MANAGEMENT’S
DISCUSSION AND ANALYSIS


March 28,
2008





INTRODUCTION





This
Management’s Discussion and Analysis (“MD&A”), dated March 28, 2008, focuses
upon the activities, results of operations, and liquidity, financial condition
and capital resources of Canadian Zinc Corporation (the “Company” or “Canadian
Zinc”) for the year ended December 31, 2007.  In order to better
understand the MD&A, it should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31,
2007.





The
Company’s financial statements are prepared in accordance with Canadian
generally accepted accounting principles (“GAAP”). The significant accounting
policies are outlined in Notes 2 and 3 to the Company’s financial statements for
the year ended December 31, 2007. These principles conform in all material
respects with generally accepted accounting principles in the United States,
except as disclosed in Note 14 to the financial statements.








ADDITIONAL
INFORMATION





Additional
information about the Company is available under the Company’s profile on SEDAR
at www.sedar.com and on
the Company’s website at www.canadianzinc.com.
Information is also available through the EDGAR system accessible through the
United States Securities and Exchange Commission’s website www.sec.gov. Readers
should be aware that historical results are not necessarily indicative of future
performance; actual results will vary from estimates and variances may be
significant.





The
Company reports its financial information in Canadian dollars and all monetary
amounts set forth herein are expressed in Canadian dollars unless specifically
stated otherwise.





Alan
Taylor, P. Geo., Chief Operating Officer, Vice President Exploration and
Director of Canadian Zinc Corporation, is the Company’s Qualified Person for the
purposes of National Instrument 43-101 and has approved the technical
disclosures in the MD&A.











INFORMATION
ABOUT FORWARD-LOOKING STATEMENTS





This
MD&A contains forward-looking statements, such as estimates and statements
that describe the Company’s future plans, objectives or goals, including words
to the effect that the Company or management expects a stated condition or
result to occur.  Words such as “believes”, “anticipates”, “expects”,
“estimates”, “may”, “could”, “would”, “will”, or “plan”, or similar expressions,
are intended to identify forward-looking statements.  Such
forward-looking statements are made pursuant to the safe harbour provisions of
the United States Private Securities Litigation Reform Act of 1995.





Since
forward-looking statements are based on assumptions and address future events
and conditions, by their very nature they involve inherent risks and
uncertainties.  Actual results relating to, among other things,
mineral reserves, mineral resources, results of exploration, reclamation and
other post-closure costs, capital costs, mine production costs, the timing of
exploration, development and mining activities and the Company’s financial
condition and prospects, could differ materially from those currently
anticipated in such statements by reason of factors such as changes in general
economic conditions and conditions in the financial markets, changes in demand
and prices for the minerals the Company expects to produce, delays in obtaining
permits, litigation, legislative, environmental and other judicial, regulatory,
political and competitive developments in areas in which the Company operates,
technological and operational difficulties encountered in connection with the
Company’s activities, labour relations matters, costs and changing foreign
exchange rates and other matters discussed under “Management’s Discussion and
Analysis of Liquidity, Financial Condition and Capital Resources and Review of
Financial Results”.





Other
delays in factors that may cause actual results to vary materially include, but
are not limited to, the receipt of permits or approvals, changes in commodity
and power prices, changes in interest and currency exchange rates, geological
and metallurgical assumptions (including with respect to the size, grade
and  recoverability of mineral resources), unanticipated operational
difficulties (including failure with plant, equipment or processes to operate in
accordance with  specifications or expectations), cost escalation,
unavailability of materials and equipment, industrial disturbances or other job
action, and unanticipated events related to health, safety and environmental
matters, political risk, social unrest, and changes in general economic
conditions or conditions in the financial markets.





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.  There is no certainty
that mineral resources will be converted into mineral reserves. The Company does
not currently hold a permit for the operation of the Prairie Creek
Mine.





This list
is not exhaustive of the factors that may affect any of the Company’s
forward-looking statements.  These and other factors should be
considered carefully and readers should not place undue reliance on the
Company’s forward-looking statements. Further information regarding these and
other factors which may cause results to differ materially from those projected
in forward-looking statements are included in the filings by the Company with
securities regulatory authorities. The Company does not undertake to update any
forward-looking statements that may be made from time to time by the Company or
on its behalf, except in accordance with applicable securities
laws.











OVERVIEW





Canadian
Zinc Corporation is a development stage company listed on the Toronto Stock
Exchange under the symbol “CZN” and in the United States on the OTCBB under the
symbol “CZICF” and is engaged in the business of exploration and development of
natural resource properties.





The
Company’s principal focus is its efforts to advance the Prairie Creek Mine, a
zinc/lead/silver property located in the Northwest Territories of Canada,
towards production. The Prairie Creek Mine is partially developed with an
existing 1,000 tonne per day mill and related infrastructure.  In 2006
and 2007, the Company carried out major programs at Prairie Creek including
driving a new internal decline about 400 metres long, which was extended a
further 200 metres in 2007, and which enabled a major underground exploration
and infill drilling program that continued throughout 2007. During 2007 the
Company invested $10.8 million on the Prairie Creek project, principally on
underground exploration drilling. A total of $7.9 million was invested in
Prairie Creek in 2006.





The
objective of the 2006/2007 underground drilling program was to define the
Prairie Creek resource in compliance with the disclosure standards set out in
National Instrument 43-101 and to demonstrate at least ten years of projected
mine life in the measured and indicated resource categories. These objectives
were achieved, as described in further detail below, and confirmed in the
Technical Report independently prepared by MineFill Services Inc.





A
Technical Report (the “Report”) dated October 12, 2007, was prepared by MineFill
Services Inc. (David Stone and Stephen Godden – Qualified Independent Persons),
to National Instrument 43-101 standards, following the results of part of the
2007 drilling program. This Report verifies and confirms the previous historical
resource estimate completed by MRDI in 1998 and, with the inclusion of the
results of the first phase of the 2006/2007 underground drilling program, 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 a
large Inferred Resource of 5,541,576 tonnes grading 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
            67.6
            -
            6.68
            10.85Indicated
            663,261
            62.0
            -
            5.53
            10.15Measured
      + Indicated
            1,274,678
            64.7
            -
            6.08
            10.49Inferred
            21,234
            55.7
            -
            5.65
            10.49Combined
            Measured
            1,550,041
            154.9
            0.282
            9.67
            12.22Indicated
            4,290,288
            163.3
            0.342
            9.98
            10.16Measured
      + Indicated
            5,840,329
            161.1
            0.326
            9.89
            10.71Inferred
            5,541,576
            214.8
            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.








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 and
      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
Report has been filed on SEDAR and may be viewed under the Company’s profile at
www.sedar.com,
or on the Company’s website at www.canadianzinc.com.
A summary of the Report is also presented in the Company’s press release dated
October 9, 2007.





The
Prairie Creek project is located in the Mackenzie Mountains of the Northwest
Territories, within the watershed of the South Nahanni River and in proximity to
but outside of the Nahanni National Park Reserve. 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
mine will be provided and will require a right of way or corridor across or
through an expanded park.





Although
the Company holds permits for the exploration and development of the Prairie
Creek property the Company does not have all the permits necessary to operate
the mine. The Company has experienced long delays in obtaining permits to date
and expects continuing delays and difficulties with its permitting
activities.  During 2007 the Company was actively engaged in
permitting activities and, in April 2007, obtained a Land Use Permit for winter
use of the road which connects the Prairie Creek mine with the Liard Highway
from the Mackenzie Valley Land and Water Board. Upon commencement of
rehabilitation work, the Company was advised that a Class B Water License was
required in order to complete the road rehabilitation work along the Prairie
Creek stream-bed. Accordingly, the Company applied for a Class B water license
in June 2007 and the license was issued on March 20, 2007.





Canadian
Zinc is in a strong financial condition. At December 31, 2007 the Company had
cash, cash equivalents and short term investments of $28.4 million compared
to $29.1 million at December 31, 2006. During, 2007, the Company completed a
private placement financing for gross proceeds of $10 million.





SELECTED
ANNUAL FINANCIAL INFORMATION





The
following summary financial information has been derived from the financial
statements of the Company, which have been prepared in accordance with Canadian
GAAP.





(thousands
      of Canadian dollars
            
            Year
      ended December 31,except
      per share amounts)
            
            2007
            
            
            2006
            
            
            2005Statement
      of operationsNet
      (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





The
Company is at the exploration and development stage and does not generate
revenue or cash flows from operations. The loss for each of the years 2005 to
2007 largely represents administrative expenses.  Total assets
increased as a result of cash raised through financings and capitalization of
expenditures on resource interests in the year.





REVIEW
OF FINANCIAL RESULTS





This
review of the results of operations should be read in conjunction with the
audited financial statements of the Company for the year ended December 31, 2007
and other public disclosure documents of the Company.





For the
year ended December 31, 2007, the Company reported a net loss of $920,000,
compared to a loss of $1.5 million for the year ended December 31,
2006.  The reduced loss in 2007 was partly attributable to higher
interest income ($1.2 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
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.








Exploration
and Development Expense





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 in the “Overview” section above.





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
            Cross-cut:
      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
            Cross-cut:
      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
      2007 - 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.





Revenue
and Interest Income





The
Company is in the 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 for the year ended December 31,
2007 was $1.2 million compared to $948,000 for 2006. The increase is
attributable to the overall increased amounts available for investment during
2007.





Administrative
Expenses





Administrative
expenses for the year ended December 31, 2007 were $1.7 million (excluding stock
based compensation, amortization and write down of marketable securities)
compared to $1.4 million in the year ended December 31, 2006.  The
increase was largely attributable to increased activity in shareholder and
investor communications in 2007.





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 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 the ”Critical
Accounting Estimates” section to this MD&A. The assumptions used in the
calculation are described in Note 10(a) to the audited financial statements at
December 31, 2007.





Amortization
costs relating to mining plant and equipment of $143,000 (2006 - $51,000) and
the asset retirement obligation asset of $128,000 (2006 - $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
Estimates” section to this MD&A. 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 and 2006.





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
            )$
            -
            
            
            $
            -
            
            
            $
            -








SUMMARY
OF QUARTERLY RESULTS (UNAUDITED) AND FOURTH QUARTER





(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
rolling 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 stock-based compensation charge of $267,000 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.








LIQUIDITY,
FINANCIAL CONDITION 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 $9.0 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
MD&A) 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 “risks and
uncertainties” section in this MD&A.








The
following table reflects 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.





OUTLOOK





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 the “Overview” section to
this MD&A. 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.








CRITICAL
ACCOUNTING 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.





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. 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 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 POLICIES 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, and on proposed
future standards, can be found in Note 3 to the audited financial statements as
at December 31, 2007.








RISKS
AND UNCERTAINTIES





In
conducting its business, Canadian Zinc faces a number of risks and
uncertainties, many of which are beyond its ability to control or predict.
Because of these risks and uncertainties, actual results may differ materially
from those expressed or implied by forward-looking statements, and investors are
cautioned not to place undue reliance on such statements, which speak only as of
the date hereof.





Investors
are urged to review the discussion of risk factors associated with the Company’s
business below and as set out in the Company’s Annual Information Form dated
March 28, 2008, which has been filed with the Canadian Securities Regulators on
SEDAR (www.sedar.com).





The risks
below, and as described in the Company’s Annual Information Form and other
Canadian and U.S. filings, are not the only risks facing the Company. Additional
risks and uncertainties not currently known to, or that are currently deemed to
be immaterial, also may materially affect the Company’s business, financial
condition and/or operating results.





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 the “Overview” section above, 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.  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 anticipates
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 cost.
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 MD&A in the “Critical Accounting Estimates” section
discussion of “Asset retirement obligation.”





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 unusual
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. 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. 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 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 Company is working towards
updating and converting the Scoping Study into a Pre-Feasibility study utilizing
the updated Technical Report as described in the “Overview” section to this
MD&A. 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;


•
            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 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 document 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.








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, control, 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 and Similar Canadian Regulations





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
internal controls over financial reporting.





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.








OTHER
INFORMATION





The
Company has not entered into any off-balance sheet arrangements.





As at
March 28, 2008, the Company had the following securities issued and
outstanding:





Common
      shares
            120,685,063Share
      purchase options
            4,815,000
            exercisable
      between $0.60 - $0.94 per shareShare
      purchase warrants
            9,715,012
            exercisable
      between $0.93 - $1.20 per share








DISCLOSURE
CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL
REPORTING





Disclosure
controls and procedures





Disclosure
controls and procedures include the Company’s controls and procedures that are
designed to provide reasonable assurance that material items requiring
disclosure by the Company are identified and reported in a timely
manner.





Based on
current securities legislation in Canada and the United States, the Chief
Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) of the Company
have evaluated the effectiveness of the Company’s disclosure controls and
procedures as of December 31, 2007, and have concluded that such disclosure
controls and procedures were operating effectively at that date.





The
disclosure controls process was amended during the quarter ended September 30,
2007, such that, under the direction of the CEO and the CFO, the Company
utilizes disclosure checklists to ensure that all material facts are known and
disclosed on a timely basis. The Company also holds regular meetings of the
management team to ensure that material facts are known and disclosed on a
timely basis.





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





Management
is responsible for designing, establishing and maintaining a system of internal
controls over financial reporting to provide reasonable assurance that the
financial information prepared by the Company for external purposes is reliable
and has been recorded, processed and reported in an accurate and timely manner
in accordance with GAAP.





The Board
of Directors is responsible for ensuring that management fulfills its
responsibilities. The Audit Committee fulfills its role of ensuring the
integrity of the reported information through its review of the interim and
annual financial statements.





There are
inherent imitations in the effectiveness of internal controls over financial
reporting, including the possibility that misstatements may not be prevented or
detected. Accordingly, even effective internal controls over financial reporting
can provide only reasonable assurance with respect to financial statement
preparation. Furthermore, the effectiveness of internal controls can change with
circumstances. The Company has paid particular attention to segregation of
duties matters surrounding its internal controls over financial reporting as the
Company has only limited staff resources at the present time such that “ideal”
segregation of duties is not feasible. This risk is mitigated by management and
Board review where appropriate. At the present time, the Company does not
anticipate hiring additional accounting or administrative staff as this is not
considered necessary or practical and accordingly, will continue to rely on
review procedures to detect potential misstatements in reporting of material to
the public.





The CEO
and the CFO have evaluated the design and effectiveness of internal controls
over financial reporting based on the framework in Internal Control – Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). Based on this evaluation, as at December 31, 2007,
the Company believes that its internal controls over financial reporting were
designed and operating effectively to provide reasonable, but not absolute,
assurance that the objectives of the control system are met.





The
Company’s management, including the CEO and CFO, 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.





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.





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 CFO on October 15, 2007 (as opposed
to previously having a part-time CFO). 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.