CANADIAN
ZINC CORPORATION









1710
– 650 West Georgia Street, Vancouver, British Columbia, V6B 4N9




Tel:  (604)
688-2001    Fax:  (604) 688-2043




Email:  invest@canadianzinc.com




Website:  www.canadianzinc.com



















ANNUAL
INFORMATION FORM









as
at March 28, 2008









for
the Fiscal Year ended




December
31, 2007









CANADIAN
ZINC CORPORATION




ANNUAL
INFORMATION FORM




FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2007












TABLE OF
CONTENTS














1.
            INCORPORATION




2.
            GENERAL DEVELOPMENT OF
      THE BUSINESS




3.
            DESCRIPTION OF THE
      BUSINESS




4.
            RISK FACTORS AND
      UNCERTAINTIES




5.
            CAPITAL
      STRUCTURE




6.
            MARKET FOR
      SECURITIES




7.
            DIRECTORS AND
      OFFICERS




8.
            TRANSFER AGENTS AND
      REGISTRARS




9.
            MATERIAL
      CONTRACTS




10.
            INTERESTS OF
      EXPERTS




11.
            AUDIT COMMITTEE
      INFORMATION




12.
            ADDITIONAL
      INFORMATION




CAUTIONARY NOTE – FORWARD LOOKING
      STATEMENTS












CANADIAN
ZINC CORPORATION
  ANNUAL
INFORMATION FORM
  FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2007
  
  1.
              INCORPORATION
 
 Canadian
Zinc Corporation (“Canadian Zinc” or “the Company”) was incorporated in British
Columbia, Canada, on December 16, 1965 under the Companies Act of British Columbia. The
Company changed its name to "San Andreas Resources Corporation" on August 29,
1991 and to "Canadian Zinc Corporation" on May 25, 1999. The Company currently
exists under the Business
Corporations Act(British Columbia). On June 16, 2004, the Company’s
shareholders adopted new Articles to bring the Company’s Charter documents up to
date and into conformity with the new Business Corporations Act(British Columbia).
 
 The
Company’s shareholders passed a resolution to amend the authorized share capital
from 50,000,000 common shares with no par value to 100,000,000 on May 24, 2002
and from 100,000,000 to 200,000,000 on December 30, 2003. On June 16, 2004,
shareholders passed a resolution to change the authorized share capital to an
unlimited number of common shares with no par value.
 
 The
Company has no subsidiaries.
 
 The
Company's head office, which is also its registered office, is located at Suite
1710, 650 West Georgia Street, Vancouver, British Columbia, Canada V6B
4N9.
 
 2.
              GENERAL DEVELOPMENT OF THE
      BUSINESS
 
 Canadian
Zinc is a public company listed on the Toronto Stock Exchange under the symbol
"CZN" and is engaged in the business of exploration and, when warranted,
development of natural resource properties.  The Company’s principal
focus is exploration and development of the Prairie Creek Property, a
zinc/lead/silver deposit with adjacent mill and infrastructure facilities,
located approximately 500 kilometres west of Yellowknife in the Northwest
Territories, Canada.
 
 Three
Year History
 
 Throughout
the years 2005, 2006 and 2007, the Company’s principal focus was its efforts to
advance the Prairie Creek Project towards development, principally in the
permitting process and in 2006/2007 in underground exploration and
development.
 
 Permitting
Process
 
 In 2001
the Company applied for two surface exploration drilling permits, an underground
exploration permit, a pilot plant metallurgical permit and a permit for use of
part of the road from the Property. Following Environmental Assessment the two
surface exploration land use permits were issued in 2001.
 
 The
underground exploration and pilot plant permit applications were referred for
Environmental Assessment which lasted throughout all of 2001, 2002 and into June
of 2003. In September 2003, a Land Use Permit and Water License for underground
exploration and development and for metallurgical testing in a pilot plant in
the mill were issued to the Company by the Mackenzie Valley Land and Water Board
(the “Water Board”). An appeal to the Federal Court (the “Court”) seeking
judicial review of the decision of the Water Board to issue the Water License
was filed in October 2003 by the Dehcho First Nations and heard by the Court in
August 2005. In December 2005 the Court issued its Judgment directing the Water
Board to reissue the License containing modified language which had been agreed
between the Company and the Minister of Indian and Northern Affairs Canada. The
License was reissued by the Water Board in February 2006.
 
 In 2003
the Company submitted a separate application for a Land Use Permit for use of
the existing road from the Liard Highway to the mine site and claimed legal
exemption from the Environmental Assessment process. The claim for exemption was
denied by the Water Board and the Company filed an appeal to the Supreme Court
of the Northwest Territories. That Appeal was heard by the Supreme Court in
December 2004 and in May 2005 the Supreme Court issued its Judgment ruling that
the proposed development is exempt under the Act from Environmental Assessment.
Subsequently the Nahanni Butte Dene Band of the Dehcho First Nations alleged
infringement of their constitutional rights and inadequate consultation. The
Department of Indian Affairs and Northern Development carried out a Section 35
Consultation with Nahanni and issued its report to the Water Board in February
2007. In April 2007 the Water Board approved the issue of Land Permit
MV2003F0028 for a period of five years to April 10, 2012.
 
 After
receiving the Land Use Permit MV2003F0028 on April 11, 2007 for the Winter Road
from the Water Board the Company was advised that additional permits were
required in order to carry out the rehabilitation work on the road. In June
2007, Canadian Zinc applied to the Mackenzie Valley Land and Water Board for a
Class B water license (MV2007L8-0026) to rehabilitate a portion of the road in
the proximity of the mine site and sought authorization from the Department of
Fisheries and Oceans to carry out the work. Also in June 2007, the Company
applied to Indian and Northern Affairs Canada for a quarrying permit to obtain
rock to be used in the road rehabilitation. The issuance of these permits was
delayed as they were referred to consultation between the Crown and the Nahanni
Band. The Company received the quarry permit on February 29, 2008 and the water
license on March 20, 2008.
 
 In the
spring of 2004 the Company applied to the Mackenzie Valley Land and Water Board
for an amendment to expand the area of an existing diamond drill Land Use
Exploration Permit. The application was referred for Environmental Assessment
and this assessment was conducted by the Mackenzie Valley Impact Review Board
(the “Review Board”) throughout 2005, culminating in a decision dated December
23, 2005 in which the Review Board recommended to the Minister of Indian Affairs
and Northern Development  that the development proceed to the
regulatory phase of approvals. On February 3, 2006 the Minister accepted the
recommendations of the Review Board and the application was referred back to the
Water Board to finalize the terms and conditions of the permit. The Land Use
Permit was issued by the Water Board in May 2006, is valid for five years and
permits exploration anywhere on the Prairie Creek Property.
 
  
  2005
– 2007 Work Program
 
 During
2005 the Company carried out an extensive program of site rehabilitation and
maintenance including design of a new water treatment plant, upgrade of fuel
facilities and the construction of a new water treatment pond.
 
 During
2006 the Company undertook a major underground exploration and development
program driving a new decline about 400 metres within the underground mine, from
which a detailed underground drilling program was initiated. A surface
exploration program was carried out on Zone 5 about five kilometres south of the
minesite.
 
 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 that complies with National Instrument 43-101 standards for
determining and defining mineral resources. Further details with regard to the
work undertaken in 2007 are detailed in this Annual Information Form at
“3.1.6--Exploration Activities” and “3.1.7--2007 Resource
Estimation.”
 
 Other
 
 The
Company continues to search for projects of merit and has examined a number of
opportunities during the year, none of which have come to fruition at this time.
This activity will continue in 2008.
 
 3.
              DESCRIPTION OF THE
  BUSINESS
 
 The
Company’s principal focus is exploration and development of the Prairie Creek
Property and adjacent ground (a zinc/lead/silver, partially developed property)
located approximately 500 kilometres west of Yellowknife in the Northwest
Territories, Canada. The Mine is believed to be one of the highest grade
non-operating base metal properties in the world and is potentially a major
Canadian resource.
 
 The
original discovery of mineralization on the Prairie Creek Property was made in
1928 at the showing known as the “No. 5 Zone.” In 1958, a limited mapping
program was undertaken by Fort Reliance Minerals Ltd. The claims lapsed in 1965
and were restaked by the prospector and subsequently conveyed to Cadillac
Explorations Ltd. ("Cadillac") in 1966. Cadillac also acquired a 182,590 acre
prospecting permit.
 
 During
1966 to 1969, trenching was carried out on a number of zones and underground
exploration commenced. This prospecting permit expired in 1969 and 6,659 acres
(210 claims) were selected by Cadillac and brought to lease. The property was
optioned to Penarroya Canada Ltee. ("Penarroya") in 1970 and the underground
development was extended. Surface drilling and preliminary metallurgical testing
was also conducted. Penarroya discontinued their work in late 1970 and Cadillac
resumed full operation of the project. Cadillac further developed the
underground workings and resampled the crosscuts in 1979.
 
 In 1980
an independent feasibility study was completed for Cadillac by Kilborn
Engineering which resulted in a decision to put the property into production. In
December 1980, Procan Exploration Company Ltd. ("Procan") (a company associated
with Herbert and Bunker Hunt of Texas) agreed to provide financing for
construction, mine development and working capital necessary to attain
production based on the Kilborn feasibility study. Between 1980 and 1982,
extensive mine development took place. Cadillac acquired a 1,000-ton per day
mill concentrator and transported it to the minesite. The mill was erected and a
camp established. Two adits and extensive underground workings were developed.
During this time the winter road connecting the mine to the Liard Highway was
constructed and over 500 loads of supplies were transported to site.
Construction activities continued until May 1982 and were almost complete when
they were suspended due to lack of financing. Subsequently Cadillac went into
bankruptcy in May 1983 and site maintenance and operations were taken over by
Procan.
 
 In 1991,
Nanisivik Mines Limited (an unaffiliated third party) acquired the property
through the bankruptcy proceedings. Pursuant to an August 23, 1991 Option
Agreement, the Company entered into an option to acquire a 60% interest in the
Prairie Creek Property from Nanisivik Mines Ltd. Subsequently, pursuant to a
March 29, 1993 Asset Purchase Agreement that superseded the Option Agreement,
the Company acquired a 100% interest in the Prairie Creek Property, and a 60%
interest in the plant and equipment, subject to a net smelter royalty of 2% in
favour of Titan Pacific Resources Ltd. In January 2004, the Company acquired all
of Titan’s interest, including the 2% net smelter royalty, and now holds a 100%
interest in the Prairie Creek property, plant and equipment.
 
 Between
1991 and 2000 the Company carried out various exploration programs on the
Prairie Creek Property. In January 2001, the Company completed a Scoping Study
designed to outline and guide the re-development of the existing mine and mill
on the Prairie Creek Property. The preliminary study indicated the feasibility
of a mining and milling operation on the site and identified a number of
different development and production scenarios. The operation would utilize the
existing mine and mill infrastructure that had been put in place in 1982, but
which had never been operated. Indicated capital costs for the new operation
were estimated in 2000 to be $40.5 million, including the construction of an all
weather access road to the site. The Scoping Study has not been updated and is
now considered to be out of date. It is now anticipated that the capital costs
to place the Prairie Creek mine into production will be significantly higher
than indicated in the 2001 Scoping Study.
 
 In
October 2007, an updated Technical Report (the “Report”) with regard to Mineral
Resource Estimation on the Main Zone at Prairie Creek was independently prepared
by Minefill Services Inc. following the results of the 2006/2007 underground
drilling program, in compliance with National Instrument 43-101. This report
verifies and confirms the previous historical resource estimate completed by
MRDI in 1998 and notes significant upgrades in resource categories. The Report
indicates that the Prairie Creek Property hosts total Measured and Indicated
Resources of 5,840,329 tonnes grading 10.71% zinc, 9.90% lead, 161.12 grams
silver per tonne and 0.326% copper. In addition, the Report confirms that there
remains a large Inferred Resource of 5,541,576 tonnes grading at 13.53% zinc,
11.43% lead, 215 grams per tonne silver and 0.514% copper and additional
exploration potential.
 
  
  3.1           Principal
Property – Prairie Creek, Northwest Territories
 
 The
following information contained in Sub-Sections 3.1.1 to 3.1.8 relating to the
Prairie Creek Property has been prepared or reviewed by Alan Taylor (P.Geo),
Vice-President of Exploration and Chief Operating Officer of Canadian Zinc
Corporation, who is a Qualified Person as defined in National Instrument 43-101
or have been extracted from the Report prepared by Minefill Services Inc. (as
described above).
 
 3.1.1  Land
Tenure
 
 The
Prairie Creek Property consists of a 100% interest in the mining leases, surface
leases and staked mineral claims described below.  The Prairie Creek
Property is comprised of:
 
 ·
              Mining Leases Numbers
      2854, 2931, 2932, 2933, 3313, 3314, 3315, and 3338; (8,749.4 acres),
      expiring from July 13, 2010 to August 5,
2020.
 ·
              Surface Leases Numbers
      95 F/10-5-5 and 95 F/10-7-4; (325.81 acres).  The Surface Leases
      are held from the Department of Indian Affairs and Northern Development
      and expire March 31, 2012.
 ·
              Mineral
      Claims:  Four additional mineral claims, referred to as
      the Gate Claims, were staked in 1999 in the vicinity of the Prairie Creek
      Property. These claims consist of the Gate 1-4 Claims covering an area of
      9,245.35 acres. Sufficient assessment work has been filed on these claims
      to hold them in good standing until July 19, 2008. Six additional mineral
      claims (Way 1 – 6) covering an area of 10,196.18 hectares were staked in
      2006 adjacent to existing mining leases or mineral claims to enlarge the
      size of the Prairie Creek property and are in good standing until November
      2008.
 
 All of
the above leases and claims are in good standing at the date
hereof.
 
 The
Prairie Creek mine is located on land claimed by the Nahanni Butte Dene Band of
the Dehcho First Nations (“DCFN”) as their traditional territory. The DCFN are
engaged in ongoing land settlement negotiations with the Government of Canada
and the Government of the Northwest Territories in what is referred to as the
Dehcho Process. [Refer to Section 3.1.11--First Nations below].
 
 In July
2003, as part of the Interim Measures Agreement entered into between Canada and
the DCFN as part of the Dehcho Process, Canada made an interim withdrawal of
certain lands for a period of five years.  Part of the lands withdrawn
under the interim withdrawal order include the area represented by the Company’s
Mining Lease No. 2854, a portion of Mining Leases No. 2931, 3314 and 3313 and
part of the area over which the road that connects the Property to the highway
passes. In accordance with Sections 19 and 23 of the Interim Measures Agreement
such withdrawal is subject to the continuing exercise of existing rights,
titles, interests, entitlements, licenses, permits, reservations, benefits and
privileges  and does not affect access to or across withdrawn
land.
 
 In July
2007, Canada made a further interim withdrawal of certain lands for the purpose
of the potential expansion of Nahanni National Park Reserve. The lands withdrawn
cover approximately 28,000 square kilometres and completely surround but do not
include the area of approximately 367 square kilometres surrounding the Prairie
Creek Mine, which by Schedule 2 is specifically excluded from the Interim Land
Withdrawal Order.
 
 Both
Interim Land Withdrawals expire in October 2008. See the details in Section
3.1.10-- Environmental Matters--Nahanni National Park Reserve.”
 
 3.1.2
              Location, Access and
      Climate
 
 The
Prairie Creek Property is situated approximately 500 kilometres west of
Yellowknife, the administrative centre of the Northwest Territories, in the
Mackenzie mountain range that locally has an average relief of approximately 300
metres and comprises low mountains with moderate to steep sides and intervening
narrow valleys. The Prairie Creek Property is located at an elevation of 850
metres above mean sea level. The valleys are well incised and the area is
located within the Alpine forest-tundra section of the boreal forest,
characterized by stunted fir and limited undergrowth. The trees, that grow at
the lower elevations, give way to mossy, open Alpine-type country in the upper
parts of the mountains.
 
 
  Year
round access to the Property is provided by aircraft to a 3,000-foot gravel
airstrip immediately adjacent to the camp. The Prairie Creek Property is also
accessible by road which extends from the Property to the Liard Highway, a
distance of 170 kilometres and which was originally permitted for use in the
winter months throughout its full length and for year round use for the first 40
kilometres out from the mine site. The road needs to be re-established, which
the Company plans to perform in 2008 upon receipt of pertinent permits and
authorization. The Liard Highway #7 is the major north-south transportation
route, which connects Fort Nelson, British Columbia to Fort Simpson, Northwest
Territories.
 
 The
climate is sub-Arctic, being characterized by long cold winters with pleasant
summers. Snowfall is moderate and only minor difficulty has been experienced in
operating throughout the winter months.
 
 3.1.3
              Property Geological
      Summary
 
  Regional
Geology
 
 The 1987
Geological Survey of Canada Memoir 412 by Morrow and Cook provides the best
description of the regional geological setting of the Property. Morrow and Cook
describe the stratigraphy that accumulated during Siluro-Devonian time and
formed in a paleo-basin adjacent to the ancient North American Platformal
sediments. The east-dipping Tundra Thrust (that is located on the Property) and,
30 kilometres to the west, the west-dipping Arnica Thrust, define the present
margins of the Prairie Creek paleo-basin in which accumulated a thick Devonian
sequence of sediments, including the Cadillac and Funeral
Formations.
 
 Units
within the Prairie Creek paleo-basin underwent structural deformation in the
form of folds and faults during regional Laramide deformation. The prevalent
regional structural trend is approximately north-south; the Prairie Creek
paleo-basin is broken into a series of north-south trending, five to 20
kilometre wide fault blocks.
 
 Property
Geology
 
 Canadian
Zinc’s existing mineral claims and leases overlie two major fault blocks of
sediments: the Prairie Creek Block and western Gate Block. The north-eastern
part of the Property also includes some of the marginal platformal sequence of
rocks that are relatively undeformed by the faulting and folding that is
apparent within the Prairie Creek paleo-basin sequence.
 
 Marginal Platform. The
northern part of the Company’s claims, from Lease 3313 south to the Way 2
mineral claim, straddles the Tundra Thrust, which separates the Prairie Creek
paleo-basin sequence to the west from the platformal series of sedimentary
formations to the east. The platformal sediments are relatively undeformed and
comprise a stratigraphic sequence starting with the Road River Formation that is
overlain by the Root River, Camsell and Sombre Formations (listed from oldest to
youngest). Mississippi Valley-type mineralization is hosted in biohermal reefs
of the Root River Formation, or facies equivalent.
 
 In the
southern part of the Company’s claims a reverse fault continuation of the Tundra
Thrust separates the Prairie Creek Block from the marginal platform,
approximately two kilometres east of the Mine Site. The Platformal sequence in
this area is dominated by a thick assemblage of Sombre Formation
dolomites.
 
 Prairie Creek Block. Overall,
the southern part of the Property is outlined by a one to two kilometre wide,
doubly plunging antiform with a north-south trending fold axis that is referred
to as the Prairie Creek Block. It is bordered to the west by the so-called Gate
Fault and to the east by the Tundra Thrust. It is underlain by a conformable
sedimentary sequence including the Lower Ordovician Whittaker Formation
dolomites, Silurian Road River Formation shales and the thinly bedded, limy
shales of the Cadillac Formation. Lower to Middle Devonian Arnica and Funeral
Formation dolomites and limestone overlie this assemblage on the northern part
of the Property.
 
 Structurally,
the longitudinal arch of the antiform occurs approximately five kilometres south
of the Mine Site. A local fault, referred to as the Prairie Creek fault, offsets
the eastern flank of the antiformal fold and juxtaposes Cadillac stratigraphy
against the Road River Formation. Erosion of the antiformal structure has
resulted in windows of older Road River shales, cored by the Whittaker Formation
dolomites. The antiform plunges at about 15 degrees to the north, so the
geological units young in age to the north, which is also the case
underground.
 
 Gate Mineral Claims. The six
contiguous Gate claims (that together define what is termed the Gate Block) are
located to the west of the main mining leases and overlie similar type rock
assemblages to those found on the Prairie Creek Block. Grassroots exploration
was completed on this ground to test for mineralization similar to that found in
the Prairie Creek Block.
 
 The
geological formations of the Whittaker and Road River Formations are known to
occur within the Gate Block, as relatively flat-lying to gently dipping units.
Compared to the Prairie Creek Block, there is much more exposure of the
prospective Whittaker Formation in the Gate Block.
 
 Main Zone Geology. The Mine
Site is situated on the western flank of the Prairie Creek antiform, referred to
as the Main Zone. It is Main Zone mineralization that was and is the focus for
Mine development and exploitation.
 
 The three
levels of available underground development assist in identifying the detail of
Main Zone geology:
 
 • 870
metre Level is collared in the Ordovician, Upper Whittaker Formation, which is
the oldest geological formation in the Main Zone area and which forms the core
of the Prairie Creek antiform;
 • the
Whittaker Formation is in turn overlain by a large exposure of the carbon-rich
graphitic shales/dolomites of the Road River Formation;
 • the
iron-bearing Cadillac Formation shales overly the Road River Formation and are
located immediately adjacent to the Mine Site; and
 • the
bluff-forming rocks immediately to the west of the Mine Site are formed by the
cherty Arnica Formation which overlie the Cadillac Formation and form the more
resistant hilltops in the immediate vicinity of the Mine Site.
 
  Property
Base Metal Mineralization
 
 Three
main styles of base metal mineralization have been identified on the Property:
Vein mineralization (sulphide with secondary oxide), Stratabound sulphides and
Mississippi Valley type sulphides (“MVT”). Exploration at Prairie Creek has
revealed many base metal mineral showings along the entire 17-kilometre length
of the Property. Historical exploration of the property has led to referencing
some of these surface mineral showings by name and some by numbers.
 
 • Quartz
vein mineralization occurs in a north-south trending, 16 kilometre long corridor
in the southern portion of the Property where the occurrences are exposed on
surface;
 • the
mineralized vein showings are referred to as sequentially numbered Zones, some
ofwhich are known to contain sub-surface stratabound
mineralization:
 - the
subsurface area above the underground workings is referred to as Zone 3 or the
Main Zone,
 -
extending for about ten kilometres to the south of the Mine Site is a
semi-continuous pattern of other vein exposures referred to as Zones 4 to 12,
inclusive,
 - a
further expression of vein mineralization, known as the Rico showing, is located
approximately four kilometres to the north of the Main Zone; and
 • the MVT
showings in northern section of the Property are developed over a distance of
approximately ten kilometres. They are referred to, from north to south, as the
Samantha, Joe, Horse, Zulu, Zebra and Road showings.
 
 Stockwork
and stratabound mineralization is not exposed on surface; it has only been
intersected in drillholes. These mineralized bodies have not been individually
named.
 
 VeinMineralization. Vein
mineralization comprises massive to disseminated galena and sphalerite with
lesser pyrite and tennantite-tetrahedrite in a quartz-carbonate-dolomite matrix.
Secondary oxidation is locally developed to variable levels of severity,
yielding mainly cerussite (lead oxide) and smithsonite (zinc oxide); minor
oxidation only of tetrahedrite-tennantite has been found. Silver is present in
solid solution with tennantite-tetrahedrite and to a lesser extent with galena.
Vein widths vary between less than 0.1 metre and more than five metres; overall
averages indicate a horizontal thickness (i.e. not true thickness) of
approximately 2.7 metres.
 
 The most
extensively developed vein is the Main Quartz Vein which trends approximately
north-south and dips between the vertical and 40 degrees east (average = 65
degrees east). It remains open to the north and is expected to continue for a
further four kilometres to the south, evidence for which is the so-called Rico
showing. Diamond drilling to depth has indicated its transverse continuance, but
little information is currently available below an elevation of 600 metres above
mean sea level (i.e. about 250 metres below the Mine Site
elevation).
 
 Vein
mineralization developed within the cherty dolomites of the Ordovician-Silurian,
Upper Whittaker Formation and shaley dolomites of the lower Road River
Formation. It apparently formed in axial plane of weakness within the Prairie
Creek structural antiform:
 
 • it is
thought that the more competent units of the Lower Road River and Whittaker
Formations more readily formed tension features in which vein sulphide
mineralization is hosted; and
 • the
rock type changes to a much more graphitic shale in the mid- and upper-parts of
the Road
 River
Formation, which units are less competent and provide a poor host for the
vein-type formation.
 
 For
example, at the end of 930 metre Level the Main Quartz Vein can be seen to
dissipate into the mid- Road River shales. The vein does not appear to be well
developed in either the upper shales of the Road River and Cadillac
Formations.
 
 Preliminary
structural evidence suggests that the various mineralized vein showings might be
structurally linked, as a series of en-echelon segments comprising a single, but
nevertheless structurally complex, mineralized vein structure. The presence of
an en-echelon vein structure might go a long way to explaining the apparent
off-sets between the various vein showings.
 
 Towards
the end of 930 metre Level (at Crosscut 30) a series of narrow (average 0.5
metre wide), massive sphalerite-tennantite veins are developed at about 40
degrees to the average trend of the Main Quartz Vein. This mineralization is
referred to as the (vein) stockwork that is postulated to have developed in
tensional openings formed by primary movement along the main vein structure.
Oxidation is not apparent; the sulphide mineral assemblages are reported by the
Company to be similar to those outlined for Main Quartz Vein
material.
 
 Stratabound Mineralization.
Stratabound mineralization was discovered in 1992 while drilling to extend Vein
resources at depth.  So far indications of Stratabound mineralization
have been found by drilling along the trend of the Prairie Creek Vein System
over a strike length of more than 3 kilometres.  This type of deposit
has so far been located by drill holes in the Main Zone as well as in Zones 4, 5
and 6.
 
 Oxidation
is low in stratabound mineralized material, the sulphide
mineralization:
 • is
generally fine-grained, banded to semi-massive and comprises massive
fine-grained
 sphalerite,
coarse-grained galena and disseminated to massive pyrite (silver is contained in
solid solution within galena);
 •
contains no tennantite-tetrahedrite and very little copper; and
 •
contains only half as much galena as, but substantially more iron
sulphide/pyrite than, typical vein material.
 
 The
majority of stratabound massive sulphides located thus far occur mainly within a
Mottled Dolomite unit of the Whittaker Formation, which the mineralization
totally replaces without any significant alteration. The stratabound sulphides
are developed close to both the vein system and the axis of the Prairie Creek
anticline; the vein structure cuts through the stratabound indicating the vein
to be younger than the stratabound deposit. An apparent thickness of 28 metres
of stratabound mineralization has been intersected in Main Zone drillholes where
it occurs approximately 200 metres below 870 metre Level.
 
 Mississippi Valley Type
Sulphides–
(“MVT”). The MVT mineralization found on the Property is comprised of
colliform rims of sphalerite, brassy pyrite-marcasite and minor galena, with or
without later dolomite infilling. The mineralization appears to occur
discontinuously within coarse biohermal reefs of the Root River Formation, and
always at approximately the same stratigraphic horizon. It appears to be classic
MVT mineralization, insofar as it occurs in open cavity-type
settings.
 
 3.1.4
              Gate
      Claims
 
 During
1999 the Gate 1-4 Mineral Claims were staked covering an area of 9,245.35 acres
to the west of the main property adjacent to the existing land holdings. A small
exploration program on the newly staked mineral claims consisted of geological
mapping, soil and rock sampling over areas that contain similar geology with
that of the Prairie Creek Property. This exploration resulted in the discovery
of a Vein in outcrop, with select samples grading similar with that of the main
established Vein at the Prairie Creek Property. Also a large zinc soil anomaly
was located over favourable geology. A small heli-portable drilling program was
carried out on part of the Gate Claims during 2007 but revealed no significant
mineralization in drillcore.
 
  
  3.1.5
              2001 Scoping
      Study
 
 In
2000/2001, the Company completed a preliminary Scoping Study designed to outline
and guide the re-development of the existing mine and mill on the Prairie Creek
Property.
 
 The Study
took six months to complete and included metallurgical testwork, mill re-design,
alternative mining methods, inclusion of paste backfill in the mine design,
capital and operating cost estimates, a review of smelter terms and conditions
for the Prairie Creek concentrates and other operating parameters. In connection
with the Scoping Study further metallurgical samples were collected and the mill
equipment was reassessed. The road access corridor, tailings pond and the
underground workings were re-examined for future production considerations and
capital cost estimates. The Scoping Study was prepared in-house using
consultants and contractors at a cost of approximately $0.4 million. The Scoping
Study has not been updated.
 
 The
complete Scoping Study, dated January 29, 2001, has been filed on SEDAR, and may
be found under the Company’s profile on SEDAR at www.SEDAR.com [Technical
Reports April 24, 2001].
 
 It should
be noted that the economic assessment in the Scoping Study was preliminary and
based, in part, on mineral resources that are considered too speculative
geologically to have the economic considerations applied to them that would
enable them to be categorized as reserves in accordance with National Instrument
43-101.  Mineral resources that are not mineral reserves do not have
demonstrated economic viability. In addition, the Scoping Study was preliminary
in nature, despite the existing underground development and the on-site mill,
and the assumptions made within the Scoping Study and its subsequent results may
not be attained.
 
 The
Scoping Study outlined the plan for the development of the Prairie Creek Project
was based on the historical development and existing infrastructure at the
Prairie Creek Property and on the Resource Estimation. The Resource Estimation
does not constitute mineable reserves. The historical development was carried
out principally in 1980 to 1982 and the infrastructure, including the mill, was
constructed in the same period based on a feasibility study prepared by Kilborn
Engineering (Pacific) Limited in 1980. The Kilborn feasibility study is outdated
and cannot be relied upon. The existing infrastructure, including the mill,
buildings, camp etc. is now over twenty-five years old and although it has been
held under care and maintenance it has lain idle for more than twenty-five years
and was never operated. There is a significant risk attaching to the proposed
operation of aged equipment.
 
 The
Scoping Study is now considered to be out of date and should not be relied upon.
The indicated capital costs were estimated in 2000 and are now outdated. The
Company anticipates that the capital costs to place the Prairie Creek Mine into
production will be significantly greater than estimated in the Scoping
Study.
 
 3.1.6
              Exploration
      Activities
 
 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 “Section 3.1.7--2007
Resource Estimation” below.
 
 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.
 3.1.7
                2007 Resource
      Estimation
 In
October 2007, an updated Technical Report (the “Report”) with regard to Mineral
Resource Estimation on the Main Zone at Prairie Creek was independently prepared
by Minefill Services Inc. (David Stone and Stephen Godden – Qualified
Independent Persons), following the results of part of the 2006/7 underground
drilling program, in compliance with the standards in National Instrument
43-101. This report verifies and confirms the previous historical resource
estimate completed in 1998 and notes significant upgrades in resource categories
resulting from the 2006/2007 underground drilling.
 
 The
Report indicates that the Prairie Creek Property hosts total Measured and
Indicated Resources of 5,840,329 tonnes grading 10.71% zinc, 9.90% lead, 161.12
grams silver per tonne and 0.326% copper. In addition, the Report confirms a
large Inferred Resource of 5,541,576 tonnes grading at 13.53% zinc, 11.43% lead,
215 grams per tonne silver and 0.514% copper and additional exploration
potential. A summary table is presented below:
 
 Zone
              Classification
              Tonnes
              Ag
      (g/t)
              Cu
      (%)
              Pb
      (%)
              Zn
      (%)Main
      Quartz Vein
              Measured
              938,624
              211.89
              0.465
              11.63
              13.11Indicated
              2,944,862
              212.39
              0.472
              12.67
              11.16Measured
      + Indicated
              3,883,486
              212.27
              0.470
              12.41
              11.63Inferred
              5,516,297
              215.53
              0.516
              11.46
              13.55Stockwork
              Indicated
              682,165
              50.15
              0.112
              2.68
              5.85Inferred
              4,045
              51.31
              0.126
              2.51
              5.54Stratabound
              Measured
              611,417
              67.6
              -
              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.
 
 Cautionary note: Mineral
Resources that are not mineral reserves do not have demonstrated economic
viability. Inferred mineral resources are considered too speculative
geologically to have economic considerations applied to them that would enable
them to be categorized as mineral reserves and there is no certainty that all or
any part of an inferred mineral resource will ever be upgraded to a measured or
indicated mineral resource or to a mineral reserve.
 
 Highlights
of the Report include:
 ·
              Total
      Measured and Indicated Resource calculated at 5.8 million tonnes at
      >20% combined lead and zinc;
 ·
              Measured
      Resources in Vein tonnage increased 73% at 25% combined lead and zinc with
      212 grams per tonne silver;
 ·
              Indicated
      Resources in Vein tonnage increased 105% at 24% combined lead and zinc
      with 212 grams per tonne silver;
 ·
              Inferred
      Resource in Vein calculated at 5.5 million tonnes at 25% combined lead
      with silver with 216 grams per tonne
silver;
 ·
              Average
      increase of 10% in silver grades;
and
 ·
              Confirmation
      of grade and continuity in a NI 43-101 compliant resource
      report.
 
 The
Resource estimate was determined applying the following
methodology:
  One metre
composites were created from the assay data honoring the geological zone codes
provided in the dataset. Classical statistics were gathered for silver, copper,
lead and zinc, as well as for each of the three mineralized zones considered in
analysis (Main Quartz Vein, stockwork and stratabound).
  A
three-dimensional block model was developed; a block size of ten metres
(easting) by 30 metres (northing) by 30 metres (elevation) was used. Inverse
distance weighting with a power of three was used for all three mineralized
zones; grades were interpolated for silver, copper, lead and zinc.
  A primary
search distance of 300 metres was used to enable filling of all the blocks in
the down-plunge extension of the Main Quartz Vein. The search direction was
orientated along a major axis of 357 degrees and a dip of 65 degrees east (i.e.
to conform to the average strike and dip of the vein). The search was horizontal
between sections 1,055N and 1,825N and plunging at 15 degrees north from
sections 1,825N to 3,155N.
  Coded
composites from the same zone as the block being estimated were selected for
block estimation. The minimum length composite selected for grade interpolation
was 0.3 metres.  The minimum number of composites used for the
interpolation was one and the maximum was ten. The maximum number of composites
per hole was limited to three, to thereby provide a more uniform grade
interpolation. The resource grades include all intercepts in a specific area and
had no blocks removed by cut-off grade, which is appropriate for the type of
massive sulphide, selective mineralization considered in analysis.
 
 The
Measured and Indicated Resource is now capable of supporting a mine life in
excess of ten years at the planned 1,000 – 1,300 tonnes per day production
rate.
 
 The
complete Technical Report has been filed on SEDAR, and may be found under the
Company’s profile on SEDAR at www.SEDAR.com  [Technical
Report (NI 43-101) October 16, 2007].
 
 Cautionary
Note to United States Investors Concerning Estimates of Measured, Indicated or
Inferred Resources:
 The
information presented herein uses the terms “measured”, “indicated” and
“inferred” mineral resources.  United States investors are advised
that while such terms are recognized and required by Canadian regulations, the
United States Securities and Exchange Commission does not recognize these
terms.  “Inferred mineral resources” have significant uncertainty as
to their existence, and as to their economic feasibility. United States
investors are cautioned not to assume that all or any part of an inferred
mineral resource exists or is economically mineable.  It cannot be
assumed that all or any part of an inferred mineral resource would ever be
upgraded to a higher category.  United States investors are cautioned
not to assume that all or any part of measured or indicated mineral resources
will ever be converted into mineral reserves.
  3.1.8
                  2008 Pre-Feasibility
      Study
 The
Company is now examining the various alternatives outlined within the 2001
Scoping Study and is working towards updating and converting this into a
Pre-Feasibility study. As a prelude to completing the Pre-Feasibility program,
the Company has carried out the following programs:
 
 During
2004, 2005 and 2006 metallurgical testing was carried out on the mineralization
from the Prairie Creek mine. During 2004 representative bulk samples of vein
mineralization were extracted from various locations within the existing
underground workings at the Prairie Creek mine. In addition, diamond drill core
samples of Stratabound Mineralization were also collected from this deeper lying
deposit which has not yet been accessed by underground development. Vein
mineralization type was collected in the upper and lower level of existing
developed underground workings.  It is typically high in zinc, silver
and lead in a mixture of sulphide and oxide minerals. Stratabound mineralization
contains zinc, lead, silver and iron sulphide minerals.
 
 The
metallurgical samples were shipped to SGS Lakefield Research Laboratories at
Lakefield, Ontario (“SGS Lakefield”) where a total of 60 bench scale tests were
undertaken over six months under the direction of the Company’s metallurgical
consultant. The samples were first assayed for both sulphide and oxide
mineralization and then combined into composite samples to ensure true
representation of the Prairie Creek mineral deposit. Mineral samples from two
separate zones of vein mineralization (Upper and Lower Zones), and including
both sulphide and oxide mineralization, and from the stratabound zone, and
additional composite samples from all three zones, were tested to develop and
optimize the Prairie Creek mill flow sheet. The batch and locked cycle tests
provided extensive analytical information and positive metallurgical
results.
 
 During
2006 a new metallurgical bulk sample was collected from multiple headings of the
vein within the existing underground development and also shipped to SGS
Lakefield for further testing and optimization studies. These samples were
composited and blended to create representative samples of the ore that will
provide feed to a future operating mill. The metallurgical program has shown
that heavy media separation, demonstrated in earlier tests, is repeatable and
that higher grade concentrates can be produced by processing the upgraded
material.
 
 Discussions
with concentrate sales professionals and preliminary discussions with smelters
indicate that the Prairie Creek concentrates will be readily saleable, subject
to the payment of usual penalties for elevated impurity levels, including
mercury, in the Vein zinc, lead and copper concentrates.
 
 The
development plan for the Prairie Creek Project will now be updated and based
upon the updated Technical Report with regard to Mineral Resource Estimation on
the Main Zone at Prairie Creek which was independently prepared by Minefill
Services Inc. as described in Section 3.1.7 2007 Resource Estimation. The
Pre-Feasibility Study, which is being undertaken by SNC-Lavalin Inc., is
scheduled to be completed in 2008.
  3.1.9
                  Permitting at Prairie
      Creek
 (a)  Regulatory
Framework
 
 At the
time of its construction in 1980 - 1982, the Prairie Creek mine had been fully
permitted for full scale mining and milling operations. Permitting had been
undertaken under the regulatory regime of the day, which involved a
comprehensive environmental assessment and public review before the Northwest
Territories Water Board. A considerable number of technical and baseline studies
describing the proposed development and the physical and biological environment
were undertaken at that time.
 
 Water
License N3L3-0932 was issued by the Department of Indian Affairs and Northern
Development on July 1, 1982 pursuant to the Northern Inland Waters Act and
Regulations, authorizing the use of up to 1,150 m3/day and 420,000 m3/year of
water from the Prairie Creek Valley Aquifer and setting standards for discharge
of process effluent to Prairie Creek. Land Use Permit N80F249 was issued July 2,
1980 for the road connecting Prairie Creek to the Liard Highway, the first 40
kilometres being permitted for year round use with the remaining 130 kilometres
permitted for use in winter months only. The Land Use Permit was extended in
1981 and again in 1982 to June 1983.  Surface Leases were issued for
the minesite area and airstrip. The Water License and Land Use Permit
subsequently expired.
 
 In 1998,
a totally new regulatory and resource management scheme was introduced in this
part of Canada. During the negotiation of native land claim settlements in the
Mackenzie Valley, first with the Dene/Metis in the late 1980’s and then with the
Gwich’in and Sahtu Dene/Metis people, the Federal Government agreed to establish
a new resources management system through the creation of boards with joint
membership which reflects First Nations’ desire to participate more effectively
in the regulation of land and water throughout the Mackenzie
Valley.
 
 The Mackenzie Valley Resource Management
Act (“MVRMA” or the “Act”) was enacted in 1998 for a defined area called
the “Mackenzie Valley,” which includes the area where the Prairie Creek Mine is
situated. Prior to that, the applicable legislation was the Canadian Environmental Assessment
Act, S.C. 1992 c.37. (“CEAA”). The CEAA no longer applies in the
Mackenzie Valley, except under very specific situations.
 
 The MVRMA
is a piece of federal legislation that creates an integrated co-management
structure for public and private lands and waters throughout the Mackenzie
Valley in the Northwest Territories.  The Act was proclaimed on
December 22, 1998; however, Part IV, which establishes the Mackenzie Valley Land
and Water Board, was not proclaimed until March 31, 2000.
 
 The
overall legislative scheme of the MVRMA is designed to implement the Gwich’in
and the Sahtu Land Claim Settlement Agreements (collectively the “Comprehensive
Agreements”) by providing for an integrated system of land and water management
in the Mackenzie Valley. Under the Comprehensive Agreements, Land Use Planning
Boards and Land and Water Boards must be established for the settlement areas
referred to in those Agreements. In addition, an Environmental Impact Review
Board must be established for the Mackenzie Valley along with a Land and Water
Board for an area extending beyond the settlement areas.
 
 The Act
established public boards to regulate the use of land and water, to prepare
regional land use plans to guide development, and to carry out environmental
assessment and reviews of proposed projects in the Mackenzie Valley. The Act
also makes provisions for monitoring cumulative impacts on the environment, and
for periodic, independent environmental audits.
 
 As
institutions of public government, the Boards regulate all uses of land and
water while considering the economic, social and cultural well-being of
residents and communities in the Mackenzie Valley. These Boards are charged with
regulating all land and water uses, including deposits of waste, in the areas in
the Mackenzie Valley under their jurisdiction.
 
 The MVRMA
ensures a greater role for Aboriginal people in land use planning, environmental
assessment, and the regulation of land and water use. As stated in the MVRMA,
‘the purpose of the establishment of boards by this Act is to enable residents
of the Mackenzie Valley to participate in the management of its resources for
the benefit of the residents and of other Canadians.’ To reflect the desire of
First Nations to be more actively involved in resource management
decision-making, half the members of each Board will be nominated by First
Nations, and half by the Federal and Territorial governments.  Public
boards are formed through nominations. Under the land claims agreements, First
Nations are entitled to nominate one-half of the members of the board,
reflecting the board’s jurisdiction over all lands including First Nation
settlement lands. The Federal Government, Territorial Government and First
Nations can each nominate at their own discretion.
 
 The Act
also anticipates amendments to accommodate new land settlements and
self-governments as they are finalized. As land claims are settled, the Act
provides for additional regional boards to be established in the Dehcho, North
Slave and South Slave regions. The Dehcho area is not settled. Prior to
additional regional Boards being established, First Nations in the Dehcho region
were asked to participate in the new system by recommending members to the
Mackenzie Valley Environmental Impact Review Board and the Mackenzie Valley Land
and Water Board.
 
 Under the MVRMA, public boards are
responsible for:
 ·
              preparing
      regional land use plans to guide the development and use of land, waters
      and other resources [Land Use Planning
Board];
 ·
              regulating
      all uses of land and water [Mackenzie Valley Land and Water Board
      (MVLWB)]; and
 ·
              carrying
      out the environmental assessment and review process [Mackenzie Valley
      Environmental Impact Review Board
(MVEIRB)].
 
 Consultation
is the cornerstone of the MVRMA. Public Boards under the Act have established
their own consultation guidelines.
 
 Each
Board has its own specific jurisdiction.
 
 The Land
Use Planning Board develops and implements a land use plan for the respective
settlement areas in the Mackenzie Valley.
 
 Land and
water boards issue land use permits and water licenses under the Mackenzie Valley Land Use
Regulations and the Northwest Territories Waters Act and Regulations,
within the Mackenzie Valley.
 The
MVEIRB is responsible for environmental impact review and assessment at a
valley-wide level, including the Sahtu and Gwich’in settlement
areas.
 
 The
public boards perform regulatory functions, such as permitting and licensing,
and conducting environmental reviews, previously undertaken by the Department of
Indian Affairs and Northern Development (DIAND) and the NWT Water Board.
Inspection and enforcement continue to be the responsibility of
DIAND.
 
 After
consultation with the Land and Water Board, the Minister of DIAND may give
written policy direction to the Board with respect to the exercise of any of its
functions. The Minister also approves the issuance of Type ‘A’ water licenses.
Regarding a Type ‘A’ water license, the Minister may attach terms and conditions
such as provision for a security deposit, a requirement for water quality and
quantity measurements, and a requirement for abandonment and restoration
plans.
 
 DIAND
controls, manages and administers all Crown lands in the Mackenzie Valley under
the authority of the Territorial Lands Act, and
the Federal Real Property
Act. Aside from managing Crown lands and waters, DIAND is still
responsible for the administration, inspection and enforcement requirements
associated with renewable, non-renewable and environmental legislation. This
includes the Mackenzie Valley
Resource Management Act, the Northwest Territories Waters
Act, and the Federal
Real Property Act.
 
 DIAND
inspectors are responsible for ensuring compliance with legislation, regulations
and the terms and conditions that are part of permits and licenses issued by the
Land and Water Boards. These responsibilities are exercised by DIAND under the
authority of the Territorial
Lands Regulations, Territorial Quarry Regulations, Canada Mining Regulations and
the Federal Property
Regulations.
 
 Under the
Northwest Territories Waters
Act, S.C. 1992, (C.29) (Waters Act) no person can use water or deposit
waste in specific areas in the Northwest Territories without a license to do so.
Section 102 of the MVRMA provides that it is the MVLWB which has the
jurisdiction with respect of all uses of water and deposits of waste in the area
for which a license is required under the Waters Act. The MVLWB may issue,
amend, renew and cancel licenses in accordance with the Waters Act and exercise
any other power of the Northwest Territories Water Board under the Waters
Act.
 
 The
stated objective of the MVLWB is to “regulate the use of land and waters and the
deposit of waste so as to provide for the conservation, development and
utilization of land and water resources in a manner that will provide optimum
benefit to the residents of the settlement areas and of the Mackenzie Valley and
to all Canadians.” The MVLWB’s main function which is relevant to the Company,
is to issue land use permits and water licenses on land in unsettled land claim
areas in the Mackenzie Valley, inclusive of the Dehcho area.
 
 On
November 7, 2007 the Minister of Indian Affairs and Northern Development
announced the Northern
Regulatory Improvement Initiative and the appointment of a Special
Representative responsible to advance this initiative.  As announced
by the Minister, the Northern
Regulatory Improvement Initiative is a strategy to improve the current
regulatory regime and the overall Northern regulatory environment and to ensure
that regulatory regimes across the North are effective and predictable, and will
better equip the North to develop and benefit from its resources in the best way
possible.  The Minister’s Special Representative has been asked to
work to improve existing regulatory regimes across the North, and to submit a
report to the Government of Canada outlining proposed recommendations for
advancing the regulatory regime, after which Canada will develop a strategy for
action.  The Special Representative is expected to report to the
Minister in April 2008.
 
 (b)  Permitting
Process
 
 All
applications for a land use permit or a water license in relation to a
development in the Mackenzie Valley are made to the Water Board or one of its
regional boards, as determined by the location of the development. In the case
of Prairie Creek, being located within the Dehcho First Nations territory, for
which a land claim settlement agreement has not as yet been reached,
applications are processed by the MVLWB.
 
 There are
three stages in the environmental impact assessment process in the Mackenzie
Valley: preliminary screening, environmental assessment and environmental impact
review. Not all developments will necessarily go through each of the three
stages. All projects undergo a preliminary screening, after which it is decided
whether a project must proceed to a full environmental assessment or go straight
to the regulatory phase.
 
 The
environmental impact assessment process is triggered by an application to the
MVLWB for a water license. The application requires the inclusion of certain
baseline and other technical information to allow them to be appropriately
assessed and processed. Information provided with an application is used for
undertaking a preliminary screening and for regulatory review of the
application.
 
 Preliminary
screening is the first step in the environmental impact assessment process.
Preliminary screening applications are done by the Land and Water Board. It is
during the preliminary screening that the Board determines whether there is any
public concern related to a proposed project or if it might have significant
adverse environmental impacts.
 
 During
the preliminary screening, a systematic approach is taken to documenting the
potential environmental effects of a proposed project. Next, the Board
determines whether these effects need to be eliminated or minimized and, if so,
how the project plan should be modified. In the end, the Board makes a
recommendation on the need for further assessment.
 
 The
legislation requires that the MVLWB conduct a pre-screening of a proposal for
development (s.124). Where the MVLWB determines that the development might have
a significant adverse impact on the environment, or might be a cause of public
concern, the MVLWB refers the proposal to the MVEIRB for an environmental
assessment (s.125).
 
 Environmental
assessment is the second stage of the environmental impact assessment process.
Projects may be referred to the MVEIRB by the Water Board (the preliminary
screener), some other government department or agency, the First Nation
qualified to make a referral, or on the Mackenzie Valley Environmental Impact
Review Board’s own motion.
 
 The
MVEIRB is responsible for the environmental impact assessment process throughout
the Mackenzie Valley. It is the main instrument for environmental assessment and
review, replacing the CEAA in the Mackenzie Valley except under specific
instances.
 
 The
MVEIRB:
 ·
              Conducts
      environmental assessments;
 ·
              Conducts
      environmental impact reviews;
 ·
              Maintains
      a public registry of all preliminary screenings conducted by Regulatory
      Authorities; and
 ·
              Makes
      recommendations to the Minister of DIAND for rejection or approval of any
      proposal.
 
 Once a
development proposal is referred to the Mackenzie Valley Environmental Impact
Review Board for an environmental assessment, notices are placed in northern
newspapers. The next step is for the developer to submit a “project description”
to the Review Board. The project description describes what the developer plans
to do and how it will be carried out. The MVEIRB develops a work plan and terms
of reference in order to conduct the Environmental Assessment.
 
 The
public has an opportunity to comment on the project and identify issues which
may require consideration. Public information submitted to the Review Board
throughout this process, including the project description, and all technical
and public submissions, are placed on a public registry.
 
 The
Review Board has guidelines for how they conduct environmental assessments.
These guidelines provide information for submissions to the Review Board,
including timelines and opportunities to present information at any public
hearings that may be held. The environmental impact assessment process has
several points where the local government and other stakeholders can contribute
to and affect the regulatory process. There will also be occasions where the
local government will be asked to comment on a proposed
development.
 
 The
environmental assessment process looks at the same factors considered in the
preliminary screening, as well as addressing potential cumulative effects,
socio-cultural considerations and alternate means of carrying out the project
that are technically and economically feasible and the potential environmental
effects of such alternate means. If the Mackenzie Valley Environmental Impact
Review Board determines there will be significant adverse environmental impact
from a project, it has the choice of referring the development to an
environmental impact public review before a panel. The Review Board may also
recommend measures to prevent or mitigate these impacts.
 
 The
environmental impact review (“EIR”) stage is a detailed analysis and public
review. This is normally reserved for development projects where the
environmental impact may be significant and could include public hearings in
affected communities. An environmental impact review is conducted by a panel
consisting of members of the Mackenzie Valley Environmental Impact Review Board,
as well as any expert members they may appoint. The panel is required to issue
terms of reference and the applicant must submit an impact statement. There must
be public notification of the submission of the impact statement, and public
consultation or hearings in communities which may be affected by the
development. The panel conducts an analysis of the information
received.
 
 Upon
completing the assessment, the MVEIRB submits its Environmental Assessment
Report (“EAR”) to the Federal Minister of Indian Affairs and Northern
Development who is responsible for distributing the EAR to other Ministers with
jurisdiction over the proposed development (s.128).
 
 The
Minister of DIAND, along with the other Responsible Ministers, is required to
make a decision on the EAR. The Minister may adopt the recommendations of the
Mackenzie Valley Environmental Impact Review Board, refer the report back to the
Review Board for further consideration (s.130) or reject the Report and order
further environmental impact review. Once the recommendations contained in the
EAR are adopted by the Minister, and the other responsible Ministers, those
recommendations are to be included by the MVLWB as conditions of any Water
License or Land Use Permit that it issues for that proposed development
(s.62).
 
 When
finally adopted by the Minister the application is sent to MVLWB for issuance of
permits and licenses by the MVLWB in the regulatory phase. The regulatory phase
is the process of issuing regulatory authorizations once the development is
approved through the environmental assessment process. The authorizations
include terms and conditions which reflect the recommendations approved during
the EA process, as well as other standard conditions for carrying out
development.
 
 Decisions
of the Mackenzie Valley Land and Water Board are subject to review by the
Supreme Court of the Northwest Territories.
 
 (c)
              “Grandfather”
      Provisions
 
 Part 5 of
the Mackenzie Valley Resource Management Act, S.C. 1998, C.25 requires that any
“proposals for development” comply with environmental assessment process
consisting of a preliminary screening by the regulatory authority and, if
applicable, an environmental assessment and an environmental impact review by
the Mackenzie Valley Environmental Impact Review Board.
 
 However,
Section 157.1 of the Act provides that Part 5 does not apply in respect of any
license, permit or other authorization related to an undertaking that is the
subject of a license or a permit issued before June 22, 1984, except the
license, permit, or other authorization for an abandonment, decommissioning or
other significant alteration of the project.
 
 Section
157.1 of the Act has been considered by the Court of Appeal of the Northwest
Territories in the case North
American Tungsten Corporation Ltd. V Mackenzie Valley Land and Water Board(2003 NWTCA5).  In that case the Court said (at paragraphs 24
to 27):
 
 “24           However,
both the Comprehensive Agreements and the MVRMA also clearly recognize that a
full scale environmental review will not be appropriate in respect of certain
existing permits, projects and licenses. Instead, both reflect some
grandfathering of existing developments is required to balance competing
interests.  Those interests include the legitimate goal of protecting
land and water resources in the Mackenzie Valley for the benefit of its
citizens, on the one hand, while, at the same time, exempting from the full
force of the new environmental legislation undertakings developed under an
earlier legislative regime. For example, the Comprehensive Agreements explicitly
protect certain mineral interests, and arguably the rights associated therewith,
in existence as of the date of the settlement legislation.”
 
 “25           This
respect for vested interests is reflected in the MVRMA.  Part 7
contains a number of transitional provisions designed to preserve and protect
the existing rights and interests.  For example, Section 151 provides
that certain existing permits continue in effect despite the implementation of
the new legislation.  Section 152 protects all existing rights to the
use of any lands under any lease, easement, or other interest granted under any
territorial law, again despite what would otherwise have been the impact of the
new legislation on such interests....”
 
 “26           Further
confirmation that Parliament did not intend the MVRMA to interfere with existing
rights can be seen in the fact that even pending applications for permits and
licenses are to be dealt with under the prior applicable legislation and not
under the MVRMA....”
 
 “27           These
provisions collectively reflect that Parliament did not intend to impose an
entirely new environmental review process on every project in the Mackenzie
Valley irrespective of the status of that project at the time the MVRMA came
into effect.  Instead, the MVRMA grandfathered certain projects and
provided that others yet would be dealt with under prior applicable
legislation.  In interpreting Section 157.1 therefore, one must
recognize that it is designed to grandfather certain undertakings which predate
June 22, 1984.  Accordingly, this section must be interpreted in a
manner which best comports with its intended purpose.”
 
 The
Prairie Creek Project was the subject of both a Water License and Land Use
Permit issued prior to June 22, 1984.
 
 In May
2003, the Company applied to the MVLWB for a Land Use Permit for use of the
existing road from the Liard Highway to the Prairie Creek Mine. The Company
submitted that this development is exempt from the Environmental Assessment
process by virtue of Section 157.1 of the Act. The Company’s argument was
rejected by the Water Board on June 1, 2004 and the Company filed an Appeal to
the Supreme Court of the Northwest Territories seeking judicial review of the
decision of the Water Board. The Appeal was heard by the Supreme Court in
December 2004.
 
 In a
written decision dated May 6, 2005 in the case Canadian Zinc Corporation v
Mackenzie Valley Land and Water Board (SCNWT S-0001-CV2004) the Supreme
Court of the Northwest Territories ruled in favour of the Company that its
Winter Road permit application is “grandfathered” and is
therefore exempt from the environmental assessment process under the Mackenzie Valley Resource Management
Act (“MVRMA”).
 
 The
Supreme Court quoted with approval, the earlier 2003 decision of the Northwest
Territories Court of Appeal in the case North American Tungsten Corp. Ltd. v
Mackenzie Valley Land and Water Board.   The Supreme Court
found:
 
 “The
reasoning in Tungsten appears to apply squarely to the circumstances of CZC’s
(Canadian Zinc Corporation’s) permit application.  The Court (of
Appeal) referred to the legislative intention that projects which predate June
22, 1984 are to be subjected to a full scale environmental assessment only if
they depart significantly from their approved mode of operation and engage in
decommissioning, abandonment or significant alteration of the
project.  The project, in this case, the operation of the winter
access road, predates June 22, 1984. As found by the (Water) Board, the permit
sought by CZC (Canadian Zinc) is not based on any intentions to significantly
alter that project or to abandon or decommission it”.
 
 In its
decision the Supreme Court said that the permit sought by Canadian Zinc is
related to the operation of the winter access road, a permit in respect of that
same undertaking had been issued before 1984, and therefore the exemption
provided in Section 157.1 of the MVRMA governs and a Part 5 assessment does not
apply.
 
 (d)
              Recent
      Permitting History at Prairie Creek
 
 In 1992
the Company was granted an Exploration Land Use Permit by the Minister of Indian
Affairs and Northern Development under the Territorial Lands
Act.  Further baseline studies were undertaken in 1994 in
support of planned re-development and permitting activity at that time. A permit
application was screened in 1995 as a Level 1 screening pursuant to the Canadian Environmental Assessment
Act (CEAA) and it was determined that that project could proceed as it
was not likely to cause significant adverse effects pursuant to section 20(1)(a)
of the CEAA. A new Exploration Land Use Permit N95F346 was issued by the
Minister in 1995 under the Territorial Lands Act, which included use of a
portion of the winter road.
 
 In 1995
environmental and geotechnical studies were carried out to facilitate the
pre-production permitting process. A project description report was compiled by
Rescan Environmental Ltd. and filed with the Northwest Territories Regional
Environmental Review Committee (“RERC”). This report contains details of all the
environmental work completed at the Prairie Creek Property.  The
report was filed to elicit terms of reference for an initial environmental
evaluation report. A Land Use Permit Application for upgrading the access road
to an all-weather road was also filed with the appropriate government
agency.  While the re-permitting process was subsequently discontinued
in 1995, these studies represent a significant contribution to the information
database in support the Prairie Creek Project.
 
 The
Mackenzie Valley Land and Water Board (MVLWB) was created on March 31, 2000. The
MVLWB and its associated regional boards took over regulatory functions
previously performed by the DIAND, the Northwest Territories Water Board, and
the Government of the Northwest Territory’s Department of Municipal and
Community Affairs on Commissioner’s Lands.
 
 The
Company initiated preliminary discussions with the new MVLWB and regulatory
authorities in Yellowknife in August, 2000 with respect to re-development and
re-permitting of the Prairie Creek mine. A follow up presentation was made to
the Governmental Mineral Development Advisory Group (“MDAG”) in November 2000 to
elicit specific feedback from each of the regulatory agencies on the information
requirements necessary for them to fulfill their roles in review of an
environmental impact report to be submitted in support of applications for
permits and licenses authorizing full production from the Prairie Creek
mine.
 
 Since
August 2000, Prairie Creek has undergone six Environmental Assessments by the
MVEIRB and has received five separate Land Use Permits and a Water License to
carry out exploration at the Prairie Creek Mine and in the immediately
surrounding area, through the new Mackenzie Valley Resource Management
Process.
 
 (e)
              Land
      Use Permit  – Phase 1
Exploration
 
 Canadian
Zinc applied to MVLWB on July 28, 2000 for a Land Use Permit (“LUP”)
(MV2000C0030) to carry out a seven drill hole program  and to access
the Sundog (or CAT) Camp located along the winter road to retrieve fuel and
clean up the camp area, which work was planned for the fall of 2000. On October
4, 2000 MVLWB referred the application to the Mackenzie Valley Environmental
Impact Review Board for environmental assessment. The application was then split
into separate LUP applications with specific reference to the drilling program
and the Cat Camp clean-up.
 
 Following
environmental assessment, a LUP was issued by MVLWB on June 14, 2001 which
permitted the seven drill hole program (MV2000C0030A).
 
 (f)
              Sundog
      (CAT) Camp – Clean Up Permit
 
 On May 9,
2001, the Review Board issued its Report to the Minister recommending that the
Cat Camp permit be approved but that the work be done in winter 2001/2002.
Canadian Zinc preferred to do it in the summer season when the Prairie Creek
Camp was open and there would be easier access. In June 2001 Environment Canada
issued a direction to DIAND to take steps to prevent the deposit of petroleum
products at Cat Camp into the surrounding environment. In March 2002 DIAND flew
in and incinerated the fuel. On June 17, 2002, three months after the fuel was
incinerated, the Minister of Indian Affairs and Northern Development referred
the Environmental Assessment Report back to the Review Board for further
consideration, pointing out that it was no longer possible to carry out the
proposed development work as there was no longer any fuel to be retrieved. In
July 2002 the Review Board dismissed the proceeding.
 
 (g)
              Land
      Use Permit – Phase 2 Exploration
 
 On March
5, 2001, the Company submitted a Land Use Permit application for a Phase 2
Exploration Drilling Program and this application was also referred for
Environmental Assessment. After Environmental Assessment by the Review Board, on
November 30, 2001 the Water Board issued Land Use Permit MV2001C0022A, valid for
a period of five years, authorizing the drilling of up to 60 exploration holes
on the Zone 3 Mining Lease and within 1000 metres of the Prairie Creek Mine. In
November 2006 this Land Use Permit was renewed for a further period of two years
to November 30, 2008.
 
 (h)
              Water
      License and Land Use Permit – Underground
  Development
 
 The
Company applied to the Mackenzie Valley Land and Water Board on March 5, 2001
for Type ‘B’ Water License and a Land Use Permit (MV2001L2-0003) for underground
decline development and metallurgical pilot plant operation planned for the
Prairie Creek mine. The application was distributed to government agencies,
First Nations communities and other organizations in order for the MVLWB to
conduct a preliminary screening as required by Part 5 of the Mackenzie Valley
Resource Management Act.
 
 However
in April 2001, both the Parks Canada Agency and Pehdzeh Ki First Nation referred
the proposal to the Mackenzie Valley Environmental Impact Review Board for
Environmental Assessment (“EA”) pursuant to section 126(2) of the MVRMA. The
referral to EA occurred prior to the Water Board’s completion of its preliminary
screening of the proposed development.
 
 The
Environmental Assessment was conducted throughout 2001 and into 2002. The MVEIRB
submitted its Report of Environmental Assessment (“EA Report”) on February 5,
2002 to the Minister of Indian Affairs and Northern Development. On September 3,
2002, the Minister requested that, as per section 130(1)(b)(i) of the MVRMA, the
MVEIRB was to give further consideration to unresolved issues in the EA Report
relating to the tailings containment area and water treatment in
general.
 
 Following
further assessment the MVEIRB submitted its Reasons for Decision on April 4,
2003, outlining recommended revisions and additions to the recommendations in
its February 5, 2002 EA Report. On June 16, 2003, the Minister approved the
Reasons for Decision and directed the MVLWB to proceed with the licensing
process.
 
 On
September 10, 2003 the Water Board approved the issue of Water License
MV2001L2-0003, and the Land Use Permit MV2001C0023 subject to the conditions set
out therein. The Water License contains the terms and conditions that the Board
felt necessary to protect the environment, conserve the water resources of the
Prairie Creek watershed and provide appropriate safeguards in respect of the
Company’s use of waters and deposit of wastes.
 
 On
October 10, 2003 an appeal to the Federal Court was filed by the Nahanni Butte
Dene Band, Pehdzeh Ki  First Nation and the Dehcho First Nations
against the Mackenzie Valley Land and Water Board and the Company seeking
Judicial Review of the decision of the Water Board to issue the Water License to
the Company. The Applicants’ grounds were that the Water Board issued the Water
License without including certain conditions included in the recommendations of
the MVEIRB and in the Minister’s approval, and that the Water Board failed to
provide the Applicants with adequate consultation throughout the License
process. Subsequently both the Attorney General of Canada, representing the
Minister of Indian Affairs and Northern Development and the Canadian Parks and
Wilderness Society, represented by the Sierra Legal Defense Fund, applied to the
Federal Court to be joined as Intervenors in this Appeal.
 
 The
Judicial Review hearing was heard by the Court in August 2005. The Lawyers
representing the First Nations had argued that the Water Board had exceeded its
jurisdiction in issuing the Water License without including certain conditions
on water treatment which had been recommended by the Mackenzie Valley
Environmental Impact Review Board and approved by the Minister, and that the
Water Board had failed to observe the principles of natural
justice.
 
 In
December 2005 the Court issued its Judgment directing the Water Board to reissue
the Water License with the inclusion of additional language which had been
agreed between the Company and the Minister of Indian Affairs and Northern
Development. On February 6, 2006 the Water Board reissued the Water License
incorporating the wording as per the Order of the Federal Court of Canada. The
Water License is valid for a period of five years expiring September 10,
2008.
 
 As
contemplated in the Water License, the following plans were prepared and have
been approved by the Water Board: Minewater Treatment Contingency Plan; Effluent
Treatment Options Plan; Abandonment and Reclamation Plan. An existing Fuel Spill
Contingency Plan was revised and approved. A Probable Maximum Flood calculation
was updated and approved, and flood protection structures and the tank farm
facility and associated containment structures were inspected and
approved.
 (i)
                Land
      Use Permit – Winter Road
 In May
2003, the Company applied to the MVLWB for a Land Use Permit for use of the
existing Winter Road from the Liard Highway to the Prairie Creek Mine. The
Company argued that this application is exempt from the Environmental Assessment
process by virtue of Section 157.1 of the Act. [See 3.1.9(c) “Grandfather”
Provisions] The Company’s argument was rejected by the Water Board on June 1,
2004. The Company filed an Appeal to the Supreme Court of the Northwest
Territories seeking judicial review of the decision of the Water Board. The
Appeal was heard by the Supreme Court in December 2004.
 
 In a
written decision dated May 6, 2005 in the case Canadian Zinc Corporation v
Mackenzie Valley Land and Water Board (SCNWT S-0001-CV2004) the Supreme
Court of the Northwest Territories ruled in favour of the Company that its
Winter Road permit application is “grandfathered” and is
therefore exempt from the Environmental Assessment process under the Mackenzie Valley Resource Management
Act (“MVRMA”).
 
 In its
decision the Supreme Court said that the permit sought by Canadian Zinc is
related to the operation of the Winter Access Road, a permit in respect of that
same undertaking had been issued before 1984, and therefore the exemption
provided in Section 157.1 of the MVRMA governs and a Part 5 assessment does not
apply.
 
 This
application for a Land Use Permit for the road was referred back to the Water
Board.  In June 2005 the Nahanni Butte Dene Band wrote to the Water
Board asserting infringement of Aboriginal rights and inadequate consultation
under Section 35 of the Constitution of Canada. The issue was referred to the
Department of Indian Affairs and Northern Development which conducted a
preliminary assessment and submitted its report to the Water Board in February
2007.
 
 On April
11, 2007 the Water Board approved the issue of Land Use Permit MV2003F0028 for a
period of five years to April 10, 2012.
 (j)
                Land
      Use Permit – Phase 3
Exploration
 
 In April
2004, Canadian Zinc applied to the Mackenzie Valley Land and Water Board for an
amendment to its previously approved Land Use Permit  MV2001C0022A
allowing a 60 hole mineral exploration program within 1,000 metres of the
Prairie Creek Mine site facility. The amendment was submitted in order to obtain
permission to drill anywhere on the extensive mineral leases and claims held by
Canadian Zinc at the Prairie Creek Property.  Following a Preliminary
Screening in June 2004, the Water Board referred the proposed development for
Environmental Assessment to the Mackenzie Valley Environmental Impact Review
Board citing “public concern about the cumulative effects of this project on the
South Nahanni Watershed”.
 
 A
detailed Environmental Assessment was carried out throughout 2005. Five
government agencies, two first nations and one non-governmental organization
(CPAWS) participated in the Environmental Assessment, which continued over a
period of about eighteen months. Canadian Zinc submitted a Detailed Development
Description dated December 2004. The Review Board issued its Terms of Reference
in April 2005 and held scoping sessions (public meetings) during March and April
2005 in the NWT communities of Fort Liard, Fort Simpson and Wrigley, NT.
Canadian Zinc submitted its Developer’s Assessment Report in May 2005 and
Technical Reports were submitted by the end of August 2005. A Public Hearing was
held in Fort Simpson NT, on October 6, 2005.
 
 The
Mackenzie Valley Environmental Impact Review Board completed its Report of
Environmental Assessment and submitted the Report to the Minister of Indian and
Northern Affairs Canada on December 23, 2005.
 
 The
Review Board has concluded that, with the implementation of the commitments made
by Canadian Zinc and three mitigation measures recommended in the Report, the
proposed development is not likely to have a significant adverse impact on the
environment or be cause for significant public concern. The Review Board
recommended to the Minister that this development proceed to the regulatory
phase of approvals.
 
 The
Review Board examined the Public Record for evidence of possible significant
adverse impact on the environment, for evidence of cumulative effects from the
development in combination with other past, present and reasonably foreseeable
future developments, and for evidence of public concern.
 The
Review Board found that significant adverse cumulative impacts on the
environment can be prevented with adequate environmental
management.  The Review Board also found that the proposed development
is not likely to be cause for significant public concern as long as all of the
Company’s commitments and all of the measures recommended by the Review Board
are implemented.
 
 The
Review Board concluded that some public concern over cumulative effects on the
Nahanni watershed exists but that this concern would be greatly diminished if
the public had assurance that the Company’s commitments, and the additional
mitigation measures recommended by the Review Board, would be effectively
implemented. The Review Board found that there would not be a concern if the
public is kept up-to-date about the environmental protection measures Canadian
Zinc will be using.  “The best way for the public to receive this
assurance is through an independent community environmental monitor who reports
back to the effected communities”.
 
 “The
Review Board is of the view that the full responsibility for monitoring,
evaluation and management should not necessarily rest on the Company alone.
Expert agencies of government, such as Department of Indian Affairs and Northern
Development, Environment Canada, Department of Fisheries and Oceans, and
Government of the Northwest Territories, should be involved co-operatively in
the design of this comprehensive monitoring program”.
 
 The
Review Board noted that incremental development in the Prairie Creek area is
likely to continue and is likely to increase rather than decrease in the
foreseeable future. There has already been considerable development in the
Prairie Creek watershed and development is likely to increase. On the other
hand, all present and reasonable foreseeable future developments are by the same
developer, are in close proximity, and are operated, if not as one development,
in a co-ordinated and overlapping fashion. This provides Canadian Zinc with an
opportunity to effectively manage cumulative effects through responsible
environmental management of its activities in each of the developments in the
area.
 
 The
Review Board recommended approval of the proposed development subject to three
mitigation measures. The measures are the actions necessary, in the opinion of
the Review Board, to prevent or mitigate adverse impacts on the environment. The
three measures recommended by the Review Board are:
 ·
              Government
      and regulatory authorities are to ensure that all drill waste is disposed
      of in a manner that does not allow any harmful substance to enter surface
      waters.
 ·
              Canadian
      Zinc shall take every reasonable effort to employ a local person, selected
      in consultation with the Dehcho First Nations, as community environmental
      monitor, who will independently report back to the Dehcho First
      Nations.
 ·
              DIAND
      shall ensure that a comprehensive program to monitor cumulative impacts on
      fish, wildlife, vegetation and water quality is
    implemented.
 
 In
February 2006 the Minister of Indian Affairs and Northern Development, and on
behalf of the Responsible Ministers with jurisdiction (Environment and Natural
Resources, Government of the Northwest Territories, Fisheries and Oceans, and
the Minister of the Environment on behalf of Environment Canada and Parks
Canada), approved the report of the Review Board.
 
 In May
2006 the MVLWB issued the Land Use Permit for the Phase 3 exploration drill
program, which is valid for five years commencing May 11, 2006.
 (k)
                Water
      License and Quarrying Permit – Road
  Rehabilitation
 After
receiving the Land Use Permit MV2003F0028 on April 11, 2007 for the Winter Road
from the Water Board the Company was advised that additional permits were
required in order to carry out the rehabilitation work on the road. In June
2007, Canadian Zinc applied to the Mackenzie Valley Land and Water Board for a
Class B water license (MV2007L8-0026) to rehabilitate a portion of the road in
the proximity of the mine site and sought authorization from the Department of
Fisheries and Oceans to carry out the work. Also in June 2007, the Company
applied to Indian and Northern Affairs Canada for a quarrying permit to obtain
rock to be used in the road rehabilitation.
 
 In June
2007, the Dehcho First Nations claimed that the rehabilitation work constituted
a significant alteration to the Winter Road project and requested that the
application for the water license for the proposed rehabilitation work be
referred for Environmental Assessment. In December 2007, the Mackenzie Valley
Land and Water Board ruled that the proposed rehabilitation work did not
constitute a significant alteration.
 
 The
issuance of these permits was delayed as they were referred to consultation
between the Crown and the Nahanni Band. The Company received the quarry permit
on February 29, 2008 and the Water License on March 20, 2008; the Water License
is valid for a period of five years expiring March 19, 2013.
 (l)
                Permit
      Delays
 Since
August 2000 Canadian Zinc has been working on moving the Prairie Creek Project
through the permitting process. The Mackenzie Valley resource management and
permitting process is very cumbersome, slow and political, and to date has
caused extreme delays to the Company in its efforts develop the Prairie Creek
Property.  Various permit applications have been the subject of six
separate Environmental Assessments. Five Land Use Permits, including a permit to
use the access road in winter months, and a Water License have been issued to
the Company since 2001 and two appeals for judicial review have been made to the
Courts, in both of which the Company has prevailed. The Company intends to
submit an application for a Type ‘A’ Water License for the operation of the
Prairie Creek Mine during 2008. It is estimated that the processing of this
permitting work will take around two years and cost between $3 and $5 million,
depending on the level of environmental review and assessment work required to
be carried out.
  3.1.10
                  Environmental
      Matters
 Nahanni National Park
Reserve
 
 The
Prairie Creek Mine, located adjacent to Prairie Creek, is within the watershed
of the South Nahanni River, 32 kilometres upstream of the point where Prairie
Creek crosses the boundary of the Nahanni National Park Reserve and 48
kilometres upstream of the point where Prairie Creek joins the South Nahanni
River.  The confluence of Prairie Creek and the South Nahanni River is
65 kilometres upstream of the point where the South Nahanni River leaves the
Nahanni National Park Reserve crossing its downstream boundary.
 
 The South
Nahanni River is 500 kilometres in length of which 300 kilometres are contained
within the Nahanni National Park Reserve. The watershed of the South Nahanni
River is 37,000 km2, of
which 4,766 km2 are
contained within the Nahanni National Park Reserve.  The watershed of
Prairie Creek above the minesite is 495 km2, or less
than 2% of South Nahanni watershed.  In accordance with the relative
sizes of their respective watersheds, water flow in the South Nahanni averages
75 times that of Prairie Creek and ranges from 50 to 180 times as
much.
 
 The South
Nahanni is highly valued as a wilderness recreation river and is used for
canoeing trips during the summer months. These wilderness adventure tours are
supported by a number of outfitting companies from as far away as
Ontario.
 
 The
Nahanni National Park Reserve was created in 1972, following a canoe trip down
the river by then Prime Minister Pierre Elliot Trudeau, specifically for the
purpose of setting aside the South Nahanni River for wilderness recreational
purposes. Exploration activity at Prairie Creek had been ongoing for many years
prior to 1972 and underground development was well advanced at that point in
time.
 
 Parliament
formally established Nahanni National Park Reserve of Canada in 1972, legally
protecting it as Canada’s 26th National Park under the Canada National Parks
Act. It was established as a National Park Reserve in view of the fact that
there were outstanding land claims in the area. It will only become a fully
fledged National Park once an agreement has been reached with the Dehcho First
Nations.
 
 Nahanni
National Park Reserve is considered to be of global significance.  In
1978, it was the first area added by UNESCO to its list of World Heritage Sites.
There are only 13 sites in Canada designated as World Heritage Sites, eight of
them being National Parks. Nahanni received this designation because of the
geological processes and natural phenomena in the area. In UNESCO’s view,
Nahanni is special because it is an unexploited natural area. The presence in
this area of three river canyons cutting at right angles to the mountain ranges,
with walls of up to 1,000 metres high, Virginia Falls which falls over 90
metres, hot springs, sink holes and karst topography are considered a special
combination.
 
 In
considering and approving the nomination of Nahanni National Park Reserve for
World Heritage Status, the World Heritage Committee stated that “it would be
desirable to incorporate the entire upstream watershed in the World Heritage
Site”. In 1977, the Minister responsible for Parks Canada directed Parks Canada
to examine the possibility of expanding Nahanni National Park Reserve to include
more of the head waters of the South Nahanni and the karst terrain. Several
studies were conducted to assess this potential.
 
 In August
2007 the Prime Minister of Canada visited Fort Simpson to announce the proposed
expansion of Nahanni National Park Reserve. The Prime Minister announced that
the Government of Canada had approved an Order in Council (PC-2007-1202 July 31,
2007), withdrawing certain lands for the proposed park expansion. The area
surrounding the Prairie Creek mine, containing approximately 367 square
kilometres, is not included in the interim land withdrawal area and, as
specified in Schedule 2 to the Order, is specifically excluded and exempted.
Canadian Zinc has been assured by the Government of Canada and by Parks Canada
that the final boundaries of the expanded park will not include the site of or
the access road to the Prairie Creek mine and that in the proposed expansion of
the Nahanni National Park Reserve the existing mining and access rights of
Canadian Zinc to the Prairie Creek mine will be respected and
protected.
 
 Canadian
Zinc welcomed the Government’s announcement and anticipates that the exclusion
of the Prairie Creek mine from the proposed park expansion area will bring
clarity to the different policy objectives for the region. Canadian Zinc
believes that the Prairie Creek mine and the expanded Nahanni National Park
Reserve can co-exist and that, properly planned and managed, the expanded park
will not interfere with the operation of the Prairie Creek mine and similarly
that the operation of the mine will not adversely impact  upon the
Park or its ecological integrity.
 
 In
October 2007 the Nahanni Expansion Working Group undertook a series of open
houses throughout the Dehcho communities to present proposals for developing
boundary options for an expanded park. In a document dated October 2007 entitled
“Expansion of Nahanni National Park Reserve: Boundary Options for Public
Consultation” Parks Canada proposed three options all of which included
protecting all existing third party rights and tenures.  In addition,
all three options include the understanding that access to the Prairie Creek
Minesite will be provided and will require a right of way or corridor across or
through an expanded park.
 
 The
Company has continued to hold meetings and discussions with Indian and Northern
Affairs Canada and Parks Canada to seek further clarity with regard to road
access into the Prairie Creek mine. The final boundaries for the proposed park
expansion have not yet been determined. The senior Mineral Energy and Resource
Assessment (“MERA”) Committee is considering a number of options regarding the
proposed park expansion area.
 
 Endangered
Species
 
 The
Committee on the Status of Endangered Wildlife in Canada (“COSEWIC”) lists only
two species in the area of the Prairie Creek Mine: the Grizzly Bear (Ursus arctos) and the
Wolverine (Gulo gulo),
both of which are listed in the Special Concern category. In areas removed from
the minesite, COSEWIC lists the Peregrin Falcon (Falco peregrinus anatum), the
Woodland Caribou, Boreal population (Rangifer tarandus caribou)
and the Wood Bison (Bison
bison athabascae), each of which are considered threatened. No rare or
highly valued species of vegetation or plant communities have been identified in
the area. COSEWIC does not list any plant species as endangered, threatened or
of special concern in the area of the Prairie Creek Mine.
 
 Detailed
field studies of wildlife populations and wildlife habitat in the area of the
Prairie Creek Mine and the access road were conducted by Beak Consultants Inc.
in 1980-81 and again by Rescan in 1994.  None of the listed species
and no critical habitats, such as denning or nesting areas, were identified in
the area of the mine. Grizzly bears and wolverine have been observed or
encountered only very infrequently in the area surrounding the mine over the
past 20 years.
 
 Caribou
populations and potential caribou habitat have been identified in areas removed
from the minesite to the north and east in the Mackenzie Mountains. Potential
impacts to these populations are primarily transportation related and can be
mitigated through standard road safety practices.
 
 Specific
surveys of potential Peregrine falcon nesting habitat have identified no nesting
sites in the area of the minesite.
 
 Wood
bison were re-introduced into the Nahanni Butte area, 90 kilometres to the
southeast of the Prairie Creek Mine, in 1980 with additions to the herd made in
1989 and again in 1998. As with caribou, potential impacts to these populations
are primarily transportation related, in this case primarily in the area of the
Liard Highway, and can be mitigated through standard road safety
practices.
  
  
 Acid Rock
Drainage
 
 The
mineral resources at the Prairie Creek Mine are hosted in carbonate rocks. The
low sulphide values and high excess neutralization potential of the host rocks
(and tailings products) indicate that these materials will pose no long term
hazard to the environment through sulphide oxidation processes.
 
 Rescan
Environmental of Vancouver, B.C. undertook a detailed analysis of the acid
generating characteristics of all dominant rock types at the Prairie Creek Mine
in 1994. The results indicated an overwhelming dominance of acid neutralizing
minerals, with acid neutralizing carbonate minerals exceeding the total capacity
to generate acidity by an average factor of almost 200. Initial analysis of
flotation tailings generated from metallurgical testwork has indicated a similar
excess of neutralization potential. The Company does not anticipate the
potential for any acid rock drainage impacts.
 
 Mesh
Environmental Inc. (“Mesh”) undertook a follow-up study during 2005/06, with the
objectives of significantly expanding Rescan’s 1994 rock sample dataset and
incorporating analyses on mineralized rock samples, tailings and concentrates.
Sample collection was completed by Mesh at the Mine Site during September 2005.
A total 66 samples were included in Mesh’s characterization
program.
 
 A total
of ten process waste samples, including mill rock, flotation feed, tailings and
concentrate samples from tests performed in 2005 were provided by SGS Lakefield
Research Limited in Lakefield, Ontario (“SGS Lakefield”, ISO 9001-2000
accredited). So-called mill rock is wall rock dilution that will be separated
from mineralized material in the processing plant.
 
 Static
laboratory geochemical characterizations were carried out by Mesh, including
acid-base accounting (“ABA”), along with: total inorganic carbon and
multi-element Inductively Coupled
 Plasma
(“ICP”) analyses on all samples; and mineralogy, expanded ABA (pyritic sulphur,
siderite correction, acid-buffering characterization curves) and grain size
analyses on a sub-set of samples. The following conclusions were
made:
 
 • all the
host rock units are non-potentially acid generating (“non-PAG”), due to
generally low amounts of contained sulphur (less than one percent of total
sulphur) and the substantial effective buffering capacity provided by reactive
carbonates, the latter reflecting the carbonate-rich nature of the host rock
material (which conclusion is supported by the behavior of mixed waste rock that
has been exposed on surface at the Mine Site for 25 years, which waste rock does
not demonstrate acidic pH values and remains classified as non-PAG as a
result);
 • Main
Zone vein- and stratabound-mineralization are classified as potentially acid
generating due to an abundance of sulphide mineralization (although Mesh’s
kinetic test data to December 2006 suggests that it may take a substantial
amount of time for acidity to be generated, due to the significant amount of
buffering capacity available from the carbonate host rocks);
 • the two
mill rock samples produced as by-products from Main Zone vein mineralization and
overbreak are non-PAG and contain relatively low sulphur values (approximately
0.3 percent, or less);
 • the
final composite tailings samples are classified as non-PAG and contain
sufficient buffering capacity to maintain neutral conditions under laboratory
conditions;
 •
tailings supernatant is alkaline (pH 10.7 to 10.9), with total solids in
solution (“TSS”) of five to 500 milligrams and relatively high sulphate
concentrations of 170 to 230 milligrams per litre, respectively, over the two
hour test period;
 •
sulphide concentrates are classified as potentially acid generating due to
slightly elevated pyritic sulphur content and very little neutralization
capacity; but
 • as a
result of substantially higher neutralization potential, oxide concentrates are
classified as non-PAG (oxide zinc concentrate) and as having uncertain acid
generation potential (oxide lead concentrate).
 
 Mesh
emphasized that, with regard to the conclusions made in their December 13, 2006
report, the options being considered for waste rock, mill rock and tailings
management include:
 •
returning all dewatered tailings, the majority of mill rock and waste rock in
close proximity to mineralized areas to the underground workings, as
backfill;
 •
placement of excess mill rock and waste rock in engineered and non-engineered
surface storage facilities; and
 •
storage, treatment and additional settling in a polishing pond of tailings
supernatant, prior to its discharge.
 
 Current
planning calls for concentrates to be stored on or near site in sheltered
containers, prior to their removal for off-site smelting.
 
 Hazardous
Materials
 
 Hazardous
and toxic waste materials are currently stored at the Prairie Creek minesite,
including sodium cyanide and PCB’s that remain from Cadillac operations in the
early 1980’s. The substances are stored in a secured manner and are regularly
inspected by government agencies. Diesel fuel is also stored on
site.
 
 A
disposal project for the cyanide and PCB’s was commenced in 2007 which involved
repackaging the materials such that they are ready for removal from the site for
ultimate disposal. This program contracted professional toxic waste specialists
to repack the new containers which are stored under tarpaulins on the approved
chemical storage pad. The removal will ideally occur at the same time as the
opening of the road to the Liard Highway.
 
 Environmental
Obligations
 
 As at
December 31, 2007, the Company has estimated the present value of expenditures
required for reclamation costs at the Prairie Creek Property to be approximately
$1.2 million ($2.5 million on an undiscounted basis), mostly to be incurred at
the end of the life of the mine. Other than specific environmental matters
discussed in this Annual Information Form, the Company is not aware of any
material matter requiring significant capital outlays in the immediate
future.
 3.1.11
                  First
      Nations
 The
Prairie Creek Mine is located on land claimed by the Nahanni Butte Dene Band of
the Dehcho First Nations (“Dehcho” or “DCFN”) as their traditional territory.
The Nahanni Butte (Nahaahdee) First Nation is a “band” pursuant to the Indian
Act RSC 1985. The members of the Dehcho First Nations are Aboriginal people
within the meaning of Section 35 of the Constitution Act, 1982.
 
 The
Dehcho are a distinct group of Aboriginal people, whose ancestors were among the
South Slavey people of the Dene Nation of what is now the Northwest Territories,
and the Metis people within the DCFN territory. The Dehcho have had their own
system of laws, religion, economy, customs, traditions and language since time
immemorial. Many Dehcho people continue to rely heavily on the land, water and
resources within DCFN territory for sustenance, social and ceremonial
purposes.
 
 The DCFN
is an organization representing all of the Dene and Metis peoples in the Dehcho
territory of the Northwest Territories which comprise thirteen separate
communities. The DCFN have incorporated a society under the laws of the
Northwest Territories in order to provide leadership, governance, administration
and program delivery to their member communities. The DCFN is a governing body
of the Dehcho people lands, administers oversees a number of programs and
services for its member communities including those relating to health,
employment, education, and land and resource management.
 
 The DCFN
and their member Aboriginal communities hold collective Aboriginal title and
rights and treaty rights to Dehcho territory and hold other Aboriginal rights as
a collective in relation to their land and governance over the land and the
Dehcho people.
 
 In the
Mackenzie Valley, land is owned, or managed, controlled and administered by
different governments or landowners. Land can be either Crown or Commissioner’s
land administered by land managers, or privately owned.
 
 In the
Northwest Territories, private lands are owned largely by First Nations with
settled land claims.  There are currently three major landowners in
the Mackenzie Valley - the Gwich’in, Sahtu and Tlicho.  It is
anticipated that as claims are settled in the Dehcho region, more private lands
will be created and Aboriginal groups will become recognized landowners in their
respective regions.
 
 The
Federal Government has recognized that the inherent right of self government is
an existing Aboriginal right recognized and affirmed by Section 35 of the
Constitution Act, 1982. The Dehcho are engaged in ongoing land settlement
negotiations with the Government of Canada and the Government of the Northwest
Territories in what is referred to as the “Dehcho Process.” The Federal
Government first attempted to negotiate land claim settlements in the Northwest
Territories, with the Dene/Metis in the late 1980’s without success.
Subsequently settlement agreements were reached first with the Gwich’in and
Sahtu Dene/Metis people and later with the Tlicho in 2005. The Dehcho have not
settled their land claim with the Federal Government. The Dehcho and the Federal
Government of Canada both claim legal title to this territory, the Dehcho by
virtue of historical occupation and the Federal Government under Treaty 8,
signed in 1900, and Treaty 11 signed in 1921 and 1922. The Federal Government
and the Dehcho First Nations disagree on the interpretation of Treaties 8 and 11
and legal title to the land remains in dispute. Canada maintains that under the
Treaties the Dehcho extinguished ownership of their traditional lands. The
Dehcho have threatened to take the Federal Government to court, or to the United
Nations, over the key issue of sovereignty. The Dehcho territory has an area of
approximately 210,000 square kilometres and has a native population of
approximately 6,000.
 
 Since the
mid 1990’s the Dehcho and the Federal Government have been engaged in the Dehcho
Process whereby the Federal Government and the Government of the Northwest
Territories have agreed to negotiate with the Dehcho First Nations on a
government to government basis in order to set out land, resources and
governance rights to apply in the Dehcho territory. The objective of
negotiations is to complete a Dehcho Final Agreement which clarifies and builds
upon existing Treaties by implementing a Dehcho government which will make laws
and deliver programs and services; be a public government based upon Dehcho
First Nations laws and customs and other Canadian laws and customs; and be the
primary government for the delivery of programs and services to residents of the
Dehcho territory. The Final Agreement will also describe intergovernmental
relationships and jurisdictions, provide for certainty and clarity of rights
respecting land, resources and governance and provide for the use, management
and conservation of land, water and other resources, including wildlife, fish
and their habitat in the Dehcho territory.
 
 Early
negotiations proved very slow in part because the Dehcho initially rejected the
land selection process by which other land claim disputes have been typically
settled in the North.  Under the typical system, the Federal
Government and First Nations select by negotiation particular areas of land in
the area under dispute.  Once selected the Government makes a
financial payment and the claim is settled. However, the Dehcho have been
holding out for full constitutional, legal and governmental control over their
entire region, where effectively the laws of Canada would no longer apply, and
this has led to lengthy and difficult negotiations.
 
 The
DCFN’s position is that the Mackenzie Valley Resource Management Act cannot and
should not apply within Dehcho territory, that the legislation was enacted
without the participation of, or any consultation with, the DCFN and was imposed
on the Dehcho territory against DCFN wishes. The DCFN have stated that the Final
Agreement must, among other things, include a new resource management regime in
Dehcho territory other than the Mackenzie Valley Resource Management
Act.
 In 2001,
the Federal Government and the Dehcho First Nations entered into a Framework Agreement dated May
23, 2001. The Framework Agreement contemplates providing a structure for the
negotiation of the Final
Agreement.  However, all negotiations are without prejudice to
the legal position of the parties and nothing in the Framework Agreement is to
be interpreted as creating, recognizing or denying rights or obligations of any
of the parties. The Federal Government and the Dehcho agreed that it is
desirable that the negotiations proceed at a pace which allows for the people of
the Dehcho territory, and particularly the Elders, to remain fully informed and
involved in the process.
 
 As
contemplated in the Framework Agreement, an Interim Measures Agreement,
also dated May 23, 2001, was executed between the parties to provide for interim
arrangements pending the negotiation and signing of the Dehcho Final
Agreement.
 
 Under the
Interim Measures Agreement, the Governments and the Dehcho agreed to develop a
land use plan for the Dehcho lands outside Nahanni National Park Reserve and for
that purpose to establish a Land Use Planning Committee. The purpose of the Land
Use Plan is to provide for the conservation, development and utilization of the
land, waters and other resources in the Dehcho territory, taking into
consideration the principles of respect for the land, as understood and
explained by the Dehcho Elders, and sustainable development.
 
 Under the
Interim Measures Agreement, Canada and the Dehcho agreed to negotiate for the
purpose of identifying lands to be withdrawn from disposal and mineral staking
and Canada agreed to withdraw from disposal, by Order in Council under the Territorial Lands Act, the
lands identified in this process.
 
 The
Interim Measures Agreement specifically provides at sections 19 and 23 that land
withdrawn from disposal under the Agreement shall be subject to the continuing
exercise of existing rights, titles, interests, entitlements, licenses and
permits and that the provisions of the Agreement shall not effect access to or
across withdrawn lands.
 
 The
Agreement also provides that no new water licenses or land use permits will be
issued under the Mackenzie
Valley Resource Management Act within the Dehcho territory except after
written notice to the Dehcho First Nations and after a reasonable period of time
for the Dehcho to make representations with respect to the application for such
license or permit. Canada also agreed not to issue any new prospecting permits
under the Canada Mining
Regulations in the Dehcho territory without the support of the affected
Dehcho First Nation.
 
 The
parties also agreed to enter into negotiations for the purpose of concluding an
Interim Resource Development
Agreement with the objective of fostering resource development in the
Dehcho Territory and to accrue benefits from Canada to the Dehcho First Nations.
An Interim Resource Development Agreement was signed on April 17, 2003 under
which Canada agreed to provide to the Dehcho First Nations a percentage of
Federal resource royalties collected from the Dehcho area of the Mackenzie
Valley.
 
 Canada
also agreed that the Final Agreement will ensure that a major mining project
that requires any authorization from Canada, and that will impact on the Dehcho,
shall be subject to negotiation with the Dehcho of an agreement relating to that
project. A major mining project is defined as a project related to the
development or production of minerals that will employ an average of 50 persons
annually for the first five years in the Dehcho territory and for which more
that $50 million will be expended in capital costs. The Company believes that
the Prairie Creek Project is currently the only such major mining project in the
Dehcho territory.
 
 The
Interim Measures Agreement also provided that the Dehcho may propose protected
areas for land withdrawal or permanent protection under the Northwest
Territories Protected Areas Strategy. The parties also agreed to negotiate an
interim management arrangement respecting the management of Nahanni National
Park Reserve.
 
 The
Interim Measures Agreement was made without prejudice to the legal position of
the parties and nothing in the Agreement is to be interpreted as creating,
recognizing or denying rights or obligations on the part of the
parties.
 
 In 2003,
Canada and the Dehcho agreed to an interim withdrawal of lands covering an area
of approximately 80,000 square kilometres for a period of five
years.  The withdrawal was confirmed by Order in Council dated August
13, 2003. The areas of the withdrawn lands do not include the Prairie Creek Mine
but include all of the Company’s Mining Lease 2854 and part of Mining Leases
2931, 3314 and 3313. The withdrawn land also includes an area over which part of
the Company’s road to the Prairie Creek Property passes. However in accordance
with Sections 19 and 23 of the Interim Measures Agreement such withdrawal is
subject to the continuing exercise of existing rights, titles, interests,
entitlements, licenses, permits, reservations, benefits and privileges and does
not affect access to or across withdrawn land.
 
 In August
2003, a Memorandum of
Understanding respecting the expansion of Nahanni National Park Reserve
dated 24 June 2003 was signed between the Dehcho and the Parks Canada Agency,
whereby as part of the Dehcho Process, Parks Canada and the Dehcho agreed to
work co-operatively towards completion of a feasibility study towards the
addition of the identified lands to the Nahanni National Parks Reserve and to
recommend an amendment to the Canada National Parks Act for a new boundary for
the expansion of the Nahanni National Park Reserve and, as part of the Dehcho
Final Agreement, moving the Nahanni National Park Reserve to full National Park
status under the Canada National Parks Act.
 
 At the
same time in August 2003, an Interim Park Management
Arrangement for the Nahanni National Park Reserve was signed between the
Dehcho and Parks Canada Agency designed to give the Dehcho a greater role in the
Park management process. A Consensus Team was established, comprising three
appointees of Parks Canada and four from the Dehcho First Nations (two from
Nahanni Butte) to address, amongst other things, making recommendations in
respect of impacts of land and resource uses in areas outside Nahanni National
Park Reserve.
 
 Under the
Arrangement the Dehcho and Parks Canada agreed that while the current
jurisdiction of Parks Canada is restricted to Nahanni National Park Reserve, the
ecological integrity of the Park Reserve depends on the ecological integrity of
the South Nahanni River watershed as a whole. The Prairie Creek Mine is located
within the watershed of the South Nahanni River.
 
 The
Interim Park Management Arrangement is a statement of interests only and is not
legally binding.  Nothing in the Arrangement obliges Canada to act in
a manner inconsistent with federal or territorial legislative or regulatory
jurisdictions or authorities and the Nahanni National Park Reserve shall be
administered and managed in accordance with the Canada National Parks
Act.
 
 During
2005 negotiations on the Dehcho Process broke down because of issues surrounding
the proposed Mackenzie Valley gas pipeline. In June 2005 the Dehcho First
Nations entered into a Settlement Agreement with
Canada [represented by the Minister of Indian Affairs and Northern Development]
to settle Court actions which had been commenced by the Dehcho in the Northwest
Territories Supreme Court and in the Federal Court against Canada and the
Mackenzie Valley Environmental Impact Review Board arising out of disputes
concerning the Mackenzie Gas Project.  In the Settlement Agreement
Canada and the Dehcho agreed to resolve issues related to the participation of
the Dehcho in the environmental and regulatory review of the Mackenzie Gas
Project and which they agreed to facilitate.
 
 The
Settlement Agreement recites that Canada and the Dehcho have differing views as
to the existence and scope of the rights of the Dehcho First Nation(s)
recognized by Section 35 of the Constitution Act 1982, and the nature and extent
of Canada’s requirements to consult with the Dehcho First Nations.  In
the Settlement Agreement the parties agreed to take all reasonable steps to
negotiate the terms of the Dehcho Final Agreement which would include agreement
to establish a Dehcho Resource
Management Authority (DCRMA) which will be a body of public government.
The Final Agreement will describe the legal capacity, structure, accountability,
rights, powers, privileges and responsibilities of the DCRMA; source(s) of the
DCRMA’s powers, privileges and responsibilities; relationship of the DCRMA to
the Mackenzie Valley Resource Management Act, and rules regarding conflict of
laws and the priorities of laws. For greater certainty, the Final Agreement may
provide for a stand alone DCRMA harmonized with the Mackenzie Valley Resource
Management Act. The Settlement Agreement provides that the Final Agreement will
provide for the circumstances in which laws within the jurisdiction of the
Dehcho First Nations, any successor organization, or any government established
pursuant to a Final Agreement, will take priority over the laws of Canada in the
event of a conflict.  The parties agreed to negotiate a Final
Agreement in accordance with the Dehcho First Nations Framework
Agreement.
 
 In the
Settlement Agreement, the parties agreed to implement a Land Use Plan that is
approved by the Dehcho First Nations, approved the Minister of Environment and
Natural Resources of the Northwest Territories, and favourably considered by the
Minister of Indian and Northern Affairs, Canada, as soon as possible after the
Plan’s completion.
 
 In the
Settlement Agreement the parties affirmed the Interim Resource Development
Agreement dated April 17, 2003 and agreed to take immediate steps to establish a
working group comprised of the parties to the Dehcho First Nations Interim
Measures Agreement for the purposes of ensuring that the issues arising from the
implementation of the Resource Development Agreement are addressed in a timely
manner.  The parties also agreed that once an Agreement in Principle
is ratified, the resource royalty sharing formula set out in the Interim
Resource Development Agreement will be replaced with any Resource Revenue
Sharing Formula agreed to in the Agreement in Principle.
 
 The
Settlement Agreement further provides that, except for certain specified
articles of the Agreement, the Settlement Agreement is not legally binding and
is intended as an expression of goodwill and as a political
commitment.
 
 Negotiations
under the Dehcho Process continued during 2006 with Canada presenting a formal
comprehensive offer of land selection, local governance provisions and financial
compensation but this offer was rejected by the Dehcho First Nations.
Negotiations continued in 2007 with no apparent progress reported.
 
 The Dehcho Land Use Planning
Committee (the Committee), was formally established in February 2002
under the authority of the Dehcho Interim Measures Agreement with the
responsibility to prepare a land use plan for the Dehcho territory. The land use
planning process is a community driven process where the goals and values of the
residents of the Dehcho guide the development of the Plan.  The
Committee works closely with other planning partners such as governments, public
agencies, non-government organizations and businesses to fulfill its
mandate.
 
 Land use
planning boards are responsible for preparing comprehensive land use plans for
their respective settlement areas. These plans guide the use of Crown,
settlement, and other private lands and provide direction for the conservation,
development and use of land, waters and other resources.  Essentially,
the land use planning boards create plans which lay out the permitted and
prohibited uses of all land within a settlement area.  They develop
land use plans for their regions and recommend approvals, exceptions and
amendments to related plans.
 
 A Land
Use Plan is a public document that sets aside different areas for different
uses, and describes what activities are permitted or not permitted in specified
areas.  The land use plan applies to both Crown and settlement lands.
It does not apply to lands within municipal boundaries or lands within national
parks or historic sites.
 
 Once the
land use planning board has adopted a Land Use Plan, it must submit the plan to
the First Nation of the settlement area, the Territorial Minister and the
Federal Minister for approval.
 
 The
mission statement of the Dehcho Land Use Planning Committee is to develop a land
use plan as a management tool to determine what type of land use activities
should occur and where they should take place. The plan will balance economic,
social, environmental and cultural needs and interests.  The plan will
be guided by the principals of sustainable development and respect for the land
as understood and explained by the Dehcho Elders. The planning area excludes
municipal areas and Nahanni National Park Reserve.
 
 The
purpose of the Land Use Plan is to promote the social, environmental, cultural
and economic well being of residents and communities in the Dehcho territory,
having regard to the interests of all Canadians. The Plan shall provide for the
conservation, development and utilization of the land, waters and other
resources in the Dehcho territory.
 
 The
Dehcho Land Use Planning Committee includes representatives of the Dehcho First
Nations, the Government of the Northwest Territories and Government of Canada.
As outlined under the Dehcho Interim Measures Agreement the DCFN appointed two
members while the two Governments each appointed one member. Upon the
recommendation of the Committee, the parties to the Interim Measures Agreement
appoint a fifth member as Chairperson.
 
 Once
approved the Land Use Plan will provide legally binding direction to regulatory
agencies and decision-makers in their assessment of development projects,
protected areas proposals and other land uses.
 
 The Land
Use planning process considered the traditional use and occupancy information
that was gathered to determine the Interim Land Withdrawals, along with other
information on the natural resources and the economic and social needs of the
communities. In turn, the Plan will guide the revision of the Interim Land
Withdrawals based on the new information that has been
gathered.  Representatives of the Planning Committee visited the
Prairie Creek minesite in September 2004.
 
 The
Company made a detailed submission to the Dehcho Land Use Planning Committee and
participated in the planning process. The Company commented on each draft of the
Plan as such draft was produced and participated in various Public Forums. The
Company had concerns about the latest draft of the Land Use Plan (November 2005
– Revised February 2006) and recommended that the draft in its current form not
be approved. The Department of Indian Affairs and Northern Development has also
expressed concern to the Committee (January 2006).
 
 The draft
Land Use Plan was approved by the General Assembly of the Dehcho First Nations
in May 2006 and submitted to the Minister for consideration. The Minister did
not accept the Plan arguing that it incorporated too much land to be preserved
from development. In April 2007 the Federal Government and the Dehcho First
Nations entered into an agreement to form a new committee with representatives
from all sides to negotiate a new revised plan.
 
 The
outcome of the Dehcho Process negotiations is expected to be a Final Agreement
that will provide, amongst other things, for the implementation of a Dehcho
government within the Dehcho territory. It is expected that the negotiations
towards a Dehcho Final Agreement will take five years to complete.
 
 The
Company cannot predict the impact, if any, that the Dehcho Final Agreement if
eventually approved and signed may have on the Prairie Creek Mine or the
permitting thereof.
  
 3.1.12
                Co-Operation
      Agreement
 The
Prairie Creek Mine is located 90 kilometres from the nearest settled community
of Nahanni Butte, located at the confluence of the South Nahanni and Liard
Rivers, 146 kilometres downstream of the minesite. The population of Nahanni
Butte is approximately 100 people and water for domestic purposes is supplied by
well. There is no permanent road access into the Prairie Creek Property, other
than the existing Winter Road which was established in 1981. Regular access is
by air only to a private airstrip controlled by the Company. There is no other
existing land occupation, nor commercial land or water based activities in the
vicinity of the mine. Similarly, no traditional use or trapping activity has
been observed in the minesite area in recent history.
 
 On
December 10, 1996 the Company completed the negotiation of the Prairie Creek
Development Co-Operation Agreement with the Nahanni Butte Dene Band (the “Band”)
of the Dehcho First Nations.  The agreement provides that in
consideration for the Band providing support for the project, quiet enjoyment,
access easements, assistance in obtaining permits, potential cost savings as a
result of the Band's involvement, and assembling and providing the Band's
traditional knowledge in support of the project, the Company will:
 
 (a)
              pay
      the Band annually 5% of the profits before tax, after recovery of the
      aggregate costs incurred in establishing access and bringing the
      project  into production;
 (b)
              grant
      the Band an option to purchase 10% or 15% of the project for $6,000,000
      or  $9,000,000 respectively subject to adjustment for inflation
      and additional development costs, exercisable within three
      months  following delivery of a Bankable  Feasibility
      Study  and receipt of all major  permits for
      the  project; and
 (c)
              give
      the Band preferential access on providing contract services; being
      competitive as to price, delivery, capability, performance and
      quality.
 
 Following
commencement of production, the Band and the Company will jointly fund (a) the
establishment of an education centre to a maximum of $150,000 and annual
operating costs up to $50,000; and (b) a scholarship fund of $20,000 per year,
increasing to $30,000 per year following payback of all capital
costs.  In addition, the project will contribute $25,000 per year to a
trust on commencement of construction of access to the project, to compensate
traditional harvesters who are negatively affected by the project and the
access.
 
 The
overall intent of the Co-Operation Agreement was to establish and maintain a
positive and cooperative working relationship between the Company and the
Nahanni Band in respect of the further development and operation of the Prairie
Creek Mine, while at the same time supporting an economically viable and
environmentally sound operation and maximizing economic opportunity and benefits
to the Band and other Dehcho First Nations. This Agreement foresaw the many
benefits which could accrue to the Nahanni Band and the DCFN in conjunction with
development of the road and mine, and made provision for maximizing
opportunities to realize these benefits. To this end, the Agreement provides
employment and contracting opportunities, as well as equity participation for
the Band and the DCFN.
 
 In the
Agreement, the Band proclaimed its support for the Prairie Creek Mine and the
establishment of the access road in recognition of the significant benefits to
the Band and the DCFN communities as a whole, and undertook to assist the
Company in procuring permits, approvals and licenses necessary to bring the mine
into production, as well as grants, guarantees or other financial assistance
from Government towards the establishment of the access road.
 
 On
November 28, 1996 the Nahanni Butte Dene Band issued a Band Council Resolution
stating that the Band on behalf of its membership “does fully ratify and endorse
the Prairie Creek Development Co-Operation Agreement” in which the Nahanni Butte
Dene Band proclaimed its support for the Prairie Creek Mine and the
establishment of an all weather access road to the mine in recognition of the
significant benefits to Nahanni Butte and the DCFN communities as a whole. The
Agreement was supported as well by the DCFN by Tribal Council
Resolution.
 
 The
Nahanni Butte Dene Band issued a Band Council Resolution on May 18, 2000 in
support of protecting the South Nahanni watershed, stating that “the Nahanni
National Park Reserve was created without the consent or participation of the
Dehcho First Nations” and that the “Final Agreement should provide for the
recognition of Dehcho First Nations jurisdiction over the entire Nahanni
watershed, including the Park or Park Reserve.”
 
 On
January 29, 2001 the Band issued a further Band Council Resolution rescinding
their support for the Protected Areas Strategy for the Nahanni National Park
Reserve watershed.
 
 On
January 17, 2002 the Band issued a further resolution reconfirming their support
for the Prairie Creek Mine Project.
 
 A change
in Band leadership occurred in September 2003 following elections for Chief.
Thereafter yet another different Band Chief was elected during
2004.
 
 On
October 10, 2003 an appeal to the Federal Court was filed by the Nahanni Butte
Dene Band, Pehdzeh KI First Nation and the Dehcho First Nations, against the
Mackenzie Valley Land and Water Board and the Company seeking judicial review of
the decision of the Water Board to grant a Water License to the Company. Filing
of these proceedings by the Nahanni Butte Dene Band was in breach of the
Co-Operation Agreement. The Nahanni Butte Dene Band informed the Company that
Nahanni considers the Agreement terminated. Such termination is not in
accordance with the provisions of the Agreement.
 
 Canadian
Zinc seeks to consult on a regular basis with the Nahanni Butte Dene Band and
other First Nations and local communities to keep them informed about the
Prairie Creek project and as to opportunities for implementing the provisions of
the Co-Operation Agreement as the Company moves forward with its plans for
re-development of the property. In 2004 the Company opened a Community Liaison
and Information Office in Fort Simpson and since 2004 significantly increased
its First Nations and local communities information and awareness programs and
activities.
 
 In June
2005 the Chief of Nahanni wrote to the Mackenzie Valley Land & Water Board
in connection with the Company’s application for a Land Use Permit to use the
winter road which connects the mine with the Liard Highway [see Section 3.1.8
Permitting at Prairie Creek--(i) Land Use Permit – Winter Road above] alleging
infringement of aboriginal rights and inadequate consultation under Section 35
of the Constitution of Canada. The Water Board referred the matter to the
Department of Indian Affairs and Northern Development which conducted a
preliminary assessment which lasted throughout most of 2006.  In
February 2007 the Department issued its report on consultation to the Water
Board in which it concluded that in the Department of Indian Affairs and
Northern Development’s view adequate consultation had taken place and in which
it made certain recommendations. The Water Board issued the Land Use Permit in
April 2007 and included among the Permit terms and conditions those
recommendations from the consultation report that are within the Board’s
mandate, including provisions for the protection of wildlife
habitat.
 
 In June
2007, the Dehcho First Nations claimed that the Company’s application for a
Class B water license to rehabilitate a portion of the road in proximity to the
mine [see Section “3.1.9 Permitting at Prairie Creek--(k) Water License and
Quarrying Permit – Road Rehabilitation”] constituted a significant alteration to
the Winter Road project and requested that the proposed rehabilitation work be
referred for Environmental Assessment. They also alleged inadequate consultation
under section 35 of the Constitution of Canada. In November 2007 the Mackenzie
Valley Land & Water Board ruled that the proposed work was not a significant
alteration to the project. The Department of Indian Affairs and Northern
Development conducted a preliminary assessment on consultation with the Nahanni
Butte Dene Band and in March 2008 issued its report to the Mackenzie Valley Land
& Water Board in which it concluded that adequate consultation had taken
place. The Water Board issued the water license in March 2008.
 
 The
Company believes that the separate goals of the Dehcho First Nations in
achieving political sovereignty and economic self-sufficiency whilst protecting
the environment are compatible. The Prairie Creek Development Co-operation
Agreement provides for a positive and cooperative working relationship between
the Company, Nahanni Butte and the Dehcho First Nations in respect of developing
and operating an environmentally sound mining undertaking at Prairie Creek,
which will not have significant adverse environmental effects on the ecological
integrity of the South Nahanni River or the Nahanni National Park
Reserve.
 
 
 4.
              RISK FACTORS AND
  UNCERTAINTIES
 
 In
conducting its business, Canadian Zinc faces a number of risks common to the
mining and exploration industry.  These are summarized below. There
are also certain specific risks including those listed below, associated with an
investment in the Company and prospective investors and their advisors should
consider carefully these specific risk factors associated with an investment in
Canadian Zinc.
 
 4.1           Political and Legislative
Risk
 
 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
at “3.1.10 Environmental Matters--Nahanni National Park Reserve” in this Annual
Information Form, 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.
 
 4.2           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 Annual Information Form at “3.1.10. Environmental
Matters--Environmental Obligations.”
 
 Existing
and possible future environmental legislation, regulations and actions could
cause additional expense, capital expenditures, restrictions and delays in the
activities of the Company, the extent of which cannot be predicted. Before
production can commence on the Prairie Creek Property the Company must obtain
regulatory approval, permits and licenses and there is no assurance that such
approvals will be obtained. No assurance can be given that new rules and
regulations will not be enacted or made, or that existing rules and regulations
will not be applied, in a manner which could limit or curtail production or
development.
 
 Regulatory
approvals and permits are currently, and will in the future be, required in
connection with Canadian Zinc’s operations. To the extent such approvals are
required and not obtained, Canadian Zinc may be curtailed or prohibited from
proceeding with planned exploration or development of its mineral properties or
from continuing its mining operations.
 
 Failure
to comply with applicable laws, regulations and permitting requirements may
result in enforcement actions thereunder, including orders issued by regulatory
or judicial authorities causing operations to cease or be curtailed, and may
include corrective measures requiring capital expenditures, installation of
additional equipment, or remedial actions. The Company may have civil or
criminal fines or penalties imposed for violations of applicable laws or
regulations.
 
 Failure
to comply with applicable environmental and health and safety laws can result in
injunctions, damages, suspension or revocation of permits and imposition of
penalties. There can be no assurance that Canadian Zinc has been or will be at
all times in complete compliance with all such laws, regulations and permits, or
that the costs of complying with current and future environmental and health and
safety laws and permits will not materially adversely affect Canadian Zinc’s
business, results of operations or financial condition. Environmental hazards
may exist on the properties on which Canadian Zinc holds interests which are
unknown to Canadian Zinc at present and which have been caused by previous
owners or operators of the properties.
 
 Amendments
to current laws, regulations and permits governing operations and activities of
mining and exploration companies, or more stringent implementation thereof,
could have a material adverse impact on Canadian Zinc Corporation and cause
increases in exploration expenses, capital expenditures or production costs or
require abandonment or delays in the development of mining
properties.
 
 The
Prairie Creek project has, on numerous occasions, experienced significant delays
in obtaining permits and licenses necessary for the conduct of its operations.
If at any time in the future permits essential to operations are not obtained,
or not obtained in a timely manner, or exemptions not granted, there is a risk
that the Prairie Creek mine may not be able to operate.
 
 4.3           Exploration and Development
Risks
 
 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 internallyby
the Company in 2001 and which is now considered to be out of date and which
should not be relied upon. A Scoping Study is not a Feasibility Study. The
Scoping Study outlined the plan for the development of the Prairie Creek Project
based on the historical development and existing infrastructure at the Prairie
Creek Property and on a Resource Estimation. 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 Company is also examining the various
operating alternatives outlined in the 2001 preliminary Scoping Study (which is
now considered to be out of date and should not be relied upon) and is working
towards updating and converting the Scoping Study into a Pre-Feasibility study.
The Pre-Feasibility study, which is being undertaken by SNC-Lavalin Inc., is
scheduled to be completed in 2008.
 
 Mining
operations generally involve a high degree of risk. Canadian Zinc’s mining
operations will be subject to all the hazards and risks normally encountered in
the development and production of minerals, including unusual and unexpected
geologic formations, seismic activity, rock bursts, cave-ins, flooding and other
conditions involved in the drilling and removal of material, any of which could
result in damage to, or destruction of, mines and other producing facilities,
damage to life or property, environmental damage and possible legal liability.
Mining and milling operations are subject to hazards such as equipment failure
or failure of retaining dams around tailings disposal areas, which may result in
environmental pollution and consequent liability.
 
 4.4           Metal Prices and Market
Sentiment
 
 The
market price of metals and minerals is volatile and cannot be controlled. Metal
prices have fluctuated widely, particularly in recent years. If the price of
metals and minerals should drop significantly, the economic prospects for the
Prairie Creek Project could be significantly reduced or rendered uneconomic.
There is no assurance that, even if commercial quantities of ore are delineated,
a profitable market may exist for the sale of products, including concentrates
from that ore. Factors beyond the control of the Company may affect the
marketability of any minerals discovered or concentrates produced. The
marketability of minerals is affected by numerous other factors beyond the
control of the Company, including quality issues, impurities, government
regulations, royalties, allowable production and importing and exporting of
minerals, the effect of which cannot be accurately predicted. Factors tending to
affect the price of metals include:
 
 •
      The relative strength of the U.S. dollar against other
      currencies;
 •
      Government monetary and fiscal
policies;
 •
      Expectations of the future rate of global monetary inflation and interest
      rates;
 •
      General economic conditions and the perception of risk in capital
      markets;
 •
      Political conditions including the threat of terrorism or
    war;
 •
      Speculative trading;
 •
      Investment and industrial demand;
and
 •
      Global production and inventory
stocks.
 
 The
effects of these factors, individually or in aggregate, on the prices of zinc,
lead and/or silver is impossible to predict with accuracy. Fluctuations in metal
prices may adversely affect Canadian Zinc’s financial performance and results of
operations. Further, if the market price of zinc, lead and/or silver falls,
Canadian Zinc may experience losses or asset write-downs and may curtail or
suspend some or all of its exploration, development and mining
activities.
 
 Furthermore,
sustained low metal prices can halt or delay the development of new projects;
reduce funds available for mineral exploration and may result in the recording
of a write-down of mining interests due to the determination that future cash
flows would not be expected to recover the carrying value.
 
 Metal
prices fluctuate widely and are affected by numerous factors beyond Canadian
Zinc’s control such as the sale or purchase of such commodities by various
central banks and financial institutions, interest rates, exchange rates,
inflation or deflation, fluctuation in the value of the United States dollar and
foreign currencies, global and regional supply and demand, and the political and
economic conditions of major mineral and metal producing countries throughout
the world. Future production from Canadian Zinc’s mining properties is dependent
on mineral prices that are adequate to make these properties economic. The
prices of metals have fluctuated widely in recent years, and future serious
price declines could cause continued development of and commercial production
from Canadian Zinc’s properties to be impracticable. Depending on the price of
metal, cash flow from mining operations may not be sufficient and Canadian Zinc
could be forced to discontinue production and may lose its interest in, or may
be forced to sell, its properties.
 
 In
addition to adversely affecting Canadian Zinc’s reserve or resource estimates
and its financial condition, declining commodity prices can impact operations by
requiring a reassessment of the feasibility of a particular project. The need to
conduct such a reassessment may cause substantial delays or may interrupt
operations until the reassessment can be completed.
 
 Currency
fluctuations may affect the costs that Canadian Zinc incurs at its operations.
Zinc, lead and silver are sold throughout the world based principally on the
U.S. dollar price, but operating expenses are incurred in currencies other than
the U.S. dollar. The appreciation of the Canadian dollar against the U.S. dollar
increases the cost of production in U.S. dollar terms at mines located in
Canada.
 
 The
development of the Company’s properties will depend upon the Company’s ability
to obtain financing through private placement financing, public financing, the
joint venturing of projects, bank financing or other means. There is no
assurance that the Company will be successful in obtaining the required
financing.
 
 Securities
of junior and small-cap companies have experienced substantial volatility in the
past, often based on factors unrelated to the financial performance or prospects
of the companies involved. These factors include macroeconomic developments in
North America and global and market perceptions of the attractiveness of
particular industries. The share price of Canadian Zinc is likely to be
significantly affected by short-term changes in metal prices. Other factors
unrelated to Canadian Zinc’s performance that may have an effect on the price of
its 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.
 
 4.5           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.
 
 4.6           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.
 
 4.7           Key Executives and Conflicts
of Interest
 
 Canadian
Zinc is dependent on the services of key executives, including the President and
Chief Executive Officer and the Vice President of Exploration and Chief
Operating Officer of the Company, and a small number of other skilled and
experienced executives and personnel. Due to the relatively small size of the
Company, the loss of these persons or Canadian Zinc’s inability to attract and
retain additional highly skilled or experienced employees may adversely affect
its business and future operations.
 
 Certain
of the directors and officers of the Company also serve as directors and/or
officers of, or have significant shareholdings in, other companies involved in
natural resource exploration and development and consequently there exists the
possibility for such directors and officers to be in a position of conflict. Any
decision made by any of such directors and officers involving Canadian Zinc will
be made in accordance with their duties and obligations to deal fairly and in
good faith with a view to the best interests of the Company and its
shareholders. In addition, each of the directors is required to declare and
refrain from voting on any matter in which such directors may have a conflict of
interest in accordance with the procedures set forth in the Business
Corporations Act (British Columbia) and other applicable laws.
 
 To the
extent that such other companies may participate in ventures in which Canadian
Zinc may participate, the directors of Canadian Zinc may have a conflict of
interest in negotiating and concluding terms respecting the extent of such
participation. In the event that such a conflict of interest arises at a meeting
of the Company’s directors, a director who has such a conflict will abstain from
voting for the approval of such participation or such terms.
 
 From time
to time several companies may collectively participate in the acquisition,
exploration and development of natural resource properties thereby allowing for
their participation in larger programs, permitting involvement in a greater
number of programs and reducing financial exposure in respect of any one
program. It may also occur that a particular company will assign all or a
portion of its interest in a particular program to another of these companies
due to the financial position of the company making the assignment. Under the
laws of the Province of British Columbia, the directors of the Company are
required to act honestly, in good faith and in the best interests of the
Company. In determining whether or not Canadian Zinc will participate in a
particular program and the interest therein to be acquired by it, the directors
will primarily consider the degree of risk to which the Company may be exposed
and its financial position at that time.
 
 4.8           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.
 
 4.9           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.
 
 4.10           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.
 
 4.11           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.
 
 4.12           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.
 
 4.13           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.
 
 4.14           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.
 
 4.15           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.
 
 5.
              CAPITAL
  STRUCTURE
 
 Canadian
Zinc's capital structure consists of only one class of common shares without par
value, with an unlimited authorized capital. Each common share is entitled to
one vote and all common shares rank equally for the payment of dividends and for
all distributions, whether upon dissolution, a winding up or
otherwise.
 
 At
December 31, 2007 the Company had 120,213,962 shares issued and outstanding and
at March 28, 2008 had 120,685,063 shares issued and outstanding.
 
 At
December 31, 2007 the Company also had 4,865,000 stock options and 17,569,243
share purchase warrantsoutstanding.  At
March 28, 2008 the Company had 4,815,000 stock options and 9,715,012 share
purchase warrants and stock options outstanding.  Each share purchase
warrant and stock option entitles the holder to purchase one common
share.
  
  
 Stock
      OptionsOptions
      December 31, 2007
              Options
      March 28, 2008
              Exercise/Conversion
      Price
              Expiry
      Date2,860,000
              2,860,000
              $0.60
              January
      14, 2010110,000
              110,000
              $0.89
              June
      27, 20111,200,000
              1,200,000
              $0.90
              December
      13, 2011695,000
              645,000
              $0.94
              October
      15, 20124,865,000
              4,815,000
 
 On
October 15, 2007, the Company granted 695,000 stock options to acquire common
shares in the Company for a period of five years at $0.94 per common
share.
 
 
 WarrantsWarrants
      December 31, 2007
              Warrants
      March 28, 2008
              Exercise/Conversion
      Price
              Expiry
      Date6,666,666
              -
              $1.00
              January
      30, 2008520,899
              -
              $0.72
              January
      30, 2008666,666
              -
              $1.00
              January
      30, 20082,777,778
              2,777,778
              $1.15
              November
      23, 2008681,401
              681,401
              $1.15
              November
      23, 2008373,333
              373,333
              $0.93
              November
      23, 20085,882,500
              5,882,500
              $1.20
              July
      23, 200917,569,243
              9,715,012
 
 On July
23, 2007, the Company completed a private placement of 11,765,000 Units at a
price of $0.85 per unit for total proceeds of $10,000,250. Each Unit consisted
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 (for a total of 5,882,500 warrants
issued).
  
  6.
              MARKET FOR
  SECURITIES
 
 The
Company's common shares trade on the Toronto Stock Exchange under the symbol
“CZN”.
 The
following table shows the price ranges and volume traded of the Company’s common
shares on the Toronto Stock Exchange on a monthly basis for each month of
2007.
 
 
 Price
      Range 2007Month
              High
                Cdn.
      $
              Low
                Cdn
      $
              VolumeJanuary
              0.92
              0.72
              5,303,318February
              0.76
              0.63
              5,799,717March
              0.72
              0.58
              6,282,907April
              0.95
              0.69
              12,589,066May
              1.12
              0.82
              11,927,487June
              0.96
              0.77
              3,083,311July
              0.98
              0.80
              6,896,249August
              0.96
              0.60
              5,489,166September
              0.93
              0.73
              3,865,491October
              0.97
              0.80
              5,334,968November
              0.89
              0.64
              4,607,986December
              0.80
              0.61
              2,794,062Year
      2007
              1.12
              0.58
              73,973,728
 Source: TSX
  
  
  7.
              DIRECTORS AND
OFFICERS
 
 7.1
              Name, Occupation and
      Security Holding
 
 Name,
      Province or State and Country of Ordinary Residence and Position Held with
      the Company
              Principal
      Occupation During Preceding
                Five
      Years
              Date First Became Director of
      the Company(5)
              Common
      Shares  beneficially owned, controlled or directed, directly or
      indirectly(1)
      (6)Robert
      Gayton (2)(3)
                British
      Columbia, Canada Director
              Financial
      consultant. Director of 11 public companies including Western Copper
      Corporation, Quaterra Resources Inc., B2Gold Corp., Bravo Venture Group,
      Northern Orion Resources Inc., Amerigo Resources Ltd. and Nevsun Resources
      Ltd.
              May
      2000
              10,000
      common sharesJohn
      F. Kearney
                Ontario,
      Canada
                Chairman,
      President, Chief Executive Officer and Director
              Chairman,
      President and Chief Executive Officer of Canadian Zinc Corporation since
      2003;  Chairman of Labrador Iron Mines Limited since May 2007;
      Chairman of Conquest Resources Limited since 2001; Chairman of Anglesey
      Mining plc since 1994
              November
      2001
              765,409
      common sharesJohn
      MacPherson
                British
      Columbia, Canada
                Director
              Director
      and Chairman of Tower Energy Ltd.; Chairman of Canadian Zinc Corporation
      from 2000 to June 2003
              May
      1999
              NilDave
      Nickerson (2)
      (4)
                Northwest
      Territories, Canada
                Director
              Professional
      Engineer, Mining consultant, Director, Tyhee Development Corp.; previously
      Chairman of Northwest Territories Water Board; Member of Parliament,
      Member of NWT Legislative Assembly; Government Minister
              March
      2004
              3,000
      common sharesAlan
      C. Savage(2)
      (3)
                British
      Columbia, Canada
                Director
              Director
      of Selkirk Metals Corp., Copper Ridge Exploration Ltd. and Hi Ho Silver
      Resources Inc.
              June
      2003
              2,000
      common sharesAlan
      Taylor(4)
                British
      Columbia, Canada
                Vice
      President, Exploration, Chief Operating Officer and
    Director
              Vice
      President, Exploration of Canadian Zinc Corporation since 1999 and Chief
      Operating Officer of Canadian Zinc Corporation since March 2004; Director
      of Cronus Resources Ltd. (formerly Sunrise Minerals Inc.).
              March
      2004
              NilBea
      Service
                Ontario,
      Canada
                Secretary(7)
              Treasurer,
      Energold Minerals Inc. (resource company); Administrator, Conquest
      Resources Inc. (resource company)
              N/A
              NilMartin
      Rip
                British
      Columbia, Canada
                Chief
      Financial Officer, Vice President Finance and Secretary(7)
              Chief
      Financial Officer and Vice President Finance of Canadian Zinc Corporation
      since October 15, 2007; Chartered Accountant; former VP Finance and CFO of
      Pine Valley Mining Corporation (February 2005 – June 2007); Senior Manager
      – Grant Thornton LLP (March 2001 – February 2005).
              N/A
              Nil
 (1)
              The
      information as to common shares beneficially owned, controlled or directed
      by the above-named directors as at the date hereof, not being within the
      knowledge of the Company, has been furnished by the respective directors
      individually.
  (2)
              Member
      of the Audit Committee
  (3)
              Member
      of the Compensation Committee
  (4)
              Member
      of Health and Safety Committee
  (5)
              All
      Directors are elected annually to hold office until the next Annual
      Meeting of Shareholders.
  (6)
              All
      directors and executive officers as a group own, control or direct,
      directly or indirectly a total of 780,409 common
  shares.
  (7)
              Martin
      Rip was appointed Corporate Secretary of the Company effective March 25,
      2008.
  
  7.2           Cease Trade Orders,
Bankruptcies, Penalties or Sanctions
 
 John
Kearney served as a non-executive director of McCarthy Corporation plc from July
2000 to March 2003.  In June 2003, McCarthy Corporation plc adopted a
voluntary arrangement with its creditors pursuant to the legislation of the
United Kingdom.
 
 Alan
Savage served as a director of Consolidated Van Anda Gold Ltd., which became the
subject of a cease trade order of the Alberta Securities Commission in February
2002 for failure to file financial statements.  Mr. Savage resigned as
a director of Consolidated Van Anda Gold Ltd. in August 2003.
 
 Robert
Gayton served as a director of Newcoast Silver Mines Ltd., which became the
subject of a cease trade order of the British Columbia Securities Commission in
September 2003 and of the Alberta Securities Commission in October 2003 for
failure to file financial statements. The orders were revoked in October 2003
and March 2004, respectively.
 
 Martin
Rip served as Chief Financial Officer of Pine Valley Mining Corporation (“Pine
Valley”) which filed for protection under the Companies’ Creditors Arrangement
Act (“CCAA”) on October 20, 2006. Subsequent to filing for CCAA protection, Pine
Valley was suspended from trading on the TSX for failing to meet the minimum
listing requirements. Mr. Rip’s employment with Pine Valley was terminated on
June 29, 2007 as part of the CCAA proceedings.
 
 7.3           Conflicts of
Interest
 
 Certain
of the directors and officers of the Corporation, including the President and
Chief Executive Officer, 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 conflict of interest
position.
 
 8.
              TRANSFER AGENTS AND
  REGISTRARS
 
 The
Transfer Agent and Registrar for the Company’s common shares is:
 Computershare Investor Services
Inc.
 510 Burrard Street, 4th
floor
 Vancouver,
BC    V6C 3B9
 
 and
 
 100
University Avenue
 Toronto, ON    M5J
2Y1
 
 The
Company acts as its own Agent and Registrar for the Company’s Share Purchase
Warrants.  The Share Purchase Warrants are not traded or quoted on any
stock exchange.
 
  
  9.
              MATERIAL
CONTRACTS
 
 The
Company is not a party to any material contract, other than a contract entered
into in the ordinary course of business, entered into within the last financial
year or before the last financial year (if the contract is still in effect),
other than an Agreement dated January 29, 2004 with Titan Logix Corp. pursuant
to which the Company acquired the outstanding 40% equipment interest and 2% Net
Smelter Royalty in the Prairie Creek mine (see “Section 3. Description of the
Business”).
 
 10.
              INTERESTS OF
EXPERTS
 
 Minefill
Services, Inc. (David Stone and Stephen Godden – Qualified Independent Persons
(the “Authors”)) prepared the October 2007 Technical Report on the Prairie Creek
Mine (see “3. Description of the Business--3.1.7. 2007 Resource Estimation”).
Minefill and the Authors are independent of the Company and to the knowledge of
the Company, do not hold any registered or beneficial interests, direct or
indirect, in any securities or other property of the Company.
 
 Alan
Taylor, P.Geo., Vice President of Exploration and Chief Operating Officer of the
Company, who is a Qualified Person as defined in National Instrument 43-101, has
prepared, supervised the preparation of or reviewed, the parts of this Annual
Information Form that are of a scientific or technical nature.  Alan
Taylor beneficially owns, directly or indirectly, none of the outstanding common
shares of the Company. Mr. Taylor does hold 900,000 stock options to purchase
common shares of the Company at prices ranging from $0.60 to $0.90.
 
 The
Company’s auditors are Ernst & Young LLP, Chartered Accountants, who have
prepared an independent auditors’ report dated March 25, 2008 in respect of the
Company’s audited financial statements with accompanying notes as at and for the
year ended December 31, 2007 and 2006. Ernst & Young LLP have advised that
they are independent with respect to the Company within the meaning of the Rules
of Professional Conduct of the Institute of Chartered Accountants of British
Columbia.
 
 11.
              AUDIT COMMITTEE
  INFORMATION
 
 11.1           Audit Committee
Charter
 
 The Audit
Committee has adopted a Charter, the text of which is set out
below:
 
 “Charter
of the Audit Committee of the Board of Directors”
 
 I.           MANDATE
  The Audit
Committee (the “Committee”) is appointed by
the Board of Directors (the “Board”) of Canadian Zinc
Corporation (the “Corporation”) to assist the
Board in fulfilling its oversight responsibilities relating to financial
accounting and reporting process and internal controls for the Corporation. The
Committee’s mandate and responsibilities are to:
 •           recommend
to the Board the external auditors to be nominated and the compensation of
suchauditor;
  •           oversee
and monitor the work and performance of the Corporation's external
auditors,including meeting with the external auditors and reviewing and
recommending allrenewals or replacements of the external auditors and their
remuneration;
  •           pre-approve
all non-audit services to be provided to the Corporation by the
externalauditors;
  •           review
the financial statements and management's discussion and analysis (MD&A)
andannual and interim financial results press releases of the
Corporation;
  •           oversees
the integrity of internal controls and financial reporting procedures of
theCorporation and ensure implementation of such controls and
procedures;
  •           provide
oversight to any related party transactions entered into by the
Corporation.
  II.           AUTHORITY
OF THE AUDIT COMMITTEE
  The
Committee shall have the authority to:
 (1)
              engage
      independent counsel and other advisors as it determines necessary to carry
      out its duties;
  (2)         set
and pay the compensation for advisors employed by the Audit Committee;
and
  (3)         communicate
directly with the external auditors.
  III.           COMPOSITION
AND MEETINGS
  (1)
              The
      Committee and its membership shall meet all applicable legal, regulatory
      and listing requirements, including those of all applicable securities
      regulatory authorities.
  (2)           The
Committee shall be composed of three directors as shall be designated by the
Boardfrom time to time. The members of the Committee shall appoint from among
themselves amember who shall serve as Chair.  A minimum of two members
of the Committee present either in person or by telephone shall constitute a
quorum.
  The
Committee members will be elected annually at the first meeting of the Board
following the annual general meeting of shareholders.
 
 (1)
              Each
      member of the Committee shall be “independent” and shall be “financially
      literate” (as each such term is defined in Multilateral Instrument
      52-110)
  (2)
              The
      Committee shall meet at least quarterly, as circumstances dictate or as
      may be required by applicable legal or listing
    requirements.
  (3)
              Any
      member of the Committee may participate in the meeting of the Committee by
      means of conference telephone or other communication equipment, and the
      member participating in a meeting pursuant to this paragraph shall be
      deemed, for purposes hereof, to be present in person at the
      meeting.
  IV.           RESPONSIBILITIES
  (1)
              The
      Committee shall review the annual audited financial statements to satisfy
      itself that they are presented in accordance with applicable generally
      accepted accounting principles (“GAAP”) and report
      thereon to the Board and recommend to the Board whether or not same should
      be approved, prior to their being filed with the appropriate regulatory
      authorities.  The Committee shall also review the interim
      financial statements.
  (2)
              The
      Committee shall review any internal control reports prepared by management
      and the evaluation of such report by the external auditors, together with
      management’s response.
  (3)
              The
      Committee shall be satisfied that adequate procedures are in place for the
      review of the Corporation’s public disclosure of financial information
      extracted or derived from the Corporation’s financial statements,
      management’s discussion and analysis and annual and interim earnings press
      releases before the Corporation publicly discloses this
      information.
  (4)
              The
      Committee shall review management’s discussion and analysis relating to
      annual and interim financial statements and any other public disclosure
      documents, including interim earnings press releases, before the
      Corporation publicly discloses this
information.
  (5)
              The
      Committee shall meet no less frequently than annually with the external
      auditors to review accounting practices, internal controls and such other
      matters as the Committee deems
appropriate.
  (6)
              The
      Committee shall establish procedures
for
  (a)           the
receipt, retention and treatment of complaints received by the
Corporationregarding accounting, internal accounting controls or auditing
matters; and
  (b)           the
confidential, anonymous submission by employees of the Corporation ofconcerns
regarding questionable accounting or auditing matters.
  (7)
              The
      Committee shall provide oversight to any related party transactions
      entered into by the Corporation.
  (8)
              In
      the event that the Corporation wishes to retain the services of the
      Corporation’s external auditors for tax compliance or tax advice or any
      non-audit services the Chief Financial Officer of the Corporation shall
      consult with the Audit Committee, who shall have the authority to approve
      or disapprove such non-audit services.  The Audit Committee
      shall maintain a record of non-audit services approved by the Audit
      Committee for each fiscal year and provide a report to the Board on an
      annual basis.
  (9)
              The
      Committee shall review and approve the Corporation's hiring policies
      regarding partners, employees and former partners and employees of the
      present and former auditors of the
Corporation.
  (10)
              The
      Committee shall perform any other activities consistent with this Charter
      and governing law, as the Committee or the Board deems necessary or
      appropriate.
 
 11.2           Composition of Audit
Committee
 
 The Audit
Committee is composed of Robert Gayton, Dave Nickerson and Alan
Savage.  The Company considers each member of the Audit Committee to
be financially literate and independent for the purposes of National Instrument
52-110 (“NI 52-110”) (see additional comment with respect to the independence of
Robert Gayton under “Reliance on Exemption” below).
 
 The
education and experience of each Audit Committee Member is set out
below:
 
 Robert
Gayton B.Comm., Ph.D., FCA, Dr. Gayton is a fellow of the Institute of Chartered
Accountants.  He graduated from the University of British Columbia
with a Bachelor of Commerce and earned the Chartered Accountant (CA) designation
at Peat Marwick Mitchell. Dr. Gayton joined the Faculty of Business
Administration at the University of British Columbia where he spent ten years
teaching, including time at the University of California Berkley, earning a
Ph.D. in Business.  Dr. Gayton rejoined Peat Marwick Mitchell in 1974,
becoming a partner in 1976 where he provided audit and consulting services to
private and public companies for eleven years.  Dr. Gayton has
directed the accounting and financial matters of numerous public companies in
the resource and non-resource fields since 1987. He has served as an officer of
public companies for a period in excess of twenty years.  He has an in
depth understanding of the accounting principles used by the Company to prepare
its financial statements and has the ability to assess the general application
of such accounting principles in connection with the accounting for estimates,
accruals and reserves. He has in depth experience preparing, auditing, analyzing
and evaluating financial statements with accounting issues at least comparable
to the financial statements and the issues that can reasonably be expected to be
raised by the Company’s financial statements. He has an in depth understanding
of internal controls and procedures for financial reporting.
 
 Dave
Nickerson B.Sc., M.Sc.  Mr. Nickerson holds a Bachelors degree in
Mining Engineering from the University of Birmingham and a Masters degree in
Mineral Exploration from Laurentian University and has taken Post-Graduate
Courses in Mineral Development and in Legislation Strategy at McGill University,
Montreal.  He is a Professional Engineer and a member of the
Association of Professional Engineers, Geologists and Geophysicists of the
Northwest Territories.  He was elected as Member of Parliament for
three terms 1979 to 1988, during part of which time he served as a member of the
House Standing Committee on Public Accounts, and as a Member of the Legislative
Assembly of the Northwest Territories 1975 to 1979.  He served as the
Chairman of the Northwest Territories Water Board from 1988 to
1994.  He has served as a director of public companies for a period in
excess of five years.  He has an understanding of the accounting
principles used by the Company to prepare its financial statements and has the
ability to assess the general application of such accounting principles in
connection with the accounting for estimates, accruals and
reserves.   He has experience evaluating financial statements
with accounting issues comparable to the financial statements and issues that
can reasonably be expected to be raised by the Company’s financial
statements.  He has an understanding of internal controls and
procedures for financial reporting.
 
 Alan
Savage BA has served as an officer of public companies for a period in excess of
forty years.  He has an understanding of the accounting principles
used by the Company to prepare its financial statements and has the ability to
assess the general application of such accounting principles in connection with
the accounting for estimates, accruals and reserves.  He has
experience supervising the preparation and auditing of financial statements with
accounting issues comparable to the financial statements and the issues that can
reasonably be expected to be raised by the Company’s financial
statements.  He has experience analyzing and evaluating the financial
statements of public companies and has an understanding of internal controls and
procedures for financial reporting.
 
 11.3           Reliance on
Exemption
 
 Robert
Gayton has been a member of the Company’s Audit Committee since 2000 and is
particularly experienced in accounting, accounting principles and in the
preparation, auditing, analyzing and evaluation of financial
statements.  The Company considers Robert Gayton to be independent for
the purposes of NI 52-110 in that he has no direct or indirect relationship with
the Company which could, in the view of the Board of Directors of the Company,
be reasonably expected to interfere with the exercise of independent
judgment.
 
 However,
Mr. Gayton did serve as a part-time Interim Chief Financial Officer of the
Company during the period January 1, 2002 until December 9, 2004 pending the
appointment of a permanent Chief Financial Officer and may, for the purposes of
the independence tests in NI 52-110, be deemed to have been an Executive Officer
of the Company during that time. Mr. Gayton also received consulting fees of
$8,483, $5,625 and $6,000 in respect of the calendar years 2002, 2003, 2004
respectively, (in addition to remuneration for acting as a Member of the Board
of Directors), which fees may be deemed, for the purposes of the independence
tests in NI 52-110, to have been consulting fees for acting in his capacity as
an Executive Officer of the Company.
 
 Section
3.6 (Temporary Exemption for Limited and Exceptional Circumstances) of NI 52-110
provides temporary relief from the independence requirements in NI 52-110 with
respect to a particular audit committee member in circumstances where, among
other things, the Board of Directors determines in its reasonable judgment that
the member is able to exercise the impartial judgment necessary for the member
to fulfill his responsibilities as an audit committee member and the appointment
of the member is required by the best interests of the Company and its
shareholders. The Company has relied on this exemption with respect to Mr.
Gayton for the past three fiscal years up to December 9, 2007, being three years
after the date Mr. Gayton served as interim Chief Financial
Officer.
 
 11.4         Pre-Approval Policies and
Procedures
 
 The Audit
Committee has adopted procedures requiring Audit Committee review and approval
in advance of all particular engagement for services provided by the
Auditors.  Consistent with applicable laws, the procedures permit
limited amounts of services, other than audit services, to be approved by the
Audit Committee provided the audit committee is informed of each particular
service.  All of the engagements and fees for Fiscal 2006 and 2007
were approved by the Audit Committee.  The Audit Committee reviews
with the auditors whether the non-audit services to be provided are compatible
with maintaining the Auditor’s independence.
 
 Since the
commencement of the Company’s most recently completed financial year (January 1,
2007) there has not been a recommendation of the Audit Committee to nominate or
compensate an external auditor which was not adopted by the Board of
Directors.
 
 11.5         Audit Fees and
Services
 
 The
aggregate amounts billed by auditors for the two fiscal years ended December 31,
2007 and 2006 for audit fees, audit related fees, tax fees and all other fees
are set forth below:
 
 Year
      Ended
                December
      31, 2007
              Year
      Ended
                December
      30, 2006Audit
      Fees (1)
              $59,740
              $53,429Audit-Relates
      Fees(2)
              30,900
              11,742Tax
      Fees (3)
              -
              6,660All
      Other Fees
              -
              7,500Total
              $90,640
              $79,331
 
 (1) “Audit
Fees” represent fees for the audit of the annual financial statements, and
review in connection with the statutory and regulatory filings.
 (2) “Audit
Related Fees” represent fees for assurance and related services that are related
to the performance of the audit.
 (3) “Tax
Fees” represent fees for tax compliance, tax advice and
planning.
  
  12.
              ADDITIONAL
    INFORMATION
 
 Additional
information, including Directors' and officers' remuneration and indebtedness,
principal holders of the Company's securities, options to purchase securities
and interests of insiders in material transactions, where applicable, are
contained in the Company's Information Circular dated May 4, 2007 for its most
recent Annual Meeting of Shareholders held on June 13, 2007, which may be found
on SEDAR at www.SEDAR.com.
 
 Additional
financial information is contained in the Company’s Audited Financial Statements
and Management’s Discussion and Analysis for the years ended December 31, 2007
and 2006 which may be found on SEDAR at www.SEDAR.com.
 
 The
Issuer shall provide, upon request and upon payment of a reasonable charge where
permitted, a copy of its 2007 Annual Information Form, the December 31, 2007
audited financial statements and the accompanying auditor’s report thereon,
Management Discussion and Analysis, any subsequent interim financial statements
and the Information Circular.
 
 
  
  Cautionary Note – Forward Looking
Statements
 
 This
Annual Information Form 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 “Risk Factors” herein and under
“Management’s Discussion and Analysis for the year ended December 31, 2007 -
Liquidity 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.