to support
mine planning and evaluation of the economic viability of the
deposit.





A “mineral resource” is a
concentration or occurrence of natural, solid, inorganic or fossilized organic
material in or on the earth’s crust in such form and quantity and of such a
grade or quality that it has reasonable prospects for economic extraction. The
location, quantity, grade, geological characteristics and continuity of a
mineral resource are known, estimated or interpreted from specific geological
evidence and knowledge. A “measured mineral resource” is
that part of a mineral resource for which quantity, grade or quality, densities,
shape and physical characteristics can be estimated with a level of confidence
sufficient to allow the appropriate application of technical and economic
parameters, to support mine planning and evaluation of the economic viability of
the deposit. The estimate is based on detailed and reliable exploration,
sampling and testing information gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes that are
spaced closely enough to confirm both geological and grade continuity. An “indicated mineral resource”
is that part of a mineral resource for which quantity, grade or quality,
densities, shape and physical characteristics can be estimated with a level of
confidence sufficient to allow the appropriate application of technical and
economic parameters, to support mine planning and evaluation of the economic
viability of the deposit. The estimate is based on detailed and reliable
exploration and testing information gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes that are
spaced closely enough for geological and grade continuity to be reasonably
assumed. Mineral resources that are not mineral reserves do not have
demonstrated economic viability. An “inferred mineral resource” is
that part of a mineral resource for which quantity and grade or quality can be
estimated on the basis of geological evidence and limited sampling and
reasonably assumed, but not verified, geological and grade continuity. The
estimate is based on limited information and sampling gathered through
appropriate techniques from locations such as outcrops, trenches, pits, workings
and drill holes.





A “feasibility study” is a
comprehensive study of a mineral deposit in which all geological, engineering,
legal, operating, economic, social, environmental and other relevant factors are
considered in sufficient detail that it could reasonably serve as the basis for
a final decision by a financial institution to finance the development of the
deposit for mineral production. A “preliminary feasibility
study” or “pre-feasibility study” is a
comprehensive study of the viability of a mineral project that has advanced to a
stage where the mining method, in the case of underground mining, or the pit
configuration, in the case of an open pit, has been established, and which, if
an effective method of mineral processing has been determined, includes a
financial analysis based on reasonable assumptions of technical, engineering,
operating, economic factors and the evaluation of other relevant factors which
are sufficient for a qualified person, acting reasonably, to determine if all or
part of the mineral resource may be classified as a mineral reserve. “Cut-off grade” means
(a) in respect of mineral resources, the lowest grade below which the
mineralized rock currently cannot reasonably be expected to be economically
extracted, and (b) in respect of mineral reserves, the lowest grade below
which the mineralized rock currently cannot be economically extracted as
demonstrated by either a preliminary feasibility study or a feasibility study.
Cut-off grades vary between deposits depending upon the amenability of ore to
mineral extraction and upon costs of production and
metal prices.





8.           2008 Pre-Feasibility
Study





The
Company is now examining the various alternatives outlined within the 2001
Scoping Study and is working towards updating and converting this into a
Pre-Feasibility study. As a prelude to completing the Pre-Feasibility program,
the Company has carried out the following programs:





During
2004, 2005 and 2006 metallurgical testing was carried out on the mineralization
from the Prairie Creek Mine. During 2004 representative bulk samples of vein
mineralization were extracted from various locations within the existing
underground workings at the Prairie Creek Mine. In addition, diamond drill core
samples of Stratabound Mineralization were also collected from this deeper lying
deposit which has not yet been accessed by underground development. Vein
mineralization type was collected in the upper and lower level of existing
developed underground workings. It is typically high in zinc, silver and lead in
a mixture of sulphide and oxide minerals. Stratabound mineralization contains
zinc, lead, silver and iron sulphide minerals.





The
metallurgical samples were shipped to SGS Lakefield Research Laboratories at
Lakefield, Ontario (“SGS Lakefield”) where a total of 60 bench scale tests were
undertaken over six months under the direction of the Company’s metallurgical
consultant. The samples were first assayed for both sulphide and oxide
mineralization and then combined into composite samples to ensure true
representation of the Prairie Creek mineral deposit. Mineral samples from two
separate zones of vein mineralization (Upper and Lower Zones), and including
both sulphide and oxide mineralization, and from the stratabound zone, and
additional composite samples from all three zones, were tested to develop and
optimize the Prairie Creek mill flow sheet. The batch and locked cycle tests
provided extensive analytical information and positive metallurgical
results.





During
2006, a new metallurgical bulk sample was collected from multiple headings of
the vein within the existing underground development and also shipped to SGS
Lakefield for further testing and optimization studies. These samples were
composited and blended to create representative samples of the ore that will
provide feed to a future operating mill. The metallurgical program has shown
that heavy media separation, demonstrated in earlier tests, is repeatable and
that higher grade concentrates can be produced by processing the upgraded
material.





Discussions
with concentrate sales professionals and preliminary discussions with smelters
indicate that the Prairie Creek concentrates will be readily saleable, subject
to the payment of usual penalties for elevated impurity levels, including
mercury, in the Vein zinc, lead and copper concentrates.





The
development plan for the Prairie Creek Project will now be updated and based
upon the updated Technical Report with regard to Mineral Resource Estimation on
the Main Zone at Prairie Creek which was independently prepared by Minefill
Services Inc. as described in “Item 4.D--Property, Plant and Equipment--7. 2007
Resource Estimation.” The Pre-Feasibility Study, which is being undertaken by
SNC-Lavalin Inc., is scheduled to be completed in 2008.





9.           Permitting at Prairie
Creek




(a)
              Regulatory
      Framework


At the
time of its construction in 1980 - 1982, the Prairie Creek Mine had been fully
permitted for full scale mining and milling operations. Permitting had been
undertaken under the regulatory regime of the day, which involved a
comprehensive environmental assessment and public review before the Northwest
Territories Water Board. A considerable number of technical and baseline studies
describing the proposed development and the physical and biological environment
were undertaken at that time.





Water
License N3L3-0932 was issued by the Department of Indian Affairs and Northern
Development on July 1, 1982, pursuant to the Northern Inland Waters Act and
Regulations, authorizing the use of up to 1,150 m3/day and
420,000 m3/year of
water from the Prairie Creek Valley Aquifer and setting standards for discharge
of process effluent to Prairie Creek. Land Use Permit N80F249 was issued July 2,
1980, for the road connecting Prairie Creek to the Liard Highway, the first 40
kilometres being permitted for year round use with the remaining 130 kilometres
permitted for use in winter months only. The Land Use Permit was extended in
1981 and again in 1982 to June 1983. Surface Leases were issued for the minesite
area and airstrip. The Water License and Land Use Permit subsequently
expired.





In 1998,
a totally new regulatory and resource management scheme was introduced in this
part of Canada. During the negotiation of native land claim settlements in the
Mackenzie Valley, first with the Dene/Metis in the late 1980’s and then with the
Gwich’in and Sahtu Dene/Metis people, the Federal Government agreed to establish
a new resources management system through the creation of boards with joint
membership which reflects First Nations’ desire to participate more effectively
in the regulation of land and water throughout the Mackenzie
Valley.





The Mackenzie Valley Resource
Management Act (“MVRMA”)or (the “Act”) was enacted in 1998 for a defined
area called the “Mackenzie Valley,” which includes the area where the Prairie
Creek Mine is situated.  Prior to that, the applicable legislation was
the Canadian Environmental
Assessment Act, S.C. 1992 c.37. (“CEAA”)The CEAA no longer
applies in the Mackenzie Valley, except under very specific
situations.





The MVRMA
is a piece of federal legislation that creates an integrated co-management
structure for public and private lands and waters throughout the Mackenzie
Valley in the Northwest Territories. The Act was proclaimed on December 22,
1998; however, Part IV, which establishes the Mackenzie Valley Land and Water
Board, was not proclaimed until March 31, 2000.





The
overall legislative scheme of the MVRMA is designed to implement the Gwich’in
and the Sahtu Land Claim Settlement Agreements (collectively the “Comprehensive
Agreements”) by providing for an integrated system of land and water management
in the Mackenzie Valley. Under the Comprehensive Agreements, Land Use Planning
Boards and Land and Water Boards must be established for the settlement areas
referred to in those Agreements. In addition, an Environmental Impact Review
Board must be established for the Mackenzie Valley along with a Land and Water
Board for an area extending beyond the settlement areas.





The Act
established these public boards to regulate the use of land and water, to
prepare regional land use plans to guide development, and to carry out
environmental assessment and reviews of proposed projects in the Mackenzie
Valley. The Act also makes provisions for monitoring cumulative impacts on the
environment, and for periodic, independent environmental audits.





These
Boards are charged with regulating all land and water uses, including deposits
of waste, in the areas in the Mackenzie Valley under their jurisdiction. As
institutions of public government, the Boards regulate all uses of land and
water while considering the economic, social and cultural well-being of
residents and communities in the Mackenzie Valley.





The MVRMA
ensures a greater role for Aboriginal people in land use planning, environmental
assessment, and the regulation of land and water use. As stated in the MVRMA,
“the purpose of the establishment of boards by this Act is to enable residents
of the Mackenzie Valley to participate in the management of its resources for
the benefit of the residents and of other Canadians” (Section 9.1.
MVRMA).  To reflect the desire of First Nations to be more actively
involved in resource management decision-making, half the members of each Board
are nominated by First Nations, and half by the Federal and Territorial
governments.Public boards are
formed through nominations. Under the land claims agreements, First Nations are
entitled to nominate one-half of the members of the board, reflecting the
board’s jurisdiction over all lands including First Nation settlement lands. The
Federal Government, Territorial Government and First Nations can each nominate
at their own discretion.





The Act
also anticipates amendments to accommodate new land settlements and
self-governments as they are finalized. As land claims are settled, the Act
provides for additional regional boards to be established in the Dehcho, North
Slave and South Slave regions. The Dehcho area is not settled. Prior to
additional regional Boards being established, First Nations in the Dehcho region
were asked to participate in the new system by recommending members to the
Mackenzie Valley Environmental Impact Review Board and the Mackenzie Valley Land
and Water Board.





Under the MVRMA, public boards are
responsible for:


·
            preparing
      regional land use plans to guide the development and use of land, waters
      and other resources [Land Use Planning
Board];


·
            regulating
      all uses of land and water [Mackenzie Valley Land and Water Board
      (MVLWB)]; and


·
            carrying
      out the environmental assessment and review process [Mackenzie Valley
      Environmental Impact Review Board
(MVEIRB)].




Consultation
is the cornerstone of the MVRMA. Public Boards under the Act have established
their own consultation guidelines.





Each
Board has its own specific jurisdiction.





The Land
Use Planning Board develops and implements a land use plan for the respective
settlement areas in the Mackenzie Valley.





Land and
water boards issue land use permits and water licenses under the Mackenzie Valley Land Use
Regulationsandthe Northwest Territories Waters Act and
Regulations, within the Mackenzie Valley.





The
MVEIRB is responsible for environmental impact review and assessment at a
valley-wide level, including the Sahtu and Gwich’in settlement
areas.





The
public boards perform regulatory functions, such as permitting and licensing,
and conducting environmental reviews, previously undertaken by the Department of
Indian Affairs and Northern Development (DIAND) and the NWT Water Board.
Inspection and enforcement continue to be the responsibility of
DIAND.





After
consultation with the Land and Water Board, the Minister of DIAND may give
written policy direction to the Board with respect to the exercise of any of its
functions. The Minister also approves the issuance of Type ‘A’ water
licenses.  Regarding a Type ‘A’ water license, the Minister may attach
terms and conditions such as provision for a security deposit, a requirement for
water quality and quantity measurements, and a requirement for abandonment and
restoration plans.





DIAND
controls, manages and administers all Crown lands in the Mackenzie Valley under
the authority of the Territorial Lands Act, and
the Federal Real Property
Act. Aside from managing Crown lands and waters, DIAND is still
responsible for the administration, inspection and enforcement requirements
associated with renewable, non-renewable and environmental legislation. This
includes the Mackenzie Valley
Resource Management Act, the Northwest Territories Waters
Act, and the Federal
Real Property Act.





DIAND
inspectors are responsible for ensuring compliance with legislation, regulations
and the terms and conditions that are part of permits and licenses issued by the
Land and Water Boards. These responsibilities are exercised by DIAND under the
authority of the Territorial
Lands Regulations, Territorial Quarry Regulations, Canada Mining Regulations and
the Federal Property
Regulations.





Under the
Northwest Territories Waters
Act, S.C. 1992, (C.29) (Waters Act) no person can use water or deposit
waste in specific areas in the Northwest Territories without a license to do so.
Section 102 of the MVRMA provides that it is the MVLWB which has the
jurisdiction with respect of all uses of water and deposits of waste in the area
for which a license is required under the Waters Act. The MVLWB may issue,
amend, renew and cancel licenses in accordance with the Waters Act and exercise
any other power of the Northwest Territories Water Board under the Waters
Act.





The
stated objective of the MVLWB is to “regulate the use of land and waters and the
deposit of waste so as to provide for the conservation, development and
utilization of land and water resources in a manner that will provide optimum
benefit to the residents of the settlement areas and of the Mackenzie Valley and
to all Canadians.” The MVLWB’s main function which is relevant to the Company,
is to issue land use permits and water licenses on land in unsettled land claim
areas in the Mackenzie Valley, inclusive of the Dehcho area.





On
November 7, 2007, the Minister of Indian Affairs and Northern Development
announced the Northern
Regulatory Improvement Initiative and the appointment of a Special
Representative responsible to advance this initiative. As announced by the
Minister, the Northern
Regulatory Improvement Initiative is a strategy to improve the current
regulatory regime and the overall Northern regulatory environment and to ensure
that regulatory regimes across the North are effective and predictable, and will
better equip the North to develop and benefit from its resources in the best way
possible. The Minister’s Special Representative has been asked to work to
improve existing regulatory regimes across the North, and to submit a report to
the Government of Canada outlining proposed recommendations for advancing the
regulatory regime, after which Canada will develop a strategy for action. The
Special Representative is expected to report to the Minister in April
2008.





(b)
              Permitting
      Process





All
applications for a land use permit or a water license in relation to a
development in the Mackenzie Valley are made to the Water Board or one of its
regional boards, as determined by the location of the development. In the case
of Prairie Creek, being located within the Dehcho First Nations territory, for
which a land claim settlement agreement has not as yet been reached,
applications are processed by the MVLWB.





There are
three stages in the environmental impact assessment process in the Mackenzie
Valley: preliminary screening, environmental assessment and environmental impact
review. Not all developments will necessarily go through each of the three
stages. All projects undergo a preliminary screening, after which it is decided
whether a project must proceed to a full environmental assessment or go straight
to the regulatory phase.





The
environmental impact assessment process is triggered by an application to the
MVLWB for a water license. The application requires the inclusion of certain
baseline and other technical information to allow them to be appropriately
assessed and processed. Information provided with an application is used for
undertaking a preliminary screening and for regulatory review of the
application.





Preliminary
screening is the first step in the environmental impact assessment process.
Preliminary screening applications are done by the Land and Water Board. It is
during the preliminary screening that the Board determines whether there is any
public concern related to a proposed project or if it might have significant
adverse environmental impacts.





During
the preliminary screening, a systematic approach is taken to documenting the
potential environmental effects of a proposed project. Next, the Board
determines whether these effects need to be eliminated or minimized and, if so,
how the project plan should be modified. In the end, the Board makes a
recommendation on the need for further assessment.





The
legislation requires that the MVLWB conduct a pre-screening of a proposal for
development (s.124). Where the MVLWB determines that the development might have
a significant adverse impact on the environment, or might be a cause of public
concern, the MVLWB refers the proposal to the MVEIRB for an environmental
assessment (s.125).





Environmental
assessment is the second stage of the environmental impact assessment process.
Projects may be referred to the MVEIRB by the Water Board (the preliminary
screener), some other government department or agency, the First Nation
qualified to make a referral, or on the Mackenzie Valley Environmental Impact
Review Board’s own motion.





The
MVEIRB is responsible for the environmental impact assessment process throughout
the Mackenzie Valley. It is the main instrument for environmental assessment and
review, replacing the CEAA in the Mackenzie Valley except under specific
instances.





The
MVEIRB:


·
            Conducts
      environmental assessments;


·
            Conducts
      environmental impact reviews;


·
            Maintains
      a public registry of all preliminary screenings conducted by Regulatory
      Authorities; and


·
            Makes
      recommendations to the Minister of DIAND for rejection or approval of any
      proposal.





Once a
development proposal is referred to the Mackenzie Valley Environmental Impact
Review Board for an environmental assessment, notices are placed in northern
newspapers. The next step is for the developer to submit a “project description”
to the Review Board. The project description describes what the developer plans
to do and how it will be carried out. The MVEIRB develops a work plan and terms
of reference in order to conduct the Environmental Assessment.





The
public has an opportunity to comment on the project and identify issues which
may require consideration. Public information submitted to the Review Board
throughout this process, including the project description, and all technical
and public submissions, are placed on a public registry.





The
Review Board has guidelines for how they conduct environmental assessments.
These guidelines provide information for submissions to the Review Board,
including timelines and opportunities to present information at any public
hearings that may be held. The environmental impact assessment process has
several points where the local government and other stakeholders can contribute
to and affect the regulatory process. There will also be occasions where the
local government will be asked to comment on a proposed
development.





The
environmental assessment process looks at the same factors considered in the
preliminary screening, as well as addressing potential cumulative effects,
socio-cultural considerations and alternate means of carrying out the project
that are technically and economically feasible and the potential environmental
effects of such alternate means. If the Mackenzie Valley Environmental Impact
Review Board determines there will be significant adverse environmental impact
from a project, it has the choice of referring the development to an
environmental impact public review before a panel. The Review Board may also
recommend measures to prevent or mitigate these impacts.





The
environmental impact review (“EIR”) stage is a detailed analysis and public
review. This is normally reserved for development projects where the
environmental impact may be significant and could include public hearings in
affected communities. An environmental impact review is conducted by a panel
consisting of members of the Mackenzie Valley Environmental Impact Review Board,
as well as any expert members they may appoint. The panel is required to issue
terms of reference and the applicant must submit an impact statement. There must
be public notification of the submission of the impact statement, and public
consultation or hearings in communities which may be affected by the
development. The panel conducts an analysis of the information
received.





Upon
completing the assessment, the MVEIRB submits its Environmental Assessment
Report (“EAR”) to the Federal Minister of Indian Affairs and Northern
Development who is responsible for distributing the EAR to other Ministers with
jurisdiction over the proposed development (s.128).





The
Minister of DIAND, along with the other Responsible Ministers, is required to
make a decision on the EAR. The Minister may adopt the recommendations of the
Mackenzie Valley Environmental Impact Review Board, refer the report back to the
Review Board for further consideration (s.130) or reject the Report and order
further environmental impact review. Once the recommendations contained in the
EAR are adopted by the Minister, and the other responsible Ministers, those
recommendations are to be included by the MVLWB as conditions of any Water
License or Land Use Permit that it issues for that proposed development
(s.62).





When
finally adopted by the Minister the application is sent to MVLWB for issuance of
permits and licenses by the MVLWB in the regulatory phase. The regulatory phase
is the process of issuing regulatory authorizations once the development is
approved through the environmental assessment process. The authorizations
include terms and conditions which reflect the recommendations approved during
the EA process, as well as other standard conditions for carrying out
development.





Decisions
of the Mackenzie Valley Land and Water Board are subject to review by the
Supreme Court of the Northwest Territories.







(c)
            “Grandfather”
      Provisions





Part 5 of
the Mackenzie Valley Resource Management Act, S.C. 1998, C.25 requires that any
“proposals for development” comply with environmental assessment process
consisting of a preliminary screening by the regulatory authority and, if
applicable, an environmental assessment and an environmental impact review by
the Mackenzie Valley Environmental Impact Review Board.





However,
Section 157.1 of the Act provides that Part 5 does not apply in respect of any
license, permit or other authorization related to an undertaking that is the
subject of a license or a permit issued before June 22, 1984, except the
license, permit, or other authorization for an abandonment, decommissioning or
other significant alteration of the project.





Section
157.1 of the Act has been considered by the Court of Appeal of the Northwest
Territories in the case North
American Tungsten Corporation Ltd. V Mackenzie Valley Land and Water Board(2003 NWTCA5).  In that case the Court said (at paragraphs 24
to 27):





“24           However,
both the Comprehensive Agreements and the MVRMA also clearly recognize that a
full scale environmental review will not be appropriate in respect of certain
existing permits, projects and licenses. Instead, both reflect some
grandfathering of existing developments is required to balance competing
interests. Those interests include the legitimate goal of protecting land and
water resources in the Mackenzie Valley for the benefit of its citizens, on the
one hand, while, at the same time, exempting from the full force of the new
environmental legislation undertakings developed under an earlier legislative
regime. For example, the Comprehensive Agreements explicitly protect certain
mineral interests, and arguably the rights associated therewith, in existence as
of the date of the settlement legislation.”





“25           This
respect for vested interests is reflected in the MVRMA.  Part 7
contains a number of transitional provisions designed to preserve and protect
the existing rights and interests.  For example, Section 151 provides
that certain existing permits continue in effect despite the implementation of
the new legislation. Section 152 protects all existing rights to the use of any
lands under any lease, easement, or other interest granted under any territorial
law, again despite what would otherwise have been the impact of the new
legislation on such interests....”





“26           Further
confirmation that Parliament did not intend the MVRMA to interfere with existing
rights can be seen in the fact that even pending applications for permits and
licenses are to be dealt with under the prior applicable legislation and not
under the MVRMA....”





“27           These
provisions collectively reflect that Parliament did not intend to impose an
entirely new environmental review process on every project in the Mackenzie
Valley irrespective of the status of that project at the time the MVRMA came
into effect. Instead, the MVRMA grandfathered certain projects and provided that
others yet would be dealt with under prior applicable legislation. In
interpreting Section 157.1 therefore, one must recognize that it is designed to
grandfather certain undertakings which predate June 22, 1984. Accordingly, this
section must be interpreted in a manner which best comports with its intended
purpose.”





The
Prairie Creek Project was the subject of both a Water License and Land Use
Permit issued prior to June 22, 1984.





In May
2003, the Company applied to the MVLWB for a Land Use Permit for use of the
existing road from the Liard Highway to the Prairie Creek Mine. The Company
submitted that this development is exempt from the Environmental Assessment
process by virtue of Section 157.1 of the Act. The Company’s argument was
rejected by the Water Board on June 1, 2004 and the Company filed an Appeal to
the Supreme Court of the Northwest Territories seeking judicial review of the
decision of the Water Board. The Appeal was heard by the Supreme Court in
December 2004.





In a
written decision dated May 6, 2005, in the case Canadian Zinc Corporation v
Mackenzie Valley Land and Water Board (SCNWT S-0001-CV2004), the Supreme
Court of the Northwest Territories ruled in favour of the Company that its
Winter Road permit application is “grandfathered”and is
therefore exempt from the environmental assessment process under the Mackenzie Valley Resource Management
Act (“MVRMA”).





The
Supreme Court quoted with approval, the earlier 2003 decision of the Northwest
Territories Court of Appeal in the case North American Tungsten Corp. Ltd. v
Mackenzie Valley Land and Water Board. The Supreme Court
found:





“The
reasoning in Tungsten appears to apply squarely to the circumstances of CZC’s
(Canadian Zinc Corporation’s) permit application.  The Court (of
Appeal) referred to the legislative intention that projects which predate June
22, 1984 are to be subjected to a full scale environmental assessment only if
they depart significantly from their approved mode of operation and engage in
decommissioning, abandonment or significant alteration of the
project.  The project, in this case, the operation of the winter
access road, predates June 22, 1984. As found by the (Water) Board, the permit
sought by CZC (Canadian Zinc) is not based on any intentions to significantly
alter that project or to abandon or decommission it”.





In its
decision the Supreme Court said that the permit sought by Canadian Zinc is
related to the operation of the winter access road, a permit in respect of that
same undertaking had been issued before 1984, and therefore the exemption
provided in Section 157.1 of the MVRMA governs and a Part 5 assessment does not
apply.





(d)
            Recent
      Permitting History at Prairie Creek





In 1992,
the Company was granted an Exploration Land Use Permit by the Minister of Indian
Affairs and Northern Development under the Territorial Lands Act.
Further baseline studies were undertaken in 1994 in support of planned
re-development and permitting activity at that time. A new Exploration Land Use
Permit N95F346 was issued by the Minister in 1995 under the Territorial Lands
Act, which included use of a portion of the winter road.





In 1995,
environmental and geotechnical studies were carried out to facilitate the
pre-production permitting process. A project description report was compiled by
Rescan Environmental Ltd. and filed with the Northwest Territories Regional
Environmental Review Committee (“RERC”). This report contains details of all the
environmental work completed at the Prairie Creek Property. The report was filed
to elicit terms of reference for an initial environmental evaluation report. A
permit application was screened in 1995 as a Level 1 screening pursuant to the
Canadian Environmental
Assessment Act (CEAA) and it was determined that that project could
proceed as it was not likely to cause significant adverse effects pursuant to
section 20(1)(a) of the CEAA. A Land Use Permit Application for upgrading the
access road to an all-weather road was also filed with the appropriate
government agency. While the re-permitting process was subsequently discontinued
in 1995, these studies represent a significant contribution to the environmental
information database in support the Prairie Creek Project.





The
Mackenzie Valley Land and Water Board (“MVLWB”) was created on March 31, 2000.
The MVLWB and its associated regional boards took over regulatory functions
previously performed by the DIAND, the Northwest Territories Water Board, and
the Government of the Northwest Territory’s Department of Municipal and
Community Affairs on Commissioner’s Lands.





The
Company initiated preliminary discussions with the new MVLWB and regulatory
authorities in Yellowknife in August, 2000 with respect to re-development and
re-permitting of the Prairie Creek Mine. A follow up presentation was made to
the Governmental Mineral Development Advisory Group (“MDAG”) in November 2000 to
elicit specific feedback from each of the regulatory agencies on the information
requirements necessary for them to fulfill their roles in review of applications
for permits and licenses for the Prairie Creek Mine.





Since
August 2000, Prairie Creek has undergone six Environmental Assessments by the
MVEIRB and has received five separate Land Use Permits and two Water Licenses to
carry out exploration and development at the Prairie Creek Mine and in the
immediately surrounding area, through the new Mackenzie Valley Resource
Management Process.





(e)
            Land
      Use Permit  – Phase 1
Exploration





Canadian
Zinc applied to MVLWB on July 28, 2000, for a Land Use Permit (“LUP”)
(MV2000C0030) to carry out a seven drill hole program  and to access
the Sundog (or CAT) Camp located along the winter road to retrieve fuel and
clean up the camp area, which work was planned for the fall of 2000. On October
4, 2000, MVLWB referred the application to the Mackenzie Valley Environmental
Impact Review Board for environmental assessment. The application was then split
into separate LUP applications with specific reference to the drilling program
and the Cat Camp clean-up.





Following
environmental assessment, a LUP was issued by MVLWB on June 14, 2001, which
permitted the seven drill hole program (MV2000C0030A).





(f)
            Sundog
      (CAT) Camp – Clean Up Permit





On May 9,
2001, the Review Board issued its Report to the Minister recommending that the
Cat Camp permit be approved but that the work be done in winter 2001/2002.
Canadian Zinc preferred to do it in the summer season when the Prairie Creek
Camp was open and there would be easier access. In June 2001, Environment Canada
issued a direction to DIAND to take steps to prevent the deposit of petroleum
products at Cat Camp into the surrounding environment.  In March 2002,
DIAND flew in and incinerated the fuel. On June 17, 2002, three months after the
fuel was incinerated, the Minister of Indian Affairs and Northern Development
referred the Environmental Assessment Report back to the Review Board for
further consideration, pointing out that it was no longer possible to carry out
the proposed development work as there was no longer any fuel to be
retrieved.  In July 2002, the Review Board dismissed the
proceeding.





(g)
            Land
      Use Permit – Phase 2 Exploration





On March
5, 2001, the Company submitted a Land Use Permit application for a Phase 2
Exploration Drilling Program and this application was also referred for
Environmental Assessment. After Environmental Assessment by the Review Board, on
November 30, 2001, the Water Board issued Land Use Permit MV2001C0022A, valid
for a period of five years, authorizing the drilling of up to 60 exploration
holes on the Zone 3 Mining Lease and within 1,000 metres of the Prairie Creek
Mine. In November 2006, this Land Use Permit was renewed for a further period of
two years to November 30, 2008.





(h)
            Water
      License and Land Use Permit – Underground
  Development





The
Company applied to the Mackenzie Valley Land and Water Board on March 5, 2001
for Type ‘B’ Water License and a Land Use Permit (MV2001L2-0003) for underground
decline development and metallurgical pilot plant operation planned for the
Prairie Creek Mine. The application was distributed to government agencies,
First Nations communities and other organizations in order for the MVLWB to
conduct a preliminary screening as required by Part 5 of the Mackenzie Valley
Resource Management Act.





However
in April 2001, both the Parks Canada Agency and Pehdzeh Ki First Nation referred
the proposal to the Mackenzie Valley Environmental Impact Review Board for
Environmental Assessment (“EA”) pursuant to section 126(2) of the MVRMA. The
referral to EA occurred prior to the Water Board’s completion of its preliminary
screening of the proposed development.





The
Environmental Assessment was conducted throughout 2001 and into 2002. The MVEIRB
submitted its Report of Environmental Assessment (“EA Report”) on February 5,
2002 to the Minister of Indian Affairs and Northern Development. On September 3,
2002, the Minister requested that, as per section 130(1)(b)(i) of the MVRMA, the
MVEIRB was to give further consideration to unresolved issues in the EA Report
relating to the tailings containment area and water treatment in
general.





Following
further assessment the MVEIRB submitted its Reasons for Decision on April 4,
2003, outlining recommended revisions and additions to the recommendations in
its February 5, 2002 EA Report. On June 16, 2003, the Minister approved the
Reasons for Decision and directed the MVLWB to proceed with the licensing
process.





On
September 10, 2003, the Water Board approved the issue of Water License
MV2001L2-0003, and the Land Use Permit MV2001C0023 subject to the conditions set
out therein. The Water License contains the terms and conditions that the Board
felt necessary to protect the environment, conserve the water resources of the
Prairie Creek watershed and provide appropriate safeguards in respect of the
Company’s use of waters and deposit of wastes.





On
October 10, 2003, an appeal to the Federal Court was filed by the Nahanni Butte
Dene Band, Pehdzeh Ki  First Nation and the Dehcho First Nations
against the Mackenzie Valley Land and Water Board and the Company seeking
Judicial Review of the decision of the Water Board to issue the Water License to
the Company. The Applicants’ grounds were that the Water Board issued the Water
License without including certain conditions included in the recommendations of
the MVEIRB and in the Minister’s approval, and that the Water Board failed to
provide the Applicants with adequate consultation throughout the License
process. Subsequently, both the Attorney General of Canada, representing the
Minister of Indian Affairs and Northern Development and the Canadian Parks and
Wilderness Society, represented by the Sierra Legal Defense Fund, applied to the
Federal Court to be joined as Intervenors in this Appeal.





The
Judicial Review hearing was heard by the Court in August 2005. The Lawyers
representing the First Nations had argued that the Water Board had exceeded its
jurisdiction in issuing the Water License without including certain conditions
on water treatment which had been recommended by the Mackenzie Valley
Environmental Impact Review Board and approved by the Minister, and that the
Water Board had failed to observe the principles of natural
justice.





In
December 2005, the Court issued its Judgment directing the Water Board to
reissue the Water License with the inclusion of additional language which had
been agreed between the Company and the Minister of Indian Affairs and Northern
Development. On February 6, 2006, the Water Board reissued the Water License
incorporating the wording as per the Order of the Federal Court of Canada. The
Water License is valid for a period of five years expiring September 10,
2008.





As
contemplated in the Water License, the following plans were prepared and have
been approved by the Water Board:  Minewater Treatment Contingency
Plan; Effluent Treatment Options Plan; Abandonment and Reclamation Plan. An
existing Fuel Spill Contingency Plan was revised and approved. A Probable
Maximum Flood calculation was updated and approved, and flood protection
structures and the tank farm facility and associated containment structures were
inspected and approved.


(i)
              Water
      License and Land Use Permit – Underground
  Development


In May
2003, the Company applied to the MVLWB for a Land Use Permit for use of the
existing Winter Road from the Liard Highway to the Prairie Creek Mine. The
Company argued that this application is exempt from the Environmental Assessment
process by virtue of Section 157.1 of the Act. [See “Item 4.D.--Property, Plant
and Equipment--9. Permitting at Prairie Creek--(c) “Grandfather” Provisions.]
The Company’s argument was rejected by the Water Board on June 1, 2004. The
Company filed an Appeal to the Supreme Court of the Northwest Territories
seeking judicial review of the decision of the Water Board. The Appeal was heard
by the Supreme Court in December 2004.





In a
written decision dated May 6, 2005, in the case Canadian Zinc Corporation v
Mackenzie Valley Land and Water Board (SCNWT S-0001-CV2004), the Supreme
Court of the Northwest Territories ruled in favour of the Company that its
Winter Road permit application is “grandfathered”and is
therefore exempt from the Environmental Assessment process under the Mackenzie Valley Resource Management
Act (“MVRMA”).





In its
decision the Supreme Court said that the permit sought by Canadian Zinc is
related to the operation of the Winter Access Road, a permit in respect of that
same undertaking had been issued before 1984, and therefore the exemption
provided in Section 157.1 of the MVRMA governs and a Part 5 assessment does not
apply.





This
application for a Land Use Permit for the road was referred back to the Water
Board. In June 2005 the Nahanni Butte Dene Band wrote to the Water Board
asserting infringement of Aboriginal rights and inadequate consultation under
Section 35 of the Constitution of Canada. The issue was referred to the
Department of Indian Affairs and Northern Development which conducted a
preliminary assessment and submitted its report to the Water Board in February
2007.





On April
10, 2007, the Water Board approved the issue of Land Use Permit MV2003F0028 for
a period of five years to April 10, 2012.


(j)
              Land
      Use Permit – Phase 3
Exploration





In April
2004, Canadian Zinc applied to the Mackenzie Valley Land and Water Board for an
amendment to its previously approved Land Use Permit  MV2001C0022A
allowing a 60 hole mineral exploration program within 1,000 metres of the
Prairie Creek Mine site facility. The amendment was submitted in order to obtain
permission to drill anywhere on the extensive mineral leases and claims held by
Canadian Zinc at the Prairie Creek Property. Following a Preliminary Screening
in June 2004, the Water Board referred the proposed development for
Environmental Assessment to the Mackenzie Valley Environmental Impact Review
Board citing “public concern about the cumulative effects of this project on the
South Nahanni Watershed”.





A
detailed Environmental Assessment was carried out throughout
2005.  Five government agencies, two first nations and one
non-governmental organization (CPAWS) participated in the Environmental
Assessment, which continued over a period of about eighteen months. Canadian
Zinc submitted a Detailed Development Description dated December 2004. The
Review Board issued its Terms of Reference in April 2005 and held scoping
sessions (public meetings) during March and April 2005 in the NWT communities of
Fort Liard, Fort Simpson and Wrigley, NT. Canadian Zinc submitted its
Developer’s Assessment Report in May 2005 and Technical Reports were submitted
by the end of August 2005.  A Public Hearing was held in Fort Simpson,
NT, on October 6, 2005.





The
Mackenzie Valley Environmental Impact Review Board completed its Report of
Environmental Assessment and submitted the Report to the Minister of Indian and
Northern Affairs Canada on December 23, 2005.





The
Review Board has concluded that, with the implementation of the commitments made
by Canadian Zinc and three mitigation measures recommended in the Report, the
proposed development is not likely to have a significant adverse impact on the
environment or be cause for significant public concern. The Review Board
recommended to the Minister that this development proceed to the regulatory
phase of approvals.





The
Review Board examined the Public Record for evidence of possible significant
adverse impact on the environment, for evidence of cumulative effects from the
development in combination with other past, present and reasonably foreseeable
future developments, and for evidence of public concern.





The
Review Board found that significant adverse cumulative impacts on the
environment can be prevented with adequate environmental management. The Review
Board also found that the proposed development is not likely to be cause for
significant public concern as long as all of the Company’s commitments and all
of the measures recommended by the Review Board are implemented.





The
Review Board concluded that some public concern over cumulative effects on the
Nahanni watershed exists but that this concern would be greatly diminished if
the public had assurance that the Company’s commitments, and the additional
mitigation measures recommended by the Review Board, would be effectively
implemented. The Review Board found that there would not be a concern if the
public is kept up-to-date about the environmental protection measures Canadian
Zinc will be using.  “The best way for the public to receive this
assurance is through an independent community environmental monitor who reports
back to the effected communities”.





“The
Review Board is of the view that the full responsibility for monitoring,
evaluation and management should not necessarily rest on the Company alone.
Expert agencies of government, such as Department of Indian Affairs and Northern
Development, Environment Canada, Department of Fisheries and Oceans, and
Government of the Northwest Territories, should be involved co-operatively in
the design of this comprehensive monitoring program”.





The
Review Board noted that incremental development in the Prairie Creek area is
likely to continue and is likely to increase rather than decrease in the
foreseeable future. There has already been considerable development in the
Prairie Creek watershed and development is likely to increase. On the other
hand, all present and reasonable foreseeable future developments are by the same
developer, are in close proximity, and are operated, if not as one development,
in a co-ordinated and overlapping fashion. This provides Canadian Zinc with an
opportunity to effectively manage cumulative effects through responsible
environmental management of its activities in each of the developments in the
area.





The
Review Board recommended approval of the proposed development subject to three
mitigation measures. The measures are the actions necessary, in the opinion of
the Review Board, to prevent or mitigate adverse impacts on the environment. The
three measures recommended by the Review Board are:


·
            Government
      and regulatory authorities are to ensure that all drill waste is disposed
      of in a manner that does not allow any harmful substance to enter surface
      waters.


·
            Canadian
      Zinc shall take every reasonable effort to employ a local person, selected
      in consultation with the Dehcho First Nations, as community environmental
      monitor, who will independently report back to the Dehcho First
      Nations.


·
            DIAND
      shall ensure that a comprehensive program to monitor cumulative impacts on
      fish, wildlife, vegetation and water quality is
    implemented.





In
February 2006, the Minister of Indian Affairs and Northern Development, and on
behalf of the Responsible Ministers with jurisdiction (Environment and Natural
Resources, Government of the Northwest Territories, Fisheries and Oceans, and
the Minister of the Environment on behalf of Environment Canada and Parks
Canada), approved the report of the Review Board.





In May
2006, the MVLWB issued the Land Use Permit for the Phase 3 exploration drill
program, which is valid for five years commencing May 11, 2006.




(k)
                Water
      License and Quarrying Permit – Road
  Rehabilitation


After
receiving the Land Use Permit MV2003F0028 on April 11, 2007, for the Winter Road
from the Water Board the Company was advised that additional permits were
required in order to carry out the rehabilitation work on the road. In June
2007, Canadian Zinc applied to the Mackenzie Valley Land and Water Board for a
Class B water license (MV2007L8-0026) to rehabilitate a portion of the road in
the proximity of the mine site and sought authorization from the Department of
Fisheries and Oceans to carry out the work. Also in June 2007, the Company
applied to Indian and Northern Affairs Canada for a quarrying permit to obtain
rock to be used in the road rehabilitation.





In June
2007, the Dehcho First Nations claimed that the rehabilitation work constituted
a significant alteration to the Winter Road project and requested that the
application of the water license for the proposed rehabilitation work be
referred for Environmental Assessment. In December 2007, the Mackenzie Valley
Land and Water Board rules that the proposed rehabilitation work did not
constitute a significant alteration.





The
issuance of these permits was delayed as they were referred to consultation
between the Crown and the Nahanni Band. The Company received the quarry permit
on February 29, 2008, and the Water License on March 20, 2008; the Water License
is valid for a period of five years expiring March 19, 2013.


(l)
              Permit
      Delays





Since
August 2000, Canadian Zinc has been working on moving the Prairie Creek Project
through the permitting process. The Mackenzie Valley resource management and
permitting process is very cumbersome, slow and political, and to date has
caused extreme delays to the Company in its efforts develop the Prairie Creek
Property. Various permit applications have been the subject of six separate
Environmental Assessments. Five Land Use Permits, including a permit to use the
access road in winter months, and two Water Licenses have been issued to the
Company since 2001 and two appeals for judicial review have been made to the
Courts, in both of which the Company has prevailed.





The
Company plans to apply for the Land Use Permit and Type ‘A’ Water License for
the commercial operation of the Prairie Creek Mine in 2008, once the project
description report can be finalized for the application submittal. Originally
the Company intended to file this application during 2007. However, this
timeline was delayed as a result of the Company updating a detailed Mine Plan
based on incorporating all the Phase 1 and 2 underground drilling results and
the unexpected delays with regard to the road rehabilitation permitting process.
The Company plans to submit the applications as soon as possible. It is
estimated that the processing of this permitting work will take around two years
and cost between $3 and $5 million, depending on the level of environmental
review and assessment work required to be carried out.





10. Environmental
Considerations





Nahanni National Park
Reserve





The
Prairie Creek Mine, located adjacent to Prairie Creek, is within the watershed
of the South Nahanni River, 32 kilometres upstream of the point where Prairie
Creek crosses the boundary of the Nahanni National Park Reserve and 48
kilometres upstream of the point where Prairie Creek joins the South Nahanni
River. The confluence of Prairie Creek and the South Nahanni River is 65
kilometres upstream of the point where the South Nahanni River leaves the
Nahanni National Park Reserve crossing its downstream boundary.





The South
Nahanni River is 500 kilometres in length of which 300 kilometres are contained
within the Nahanni National Park Reserve. The watershed of the South Nahanni
River is 37,000 km2, of
which 4,766 km2 are
contained within the Nahanni National Park Reserve. The watershed of Prairie
Creek above the minesite is 495 km2, or less
than 2% of South Nahanni watershed. In accordance with the relative sizes of
their respective watersheds, water flow in the South Nahanni averages 75 times
that of Prairie Creek and ranges from 50 to 180 times as much.





The South
Nahanni is highly valued as a wilderness recreation river and is used for
canoeing trips during the summer months. These wilderness adventure tours are
supported by a number of outfitting companies from as far away as
Ontario.





The
Nahanni National Park Reserve was created in 1972, following a canoe trip down
the river by then Prime Minister Pierre Elliot Trudeau, specifically for the
purpose of setting aside the South Nahanni River for wilderness recreational
purposes. Exploration activity at Prairie Creek had been ongoing for many years
prior to 1972 and underground development was well advanced at that point in
time.





Parliament
formally established Nahanni National Park Reserve of Canada in 1972, legally
protecting it as Canada’s 26th
National Park under the Canada National Parks Act. It was established as a
National Park Reserve in view of the fact that there were outstanding land
claims in the area. It will only become a fully fledged National Park once an
agreement has been reached with the Dehcho First Nations.





Nahanni
National Park Reserve is considered to be of global significance. In 1978, it
was the first area added by UNESCO to its list of World Heritage Sites. There
are only 13 sites in Canada designated as World Heritage Sites, eight of them
being National Parks. Nahanni received this designation because of the
geological processes and natural phenomena in the area. In UNESCO’s view,
Nahanni is special because it is an unexploited natural area. The presence in
this area of three river canyons cutting at right angles to the mountain ranges,
with walls of up to 1,000 metres high, Virginia Falls which falls over 90
metres, hot springs, sink holes and karst topography are considered a special
combination.





In
considering and approving the nomination of Nahanni National Park Reserve for
World Heritage Status, the World Heritage Committee stated that “it would be
desirable to incorporate the entire upstream watershed in the World Heritage
Site”. In 1977, the Minister responsible for Parks Canada directed Parks Canada
to examine the possibility of expanding Nahanni National Park Reserve to include
more of the head waters of the South Nahanni and the karst terrain. Several
studies were conducted to assess this potential.





In August
2007, the Prime Minister of Canada visited Fort Simpson to announce the proposed
expansion of Nahanni National Park Reserve. The Prime Minister announced that
the Government of Canada had approved an Order in Council (PC-2007-1202 July 31,
2007), withdrawing certain lands for the proposed park expansion. The area
surrounding the Prairie Creek mine, containing approximately 367 square
kilometres, is not included in the interim land withdrawal area and, as
specified in Schedule 2 to the Order, is specifically excluded and exempted.
Canadian Zinc has been assured by the Government of Canada and by Parks Canada
that the final boundaries of the expanded park will not include the site of or
the access road to the Prairie Creek mine and that in the proposed expansion of
the Nahanni National Park Reserve the existing mining and access rights of
Canadian Zinc to the Prairie Creek mine will be respected and
protected.





Canadian
Zinc welcomed the Government’s announcement and anticipates that the exclusion
of the Prairie Creek mine from the proposed park expansion area will bring
clarity to the different policy objectives for the region. Canadian Zinc
believes that the Prairie Creek mine and the expanded Nahanni National Park
Reserve can co-exist and that, properly planned and managed, the expanded park
will not interfere with the operation of the Prairie Creek mine and similarly
that the operation of the mine will not adversely impact  upon the
Park or its ecological integrity.





In
October 2007, the Nahanni Expansion Working Group undertook a series of open
houses throughout the Dehcho communities to present proposals for developing
boundary options for an expanded park. In a document dated October 2007,
entitled “Expansion of Nahanni National Park Reserve: Boundary Options for
Public Consultation,” Parks Canada proposed three options all of which included
protecting all existing third party rights and tenures.  In addition,
all three options include the understanding that access to the Prairie Creek
Minesite will be provided and will require a right of way or corridor across or
through an expanded park.





The
Company has continued to hold meetings and discussions with Indian and Northern
Affairs Canada and Parks Canada to seek further clarity with regard to road
access into the Prairie Creek mine. The final boundaries for the proposed park
expansion have not yet been determined. The senior Mineral Energy and Resource
Assessment (“MERA”) Committee is considering a number of options regarding the
proposed park expansion area.








Endangered
Species





The
Committee on the Status of Endangered Wildlife in Canada (“COSEWIC”) lists only
two species in the area of the Prairie Creek Mine: the Grizzly Bear (Ursus arctos) and the
Wolverine (Gulo gulo),
both of which are listed in the Special Concern category. In areas removed from
the minesite, COSEWIC lists the Peregrin Falcon (Falco peregrinus anatum), the
Woodland Caribou, Boreal population (Rangifer tarandus caribou)
and the Wood Bison (Bison
bison athabascae), each of which are considered threatened. No rare or
highly valued species of vegetation or plant communities have been identified in
the area. COSEWIC does not list any plant species as endangered, threatened or
of special concern in the area of the Prairie Creek Mine.





Detailed
field studies of wildlife populations and wildlife habitat in the area of the
Prairie Creek Mine and the access road were conducted by Beak Consultants Inc.
in 1980-81 and again by Rescan in 1994. None of the listed species and no
critical habitats, such as denning or nesting areas, were identified in the area
of the mine. Grizzly bears and wolverine have been observed or encountered only
very infrequently in the area surrounding the mine over the past 20
years.





Caribou
populations and potential caribou habitat have been identified in areas removed
from the minesite to the north and east in the Mackenzie Mountains. Potential
impacts to these populations are primarily transportation related and can be
mitigated through standard road safety practices.





Specific
surveys of potential Peregrine falcon nesting habitat have identified no nesting
sites in the area of the minesite.





Wood
bison were re-introduced into the Nahanni Butte area, 90 kilometres to the
southeast of the Prairie Creek Mine, in 1980, with additions to the herd made in
1989 and again in 1998. As with caribou,potential
impacts to these populations are primarily transportation related, in this case
primarily in the area of the Liard Highway, and can be mitigated through
standard road safety practices.





Acid Rock
Drainage





The
mineral resources at the Prairie Creek Mine are hosted in carbonate rocks. The
low sulphide values and high excess neutralization potential of the host rocks
(and tailings products) indicate that these materials will pose no long term
hazard to the environment through sulphide oxidation processes.





Rescan
Environmental of Vancouver, B.C. undertook a detailed analysis of the acid
generating characteristics of all dominant rock types at the Prairie Creek Mine
in 1994. The results indicated an overwhelming dominance of acid neutralizing
minerals, with acid neutralizing carbonate minerals exceeding the total capacity
to generate acidity by an average factor of almost 200. Initial analysis of
flotation tailings generated from metallurgical testwork has indicated a similar
excess of neutralization potential. The Company does not anticipate the
potential for any acid rock drainage impacts.





Mesh
Environmental Inc. (“Mesh”) undertook a follow-up study during 2005/06, with the
objectives of significantly expanding Rescan’s 1994 rock sample dataset and
incorporating analyses on mineralized rock samples, tailings and concentrates.
Sample collection was completed by Mesh at the Mine Site during September 2005.
A total 66 samples were included in Mesh’s characterization
program.





A total
of ten process waste samples, including mill rock, flotation feed, tailings and
concentrate samples from tests performed in 2005 were provided by SGS Lakefield
Research Limited in Lakefield, Ontario (“SGS Lakefield”, ISO 9001-2000
accredited). So-called mill rock is wall rock dilution that will be separated
from mineralized material in the processing plant.





Static
laboratory geochemical characterizations were carried out by Mesh, including
acid-base accounting (“ABA”), along with: total inorganic carbon and
multi-element Inductively Coupled Plasma (“ICP”) analyses on all samples; and
mineralogy, expanded ABA (pyritic sulphur, siderite correction, acid-buffering
characterization curves) and grain size analyses on a sub-set of samples. The
following conclusions were made:





• all the
host rock units are non-potentially acid generating (“non-PAG”), due to
generally low amounts of contained sulphur (less than one percent of total
sulphur) and the substantial effective buffering capacity provided by reactive
carbonates, the latter reflecting the carbonate-rich nature of the host rock
material (which conclusion is supported by the behavior of mixed waste rock that
has been exposed on surface at the Mine Site for 25 years, which waste rock does
not demonstrate acidic pH values and remains classified as non-PAG as a
result);


• Main
Zone vein- and stratabound-mineralization are classified as potentially acid
generating due to an abundance of sulphide mineralization (although Mesh’s
kinetic test data to December 2006 suggests that it may take a substantial
amount of time for acidity to be generated, due to the significant amount of
buffering capacity available from the carbonate host rocks);


• the two
mill rock samples produced as by-products from Main Zone vein mineralization and
overbreak are non-PAG and contain relatively low sulphur values (approximately
0.3 percent, or less);


• the
final composite tailings samples are classified as non-PAG and contain
sufficient buffering capacity to maintain neutral conditions under laboratory
conditions;


•
tailings supernatant is alkaline (pH 10.7 to 10.9), with total solids in
solution (“TSS”) of five to 500 milligrams and relatively high sulphate
concentrations of 170 to 230 milligrams per litre, respectively, over the two
hour test period;


•
sulphide concentrates are classified as potentially acid generating due to
slightly elevated pyritic sulphur content and very little neutralization
capacity; but


• as a
result of substantially higher neutralization potential, oxide concentrates are
classified as non-PAG (oxide zinc concentrate) and as having uncertain acid
generation potential (oxide lead concentrate).





Mesh
emphasized that, with regard to the conclusions made in their December 13, 2006
report, the options being considered for waste rock, mill rock and tailings
management include:





•
returning all dewatered tailings, the majority of mill rock and waste rock in
close proximity to mineralized areas to the underground workings, as
backfill;


•
placement of excess mill rock and waste rock in engineered and non-engineered
surface storage facilities; and


•
storage, treatment and additional settling in a polishing pond of tailings
supernatant, prior to its discharge.





Current
planning calls for concentrates to be stored on or near site in sheltered
containers, prior to their removal for off-site smelting.





Hazardous
Materials





Hazardous
and toxic waste materials are currently stored at the Prairie Creek minesite,
including sodium cyanide and polychlorinated biphenyls (“PCB’s”) that remain
from Cadillac operations in the early 1980’s. The substances are stored in a
secured manner and are regularly inspected by government agencies. Diesel fuel
is also stored on site.





A
disposal project for the cyanide and PCB’s was commenced in 2007 which involved
repackaging the materials such that they are ready for removal from the site for
ultimate disposal. This program contracted professional toxic waste specialists
to repack the new containers which are stored under tarpaulins on the approved
chemical storage pad. The removal will ideally occur at the same time as the
opening of the road to the Liard Highway.





Environmental
Obligations





As at December 31, 2007, the Company
has estimated the present value of expenditures required for reclamation costs
at the Prairie Creek Property to be approximately $1.2 million ($2.5 million on
an undiscounted basis), mostly to be incurred at the end of the life of the
mine. Other than specific environmental matters discussed in this Annual Report,
the Company is not aware of any material environmental matter requiring
significant capital outlays in the immediate future.





11.           First
Nations





The
Prairie Creek Mine is located on land claimed by the Nahanni Butte Dene Band of
the Dehcho First Nations (“Dehcho” or “DCFN”) as their traditional territory.
The Nahanni Butte (Nahaahdee) First Nation is a “band” pursuant to the Indian
Act RSC 1985. The members of the Dehcho First Nations are Aboriginal people
within the meaning of Section 35 of the Constitution Act, 1982.





The
Dehcho are a distinct group of Aboriginal people, whose ancestors were among the
South Slavey people of the Dene Nation of what is now the Northwest Territories,
and the Metis people within the DCFN territory. The Dehcho have had their own
system of laws, religion, economy, customs, traditions and language since time
inmemorial. Many Dehcho people continue to rely heavily on the land, water and
resources within DCFN territory for sustenance, social and ceremonial
purposes.





The DCFN
is an organization representing all of the Dene and Metis peoples in the Dehcho
territory of the Northwest Territories which comprise thirteen separate
communities. The DCFN have incorporated a society under the laws of the
Northwest Territories in order to provide leadership, governance, administration
and program delivery to their member communities. The DCFN is a governing body
of the Dehcho people lands, administers oversees a number of programs and
services for its member communities including those relating to health,
employment, education, and land and resource management.





The DCFN
and their member Aboriginal communities hold collective Aboriginal title and
rights and treaty rights to Dehcho territory and hold other Aboriginal rights as
a collective in relation to their land and governance over the land and the
Dehcho people.





In the
Mackenzie Valley, land is owned, or managed, controlled and administered by
different governments or landowners. Land can be either Crown or Commissioner’s
land administered by land managers, or privately owned.





In the
Northwest Territories, private lands are owned largely by First Nations with
settled land claims.  There are currently three major landowners in
the Mackenzie Valley - the Gwich’in, Sahtu and Tlicho. It is anticipated that as
claims are settled in the Dehcho region, more private lands will be created and
Aboriginal groups will become recognized landowners in their respective
regions.





The
Federal Government has recognized that the inherent right of self government is
an existing Aboriginal right recognized and affirmed by Section 35 of the
Constitution Act, 1982. The Dehcho are engaged in ongoing land settlement
negotiations with the Government of Canada and the Government of the Northwest
Territories in what is referred to as the “Dehcho Process.” The Federal
Government first attempted to negotiate land claim settlements in the Northwest
Territories, with the Dene/Metis in the late 1980’s without success.
Subsequently, settlement agreements were reached first with the Gwich’in and
Sahtu Dene/Metis people and later with the Tlicho in 2005.  The Dehcho
have not settled their land claim with the Federal Government. The Dehcho and
the Federal Government of Canada both claim legal title to this territory, the
Dehcho by virtue of historical occupation and the Federal Government under
Treaty 8, signed in 1900, and Treaty 11 signed in 1921 and 1922. The Federal
Government and the Dehcho First Nations disagree on the interpretation of
Treaties 8 and 11 and legal title to the land remains in dispute. Canada
maintains that under the Treaties the Dehcho extinguished ownership of their
traditional lands. The Dehcho have threatened to take the Federal Government to
court, or to the United Nations, over the key issue of sovereignty. The Dehcho
territory has an area of approximately 210,000 square kilometres and has a
native population of approximately 6,000.





Since the
mid 1990’s, the Dehcho and the Federal Government have been engaged in the
Dehcho Process whereby the Federal Government and the Government of the
Northwest Territories have agreed to negotiate with the Dehcho First Nations on
a government to government basis in order to set out land, resources and
governance rights to apply in the Dehcho territory. The objective of
negotiations is to complete a Dehcho Final Agreement which clarifies and builds
upon existing Treaties by implementing a Dehcho government which will make laws
and deliver programs and services; be a public government based upon Dehcho
First Nations laws and customs and other Canadian laws and customs; and be the
primary government for the delivery of programs and services to residents of the
Dehcho territory. The Final Agreement will also describe intergovernmental
relationships and jurisdictions, provide for certainty and clarity of rights
respecting land, resources and governance and provide for the use, management
and conservation of land, water and other resources, including wildlife, fish
and their habitat in the Dehcho territory.





Early
negotiations proved very slow in part because the Dehcho initially rejected the
land selection process by which other land claim disputes have been typically
settled in the North. Under the typical system, the Federal Government and First
Nations select by negotiation particular areas of land in the area under
dispute. Once selected, the Government makes a financial payment and the claim
is settled. However, the Dehcho have been holding out for full constitutional,
legal and governmental control over their entire region, where effectively the
laws of Canada would no longer apply, and this has led to lengthy and difficult
negotiations.





The
DCFN’s position is that the Mackenzie Valley Resource Management Act cannot and
should not apply within Dehcho territory, that the legislation was enacted
without the participation of, or any consultation with, the DCFN and was imposed
on the Dehcho territory against DCFN wishes. The DCFN have stated that the Final
Agreement must, among other things, include a new resource management regime in
Dehcho territory other than the Mackenzie Valley Resource Management
Act.





In 2001,
the Federal Government and the Dehcho First Nations entered into a Framework Agreementdated May
23, 2001. The Framework Agreement contemplates providing a structure for the
negotiation of the Final
Agreement. However, all negotiations are without prejudice to the legal
position of the parties and nothing in the Framework Agreement is to be
interpreted as creating, recognizing or denying rights or obligations of any of
the parties. The Federal Government and the Dehcho agreed that it is desirable
that the negotiations proceed at a pace which allows for the people of the
Dehcho territory, and particularly the Elders, to remain fully informed and
involved in the process.





As
contemplated in the Framework Agreement, an Interim Measures Agreement,
also dated May 23, 2001, was executed between the parties to provide for interim
arrangements pending the negotiation and signing of the Dehcho Final
Agreement.





Under the
Interim Measures Agreement, the Governments and the Dehcho agreed to develop a
land use plan for the Dehcho lands outside Nahanni National Park Reserve and for
that purpose to establish a Land Use Planning Committee. The purpose of the Land
Use Plan is to provide for the conservation, development and utilization of the
land, waters and other resources in the Dehcho territory, taking into
consideration the principles of respect for the land, as understood and
explained by the Dehcho Elders, and sustainable development.





Under the
Interim Measures Agreement, Canada and the Dehcho agreed to negotiate for the
purpose of identifying lands to be withdrawn from disposal and mineral staking
and Canada agreed to withdraw from disposal, by Order in Council under the Territorial Lands Act, the
lands identified in this process.





The
Interim Measures Agreement specifically provides at sections 19 and 23, that
land withdrawn from disposal under the Agreement shall be subject to the
continuing exercise of existing rights, titles, interests, entitlements,
licenses and permits and that the provisions of the Agreement shall not effect
access to or across withdrawn lands.





The
Agreement also provides that no new water licenses or land use permits will be
issued under the Mackenzie
Valley Resource Management Act within the Dehcho territory except after
written notice to the Dehcho First Nations and after a reasonable period of time
for the Dehcho to make representations with respect to the application for such
license or permit. Canada also agreed not to issue any new prospecting permits
under the Canada Mining
Regulations in the Dehcho territory without the support of the affected
Dehcho First Nation.





The
parties also agreed to enter into negotiations for the purpose of concluding an
Interim Resource Development
Agreement with the objective to foster resource development in the Dehcho
Territory and to accrue benefits from Canada to the Dehcho First Nations. An
Interim Resource Development Agreement was signed on April 17, 2003 under which
Canada agreed to provide to the Dehcho First Nations a percentage of Federal
resource royalties collected from the Dehcho area of the Mackenzie
Valley.





Canada
also agreed that the Final Agreement will ensure that a major mining project
that requires any authorization from Canada, and that will impact on the Dehcho,
shall be subject to negotiation with the Dehcho of an agreement relating to that
project. A major mining project is defined as a project related to the
development or production of minerals that will employ an average of 50 persons
annually for the first five years in the Dehcho territory and for which more
that $50 million will be expended in capital costs. The Company believes that
the Prairie Creek Project is currently the only such major mining project in the
Dehcho territory.





The
Interim Measures Agreement also provided that the Dehcho may propose protected
areas for land withdrawal or permanent protection under the Northwest
Territories Protected Areas Strategy. The parties also agreed to negotiate an
interim management arrangement respecting the management of Nahanni National
Park Reserve.





The
Interim Measures Agreement was made without prejudice to the legal position of
the parties and nothing in the Agreement is to be interpreted as creating,
recognizing or denying rights or obligations on the part of the
parties.





In 2003,
Canada and the Dehcho agreed to an interim withdrawal of lands covering an area
of approximately 80,000 square kilometres for a period of five years. The
withdrawal was confirmed by Order in Council dated August 13, 2003. The areas of
the withdrawn lands do not include the Prairie Creek Mine but include all of the
Company’s Mining Lease 2854 and part of Mining Leases 2931, 3314 and 3313. The
withdrawn land also includes an area over which part of the Company’s road to
the Prairie Creek Property passes. However, in accordance with Sections 19 and
23 of the Interim Measures Agreement such withdrawal is subject to the
continuing exercise of existing rights, titles, interests, entitlements,
licenses, permits, reservations, benefits and privileges and does not affect
access to or across withdrawn land.





In August
2003, a Memorandum of
Understanding respecting the expansion of Nahanni National Park Reserve
dated June 24, 2003 was signed between the Dehcho and the Parks Canada Agency,
whereby as part of the Dehcho Process, Parks Canada and the Dehcho agreed to
work co-operatively towards completion of a feasibility study towards the
addition of the identified lands to the Nahanni National Parks Reserve and to
recommend an amendment to the Canada National Parks Act for a new boundary for
the expansion of the Nahanni National Park Reserve and, as part of the Dehcho
Final Agreement, moving the Nahanni National Park Reserve to full National Park
status under the Canada National Parks Act.





At the
same time in August 2003, an Interim Park Management
Arrangement for the Nahanni National Park Reserve was signed between the
Dehcho and Parks Canada Agency designed to give the Dehcho a greater role in the
Park management process. A Consensus Team was established, comprising three
appointees of Parks Canada and four from the Dehcho First Nations (two from
Nahanni Butte) to address, amongst other things, making recommendations in
respect of impacts of land and resource uses in areas outside Nahanni National
Park Reserve.





Under the
Arrangement, the Dehcho and Parks Canada agreed that while the current
jurisdiction of Parks Canada is restricted to Nahanni National Park Reserve, the
ecological integrity of the Park Reserve depends on the ecological integrity of
the South Nahanni River watershed as a whole. The Prairie Creek Mine is located
within the watershed of the South Nahanni River.





The
Interim Park Management Arrangement is a statement of interests only and is not
legally binding. Nothing in the Arrangement obliges Canada to act in a manner
inconsistent with federal or territorial legislative or regulatory jurisdictions
or authorities and the Nahanni National Park Reserve shall be administered and
managed in accordance with the Canada National Parks
Act.





During
2005 negotiations on the Dehcho Process broke down because of issues surrounding
the proposed Mackenzie Valley gas pipeline. In June 2005, the Dehcho First
Nations entered into a Settlement Agreementwith
Canada [represented by the Minister of Indian Affairs and Northern Development]
to settle Court actions which had been commenced by the Dehcho in the Northwest
Territories Supreme Court and in the Federal Court against Canada and the
Mackenzie Valley Environmental Impact Review Board arising out of disputes
concerning the Mackenzie Gas Project. In the Settlement Agreement, Canada and
the Dehcho agreed to resolve issues related to the participation of the Dehcho
in the environmental and regulatory review of the Mackenzie Gas Project and
which they agreed to facilitate.





The
Settlement Agreement recites that Canada and the Dehcho have differing views as
to the existence and scope of the rights of the Dehcho First Nation(s)
recognized by Section 35 of the Constitution Act 1982, and the nature and extent
of Canada’s requirements to consult with the Dehcho First Nations. In the
Settlement Agreement, the parties agreed to take all reasonable steps to
negotiate the terms of the Dehcho Final Agreement which would include agreement
to establish a Dehcho Resource
Management Authority (DCRMA) which will be a body of public government.
The Final Agreement will describe the legal capacity, structure, accountability,
rights, powers, privileges and responsibilities of the DCRMA; source(s) of the
DCRMA’s powers, privileges and responsibilities; relationship of the DCRMA to
the Mackenzie Valley Resource Management Act, and rules regarding conflict of
laws and the priorities of laws.  For greater certainty, the Final
Agreement may provide for a stand alone DCRMA harmonized with the Mackenzie
Valley Resource Management Act. The Settlement Agreement provides that the Final
Agreement will provide for the circumstances in which laws within the
jurisdiction of the Dehcho First Nations, any successor organization, or any
government established pursuant to a Final Agreement, will take priority over
the laws of Canada in the event of a conflict. The parties agreed to negotiate a
Final Agreement in accordance with the Dehcho First Nations Framework
Agreement.





In the
Settlement Agreement, the parties agreed to implement a Land Use Plan that is
approved by the Dehcho First Nations, approved the Minister of Environment and
Natural Resources of the Northwest Territories, and favourably considered by the
Minister of Indian and Northern Affairs, Canada, as soon as possible after the
Plan’s completion.





In the
Settlement Agreement the parties affirmed the Interim Resource Development
Agreement dated April 17, 2003 and agreed to take immediate steps to establish a
working group comprised of the parties to the Dehcho First Nations Interim
Measures Agreement for the purposes of ensuring that the issues arising from the
implementation of the Resource Development Agreement are addressed in a timely
manner. The parties also agreed that once an Agreement in Principle is ratified,
the resource royalty sharing formula set out in the Interim Resource Development
Agreement will be replaced with any Resource Revenue Sharing Formula agreed to
in the Agreement in Principle.





The
Settlement Agreement further provides that, except for certain specified
articles of the Agreement, the Settlement Agreement is not legally binding and
is intended as an expression of goodwill and as a political
commitment.





Negotiations
under the Dehcho Process continued during 2006, with Canada presenting a formal
comprehensive offer of land selection, local governance provisions and financial
compensation but this offer was rejected by the Dehcho First Nations.
Negotiations continued in 2007 with no apparent progress reported.





The Dehcho Land Use Planning
Committee (the Committee), was formally established in February 2002,
under the authority of the Dehcho Interim Measures Agreement with the
responsibility to prepare a land use plan for the Dehcho territory. The land use
planning process is a community driven process where the goals and values of the
residents of the Dehcho guide the development of the Plan. The Committee works
closely with other planning partners such as governments, public agencies,
non-government organizations and businesses to fulfill its mandate.





Land use
planning boards are responsible for preparing comprehensive land use plans for
their respective settlement areas. These plans guide the use of Crown,
settlement, and other private lands and provide direction for the conservation,
development and use of land, waters and other resources. Essentially, the land
use planning boards create plans which lay out the permitted and prohibited uses
of all land within a settlement area. They develop land use plans for their
regions and recommend approvals, exceptions and amendments to related
plans.





A Land
Use Plan is a public document that sets aside different areas for different
uses, and describes what activities are permitted or not permitted in specified
areas. The land use plan applies to both Crown and settlement lands. It does not
apply to lands within municipal boundaries or lands within national parks or
historic sites.





Once the
land use planning board has adopted a Land Use Plan, it must submit the plan to
the First Nation of the settlement area, the Territorial Minister and the
Federal Minister for approval.





The
mission statement of the Dehcho Land Use Planning Committee is to develop a land
use plan as a management tool to determine what type of land use activities
should occur and where they should take place. The plan will balance economic,
social, environmental and cultural needs and interests. The plan will be guided
by the principals of sustainable development and respect for the land as
understood and explained by the Dehcho Elders. The planning area excludes
municipal areas and Nahanni National Park Reserve.





The
purpose of the Land Use Plan is to promote the social, environmental, cultural
and economic well being of residents and communities in the Dehcho territory,
having regard to the interests of all Canadians. The Plan shall provide for the
conservation, development and utilization of the land, waters and other
resources in the Dehcho territory.





The
Dehcho Land Use Planning Committee includes representatives of the Dehcho First
Nations, the Government of the Northwest Territories and Government of Canada.
As outlined under the Dehcho Interim Measures Agreement the DCFN appointed two
members while the two Governments each appointed one member. Upon the
recommendation of the Committee, the parties to the Interim Measures Agreement
appoint a fifth member as Chairperson.





Once
approved, the Land Use Plan will provide legally binding direction to regulatory
agencies and decision-makers in their assessment of development projects,
protected areas proposals and other land uses.





The Land
Use planning process considered the traditional use and occupancy information
that was gathered to determine the Interim Land Withdrawals, along with other
information on the natural resources and the economic and social needs of the
communities. In turn, the Plan will guide the revision of the Interim Land
Withdrawals based on the new information that has been gathered. Representatives
of the Planning Committee visited the Prairie Creek minesite in September
2004.





The
Company made a detailed submission to the Dehcho Land Use Planning Committee and
participated in the planning process. The Company commented on each draft of the
Plan as such draft was produced and participated in various Public Forums. The
Company had concerns about the latest draft of the Land Use Plan (November 2005
– Revised February 2006) and recommended that the draft in its current form not
be approved. The Department of Indian Affairs and Northern Development has also
expressed concern to the Committee (January 2006).





The draft
Land Use Plan was approved by the General Assembly of the Dehcho First Nations
in May 2006 and submitted to the Minister for consideration. The Minister did
not accept the Plan arguing that it incorporated too much land to be preserved
from development. In April 2007, the Federal Government and the Dehcho First
Nations entered into an agreement to form a new committee with representatives
from all sides to negotiate a new revised plan.





The
outcome of the Dehcho Process negotiations is expected to be a Final Agreement
that will provide, amongst other things, for the implementation of a Dehcho
government within the Dehcho territory. It is expected that the negotiations
towards a Dehcho Final Agreement will take five years to complete.





The
Company cannot predict the impact, if any, that the Dehcho Final Agreement if
eventually approved and signed may have on the Prairie Creek Mine or the
permitting thereof.








12.           Nahanni Co-Operation
Agreement





The
Prairie Creek Mine is located 90 kilometres from the nearest settled community
of Nahanni Butte, located at the confluence of the South Nahanni and Liard
Rivers, 146 kilometres downstream of the minesite. The population of Nahanni
Butte is approximately 100 people and water for domestic purposes is supplied by
well. There is no permanent road access into the Prairie Creek Property, other
than the existing Winter Road which was established in 1981. Regular access is
by air only to a private airstrip controlled by the Company. There is no other
existing land occupation, nor commercial land or water based activities in the
vicinity of the mine. Similarly, no traditional use or trapping activity has
been observed in the minesite area in recent history.





On
December 10, 1996, the Company completed the negotiation of the Prairie Creek
Development Co-Operation Agreement with the Nahanni Butte Dene Band (the “Band”)
of the Dehcho First Nations. The agreement provides that in consideration for
the Band providing support for the project, quiet enjoyment, access easements,
assistance in obtaining permits, potential cost savings as a result of the
Band's involvement, and assembling and providing the Band's traditional
knowledge in support of the project, the Company will:





(a)
            pay
      the Band annually 5% of the profits before tax, after recovery of the
      aggregate costs incurred in establishing access and bringing the
      project  into production;





(b)
            grant
      the Band an option to purchase 10% or 15% of the project for $6,000,000
      or  $9,000,000 respectively subject to adjustment for inflation
      and additional development costs, exercisable within three
      months  following delivery of a Bankable  Feasibility
      Study  and receipt of all major  permits for
      the  project; and





(c)
            give
      the Band preferential access on providing contract services; being
      competitive as to price, delivery, capability, performance and
      quality.





Following
commencement of production, the Band and the Company will jointly fund (a) the
establishment of an education centre to a maximum of $150,000 and annual
operating costs up to $50,000; and (b) a scholarship fund of $20,000 per year,
increasing to $30,000 per year following payback of all capital costs. In
addition, the project will contribute $25,000 per year to a trust on
commencement of construction of access to the project, to compensate traditional
harvesters who are negatively affected by the project and the
access.





The
overall intent of the Co-Operation Agreement was to establish and maintain a
positive and cooperative working relationship between the Company and the
Nahanni Band in respect of the further development and operation of the Prairie
Creek Mine, while at the same time supporting an economically viable and
environmentally sound operation and maximizing economic opportunity and benefits
to the Band and other Dehcho First Nations. This Agreement foresaw the many
benefits which could accrue to the Nahanni Band and the DCFN in conjunction with
development of the road and mine, and made provision for maximizing
opportunities to realize these benefits. To this end, the Agreement provides
employment and contracting opportunities, as well as equity participation for
the Band and the DCFN.





In the
Agreement, the Band proclaimed its support for the Prairie Creek Mine and the
establishment of the access road in recognition of the significant benefits to
the Band and the DCFN communities as a whole, and undertook to assist the
Company in procuring permits, approvals and licenses necessary to bring the mine
into production, as well as grants, guarantees or other financial assistance
from Government towards the establishment of the access road.





On
November 28, 1996, the Nahanni Butte Dene Band issued a Band Council Resolution
stating that the Band on behalf of its membership “does fully ratify and endorse
the Prairie Creek Development Co-Operation Agreement” in which the Nahanni Butte
Dene Band proclaimed its support for the Prairie Creek Mine and the
establishment of an all weather access road to the mine in recognition of the
significant benefits to Nahanni Butte and the DCFN communities as a whole. The
Agreement was supported as well by the DCFN by Tribal Council
Resolution.





The
Nahanni Butte Dene Band issued a Band Council Resolution on May 18, 2000, in
support of protecting the South Nahanni watershed, stating that “the Nahanni
National Park Reserve was created without the consent or participation of the
Dehcho First Nations” and that the “Final Agreement should provide for the
recognition of Dehcho First Nations jurisdiction over the entire Nahanni
watershed, including the Park or Park Reserve”.





On
January 29, 2001, the Band issued a further Band Council Resolution rescinding
their support for the Protected Areas Strategy for the Nahanni National Park
Reserve watershed.





On
January 17, 2002, the Band issued a further resolution reconfirming their
support for the Prairie Creek Mine Project.





A change
in Band leadership occurred in September 2003 following elections for Chief.
Thereafter yet another different Band Chief was elected during
2004.





On
October 10, 2003, an appeal to the Federal Court was filed by the Nahanni Butte
Dene Band, Pehdzeh KI First Nation and the Dehcho First Nations, against the
Mackenzie Valley Land and Water Board and the Company seeking judicial review of
the decision of the Water Board to grant a Water License to the Company. Filing
of these proceedings by the Nahanni Butte Dene Band was in breach of the
Co-Operation Agreement. The Nahanni Butte Dene Band informed the Company that
Nahanni considers the Agreement terminated. Such termination is not in
accordance with the provisions of the Agreement.





Canadian
Zinc seeks to consult on a regular basis with the Nahanni Butte Dene Band and
other First Nations and local communities to keep them informed about the
Prairie Creek project and as to opportunities for implementing the provisions of
the Co-Operation Agreement, as the Company moves forward with its plans for
re-development of the property. In 2004 the Company opened a Community Liaison
and Information Office in Fort Simpson and since 2004, significantly increased
its First Nations and local communities information and awareness programs and
activities.





In June
2005, the Chief of Nahanni wrote to the Mackenzie Valley Land & Water Board
in connection with the Company’s application for a Land Use Permit to use the
winter road which connects the mine with the Liard Highway [see “Item
4.D--Property, Plant and Equipment--9. Permitting at Prairie Creek--(i) Land Use
Permit – Winter Road”] alleging infringement of aboriginal rights and inadequate
consultation under Section 35 of the Constitution of Canada. The Water Board
referred the matter to the Department of Indian Affairs and Northern Development
which conducted a preliminary assessment which lasted throughout most of 2006.
In February 2007, the Department issued its report on consultation to the Water
Board in which it concluded that in the Department of Indian Affairs and
Northern Development’s view adequate consultation had taken place and in which
it made certain recommendations. The Water Board issued the Land Use Permit in
April 2007 and included among the Permit terms and conditions those
recommendations from the consultation report that are within the Board’s
mandate, including provisions for the protection of wildlife
habitat.





In June
2007, the Dehcho First Nations claimed that the Company’s application for a
Class B water license to rehabilitate a portion of the road in proximity to the
mine constituted a significant alteration to the Winter Road project and
requested that the proposed rehabilitation work be referred for Environmental
Assessment. They also alleged inadequate consultation under Section 35 of the
Constitution of Canada. In November 2007, the Mackenzie Valley Land & Water
Board ruled that the proposed work was not a significant alteration to the
project. The Department of Indian Affairs and Northern Development conducted a
preliminary assessment on consultation with the Nahanni Butte Dene Band and in
March 2008, issued its report to the Mackenzie Valley Land & Water Board in
which it concluded that adequate consultation had taken place. The Water Board
issued the water license in March 2008.





The
Company believes that the separate goals of the Dehcho First Nations in
achieving political sovereignty and economic self-sufficiency whilst protecting
the environment are compatible. The Prairie Creek Development Co-operation
Agreement provides for a positive and cooperative working relationship between
the Company, Nahanni Butte and the Dehcho First Nations in respect of developing
and operating an environmentally sound mining undertaking at Prairie Creek,
which will not have significant adverse environmental effects on the ecological
integrity of the South Nahanni River or the Nahanni National Park
Reserve.





13.           Office
Space





The
Company presently maintains offices in Vancouver, Fort Simpson and Toronto. The
Company’s head office is located in Vancouver and is approximately 3,000 square
feet in size. The Company presently leases office space in the Federal Building
in Fort Simpson.  This office is supported by a Community Liaison
Officer and acts as a information source on Prairie Creek for the local
community to access.  In addition the office can receive any
questions, issues or concerns from the community about the development. The
Company’s Toronto office is maintained for the use of the Chief Executive
Officer.








ITEM
4A.                      UNRESOLVED STAFF COMMENTS





There are
no unresolved staff comments.








ITEM
      5.
            OPERATING AND FINANCIAL REVIEW AND
  PROSPECTS





A.           Operating
Results





The following discussion should be read
in conjunction with the audited financial statements of the Company for the
years ended December 31, 2007, 2006 and 2005, and the related notes thereto, and
with the selected data set forth. The Company’s financial statements have been
prepared in accordance with Canadian GAAP. Except as described below under
“Comparison of Canadian GAAP and United States GAAP as applicable to the
Company’s operations,” and in Note 14 to the audited financial statements, there
are no material differences, for the purposes of these financial statements,
between accounting principles generally accepted in Canada and the U.S. Unless
otherwise indicated, all currency is reported in Canadian dollars.





Overview





SUMMARY
      - Presented in accordance with Canadian GAAP(Thousands
      of dollars, except per share amounts)
            
            2007
            
            
            2006
            
            
            2005Statement
      of operationsInterest
      income
            
            $
            1,234
            
            
            $
            948
            
            
            $
            329Net
      (loss)
            
            $
            (920
            )
            
            $
            (1,486
            )
            
            $
            (1,967
            )Basic
      and diluted loss per share
            
            $
            (0.01
            )
            
            $
            (0.02
            )
            
            $
            (0.03
            )Balance
      sheetCash,
      cash equivalents and short-term investments
            
            $
            28,414
            
            
            $
            29,087
            
            
            $
            16,064Total
      assets
            
            $
            66,931
            
            
            $
            56,762
            
            
            $
            34,695Total
      liabilities
            
            $
            6,103
            
            
            $
            2,978
            
            
            $
            1,351Shareholders’
      equity
            
            $
            60,828
            
            
            $
            53,784
            
            
            $
            33,344





Interest
income and net loss





For the
year ended December 31, 2007, the Company reported a net loss of $920,000,
compared to a loss of $1.486 million for the year ended December 31, 2006. The
reduced loss in 2007 was partly attributable to higher interest income ($1.234
million for the year ended December 31, 2007 compared to $948,000 for 2006) as a
result of an increase in cash available for investment. The reduced loss for the
year was also due to the inclusion of a charge of $1.023 million in respect of
stock-based compensation in 2006 compared to $267,000 in 2007. The impact of the
increased interest income and reduced stock-based compensation was offset by an
overall increase in administrative expenses largely attributable to shareholder
and investor communications (as described below). Included in the loss for the
year ended December 31, 2007, was a write down in the market value of marketable
securities in the amount of $150,000. There was no equivalent write down in
2006.





The net
loss in 2006 of $1.486 million was lower than the equivalent net loss in 2005 of
$1.967 million primarily as a result of increased interest income following the
financing activities of the Company in 2006. The investment of the funds raised
led to an increase in interest income of $619,000 for the 2006 fiscal year
compared to 2005.








Exploration
and Development





The
Company capitalizes all exploration and development costs relating to its
resource interests. For the year ended December 31, 2007, the Company expended
$10.8 million, excluding amortization and accretion charges capitalized, (2006 -
$7.9 million) on exploration and development on the Prairie Creek Property, the
principal component of which was underground drilling.





The 2007
program included the continuation of the underground drilling program which
commenced in 2006. Underground drilling was carried out from drill stations at
50 metre intervals along a new 400 metre internal decline. Phase 1 of the
drilling program was completed in early June 2007 and consisted of 400 metres of
decline development from which 41 drill holes, of which 40 intersected
mineralization, totaling 8,217 metres of drilling from six drill stations have
been completed. The results of the Phase 1 program were incorporated into a
Technical Report dated October 12, 2007 which was prepared in accordance with
the standards in National Instrument 43-101 as described at “Item 4.D--Property,
Plant and Equipment--7. 2007 Resource Estimation.”





Phase 2
of the underground exploration program commenced in August 2007, with the
completion of a further 200 metre extension of the underground decline to create
additional underground drill stations. The underground drilling program from the
new drill stations commenced in late September 2007 and continued until December
2007. Ten holes totaling 2,407 metres of coring were completed, all of which
intersected mineralization.





A summary
of the Phase 1 and 2 underground exploration programs at Prairie Creek as
described above is included below:





Timeframe
            AdvanceAugust
      - December 2006
            Crosscut:
      75 metres
              Decline:
      350 metres
              Cut
      outs/safety bays/sumps: 20 metres
              Drill
      stations: 6September
      - November 2007
            Decline:
      200 metres
              Cut
      outs/safety bays/sumps: 5 metres
              Drill
      stations: 4TOTAL
            Crosscut:
      75metres
              Decline:
      550m
              Cut
      outs/safety bays/sumps: 25 metres
              Drill
      stations: 10





Drilling:





Timeframe
            Number
      of holes
            Coring
      (metres)October
      2006 - May 2007
            41
      (Phase 1)
            8,217September
      - December 2007
            10
      (Phase 2)
            2,407TOTAL
            51
            10,624





Between
July and early September 2007, the Company also carried out a surface helicopter
supported diamond drill exploration program totaling 1,671 metres of core in 12
holes. This reconnaissance drilling program was targeted in the Gate Claims,
located about 5 kilometres west of the Prairie Creek minesite, and in Zones 8, 9
and 11 located on the same Prairie Creek geological structure as the minesite
but located 5 – 10 kilometres south of the minesite. No significant mineral
intersections were encountered. The data from this drill program is currently
being incorporated into the Prairie Creek property dataset in order to determine
future exploration strategy.





Continued
work on permitting at Prairie Creek was undertaken during the year ended
December 31, 2007. On April 10, 2007, the Mackenzie Valley Land and Water Board
issued Land Use Permit MV2003F0028 to operate a winter road from the Prairie
Creek mine site to the Liard Highway. The permit is valid for a period of five
years to April 10, 2012. On June 7, 2007, the Company applied to the Mackenzie
Valley Land and Water Board for a Class B water license (MV2007L8-0026) needed
to rehabilitate a portion of the road in the proximity of the mine site and
sought authorization from the Department of Fisheries and Oceans to carry out
the work. On June 29, 2007, the Company applied to Indian and Northern Affairs
Canada for a quarrying permit to obtain rock to be used in the road
rehabilitation. The issuance of these permits was delayed as they were referred
to consultation between the Crown and the Nahanni Band. The quarry permit was
issued on February 29, 2008 and the water license was issued on March 20,
2008.





Particulars
of the deferred exploration and development costs are shown in Note 6 to the
audited financial statements for the year ended December 31, 2007 as attached to
this Annual Report at Item 17.





During
2006, the Company expended $7.9 million (excluding amortization and accretion)
on exploration and development on the Prairie Creek Property, the principal
components of which were underground exploration and drilling. The Company also
expended $205,000 on lease and property abandonment deposits. The 2006 programs
included sinking a new internal decline about 400 metres long from the end of
the existing workings on the 870 metre level, from which new drill stations were
established at 50 metre intervals.





During
2006, a new bulk metallurgical sample was collected from multiple headings of
the vein within the existing underground development. These samples were
composited and blended to create representative samples of the ore that will
provide feed to a future operating mill.





In 2006,
a surface diamond drill exploration program was started in Zone 8 located a
distance of 5 kilometres south of the minesite. This drill program totaled 600 m
in 2006 and returned significant mineralized intercepts which were followed up
on in the 2007 work program.





During
2005, the Company expended $1.4 million (excluding amortization and accretion)
on exploration and development on the Prairie Creek Property, the principal
components of which were site preparation, camp operations, metallurgy,
transportation, lease rentals and permitting and $30,000 on abandonment
deposits. The underground workings were further rehabilitated and a new
electrical substation installed underground in preparation for the planned
decline and underground drilling program. Important site maintenance and
environmental work was also carried out including the installation of a new
water treatment plant and construction of a new water polishing pond. A major
metallurgical testing program was also carried out.





Revenue
and Interest Income





The
Company is in the exploration and development stage and does not generate any
cash flows from operations. To date the Company has not earned any significant
revenues other than interest income. Interest income in fiscal 2007 was $1.2
million compared to $948,000 in 2006. In 2005, interest income amounted to
$329,000. The year-on-year increase in interest income is primarily attributable
to higher cash balances invested as a result of equity financings in 2006 and
2007.





Administrative
Expenses





Administrative
expenses for 2007 (excluding stock-based compensation, write-down of marketable
securities (2007) / mining equipment (2006) and amortization) were $1.724
million compared to $1.381 in 2006. The increase was largely attributable to
increased activity in shareholder and investor communications in
2007.





Equivalent
administrative expenses for 2005 amounted to $979,000. The increase in 2006
primarily related to additional investor relations programs and office related
expenditures as the activity levels in the Company increased.





Reclamation
Expenditures





In 2007, the Company incurred $246,000
(2006 - $Nil) on a work program to repackage certain hazardous materials stored
at the Prairie Creek site in order to facilitate their future removal and
destruction. These expenditures were applied against the asset retirement
obligation as disclosed in Note 8 to the audited financial statements as at
December 31, 2007.





Other
non-cash expenses





In 2007,
the Company recorded an expense for stock-based compensation of $267,000
relating to stock options granted to directors, officers, employees and
contractors. The amount charged in 2006 relating to stock-based compensation was
$1.023 million. This decrease relates primarily to the number of options
granted. The stock-based compensation expense value has been calculated using
the Black-Scholes valuation method and assumptions as described in “Item
5.A.--Operating Results--Critical Accounting Policies and Estimates” section to
this Annual Report. The assumptions used in the calculation are described in
Note 10(a) to the audited financial statements at December 31, 2007. In 2005,
the Company recorded stock-based compensation expense of $1.314 million for
stock option grants to employees and directors of the Company.





Amortization
costs relating to mining plant and equipment of $143,000 (2006 - $51,000; 2005 -
$40,000) and the asset retirement obligation asset of $128,000 (2006 and 2005 -
$129,000) were capitalized to resource interests. The increase in amortization
relating to plant and equipment arose as a result of equipment purchases in 2006
that have been amortized for the full year in 2007.





The
Company recorded a write-down on its marketable securities of $150,000 in the
year ended December 31, 2007. There was no equivalent charge in 2006. The
marketable securities were designated as held for trading assets by the Company
upon the adoption, on January 1, 2007, of new accounting standards relating to
financial instruments as described in more detail in the “Critical Accounting
Policies and Estimates” section to this Annual Report. This write-down in value
is based upon the market value of the shares at December 31, 2007.





Related
      Party Transactions





The
Company’s related party transactions for the year ended December 31, 2007,
consisted of executive compensation paid to executives, directors and
corporations controlled by directors in the amount of $498,000 compared to
$580,000 in 2006. The decrease was principally attributable to increased
payments made in the second quarter of 2006 to senior executives of the Company
and timing differences related to such payments. Particulars relating to related
party transactions are shown in Note 11 to the audited financial statements for
the year ended December 31, 2007.








Income
Taxes





The
Company is currently not profitable and has provided for its future income tax
assets; accordingly, there was no current or future income tax expense recorded
during the years ended December 31, 2007, 2006 and 2005.





The
Company follows the guidance prescribed by the Canadian Institute of Chartered
Accountants Emerging Issues Committee Recommendation 146, “Flow-through Shares,”
such that a future income tax liability is recognized, and shareholders’ equity
reduced, on the day the Company files the tax documents to renounce expenditures
with the tax authorities. In 2007, $8 million of such expenditures were
renounced and the documents filed in the quarter ended March 31, 2007. This
resulted in the recognition of a future tax liability in respect of the
renounced expenditures of $2.487 million and a corresponding reduction in
shareholder equity.  This also increased the future income tax
liability from $1.134 million at December 31, 2006 to $3.621 million as reported
at December 31, 2007.





A
reconciliation of income taxes for each of the past three years is shown
below:





2007
            
            
            2006
            
            
            2005Statutory
      tax rate
            
            
            34.12
            %
            
            
            35.01
            %
            
            
            34.87
            %Recovery
      of income taxes computed at statutory rates
            
            $
            314
            
            
            $
            520
            
            
            $
            686Permanent
      differences
            
            
            (93
            )
            
            
            (401
            )
            
            
            (519
            )Expired
      losses
            
            
            147
            
            
            
            (739
            )
            
            
            (68
            )Other
            
            
            (242
            )
            
            
            637
            
            
            
            (10
            )Income
      tax rate changes
            
            
            177
            
            
            
            (155
            )
            
            
            (2
            )Change
      in valuation allowance
            
            
            (303
            )
            
            
            138
            
            
            
            (87
            )$
            -
            
            
            $
            -
            
            
            $
            -





Critical
Accounting Policies and Estimates





The
Company’s financial statements are prepared in accordance with GAAP in Canada
and require management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and the related
disclosure of contingent assets and liabilities (if any). The Company’s
management makes assumptions that are believed to be reasonable under the
circumstances and that are based upon historical experience, current conditions
and expert advice. These estimates are reviewed on an ongoing basis for updated
information and facts. The use of different assumptions would result in
different estimates, and actual results may differ from results based on these
estimates.





A summary
of the Company’s significant accounting policies is included in Notes 2 and 3 to
the financial statements for the year ended December 31, 2007. The following is
a discussion of the accounting estimates that are significant in determining the
Company’s financial results and position:





Resource
Interests





The
Company defers (capitalizes) all acquisition, exploration and development costs
that relate to its Prairie Creek Property. The carrying value of resource
interests are reviewed at least annually or when events or changes in
circumstances suggest the carrying value of such assets may not be recoverable
(utilizing undiscounted estimates of cash flows) or has become impaired. When
the carrying values of resource interests are determined to be greater than
undiscounted cash flows, impairment is recorded to write down the assets to
their estimated fair value. In assessing the future estimated cash flows
management uses various estimates including, but not limited to, future
operating and capital costs as well as future commodity prices and estimates
based upon indicated and inferred resources. The ultimate recoverability of
amounts deferred for resource interests is dependent upon, amongst other things,
obtaining the necessary financing to complete the development of, and obtaining
the necessary permits to operate, the Prairie Creek Mine.





The
Company’s impairment review and testing is carried out under Canadian GAAP which
is substantially similar to U.S. GAAP as issued by the Financial Accounting
Standards Board in Statement of Financial Accounting Standards 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets."





Asset
Retirement Obligation





Asset
retirement obligations are recognized in the period in which they are incurred
if a reasonable estimate of fair value can be determined. The fair value of the
estimated asset retirement cost is capitalized as part of the carrying amount of
the long-lived asset when incurred or revised, and amortized over the asset’s
estimated useful life. Increases in the asset retirement obligation resulting
from the passage of time are recorded as accretion expenses. Actual expenditures
incurred are charged against the accumulated obligation. Various assumptions are
used in determining the liability including current mine plans, future
retirement costs and estimates of reserves and/or resources. The estimates used
require extensive judgment as to the nature, cost and timing of the work to be
completed and may change with future changes to cost structures, environmental
laws and requirements and remediation practices employed. Management evaluates
the asset retirement obligation estimates at the end of each reporting period to
determine whether the estimates continue to be appropriate.





As at
December 31, 2007, the Company estimates that the total undiscounted cash flows
required to settle the reclamation and remediation obligations at the Prairie
Creek Property are $2.5 million, mostly to be incurred at the end of the life of
the mine. These cash flows have been determined to have a present value of $1.2
million based upon the following assumptions: long-term inflation rate of 2,5%;
a credit-adjusted risk-free discount rate of 6.5%; and a weighted average useful
life for production facilities and equipment of ten years.





Stock
Based Compensation





The
Company applies the fair-value method of accounting for stock-based compensation
in accordance with the recommendations of CICA 3870, “Stock-based Compensation
and Other Stock-based Payments.” Stock-based compensation expense is calculated
using the Black-Scholes option pricing model (“Black-Scholes”). Black-Scholes
requires management to make various estimates and assumptions that impact the
value assigned to the option expense including the predicted future volatility
of the stock price, the risk free interest rate, dividend yield and the expected
life of the options. Management has used the following assumptions for its
Black-Scholes calculations:





Years
      ended December 31,2007
            2006
            2005Dividend
      yield
            0%
            0%
            0%Risk
      free interest rate
            4.07%
            4.02%
            3.5%Expected
      life
            5
      years
            5
      years
            5
      yearsExpected
      volatility
            89%
            101%
            91%





Financial
Instruments





As
described below in “Changes in Accounting Policies including Initial Adoption,”
the Company adopted, effective January 1, 2007, several new accounting standards
with regard to financial instruments. As disclosed in Note 3 to the audited
financial statements for the year ended December 31, 2007, the Company elected
to classify its short term investments and cash equivalents as held for trading
assets, which requires that gains or losses from changes in fair value are taken
directly to net income, as this was considered the most appropriate
classification. Should a different classification have been determined, it is
possible that such gains or losses would have been included in other
comprehensive income instead of net income.





The
Company has also included note disclosure concerning some of the risk factors
relating to its financial instruments – see Note 13 to the audited financial
statements for the year ended December 31, 2007.





Changes
in Accounting Policy Including Initial Adoption





The
Company adopted various new accounting standards, as described below, during the
year ended December 31, 2007.





On
January 1, 2007, the Company adopted the recommendations included in the
following Sections of the Canadian Institute of Chartered Accountants Handbook:
Section 1530, “Comprehensive Income,” Section 3251, “Equity,” Section 3855,
“Financial Instruments – Recognition and Measurement,” Section 3861, “Financial
Instruments – Disclosure and Presentation” and Section 3865, “Hedges.” These new
accounting standards provide the requirements for the recognition, measurement,
disclosure and presentation of financial instruments, the use of hedge
accounting and also establish standards for reporting and presenting
comprehensive income. The standards were adopted retroactively without restating
prior periods. The Company also adopted, effective January 1, 2007, Section
1506, “Accounting Changes.”





Additional
information on the adoption of these accounting standards can be found in Note 3
to the audited financial statements as at December 31, 2007.





Recently
Released Canadian Accounting Standards





Recent
accounting pronouncements that have been issued but are not yet effective, and
which may affect the Company’s financial reporting under Canadian GAAP, are
summarized below:





In
February 2008, the CICA Accounting Standards Board (“AcSB”) confirmed that the
use of International Financial Reporting Standards (“IFRS”) will be required in
2011 for public companies in Canada (i.e., IFRS will replace Canadian GAAP for
public companies). The official changeover date will apply for interim and
annual financial statements relating to fiscal years beginning on or after
January 1, 2011. The Company is currently assessing the impact of the
implementation of IFRS.





The CICA
has issued several new standards which may affect the financial disclosures and
results of operations of the Company for interim and annual periods beginning
January 1, 2008. The Company will adopt the requirements commencing in the
interim period ended March 31, 2008.





Section
1535 – “Capital Disclosures”: This Section establishes standards for disclosing
information about a company’s capital and how it is managed. Under this standard
the Company will be required to disclose the following, based on the information
provided internally to the Company’s key management personnel:





(i)
            qualitative
      information about its objectives, policies and processes for managing
      capital;


(ii)
            summary
      quantitative data about what it manages as
  capital;


(iii)
            whether
      during the period it complied with any externally imposed capital
      requirements to which the Company is subject;
  and


(iv)
            when
      the Company has not complied with such externally imposed capital
      requirements (if any), the consequences of such
      non-compliance.





The
Company does not believe that Section 1535 will have a significant impact on its
financial statements.





Section
3031 – “Inventories”: This Section prescribes the accounting treatment for
inventories and provides guidance on the determination of costs and its
subsequent recognition as an expense, including any write-down to net realizable
value. It also provides guidance on the cost formulas that are used to assign
costs to inventories. The Company does not believe that Section 3031 will have a
significant impact on its financial statements.





Section
3862 – “Financial Instruments – Disclosures”: The new disclosure standard
requires companies to provide disclosure of quantitative and qualitative
information in their financial statements that enable users to evaluate (a) the
significance of financial instruments for the company’s financial position and
performance; and (b) the nature and extent of risks arising from financial
instruments to which the entity is exposed during the period and at the balance
sheet date, and management’s objectives, policies and procedures for managing
such risks. Companies will be required to disclose the measurement basis or
bases used, and the criteria used to determine classification for different
types of instruments.





The
Section requires specific disclosures to be made, including the criteria
for:


(i)
            designating
      financial assets and liabilities as held for
  trading;


(ii)
            designating
      financial assets as available-for-sale;
and


(iii)
            determining
      when impairment is recorded against the related financial asset or when an
      allowance account is used.





The
Company does not believe that Section 3862 will have a significant impact on its
financial statements.





Comparison
of Canadian GAAP and United States GAAP as applicable to the Company’s
operations.





For the purposes of U.S. GAAP the
Company is considered to be an Exploration Stage Enterprise. These financial
statements have been prepared in accordance with Canadian GAAP which differs in
certain material respects from U.S. GAAP. The material differences between
Canadian and U.S. GAAP, in respect of these financial statements, are summarized
as follows:





Balance
      Sheets


2007
            
            
            2006
              (Restated)Total
      assets (Canadian GAAP)
            
            $
            66,931
            
            
            $
            56,762Decrease
      in resource interest due to write-off of exploration and development costs
      (a)
            
            
            (33,079
            )
            
            
            (21,901
            )Total
      assets (U.S. GAAP)
            
            $
            33,852
            
            
            $
            34,861Total
      liabilities (Canadian GAAP)
            
            $
            6,103
            
            
            $
            2,978Decrease
      in future income tax liability due to write-off of exploration and
      development costs (a)
            
            
            (3,621
            )
            
            
            (1,134
            )Increase
      due to flow through share premium paid in excess of market value
      (c)
            
            
            -
            
            
            
            1,531Total
      liabilities (U.S. GAAP)
            
            $
            2,482
            
            
            $
            3,375Total
      Shareholders’ Equity (Canadian GAAP)
            
            $
            60,828
            
            
            $
            53,784Increase
      due to future income tax liability reduction due to write-off of
      exploration and development costs (a)
            
            
            3,621
            
            
            
            1,134Decrease
      re write-off of exploration and development costs (a)
            
            
            (33,079
            )
            
            
            (21,901
            )Decrease
      re flow through share premium paid in excess of market value
      (c)
            
            
            -
            
            
            
            (1,531
            )Total
      Shareholders’ Equity (U.S. GAAP)
            
            $
            31,370
            
            
            $
            31,486








Statements of
      Operations


2007
            
            
            2006
            
            
            2005Net
      loss and comprehensive loss (Canadian GAAP)
            
            $
            (920
            )
            
            $
            (1,486
            )
            
            $
            (1,967
            )Flow
      through share premium reversal (c)
            
            
            1,531
            
            
            
            -
            
            
            
            -Exploration
      and Development costs written-off (a)
            
            
            (11,178
            )
            
            
            (8,129
            )
            
            
            (1,666
            )Net
      loss and comprehensive loss (U.S. GAAP)
            
            $
            (10,567
            )
            
            $
            (9,615
            )
            
            $
            (3,633
            )Loss
      per share
              -
      basic and diluted (U.S. GAAP)
            
            $
            (0.09
            )
            
            $
            (0.10
            )
            
            $
            (0.05
            )Weighted
      average number of common shares outstanding
              -
      basic and diluted (U.S. GAAP)
            
            
            113,429,078
            
            
            
            94,734,979
            
            
            
            71,378,444





Statements of Cash
      Flows


2007
            
            
            2006
            
            
            2005Operating
      activities (Canadian GAAP)
            
            $
            (569
            )
            
            $
            (262
            )
            
            $
            (776
            )Deferred
      exploration and development costs (a)
            
            
            (10,830
            )
            
            
            (7,871
            )
            
            
            (1,426
            )Lease
      and property abandonment deposit (a)
            
            
            (30
            )
            
            
            (205
            )
            
            
            (30
            )Operating
      activities (U.S. GAAP)
            
            $
            (11,429
            )
            
            $
            (8,338
            )
            
            $
            (2,232
            )Investing
      activities (Canadian GAAP)
            
            $
            (16,304
            )
            
            $
            (24,231
            )
            
            $
            (1,474
            )Deferred
      exploration costs (a)
            
            
            10,830
            
            
            
            7,871
            
            
            
            1,426Lease
      and property abandonment deposit (a)
            
            
            30
            
            
            
            205
            
            
            
            30Investing
      activities (U.S. GAAP)
            
            $
            (5,444
            )
            
            $
            (16,155
            )
            
            $
            (18
            )





Restatement





The
Company concluded that the reconciliation to U.S. GAAP in the financial
statements at December 31, 2006, should be restated to record a reversal of a
future income tax liability required under Canadian GAAP but not under U.S.
GAAP. This adjustment is reflected in the 2006 Canadian to U.S. GAAP reconciled
balance sheet above. The decision to restate the 2006 balance sheet for U.S.
GAAP purposes was based upon the results of the procedures performed as part of
the December 31, 2007 year end financial reporting process which identified that
the Company has no future income tax liabilities under U.S. GAAP (compared to
Canadian GAAP) due to the effect of writing-down resource interest expenditures
for U.S. GAAP purposes. The Company concluded that the amendment was material to
the 2006 U.S. GAAP reconciliation note and has, accordingly, restated the
reconciliation.





As a
result of the restatement, total liabilities in 2006 for U.S. GAAP purposes
decreased by $1.134 million with an equivalent increase in shareholders’ equity.
This restatement had no impact on the statement of operations or the statement
of cash flows under U.S. GAAP in 2006.





(a) Resource
Interests





For the
purposes of U.S. GAAP, the Company is considered to be an Exploration Stage
Enterprise. U.S. GAAP requires that exploration costs relating to resource
interests be expensed until there is substantial evidence of economically
recoverable resources, whereas Canadian GAAP allows resource interest costs to
be deferred during the exploration process. Accordingly, exploration costs are
expensed for U.S. GAAP purposes as the Company is at present exploring its
properties for economically recoverable ore reserves.








(b) Income
Taxes





Under Canadian GAAP, future income
taxes are calculated based on enacted or substantively enacted tax rates
applicable to future years. Under U.S. GAAP, only enacted rates are used in the
calculation of future income taxes. This difference in GAAP did not result in a
difference in the financial position, results of operations or cash flows of the
Company for the years presented.





(c) Flow-through
Shares





Under Canadian GAAP, no liabilities
are recorded on flow-through shares until expenditures have been renounced.
Under U.S. GAAP, a liability on flow-through shares is required at the time such
shares are issued for the excess of the shares over quoted market value. In
2006, $1.5 million was recognized as a difference between U.S. GAAP and Canadian
GAAP for the 6,956,522 flow-through shares issued in November, 2006 at $1.15 per
share (compared to a quoted market value of $0.93). The tax benefits related to
these shares were renounced by the filing of Canada Revenue Agency Form T101A,
“Claim for Renouncing Exploration Expenditures (CEEs) and Canadian Development
Expenditures (CDEs)” in 2007 and accordingly, there was an inclusion to income
(for U.S. GAAP) of the previously recorded $1.5 million liability. Under U.S.
GAAP, unexpended flow-through funds as at the balance sheet date are separately
classified as restricted cash. At December 31, 2007, there were $Nil in
unexpended flow-through funds (2006 - $6.8 million).





(d) Newly Adopted Accounting
Pronouncements





On January 1, 2007, the Company
adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes" ("FIN 48"). This interpretation
prescribes a recognition threshold and measurement attribute for
the   financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition.





There was no impact to opening
retained earnings under U.S. GAAP upon the adoption of FIN 48. The Company has
no unrecognized tax benefits and does not expect any significant changes to this
position within 12 months of this reporting date.





The Company is subject to Canadian
federal income tax as well as income tax of several provincial jurisdictions.
The tax years 2000 and beyond remain subject to examination by the Canada
Revenue Agency.





(e) New Accounting
Pronouncements





The FASB has issued Statement of
Financial Accounting Standards ("SFAS") 157, "Fair Value Measurements" ("SFAS
157"), which defines fair value, establishes a framework for consistently
measuring fair value under GAAP and expands disclosures about fair value
measurements. SFAS 157 is effective as of the first fiscal year that begins
after November 15, 2007 (i.e. for the Company’s fiscal year beginning January 1,
2008).  The adoption of SFAS 157 is not expected to have an effect on
the Company's financial position.





In February 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.”
This Statement permits all entities to choose, at specified election dates, to
measure eligible items at fair value (the “fair value option”). A business
entity shall report unrealized gains and losses on items for which the fair
value option has been elected in earnings (or another performance indicator if
the business entity does not report earnings) at each subsequent reporting date.
Upfront costs and fees related to items for which the fair value option is
elected shall be recognized in earnings as incurred and not deferred. If an
entity elects the fair value option for a held-to-maturity or available-for-sale
security in conjunction with the adoption of this Statement, that security shall
be reported as a trading security under Statement 115, but the accounting for a
transfer to the trading category under paragraph 15(b) of Statement 115 does not
apply. Electing the fair value option for an existing held-to-maturity security
will not call into question the intent of an entity to hold other debt
securities to maturity in the future. This statement is effective as of the
first fiscal year that begins after November 15, 2007 (i.e. for the Company’s
fiscal year beginning January 1, 2008). The Company is currently analyzing the
effects of SFAS 159 but does not expect its implementation will have a
significant impact on the Company's financial condition or results of
operations.





In December 2007, the SEC issued
Staff Accounting Bulletin (“SAB”) No. 110 which amends SAB 107 to allow for the
continued use, under certain circumstances, of the “simplified” method in
developing an estimate of the expected term of so-called “plain vanilla” stock
options accounted for under FAS 123R, “Share-Based Payment.” When SAB 107 was
published, the staff believed that more information about employee exercise
behavior (e.g., employee exercise patterns by industry or other categories of
companies) would become available. Therefore, the staff stated in SAB 107 that
it would not expect the simplified method to be used for stock option grants
after December 31, 2007. The staff now understands that such information will
not be widely available by December 31, 2007. Accordingly, the SEC staff will
accept, under certain circumstances, the use of the simplified method beyond
December 31, 2007 for "plain vanilla" options (as described in SAB 110). The
Company does not believe that SAB 110 will have a significant impact on its
financial statements.





B.           Liquidity
and Capital Resources





As at
December 31, 2007, the Company had cash and cash equivalents of $6.9 million,
short term investments of $21.5 and a positive working capital balance of $27.4
million. As at December 31, 2006, the Company had cash and cash equivalents of
$13.6 million, short term investments of $15.5 million and a positive working
capital balance of $29.1 million. Accordingly, the Company believes that it
remains in a strong position to further continue with its planned exploration,
development and permitting activities at the Prairie Creek Mine.





The
Company’s short term investments consist primarily of Bankers’ Acceptances and
Guaranteed Investment Certificates; accordingly, the Company’s investments have
not been impacted by the recent market issues relating to asset-backed
commercial paper or sub-prime debt instruments, except in so far as the rates of
return have declined generally across the market such that the interest earned
on investments is currently lower than in early 2007.





Canadian
Zinc does not generate any cash flows from operations and has no income other
than interest income. The Company relies on equity financings for its working
capital requirements and to fund its planned exploration, development and
permitting activities. During the year ended December 31, 2007, the Company
completed a private placement of 11,765,000 units at a price of $0.85 per unit
for total gross proceeds of $10,000,250. Net proceeds received after accounting
for share issue costs were $9,766,332. Each unit consists of one common share
and one-half of one common share purchase warrant. Each whole warrant entitles
the holder to purchase one common share at a price of $1.20 per warrant share
until July 23, 2009.





The
Company continued to incur expenditures on its Prairie Creek Mine site during
the year ended December 31, 2007, during which time $10.8 million was expended
on exploration and development costs. Details of the Company’s deferred
exploration and development costs are included in Note 6 to the audited
financial statements for the year ended December 31, 2007. Previous disclosures
indicated that a budget of $9 million had been approved for Prairie Creek
programs in 2007. The additional costs relate primarily to additional drilling
performed on the Prairie Creek Property and related camp operation costs (total
additional expenditures of approximately $3.3 million). This was offset by the
delay in commencing work on the rehabilitation of the winter road (as described
in this Annual Report) which had been budgeted at approximately $2
million.





The
Company’s current liabilities at December 31, 2007 were $1.254 million compared
to $464,000 as at December 31, 2006. This increase arose primarily as a result
of the timing of payments to trade creditors but also due to the increased
general corporate and exploration activity that occurred in 2007 and for which
invoices were remitted to the Company in December 2007 and January
2008.





Canadian
Zinc considers that its capital resources are adequate to support the current
operations and short to medium-term plans of the Company. However, additional
capital will be required in order to bring the Prairie Creek Mine into
production in the future. The ability to raise additional finance may be
impaired, or such financing may not be available on favourable terms, due to
conditions beyond the control of the Company, such as uncertainty in the capital
markets. This is discussed in more detail in the “Item 3.D--Risk Factors”
section in this Annual Report.





Outlook





The
information set forth below consists primarily of forward-looking statements.
You should refer to the information under the caption “CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS” included on page 3 of this Form 20-F in
considering those statements.





Canadian
Zinc is currently in a development phase with additional exploration also taking
place at the Prairie Creek Mine site. At December 31, 2007, the Company had a
positive working capital balance of $27.4 million which places the Company in a
strong financial position to carry out its planned exploration, development and
permitting activities for the upcoming periods.





A
preliminary budget of $7.5 million, which is in addition to the regular, ongoing
costs of maintaining the Prairie Creek site, has been approved for the Prairie
Creek project for 2008. Planned programs include ongoing permitting activities,
further engineering and rehabilitation work on the road to the mine Site and
ongoing exploration. The Company is also examining the various operating
alternatives outlined in the 2001 preliminary Scoping Study (which is now
considered to be out of date and should not be relied upon) and is working
towards updating and converting the Scoping Study into a Pre-Feasibility study
utilizing the updated Technical Report as described in section “Item
4.D--Property, Plant and Equipment--8. 2008 Pre-Feasibility Study” of this
Annual Report. The Pre-Feasibility study, which is being undertaken by
SNC-Lavalin Inc., is scheduled to be completed in 2008.





The main
focus is to continue permitting activities in order to advance the project
towards commercial production. A series of community open houses and public
meetings were held, during November 2007, in seven Dehcho communities to provide
information and to seek feedback and advice relating to the reopening of the
Prairie Creek mine. The Company plans to apply for the Land Use Permit and Water
License for the commercial operation of the Prairie Creek Mine once the project
description report can be finalized for the application submittal. Originally
the Company intended to file this application during 2007. However, this
timeline was delayed as a result of the Company updating a detailed Mine Plan
based on incorporating all the Phase 1 and 2 underground drilling results and
the unexpected delays with regard to the road rehabilitation permitting process.
The Company plans to submit the applications as soon as possible.





C.           Research
and Development, Patents and Licenses, etc.





The Company has not engaged in
significant research and development activities during the last three
years.








D.           Trend
Information





See “Item
5.A.--Operating Results” and “Item 5.B--Liquidity and Capital Resources” for
discussion of the most significant recent trends in the Company’s business since
the last fiscal year.





Summary Quarterly Results:


(thousands of dollars except per share
amounts)


Quarter
      ended
            Interest
              income
              $
            Net
      (Loss) $
            Net
      (Loss) per Common Share  $December
      31, 2007
            208
            (684)
            (0.01)September
      30, 2007
            375
            (1)
            (0.00)June
      30, 2007
            331
            (171)
            (0.00)March
      31, 2007
            320
            (64)
            (0.00)December
      31, 2006
            304
            (966)
            (0.02)September
      30, 2006
            237
            (39)
            (0.00)June
      30, 2006
            226
            (326)
            (0.00)March
      31, 2006
            181
            (155)
            (0.00)





The
Company’s interest income has generally increased as a result of higher cash,
cash equivalents and short term investment balances following share issuances
during 2006 and 2007. The reduced interest income in the fourth quarter of 2007
arose as a result of slightly lower cash and cash equivalents following the 2007
Prairie Creek drill programs and also as a result of lower returns generally on
new investments following the recent uncertainty in the capital
markets.





The net
loss in the fourth quarter of 2007 is higher than the prior three quarters
primarily as a result of a stock-based compensation charge relating to stock
options granted in October 2007, management bonuses awarded to officers and
employees of the Company, and additional compliance costs relating to, among
others, internal controls procedures and related testing for Sarbanes-Oxley
compliance.





E.           Off-Balance
Sheet Arrangements





Canadian Zinc has no off-balance
sheet arrangements such as guarantees, derivative securities, retained interests
or variable interests that will or could have a material effect on the Company’s
financial condition, interest income and expenses, results of operations,
liquidity, capital expenditures and capital resources.








F.           Tabular
Disclosure of Contractual Obligations





The
following is a schedule reflecting our aggregate financial commitments as of
December 31, 2007:





($’000s)
            Payment
      due by periodContractual
      Obligations
            Total
      (CDN$)
            Less
      than 1 year
            1-3
      years
            3-5
      years
            More
      than 5 yearsOperating
      Lease Obligation (1)
            595
            122
            395
            78
            -Asset
      Retirement Obligation (2)
            1,228
            -
            -
            -
            1,228Other
      Liability (3)
            100
            100
            -
            -
            -Total
            1,923
            222
            395
            78
            1,228





(1)
            Represents
      rent obligations under operating leases for office space and
      equipment.


(2)
            The
      asset retirement obligation represents the expected present value of total
      payments of $2.5 million which are anticipated to be predominantly
      incurred at the end of the life of the Prairie Creek
  Mine.


(3)
            Represents
      amounts payable to contractors at the Prairie Creek Mine
    site.





The table
above does not include the annual fees related to the Company’s mining leases,
surface leases and mineral claims which total approximately $51,000 per
annum.





G.
            Safe
      Harbor





This
Annual Report contains forward-looking statements that are made under the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995 and
under Canadian securities laws that involve a number of risks and uncertainties.
Such statements are based on the Company’s current expectations, estimates and
projections about the industry, management’s beliefs and certain assumptions
made by it. The Company uses words such as “expect,” “anticipate,” “project,”
“believe,” “plan,” “intend,” “seek,” “should,” “estimate,” “future” and other
similar expressions to identify forward-looking statements. The Company’s actual
results could differ materially and adversely from those expressed in any
forward-looking statements as a result of various factors.





Statements
about expected completion dates of feasibility studies, anticipated commencement
dates of mining or metal production operations, projected quantities of future
metal production and anticipated production rates, operating efficiencies, costs
and expenditures, business development efforts, the need for additional capital
and the Company's production capacity are not guarantees of future performance
and are subject to certain risks, uncertainties and assumptions that are
difficult to predict. Therefore, the Company's actual results could differ
materially and adversely from those expressed in any forward-looking statements
as a result of various factors. You should not place undue reliance on these
forward-looking statements.





Information
relating to the magnitude or quality of mineral deposits is deemed to be
forward-looking information. The reliability of such information is affected by,
among other things, uncertainty involving geology of mineral deposits;
uncertainty of estimates of their size or composition; uncertainty of
projections relating to costs of production or estimates of market prices for
the mineral; the possibility of delays in mining activities; changes in plans
with respect to exploration, development projects or capital expenditures; and
various other risks including those relating to health, safety and environmental
matters.





The
Company cautions that the list of factors set forth above is not exhaustive.
Some of the risks, uncertainties and other factors which negatively affect the
reliability of forward-looking information are discussed in the Company's public
filings with the Canadian securities regulatory authorities, including its most
recent annual report, quarterly reports, material change reports and press
releases, and with the United States Securities and Exchange Commission (the
“SEC”).  In particular, your attention is directed to the risks
detailed in “Item 3.D.--Key Information--Risk Factors” and similar discussions
in the Company's other SEC and Canadian  filings concerning some of
the important risk factors that may affect its business, results of operations
and financial conditions. You should carefully consider those risks, in addition
to the other information in this Annual Report and in the Company's other
filings and the various public disclosures before making any business or
investment decisions involving the Company and its securities.





The
Company undertakes no obligation to revise or update any forward-looking
statement, or any other information contained or referenced in this Annual
Report to reflect future events and circumstances for any reason. In addition,
any forecasts or guidance provided by the Company are based on the beliefs,
estimates and opinions of the Company’s management as at the date of this Annual
Report and, accordingly, they involve a number of risks and uncertainties.
Consequently, there can be no assurances that such statements will prove to be
accurate and actual results and future events could differ materially from those
anticipated in such statements. The Company undertakes no obligation to update
such projections if management’s beliefs, estimates or opinions, or other
factors should change.








ITEM
      6.
            DIRECTORS, SENIOR MANAGEMENT AND
  EMPLOYEES





A.
            Directors
      and Senior Management




The
shareholders determine, at each annual general meeting, the number of Directors
that will make up the Company’s Board of Directors. The Directors are elected by
the Company’s shareholders pursuant to the terms of the Company’s Articles and
the terms of its governing legislation, the Business Corporations Act
(British Columbia).  The executive officers are appointed by the Board
of Directors.





The
following sets forth the Directors and officers of the Company at March 31,
2008:





Name,
      Province or State and Country of Ordinary Residence and Position Held with
      the Company
            Age
            Principal
      Occupation During Preceding
              Five
      Years
            Date
      First Became Director of the Company
            Common
      Shares  beneficially owned, directly or indirectly, or over
      which control or direction is exercisedRobert
      Gayton
              British
      Columbia, Canada Director
            68
            Chartered
      accountant/financial consultant; Director of 11 public companies including
      Western Copper Corp., Quaterra Resources Inc., B2Gold Corp., Bravo Venture
      Group, Northern Orion Resources Inc., Amerigo Resources Ltd. and Nevsun
      Resources Ltd.
            May
      2000
            10,000
      common sharesJohn
      F. Kearney
              Ontario,
      Canada
              Chairman,
      President, Chief Executive Officer and Director
            57
            Chairman,
      President and Chief Executive Officer of Canadian Zinc Corporation since
      2003; Chairman of Labrador Iron Mines Limited since May 2007; Chairman of
      Conquest Resources Limited since 2001; Chairman of Anglesey Mining plc
      since 1994.
            November
      2001
            765,409
      common sharesJohn
      MacPherson
              British
      Columbia, Canada
              Director
            64
            Director
      and Chairman of Tower Energy Ltd.; Chairman of Canadian Zinc Corporation
      from 2000 to June 2003.
            May
      1999
            NilDave
      Nickerson
              Northwest
      Territories, Canada
              Director
            63
            Professional
      Engineer, Mining consultant, Director, Tyhee Development Corp.; previously
      Chairman of Northwest Territories Water Board; Member of Parliament,
      Member of NWT Legislative Assembly; Government Minister
            March
      2004
            3,000
      common sharesAlan
      C. Savage
              British
      Columbia, Canada
              Director
            65
            Director
      of Selkirk Metals Corp. (“Selkirk”), Copper Ridge Exploration Ltd. and Hi
      Ho Silver Resources Inc. Former Chairman of Doublestar Resources Ltd.
      (“Doubelstar”) until acquisition of Doublestar by Selkirk in July
      2007.
            June
      2003
            2,000
      common sharesAlan
      Taylor
              British
      Columbia, Canada
              Vice
      President, Exploration, Chief Operating Officer and
    Director
            51
            Vice
      President, Exploration of Canadian Zinc Corporation since 1999 and Chief
      Operating Officer of Canadian Zinc Corporation since March 2004. Director
      of Cronus Resources Ltd. (formerly Sunrise Minerals Inc.).
            March
      2004
            NilMartin
      Rip
              British
      Columbia, Canada
              Chief
      Financial Officer, Vice President, Finance and Secretary (1)
            33
            Chief
      Financial Officer and Vice President Finance of Canadian Zinc Corporation
      since October 15, 2007; Chartered Accountant; former VP Finance and CFO of
      Pine Valley Mining Corporation (February 2005 – June 2007); Senior Manager
      – Grant Thornton LLP (March 2001 – February 2005).
            N/A
            NilBea
      Service
              Ontario,
      Canada
              Secretary
      (1)
            57
            Treasurer,
      Energold Minerals Inc. (resource company); Administrator, Conquest
      Resources Inc. (resource company)
            N/A
            Nil


(1)
Martin Rip was appointed Corporate Secretary of the Company effective March 25,
2008.





As at March 31, 2008, the Directors and
senior officers as a group beneficially own, directly or indirectly, less than
1% of the outstanding common shares of the Company.





No
arrangement or understanding exists between any Director or member of senior
management and any other person pursuant to which any Director or member of
senior management was elected to such a position with us.





Cease trade orders,
Bankruptcies.





John
Kearney served as a non-executive director of McCarthy Corporation plc from July
2000 to March 2003. In June 2003, McCarthy Corporation plc proposed a voluntary
arrangement with its creditors pursuant to the legislation of the United
Kingdom.





Alan
Savage served as a director of Consolidated Van Anda Gold Ltd., which became the
subject of a cease trade order of the Alberta Securities Commission in February
2002 for failure to file financial statements. Mr. Savage resigned as a director
of Consolidated Van Anda Gold Ltd. in August 2003.





Robert
Gayton served as a director of Newcoast Silver Mines Ltd., which became the
subject of a cease trade order of the British Columbia Securities Commission in
September 2003 and of the Alberta Securities Commission in October 2003 for
failure to file financial statements. The orders were revoked in October 2003
and March 2004, respectively





Martin
Rip served as Chief Financial Officer of Pine Valley Mining Corporation (“Pine
Valley”) which filed for protection under the Companies’ Creditors Arrangement
Act (“CCAA”) on October 20, 2006. Subsequent to filing for CCAA protection, Pine
Valley was suspended from trading on the TSX for failing to meet the minimum
listing requirements. Mr. Rip’s employment with Pine Valley was terminated on
June 29, 2007 as part of the CCAA proceedings.





B.           Compensation




Compensation of Directors.
For the fiscal year 2007, the Company paid each Director, other than executive
officers, an annual fee of $10,000 plus $500 for each meeting or committee
meeting attended.  An aggregate of $66,500 was paid to Directors for
their services as directors during 2007 (2006 - $68,100).




From time
to time, Directors may be retained to provide specific services to the Company
and will be compensated on a basis to be negotiated.  In 2007, John
MacPherson was paid $3,200 for consulting services.




Compensation of Executive
Officers.




Summary Compensation Table.
The following table sets forth all compensation paid in respect of the
individuals who were, at December 31, 2007 and for the preceding three years,
the Chief Executive Officer, the Chief Operating Officer and the Chief Financial
Officer of the Company (the "Named Executive Officers").  No other
executive officers of the Company were in receipt of salaries and bonuses in
excess of $150,000 during the financial year ended December 31,
2007.





Annual
      Compensation
            Long-Term
      CompensationAwards
            PayoutsName
              And
              Principal
              Position
            Year
            Salary
              ($)
            Bonus
              ($)
            Other
              Annual
              Compen-sation
              ($)
            Securities
      Under Options/
              SARs
      Granted
              (#)
            Shares
      or Units Subject to Resale Restrictions
              ($)
            LTIP
      Payouts
              ($)
            All
      Other Compen-sation
              ($)John
      F. Kearney
              Chairman,
      President and Chief Executive Officer
            2007
              2006
              2005
            $180,000(1)
              $180,000(1)
              $144,000
            $25,000(1)
              $72,000(1)
              Nil
            Nil
              Nil
              Nil
            Nil
              200,000
              1,000,000
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              NilAlan
      B. Taylor
              Chief
      Operating Officer
            2007
              2006
              2005
            $168,000
              $176,069
              $144,000
            $42,000
              $72,000
              Nil
            Nil
              Nil
              Nil
            Nil
              200,000
              700,000
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              NilDanesh
      D. Varma
              Chief
      Financial Officer (2)
            2007
              2006
              2005
            $12,000
              $12,000
              $12,490
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              NilMartin
      Rip
              Chief
      Financial Officer (3)
            2007
              2006
              2005
            $30,600
              N/a
              N/a
            $1,800
              N/a
              N/a
            Nil
              N/a
              N/a
            300,000
              N/a
              N/a
            Nil
              N/a
              N/a
            Nil
              N/a
              N/a
            Nil
              N/a
              N/a


(1)
            Paid
      to  a private company controlled by John F.
    Kearney.




(2)
            Mr. Varma was appointed CFO in
      February 2005 and resigned in October
  2007.




(3)
            Mr.
      Rip was appointed CFO in October
2007.







Stock Options. During the
year ended December 31, 2007, the Company granted 300,000 stock options to Mr.
Rip. No other Named Executive Officers received a grant of stock options in
fiscal 2007. The following table sets forth information with respect to options
to purchase Common Shares granted to Named Excutive Officers during the year
ended December 31, 2007.





Name
            Securities
      Under Options/SARs Granted
              (#)
            Percent
      of Total Options/SARs Granted to Employees in Financial Year (1)
            Exercise
      or Base Price
              ($/Security)
            Market
      Value of Securities Underlying Options/SARs on the Date of
      Grant
              ($/Security)
            Expiration
      DateMartin
      Rip
            300,000(2)
            43%
            $0.94(3)
            $0.95(3)
            October
      15, 2012


(1)
            The
      total number of options granted in fiscal 2007 was 695,000 (including Mr.
      Rip’s option above).




(2)
            This
      option grant vests as to 200,000 options on February 15, 2008 and 100,000
      options on October 15, 2008.




(3)
            The
      exercise price for options granted was determined by the Compensation
      Committee of the Board of Directors based on the closing price of the
      Company’s common shares as quoted on the TSX as at October 12, 2007. The
      stock option agreement and press release to the public was finalized on
      October 15, 2007.







The
following table sets forth certain information with respect to options to
purchase Common Shares exercised during the fiscal year ended December 31, 2007
and the financial year end value of unexercised options held by the Named
Executive Officers on an aggregate basis.








Name
            Securities
      Acquired
              on
      Exercise
              (#)
            Aggregate
              Value
              Realized
              ($)
            Unexercised
      Options/SARs
              at
      Financial
              Year-End
              (#)
              Exercisable/
              Unexercisable
            Value
      of Unexercised
              In-the-Money
              Options/SARs
              at Financial
      Year-End(1)
              ($)
              Exercisable/
              UnexercisableJohn
      F. Kearney
            450,000
            $180,000(2)
            1,200,000/Nil
            $150,000/NilAlan
      B. Taylor
            Nil
            Nil
            900,000/Nil
            $105,000/NilMartin
      Rip
            Nil
            Nil
            Nil/300,000
            Nil/Nil


(1)
            The
      closing price of the common shares of the Company on the TSX on December
      31, 2007 was $0.75.




(2)
            Based
      upon the closing price of the common shares of the Company on the TSX on
      March 15, 2007 of $0.63.







Directors
are eligible to participate in the Company’s Stock Option Plan. No stock options
were granted to Directors during the year ended December 31, 2007. During the
fiscal years ended December 31, 2006 and 2005, stock options totaling 1.2
million and 3.3 million shares respectively were granted to Directors of the
Company pursuant to the Company’s Stock Option Plan.





Following
amendments made by the Toronto Stock Exchange to its Company Manual effective
January 1, 2005, the Company has implemented amendments to its Stock Option Plan
to change the maximum number of common shares which may be made subject to
option from time to time from a fixed number to a rolling maximum of 10% of the
Company's issued and outstanding share capital at the time of grant. Current
outstanding options will continue to be exercisable and will be governed by and
subject to the terms of the amended plan.





Equity Compensation Plan
Information. The following table sets out, as at the end of the Company’s
financial year ended December 31, 2007, all information required with respect to
compensation plans under which equity securities of the Company are authorized
for issuance:





Plan
      Category
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights (a)
            Weighted-average
      exercise price of outstanding options, warrants and rights
    (b)
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column(a))
      (c)Equity
      compensation plans approved by security holders
            4,865,000
            $0.73
            7,156,396Equity
      compensation plans not approved by security holders
            N/A
            N/A
            N/ATotal
            4,865,000
            $0.73
            7,156,396





Other Plans. The Company has
no plans, other than the Company's stock option plan (as noted above), pursuant
to which cash or non-cash compensation was paid or distributed to directors or
officers during the most recently completed financial year or is proposed to be
paid or distributed in a subsequent year.





The
Company does not have any pension plans, stock purchase plans or any other
arrangements whereby compensation is paid, directly or indirectly, to its
insiders, directors, executive officers or employees.




Termination of Employment or Change
of Control. There exists no plan or arrangement in respect of which
compensation has been paid or may be paid to executive officers or directors to
compensate them for termination of employment, retirement or resignation or in
the event of a change in duties or responsibilities as a result of a change of
control of the Company, except as noted below under the terms of the employment
agreement entered into with Mr. Rip.





Employment Contracts. The
Company has no contracts with directors or executive officers except as noted
below.





Employment agreement with Martin
Rip. The Company entered into an Employment Agreement dated effective
October 15, 2007 (the “Rip Agreement”) with Mr. Rip for his continuing services
as an officer of the Company commencing on October 15, 2007 in consideration of
an annual salary of $144,000. In the event of a change of control and subsequent
termination or constructive dismissal within 12 months of the change of control
Mr. Rip is entitled to receive an amount equal to 6 months of his then current
annual salary. This amount is in addition to amounts due to Mr. Rip upon
termination without cause as determined under the Rip Agreement.





Indebtedness of Directors and Senior
Officers. No director or Senior Officer of the Company, or associate or
affiliate of any such director or senior officer is indebted to the
Company.





C.           Board
Practices





The
Directors hold office for a term of one year or until the next annual general
meeting of the Company, at which time all directors retire, and are eligible for
re-election. There are four board committees:  the Audit Committee
comprised of Messrs. Gayton, Nickerson and Savage; the Compensation Committee
comprised of Messrs. Gayton and Savage; the Health & Safety Committee
comprised of Messrs. Taylor and Nickerson and also the Prairie Creek Site
Managers; and a Corporate Development Committee comprised of Messrs. Savage and
MacPherson. The Audit Committee operates under an Audit Committee
Charter.





Information concerning the length of
each Director’s service is set forth in “Item 6.A--Directors, Senior Management
and Employees--Directors and Senior Management”.  Except as described
in “Item 6.B--Directors, Senior Management and Employees--Compensation” above,
there are no service contracts with the Company.





Independence of Members of
Board. The Company’s board of directors currently consists of six
directors. Four of the directors, Robert Gayton, Dave Nickerson, John MacPherson
and Alan Savage, being a majority, are considered independent of management and
of any significant shareholder and are considered competent to exercise
independent judgment in carrying out their responsibilities as directors. None
of these have any direct or indirect material relationship with the Company or
have any relationship pursuant to which they may accept directly or indirectly
any consulting, advisory or other compensatory fees, other than as remuneration
for acting in his capacity as a member of the Board of Directors or any
committee thereof.





Robert
Gayton is not and never has been an employee of the Company. However, Mr. Gayton
did serve as a part-time interim Chief Financial Officer of the Company prior to
December 9, 2004. John MacPherson served as Chairman of the Company prior to
July 2003 and prior to that time was also an employee of the Company. In the
view of the Company’s Board of Directors, the above described relationships,
which have terminated, do not reasonably interfere with the exercise of
independent judgment by Mr. Gayton or Mr. MacPherson.





Mr.
Gayton has been a member of the Company’s Audit Committee since 2000 and is
particularly experienced in accounting, accounting principles and in the
preparation, auditing, analyzing and evaluation of financial statements. The
Company considers Mr. Gayton to be independent for the purposes of National
Instrument 52-110 (“NI 52-110”) in that he has no direct or indirect
relationship with the Company which could, in the view of the Board of Directors
of the Company, be reasonably expected to interfere with the exercise of
independent judgment.





However,
as noted above, Mr. Gayton did serve as a part-time Interim Chief Financial
Officer of the Company during the period January 1, 2002 until December 9, 2004
pending the appointment of a permanent Chief Financial Officer and may, for the
purposes of the independence tests in NI 52-110, be deemed to have been an
Executive Officer of the Company during that time. Mr. Gayton also received
consulting fees of $8,483, $5,625 and $6,000 in respect of the calendar years
2002, 2003 and 2004 respectively (in addition to remuneration for acting as a
member of the Board of Directors), which fees may be deemed, for the purposes of
the independence tests in NI 52-110, to have been consulting fees for acting in
his capacity as an Executive Officer of the Company.





Section
3.6 (Temporary Exemption for Limited and Exceptional Circumstances) of NI 52-110
provides temporary relief from the independence requirements in NI 52-110 with
respect to a particular audit committee member in circumstances where, among
other things, the Board of Directors determines in its reasonable judgment that
the member is able to exercise the impartial judgment necessary for the member
to fulfill his responsibilities as an audit committee member and the appointment
of the member is required by the best interests of the Company and its
shareholders. The Company has relied on this exemption with respect to Mr.
Gayton for the past three fiscal years up to December 9, 2007, being three years
after the date Mr. Gayton served as interim Chief Financial
Officer.





The
Chairman of the Board, John F. Kearney, is not independent in that he is also
President and Chief Executive Officer of the Company. Alan B. Taylor is not
independent as he is the Vice-President Exploration and Chief Operating Officer
of the Company.





The
Board has appointed Mr. Alan Savage as lead director. The Chairman of each of
the Audit Committee and the Compensation Committee is an independent director,
who provides leadership to those committees, and the Chairman of the Board does
not sit on either committee.





Supervision by the Board. The
Chief Executive Officer and Chief Operating Officer report upon the operations
of the Company directly to the Board on a regular basis. The independent
directors are able to meet at any time they consider necessary without any
members of management, including non-independent directors, being present. The
Audit Committee is composed of independent directors who meet with the Company’s
auditors, and without management in attendance if considered necessary or
desirable. The independent directors have regular and full access to management
and are able to meet at any time without the non-independent directors being
present if considered necessary or desirable.




Board Mandate. The Board does
not have a written mandate. The mandate of the Board is to supervise the
management of the business and affairs of the Company. As part of its overall
stewardship the Board of Directors assumes responsibility for strategic
planning, identification of the principal risks associated with the Company’s
business and ensuring appropriate management of these risks and making all
senior officer appointments, including responsibility for evaluating
performance, management development and succession planning.




Position Descriptions. The
Board has not developed written position descriptions for the Chair of the Board
or the Chairs of each of the Committees. The Board is of the view that the role
and responsibilities of the Chair and of the Chairs of the respective Committees
are sufficiently specific that no separate written position descriptions would
be helpful.





The
Company does not have an employment contract, or a written position description,
in place with its President and Chief Executive Officer. The Chief Executive
Officer is responsible for the day to day operations of the Company and reports
directly to the Board of Directors on a regular basis. The Board responds to,
and if it considers appropriate, approves with such revisions as it may require,
recommendations which have been brought forward by the Chief Executive Officer.
In addition to those matters which by law must be approved by the Board, all
significant activities and actions proposed to be taken by the Company including
in particular: capital budgets; financing; property acquisitions or
dispositions; senior appointments and compensation are subject to approval by
the Board of Directors.





Orientation and Continuing
Education. The Company does not have a formal orientation or education
program for directors. New Board members are provided with information
respecting the functioning of the Board of Directors and its Committees. In
addition, new directors receive copies of Board materials, corporate policies
and procedures, and other information regarding the business and operations of
the Company. Board members are expected to keep themselves current with industry
trends and developments and are encouraged to communicate with management and,
where applicable, auditors and technical consultants of the Company, and visit
the Company’s offices on a regular basis. Board members have access to legal
counsel to the Company in the event of any questions or matters relating to the
Board members’ corporate and director responsibilities and to keep themselves
current with changes in legislation. Board members have full access to the
Company’s records and general industry information and material of interest is
circulated to directors on a regular basis.





Ethical Business Conduct. The
Board assumes responsibility for the Company’s approach to corporate governance
matters. The Board views good corporate governance and ethical business conduct
as an integral and essential component to the supervision and management of the
Company and to meet responsibilities to shareholders, employees and other
stakeholders. The Board adopted a written code for directors, officers and
employees on November 1, 2007 – a copy of this Code is attached to this Annual
Report at Exhibit 11.1. The Board conducts periodic reviews of the Company’s
corporate governance practices and procedures in the light of applicable rules
and guidelines and the current status and stage of development of the
Company.





Directors
are expected to adhere to all corporate law requirements in respect of any
transaction or agreement in which they may have a material interest. It is a
requirement of applicable corporate law that directors who have an interest in a
transaction or agreement with the Company promptly disclose that interest at any
meeting of the Board at which the transaction or agreement will be discussed and
abstain from discussions and voting in respect to same if the interest is
material. Where appropriate any director having a material conflict of interest
will be expected to withdraw from the meeting and not participate in the meeting
where such matter is being considered so that the remaining directors may
properly exercise independent judgment.





Nomination of Directors. The
Board has not appointed an independent Nominating
Committee.  Nominations, if and when they arise, are generally the
result of formal or informal discussions with members of the Board or
recommendations by members of the Board. Nominations to the Board are
determined, after appropriate review and investigation, by the Board of
Directors as a whole.





Compensation Committee. The
Board has appointed a Compensation Committee which has responsibility for
determining compensation for the directors and senior management.





The
Compensation Committee is comprised of Robert Gayton and Alan Savage. All
members of the Compensation Committee are considered independent. Mr. Gayton
served as part-time acting Chief Financial Officer prior to December 2004 (as
described above). The Board does not consider that such relationship interferes
with Mr. Gayton’s ability to function independently on the Compensation
Committee. The Committee makes recommendations to the Board with regard to the
compensation of the Company’s directors. The Committee makes recommendations to
the Board with respect to the compensation of the President and Chief Executive
Officer. The Compensation Committee meets as requested by the Board or the Chief
Executive Officer, or as considered desirable by the Committee. The Compensation
Committee has the authority to retain independent advisors as it may deem
necessary or appropriate to allow it to discharge its responsibilities. The
Compensation Committee has not retained a compensation consultant or advisor
since the beginning of the 2006 financial year, except that a recruitment
consultant was retained to assist in the search for a CFO during
2007.





Assessment. The Board of
Directors continuously reviews on an ongoing informal basis the effectiveness of
the Board as a whole and the effectiveness, contribution and performance of the
Board, its committees and individual directors. Each year, when it determines
the number of directors to be elected at the annual meeting of shareholders, the
Board considers its appropriate size and composition to properly administer the
affairs of the Company and to effectively carry out the duties of the Board,
given the Company’s current status and stage of development.


Audit Committee. The Board of
Directors has an Audit Committee, which is responsible for reviewing the
Company’s financial reporting procedures, internal control and management
information systems and external auditors (the “Auditors”).


The
Company's audit committee is governed by a written charter. The functions of the
Audit Committee as enumerated in its charter are set out below.





“Charter
of the Audit Committee of the Board of Directors”





I.           MANDATE





The Audit
Committee (the “Committee”) is appointed by
the Board of Directors (the “Board”) of Canadian Zinc
Corporation (the “Corporation”) to assist the
Board in fulfilling its oversight responsibilities relating to financial
accounting and reporting process and internal controls for the Corporation. The
Committee’s mandate and responsibilities are to:


•           recommend
to the Board the external auditors to be nominated and the compensation of
suchauditor;


•           oversee
and monitor the work and performance of the Corporation's external auditors,
including meeting with the external auditors and reviewing and recommending
allrenewals or replacements of the external auditors and their
remuneration;


•           pre-approve
all non-audit services to be provided to the Corporation by the external
auditors;


•           review
the financial statements and management's discussion and analysis (MD&A)
andannual and interim financial results press releases of the
Corporation;


•           oversees
the integrity of internal controls and financial reporting procedures of the
Corporation and ensure implementation of such controls and
procedures;


•           provide
oversight to any related party transactions entered into by the
Corporation.





II.           AUTHORITY
OF THE AUDIT COMMITTEE





The
Committee shall have the authority to:





(1)         engage
independent counsel and other advisors as it determines necessary to carry out
its duties;


(2)         set
and pay the compensation for advisors employed by the Audit Committee;
and


(3)         communicate
directly with the external auditors.





III.           COMPOSITION
AND MEETINGS





(1)         The
Committee and its membership shall meet all applicable legal, regulatory and
listing requirements, including those of all applicable securities regulatory
authorities.


(2)           The
Committee shall be composed of three directors as shall be designated by the
Board from time to time. The members of the Committee shall appoint from among
themselves a member who shall serve as Chair.  A minimum of two
members of the Committee present either in person or by telephone shall
constitute a quorum.





The
Committee members will be elected annually at the first meeting of the Board
following the annual general meeting of shareholders.





(1)
            Each
      member of the Committee shall be “independent” and shall be “financially
      literate” (as each such term is defined in Multilateral Instrument
      52-110)




(2)
            The
      Committee shall meet at least quarterly, as circumstances dictate or as
      may be required by applicable legal or listing
    requirements.




(3)
            Any
      member of the Committee may participate in the meeting of the Committee by
      means of conference telephone or other communication equipment, and the
      member participating in a meeting pursuant to this paragraph shall be
      deemed, for purposes hereof, to be present in person at the
      meeting.







IV.           RESPONSIBILITIES





(1)
            The
      Committee shall review the annual audited financial statements to satisfy
      itself that they are presented in accordance with applicable generally
      accepted accounting principles (“GAAP”) and report
      thereon to the Board and recommend to the Board whether or not same should
      be approved, prior to their being filed with the appropriate regulatory
      authorities.  The Committee shall also review the interim
      financial statements.




(2)
            The
      Committee shall review any internal control reports prepared by management
      and the evaluation of such report by the external auditors, together with
      management’s response.




(3)
            The
      Committee shall be satisfied that adequate procedures are in place for the
      review of the Corporation’s public disclosure of financial information
      extracted or derived from the Corporation’s financial statements,
      management’s discussion and analysis and annual and interim earnings press
      releases before the Corporation publicly discloses this
      information.




(4)
            The
      Committee shall review management’s discussion and analysis relating to
      annual and interim financial statements and any other public disclosure
      documents, including interim earnings press releases, before the
      Corporation publicly discloses this
information.




(5)
            The
      Committee shall meet no less frequently than annually with the external
      auditors to review accounting practices, internal controls and such other
      matters as the Committee deems
appropriate.




(6)
            The
      Committee shall establish procedures
for




(a)
            the
      receipt, retention and treatment of complaints received by the
      Corporation  regarding accounting, internal accounting controls
      or auditing matters; and


(b)           the
confidential, anonymous submission by employees of the Corporation ofconcerns
regarding questionable accounting or auditing matters.


(7)
            The
      Committee shall provide oversight to any related party transactions
      entered into by the Corporation.




(8)
            In
      the event that the Corporation wishes to retain the services of the
      Corporation’s external auditors for tax compliance or tax advice or any
      non-audit services the Chief Financial Officer of the Corporation shall
      consult with the Audit Committee, who shall have the authority to approve
      or disapprove such non-audit services.    The Audit
      Committee shall maintain a record of non-audit services approved by the
      Audit Committee for each fiscal year and provide a report to the Board on
      an annual basis.




(9)
            The
      Committee shall review and approve the Corporation's hiring policies
      regarding partners, employees and former partners and employees of the
      present and former auditors of the
Corporation.




(10)
            The
      Committee shall perform any other activities consistent with this Charter
      and governing law, as the Committee or the Board deems necessary or
      appropriate.







Pre-approval Policies and
Procedures. The Audit Committee has adopted procedures requiring Audit
Committee review and approval in advance of all particular engagement for
services provided by the Auditors. Consistent with applicable laws, the
procedures permit limited amounts of services, other than audit services, to be
approved by the Audit Committee provided the audit committee is informed of each
particular service. All of the engagements and fees for Fiscal 2006 and 2007
were approved by the Audit Committee. The Audit Committee reviews with the
auditors whether the non-audit services to be provided are compatible with
maintaining the Auditor’s independence.





Since the
commencement of the Company’s most recently completed financial year (January 1,
2007) there has not been a recommendation of the Audit Committee to nominate or
compensate an external auditor which was not adopted by the Board of
Directors.





D.           Employees





The
average number of employees at the Company for each of the last three years is
summarized in the table below:





TOTALDecember
      31, 2007
            18December
      31, 2006
            13December
      31, 2005
            7





For the
year ended December 31, 2007, the average number of employees at the Prairie
Creek Mine Site was thirteen compared to nine for fiscal 2006. An average of
five full-time employees in 2007 (four in fiscal 2006) were employed in
administrative and management roles at the Company. Canadian Zinc has added to
the total number of employees over the past few years as the level of activity
has increased both at the Prairie Creek Mine site and at its corporate head
office.





E.           Share
Ownership





The share
ownership of those persons listed in “Item 6.B.--Compensation” is shown on the
table included in “Item 6.A.--Directors and Senior Management” and the table
included in “Item 6.B.--Compensation” includes details of all options or
warrants to purchase shares of the Company held by such persons.





ITEM
      7.
            MAJOR SHAREHOLDERS AND RELATED PARTY
      TRANSACTIONS





A.           Major
Shareholders





The
following table sets forth information regarding the share ownership, excluding
any warrants held, of the Company as of March 31, 2008 of shareholders that are
beneficial owners of 5% or more of the Company’s outstanding common
shares.





Name
      of Owner
            Number
      of Common Shares
            PercentageSprott
      Asset Management Inc.(1)
            16,805,333(1)
            13.92%


(1)           Based
upon information contained in the most recent Report under Part 4 of National
Instrument 62-103 dated December 10, 2007 as filed on SEDAR.





As of
March 31, 2008, the Directors and Senior Officers of the Company as a group
beneficially own, directly or indirectly, less than 1% of the outstanding common
shares of the Company.





As of
March 31, 2008, approximately 1.9%, or 2.3 million of the Company’s outstanding
common shares were held in the United States by 78 holders registered on the
books of the Company’s transfer agent.





To the
best of the Company’s knowledge and other than as disclosed in this Annual
Report, the Company is not directly or indirectly controlled or owned by any
other corporation, foreign government or any other natural or legal person and
it is not subject to any arrangements the operation of which may at a subsequent
date result in a change in control of the Company.





The
Company’s major shareholders as listed above do not have any different voting
rights than those held by any other shareholder of the Company.








B.           Related
Party Transactions





There
were no material transactions in the fiscal year ended December 31, 2007, or
proposed material transactions between the Company or any of its subsidiaries
and:





(a)           enterprises
that directly or indirectly through one or more intermediaries, control or are
controlled by, or are under common control with, the Company;





(b)           associates;





(c)           individuals
owning, directly or indirectly, an interest in the voting power of the Company
that gives them significant influence over the Company, and close members of any
such individual's family;





(d)           key
management personnel, that is, those persons having authority and responsibility
for planning, directing and controlling the activities of the Company, including
directors and senior management of companies and close members of such
individuals' families;





(e)           enterprises
in which a substantial interest in the voting power is owned, directly or
indirectly, by any person described in (c) or (d) or over which such a person is
able to exercise significant influence including enterprises owned by directors
or major shareholders of the Company and enterprises that have a member of key
management in common with the Company, other than executive and director
compensation as set out in Note 11 to the Financial Statements.





C.           Interests
of Experts and Counsel





Not
applicable.






ITEM
      8.
            FINANCIAL
INFORMATION





A.  Consolidated
Statements and Other Financial Information





See Item
17 for the Company’s Financial Statements.





Percentage of Export
Sales.  The Company is currently in a pre-production phase and
accordingly makes no export sales.





Legal
Proceedings.  The Company is not a party, nor has it been a
party in the recent past, to any legal or arbitration proceedings which may
have, or have had in the recent past, significant effects on the Company’s
financial position or profitability. None of the Company’s Directors, members of
senior management or affiliates are either a party adverse to the Company or
have a material interest adverse to the Company in any legal or arbitration
proceeding.





Dividends.  The
Company, to date, has not paid any dividends nor does it plan to pay dividends
in the foreseeable future.





B.
            Significant
      Changes





There
have been no significant changes since the date of the financial statements
included in this Annual Report.





ITEM
      9.
            THE OFFER AND
LISTING





A.           Offer
and Listing Details





Nature of Trading
Market.





The
common shares of the Company trade on the TSX under the symbol “CZN”. The
Company’s common shares also trade on the OTCBB in the United States under the
symbol “CZICF”.





Trading on the TSX. The
following table sets forth the high and low sale prices on the TSX for the
common shares for the last five fiscal years ended December 31,
2007.





Year
      Ended
            High
      CDN$
            Low
      CDN$December
      31, 2007
            1.12
            0.58December
      31, 2006
            1.63
            0.53December
      31, 2005
            0.88
            0.25December
      31, 2004
            2.04
            0.51December
      31, 2003
            1.73
            0.09





The
following table sets forth the high and low sale prices on the TSX for the
common shares for each quarterly period in the two most recent fiscal years
ended December 31, 2007.





Quarter
      Ended
            High
      CDN$
            Low
      CDN$December
      31, 2007
            0.97
            0.61September
      30, 2007
            0.98
            0.60June
      30, 2007
            1.12
            0.69March
      31, 2007
            0.92
            0.58December
      31, 2006
            1.02
            0.56September
      30, 2006
            0.94
            0.53June
      30, 2006
            1.63
            0.71March
      31, 2006
            1.34
            0.75





The following table sets forth the high
and low sales prices on the TSX for the common shares for each monthly period in
the last six months.





Month
      Ended
            High
      CDN$
            Low
      CDN$March
      31, 2008
            0.69
            0.50February
      29, 2008
            0.70
            0.61January
      31, 2008
            0.77
            0.58December
      31, 2007
            0.80
            0.61November
      30, 2007
            0.89
            0.64October
      31, 2007
            0.97
            0.80





Trading on the OTC BB. The
following table sets forth the high and low sale prices on the OTCBB for the
common shares for the last five fiscal years ended December 31,
2007.





Year
      Ended
            High
      U.S.$
            Low
      U.S.$December
      31, 2007
            1.05
            0.48December
      31, 2006
            1.32
            0.08December
      31, 2005
            0.75
            0.28December
      31, 2004
            1.60
            0.36December
      31, 2003
            1.36
            0.06





The
following table sets forth the high and low sale prices on the OTCBB for the
common shares for each quarterly period in the two most recent fiscal years
ended December 31, 2007.





Quarter
      Ended
            High
      U.S.$
            Low
      U.S.$December
      31, 2007
            0.99
            0.63September
      30, 2007
            0.94
            0.55June
      30, 2007
            1.05
            0.59March
      31, 2007
            0.77
            0.48December
      31, 2006
            0.89
            0.64September
      30, 2006
            0.76
            0.35June
      30, 2006
            1.32
            0.63March
      31, 2006
            1.16
            0.08





The following table sets forth the high
and low sales prices on the OTCBB for the common shares for each monthly period
in the last six months.





Month
      Ended
            High
      U.S.$
            Low
      U.S.$March
      31, 2008
            0.71
            0.48February
      29, 2008
            0.71
            0.60January
      31, 2008
            0.80
            0.56December
      31, 2007
            0.80
            0.63November
      30, 2007
            0.97
            0.64October
      31, 2007
            0.99
            0.79





B.           Plan
of Distribution





Not
applicable.





C.           Markets





The
Company's common shares trade on the “TSX" in Toronto, Ontario, Canada, under
the trading symbol "CZN" and CUSIP #136802105.





The
Company's common shares commenced trading on the TSX on December 7, 1993 and
under the name Canadian Zinc Corporation commenced trading June 2,
1999.





In
April 2007, the Company’s shares were admitted for quotation on the OTC Bulletin
Board under the symbol OTCBB-“CZICF”, and are currently also dually quoted on
the OTC Pink Sheets. Prior to that date, the Company’s common shares were traded
in the United States (Non-NASDAQ Over the Counter Other) by the National
Association of Securities Dealers Quotation System under the symbol
“CZICF”.





D.           Selling
Shareholders





Not
applicable.





E.           Dilution





Not
applicable.





F.           Expenses
of the Issue





Not
applicable.





ITEM
      10.
            ADDITIONAL
INFORMATION





A.  Share
Capital





Not
applicable.





B.           Memorandum
and Articles of Association





The
Company was incorporated in British Columbia, Canada, on December 16, 1965,
under the name “Pizza Patio Management Ltd.”  The Company changed its
name to “San Andreas Resources Corporation” on August 29, 1991 and to “Canadian
Zinc Corporation” on May 25, 1999. On June 16, 2004, the Company’s shareholders
adopted new Articles to bring its Charter documents up to date and into
conformity with the new Business Corporations Act
(British Columbia).





With
respect to directors and officers, the Articles of the Company provide that a
Director or officer who is a party to a material contract or proposed material
contract with the Company shall disclose the nature and extent of his interest
in accordance with the provisions of the Act and shall abstain from voting in
respect thereof.





The
Articles also provide that the Directors may from time to time borrow money on
the credit of the Company; issue, reissue, sell or pledge debt obligations of
the Company, whether secured or unsecured; give a guarantee on behalf of the
Company; mortgage, hypothecate, pledge or otherwise create an interest in or
charge on all or any property of the Company to secure payment of a debt or
performance of any other obligation of the Company. Variation of these borrowing
powers would require an amendment to the Articles of the Company which would, in
turn, require the approval of the shareholders of the Company by way of a
Special Resolution. A Special Resolution means a resolution cast by a majority
of not less than three quarters of the votes cast by shareholders of the Company
who, being entitled to do so, vote in person or by proxy at a general meeting of
the Company of which notice as the Articles provide shall not be less than 21
days notice specifying the intention to propose the resolution as a special
resolution, has been duly given (or, if every shareholder entitled to attend and
vote at the meeting agrees, at a meeting of which less than 21 days notice has
been given), or a resolution consented to in writing by every shareholder of the
Company who would have been entitled to vote in person or by proxy at a general
meeting of the Company, and a resolution so consented to is deemed to be a
special resolution passed at a general meeting of the Company.





There is
no requirement under the Articles of the Company or in the Act requiring
retirement or non-retirement of directors under an age limit requirement, nor is
there any minimum shareholding required for a director’s qualification. Holders
of common shares of the Company are entitled to vote at meetings of
shareholders, and a Special Resolution, as described above, is required to
effect a change in the rights of shareholders. Holders of common shares are not
entitled to pre-emptive rights. Holders of common shares are entitled, ratably,
to the remaining property of the Company upon liquidation, dissolution or
winding up of the Company, and such holders receive dividends if, as, and when,
declared by the directors of the Company. There are no restrictions on the
purchase or redemption of common shares by the Company while there is an
arrearage in the payment of dividends or sinking fund installments. There is no
liability on the part of any shareholder to further capital calls by the Company
nor any provision discriminating against any existing or prospective holder of
securities of the Company as a result of such shareholder owning a substantial
number of shares. There are no limitations on the rights to own securities,
including the rights of non-resident or foreign shareholders to hold or exercise
voting rights on the securities imposed by the Act or by the constating document
of the Company.





The
Company is required to give its registered shareholders not less than 21 days
notice of any general meeting of the Company unless all such shareholders
consent to reduce or waive the period. In addition, the Company is obliged to
give notice to companies and intermediaries who hold shares on behalf of the
ultimate beneficial owners no fewer than 35 or more than 60 days prior to the
date of the meeting. The Company then delivers, in bulk, proxy-related materials
in amounts specified by the intermediaries. No shares of the Company owned by
companies or intermediaries may be voted at a general meeting of the Company
unless all proxy-related materials are delivered to the ultimate beneficial
owners of such shares. Such ultimate beneficial owner must then deliver a proxy
to the Company within the time limited by the Company for the deposit of proxies
in order to vote the shares in respect of which such person is the beneficial
owner.





There is
no provision in the Company's Articles that would have an effect of delaying,
deferring or preventing a change in control of the Company and that would
operate only with respect to a merger, acquisition or corporate restructuring
involving the Company (or any of its subsidiaries).





Securities
legislation in the Company’s home jurisdiction of British Columbia requires that
shareholder ownership must be disclosed once a person owns beneficially or has
control or direction over greater than 10% of the issued shares of the Company.
This threshold is higher than the 5% threshold under U.S. Securities legislation
at which shareholders must report their share ownership.





C.           Material
Contracts





Other
than contracts entered into in the ordinary course of business and those
disclosed elsewhere in this Annual Report, the Company has not entered into any
material contracts within the past two years.





D.           Exchange
Controls





There are
no governmental laws, decrees or regulations in Canada relating restrictions on
the export or import of capital, or affecting the remittance of interest,
dividends or other payments to non-resident holders of the Company’s common
shares other than withholding tax requirements.  (E.g., Remittances of
dividends to United States residents are subject to a 15% withholding tax (10%
if the shareholder is a corporation owning at least 10% of the common shares of
the Company) pursuant to Article X of the reciprocal treaty between Canada and
the United States.)





Except as
provided in the Investment Canada Act (“Investment Act”), there are no
provisions under the laws of Canada, the Province of British Columbia or in the
Articles of the Company restricting the right of foreigners to hold or vote the
common shares of the Company. The Investment Act provides for a review in the
case of an acquisition of control of a Canadian business by a non-Canadian
(other that a “NAFTA investor” as defined in the Investment Act), as described
below. The Investment Act generally prohibits implementation of a reviewable
investment by an individual, government, corporation, partnership, trust or
joint venture that is non-Canadian unless the minister responsible for the
Investment Act is satisfied that the investment is likely to be of net benefit
to Canada.





In the
case of an acquisition of control of a Canadian business by a non-Canadian that
is a WTO investor, the investment would be reviewable if the value of the assets
of the Company equaled or exceeded $295.0 million, the threshold established for
2008. (In subsequent years, the threshold amount may be increased or decreased
in accordance with the provisions of the Investment Act.) A WTO investor is a
member of the World Trade Organization, current members of which include the
European Community, Germany, Japan, Mexico, the United Kingdom and the United
States, or a WTO investor-controlled entity, as defined in the Investment
Act.





In the
case of an acquisition of control of a Canadian business by a non-Canadian,
other than a WTO investor, where: (i) in the case of acquisition (for example,
through a share purchase or asset purchase), the assets of the business are $5
million or more in value; or (ii) in the case of an indirect acquisition (for
example, the acquisition of the foreign parent of the Canadian business) where
the Canadian business has assets of $50 million or more in value or if the
Canadian business represents more than 50% of the assets of the original group
and the Canadian business has assets of $5 million or more in value. Review and
approval are also required for the acquisition or establishment of a new
business in areas concerning “Canada's cultural heritage or national identity”
such as book publishing, film production and distribution, television and radio,
production and distribution of music, and the oil and natural gas industry,
regardless of the size of the investment.





The
Investment Act would not apply to certain transactions in relation to common
shares of the Company, including: an acquisition of common shares of the Company
by any person made in the ordinary course of that person's business as a trader
or dealer in securities; or an acquisition of control of the Company by an
amalgamation, merger, consolidation or corporate reorganization following which
the control of the Company, remains unchanged.





In the
context of the Company, in essence, three methods of acquiring control of a
Canadian business are regulated by the Investment Act: (i) the acquisition of
all or substantially all of the assets used in carrying on the Canadian
business; (ii) the acquisition, directly or indirectly, of voting shares of a
Canadian corporation carrying on the Canadian business; (iii) the acquisition of
voting of an entity which controls, directly or indirectly, another entity
carrying on a Canadian business. An acquisition of a majority of the voting
interests of an entity, including a corporation, is deemed to be an acquisition
of control under the Investment Act.  An acquisition of less than
one-third of the voting shares of a corporation is deemed not to be an
acquisition of control. An acquisition of less than a majority, but one-third or
more, of the voting shares of a corporation is presumed to be an acquisition of
control unless it can be established that on the acquisition the corporation is
not, in fact, controlled by the acquirer through the ownership of voting shares.
For partnerships, trusts, joint ventures or other unincorporated entities, an
acquisition of less than a majority of the voting interests is deemed not to be
an acquisition of control.





In
addition to the foregoing, the Investment Act requires that all other
acquisitions of control of Canadian businesses by non-Canadians are subject to
formal notification to the Canadian government. These provisions require a
foreign investor to give notice in the required form, which notices are for
information, as opposed to review, purposes.





E.           Taxation





Canadian
Taxation





The
following summary of the material Canadian federal income tax considerations
generally applicable in respect of the common shares reflects the Company’s
opinion to the best of its knowledge.  It is not intended as legal or tax advice to
any particular holder of common stock and should not be so
construed.  Each prospective and current shareholder is urged to
obtain independent advice with respect to the income tax consequences applicable
to him in his own particular circumstances.  The tax
consequences to any particular holder of common shares (the “Investor”) will
vary according to the status of that holder as an individual, trust, corporation
or member of a partnership, the jurisdiction in which that holder is subject to
taxation, the place where that holder is resident and, generally, according to
that holder’s particular circumstances. This summary is applicable only to
holders who are resident in the United States, have never been resident in
Canada, deal at arm’s length with the Company, hold their common shares as
capital property and who will not use or hold the common shares in carrying on
business in Canada. Special rules, which are not discussed in this summary, may
apply to a United States holder that is a Company that carries on business in
Canada and elsewhere.





This
summary is based upon the provisions of the Income Tax Act of Canada and the
regulations thereunder (collectively, the “Tax Act, or ITA”) and the
Canada-United States Tax Convention as amended by the Protocols thereto (the
“Tax Convention”) as at the date of this Annual Report and the current
administrative practices of Canada and Revenue Agency. This summary does not
take into account Canadian provincial income tax consequences. This summary is
not exhaustive of all possible income tax consequences.





Dividends:





In the
case of any dividends paid to non-residents, the Canadian tax is withheld by the
Company, which remits only the net amount to the shareholder. By virtue of
Article X of the Tax Convention, the rate of tax on dividends paid to residents
of the United States is generally limited to 15% of the gross dividend (or 5% in
the case of certain corporate shareholders owning at least 10% of the Company’s
voting shares).  In the absence of the Tax Convention provisions, the
rate of Canadian withholding tax imposed on non-residents is 25% of the gross
dividend. If the U.S. resident shareholder is an LLC, the withholding rate is
25%. Stock dividends received by non-residents from the Company are taxable by
Canada as ordinary dividends and therefore the withholding tax rates will be
applicable.





Where a
holder disposes of common shares to the Company (unless the Company acquired the
common shares in the open market in the manner in which shares would normally be
purchased by any member of the public), this will result in a deemed dividend to
the U.S. holder equal to the amount by which the consideration paid by the
Company exceeds the paid-up capital of such stock.  The amount of such
dividend will be subject to withholding tax as described above.





Disposition of Common
Shares:





If a
non-resident were to dispose of common shares of the Company to a Canadian
corporation which deals or is deemed to deal on a non-arm’s length basis with
the non-resident and which, immediately after the disposition, is connected with
the Company (i.e., which holds shares representing more than 10% of the voting
power and more than 10% of the market value of all issued and outstanding shares
of the Company), the amount by which the fair market value of any consideration
(other than any shares of the purchaser corporation) exceeds the paid-up capital
of the common shares sold will be deemed to be taxable as a dividend paid by the
purchasing corporation.





Capital
Gains:





An
Investor is not subject to tax under the Canadian Act in respect of a capital
gain realized upon the disposition of a share unless the share represents
“taxable Canadian property” to the Investor. Generally, a common share of a
Canadian resident corporation listed on a prescribed stock exchange, such as a
common share of the Company, will not constitute taxable Canadian property to
the non-resident holder unless the Investor held the common share as capital
property used in carrying on a business (other than an insurance business) in
Canada, or unless the Investor or persons with whom the Investor did not deal at
arm’s length alone or together held or held options to acquire, at any time
within the five years preceding the disposition, 25% or more of the shares of
any class of the capital stock of the Company.





Where an
Investor is an individual who has ceased to be resident in Canada, and at the
time such Investor ceased to be a Canadian resident elected to have the common
shares treated as taxable Canadian property, the Investor will be subject to
Canadian tax on any capital gain realized on disposition of the common shares,
subject to the relieving provisions of the Treaty described below. The common
shares may also be taxable Canadian property to an Investor if the Investor
acquired them pursuant to certain “rollover” transactions. This would include
transactions under Sections 85 and 87 of the Canadian Act, which apply to share
for share and amalgamation transactions.





Where a
U.S. resident Investor realizes a capital gain on a disposition of common shares
of the Company that constitute taxable Canadian property, the Treaty exempts
such Investor from liability for Canadian tax in certain circumstances. A common
share of the Company held by an Investor who is a resident of the United States
for the purposes of the Treaty will generally constitute treaty-protected
property, provided that the value of the common share is not derived principally
from real property (including resource properties) situated in Canada. If the
U.S. resident Investor is an LLC, this potential Treaty exemption does not
apply.  Notwithstanding the potential exemption from Canadian tax
provided under the Treaty, where an Investor disposes of shares that are taxable
Canadian property, the Investor is required to file a Canadian income tax return
in respect of such dispositions.





An
Investor whose common shares constitute taxable Canadian property and are not
treaty-protected property, and who disposes of one or more common shares in a
taxation year, will realize a capital gain (capital loss) equal to the amount by
which the proceeds of disposition therefrom exceed (are exceeded by) the
adjusted cost base thereof to the Investor and the Investor’s reasonable costs
of disposition. The Investor will be required to include one half of any
such capital gain (the “taxable capital gain”) in the Investor’s taxable income
earned in Canada for the taxation year and to pay Canadian income tax
accordingly. The Investor will be entitled to deduct one half of any such
capital loss (the “allowable capital loss”) against taxable capital gains
included in the Investor’s taxable income earned in Canada in the taxation year
and, to the extent not so deductible, against taxable capital gains realized by
the shareholder in the three previous or any subsequent year, subject to certain
restrictions in the case of a corporate shareholder and subject to adjustment
when the capital gains inclusion rate in the year of disposition differs from
the inclusion rate in the year the deduction is claimed.





Certain
United States Federal Income Tax Consequences:





The
following is a summary discussion of certain United States Federal income tax
considerations, under the law, generally applicable to a U.S. Holder (as defined
below) of common shares of the Company. This discussion does not address all
potentially relevant Federal income tax matter and it does not address
consequences peculiar to persons subject to special provisions of Federal income
tax law, such as those described below as excluded from the definition of a U.S.
Holder. In addition, this discussion does not cover any state, local or foreign
tax consequences.





To
ensure compliance with United States Treasury Department Internal Revenue
Service Circular 230, U.S. Holders are hereby notified that (A) any discussion
of  United States Federal Tax issues contained or referred to in this
document is not intended or written to be used or relied upon, and cannot be
used or relied upon by U.S. Holders, for the purpose of avoiding penalties that
may be imposed on them under the United States Internal Revenue Code, (B) the
discussion contained or referred to herein is written to assist U.S. Holders or
investors who are considering investing in the Company and (C) prospective
investors should seek advice based on their particular circumstances from an
independent tax advisor.





The
following discussion is based upon the sections of the Internal Revenue Code of
1986, as amended (“the Code”), Treasury Regulations, published Internal Revenue
Service (“IRS”) rulings, published administrative positions of the IRS and court
decisions that are currently applicable and the Convention between Canada and
the United States of America with respect to Taxes on Income and on Capital
signed September 26, 1980 as amended (the “Canada-U.S. Tax Convention”) any or
all of which could be materially and adversely changed, possibly on a
retroactive basis, at any time. In addition, the discussion does not consider
the potential effects, both adverse and beneficial, of recently proposed
legislation which, if enacted, could be applied, possibly on a retroactive
basis, at any time.





The
following discussion is for general information only and is not intended to be,
nor should it be construed to be, legal or tax advice to any holder or
prospective holder of common shares of the Company and no opinion or
representation with respect to the United States Federal income tax consequences
to any such holder or prospective holder is made. Accordingly, holders and
prospective holders of common shares of the Company should consult their own tax
advisors about the federal, state, local, and foreign tax consequences of
purchasing, owning and disposing of common shares of the Company.





U.S.
Holders as used herein, a (“U.S. Holder”) includes a holder of common shares of
the Company who for U.S. Federal income tax purposes is a citizen or resident of
the United States, a corporation created or organized in or under the laws of
the United States or of any political subdivision thereof and any other person
or entity whose ownership of common shares of the Company is effectively
connected with the conduct of a trade or business in the United States. A U.S.
Holder does not include persons subject to special provisions of Federal income
tax law, such a tax-exempt organizations, qualified retirement plans, financial
institutions, insurance companies, real estate investment trusts, regulated
investment companies, broker-dealers, non-resident alien individuals or foreign
corporations whose ownership of common shares of the Company is not effectively
connected with the conduct of a trade or business in the United States and
shareholders who acquired their stock through the exercise of employee stock
options or otherwise as compensation.








Distributions on Common
Shares of the Company:





U.S.
Holders receiving dividend distributions (including constructive dividends) with
respect to common shares of the Company are required to include in gross income
for United States Federal income tax purposes the gross amount of such
distributions to the extent that the Company has current or accumulated earnings
and profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be credited, subject to certain
limitations, against the U.S. holder’s United States Federal Income tax
liability or, alternatively, may be deducted in computing the U.S. Holder’s
United States Federal taxable income by those who itemize deductions (See more
detailed discussion at “Foreign Tax Credit” below). To the extent that
distributions exceed current or accumulated earnings and profits of the Company,
they will be treated first as a return of capital up to the U.S. Holder’s
adjusted tax basis in the common shares and thereafter as gain from the sale or
exchange of the common shares.





Preferential
tax rates for long-term capital gains are applicable to a U.S. Holder which is
an individual, estate or trust. There are currently no preferential tax rates
for long-term capital gains for a U.S. Holder which is a
corporation.





Dividends
paid on the common shares of the Company will not generally be eligible for the
“dividends received deduction” provided to corporations receiving dividends from
certain United States corporations. A U.S. Holder which is a corporation may,
under certain circumstances, be entitled to a 70% deduction of the United States
source portion of dividends received from the Company (unless the Company
qualifies as a “foreign personal holding company” or a “passive foreign
investment company”, as defined below) if such U.S. Holder owns shares
representing at least 10% of the voting power and value of the Company. The
availability of this deduction is subject to several complex limitations which
are beyond the scope of this discussion.





For
taxable years beginning before January 1, 2011, a dividend paid by the Company
generally will be taxed at the preferential tax rates applicable to long-term
capital gains if (a) the Company is a “qualified foreign corporation” (as
defined below), (b) the U.S. Holder receiving such dividend is an individual,
estate, or trust, and (c) such dividend is paid on Common Shares that have been
held by such U.S. Holder for at least 61 days during the 121-day period
beginning 60 days before the “ex-dividend date.”





The
Company generally will be a “qualified foreign corporation” under Section
I(h)(II) of the Code (a “QFC”) if (a) the Company is eligible for the benefits
of the Canada-US Tax Convention, or (b) the Common Shares are readily tradable
on an established securities market in the U.S. However, even if the Company
satisfies one or more of such requirements, the Company will not be treated as a
QFC if the Company is a PFIC for the taxable year during which the Company pays
a dividend or for the preceding taxable year. As discussed below, the Company
believes that the Company is not a PFIC (See “Passive Foreign Investment
Company”, below). The Company can provide no assurances that it will be a QFC
for future taxable years.





Distributions Paid in
Foreign Currency:





The
amount of a distribution received on the Common Shares in foreign currency
generally will be equal to the U.S. dollar value of such distribution based on
the exchange rate applicable on the date of receipt. A U.S. Holder that does not
convert foreign currency received as a distribution into U.S. dollars on the
date of receipt generally will have a tax basis in such foreign currency equal
to the U.S. dollar value of such foreign currency on the date of receipt. Any
subsequent changes in the dollar value of the foreign currency could cause such
a U.S. Holder to recognize ordinary income or loss on the sale or other taxable
disposition of such foreign currency (including an exchange for U.S.
dollars).





Foreign Tax
Credit:





A U.S.
Holder who pays (or has withheld from distributions) Canadian income tax with
respect to dividends received on the common shares or with respect to the
ownership of common shares of the Company may be entitled, at the option of the
U.S. Holder, either to a deduction or a tax credit for such foreign tax paid or
withheld. Generally, it will be more advantageous to claim a credit because a
credit reduces United States Federal income taxes on a dollar-for-dollar basis,
while a deduction merely reduces the taxpayer’s income subject to tax. This
election is made on a year-by-year basis and applies to all foreign income taxes
(or taxes in lieu of income tax) paid by (or withheld from) the U.S. Holder
during the year. There are significant and complex limitations which apply to
the foreign tax credit, among which is the general limitation that the credit
cannot exceed the proportionate share of the U.S. Holder’s United States income
tax liability that the U.S. Holder’s foreign source income bears to his/her or
its worldwide taxable income. In the determination of the application of this
limitation, the various items of income and deduction must be classified into
foreign and domestic sources. Complex rules govern this classification process.
There are further limitations on the foreign tax credit for certain types of
income such as “passive income”, “high withholding tax interest”, “financial
services income”, “shipping income”, and certain other classifications of
income. The availability of the foreign tax credit and the application of the
limitations on the credit are fact specific and holders and prospective holders
of common shares of the Company should consult their own tax advisors regarding
their individual circumstances.





Disposition of Common Shares
of the Company:





A U.S.
Holder will recognize a gain or loss upon the sale or other taxable disposition
of common shares of the Company equal to the difference, if any, between (i) the
amount of cash plus the fair market value of any property received, and (ii) the
shareholder’s adjusted tax basis in the common shares of the Company. This gain
or loss will be a capital gain or loss if the common shares are a capital asset
in the hands of the U.S. Holder, which will be a short-term or long-term capital
gain or loss depending upon the holding period of the U.S. Holder. Gains and
losses are netted and combined according to special rules in arriving at the
overall capital gain or loss for a particular tax year. Deductions for net
capital losses are subject to significant limitation. For U.S. Holders which are
individuals, any unused portion of such net capital loss may be carried over to
be used in later tax years until such net capital loss is thereby exhausted. For
U.S. Holders which are corporations (other than corporations subject to
Subchapter S of the Code), an unused net capital loss may be carried back three
years from the loss year and carried forward five years from the loss year to be
offset against capital gains until such net capital loss is thereby
exhausted.





Other
Considerations:





In the
following four circumstances, the above sections of the discussion may not
describe the United States Federal income tax consequences resulting from the
holding and disposition of common shares of the Company. However, on the basis
of (a) the number of shareholders of its common shares, (b) the majority
ownership of its shares by Canadian residents, and (c) the majority of its
assets are actively managed (not passively held), the Company believes that it
is neither a “Foreign Personal Holding Company”, “Foreign Investment Company”,
“Passive Foreign Investment Company”, nor a “Controlled Foreign
Corporation”.





Foreign Personal Holding
Company:





If at any
time during a taxable year more than 50% of the total combined voting power or
the total value of the Company outstanding shares is owned, actually or
constructively, by five or fewer individuals who are citizens or residents of
the United States and 50% or more of the Company’s gross income for such year
was derived from certain passive sources (e.g. from dividends received from its
subsidiaries), the Company would be treated as a “foreign personal holding
company”. In that event, U.S. Holders that hold common shares of the Company
would be required to include in gross income for such year their allowable
portions of such passive income to the extent the Company does not actually
distribute such income.





Foreign Investment
Company:





If 50% or
more of the combined voting power or total value of the Company outstanding
shares are held, actually or constructively, by citizens or residents of the
United States, United States domestic partnerships or corporations, or estates
or trusts other that foreign estates or trusts (as defined by the Code Section
7701 (a) (31)), and the Company is found to be engaged primarily in the business
of investing, reinvesting, or trading in securities, commodities, or any
interest therein, it is possible that the Company might be treated as a “foreign
investment company” as defined in Section 1246 of the Code, causing all or part
of any gain realized by a U.S. Holder selling or exchanging common shares of the
Company to be treated as ordinary income rather than capital gains.





Passive Foreign Investment
Company:





As a
foreign corporation with U.S. Holders, the Company could potentially be treated
as a passive foreign investment company (“PFIC”), as defined in Section 1297 of
the Code, depending upon the percentage of the Company’s assets which are
passive, or the percentage of the Company’s assets which are held for the
purpose of producing passive income. The Company believes that the majority of
its assets are used in active operations; and that it would not currently be
classified as a PFIC. Certain United States income tax legislation contains
rules governing PFICs, which can have significant tax effects on U.S.
shareholders of foreign corporations. These rules do not apply to non-U.S.
shareholders. Section 1297(a) of the Code defines a PFIC as a corporation that
is not formed in the United States and, for any taxable year, either (i) 75% or
more of its gross income is “passive income”, which includes interest, dividends
and certain rents and royalties or (ii) the average percentage, by fair market
value (or, if the company is a controlled foreign corporation or makes an
election, by adjusted tax basis), of its assets that produce or are held for the
production of “passive income” is 50% or more. The taxation of a U.S.
shareholder who owns stock in a PFIC is extremely complex and is therefore
beyond the scope of this discussion. U.S. persons should consult with their own
tax advisors with regard to the impact of these rules.





Controlled Foreign
Corporation:





If more
than 50% of the voting power of all classes of stock or the total value of the
stock of the Company is owned, directly or indirectly, by citizens or residents
of the United States, United States domestic partnerships and corporations or
estates or trusts other than foreign estates or trusts, each of whom own 10% or
more of the total combined voting power of all classes of stock of the Company
or the total value of the stock of (“United States shareholder”), the Company
could be treated as a “controlled foreign corporation” under Subpart F of the
Code.





This
classification would effect many complex results including the required
inclusion by such 10% United States shareholders in income of their pro rata
share:  of “Subpart F Income” (as defined in Section 952 of the Code)
of earnings invested in U.S. property (as defined in Section 956 of the Code);
and of earnings invested in “excess passive assets” (as specifically defined by
the Code) of the Company. In addition, under Section 1248 of the Code, a gain
from the sale or exchange of common shares of the Company by a U.S. person who
is or was a 10% United States shareholder (as defined in the Code) at any time
during the five years period ending with the sale or exchange is treated as
ordinary dividend income to the extent of “earnings and profits” of the Company
attributable to the stock sold or exchanged. Because of the complexity of
Subpart F a more detailed review of these rules is outside the scope of this
discussion. The Company does not believe that it currently is, or has previously
been, a controlled foreign corporation. However, there can be no assurance that
the Company will not become a controlled foreign corporation in the
future.





U.S.
holders of shares or prospective investors are strongly encouraged to consult
their tax advisors in connection with their purchasing, holding or disposing of
shares of the Company. U.S. taxation rules are very complex and are affected by
various factors which may not be properly described above.





F.           Dividends
and Paying Agents





Not
applicable.








G.           Statements
by Experts





Not
applicable.





H.           Documents
on Display





For
further information with respect to the Company, you are referred to the filings
the Company has made with the SEC. Statements contained in this Annual Report
concerning the contents of any contract, or any other document, are not
necessarily complete. If a contract or document has been filed as an exhibit to
any filing the Company has made with the SEC, you are referred to the copy of
the contract or document that has been filed.  Each statement in this
Annual Report relating to a contract or document filed as an exhibit is
qualified in all respects by the filed exhibit. The Company is subject to
certain of the informational requirements of the Securities Exchange Act of 1934
and, in accordance with the Exchange Act, files reports and other information
with the SEC. The Company’s registration statements, including the exhibits and
schedules thereto, and such reports and other information, can be inspected and
copied at the following public reference facilities maintained by the
SEC:





Judiciary
Plaza


Room
1024


450 Fifth
Street, N.W.


Washington,
DC  20549





Woolworth
Building


233
Broadway


New York,
New York 10279





175 W.
Jackson Boulevard


Suite
900


Chicago,
Illinois 60604





Copies of
these materials can also be obtained by mail at prescribed rates from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, DC 20549 or by
calling the SEC at 1 800 SEC 0330. The SEC maintains a website that contains
registration statements, reports and other information regarding registrants
that file electronically with the SEC at http://www.sec.gov.





I.           Subsidiary
Information





Not
applicable.








ITEM
      11.
            QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK





Market
risk represents the risk of changes in the value of a financial instrument
caused by fluctuations in interest rates, foreign exchange rates, commodity
prices and equity prices.





In light
of the Company’s current state of development, it does not believe that it is
subject to any specific market risk with respect to interest rates, foreign
currency exchange or commodity price risk other than in so far as such commodity
price risk may affect equity markets and the ability of the Company to raise
financing in the equity market. The Company does not intend to purchase or sell
derivative instruments for speculative purposes.





PART II





ITEM
      12.
            DESCRIPTION OF SECURITIES OTHER THAN EQUITY
      SECURITIES





A.           Debt
Securities





Not
applicable.





B.           Warrants
and rights





Not applicable.





ITEM
      13.
            DEFAULTS, DIVIDEND ARREARS AND
    DELINQUENCIES





There has
not been a material default in the payment of principal, interest, a sinking or
purchase fund installment, or any other material default not cured within thirty
days, relating to indebtedness of the Company or any of its significant
subsidiaries. There are no payments of dividends by the Company in arrears, nor
has there been any other material delinquency relating to any class of
preference shares of the Company.





ITEM
      14.
            MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
      USE OF PROCEEDS





Neither
the Company nor, to the best of its knowledge, anyone else has modified
materially or qualified the rights evidenced by any class of registered
securities.





ITEM
      15.
            CONTROLS AND
PROCEDURES





Disclosure Controls and
Procedures.  As of December 31, 2007, an evaluation was carried
out by the Chief Executive Officer and Chief Financial Officer of the
effectiveness of the disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e)) under the Securities and Exchange Act of 1934, as
amended).  Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the disclosure controls and procedures as
of December 31, 2007, were effective to ensure that information required to be
disclosed in reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the required time
periods.





It should
be noted that while the Company's Chief Executive Officer and Chief Financial
Officer believe that the Company’s disclosure controls and procedures provide a
reasonable level of assurance and that they are effective, they do not expect
that the disclosure controls and procedures can prevent all errors or mistakes.
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.





Internal Controls over
Financial Reporting.  The Company’s management is responsible
for establishing and maintaining adequate internal controls over financial
reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an
evaluation of the effectiveness of the Company’s internal control over financial
reporting based on the framework in Internal Control – Integrated
Framework issued by The Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). Based on this evaluation, management concluded
that the Company’s internal controls over financial reporting were effective as
of December 31, 2007. Management reviewed the results of their assessment with
the Company’s Audit Committee.





Ernst
& Young LLP, an independent registered public accounting firm, has audited
the financial statements for the year ended December 31, 2007, and expressed an
unqualified opinion thereon. Ernst & Young LLP has also expressed an
unqualified opinion on the effective operation of the Company’s internal control
over financial reporting as of December 31, 2007.





It should
be noted that while the Company’s management, including the Chief Executive
Officer and Chief Financial Officer, believe that any internal controls over
financial reporting, including those systems determined to be effective and no
matter how well conceived and operated, have inherent limitations and can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met with respect to financial statement preparation and
presentation. Because of the inherent limitations in all control systems, they
cannot provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been prevented or detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by unauthorized override of the
control. The design of any system of controls is also based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. Accordingly, because of the inherent limitations in a cost
effective control system, misstatements due to error or fraud may occur and not
be detected.





Changes in Internal Controls
over Financial Reporting.  The Company performed a detailed
review and assessment of its internal controls over financial reporting during
2007 in an effort to further enhance its systems. A significant change was made
during the year with regard to the corporate structure through the hiring of a
full-time Chief Financial Officer on October 15, 2007 (as opposed to
previously having a part-time Chief Financial Officer). This enabled the Company
to re-evaluate and strengthen certain elements of its internal controls over
financial reporting.





The
Company made certain other changes to its systems of internal controls over
financial reporting in 2007 that did not materially affect, and are not
reasonably likely to materially affect, internal control over financial
reporting. During this process, management identified certain potential
deficiencies in internal control over financial reporting, but none which were
individually or cumulatively considered to be material weaknesses. The design of
a control system must reflect that there are staffing and financial resource
constraints, and that the benefits of controls must be considered relative to
their costs to the Company. Due to the limited number of staff at Canadian Zinc,
it is not feasible or cost effective to achieve complete segregation of
incompatible duties. These risks are not considered to be significant. The
Company’s management has taken such action as it considers appropriate to
minimize any potential risks from these deficiencies, including using outside
consultants and advisors as deemed appropriate.





ITEM
      16.
            [RESERVED]





ITEM
      16.A
            AUDIT COMMITTEE FINANCIAL
  EXPERT





The Board
of Directors has determined that at least one member of the Company’s Audit
Committee, Robert Gayton, possesses the educational and professional
qualifications as well as the experience to qualify as an “Audit Committee
Financial Expert” as defined in Item 16A of Form 20-F. Mr. Gayton was not
“independent” under applicable listing standards until December 9, 2007, being
three years after the date Mr. Gayton ceased to serve as interim CFO of the
Company as described above at “Item 6.C--Board Practices--Independence of
Members of Board.” In addition, the Company believes that the other members of
the Audit Committee are capable of analyzing and evaluating the financial
statements and understanding internal controls and procedures for financial
reporting.





ITEM
      16.B
            CODE OF ETHICS





The
Company has adopted a Code of Business Conduct and Ethics that applies to all
directors, senior officers and employees of the Company. The Company’s Code of
Ethics is attached as Exhibit 11.1.





Shareholders
may request a copy of the Code of Ethics by written request directed to Canadian
Zinc Corporation, Suite 1710, 650 West Georgia Street, PO Box 11644, Vancouver,
British Columbia, Canada V6B 4N9 or by reference to the Company’s website –
www.canadianzinc.com.





There
have been no waivers or amendments to the Code of Ethics.





ITEM
      16.C
            PRINCIPAL ACCOUNTANT FEES AND
  SERVICES





Fees
payable for the fiscal years ended December 31, 2007 and 2006 to Ernst &
Young LLP, Independent Registered Chartered Accountants, are detailed
below.





Year
      Ended
              December
      31, 2007
            Year
      Ended
              December
      31, 2006Audit
      Fees (1)
            $59,740
            $53,429Audit-Related
      Fees (2)
            $30,900
            $11,742Tax
      Fees (3)
            $Nil
            $6,660All
      Other Fees
            $Nil
            $7,500Totals
            $90,640
            $79,331




(1)
            “Audit
      Fees” represent fees for the audit of the annual financial statements, and
      review in connection with the statutory and regulatory
      filings.


(2)
            “Audit
      Related Fees” represent fees for assurance and related services that are
      related to the performance of the
audit.


(3)
            “Tax
      Fees” represent fees for tax compliance, tax advice and
      planning.





The Audit
Committee has adopted procedures requiring Audit Committee review and approval
in advance of all particular engagement for services provided by independent
auditors. Consistent with applicable laws, the procedures permit limited amounts
of services, other than audit, review or attest services, to be approved by one
or more members of the Audit Committee pursuant to authority delegated by the
Audit Committee, provided the Audit Committee is informed of each particular
service. All of the engagements and fees for Fiscal 2007 and 2006 were approved
by the Audit Committee. The Audit Committee reviews with the Auditors whether
the non-audit services to be provided are compatible with maintaining the
auditor’s independence.





ITEM
      16.D
            EXEMPTIONS FROM THE LISTINGS STANDARDS FOR
      AUDIT


COMMITTEES





Not
applicable.





ITEM
      16.E
            PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
      PURCHASER





Not
applicable.





PART III





ITEM
      17.
            FINANCIAL
STATEMENTS





See
Financial Statements and Exhibits listed in Item 19 hereof and filed as part of
this Annual Report.





ITEM
      18.
            FINANCIAL
STATEMENTS





Not
applicable.






ITEM
      19.
            EXHIBITS





Description
      of DocumentCover
      Sheet
              Independent Auditor’s Report of Ernst & Young dated
      March 25, 2008
              Balance Sheets as at December 31, 2007
      and 2006
              Statements of Operations and Deficit for years ended
      December 31, 2007, 2006 and 2005
              Statement of Cash Flows for years ended December 31,
      2007, 2006 and 2005
              Notes to Financial
      Statements











SIGNATURES





The
registrant hereby certifies that it meets all of the requirements for filing
this Annual Report on Form 20-F and it has duly caused and authorized the
undersigned to sign this Annual Report on Form 20-F on its behalf.





Dated at
Vancouver, British Columbia, this 11th day of
April, 2008.





CANADIAN
ZINC CORPORATION


“John F.
Kearney”


Per:
(signed) John F. Kearney


Title:
President, Chief Executive Officer & Director








EXHIBIT
INDEX





Exhibit
      Number
            Description of Document1.1*
            Notice
      of Articles (of Incorporation)1.2*
            Articles
      (Bylaws)4.2*
            Purchase
      Agreement between Titan Logix Corp. and Canadian Zinc Corporation dated
      January 29, 2004.4.3*
            10%
      Rolling Stock Option Plan4.4
            Employment Agreement between the Company
      and Martin Rip dated October 15, 2007.4.5
            Form of Option Commitment (Senior
      Officers) dated October 15, 2007 to acquire common shares under the
      Company’s Stock Option Plan.11.1
            Code of Business Conduct and Ethics as
      adopted by the Board of Directors on November 1,
  2007.12.1
            Certification of President pursuant to
      Rule 13a-14(a) under the Securities Exchange Act of 1934, as
      amended12.2
            Certification of Chief Financial Officer
      Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as
      amended13.1
            Certification of President Pursuant to 18
      U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200213.2
            Certification of Chief Financial Officer
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to 906 of the
      Sarbanes-Oxley Act of 200215.1
            Annual Information Form as at March 28,
      2008 for the Fiscal Year ended December 31, 2007.15.2
            Management’s Discussion and Analysis for
      the year ended December 31, 2007 dated March 28,
  2008.





*These
exhibits were previously filed with the Company’s Registration Statement or a
previous Annual Report on Form 20-F (file no. 0-22216). In prior periods these
were noted as Exhibit 1.A, 1.B, 4.B and 4.C respectively.