**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 30, 2007**









***for
      the Fiscal Year ended***




***December
      31, 2006***











**CANADIAN
      ZINC CORPORATION**




**ANNUAL
      INFORMATION FORM**




**FOR
      YEAR ENDED DECEMBER 31, 2006**









**TABLE
      OF CONTENTS**














**1.**
            INCORPORATION
            1**2.**
            GENERAL
                DEVELOPMENT OF THE BUSINESS
            1**3.**
            NARRATIVE
                DESCRIPTION OF THE BUSINESS
            3**4.**
            RISK
                FACTORS AND UNCERTAINTIES
            35**5.**
            CAPITAL
                STRUCTURE
            44**6.**
            MARKET
                FOR SECURITIES
            45**7.**
            DIRECTORS
                AND OFFICERS
            46**8.**
            TRANSFER
                AGENTS AND REGISTRARS
            47**9.**
            MATERIAL
                CONTRACTS
            47**10.**
            INTERESTS
                OF EXPERTS
            47**11.**
            AUDIT
                COMMITTEE INFORMATION
            48**12.**
            ADDITIONAL
                INFORMATION
            51CAUTIONARY
                NOTE - FORWARD LOOKING
                STATEMENTS
            51










**CANADIAN
      ZINC CORPORATION**




**ANNUAL
      INFORMATION FORM**




**FOR
      THE YEAR ENDED DECEMBER 31, 2006**









**1.**
            **INCORPORATION**




Canadian
      Zinc Corporation (the "Issuer" or “Canadian Zinc” or “the Company”) was
      incorporated in British Columbia, Canada, on December 16, 1965 under the
      Corporations Act British Columbia. The Issuer changed its name to "San Andreas
      Resources Corporation" on August 29, 1991 and to "Canadian Zinc Corporation"
      on
      May 25, 1999.




The
      Issuer's head office, and the registered and records 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 kilometers west of Yellowknife in the Northwest Territories,
      Canada.






**Three
      Year History**




In
      January of 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 put in place in 1982, but never operated. Indicated capital
      costs
      for the new operation were estimated in 2000 to be CDN$40.5 million, including
      the construction of an all weather access road to the site. The Scoping Study
      has not been updated.




Throughout
      the years 2004, 2005 and 2006, the Company’s principal focus was its efforts to
      advance the Prairie Creek Project towards development, principally in the
      permitting process and in 2006 in underground exploration and development.
      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 Licence 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. An appeal to the Federal Court seeking judicial review of the decision
      of
      the Water Board to issue the Water Licence was filed in October 2003 by the
      Deh
      Cho 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 Licence
      containing modified language which had been agreed between the




1


Company
      and the Minister of Indian and Northern Affairs Canada. The Licence was reissued
      by the Water Board in February 2006.




With
      the
      general improvement in metal prices, and the investment market for resource
      companies, during the second half of 2003 the Company completed a number of
      financings to fund the ongoing permitting, exploration and development of the
      Prairie Creek Property. During 2003 a total of $15,619,802, before expenses,
      was
      raised, representing a significant improvement in the Company’s liquidity and
      working capital *.*




In
      2003
      the Company submitted a separate application for a Land Use Permit for use
      of
      the existing road from the Liard Highway to the mine site and claimed legal
      exemption from the Environmental Assessment process. The claim for exemption
      was
      denied by the Water Board and the Company filed an appeal to the Supreme Court
      of the Northwest Territories. That Appeal was heard by the Court in December
      2004 and in May 2005 the 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 Deh Cho 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. The
      permit has not yet been issued.




During
      2004 the Company carried out an exploration program at the Prairie Creek
      Property. A total of 27 holes were drilled comprising 5,963 meters, directed
      at
      three different target areas with encouraging results, especially downdip to
      the
      north outside the immediate mine development area. At the same time the
      underground workings were rehabilitated in preparation for the planned decline
      and underground drilling program, whilst important site maintenance and
      environmental work was also carried out.




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
      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.




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.




In
      2006
      the Company carried out major programs at Prairie Creek including sinking a
      new
      internal decline about 400 metres long from the end of the existing workings
      on
      the 870 metre level, from which new drill stations were established at 50 metre
      intervals, and starting a major underground exploration and infill drilling
      program which has continued into the first half of 2007. A total of 10,000
      metres of underground drilling is planned in this program, of which 1,800 metres
      had been completed by year end.  The
      2006/07 underground drill program is focused on further defining the Main Zone
      (Zones 1-3) of mineralization in order to upgrade the resource category where
      previous wide spaced surface diamond drilling has outlined a large inferred
      mineral resource. The bulk of this drilling is targeted on detailing the vein
      style mineralization, however, some deeper drilling exploring for additional
      stratabound mineralization is also included.




2


A
      new
      metallurgical bulk sample was taken in 2006 and shipped to Lakefield Research
      Laboratories for further testing and optimization studies. A surface diamond
      drill exploration program totaling 600 metres of drilling was carried out in
      Zone 8, located about 5 kilometres south of the mine site.




In
      2007
      the Company will continue with the development of the Prairie Creek Project,
      including ongoing underground exploration and development and surface
      exploration on the mineralized zones to the south. At the same time the ongoing
      permitting process will continue.




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 2007.






**3.**
            **NARRATIVE
                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 kilometers 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 1000-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 Issuer 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 Issuer 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.




3


In
      January 2004, the Issuer 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.






**3.1** **Principal
      Property - Prairie Creek, Northwest Territories**




The
      following information contained in Sub-Sections 3.1.1 to 3.1.7 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.




**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, 2007. Six additional mineral claims
                (Way 1 -
                6) covering an area of 4,126.25 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 Deh Cho 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
      Deh Cho Process. [Refer to Section D.10 on First Nations below].




In
      July
      2003, as part of the Interim Measures Agreement entered into between Canada
      and
      the DCFN as part of the Deh Cho 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, licences, permits, reservations, benefits and
      privileges and does not affect access to or across withdrawn land.






**3.1.2**
            **Location,
                Access and
                Climate**




The
      Prairie Creek Property is situated approximately 500 kilometers west of
      Yellowknife, the administrative centre of the Northwest
      Territories.




4







Year
      round access to the Property is provided by aircraft to a 3000-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 kilometers and which was originally permitted for use in the
      winter months throughout its full length and for year round use for the first
      40
      kilometers out from the mine site. The road needs to be re-established and
      the
      Company has applied for a permit to use the road in the winter months. The
      Liard
      Highway 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**




Three
      distinct styles of base metal mineralization have so far been discovered on
      the
      Property: Vein, Stratabound and Mississippi Valley-type (“MVT”). The Vein and
      Stratabound styles of mineralization occur within the Prairie Creek embayment
      feature in a Siluro-Ordovician sedimentary sequence. The majority of the current
      mineral resource reports to Vein mineralization and occurs in a crosscutting
      steeply east dipping fault with a northerly strike. The remainder of the current
      mineral resource occurs as Stratabound massive sulphides, which were discovered
      proximal to the Vein mineralization. The close proximity of the two styles
      of
      deposit may indicate a somewhat similar genetic origin. MVT




5


zinc/lead
      mineralization is exposed in the northern portion of the Property within a
      carbonate sequence that is marginal to the paleo-embayment feature.




The
      principal Vein structure at Prairie Creek cuts through Ordovician age dolostones
      and graphitic shales of the Whittaker and Road River Formations. The Prairie
      Creek vein deposit is estimated to contain a measured and indicated historical
      mineral resource of 2.3 million tonnes grading 12.5% zinc (Zn), 12.2% lead
      (Pb),
      190 g/tonne silver (Ag) and 0.4% copper (Cu) with additional inferred resources
      of 8.1 million tonnes grading 12.9% Zn, 10.5% Pb, 171 g/t Ag, and 0.4% Cu.




The
      distinctly different style of mineralization, termed Stratabound, was
      encountered by the Company in 1992 during deeper drilling near the Vein. The
      Stratabound mineralization presently consists of a measured and indicated
      historical mineral resource of 1.3 million tonnes grading 10.6% Zn, 5.2% Pb
      and
      56 g/tonne Ag. This style of deposit is found, so far, wholly within the Upper
      Whittaker Formation dolostones. Stratabound sphalerite-galena-pyrite sulphides
      occur predominately in a subunit of the Whittaker, termed the Mottled Horizon,
      located approximately 200 meters below the present mill level (870) underground
      workings.




**The
      above historical resource estimates were calculated by MRDI in 1998 and were
      not
      prepared in accordance with National Instrument 43-101 -** ***Standards
      of Disclosure for Mineral*** **Projects
      and does not comply with United States Standards for disclosure of mineral
      projects**  [See
      section 6. “Resource Estimation” below].




Since
      1991, the Company has completed over 47,000 meters of surface diamond drilling
      and an underground sampling program which has greatly expanded the inventory
      of
      known resources on the Property. In 2006 a new underground drilling program
      was
      initiated and approximately 1,800 meters of underground drilling had been
      completed by year end. This program is ongoing and will continue into mid
      2007.




The
      Vein-type deposit remains open ended to the north and south of the current
      Zone
      3 resource, which is defined over only 2.5 kilometers of the 16-kilometer
      prospective corridor. The discovery in 1992 of Stratabound type mineralization
      in the Main Zone opened up multiple exploration targets for the discovery of
      further Stratabound deposits. Potential for significant increases in Stratabound
      mineralization exist throughout the Property. Drilling so far has been somewhat
      restricted by topography limiting the areas of potential mineralization that
      can
      be drilled. A limited surface drilling program totaling 600 metres was conducted
      on Zone 8 located about 5 kilometres south of the mine site in
      2006.




With
      many
      Vein occurrences exposed throughout the length of the Property, the prospects
      for additional Vein and Stratabound material are excellent over the remaining
      14
      kilometers of structure on the Property. The Company believes that there remains
      excellent potential for discovering additional massive sulphides in the vicinity
      of the Prairie Creek Mine, which will further add to the already substantial
      mineral resource base.






**3.1.4**
            **Geological
                Setting**




The
      Prairie Creek Mine is located in the southern portion of the Mackenzie Mountains
      physiographic subdivision within the Northern Cordillera Geosyncline. The
      Southern Mackenzie Mountains are underlain by Lower Paleozoic carbonates of
      the
      Mackenzie shelf, and associated basinal limestones, dolostones and
      shales.




Structurally
      the prevalent orientation of faulting and folding is north-south. Faults and
      fold axial planes dip both east and west. A number of north trending thrust
      faults cut through the region. The east dipping Tundra Thrust Fault and, 30
      kilometers to the west, the west dipping Arnica Thrust Fault




6


define
      the present margins of the Prairie Creek paleobasin, which accumulated a thick
      Devonian sequence of sediments (including the Cadillac and Funeral Formations).
      The two principal styles of base metal sulphide mineralization occur within
      the
      Prairie Creek basinal feature in the Ordovician-Silurian Whittaker and Road
      River Formations.




The
      northern part of the Property is underlain by a marginal carbonate sequence
      of
      the Root River, Camsell and Sombre Formations. This sequence is bounded to
      the
      east by the east dipping Tundra Thrust, which forms the eastern boundary of
      the
      Prairie Creek basinal sequence.




In
      the
      southern part of the Property the mine is geologically situated on the eastern
      margin of the Prairie Creek Embayment. This ancient basinal feature is composed
      primarily of a conformable sequence including the Lower Ordovician Whittaker
      Formation dolostones, Silurian Road River Formation shales, and Cadillac
      Formation thinly bedded limy shales. Lower to Middle Devonian Arnica and Funeral
      Formation dolostones and limestone overlie this assemblage on the northern
      part
      of the property.




In
      the
      southern part of the property faulting and folding axes trend generally
      north-south, resulting in windows of older Road River shales cored by the
      Whittaker Formation dolostones being exposed along the core of the main Prairie
      Creek anticline. The Prairie Creek anticline is structurally bounded to the
      east
      by the Prairie Creek Fault and to the west by the Gate Fault.






***Property
      Base Metal Mineralization***




There
      are
      three main styles of base metal mineralization so far located on the Property:
      Vein sulphides, Stratabound sulphides (both of which occur in the southern
      part
      of the Property) and Mississippi Valley type sulphides (MVT) which are found
      in
      the marginal carbonates in the northern sector of the property. Exploration
      at
      Prairie Creek has revealed many base metal mineral showings along the entire
      17-kilometer 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.




In
      the
      southern part of the Property, where Vein occurrences are exposed at surface,
      the mineral showings were referred to as sequentially numbered Zones. Some
      of
      these mineral Zones are now known to also contain subsurface Stratabound
      mineralization. The subsurface area above the underground workings is referred
      to as Zone 3 (or the Main Zone). Originally Zones 1 and 2 occurred adjacent
      to
      Zone 3; however, as a result of continuing exploration, Zone 1 and 2 are now
      incorporated and considered part of Zone 3. Zone 3 contains the historical
      estimated mineral resource, which includes both Vein and Stratabound
      mineralization. Extending south from the minesite (or Zone 3) are a series
      of
      other Vein exposures referred to as Zones 4 through 12, extending over a
      distance of 10 kilometers. A further expression of Vein mineralization, known
      as
      the Rico Showing, is located 4 kilometers to the north of Zone 3.




In
      the
      northern section of the Property MVT type showings occur and are referred to,
      from north to south over a distance of 10 kilometers, as the Samantha, Joe,
      Horse, Zulu, Zebra and Road Showings.




***Vein
      Sulphides***




Quartz
      Vein Sulphide mineralization occurs in a north-south trending 16 kilometer
      long
      corridor in the southern portion of the Property (referred to as Zones 1 through
      12). The bulk of the mineral resources outlined to date on the Property are
      established on only one of these Vein occurrences, namely Zone 3 (which includes
      Zone 1 and 2).




The
      Vein
      in Zone 3 strikes approximately north and dips steeply to the east (variable
      from -40 ° E
      to
      -90 ° and
      averages -65 ° E).
      Most
      of the surface mineralized zones at Prairie Creek occur within Road




7


River
      Formation shales. These showings generally occur close to the axial plane of
      a
      tight north-south doubly plunging anticline. Mineralization comprises massive
      to
      disseminated galena, sphalerite, with lesser pyrite, and tennantite-tetrahedrite
      in a quartz-carbonate-dolomite matrix. Silver is present in equal amounts both
      in galena and tennantite-tetrahedrite. Vein widths are variable (from <0.1m
      to >5m) but overall averages indicate a horizontal thickness of approximately
      2.7 meters. The most extensive known Vein occurrence is in Zone 3 where
      underground development has proven 940 meters of strike length and diamond
      drilling has indicated a continuance of the Vein for a further 1.2 kilometers.
      The Vein remains open to the north and is expected to continue at depth for
      a
      further 4 kilometers. Evidence of the Vein continuing is the vein mineralization
      occurrence at the Rico Showing on surface 4 kilometers north on strike of the
      vein in Zone 3. In Zone 3, the Vein appears to be a tensional fault feature
      co-planar to a tight North-South trending fold axis.




At
      the
      end of the 930 meter level workings, the main Vein dissipates into the mid
      Road
      River shales. Rock competency appears to be a controlling feature governing
      Vein
      formation. Consequently, in the upper shales of the Road River and Cadillac
      Formations the Vein is not well developed. Drilling at depth has indicated
      a
      continuance of the Vein, however little information is available below the
      600
      meter elevation mark.




Also
      of
      note, towards the end of the 930 meter level workings (crosscut 30) are a series
      of narrow (average 0.5 meter wide) massive sphalerite-tennantite Veins striking
      at approximately 40° to the main Vein trend. This mineralization is referred to
      as Vein Stockwork and carries a calculated mineral resource based on underground
      sampling and limited diamond drilling. [307,000 tonnes Measured & Indicated:
      742,000 tonnes Inferred] [See section 6 “Resource Estimation” below]. It is
      postulated that the Stockwork system filled tensional openings formed by primary
      movement along the Vein fault structure.




***Stratabound
      Sulphides***




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 kilometers. This type of deposit has so far been located by
      drill
      holes in Zones 3, 4, 5 and 6. Stratabound massive sulphides occur largely within
      a mottled dolostone unit of the Whittaker Formation close to both the Vein
      system and the axis of the Prairie Creek anticline. With additional drill hole
      information on the structural and stratigraphic setting of the deposit it was
      proposed that a model along the lines of some of the Irish carbonate hosted
      lead/zinc deposits (i.e., Lisheen, Galmoy and Silvermines) may be the most
      appropriate analogy for the Prairie Creek Stratabound deposit.




Stratabound
      sulphide mineralization has now been identified in three stratigraphic horizons
      of the Upper Whittaker Formation. Stratabound mineralization consists of
      sphalerite-pyrite-galena, totally replacing the host dolostone with little
      apparent alteration. Apparent thicknesses of the Stratabound zone of up to
      28
      meters have been drill intercepted. Stratabound mineralization is generally
      fine
      grained, banded to semi massive, consisting of massive fine grained sphalerite,
      coarse grained galena and disseminated to massive pyrite. This type of sulphide
      mineralization appears to be genetically related to the Vein mineralization,
      however it is different in its mineralogy and structural setting.




The
      main
      drill defined Stratabound deposit occurs 200 meters below the 870 meter level
      at
      the minesite. There are currently no underground workings that intercept
      Stratabound material.




8




***Mississippi
      Valley Type Sulphides - MVT***




MVT
      type
      sulphide mineralization has been located at the Zebra showing, which is the
      southern most showing in a belt that extends for 10 kilometers to the north
      of
      the Main Zone and includes the Zulu, Joe and Samantha showings. MVT
      mineralization is comprised of colliform rims of sphalerite, brassy
      pyrite-marcasite and minor galena with or without later dolomite infilling.
      Mineralization is hosted within the Road River Formation.




Mineralization
      occurs discontinuously at approximately the same stratigraphic horizon along
      this NNW trend. This sulphide appears to be classic Mississippi Valley Type
      mineralization occurring in open cavity type settings. This style of
      mineralization is similar to some of the deposits mined at Pine Point, Northwest
      Territories.




Since
      these showings occur in a more remote part of the Property and are somewhat
      lower grade they have not been the focus of any major exploration to
      date.






**3.1.5**
            **Gate
                Claims**




During
      1999 the Gate 1-4 Mineral Claims were staked covering an area of 3,740 hectares
      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.




**3.1.6**
            **Resource
                Estimation**


****


In
      January 1998, a Resource Estimation was carried out by MRDI Canada, a wholly
      owned subsidiary of AMEC E&C Services Limited.




**The
      1998 Historical Resource Estimate was not prepared in accordance with National
      Instrument 43-101, but in accordance with the JORC Australasian Code. The
      Company is not treating the Historical Resource Estimate as a National
      Instrument 43-101-defined current resource or reserve verified by a Qualified
      Person and this Historical Resource Estimate should not be relied
      upon.**




The
      1998
      Mineral Resource Estimation reflected the impact of step-out exploratory
      drilling, completed by the Company since acquiring the property, at depth and
      along strike of the previously known mineral reserve. The information used
      in
      the resource estimate by MRDI was derived from the Company’s diamond drill hole
      data, channel sampling from underground development and from a number of the
      more clearly defined drill logs from previous operators. MRDI staff visited
      the
      property site and agreed that the data and interpreted model represents the
      Prairie Creek Deposit.




The
      database for compilation incorporated 1,529 sample assays from the Vein (both
      underground channels and diamond drilling), 39 samples from the Stockwork (both
      underground channels and diamond drilling) and 282 sample assays (drilling
      only)
      from the Stratabound mineralization. The silver grades were cut to 600 g/tonne.
      Specific gravity laboratory measurements were provided for 231 Vein samples
      and
      22 Stratabound samples. MRDI completed regression analysis to determine an
      appropriate function to calculate specific gravity for the remainder of the
      samples.




The
      mineral resource was classified into measured, indicated and inferred resources,
      based upon level of confidence according to the Australasian Code for Reporting
      Identified Mineral Resources and Ore Reserves,
      using drilling grid spacing and continuity of mineralization as determined
      through the geo-statistical review of the data.




The
      1998
      Historical Resource Estimate was prepared by MRDI under the supervision of
      Alan
      Taylor, a Qualified Person for the purposes of National Instrument 43-101.




As
      a
      Qualified Person Alan Taylor, Vice-President of Exploration representing
      Canadian Zinc Corporation, states that in his opinion the categories of
      measured, indicated and inferred mineral resources in The Australasian Code
      for
      Reporting of Mineral Resources and Ore Reserves published by the Joint Ore
      Reserves Committee of the Australasian Institute of Mining and Metallurgy and
      the Australian Institute of Geoscientists and the Minerals Council of Australia
      (JORC) used by MRDI are substantially equivalent to the categories of measured,
      indicated and inferred mineral resources defined in the Canadian Institute
      of
      Mining and Metallurgy Standards on Mineral Resources and Reserves - Definitions
      and Guidelines as incorporated in National Instrument 43-101.




The
      1998
      Historical Resource Estimate is considered to continue to be relevant to an
      assessment of the Prairie Creek Property, in part because no recent estimates
      have been made and, because of the extensive information utilized in making
      the
      Estimate, is, subject to the qualifications therein and herein, considered
      to be
      reliable. It is planned that an updated estimate of the resources will be made
      upon completion of the 2006/2007 underground drilling program.




It
      should
      be noted that the 1998 Mineral Resource Estimate is strictly an in-situ mineral
      resource estimation and further delineation drilling and underground drifting
      is
      required in order to raise the confidence level of the resources.




The
      assessment is preliminary in nature and includes inferred mineral resources
      that
      are considered too speculative geologically to have the economic considerations
      applied to them that would enable them to be categorized as mineral reserves,
      and there is no certainty that the preliminary assessment will be realized.
      Mineral resources that are not mineral reserves do not have demonstrated
      economic viability.




A
      summary
      report of the MRDI Resources Estimation is contained as an appendix to the
      Scoping Study, which has been filed on SEDAR and is available under the title
      Technical Reports filed April 24, 2001.




The
      table
      below shows this “estimated resource,” contained in Zone 3 only, as calculated
      by MRDI in the course of their 1998 independent review. The “resource” grades
      include all intercepts in a specific area, and has had no blocks removed by
      a
      cut off grade.




9







**Prairie
                Creek (Historical) Resource Estimate**
            **Zone
                3 Only. MRDI (January 1998)****Type**
            **Category**
            **Tonnes**
            **Zn%**
            **Pb%**
            **Ag
                g/t**
            **Cu%**Vein
            Measured
            542,000
            12.5%
            13.0%
            197.0
            0.4%Vein
            Indicated
            1,434,000
            11.2%
            12.8%
            190.0
            0.4%Subtotal
            
            1,976,000
            11.6%
            12.9%
            191.9
            0.4%Vein
            Inferred
            7,412,000
            12.7%
            11.0%
            174.0
            0.4%Stockwork
            Measured
            79,000
            31.1%
            15.0%
            294.0
            0.7%Stockwork
            Indicated
            228,000
            14.5%
            5.6%
            134.0
            0.4%Subtotal
            
            307,000
            18.8%
            8.0%
            175.2
            0.5%Stockwork
            Inferred
            742,000
            14.6%
            5.0%
            145.0
            0.4%Stratabound
            Measured
            500,000
            10.5%
            5.4%
            51.0
            0.0%Stratabound
            Indicated
            785,000
            10.6%
            5.1%
            59.0
            0.0%Subtotal
            
            1,285,000
            10.6%
            5.2%
            55.9
            0.0%Stratabound
            Inferred
            124,000
            7.9%
            2.7%
            26.0
            0.0%**Total
                Resource by Categories**Vein
                / Stock / Strata
            Measured
            1,121,000
            12.9%
            9.8%
            138.7
            0.2%Vein
                / Stock / Strata
            Indicated
            2,447,000
            11.3%
            9.7%
            142.8
            0.3%***Subtotal
                Measured & Indicated***
            ***3,568,000***
            ***11.8%***
            ***9.7%***
            ***141.5***
            ***0.3%***Vein
                / Stock / Strata
            Inferred
            8,278,000
            12.8%
            10.3%
            169.2
            0.4%







**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.




10


**3.1.7**
            **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 $400,000. The Scoping
      Study has not been updated.




The
      Study
      was examined by Micon International Ltd. of Toronto, who confirmed that “all of
      the elements necessary for a scoping study have been incorporated” and that “the
      assumptions made within are considered reasonable for a study of this
      nature”.




The
      complete Scoping Study 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] and is incorporated herein by
      reference.




The
      Scoping Study assumes that Prairie Creek would be mined at 1,500 tonnes per
      day
      as a mixture of Vein and Stratabound resources at “average” deposit grades. The
      Scoping Study demonstrates that a 1,500 tonne per day mining operation could
      be
      established at Prairie Creek producing in the order of 95 million pounds of
      saleable zinc annually over at least 18 years (based on the current estimated
      combined [measured, indicated and inferred] resource of 11.8 million tonnes
      grading 12.5% Zn, 10.1% Pb, 161 g/t Ag and 0.4% Cu). [See section 6. “Resource
      Estimation” above]




The
      Scoping Study identified a number of different development and production
      scenarios. The operation utilized the existing mine and mill infrastructure
      put
      in place in 1982. Indicated capital costs for the new operation were estimated
      in the Scoping Study to be $40.5 million, including the construction of an
      all
      weather access road to the site. These indicated capital costs were estimated
      in
      2000, are preliminary in nature, and may not be attained. The indicated capital
      costs will be re-estimated in a proposed feasibility study.




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. Cash flows have been
      prepared taking into account these penalties. Subsequent work in 2002 has
      indicated that the zinc concentrate can be smelted using the Sherrit
      hydrometallurgical process, opening up the market for the concentrates to hydro
      as well as conventional pyro-metallurgical smelters. A number of upside
      scenarios exist for the operation, including reduction of penalty levels in
      the
      concentrate and further mechanization in the mine to reduce costs. These
      alternatives will be examined further during the follow-up feasibility study
      process and do not form part of the base case.




The
      base
      case financial model in the Scoping Study indicates that the operation at a
      capital cost of $40.5 million would have a pre-tax and financing IRR of 45.6%
      and an NPV (at 10% discounted cash flow) of $97.2 million over the first ten
      years of a minimum 18 year mine life. The Scoping Study used long term metal
      prices of US$0.90 per lb Cu, US$0.50 per lb Zn, US$0.25 per lb Pb and US$5.50
      per ounce Ag and generally prevailing 2000 smelter treatment charges. The
      Canadian dollar was kept




11


constant
      at US$0.66. The base case indicated a break-even cash cost of production of
      US
      34.5 cents per pound of saleable zinc after by-product credits, but before
      financing and taxation. For every cent the Zn price is over the break-even
      production cost of US 34.5 cents per pound, pre-tax and financing cash flow
      increases by around US$0.64 million per annum.




All
      cost
      figures should be considered order of magnitude estimates and will require
      verification by more detailed study to convert the Scoping Study into a bankable
      feasibility study.




**It
      should be noted that the economic assessment in the Scoping Study is 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 is 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
      development plan for the Prairie Creek Project is based upon the Scoping Study
      prepared internally by the Company in 2001. A Scoping Study is not a Feasibility
      Study. The Scoping Study outlined the plan for the development of the Prairie
      Creek Project based on the historical development and existing infrastructure
      at
      the Prairie Creek Property and on 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 twenty-five years old and although it
      has
      been held under care and maintenance it has lain idle for twenty-five years
      and
      was never operated. There is significant risk attaching to the proposed
      operation of aged equipment.




The
      Company is now examining the various alternatives outlined within the Scoping
      Study and is working towards converting this into a bankable feasibility study.
      As part of the full feasibility program, it is the Company’s intention to carry
      out additional delineation drilling. During 2004 the Company rehabilitated
      the
      underground workings in preparation for the planned decline and underground
      drilling program. This site development work continued in 2005 when a new water
      polishing pond was constructed to treat the water discharge from the 870 portal,
      the planned decline and also any water discharge from the pilot milling program.
      In 2006 a new 400 meter decline was driven to provide underground drilling
      platforms to access resource blocks below the current underground
      workings.




During
      2004, 2005 and 2006 metallurgical testing was carried out on the ore 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. One ore type is representative of the vein
      mineralization 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. The second ore type of Stratabound mineralization contains
      zinc, lead, silver and iron sulphide minerals.




The
      samples were shipped to SGS Lakefield Research Laboratories at Lakefield,
      Ontario 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




12


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 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.




The
      work
      carried out by the Company on the Prairie Creek Property since 2001 described
      above has not materially changed the information in the Scoping Study Technical
      Report filed in April 2001.






**3.1.8**
            **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
      Licence 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 use of up to 1,150 m 3 /day
      and
      420,000 m 3 /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
      kilometers being permitted for year round use with the remaining 130 kilometers
      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 Licence 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.




13


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 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." (Section 9.1. MVRMA).
      To
      reflect the desire of First Nations to be more actively involved in resource
      management decision-making, half the members of each Board 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 Deh Cho, North
      Slave and South Slave regions. The Deh Cho area is not settled. Prior to
      additional regional Boards being established, First Nations in the Deh Cho
      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.




14


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 licences 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 licences.
      Regarding a Type 'A' water licence, 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 licences 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 licence to do so, S 8 and 9. 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 licence is required
      under the Waters Act. The MVLWB may issue, amend, renew and cancel licences
      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 licences on land in unsettled land claim
      areas in the Mackenzie Valley, inclusive of the Deh Cho area.


******


***(b)***  ***Permitting
      Process***




All
      applications for a land use permit or a water licence 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 Deh Cho First Nations territory,
      for
      which a land claim settlement agreement has not as yet been reached,
      applications are processed by the MVLWB.




15


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 licence. 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.




16


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
      Licence 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 licences 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
      licence, permit or other authorization related to an undertaking that is the
      subject of a licence or a permit issued before




17


June
      22,
      1984, except the licence, 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 licences. 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
      licences 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 Licence 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”).*




18


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
      preproduction 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 licences authorizing full production from the Prairie Creek
      Mine.




19


Since
      August 2000, Prairie Creek has undergone five Environmental Assessments by
      the
      MVEIRB and has received four separate Land Use Permits and a Water Licence
      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 meters 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
      Licence 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 Licence and a Land Use Permit (MV2001L2-0003) for underground
      decline development and metallurgical pilot plant operation planned for the
      Prairie Creek minesite. 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.




20


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 Licence
      MV2001L2-0003, and the Land Use Permit MV2001C0023 subject to the conditions
      set
      out therein. The Water Licence 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 Deh Cho 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 Licence to the Company.
      The
      Applicants’ grounds were that the Water Board issued the Water Licence 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 Licence 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 Licence 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 Licence 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 Licence
      incorporating the wording as per the Order of the Federal Court of Canada.
      The
      Water Licence and Land Use Permit are valid for a period of five years from
      September 30, 2008.




As
      contemplated in the Water Licence, 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 has argued that this application is exempt from the Environmental
      Assessment process by virtue of Section 157.1 of the Act. [See 3.1.8(c)
“Grandfather” Provisions] The Company’s argument was rejected by the
      Water




21


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 remains before by 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 issued its report to the Water Board in January
      2007.




**(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 meters 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.




22


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 Deh Cho First Nations, as community environmental
                monitor, who will independently report back to the Deh Cho 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.




23


**(k)** ***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 five separate
      Environmental Assessments. Four Land Use Permits and a Water Licence 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. An application
      for a Land Use Permit for use of the winter road is still pending before the
      Water Board. The Company intends to submit an application for a Type ‘A’ Water
      Licence for the operation of the Prairie Creek Mine during 2007. It is estimated
      the remaining 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.






**3.1.9**
            **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 kilometers upstream of the point where Prairie
      Creek crosses the boundary of the Nahanni National Park Reserve and 48
      kilometers upstream of the point where Prairie Creek joins the South Nahanni
      River. The confluence of Prairie Creek and the South Nahanni River is 65
      kilometers 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 kilometers in length of which 300 kilometers are contained
      within the Nahanni National Park Reserve. The watershed of the South Nahanni
      River is 37,000 km 2 ,
      of
      which 4,766 km 2 are
      contained within the Nahanni National Park Reserve. The watershed of Prairie
      Creek above the minesite is 495 km 2 ,
      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 26 th 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 Deh Cho 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




24


right
      angles to the mountain ranges, with walls of up to 1,000 meters high, Virginia
      Falls which falls over 90 meters, 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.




Parks
      Canada has been on record since 1984 as wishing to expand the boundaries of
      Nahanni National Park Reserve to make it more representative of the Mackenzie
      Mountains natural region and to improve its ecological integrity. Expansion
      of
      Nahanni is a goal under the Federal Government’s October 2002 Action Plan to
      Protect Canada’s Natural Heritage, which called for the creation of ten new
      National Parks and five new National Marine Conservation Areas and the expansion
      of three existing National Parks.




Parks
      Canada’s primary concern is the protection of the ecological integrity of the
      entire Nahanni watershed. The goal is to achieve an expanded park boundary
      that
      will protect the key features of Nahanni including protection of the wilderness
      watershed, protection of special features, sustainable wildlife populations
      and
      the continuation of traditional substance harvesting.




The
      Government of Canada is committed to expanding the boundaries of the Nahanni
      National Park Reserve through due process which includes mineral assessment,
      public consultations and reaching co-operative management arrangements with
      First Nations. It is understood that the expansion will proceed only through
      the
      Deh Cho Process. [See section 10. “First Nations” below].




The
      1987
      Nahanni National Park Reserve Management Plan identified three Boundary
      Candidate Areas for Potential Park Reserve Boundary Expansion. The Plan notes
      that these are not final boundary proposals, but areas of high value within
      which Parks Canada may seek boundary adjustments. It is not known by the Company
      what criteria were utilized in selecting the three candidate areas.




The
      three
      areas are: the Tlogotsho Plateau, Ragged Range and the Nahanni Karst Region
      north of the first canyon. None of these regions includes the areas near or
      around the Prairie Creek Mine. One of the areas, the “Nahanni Karst”, overlaps
      along its northern boundary, with parts of the existing winter road including
      from approximately Km 32 to Km 35 and Km 49 to Km 86. These areas are outside
      the South Nahanni River watershed within the north flowing watersheds of the
      Tetcela and Ram Rivers.




As
      part
      of the Deh Cho Process, The Naha Dehé Consensus Team (“NDCT”), consisting of
      representatives from Deh Cho First Nations and Parks Canada reviewed the 1987
      Park Management Plan, and the 1994 Management Plan Amendments.




In
      November 2001, at the invitation of the Deh Cho Process, Parks Canada tabled
      information on areas of high conservation value around Nahanni National Park
      Reserve for possible inclusion in the expanded Park. Through the Deh Cho
      Process, a proposal to “withdraw” from development a considerable portion of the
      South Nahanni River watershed received favourable review by both Canada and
      the
      Deh Cho First Nations. These areas, along with other proposed conservation
      lands
      and development zones, were reviewed by the Deh Cho Land Working Group and
      were
      included within the Interim Land Withdrawal area. This land was withdrawn by
      Order in Council dated August 13, 2003 and ** results
      in the lands surrounding Nahanni National Park Reserve being withdrawn from
      the
      possibility of new development. Existing interests including mining will be
      allowed to continue




25


according
      to their permits, but new activities will not be allowed. [See section 10.
      “First Nations” below].




As
      part
      of the Deh Cho Process Parks Canada has entered into a Memorandum of
      Understanding with Deh Cho First Nations with regard to the expansion of Nahanni
      National Park Reserve. In addition to this, the NDCT has developed an Interim
      Park Management Arrangement (IPMA). As prescribed in the Interim Measures
      Agreement, the IPMA guides the management of Nahanni National Park Reserve
      during this interim period until the Deh Cho Process is finalized. [See section
      10. “First Nations” below].




The
      Mineral and Energy Resources Assessment process (MERA) was established by the
      Federal Government in the 1980’s as a prerequisite to the establishment of parks
      in the Northwest Territories and the Yukon. Studies have been done under MERA
      to
      assess the mineral potential of certain parts of the proposed expansion areas.
      The MERA study for the three specific areas of the proposed Park Expansion
      was
      completed by the Geological Survey of Canada and was published in Open File
      #1686, 2003. Further MERA studies are being carried out by the Geological Survey
      of Canada over a much larger area of the Nahanni Watershed, including the area
      around the Prairie Creek Mine. The study is expected to be published in 2007
      and
      will lead to public consultation about possible park expansion.




Public
      consultations on possible expansion are expected to begin once the MERA process
      has been completed and reviewed by the Department of Indian Affairs and Northern
      Development, Natural Resources Canada, Parks Canada and the Government of the
      Northwest Territories. Determination of the final boundary will be based on
      the
      results of the joint work of Parks Canada and the Deh Cho working group
      established under the Memorandum of Understanding, the results of the ongoing
      MERA process and consultation with stakeholders, First Nation communities and
      Canadians. Finally, expansion of the park and the boundaries thereof require
      the
      approval of Parliament. Parks Canada will submit to the Government a report
      on
      the expansion, including the results of the consultations, and the Government
      will then introduce legislation to both the House of Commons and the
      Senate.




The
      Company recognizes the highly valued wilderness attributes of the South Nahanni
      River which have led to its designation as a world heritage site, and is
      committed to working closely with the Deh Cho First Nations, in whose
      traditional territory the Nahanni National Park Reserve lies, and with Parks
      Canada, to ensure that operations at the Prairie Creek Mine do not adversely
      impact upon Nahanni National Park Reserve or the proposed expanded
      park.




***Endangered
      Species***




The
      Committee on the Status of Endangered Wildlife in Canada (COSEWIC) lists two
      species in the area of the Prairie Creek Mine. These are 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 Anatum
      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.




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 in
      1980-81 and again by Rescan in 1994. None of the listed species and no critical
      habitat, 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




26


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 kilometers 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.




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.




***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. Further static and kinetic
      geochemical testing of rocks and mineralization are being
      undertaken.




***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. A substantial quantity of diesel fuel is
      also
      stored on site. A disposal project for the cyanide and PCB’s has been developed
      but removal requires the opening of the road to the Liard Highway.




**3.1.10**
            **First
                Nations**




The
      Prairie Creek Mine is located on land claimed by the Nahanni Butte Dene Band
      of
      the Deh Cho First Nations (“Deh Cho”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 Deh Cho First Nations are Aboriginal people
      within the meaning of Section 35 of the Constitution Act, 1982.




The
      Deh
      Cho 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 Deh Cho have had their
      own
      system of laws, religion, economy, customs, traditions and language since time
      inmemorial. Many Deh Cho 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 Deh
      Cho
      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 Deh Cho people lands, administers oversees a number of programs and
      services




27


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 Deh Cho territory and hold other Aboriginal rights
      as a collective in relation to their land and governance over the land and
      the
      Deh Cho 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 Deh Cho 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 Deh Cho 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 *“Deh
      Cho 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 Deh Cho have
      not
      settled their land claim with the Federal Government. The Deh Cho and the
      Federal Government of Canada both claim legal title to this territory, the
      Deh
      Cho 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 Deh Cho 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 Deh Cho extinguished ownership of their traditional lands.
      The
      Deh Cho have threatened to take the Federal Government to court, or to the
      United Nations, over the key issue of sovereignty. The Deh Cho territory has
      an
      area of approximately 210,000 square kilometers and has a native population
      of
      approximately 6,000.




Since
      the
      mid 1990’s the Deh Cho and the Federal Government have been engaged in the Deh
      Cho Process whereby the Federal Government and the Government of the Northwest
      Territories have agreed to negotiate with the Deh Cho First Nations on a
      government to government basis in order to set out land, resources and
      governance rights to apply in the Deh Cho territory. The objective of
      negotiations is to complete a Deh Cho Final Agreement which clarifies and builds
      upon existing Treaties by implementing a Deh Cho government which will make
      laws
      and deliver programs and services; be a public government based upon Deh Cho
      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
      Deh Cho 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 Deh Cho territory.




Early
      negotiations proved very slow in part because the Deh Cho 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 Deh Cho have been holding out for full constitutional,
      legal and governmental control




28


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 Deh Cho territory, that the legislation was enacted
      without the participation of, or any consultation with, the DCFN and was imposed
      on the Deh Cho territory against DCFN wishes. The DCFN have stated that the
      Final Agreement must, among other things, include a new resource management
      regime in Deh Cho territory other than the Mackenzie Valley Resource Management
      Act.




In
      2001,
      the Federal Government and the Deh Cho 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 Deh Cho agreed that it is desirable that the negotiations
      proceed at a pace which allows for the people of the Deh Cho 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 Deh Cho Final Agreement.




Under
      the
      Interim Measures Agreement, the Governments and the Deh Cho agreed to develop
      a
      land use plan for the Deh Cho 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 Deh Cho territory, taking into
      consideration the principles of respect for the land, as understood and
      explained by the Deh Cho Elders, and sustainable development.




Under
      the
      Interim Measures Agreement, Canada and the Deh Cho 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, licences 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 licences or land use permits will
      be
      issued under the *Mackenzie
      Valley Resource Management Act* within
      the Deh Cho territory except after written notice to the Deh Cho First Nations
      and after a reasonable period of time for the Deh Cho to make representations
      with respect to the application for such licence or permit. Canada also agreed
      not to issue any new prospecting permits under the *Canada
      Mining Regulations* in the
      Deh Cho territory without the support of the affected Deh Cho First Nation.




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




29


the
      Deh
      Cho 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 Deh
      Cho
      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 Deh Cho territory.




The
      Interim Measures Agreement also provided that the Deh Cho 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 Deh Cho agreed to an interim withdrawal of lands covering an
      area
      of approximately 80,000 square kilometers 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, licences, 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 Deh Cho and the Parks Canada Agency, whereby
      as
      part of the Deh Cho Process, Parks Canada and the Deh Cho 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 Deh Cho 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 Deh Cho and Parks Canada
      Agency designed to give the Deh Cho a greater role in the Park management
      process. A Consensus Team was established, comprising three appointees of Parks
      Canada and four from the Deh Cho 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 Deh Cho 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 Deh Cho Process broke down because of issues
      surrounding the proposed Mackenzie Valley gas pipeline. In June 2005 the Deh
      Cho
      First Nations entered into a




30


*Settlement
      Agreement* with
      Canada [represented by the Minister of Indian Affairs and Northern Development]
      to settle Court actions which had been commenced by the Deh Cho 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
      Deh Cho agreed to resolve issues related to the participation of the Deh Cho
      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 Deh Cho have differing views
      as
      to the existence and scope of the rights of the Deh Cho 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 Deh Cho First Nations. In the
      Settlement Agreement the parties agreed to take all reasonable steps to
      negotiate the terms of the Deh Cho Final Agreement which would include agreement
      to establish a *Deh
      Cho 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 Deh Cho 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 Deh Cho First Nations Framework Agreement.




In
      the
      Settlement Agreement, the parties agreed to implement a Land Use Plan that
      is
      approved by the Deh Cho 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 Deh Cho 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 Deh Cho 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 Deh Cho First
      Nations.




The *Deh
      Cho Land Use Planning Committee* (the
      Committee), was formally established in February 2002 under the authority of
      the
      Deh Cho Interim Measures Agreement with the responsibility to prepare a land
      use
      plan for the Deh Cho territory. The land use planning process is a community
      driven process where the goals and values of the residents of the Deh Cho 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.




31


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 Deh Cho 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 Deh Cho 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 Deh Cho 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 Deh Cho territory.




The
      Deh
      Cho Land Use Planning Committee includes representatives of the Deh Cho First
      Nations, the Government of the Northwest Territories and Government of Canada.
      As outlined under the Deh Cho 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 Deh Cho 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 Deh Cho First Nations
      in May 2006 and submitted to the Minister for consideration.




32


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




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






**3.1.11**
            **Co-Operation
                Agreement**




The
      Prairie Creek Mine is located 90 kilometers from the nearest settled community
      of Nahanni Butte, located at the confluence of the South Nahanni and Liard
      Rivers, 146 kilometers 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 Deh Cho 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 Deh Cho First Nations. This Agreement foresaw the many
      benefits




33


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 licences 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
      Deh Cho First Nations” and that the “Final Agreement should provide for the
      recognition of Deh Cho 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 Deh Cho 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 Licence 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
      (c) 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




34


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
      Company believes that the separate goals of the Deh Cho 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 Deh Cho 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 Issuer 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 Deh Cho First Nations
      as their traditional territory. No land claim settlement agreement has been
      reached between Canada and the Deh Cho and accordingly title to the land is
      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.




35


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.




Parks
      Canada is on record as seeking to expand the current boundaries of the Nahanni
      National Park Reserve and, whilst the proposed boundaries for potential
      expansion have not yet been determined, it is possible there may be proposals
      (official or otherwise) to expand the boundaries of the Park to include the
      entire South Nahanni River watershed. The Prairie Creek Mine is located within
      the South Nahanni River watershed.




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 licences 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
      licences and permits. However, such licences and permits are subject to change
      in various circumstances. Canadian Zinc does not hold all necessary licences
      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 licences 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




36


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.




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.




Existing
      and possible future environmental legislation, regulations and actions could
      cause additional expense, capital expenditures, restrictions and delays in
      the
      activities of the Issuer, the extent of which cannot be predicted. Before
      production can commence on the Prairie Creek Property the Issuer must obtain
      regulatory approval, permits and licences 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 development of mining properties.




37


The
      Prairie Creek project has on a number occasions experienced significant delays
      in obtaining permits and licences necessary for the conduct of its operations.
      (See Sections 3.1.8(d) to (k) above “Permitting at Prairie Creek”) 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 Issuer’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 Issuer
      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 Issuer.




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.
      See “Principal Property - Prairie Creek, Northwest Territories”. 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 unusal
      risks of exploration and mining, the Prairie Creek Property is situated in
      a
      remote location and does not have the benefit of infrastructure or easy
      access.




The
      development plan for the Prairie Creek Project is based upon a Scoping Study
      prepared internally by the Company in 2001. A Scoping Study is not a Feasibility
      Study. The Scoping Study outlined the plan for the development of the Prairie
      Creek Project based on the historical development and existing infrastructure
      at
      the Prairie Creek Property and on 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




38


study
      is
      outdated and cannot be relied upon. The existing infrastructure, including
      the
      mill, buildings, camp etc. is now twenty-five years old and although it has
      been
      held under care and maintenance it has lain idle for twenty-five years and
      was
      never operated. There is significant risk attaching to the proposed operation
      of
      aged equipment.




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 Issuer 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 Issuer, including quality issues, impurities, government
      regulations, royalties, allowable production and importing and exporting of
      minerals, the effect of which cannot be accurately predicted. Factors tending
      to
      affect the price of metals include:




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




·
            Government
                monetary and fiscal policies;




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




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




·
            Political
                conditions including the threat of terrorism or
                war;




·
            Speculative
                trading;




·
            Investment
                and industrial demand;




·
            Global
                production and inventory stocks.




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




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




Metal
      prices fluctuate widely and are affected by numerous factors beyond Canadian
      Zinc’s control such as the sale or purchase of such commodities by various
      central banks and financial institutions,




39


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 Issuer’s properties will depend upon the Issuer’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 Issuer 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.




40




**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 Corporation’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 Corporation’s properties
      or the properties of others, delays in mining, monetary losses and possible
      legal liability.




41


Although
      Canadian Zinc Corporation 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 Corporation 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 Corporation or to other companies in the mining
      industry on acceptable terms. In particular, the Issuer is not insured for
      environmental liability or earthquake damage.




Canadian
      Zinc Corporation might also become subject to liability for pollution or other
      hazards which may not be insured against, or which Canadian Zinc Corporation
      may
      elect not to insure against, because of premium costs or other reasons. Losses
      from these events may cause Canadian Zinc Corporation 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 Corporation 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 Corporation, and a small number of other skilled
      and experienced executives and personnel. Due to the relatively small size
      of
      Canadian Zinc Corporation, the loss of these persons or Canadian Zinc
      Corporation’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
      Corporation 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 Corporation
      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 the Issuer
      may participate, the directors of the Issuer 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 Issuer’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 Issuer are
      required to act honestly, in good faith and in the best interests of the Issuer.
      In determining whether or not the Issuer 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 Issuer may be exposed and
      its
      financial position at that time.




42


**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 Issuer’s title to its mining
      properties. The mining claims in which the Issuer 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 Corporation’s ability to ensure that it has obtained secure title to
      individual mineral properties or mining concessions may be severely constrained.
      Canadian Zinc Corporation’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 Corporation
      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 Corporation. As a
      result of this competition, Canadian Zinc Corporation may be unable to maintain
      or acquire attractive mining properties on terms it considers acceptable or
      at
      all. Consequently, Canadian Zinc Corporation’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




43


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.






**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, 2006 the Company had 107,590,212 shares issued and outstanding
      and
      at March 31, 2007 had 108,040,212 shares issued and outstanding.




At
      December 31, 2006 the Company also had 4,780,000 stock options and 11,995,493 share
      warrants outstanding.
      At March 30, 2007 the company had 16,325,493 share purchase warrants and stock
      options outstanding. Each share purchase warrant and stock option entitles
      the
      holder to purchase one common share.









***Stock
                Options*****Options
                December 31, 2006**
            **Options
                March 31, 2007**
            **Exercise/Conversion
                Price**
            **Expiry
                Date**450,000
            -
            $0.23
            March
                18, 20072,860,000
            2,860,000
            $0.60
            January
                14, 2010270,000
            270,000
            $0.89
            June
                27, 20111,200,000
            1,200,000
            $0.90
            December
                13, 20114,780,000
            4,330,000


44







***Warrants*****Warrants
                December 31, 2006**
            **Warrants
                March 31, 2007**
            **Exercise/Conversion
                Price**
            **Expiry
                Date**6,666,666
            6,666,666
            $1.00
            January
                30, 2008814,093
            814,093
            $0.72
            January
                30, 2008666,666
            666,666
            $1.00
            January
                30, 20082,777,778
            2,777,778
            $1.15
            November
                23, 2008681,401
            681,401
            $1.15
            November
                23, 2008388,889
            388,889
            $0.93
            November
                23, 200811,995,493
            11,995,493









**6.**
            **MARKET
                FOR
                SECURITIES**




The
      Issuer's common shares trade on the Toronto Stock Exchange under the symbol
      “CZN”.


The
      following table shows the price ranges and volume traded on the Toronto Stock
      Exchange on a monthly basis for each month of 2006.





**Price
                Range 2006**Month
            High
              Cdn.
                $
            Low
              Cdn
                $
            VolumeJanuary
            1.18
            0.75
            9,892,319February
            1.16
            0.83
            9,440,749March
            1.34
            0.83
            15,691,399April
            1.63
            1.22
            13,660,223May
            1.45
            0.93
            11,069,395June
            1.11
            0.71
            6,991,404July
            0.94
            0.58
            6,638,552August
            0.84
            0.69
            2,347,398September
            0.74
            0.53
            4,088,666October
            0.97
            0.56
            8,647,353November
            1.02
            0.77
            8,109,598December
            0.91
            0.74
            4,988,077**Year
                2006**
            **1.63**
            **0.53**
            **101,565,133**


TSX
      Historical Data website




45







**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(4)**
            **Common
                Shares beneficially owned, directly or indirectly, or over which
                control
                or direction is exercised**(1)
                (5)Robert
                Gayton(2)(3)
              British
                Columbia, Canada Director
            Financial
                consultant Western Silver Copper Corporation, Quaterra Resources
                Inc.,
                Doublestar Resources Ltd., Rio Fortuna Exploration Corp., Bravo Venture
                Group, Director of ten public companies.
            May
                2000
            5,000
                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 Conquest Resources Limited since 2001; Chairman
                of
                Anglesey Mining plc since 1994
            November
                2001
            765,409
                common sharesJohn
                MacPherson
              British
                Columbia, Canada
              Director
            Chairman
                of Tower Energy Ltd. (resource company) from 2003 to 2005; Chairman
                of
                Canadian Zinc Corporation from 2000 to June 2003
            May
                1999
            57,000
                common sharesDave
                Nickerson(2)
              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
            NilAlan
                C. Savage(2)(3)
              British
                Columbia, Canada
              Director
            Chief
                Executive Officer of Doublestar Resources Ltd., (resource company)
                Director of two public companies and one private company
            June
                2003
            2,000
                common sharesAlan
                Taylor
              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 Sunrise Minerals Inc.
            March
                2004
            NilBea
                Service
              Ontario,
                Canada
              Secretary
            Treasurer,
                Energold Minerals Inc. (resource company); Administrator, Conquest
                Resources Inc. (resource company)
            N/A
            NilDanesh
                Varma
              Surrey,
                United Kingdom
              Chief
                Financial Officer
            Chartered
                Accountant, Beer & Partners Limited (corporate finance firm);
                President American Resource Corporation Limited (investment company);
                Director Anglesey Mining plc; Chief Financial Officer Conquest Resources
                Limited and Minco plc
            N/A
            Nil


(1)
            The
                information as to common shares beneficially owned or over which
                the
                above-named directors exercise control or directors, 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)
            All
                Directors are elected annually to hold office until the next Annual
                Meeting of Shareholders.




(5)
            All
                directors and executive officers as a group own directly or indirectly
                or
                exercise control or direction over a total of 829,409 common
                shares.




46




**7.2**  **Cease
      Trade Orders, Bankruptcies**




John.
      Kearney served as a non-executive director of Q-Entertainment Inc. (TSX: QZR)
      a
      technology and entertainment company from October 1996 to October 1997. In
      November 1997, Q-Entertainment Inc. and its U.S. subsidiaries filed for Chapter
      11 protection in the United States and subsequently filed for Chapter 7
      bankruptcy in the United States Bankruptcy Court (Texas), following which a
      trustee in bankruptcy was appointed. Mr. Kearney also served as a non-executive
      director of McCarthy Corporation plc, the largest shareholder in Q-Entertainment
      Inc., from July 2000 to March 2003. In June 2003, McCarthy Corporation plc
      proposed a voluntary arrangement with its creditors pursuant to the legislation
      of the United Kingdom.




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






**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, 4 th 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 has not since January 1, 2004 entered into any material contract, other
      than a contract entered into in the ordinary course of business, 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 Narrative Description of the
      Business).






**10.**
            **INTERESTS
                OF
                EXPERTS**




MRDI,
      a
      division of AMEC, E&C Services Limited prepared the Resource Estimation
      Report for the Prairie Creek Property (see Narrative Description of the Business
      - Section 3.1.6 Resource Estimation). MRDI is independent of the Company and
      to
      the knowledge of the Company, does not hold any registered or beneficial
      interests, direct or indirect, in any securities or other property of the
      Company.




47


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, less than one percent of the
      outstanding common shares of the Company.






**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  such  auditor;




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




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




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




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




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




**II.**  **AUTHORITY
      OF THE AUDIT COMMITTEE**




The
      Committee shall have the authority to:




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




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




(3)  communicate
      directly with the external auditors.




**III.**  **COMPOSITION
      AND MEETINGS**




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




48


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




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




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




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




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




**IV.**  **RESPONSIBILITIES**




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




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




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




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




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




(6)
            The
                Committee shall establish procedures
                for


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


(b)  the
      confidential, anonymous submission by employees of the Corporation
      of concerns
      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




(9)
            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.




(10)
            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.




(11)
            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. Each
      member of the Audit Committee is financially literate and independent (see
      additional comment on Robert Gayton below).




The
      education and experience of each Audit Committee Member is set out
      below:




Robert
      Gayton B.Comm., Ph.D., FCA, He 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 Geophysists 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.




49


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**




In
      the
      case of the appointment of Robert Gayton on the Audit Committee the Issuer
      is
      relying on the Exemption in Section 3.6 of Multilateral Instrument 52-110
      (Temporary Exemption for Limited and Exceptional Circumstances). Robert Gayton
      has been a member of the Issuer’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 in that he has no direct or indirect
      material relationship with the Company and has no relationship pursuant to
      which
      he may accept, directly or indirectly any consulting, advisory or other
      compensatory fee, other than as remuneration for acting in his capacity as
      a
      member of the Board of Directors or any Board Committee. Further, neither Robert
      Gayton nor any member of his immediate family has been an affiliated entity
      of,
      a partner, employed by, or employed in a professional capacity by a current
      or
      former internal or external auditor of the Issuer. Mr. Gayton is not an
      executive officer of any entity in which any of the Issuer’s current executive
      officers serve on that entity’s compensation committee. Mr. Gayton is not and
      has never been an employee of the Issuer. However, Mr. Gayton did serve as
      a
      part-time Interim Chief Financial Officer of the Issuer during the period
      January 1, 2002 until December 2004 pending the appointment of a permanent
      Chief
      Financial Officer. As such Mr. Gayton may be deemed to have been an Executive
      Officer of the Issuer during the period March 30, 2004 to December 2004. Mr.
      Gayton 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 to have
      been consulting fees for acting in his capacity as an Executive Officer of
      the
      Issuer.




In
      the
      view of the Company’s Board of Directors, the above described relationship,
      which terminated in December 2004, does not reasonably interfere with the
      exercise of Robert Gayton’s independent judgment. Mr. Gayton is not an employee
      or officer of the Issuer or an immediate family member of an employee or officer
      of the Issuer, Mr. Gayton does not have a relationship with the Issuer pursuant
      to which he may accept, directly or indirectly, any consulting, advisory or
      other compensatory fees from the Company, other than as remuneration for acting
      in his capacity as a member of the Board of Directors or any Board Committee
      or
      receives, or whose immediate family member receives, more than $75,000 per
      year
      in direct compensation from the Issuer. He is not an affiliated entity of the
      Issuer and does not act as Chair of the Audit Committee.




The
      majority of the Audit Committee Members are independent and the Board of
      Directors has determined that reliance on the Exemption will not materially
      adversely affect the ability of the Audit Committee to act independently and
      to
      satisfy the other requirements of Multilateral Instrument 52-110.




The
      Board, under these exceptional limited circumstances, has determined in its
      reasonable judgment that:




Robert
      Gayton is able to exercise the impartial judgment necessary for him to fulfill
      his  responsibilities
      as an Audit Committee Member and;




50


the
      appointment of Robert Gayton as a Member of the Audit Committee is required
      by
      the best interests of the Company and its shareholders.






**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 2005 and 2006 were approved by the Audit
      Committee. The Audit Committee reviews with the auditors whether the non-audit
      services to be provided are compatible with maintaining the Auditor’s
      independence.




Since
      the
      commencement of the Company’s most recently completed financial year (January 1,
      2006) 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,
      2006 and 2005 for audit fees, audit related fees, tax fees and all other fees
      are set forth below:









Year
                Ended
              December
                31, 2006
            Year
                Ended
              December
                30, 2005Audit
                Fees(1)
            $42,800
            $26,600Audit-Relates
                Fees(2)
            5,712
            2,100Tax
                Fees(3)
            2,775
            10,800All
                Other Fees
            7,500
            -Total
            $58,787
            $39,500





(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 Issuer's securities, options to purchase securities
      and
      interests of insiders in material transactions, where applicable, are contained
      in the Issuer's Information Circular dated May 5, 2006 for its most recent
      Annual Meeting of Shareholders held on June 14, 2006 and in the Issuer’s
      Information Circular for its Annual General Meeting scheduled to be held June
      13, 2007, which may be found on SEDAR at **www.SEDAR.com** ,
      and
      which are incorporated herein by reference.




Additional
      financial information is contained in the Issuer’s Audited Financial Statements
      and Management’s Discussion and Analysis for the years ended December 31, 2006
      and 2005 which may be found on SEDAR at **www.SEDAR.com** ,
      and are
      incorporated herein by reference.




The
      Issuer shall provide, upon request and upon payment of a reasonable charge
      where
      permitted, a copy of its 2006 Annual Information Form, the December 31, 2006
      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**




Some
      of
      the statements contained in this document are 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. Forward-looking statements may be
      identified by such terms as “believes”, “anticipates”, “expects”, “estimates”,
“may”, “could”, “would”, “will”, or “plan”). 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 and the Company’s financial condition and prospects, could
      differ materially from those currently anticipated in such statements by reason
      of factors such as changes in general economic conditions and conditions in
      the
      financial markets, changes in demand and prices for the minerals the Company
      expects to produce, delays in obtaining permits, litigation, legislative,
      environmental and other judicial, regulatory, political and competitive
      developments in areas in which the Company operates, technological and
      operational difficulties encountered in connection with the Company’s
      activities, labour relations matters, costs and changing foreign exchange rates
      and other matters discussed under “Management’s Discussion and Analysis of
      Financial Condition and Results of Operations”.  Other factors that may
      cause actual results to vary materially include, but are not limited to, delays
      in the receipt of permits or regulatory 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.