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 16, 2009
  
  for
the Fiscal Year ended
  December
31, 2008
  
   1
  CANADIAN
ZINC CORPORATION
  ANNUAL
INFORMATION FORM
  FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2008
  
  TABLE OF
CONTENTS
  
  
  1. CORPORATE
      STRUCTURE
  2. GENERAL DEVELOPMENT OF
      THE BUSINESS
  3. DESCRIPTION OF THE
      BUSINESS
  4. RISK
      FACTORS AND
UNCERTAINTIES
  5. CAPITAL
      STRUCTURE
  6. MARKET
      FOR SECURITIES
  7. DIRECTORS AND
      OFFICERS
  8. TRANSFER AGENTS AND
      REGISTRARS
  9. MATERIAL
      CONTRACTS
  10.INTERESTS OF
      EXPERTS
  11.AUDIT
      COMMITTEE INFORMATION
  12.ADDITIONAL
      INFORMATION
  CAUTIONARY NOTE – FORWARD LOOKING STATEMENTS
  CAUTIONARY NOTETO U.S. INVESTORS
  
  
  
  
  
  
   2
  CANADIAN
ZINC CORPORATION
  ANNUAL
INFORMATION FORM
  FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2008
  
  1.
              CORPORATE STRUCTURE
 
 Canadian
Zinc Corporation (“Canadian Zinc” or “the Company”) was incorporated in British
Columbia, Canada, on December 16, 1965 under the Companies Act of British
Columbia.  The Company changed its name to “San Andreas Resources
Corporation” on August 29, 1991 and to “Canadian Zinc Corporation” on May 25,
1999.  The Company currently exists under the Business Corporations Act(British Columbia).  On June 16, 2004, the Company’s
shareholders adopted new Articles to bring the Company’s Charter documents up to
date and into conformity with the new Business Corporations Act(British Columbia).
 
 The
Company’s shareholders passed a resolution to amend the authorized share capital
from 50,000,000 common shares with no par value to 100,000,000 common shares
with no par value on May 24, 2002 and from 100,000,000 common shares with no par
value to 200,000,000 common shares with no par value on December 30,
2003.  On June 16, 2004, shareholders passed a resolution to change
the authorized share capital to an unlimited number of common shares with no par
value.
 
 The
Company has no subsidiaries.
 
 The
Company's head office, which is also its registered office, is located at Suite
1710, 650 West Georgia Street, Vancouver, British Columbia, Canada V6B
4N9.
 
 2.
              GENERAL DEVELOPMENT OF THE
BUSINESS
 
 Canadian
Zinc is a public company listed on the Toronto Stock Exchange under the symbol
“CZN,” and traded on the OTCBB under the symbol “CZICF,” and is engaged in the
business of exploration and, when warranted, development of natural resource
properties.  The Company’s principal focus is exploration and
development of the Prairie Creek Property, a zinc/lead/silver deposit with
adjacent mill and infrastructure facilities, located approximately 500
kilometres west of Yellowknife in the Northwest Territories,
Canada.
 
 Three
Year History
 
 Throughout
the years 2006, 2007 and 2008, the Company’s principal focus has been its
efforts to advance the Prairie Creek Project towards completion of development
and subsequent production, principally in the re-permitting process and, in
2006/2007, through underground exploration and development.
 
 2006
– 2008 Work Program
 
 During
2006 the Company undertook a major underground exploration and development
program driving a new decline about 400 metres within the underground mine, from
which a detailed
  3
  underground
drilling program was initiated.  A surface exploration program was
carried out on Zone 5 about five kilometres south of the minesite.
 
 The 2007
program included the continuation of the underground drilling program which
commenced in 2006.  Underground drilling was carried out from drill
stations at 50 metre intervals along the new decline.  Phase 1 of the
drilling program was completed in early June 2007 and consisted of 41 drill
holes, of which 40 intersected mineralization, totaling 8,217 metres of drilling
from six drill stations.  The results of the Phase 1 program were
incorporated into a Technical Report that complies with National Instrument
43-101 standards for determining and defining mineral resources. Further details
with regard to the Technical Report and work undertaken in 2007 are detailed in
this Annual Information Form at “3.1.6--Exploration Activities” and “3.1.7--2007
Resource Estimation.”
 
 Utilizing
the Report, the Company subsequently examined various operating alternatives
including mine planning, processing and tailings disposal
studies.  The work to date, which was undertaken in conjunction with
SNC-Lavalin Inc., has focused on detailed mine planning and scheduling, process
design, including a new dense media separation system, and underground tailings
disposal.  A new bulk sample and representative water samples were
extracted from underground and transported to SGS Lakefield for laboratory and
metallurgical testing to produce representative tailings and process
water.  Detailed transportation studies were also carried
out.
 
 A Project
Description Report (“PDR”) was prepared and filed with regulatory authorities in
May 2008 in support of application for operating permits.  The
PDR  describes in detail the proposed new mining operations at Prairie
Creek and contemplates the construction of new facilities including new
fuel-efficient/low-emission power generating units, a kitchen/accommodation
block, concentrate storage shed, an incinerator, a new engineered waste rock
pile and two new transfer stations along the winter road.
 
 The
Company is currently working with SNC-Lavalin Inc. and other consultants to
optimize the proposed mine plan incorporating some of the data from studies that
were carried out in 2008 and will work towards updating and converting the PDR
into a Pre-Feasibility Study to be finalized after the current Environmental
Assessment has been completed by the Review Board.
 
 The
indicated capital costs to place the Prairie Creek Mine into production will be
estimated in the Pre-Feasibility study.  The Company currently
anticipates that the capital costs will be in the range of $80 - 100 million,
depending on final project design and conditions in the operating
permits.
 
 During
2008, the Company also continued to perform ongoing site maintenance which
included completion of a groundwater well drilling program, engineering
assessments and the removal and destruction of all the sodium cyanide which had
been stored in drums on the property since 1982.
 
 Progress
was made on reopening and rehabilitating part of the road (approximately 30
kilometres) which connects the Prairie Creek Mine to the Liard Highway (a total
distance of approximately 170 kilometres).  A new base for the roadbed
was re-established along the Prairie Creek River, immediately north of the mine
site and to further protect the road bed from any future erosion in proximity to
the Prairie Creek water course.  Work on the road repair project
continued up until the end of October 2008.
  4
  In
addition to these activities, memoranda of understanding were signed in 2008
with Parks Canada Agency, the Liidlii Kue First Nation and the Nahanni Butte
Dene Band.  The Company believes that these important agreements will
lead to co-operative and beneficial relationships with these parties and will
assist in advancing the Prairie Creek Mine towards production.
 
 Permitting
Process
 
 In 2001
the Company applied for two surface exploration drilling permits, an underground
exploration permit, a pilot plant metallurgical permit and a permit for use of
part of the road from the Prairie Creek Property.  Following
Environmental Assessment (“EA”) the two surface exploration land use permits
were issued in 2001.
 
 The
underground exploration and pilot plant permit applications were referred for EA
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 (the “Water
Board”).  An appeal to the Federal Court (the “Court”) seeking
judicial review of the decision of the Water Board to issue the Water Licence
was filed in October 2003 by the Dehcho First Nations and heard by the Court in
August 2005.  In December 2005 the Court issued its Judgment directing
the Water Board to reissue the Licence containing modified language which had
been agreed between the Company and the Minister of Indian and Northern Affairs
Canada.  The Licence was reissued by the Water Board in February
2006.  The Water Licence and Land Use Permit were renewed in September
2008 for terms of five years and two years respectively.
 
 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 EA process.  The claim for exemption was denied by
the Water Board and the Company filed an appeal to the Supreme Court of the
Northwest Territories.  That Appeal was heard by the Supreme Court in
December 2004 and in May 2005 the Supreme Court issued its Judgment ruling that
the proposed development is exempt under the Act from
EA.  Subsequently the Nahanni Butte Dene Band of the Dehcho First
Nations alleged infringement of their constitutional rights and inadequate
consultation.  The Department of Indian Affairs and Northern
Development carried out a Section 35 Consultation with Nahanni and issued its
report to the Water Board in February 2007.  In April 2007, the Water
Board approved the issue of Land Permit MV2003F0028 for a period of five years
to April 10, 2012.
 
 In June
2007, Canadian Zinc applied to the Water Board for a Class B Water Licence
(MV2007L8-0026) to rehabilitate a portion of the road in the proximity of the
mine site and sought authorization from the Department of Fisheries and Oceans
(“DFO”) to carry out the work.  Also in June 2007, the Company applied
to Indian and Northern Affairs Canada for a quarrying permit to obtain rock to
be used in the road rehabilitation.  The issuance of these permits was
delayed as they were referred to consultation between the Crown and the Nahanni
Butte Dene Band.  The Company received the quarry permit on February
29, 2008, the Water Licence on March 20, 2008 and the authorization from DFO on
July 15, 2008.
 
 In the
spring of 2004 the Company applied to the Water Board for an amendment to expand
the area of an existing Exploration Land Use Permit.  The application
was referred for EA and this assessment was conducted by the Mackenzie Valley
Environmental Impact Review Board (the “Review Board”) throughout 2005,
culminating in a decision dated December 23, 2005 in which the Review
Board
  5
  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.
 
 In May
2008, the Company applied to the Water Board for a Type “A” Water Licence and
three Type “A” Land Use Permits; one for the operation of the Prairie Creek Mine
and two for Transfer Facilities along the road.  In September 2008,
the Water Board completed its preliminary screening and referred the Land Use
Permit and the Water Licence applications to the Review Board for Environmental
Assessment.
 
 An EA is
the next stage in the regulatory process following preliminary
screening.  The initial phase of the EA consisted of community scoping
sessions and written hearings, submissions and rulings to determine the scope of
the Terms of Reference for the EA.  The Company participated in six
public scoping sessions in several Dehcho communities and in Yellowknife in late
September/early October 2008 to enable discussion and questions to be addressed
to assist in determining the overall scope of the EA.  The Community
public sessions demonstrated that there is considerable local community support
for the Prairie Creek project and there is no significant public concern amongst
the communities.  The Review Board was strongly encouraged to
undertake a very focused and efficient EA. Two clear themes emerged: protection
of water quality is paramount, and, jobs and economic activity are sorely needed
in the Dehcho region.
 
 The
Review Board originally proposed a deadline of October 14, 2008, for interested
parties to provide scoping submissions but this was subsequently
extended.  Initially, the Review Board indicated that it anticipated
providing further guidance on how the EA would proceed in the last week of
November 2008.
 
 On
November 6, 2008, the Review Board received a Request for Ruling from Ecojustice
(formerly Sierra Legal Defence Fund) on behalf of Dehcho First Nations and
Canadian Parks and Wilderness Society (“CPAWS”).  The Request for
Ruling concerned the question whether the winter access road, and its use,
should be included in the EA process.  The Review Board subsequently
decided to issue information requests to various parties to ensure that all
potentially relevant materials to assist their decision on the Request would be
available to all interested parties.  The information request was
published by the Review Board on November 26, 2008, and noted two
questions:
 
 (1)
              Whether
      the winter road should be part of the scope of development and subject to
      direct impact assessment during the EA;
and
 (2)
              Whether
      existing mine site infrastructure should be part of the scope of
      development and subject to direct impact assessment during the
      EA.
 
 The
Review Board proceeded to set deadlines for submissions and
responses.  These timelines were further extended to January 19, 2009,
following a Review Board pre-hearing conference on December 17,
2008.  The Review Board considered submissions and responses from
interested parties, including Canadian Zinc which submitted that the winter road
and existing mine site infrastructure should not be part of the assessment and
that the EA should focus on the new developments and the new transfer stations
on the winter road.
  6
  On March
5, 2009, the Review Board published its Ruling on the Scope of Development,
finding that “all physical works and activities associated with the winter
access road.....and all physical works and activities associated with the mine
site.....are part of the scope of development for the Prairie Creek Mine
environmental assessment.”
 
 The
Review Board also provided some comments with regard to the scope of assessment,
noting that “In its forthcoming Draft Terms of Reference, the
Review Board will provide its preliminary determination of the scope of
assessment – what issues need to be examined in what level of detail during the
environmental assessment – for review and comment.  The Review Board
reminds all interested parties that while the scope of development defines all
the physical works and activities required to undertake the development, that
does not mean that all physical works and activities are subject to the same
level of assessment.  Depending on their potential for impacts and
subject to Review Board discretion, parts of the scope of development may be
considered very closely, other very little or not at all.
 
 “The
Review Board will give full consideration to historic studies, impact assessment
and operational information about all aspects of the Prairie Creek Mine before
determining whether additional studies are required....The Review Board assures
all interested parties it has no intention of ignoring the wealth of relevant
existing evidence collected on how the existing infrastructure will likely
interact with the environment.
 
 “The
Review Board also notes that the Prairie Creek Mine includes a variety of
existing structures, including the winter access road and much of the mine site
infrastructure.  The Review Board accepts the argument made by
Canadian Zinc and others that conducting an impact assessment on the
construction of facilities, including the road, which have been present on the
land for over 25 years is not likely to generate any useful information even if
it is possible.  The Review Board will not be assessing construction
impacts of already built structures.  The Board has decided that
assessment of these facilities will be restricted to the effects of their
ongoing operation in combination with the effects of other construction and
operations necessary for the operation of the mine.”
 
 The
Review Board is expected to issue Draft Terms of Reference before the end of
March 2009 that  will identify the scope of development in more
detail, and allow public comment before finalizing the scope of development to
be assessed in the EA.  It is likely, given the Company’s experience
to date, that the EA process will extend for a considerable time.
 
 Following
the EA will be a further regulatory stage, managed by the Water Board (with
input from territorial and federal agencies), before permits are
issued.  These permits will include conditions that will require CZN
to meet appropriate environmental guidelines.
 
 Employees
 
 In 2008,
the Company had an average of 19 employees consisting of 11 primarily working on
the Prairie Creek Mine project, 2 Community Liaison Representatives and 6 based
in the Company’s corporate offices.  In addition, the Company utilizes
the services of contractors to assist in certain tasks and
projects.  As at December 31, 2008, the Company had reduced its
employee numbers to 10, being 6 corporate positions and 4 related to community
affairs and the Prairie Creek Mine.
 Other
 
 The
Company continues to search for projects of merit and has examined a number of
opportunities during the year, none of which have come to fruition at this time.
This activity will continue in 2009.
  7
 
 
 3.
              DESCRIPTION OF THE
BUSINESS
 
 The
Company’s principal focus is exploration and development of the Prairie Creek
Property and adjacent ground (a zinc/lead/silver, partially developed property)
located approximately 500 kilometres west of Yellowknife in the Northwest
Territories, Canada.  The Mine is believed to be one of the highest
grade non-operating base metal properties in the world and is potentially a
major Canadian resource.
 
 The
original discovery of mineralization on the Prairie Creek Property was made in
1928 at the showing known as the “No. 5 Zone.”  In 1958, a limited
mapping program was undertaken by Fort Reliance Minerals Ltd.  The
claims lapsed in 1965 and were restaked by the prospector and subsequently
conveyed to Cadillac Explorations Ltd. (“Cadillac”) in 1966.  Cadillac
also acquired a 182,590 acre prospecting permit.
 
 During
1966 to 1969, trenching was carried out on a number of zones and underground
exploration commenced.  This prospecting permit expired in 1969 and
6,659 acres (210 claims) were selected by Cadillac and brought to
lease.  The property was optioned to Penarroya Canada Ltee.
(“Penarroya”) in 1970 and the underground development was
extended.  Surface drilling and preliminary metallurgical testing was
also conducted.  Penarroya discontinued their work in late 1970 and
Cadillac resumed full operation of the project.  Cadillac further
developed the underground workings and resampled the crosscuts in
1979.
 
 In 1980
an independent feasibility study was completed for Cadillac by Kilborn
Engineering which resulted in a decision to put the property into
production.  In December 1980, Procan Exploration Company Ltd.
(“Procan”) (a company associated with Herbert and Bunker Hunt of Texas) agreed
to provide financing for construction, mine development and working capital
necessary to attain production based on the Kilborn feasibility
study.  Between 1980 and 1982, extensive mine development took
place.  Cadillac acquired a 1,000-ton per day mill concentrator and
transported it to the minesite.  The mill was erected and a camp
established.  Two adits and extensive underground workings were
developed.  During this time the winter road connecting the mine to
the Liard Highway was constructed and over 500 loads of supplies were
transported to site.  Construction activities continued until May 1982
and were almost complete when they were suspended due to lack of
financing.  Subsequently Cadillac went into bankruptcy in May 1983 and
site maintenance and operations were taken over by Procan.
 
 In 1991,
Nanisivik Mines Limited (an unaffiliated third party) acquired the property
through the bankruptcy proceedings.  Pursuant to an August 23, 1991
Option Agreement, the Company entered into an option to acquire a 60% interest
in the Prairie Creek Property from Nanisivik Mines Ltd.  Subsequently,
pursuant to a March 29, 1993 Asset Purchase Agreement that superseded the Option
Agreement, the Company acquired a 100% interest in the Prairie Creek Property,
and a 60% interest in the plant and equipment, subject to a net smelter royalty
of 2% in favour of Titan Pacific Resources
  8
  Ltd.  In
January 2004, the Company acquired all of Titan’s interest, including the 2% net
smelter royalty, and now holds a 100% interest in the Prairie Creek property,
plant and equipment.
 
 Between
1991 and 2000 the Company carried out various exploration programs on the
Prairie Creek Property.  In January 2001, the Company completed a
Scoping Study designed to outline and guide the re-development of the existing
mine and mill on the Prairie Creek Property.  The preliminary study
indicated the feasibility of a mining and milling operation on the site and
identified a number of different development and production
scenarios.  The operation would utilize the existing mine and mill
infrastructure that had been put in place in 1982, but which had never been
operated.  Indicated capital costs for the new operation were
estimated in 2000 to be $40.5 million, including the construction of an all
weather access road to the site.  The Scoping Study has not been
updated and is now considered to be out of date.  It is now
anticipated that the capital costs to place the Prairie Creek mine into
production will be significantly higher than indicated in the 2001 Scoping
Study.
 
 In
October 2007, an updated Technical Report (the “Report”) with regard to Mineral
Resource Estimation on the Main Zone at Prairie Creek was independently prepared
by Minefill Services Inc. in compliance with National Instrument 43-101,
following the results of the 2006/2007 underground drilling
program.  The Report verifies and confirms the previous historical
resource estimate completed by MRDI in 1998 and notes significant upgrades in
resource categories.  The Report indicates that the Prairie Creek
Property hosts total Measured and Indicated Resources of 5,840,329 tonnes
grading 10.71% zinc, 9.90% lead, 161.12 grams silver per tonne and 0.326%
copper.  In addition, the Report confirms that there remains a large
Inferred Resource of 5,541,576 tonnes grading at 13.53% zinc, 11.43% lead, 215
grams per tonne silver and 0.514% copper and additional exploration
potential.
 
 Utilizing
the Report, the Company subsequently examined various operating alternatives
including mine planning, processing and tailings disposal
studies.  The work to date, which was undertaken in conjunction with
SNC-Lavalin Inc., has focused on detailed mine planning and scheduling, process
design, including a new dense media separation system, and underground tailings
disposal.  A new bulk sample and representative water samples were
extracted from underground and transported to SGS Lakefield for laboratory and
metallurgical testing to produce representative tailings and process
water.  Detailed transportation studies were also carried
out.
 
 A Project
Description Report (“PDR”) was prepared and filed with regulatory authorities in
May 2008 in support of application for operating permits.  The
PDR  describes in detail the proposed new mining operations at Prairie
Creek and contemplates the construction of new facilities including new
fuel-efficient/low-emission power generating units, a kitchen/accommodation
block, concentrate storage shed, an incinerator, a new engineered waste rock
pile and two new transfer stations along the winter road.
 
 The
Project Description Report, dated May 2008, may be viewed under the Company’s
name on the Water Board’s website at
http://www.mvlwb.ca/mv/registry.aspx.
 
  9
  The
Company is currently working with SNC-Lavalin Inc. and other consultants to
optimize the proposed mine plan incorporating some of the data from studies that
were carried out in 2008 and will work towards updating and converting the PDR
into a Pre-Feasibility Study to be finalized after the current Environmental
Assessment has been completed by the Review Board.
 
  The
indicated capital costs to place the Prairie Creek Mine into production will be
estimated in the Pre-Feasibility study.  The Company currently
anticipates that the capital costs will be in the range of $80 - 100 million,
depending on final project design and conditions in the operating
permits.
 
 3.1           Principal
Property – Prairie Creek, Northwest Territories
 
 The
following information contained in Sub-Sections 3.1.1 to 3.1.9 relating to the
Prairie Creek Property has been prepared or reviewed by Alan Taylor (P.Geo),
Vice-President of Exploration and Chief Operating Officer of Canadian Zinc
Corporation, who is a Qualified Person as defined in National Instrument 43-101
or have been extracted from the Report prepared by Minefill Services Inc. (as
described above).  Sections that have primarily been extracted from
the Report include 3.1.3, 3.1.7 and 3.1.8.
 
 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,
      2009.  Six additional mineral claims (Way 1 – 6) covering an
      area of 10,196.18 hectares were staked in 2006 adjacent to existing mining
      leases or mineral claims to enlarge the size of the Prairie Creek property
      and were in good standing until November 2008.  The Company
      determined in November 2008 that it would not renew the Way 1 – 4 claims,
      which were allowed to lapse.  The Way 5 claim is in good
      standing until November 1, 2013 and the Way 6 claim until November 1,
      2009.
 
 All of
the above leases and claims are in good standing at the date hereof, except the
Way 1 – 4 claims, which were allowed to lapse as described above.
 
 The
Prairie Creek mine is located on land claimed by the Nahanni Butte Dene Band of
the Dehcho First Nations (“DCFN”) as their traditional territory.  The
DCFN are engaged in ongoing land settlement negotiations with the Government of
Canada and the Government of the Northwest Territories in what is referred to as
the Dehcho Process. [Refer to Section 3.1.12--First Nations].
 
 In July
2003, as part of the Interim Measures Agreement entered into between Canada and
the DCFN as part of the Dehcho Process, Canada made an Interim Withdrawal of
certain lands for a period of five
  10
  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.  This Interim Withdrawal was
modified in July 2007.  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 July
2007, Canada made a further Interim Withdrawal of lands for the purpose of the
potential expansion of Nahanni National Park Reserve.  The lands
withdrawn cover approximately 28,000 square kilometres and completely surround
but do not include the area of approximately 367 square kilometres surrounding
the Prairie Creek Mine, which by Schedule 2 is specifically excluded from the
Interim Land Withdrawal Order.
 
 In
October 2008, both Interim Land Withdrawals (Dehcho and Nahanni National Park
Reserve) were renewed for a further period of two years and will expire in
October 2010.  See the details in Section 3.1.11-- Environmental
Matters--Nahanni National Park Reserve/Parks Canada Memorandum of
Understanding.
 
 3.1.2
              Location, Access and
      Climate
 
 The
Prairie Creek Property is situated approximately 500 kilometres west of
Yellowknife, the administrative centre of the Northwest Territories, in the
Mackenzie mountain range that locally has an average relief of approximately 300
metres and comprises low mountains with moderate to steep sides and intervening
narrow valleys.  The Prairie Creek Property is located at an elevation
of 850 metres above mean sea level.  The valleys are well incised and
the area is located within the Alpine forest-tundra section of the boreal
forest, characterized by stunted fir and limited undergrowth.  The
trees, that grow at the lower elevations, give way to mossy, open Alpine-type
country in the upper parts of the mountains.
  11
   
  Year
round access to the Property is provided by aircraft to a 3,000-foot gravel
airstrip immediately adjacent to the camp.  The Prairie Creek Property
is also accessible by road which extends from the Property to the Liard Highway,
a distance of 170 kilometres and which was originally permitted for use in the
winter months throughout its full length and for year round use for the first 40
kilometres out from the mine site.  The road needs to be
re-established, and the Company successfully rehabilitated approximately 30
kilometres out from the mine site in the summer of 2008.  The Liard
Highway #7 is the major north-south transportation route, which connects Fort
Nelson, British Columbia to Fort Simpson, Northwest Territories.
 
 The
climate is sub-Arctic, being characterized by long cold winters with pleasant
summers.  Snowfall is moderate and only minor difficulty has been
experienced in operating throughout the winter months.
 
 3.1.3
              Property Geological
      Summary
 
 Regional
Geology
 
 The 1987
Geological Survey of Canada Memoir 412 by Morrow and Cook provides the best
description of the regional geological setting of the
Property.  Morrow and Cook describe the stratigraphy that accumulated
during Siluro-Devonian time and formed in a paleo-basin adjacent to the ancient
North American Platformal sediments.  The east-dipping Tundra Thrust
(that is located on the Property) and, 30 kilometres to the west, the
west-dipping Arnica Thrust, define the present margins of
  12
  the
Prairie Creek paleo-basin in which accumulated a thick Devonian sequence of
sediments, including the Cadillac and Funeral Formations.
 
 Units
within the Prairie Creek paleo-basin underwent structural deformation in the
form of folds and faults during regional Laramide deformation.  The
prevalent regional structural trend is approximately north-south; the Prairie
Creek paleo-basin is broken into a series of north-south trending, five to 20
kilometre wide fault blocks.
 
 Property
Geology
 
 Canadian
Zinc’s existing mineral claims and leases overlie two major fault blocks of
sediments: the Prairie Creek Block and western Gate Block.  The
north-eastern part of the Property also includes some of the marginal platformal
sequence of rocks that are relatively undeformed by the faulting and folding
that is apparent within the Prairie Creek paleo-basin sequence.
 
 Marginal Platform. The
northern part of the Company’s claims, from Lease 3313 south to the Way 2
mineral claim, straddles the Tundra Thrust, which separates the Prairie Creek
paleo-basin sequence to the west from the platformal series of sedimentary
formations to the east.  The platformal sediments are relatively
undeformed and comprise a stratigraphic sequence starting with the Road River
Formation that is overlain by the Root River, Camsell and Sombre Formations
(listed from oldest to youngest).  Mississippi Valley-type
mineralization is hosted in biohermal reefs of the Root River Formation, or
facies equivalent.
 
 In the
southern part of the Company’s claims a reverse fault continuation of the Tundra
Thrust separates the Prairie Creek Block from the marginal platform,
approximately two kilometres east of the Mine Site.  The Platformal
sequence in this area is dominated by a thick assemblage of Sombre Formation
dolomites.
 
 Prairie Creek Block. Overall,
the southern part of the Property is outlined by a one to two kilometre wide,
doubly plunging antiform with a north-south trending fold axis that is referred
to as the Prairie Creek Block.  It is bordered to the west by the
so-called Gate Fault and to the east by the Tundra Thrust.  It is
underlain by a conformable sedimentary sequence including the Lower Ordovician
Whittaker Formation dolomites, Silurian Road River Formation shales and the
thinly bedded, limy shales of the Cadillac Formation.  Lower to Middle
Devonian Arnica and Funeral Formation dolomites and limestone overlie this
assemblage on the northern part of the Property.
 
 Structurally,
the longitudinal arch of the antiform occurs approximately five kilometres south
of the Mine Site.  A local fault, referred to as the Prairie Creek
fault, offsets the eastern flank of the antiformal fold and juxtaposes Cadillac
stratigraphy against the Road River Formation.  Erosion of the
antiformal structure has resulted in windows of older Road River shales, cored
by the Whittaker Formation dolomites.  The antiform plunges at about
15 degrees to the north, so the geological units young in age to the north,
which is also the case underground.
 
 Gate Mineral Claims. The six
contiguous Gate claims (that together define what is termed the Gate Block) are
located to the west of the main mining leases and overlie similar type rock
assemblages to those found on the Prairie Creek Block.  Grassroots
exploration was completed on this ground to test for mineralization similar to
that found in the Prairie Creek Block.
  13
  The
geological formations of the Whittaker and Road River Formations are known to
occur within the Gate Block, as relatively flat-lying to gently dipping
units.  Compared to the Prairie Creek Block, there is much more
exposure of the prospective Whittaker Formation in the Gate Block.
 
 Main Zone Geology. The Mine
Site is situated on the western flank of the Prairie Creek antiform, referred to
as the Main Zone.  It is Main Zone mineralization that was and is the
focus for Mine development and exploitation.
 
 The three
levels of available underground development assist in identifying the detail of
Main Zone geology:
 
 • 870
metre Level is collared in the Ordovician, Upper Whittaker Formation, which is
the oldest geological formation in the Main Zone area and which forms the core
of the Prairie Creek antiform;
 • the
Whittaker Formation is in turn overlain by a large exposure of the carbon-rich
graphitic shales/dolomites of the Road River Formation;
 • the
iron-bearing Cadillac Formation shales overly the Road River Formation and are
located immediately adjacent to the Mine Site; and
 • the
bluff-forming rocks immediately to the west of the Mine Site are formed by the
cherty Arnica Formation which overlie the Cadillac Formation and form the more
resistant hilltops in the immediate vicinity of the Mine Site.
 
 Property
Base Metal Mineralization
 
 Three
main styles of base metal mineralization have been identified on the Property:
Vein mineralization (sulphide with secondary oxide), Stratabound sulphides and
Mississippi Valley type sulphides (“MVT”).  Exploration at Prairie
Creek has revealed many base metal mineral showings along the entire
17-kilometre length of the Property.  Historical exploration of the
property has led to referencing some of these surface mineral showings by name
and some by numbers.
 
 • Quartz
vein mineralization occurs in a north-south trending, 16 kilometre long corridor
in the southern portion of the Property where the occurrences are exposed on
surface;
 • the
mineralized vein showings are referred to as sequentially numbered Zones, some
ofwhich are known to contain sub-surface stratabound
mineralization:
 - the
subsurface area above the underground workings is referred to as Zone 3 or the
Main Zone,
 -
extending for about ten kilometres to the south of the Mine Site is a
semi-continuous pattern of other vein exposures referred to as Zones 4 to 12,
inclusive,
 - a
further expression of vein mineralization, known as the Rico showing, is located
approximately four kilometres to the north of the Main Zone; and
 • the MVT
showings in northern section of the Property are developed over a distance of
approximately ten kilometres. They are referred to, from north to south, as the
Samantha, Joe, Horse, Zulu, Zebra and Road showings.
 
 Stockwork
and stratabound mineralization is not exposed on surface; it has only been
intersected in drillholes.  These mineralized bodies have not been
individually named.
 
  14
  VeinMineralization. Vein
mineralization comprises massive to disseminated galena and sphalerite with
lesser pyrite and tennantite-tetrahedrite in a quartz-carbonate-dolomite
matrix.  Secondary oxidation is locally developed to variable levels
of severity, yielding mainly cerussite (lead oxide) and smithsonite (zinc
oxide); minor oxidation only of tetrahedrite-tennantite has been
found.  Silver is present in solid solution with
tennantite-tetrahedrite and to a lesser extent with galena.  Vein
widths vary between less than 0.1 metre and more than five metres; overall
averages indicate a horizontal thickness (i.e. not true thickness) of
approximately 2.7 metres.
 
 The most
extensively developed vein is the Main Quartz Vein which trends approximately
north-south and dips between the vertical and 40 degrees east (average = 65
degrees east).  It remains open to the north and is expected to
continue for a further four kilometres to the south, evidence for which is the
so-called Rico showing.  Diamond drilling to depth has indicated its
transverse continuance, but little information is currently available below an
elevation of 600 metres above mean sea level (i.e. about 250 metres below the
Mine Site elevation).
 
 Vein
mineralization developed within the cherty dolomites of the Ordovician-Silurian,
Upper Whittaker Formation and shaley dolomites of the lower Road River
Formation.  It apparently formed in axial plane of weakness within the
Prairie Creek structural antiform:
 
 • it is
thought that the more competent units of the Lower Road River and Whittaker
Formations more readily formed tension features in which vein sulphide
mineralization is hosted; and
 • the
rock type changes to a much more graphitic shale in the mid- and upper-parts of
the Road
 River
Formation, which units are less competent and provide a poor host for the
vein-type formation.
 
 For
example, at the end of 930 metre Level the Main Quartz Vein can be seen to
dissipate into the mid- Road River shales.  The vein does not appear
to be well developed in either the upper shales of the Road River and Cadillac
Formations.
 
 Preliminary
structural evidence suggests that the various mineralized vein showings might be
structurally linked, as a series of en-echelon segments comprising a single, but
nevertheless structurally complex, mineralized vein structure.  The
presence of an en-echelon vein structure might go a long way to explaining the
apparent off-sets between the various vein showings.
 
 Towards
the end of 930 metre Level (at Crosscut 30) a series of narrow (average 0.5
metre wide), massive sphalerite-tennantite veins are developed at about 40
degrees to the average trend of the Main Quartz Vein.  This
mineralization is referred to as the (vein) stockwork that is postulated to have
developed in tensional openings formed by primary movement along the main vein
structure. Oxidation is not apparent; the sulphide mineral assemblages are
similar to those outlined for Main Quartz Vein material.
 
 Stratabound Mineralization.
Stratabound mineralization was discovered in 1992 while drilling to extend Vein
resources at depth.  So far indications of Stratabound mineralization
have been found by drilling along the trend of the Prairie Creek Vein System
over a strike length of more than 3 kilometres.  This type of deposit
has so far been located by drill holes in the Main Zone as well as in Zones 4, 5
and 6.
 
  15
  Oxidation
is low in stratabound mineralized material, the sulphide
mineralization:
 
 • is
generally fine-grained, banded to semi-massive and comprises massive
fine-grained sphalerite, coarse-grained galena and disseminated to massive
pyrite (silver is contained in solid solution within galena);
 •
contains no tennantite-tetrahedrite and very little copper; and
 •
contains only half as much galena as, but substantially more iron
sulphide/pyrite than, typical vein material.
 
 The
majority of stratabound massive sulphides located thus far occur mainly within a
Mottled Dolomite unit of the Whittaker Formation, which the mineralization
totally replaces without any significant alteration.  The stratabound
sulphides are developed close to both the vein system and the axis of the
Prairie Creek anticline; the vein structure cuts through the stratabound
indicating the vein to be younger than the stratabound deposit.  An
apparent thickness of 28 metres of stratabound mineralization has been
intersected in Main Zone drillholes where it occurs approximately 200 metres
below 870 metre Level.
 
 Mississippi Valley Type
Sulphides. The
MVT mineralization found on the Property is comprised of colliform rims of
sphalerite, brassy pyrite-marcasite and minor galena, with or without later
dolomite infilling.  The mineralization appears to occur
discontinuously within coarse biohermal reefs of the Root River Formation, and
always at approximately the same stratigraphic horizon.  It appears to
be classic MVT mineralization, insofar as it occurs in open cavity-type
settings.
 
 3.1.4
              Gate
      Claims
 
 During
1999 the Gate 1-4 Mineral Claims were staked covering an area of 9,245.35 acres
to the west of the main property adjacent to the existing land
holdings.  A small exploration program on the newly staked mineral
claims consisted of geological mapping, soil and rock sampling over areas that
contain similar geology with that of the Prairie Creek Property.  This
exploration resulted in the discovery of a Vein in outcrop, with select samples
grading similar with that of the main established Vein at the Prairie Creek
Property.  Also a large zinc soil anomaly was located over favourable
geology.  A small heli-portable drilling program was carried out on
part of the Gate Claims during 2007 but revealed no significant mineralization
in drillcore.
 
 3.1.5
              2001 Scoping
      Study
 
 In
2000/2001, the Company completed a preliminary Scoping Study designed to outline
and guide the re-development of the existing mine and mill on the Prairie Creek
Property.
 
 The Study
took six months to complete and included metallurgical testwork, mill re-design,
alternative mining methods, inclusion of paste backfill in the mine design,
capital and operating cost estimates, a review of smelter terms and conditions
for the Prairie Creek concentrates and other operating parameters.  In
connection with the Scoping Study further metallurgical samples were collected
and the mill equipment was reassessed.  The road access corridor,
tailings pond and the underground workings were re-examined for future
production considerations and capital cost estimates.  The Scoping
Study was prepared in-house using consultants and contractors at a cost of
approximately $0.4 million.  The Scoping Study has not been
updated.
  16
  The
complete Scoping Study, dated January 29, 2001, has been filed on SEDAR, and may
be found under the Company’s profile on SEDAR at www.SEDAR.com [Technical
Reports April 24, 2001].
 
 It should
be noted that the economic assessment in the Scoping Study was preliminary and
based, in part, on mineral resources that are considered too speculative
geologically to have the economic considerations applied to them that would
enable them to be categorized as reserves in accordance with National Instrument
43-101.  Mineral resources that are not mineral reserves do not have
demonstrated economic viability.  In addition, the Scoping Study was
preliminary in nature, despite the existing underground development and the
on-site mill, and the assumptions made within the Scoping Study and its
subsequent results may not be attained.
 
 The
Scoping Study outlined the plan for the development of the Prairie Creek Project
was based on the historical development and existing infrastructure at the
Prairie Creek Property and on the Resource Estimation.  The Resource
Estimation does not constitute mineable reserves.  The historical
development was carried out principally in 1980 to 1982 and the infrastructure,
including the mill, was constructed in the same period based on a feasibility
study prepared by Kilborn Engineering (Pacific) Limited in 1980.  The
Kilborn feasibility study is outdated and cannot be relied upon.  The
existing infrastructure, including the mill, buildings, camp etc. is now over
twenty-five years old and although it has been held under care and maintenance
it has lain idle for more than twenty-five years and was never
operated.  There is a significant risk attaching to the proposed
operation of aged equipment.
 
 The
Scoping Study is now considered to be out of date and should not be relied
upon.  The indicated capital costs were estimated in 2000 and are now
outdated.  The Company anticipates that the capital costs to place the
Prairie Creek Mine into production will be significantly greater than estimated
in the 2001 Scoping Study.
 
 3.1.6
              Exploration
      Activities
 
 The 2007
program included the continuation of the underground drilling program which
commenced in 2006.  Underground drilling was carried out from drill
stations at 50 metre intervals along a new 400 metre internal
decline.  Phase 1 of the drilling program was completed in early June
2007 and consisted of 400 metres of decline development from which 41 drill
holes, of which 40 intersected mineralization, totaling 8,217 metres of drilling
from six drill stations have been completed.  The results of the Phase
1 program were incorporated into a Technical Report dated October 12, 2007 which
was prepared in accordance with the standards in National Instrument 43-101 as
described in “Section 3.1.7--2007 Resource Estimation.”
 
 Phase 2
of the underground exploration program commenced in August 2007 with the
completion of a further 200 metre extension of the underground decline to create
additional underground drill stations.  The underground drilling
program from the new drill stations commenced in late September 2007 and
continued until December 2007.  Ten holes totaling 2,407 metres of
coring were completed, all of which intersected mineralization.
 
 Between
July and early September 2007 the Company also carried out a surface helicopter
supported diamond drill exploration program totaling 1,671 metres of core in 12
holes.  This reconnaissance drilling program was targeted in the Gate
Claims, located about 5 kilometres west of the Prairie Creek minesite, and in
Zones 8, 9 and 11 located on the same Prairie Creek geological structure as the
minesite but located 5 – 10 kilometres south of the minesite.  No
significant mineral intersections were
  17
  encountered.  The
data from this drill program was incorporated into the Prairie Creek property
dataset and will be used to determine future exploration strategy.
 
 3.1.7                      2007 Resource
Estimation
 
 In
October 2007, an updated Technical Report (the “Report”) with regard to Mineral
Resource Estimation on the Main Zone at Prairie Creek was independently prepared
by Minefill Services Inc. (Dr. David Stone and Stephen Godden – Qualified
Independent Persons) in compliance with the standards in National Instrument
43-101, following the results of part of the 2006/7 underground drilling
program.  This report verifies and confirms the previous historical
resource estimate completed in 1998 and notes significant upgrades in resource
categories resulting from the 2006/2007 underground drilling.
 
 The
Report indicates that the Prairie Creek Property hosts total Measured and
Indicated Resources of 5,840,329 tonnes grading 10.71% zinc, 9.90% lead, 161.12
grams silver per tonne and 0.326% copper. In addition, the Report confirms a
large Inferred Resource of 5,541,576 tonnes grading at 13.53% zinc, 11.43% lead,
215 grams per tonne silver and 0.514% copper and additional exploration
potential. A summary table is presented below:
 
 Zone
              Classification
              Tonnes
              Ag
      (g/t)
              Cu
      (%)
              Pb
      (%)
              Zn
      (%)Main
      Quartz Vein
              Measured
              938,624
              211.89
              0.465
              11.63
              13.11Indicated
              2,944,862
              212.39
              0.472
              12.67
              11.16Measured
      + Indicated
              3,883,486
              212.27
              0.470
              12.41
              11.63Inferred
              5,516,297
              215.53
              0.516
              11.46
              13.55Stockwork
              Indicated
              682,165
              50.15
              0.112
              2.68
              5.85Inferred
              4,045
              51.31
              0.126
              2.51
              5.54Stratabound
              Measured
              611,417
              67.6
              -
              6.68
              10.85Indicated
              663,261
              62.0
              -
              5.53
              10.15Measured
      + Indicated
              1,274,678
              64.7
              -
              6.08
              10.49Inferred
              21,234
              55.7
              -
              5.65
              10.49Combined
              Measured
              1,550,041
              154.9
              0.282
              9.67
              12.22Indicated
              4,290,288
              163.3
              0.342
              9.98
              10.16Measured
      + Indicated
              5,840,329
              161.1
              0.326
              9.89
              10.71Inferred
              5,541,576
              214.8
              0.514
              11.43
              13.54
 Note:
copper grades for stratabound material were not estimated due to the
consistently low to negligible assay grades reported in the available
database.
 
 Cautionary note: Mineral
Resources that are not mineral reserves do not have demonstrated economic
viability.  Inferred mineral resources are considered too speculative
geologically to have economic considerations applied to them that would enable
them to be categorized as mineral reserves and there is no certainty that all or
any part of an inferred mineral resource will ever be upgraded to a measured or
indicated mineral resource or to a mineral reserve.
 
 Highlights
of the Report include:
 ·
              Total
      Measured and Indicated Resource calculated at 5.8 million tonnes at
      >20% combined lead and zinc;
 ·
              Measured
      Resources in Vein tonnage increased 73% at 25% combined lead and zinc with
      212 grams per tonne silver;
 ·
              Indicated
      Resources in Vein tonnage increased 105% at 24% combined lead and zinc
      with 212 grams per tonne
silver;
  18
  ·
              Inferred
      Resource in Vein calculated at 5.5 million tonnes at 25% combined lead
      with silver with 216 grams per tonne
silver;
 ·
              Average
      increase of 10% in silver grades;
and
 ·
              Confirmation
      of grade and continuity in a NI 43-101 compliant resource
      report.
 
 The
Resource estimate was determined applying the following
methodology:
  One metre
composites were created from the assay data honoring the geological zone codes
provided in the dataset.  Classical statistics were gathered for
silver, copper, lead and zinc, as well as for each of the three mineralized
zones considered in analysis (Main Quartz Vein, stockwork and
stratabound).
  A
three-dimensional block model was developed; a block size of ten metres
(easting) by 30 metres (northing) by 30 metres (elevation) was
used.  Inverse distance weighting with a power of three was used for
all three mineralized zones; grades were interpolated for silver, copper, lead
and zinc.
  A primary
search distance of 300 metres was used to enable filling of all the blocks in
the down-plunge extension of the Main Quartz Vein.  The search
direction was orientated along a major axis of 357 degrees and a dip of 65
degrees east (i.e. to conform to the average strike and dip of the
vein).  The search was horizontal between sections 1,055N and 1,825N
and plunging at 15 degrees north from sections 1,825N to 3,155N.
  Coded
composites from the same zone as the block being estimated were selected for
block estimation.  The minimum length composite selected for grade
interpolation was 0.3 metres.  The minimum number of composites used
for the interpolation was one and the maximum was ten.  The maximum
number of composites per hole was limited to three, to thereby provide a more
uniform grade interpolation.  The resource grades include all
intercepts in a specific area and had no blocks removed by cut-off grade, which
is appropriate for the type of massive sulphide, selective mineralization
considered in analysis.
 
 The
complete Technical Report has been filed on SEDAR, and may be found under the
Company’s profile on SEDAR at www.SEDAR.com  [Technical
Report (NI 43-101) October 16, 2007].
 
 Cautionary
Note to United States Investors Concerning Estimates of Measured, Indicated or
Inferred Resources:
 The
United States Securities and Exchange Commission (“SEC”) permits U.S. mining
companies, in their filings with the SEC, to disclose only those mineral
deposits that a company can economically and legally extract or
produce.  We use certain terms in this MD&A, such as “measured,”
“indicated,” and “inferred” “resources,” which the SEC guidelines prohibit U.S.
registered companies from including in their filings with the
SEC.  U.S. Investors are urged to consider closely the disclosure in
our Form 20-F which may be secured from us, or from the SEC’s website at
http://www.sec.gov/edgar.shtml.  “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.
 
  19
  3.1.8                              Project Description Report /
Pre-Feasibility Study
 
 The
October 2007 Technical Report concluded that “Prairie Creek is an advanced
project for which, in theory at least, modest capital investment and a Class A
Water Licence only are required to allow production at the Mine to be started.
This is stated because:
 
 ·
              The
      Mine has a robust Measured and Indicated, Main Zone resource base that
      reflects high-grade mineralization (especially
  zinc);
 ·
              The
      results of the [current] Phase II underground drilling program can
      reasonably be expected to further enhance the amount (tonnes) of Measured
      and Indicated, Main Zone resources;
 ·
              Much
      of the required surface infrastructure and equipment is already in place,
      or at least only a limited amount of capital is probably required for new
      equipment and for rehabilitating and/or upgrading the existing mine and
      mill facilities; and
 ·
              Only
      a small amount of additional underground development would probably be
      required to start the production ramp-up to the target rate of 1,000
      tonnes per day.”
 
 The
Report further noted that “A definitive feasibility study is probably required
for purposes of capital raising, albeit that robust project economics may
reasonably be anticipated by virtue of:
 
 ·
              The
      available resource grades (even when diluted in the normal process of
      stoping, high-grade, run-of-mine mill feed can reasonably be
      expected);
 ·
              The
      fairly straightforward metallurgical process for co-mingled Main Quartz
      Vein and stratabound material (that yields a lead concentrate [sulphide
      and oxide] with a lead grade of approximately 69 percent at a recovery of
      nearly 89 percent and a silver grade of about 820 g/t at a recovery rate
      of approximately 73 percent, and a zinc concentrate [sulphide and oxide]
      with a zinc grade of nearly 54 percent at a recovery of approximately 86
      percent); and
 ·
              The
      likely limited amount of start-up capital required for mining and
      processing Main Zone mineralized material, especially compared to a new
      mine operation.”
 
 The
Report also emphasized that “significant upside resource potential exists over
several kilometres to both the north and south of the Main Zone area: the
exploration results indicate the presence of high-grade, vein type
mineralization; and preliminary analysis suggests that structural continuity of
the vein-type mineralization might exist.  Additional stratabound
mineralized bodies might also be present.”
 
 Extensive
metallurgical testing has been carried out on the mineralization from the
Prairie Creek mine over the past five years.
 
 During
2004 representative bulk samples of vein mineralization were extracted from
various locations within the existing underground workings at the Prairie Creek
mine.  In addition, diamond drill core samples of Stratabound
Mineralization were also collected from this deeper lying deposit which has not
yet been accessed by underground development. Vein mineralization type was
collected in the upper and lower level of existing developed underground
workings.  It is typically high in zinc, silver and lead in a mixture
of sulphide and oxide minerals.  Stratabound mineralization contains
zinc, lead, silver and iron sulphide minerals.
 
 The
metallurgical samples were shipped to SGS Lakefield Research Laboratories (“SGS
Lakefield”) where a total of 60 bench scale tests were undertaken over six
months under the direction of the Company’s metallurgical consultant. The
samples were first assayed for both sulphide and oxide
  20
  mineralization
and then combined into composite samples to ensure true representation of the
Prairie Creek mineral deposit.  Mineral samples from two separate
zones of vein mineralization (Upper and Lower Zones), and including both
sulphide and oxide mineralization, and from the stratabound zone, and additional
composite samples from all three zones, were tested to develop and optimize the
Prairie Creek mill flow sheet.  The batch and locked cycle tests
provided extensive analytical information and positive metallurgical
results.
 
 During
2006 a new metallurgical bulk sample was collected from multiple headings of the
vein within the existing underground development and also shipped to SGS
Lakefield for further testing and optimization studies. These samples were
composited and blended to create representative samples of the ore that will
provide feed to a future operating mill. The metallurgical program has shown
that heavy media separation, demonstrated in earlier tests, is repeatable and
that higher grade concentrates can be produced by processing the upgraded
material. The work to date, which was undertaken in conjunction with SNC-Lavalin
Inc., has focused on detailed mine planning and scheduling, process design,
including a new dense media separation plant, and underground tailings
disposal.
 
 The main
objective of SGS Lakefield’s metallurgical program was to develop a commercial
process for the beneficiation of Main Quartz Vein material (mixed oxide and
sulphide) and stratabound material (sulphide only).  Within the scope
of SGS Lakefield’s overall metallurgical program, the Company also sought to
confirm whether:
 
 ·
              Main
      Quartz Vein and stratabound material could be co-mingled in the milling
      process (i.e. vein and stratabound material did not have to be separately
      campaigned through the processing
plant);
 ·
              Main
      Quartz Vein and stratabound material could, either separately or as
      co-mingled material, be pre-concentrated in a heavy media circuit to
      remove the waste component (limestone, quartz,
  etc);
 ·
              A
      reagent scheme, that would eliminate the need for cyanide compounds, could
      be developed; and
 ·
              Separate
      sulpide and oxide, lead and zinc concentrates (i.e. four separate
      concentrates) could be produced with acceptable recoveries and at
      marketable grades.
 
 A series
of laboratory batch and locked-cycle tests were carried out over four main
phases (to August 2007) to enhance metal recoveries and concentrate grades, to
develop an optimum heavy medium pre-conditioning method and to establish an
optimum process flowchart that could be used for purposes of plant engineering
design.  The results proved positive, insofar as the following
conclusions were made:
 
 ·
              Stratabound
      material can be successfully co-mingled with Main Quartz Vein material,
      without significant metal losses in final
  concentrates;
 ·
              Co-mingled,
      run-of-mine mineralized material is very amenable to pre-concentration by
      HLS (which both reduces the quantity of tailings produced and reduces both
      the power requirements and work index for
  milling);
 ·
              Excellent
      metal recoveries can be achieved in both sulpide and oxide material, with
      a reagent suite that does not include cyanide products;
  and
 ·
              Marketable
      concentrates can be produced (albeit that penalty elements, including
      antimony, arsenic and mercury, would unavoidably report to the final
      concentrates).
  21
  Further
metallurgical test work was completed in 2008 with the objective of resolving
this outstanding issue by optimizing lead and zinc sulphide concentrate
recoveries and grades against which comparative cash-benefit analyses can be
performed.  In 2008, a new bulk sample and representative water
samples were extracted from underground and transported to SGS Lakefield for
laboratory and metallurgical testing to produce representative tailings and
process water for further characterization and treatment.
 
 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 and lead concentrates.
 
 A Project
Description Report (“PDR”) was prepared and filed with regulatory authorities in
May 2008 in support of application for operating permits.  The
PDR  describes in detail the proposed new mining operations at Prairie
Creek and contemplates the construction of new facilities including installation
of new fuel-efficient/low-emission power generating units, a
kitchen/accommodation block, concentrate storage shed, an incinerator, a new
engineered waste rock pile and two new transfer stations along the winter
road.
 
 The
Project Description Report, dated May 2008, may be viewed under the Company’s
name on the Water Board website at
http://www.mvlwb.ca/mv/registry.aspx.
 
 The
Company is currently working with SNC-Lavalin Inc. and other consultants to
optimize the proposed mine plan incorporating some of the data from studies that
were carried out in 2008 and will work towards updating and converting the PDR
into a Pre-Feasibility Study to be finalized after the current Environmental
Assessment has been completed by the Review Board.
 
 The
additional capital costs for the proposed new facilities and equipment to place
the Prairie Creek Mine into production will be estimated in the Pre-Feasibility
study.  The Company currently anticipates that the capital costs will
be in the range of $80 - 100 million, depending on final project design and
conditions in the operating permits.
 
 3.1.9                      Proposed New Mine at Prairie
Creek
 
 On May
28, 2008, the Company applied to the Water Board for a Type “A” Water Licence
and three Type “A” Land Use Permits (“LUPs”); one for the operation of the
Prairie Creek Mine and the other two for Transfer Facilities along the
road.  As described, a Project Description Report was filed with the
Water Board as part of the permit applications.
 
 The
proposed new operation at Prairie Creek utilizes the existing infrastructure and
facilities that were built in the 1980’s and which will be upgraded and enhanced
to meet current-day environmental standards.  The improvements
proposed for specific site facilities will further mitigate the potential impact
the Project may have on the environment.  Specifically, the Company
proposes to place waste rock and tailings underground in a cemented backfill
mix, use the existing large pond for temporary water storage, and place
development waste rock in an engineered facility removed from the Prairie Creek
floodplain.
 
  22
  A summary
of the proposed Prairie Creek mine operations as described in the Project
Description Report follows:
 
 The Mine: All mining
will be performed from underground. Underground development and workings (about
5,000 metres) already exist on three levels, including the new 600 metre decline
driven in 2006/07.  Proposed production rates will initially start at
600 tonnes per day and may build to 1,200 tonnes per day.  Mining will
occur on a year round basis by cut-and-fill methods.  Mine voids will
be backfilled with a mix of flotation tailings, waste rock aggregate and
cement.
 
 The Mill: The Mill,
which is already constructed on site but never operated, will process 600-1,000
tonnes per day.  Ore will be crushed to a gravel-size and subjected to
dense media separation (“DMS”).  The lighter, uneconomic “gangue”
minerals will create a waste rock aggregate.  Denser material will be
processed further by grinding and flotation to produce concentrates of lead
sulphide, zinc sulphide and lead oxide.  No hazardous chemicals will
be used in the process.
 
 Concentrates and Road
Haul: The concentrates will be bagged, stored under cover and trucked
off-site on flat-deck trailers over the winter road.  CZN holds a Type
“A” LUP (MV2003F0028) for the use of the winter road from the Prairie Creek Mine
to the Liard Highway.  CZN has also applied for Type “A” LUP’s for two
new transfer facilities to be located approximately mid-point along the winter
road and at the junction of the winter road with the Liard Highway.
 
 Environment:
Extensive environmental data has been collected at the Prairie Creek Mine Site
over recent years to update and add to the baseline information that was
collected previously as far back as the late 1970’s.  Sixteen years of
water flow data have been recorded on the Prairie Creek watercourse adjacent to
the Mine Site.  Canadian Zinc now has an extensive database on water
quality, stream flows, local climatic variables, and wildlife in the
area.
 
 Waste Management: All
flotation tailings will be backfilled into the voids in the underground mine in
a mix with the waste rock aggregate and cement.  The flotation
tailings are expected to be non-acid generating with low sulphide content and
excess buffering capacity.  Waste rock from underground development
along with excess waste rock aggregate from the DMS plant will be placed in an
engineered Waste Rock Pile (“WRP”) in the adjacent Harrison Creek
valley.
 
 Water Management: An
existing large pond facility, originally intended in 1980 for tailings disposal,
will be reconfigured, relined and recertified to form a two-celled Water Storage
Pond.  Mine drainage, treated sewage water and WRP runoff will report
to the first cell.  Water for the mill process will be taken from this
first cell.  Excess water from the first cell will overflow into the
second cell.  Used water from the Mill will also report to the second
cell.  The second cell will feed a water treatment
plant.  The treated water will discharge to the existing certified
Polishing Pond and from there into the existing Catchment Pond, before final
discharge to the environment.
 
  23
  Site Infrastructure:
The Site presently contains a near complete mill, three levels of underground
workings, a fuel tank farm, office facilities, accommodation facilities and
workshops.  Existing buildings and structures will be upgraded and
modernized.  New facilities will include fuel-efficient low-emission
power generation units, a kitchen/accommodation block, concentrate shed and an
incinerator.
 
 Socio-Economics and
Manpower: The operation of the Prairie Creek Mine will provide
substantial economic stimulus to the region, and presents a unique opportunity
to enhance the social and economic well-being of the surrounding
communities.  There will be approximately 220 direct full time jobs,
half of this number being on-site at any one time.  Personnel will
generally work a three weeks on, three weeks off schedule (with variations as
required).  Canadian Zinc’s objective is to employ a workforce with a
35% northern content, and a minimum 15% First Nations content.  The
Company anticipates that it will provide assistance through the provision of
training programs.  In addition, there will be many indirect business
and employment opportunities, mostly related to transport, supply of the Mine
Site and environmental monitoring and management.
 
 Mine Closure: At the
end of the Mine’s life, the Site will be reclaimed.  The underground
development will be backfilled.  Bulkheads at strategic points will
help limit the movement of groundwater.  The objective is to create a
complete seal to ensure there is no long term mine drainage.  The WRP
will be covered and sealed with a clay-rich soil.  Site buildings and
infrastructure, if deemed not to have any future use, will be dismantled and the
Site will be returned to its natural setting.
 
 3.1.10                      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 the use of up to 1,150 m3/day and 420,000 m3/year of
water from the Prairie Creek Valley Aquifer and setting standards for discharge
of process effluent to Prairie Creek.  Land Use Permit N80F249 was
issued July 2, 1980 for the road connecting Prairie Creek to the Liard Highway,
the first 40 kilometres being permitted for year round use with the remaining
130 kilometres permitted for use in winter months only.  The Land Use
Permit was extended in 1981 and again in 1982 to June 1983.  Surface
Leases were issued for the minesite area and airstrip.  The Water
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
  24
  Federal
Government agreed to establish a new resources management system through the
creation of boards with joint membership which reflects First Nations’ desire to
participate more effectively in the regulation of land and water throughout the
Mackenzie Valley.
 
 The Mackenzie Valley Resource Management
Act (“MVRMA” or the “Act”) was enacted in 1998 for a defined area called
the “Mackenzie Valley,” which includes the area where the Prairie Creek Mine is
situated. Prior to that, the applicable legislation was the Canadian Environmental Assessment
Act, S.C. 1992 c.37. (“CEAA”).  The CEAA no longer applies in
the Mackenzie Valley, except under very specific situations.
 
 The MVRMA
is a piece of federal legislation that creates an integrated co-management
structure for public and private lands and waters throughout the Mackenzie
Valley in the Northwest Territories.  The Act was proclaimed on
December 22, 1998; however, Part IV, which establishes the Mackenzie Valley Land
and Water Board, was not proclaimed until March 31, 2000.
 
 The
overall legislative scheme of the MVRMA is designed to implement the Gwich’in
and the Sahtu Land Claim Settlement Agreements (collectively the “Comprehensive
Agreements”) by providing for an integrated system of land and water management
in the Mackenzie Valley.  Under the Comprehensive Agreements, Land Use
Planning Boards and Land and Water Boards must be established for the settlement
areas referred to in those Agreements.  In addition, an Environmental
Impact Review Board must be established for the Mackenzie Valley along with a
Land and Water Board for an area extending beyond the settlement
areas.
 
 The Act
established these public boards to regulate the use of land and water, to
prepare regional land use plans to guide development, and to carry out
environmental assessment and reviews of proposed projects in the Mackenzie
Valley.  The Act also makes provisions for monitoring cumulative
impacts on the environment, and for periodic, independent environmental
audits.
 
 These
Boards are charged with regulating all land and water uses, including deposits
of waste, in the areas in the Mackenzie Valley under their
jurisdiction.  As institutions of public government, the Boards
regulate all uses of land and water while considering the economic, social and
cultural well-being of residents and communities in the Mackenzie
Valley.
 
 The MVRMA
ensures a greater role for Aboriginal people in land use planning, environmental
assessment, and the regulation of land and water use.  As stated in
the MVRMA, ‘the purpose of the establishment of boards by this Act is to enable
residents of the Mackenzie Valley to participate in the management of its
resources for the benefit of the residents and of other
Canadians.’  To reflect the desire of First Nations to be more
actively involved in resource management decision-making, half the members of
each Board are nominated by First Nations, and half by the Federal and
Territorial governments.  Public boards are formed through
nominations.  Under the land claims agreements, First Nations are
entitled to nominate one-half of the members of the board, reflecting the
board’s jurisdiction over all lands including First Nation settlement
lands.  The Federal Government, Territorial Government and First
Nations can each nominate at their own discretion.
 
 The Act
also anticipates amendments to accommodate new land settlements and
self-governments as they are finalized.  As land claims are settled,
the Act provides for additional regional boards to be established in the Dehcho,
North Slave and South Slave regions.  The Dehcho area is not
settled.  Prior to additional regional Boards being established, First
Nations in the Dehcho region were asked to
  25
  participate
in the new system by recommending members to the Mackenzie Valley Environmental
Impact Review Board and the Mackenzie Valley Land and Water Board.
 
 Under the MVRMA, public boards are
responsible for:
 ·
              preparing
      regional land use plans to guide the development and use of land, waters
      and other resources [Land Use Planning
Board];
 ·
              regulating
      all uses of land and water [Mackenzie Valley Land and Water Board
      (“MVLWB”)]; and
 ·
              carrying
      out the environmental assessment and review process [Mackenzie Valley
      Environmental Impact Review Board
(“MVEIRB”)].
 
 Consultation
is the cornerstone of the MVRMA.  Public Boards under the Act have
established their own consultation guidelines.
 
 Each
Board has its own specific jurisdiction.
 
 The Land
Use Planning Board develops and implements a land use plan for the respective
settlement areas in the Mackenzie Valley.
 
 Land and
water boards issue land use permits and water 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 Quarrying Regulations, Canada Mining Regulations and
the Federal Property
Regulations.
  26
  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.  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 Dehcho
area.
 
 On
November 7, 2007 the Minister of Indian Affairs and Northern Development
announced the Northern
Regulatory Improvement Initiative and the appointment of a Special
Representative responsible to advance this initiative.  As announced
by the Minister, the Northern
Regulatory Improvement Initiative is a strategy to improve the current
regulatory regime and the overall Northern regulatory environment and to ensure
that regulatory regimes across the North are effective and predictable, and will
better equip the North to develop and benefit from its resources in the best way
possible.  The Minister’s Special Representative was asked to work to
improve existing regulatory regimes across the North, and to submit a report to
the Government of Canada outlining proposed recommendations for advancing the
regulatory regime.
 
 In May
2008 the Minister’s Special Representative for the Northern Regulatory
Improvement Initiative (Neil McCrank) presented his report entitled “Road to
Improvement - The Review of the Regulatory System Across the North” to the
Minister of Indian Affairs and Northern Development.  The Report noted
that there is a need for a restructuring of the regulatory system in the
Northwest Territories, to address the issues of complexity and
capacity.  Two options and recommendations for restructuring were
outlined which would simplify and improve the effectiveness of the system and
there were also 22 recommendations which will bring improvements.
 
 The
report is being reviewed by Government before a decision is taken on which
recommendations will be accepted.
 
 (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 Dehcho First Nations
territory, for which a land claim settlement agreement has not as yet been
reached, applications are processed by the MVLWB.
 
 There are
three stages in the environmental impact assessment process in the Mackenzie
Valley: preliminary screening, environmental assessment and environmental impact
review.  Not all developments will necessarily go through each of the
three stages.  All projects undergo a preliminary screening, after
which it is decided whether a project must proceed to a full environmental
assessment or go straight to the regulatory phase.
  27
  
 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 Water
Board.  It is during the preliminary screening that the Water 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
Water 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
Water 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.
  28
  
 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 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.
  29
  
 (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 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
  30
  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”).
 
 The
Supreme Court quoted with approval, the earlier 2003 decision of the Northwest
Territories Court of Appeal in the case North American Tungsten Corp. Ltd. v
Mackenzie Valley Land and Water Board.   The Supreme Court
found:
 
 “The
reasoning in Tungsten appears to apply squarely to the circumstances of CZC’s
(Canadian Zinc Corporation’s) permit application.  The Court (of
Appeal) referred to the legislative intention that projects which predate June
22, 1984 are to be subjected to a full scale environmental assessment only if
they depart significantly from their approved mode of operation and engage in
decommissioning, abandonment or significant alteration of the
project.  The project, in this case, the operation of the winter
access road, predates June 22, 1984. As found by the (Water) Board, the permit
sought by CZC (Canadian Zinc) is not based on any intentions to significantly
alter that project or to abandon or decommission it”.
 
 In its
decision the Supreme Court said that the permit sought by Canadian Zinc is
related to the operation of the winter access road, a permit in respect of that
same undertaking had been issued before 1984, and therefore the exemption
provided in Section 157.1 of the MVRMA governs and a Part 5 assessment does not
apply.
 
 (d)
              Recent Permitting History at
      Prairie Creek
 
 In 1992
the Company was granted an Exploration Land Use Permit by the Minister of Indian
Affairs and Northern Development under the Territorial Lands
Act.  Further baseline studies were undertaken in 1994 in
support of planned re-development and permitting activity at that
time.  A new Exploration Land Use Permit N95F346 was issued by the
Minister in 1995 under the Territorial Lands Act, which included use of a
portion of the winter road.
 
 In 1995
environmental and geotechnical studies were carried out to facilitate the
pre-production permitting process.  A project description report was
compiled by Rescan Environmental Ltd. and filed with the Northwest Territories
Regional Environmental Review Committee (“RERC”).  This
report
  31
  contains
details of all the environmental work completed at the Prairie Creek
Property.  The report was filed to elicit terms of reference for an
initial environmental evaluation report.  A permit application was
screened in 1995 as a Level 1 screening pursuant to the Canadian Environmental Assessment
Act (CEAA) and it was determined that that project could proceed as it
was not likely to cause significant adverse effects pursuant to section 20(1)(a)
of the CEAA.  A Land Use Permit Application for upgrading the access
road to an all-weather road was also filed with the appropriate government
agency.  While the re-permitting process was subsequently discontinued
in 1995, these studies represent a significant contribution to the environmental
information database in support the Prairie Creek Project.
 
 The
Mackenzie Valley Land and Water Board was created on March 31,
2000.  The MVLWB and its associated regional boards took over
regulatory functions previously performed by the DIAND, the Northwest
Territories Water Board, and the Government of the Northwest Territory’s
Department of Municipal and Community Affairs on Commissioner’s
Lands.
 
 The
Company initiated preliminary discussions with the new MVLWB and regulatory
authorities in Yellowknife in August, 2000 with respect to re-development and
re-permitting of the Prairie Creek mine.  A follow up presentation was
made to the Governmental Mineral Development Advisory Group (“MDAG”) in November
2000 to elicit specific feedback from each of the regulatory agencies on the
information requirements necessary for them to fulfill their roles in review of
applications for permits and licences for the Prairie Creek mine.
 
 Since
August 2000, Prairie Creek has undergone five Environmental Assessments by the
MVEIRB and has received five separate Land Use Permits and two Water Licences to
carry out exploration and development at the Prairie Creek Mine and in the
immediately surrounding area, through the new Mackenzie Valley Resource
Management Process.
 
 (e)
              Land Use Permit  –
      Phase 1 Exploration
 
 Canadian
Zinc applied to MVLWB on July 28, 2000 for a Land Use Permit (“LUP”)
(MV2000C0030) to carry out a seven drill hole program  and to access
the Sundog (or CAT) Camp located along the winter road to retrieve fuel and
clean up the camp area, which work was planned for the fall of
2000.  On October 4, 2000 MVLWB referred the application to the
Mackenzie Valley Environmental Impact Review Board for environmental
assessment.  The application was then split into separate LUP
applications with specific reference to the drilling program and the Cat Camp
clean-up.
 
 Following
environmental assessment, a LUP was issued by MVLWB on June 14, 2001 which
permitted the seven drill hole program (MV2000C0030A).
 
 (f)
              Sundog (CAT) Camp – Clean Up
      Permit
 
 On May 9,
2001, the Review Board issued its Report to the Minister recommending that the
Cat Camp permit be approved but that the work be done in winter
2001/2002.  Canadian Zinc preferred to do it in the summer season when
the Prairie Creek Camp was open and there would be easier access.  In
June 2001 Environment Canada issued a direction to DIAND to take steps to
prevent the deposit of petroleum products at Cat Camp into the surrounding
environment.  In March 2002 DIAND flew in and incinerated the
fuel.  On June 17, 2002, three months after the fuel was incinerated,
the Minister of Indian Affairs and Northern Development referred the
Environmental Assessment Report back to the
  32
  Review
Board for further consideration, pointing out that it was no longer possible to
carry out the proposed development work as there was no longer any fuel to be
retrieved.  In July 2002 the Review Board dismissed the
proceeding.
 
 (g)
              Land Use Permit – Phase 2
      Exploration
 
 On March
5, 2001, the Company submitted a Land Use Permit application for a Phase 2
Exploration Drilling Program and this application was also referred for
Environmental Assessment.  After Environmental Assessment by the
Review Board, on November 30, 2001 the Water Board issued Land Use Permit
MV2001C0022A, valid for a period of five years, authorizing the drilling of up
to 60 exploration holes on the Zone 3 Mining Lease and within 1,000 metres of
the Prairie Creek Mine.  In November 2006 this Land Use Permit was
renewed for a further period of two years.  The Land Use Permit was
allowed to expire in November 2008 and was superseded as described below in “(j)
Land Use Permit – Phase 3 Exploration.”
 
 (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 mine.  The application was distributed to government
agencies, First Nations communities and other organizations in order for the
MVLWB to conduct a preliminary screening as required by Part 5 of the Mackenzie Valley
Resource Management Act.
 
 However
in April 2001, both the Parks Canada Agency and Pehdzeh Ki First Nation referred
the proposal to the Mackenzie Valley Environmental Impact Review Board for
Environmental Assessment (“EA”) pursuant to section 126(2) of the
MVRMA.  The referral to EA occurred prior to the Water Board’s
completion of its preliminary screening of the proposed
development.
 
 The
Environmental Assessment was conducted throughout 2001 and into
2002.  The MVEIRB submitted its Report of Environmental Assessment
(“EA Report”) on February 5, 2002 to the Minister of Indian Affairs and Northern
Development.  On September 3, 2002, the Minister requested that, as
per section 130(1)(b)(i) of the MVRMA, the MVEIRB was to give further
consideration to unresolved issues in the EA Report relating to the tailings
containment area and water treatment in general.
 
 Following
further assessment the MVEIRB submitted its Reasons for Decision on April 4,
2003, outlining recommended revisions and additions to the recommendations in
its February 5, 2002 EA Report.  On June 16, 2003, the Minister
approved the Reasons for Decision and directed the MVLWB to proceed with the
licensing process.
 
 On
September 10, 2003 the Water Board approved the issue of Water 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 Dehcho First Nations
against the Mackenzie Valley Land and Water
  33
  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 Defence Fund (now known as Ecojustice), 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 was valid for a period of five years
expiring September 10, 2008.
 
 In
September 2008, the Water Board granted a two year extension to the Company’s
Land Use Permit to September 9, 2010 and the Water Licence was renewed for a
period of five years to September 9, 2013.
 
 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 argued that this application is exempt from the
Environmental Assessment process by virtue of Section 157.1 of the
Act.  [See 3.1.9(c) “Grandfather” Provisions] The Company’s argument
was rejected by the Water Board on June 1, 2004.  The Company filed an
Appeal to the Supreme Court of the Northwest Territories seeking judicial review
of the decision of the Water Board.  The Appeal was heard by the
Supreme Court in December 2004.
 
 In a
written decision dated May 6, 2005 in the case Canadian Zinc Corporation v
Mackenzie Valley Land and Water Board (SCNWT S-0001-CV2004) the Supreme
Court of the Northwest Territories ruled in favour of the Company that its
Winter Road permit application is “grandfathered” and is
therefore exempt from the Environmental Assessment process under the Mackenzie Valley Resource Management
Act (“MVRMA”).
  34
  In its
decision the Supreme Court said that the permit sought by Canadian Zinc is
related to the operation of the Winter Access Road, a permit in respect of that
same undertaking had been issued before 1984, and therefore the exemption
provided in Section 157.1 of the MVRMA governs and a Part 5 assessment does not
apply.
 
 This
application for a Land Use Permit for the road was referred back to the Water
Board.  In June 2005 the Nahanni Butte Dene Band wrote to the Water
Board asserting infringement of Aboriginal rights and inadequate consultation
under Section 35 of the Constitution of Canada.  The issue was
referred to the Department of Indian Affairs and Northern Development which
conducted a preliminary assessment and submitted its report to the Water Board
in February 2007.
 
 On April
11, 2007 the Water Board approved the issue of Land Use Permit MV2003F0028 for a
period of five years to April 10, 2012.
 
 (j)           Land Use Permit – Phase 3
Exploration
 
 In April
2004, Canadian Zinc applied to the Mackenzie Valley Land and Water Board for an
amendment to its previously approved Land Use Permit  MV2001C0022A
allowing a 60 hole mineral exploration program within 1,000 metres of the
Prairie Creek Mine site facility.  The amendment was submitted in
order to obtain permission to drill anywhere on the extensive mineral leases and
claims held by Canadian Zinc at the Prairie Creek Property.  Following
a Preliminary Screening in June 2004, the Water Board referred the proposed
development for Environmental Assessment to the Mackenzie Valley Environmental
Impact Review Board citing “public concern about the cumulative effects of this
project on the South Nahanni Watershed”.
 
 A
detailed Environmental Assessment was carried out throughout
2005.  Five government agencies, two first nations and one
non-governmental organization (CPAWS) participated in the Environmental
Assessment, which continued over a period of about eighteen
months.  Canadian Zinc submitted a Detailed Development Description
dated December 2004.  The Review Board issued its Terms of Reference
in April 2005 and held scoping sessions (public meetings) during March and April
2005 in the NWT communities of Fort Liard, Fort Simpson and Wrigley,
NT.  Canadian Zinc submitted its Developer’s Assessment Report in May
2005 and Technical Reports were submitted by the end of August
2005.  A Public Hearing was held in Fort Simpson NT, on October 6,
2005.
 
 The
Mackenzie Valley Environmental Impact Review Board completed its Report of
Environmental Assessment and submitted the Report to the Minister of Indian and
Northern Affairs Canada on December 23, 2005.
 
 The
Review Board has concluded that, with the implementation of the commitments made
by Canadian Zinc and three mitigation measures recommended in the Report, the
proposed development is not likely to have a significant adverse impact on the
environment or be cause for significant public concern.  The Review
Board recommended to the Minister that this development proceed to the
regulatory phase of approvals.
 
 The
Review Board examined the Public Record for evidence of possible significant
adverse impact on the environment, for evidence of cumulative effects from the
development in combination with other past, present and reasonably foreseeable
future developments, and for evidence of public concern.
  35
  The
Review Board found that significant adverse cumulative impacts on the
environment can be prevented with adequate environmental
management.  The Review Board also found that the proposed development
is not likely to be cause for significant public concern as long as all of the
Company’s commitments and all of the measures recommended by the Review Board
are implemented.
 
 The
Review Board concluded that some public concern over cumulative effects on the
Nahanni watershed exists but that this concern would be greatly diminished if
the public had assurance that the Company’s commitments, and the additional
mitigation measures recommended by the Review Board, would be effectively
implemented.  The Review Board found that there would not be a concern
if the public is kept up-to-date about the environmental protection measures
Canadian Zinc will be using.  “The best way for the public to receive
this assurance is through an independent community environmental monitor who
reports back to the effected communities”.
 
 “The
Review Board is of the view that the full responsibility for monitoring,
evaluation and management should not necessarily rest on the Company
alone.  Expert agencies of government, such as Department of Indian
Affairs and Northern Development, Environment Canada, Department of Fisheries
and Oceans, and Government of the Northwest Territories, should be involved
co-operatively in the design of this comprehensive monitoring
program”.
 
 The
Review Board noted that incremental development in the Prairie Creek area is
likely to continue and is likely to increase rather than decrease in the
foreseeable future.  There has already been considerable development
in the Prairie Creek watershed and development is likely to
increase.  On the other hand, all present and reasonable foreseeable
future developments are by the same developer, are in close proximity, and are
operated, if not as one development, in a co-ordinated and overlapping
fashion.  This provides Canadian Zinc with an opportunity to
effectively manage cumulative effects through responsible environmental
management of its activities in each of the developments in the
area.
 
 The
Review Board recommended approval of the proposed development subject to three
mitigation measures.  The measures are the actions necessary, in the
opinion of the Review Board, to prevent or mitigate adverse impacts on the
environment.  The three measures recommended by the Review Board
are:
 ·
              Government
      and regulatory authorities are to ensure that all drill waste is disposed
      of in a manner that does not allow any harmful substance to enter surface
      waters.
 ·
              Canadian
      Zinc shall take every reasonable effort to employ a local person, selected
      in consultation with the Dehcho First Nations, as community environmental
      monitor, who will independently report back to the Dehcho First
      Nations.
 ·
              DIAND
      shall ensure that a comprehensive program to monitor cumulative impacts on
      fish, wildlife, vegetation and water quality is
    implemented.
 
 In
February 2006 the Minister of Indian Affairs and Northern Development, and on
behalf of the Responsible Ministers with jurisdiction (Environment and Natural
Resources, Government of the Northwest Territories, Fisheries and Oceans, and
the Minister of the Environment on behalf of Environment Canada and Parks
Canada), approved the report of the Review Board.
 
 In May
2006 the MVLWB issued the Land Use Permit for the Phase 3 exploration drill
program, which is valid for five years commencing May 11, 2006.
  36
  (k)           Water Licence and Quarrying Permit –
Road Rehabilitation
 
 In June
2007, Canadian Zinc applied to the Mackenzie Valley Land and Water Board for a
Class B Water Licence (MV2007L8-0026) to rehabilitate a portion of the road in
the proximity of the mine site and sought authorization from the Department of
Fisheries and Oceans to carry out the work.  Also in June 2007, the
Company applied to Indian and Northern Affairs Canada for a quarrying permit to
obtain rock to be used in the road rehabilitation.
 
 In June
2007, the Dehcho First Nations claimed that the rehabilitation work constituted
a significant alteration to the Winter Road project and requested that the
application for the water licence for the proposed rehabilitation work be
referred for Environmental Assessment.  In December 2007, the
Mackenzie Valley Land and Water Board ruled that the proposed rehabilitation
work did not constitute a significant alteration.
 
 The
issuance of these permits was delayed as they were referred to consultation
between the Crown and the Nahanni Band.  The Company received the
quarry permit on February 29, 2008 and the Water Licence on March 20,
2008.  The Water Licence is valid for a period of five years expiring
March 19, 2013.  The authorization from DFO was received on July 15,
2008.
 
 (l)           Applications for Operating
Licence/Permit
 
 On May
28, 2008, the Company applied to the MVLWB for a Type “A” Water Licence and
three Type “A” Land Use Permits (“LUPs”); one for the operation of the Prairie
Creek Mine and the other two for Transfer Facilities along the
road.  A detailed Project Description Report was filed with the Water
Board as part of the permit applications.
 
 The
proposed new operation at Prairie Creek utilizes the existing infrastructure and
facilities that were built in the 1980’s and which will be upgraded and enhanced
to meet current-day environmental standards.  The improvements
proposed for specific site facilities will further mitigate the potential impact
the Project may have on the environment.  Specifically, the Company
proposes to place waste rock and tailings underground in a cemented backfill
mix, use the existing large pond for temporary water storage, and place
development waste rock in an engineered facility removed from the Prairie Creek
floodplain.
 
 Subsequent
to submitting the applications to the MVLWB, the Company responded to a number
of requests for additional information from the Board.  On July 14,
2008, the MVLWB advised the Company that all applications were deemed
complete.  A subsequent letter from MVLWB, dated July 21, 2008,
indicated that the Board was moving forward with its preliminary screening of
the application and had requested comments from interested parties by August 8,
2008.
 
 The MVLWB
conducted a review of the submissions, and comments of reviewers, and interested
parties, and of the submissions made by CZN.  During the course of the
preliminary screening the MVLWB determined that the land use permit and water
licence applications might have a significant impact on the environment and
might be the cause of public concern.  The concerns were around water
quality, wildlife, damage to landscape, and long term risk of
contamination.  The MVLWB, after completing their preliminary
screening, resolved, on September 17, 2008, to refer the land use permit
applications as well as the water licence application to the MVEIRB for
environmental assessment.
  37
  Previous
to the official referral, on August 11, 2008, the Company was informed by the
MVEIRB that Indian and Northern Affairs Canada, under Section 126(2)(a) of the
Mackenzie Valley Resource Management Act, had referred the proposed development
of Prairie Creek to environmental assessment both on its own behalf and on
request from the Nahanni Butte Dene Band as per Article 12 of the Settlement
Agreement between the Dehcho First Nations (“DCFN”) and the Government of
Canada.
 
 An EA,
conducted by the MVEIRB, is the next stage in the regulatory process following
preliminary screening by the Water Board.  The initial phase of the
EA, and the main activities to date, consisted of community scoping sessions and
written hearings submissions and rulings to determine the scope of the Terms of
Reference for the EA.
 
 The
Company participated in six public scoping sessions in several Dehcho
communities and in Yellowknife in late September/early October 2008 to enable
discussion and questions to be addressed to assist in determining the overall
scope of the EA.  The community public sessions demonstrated that
there is considerable local community support for the Prairie Creek project and
there is no significant public concern amongst the communities.  The
MVEIRB was strongly encouraged to undertake a very focused and efficient
EA.  Two clear themes emerged: protection of water quality is
paramount, and, jobs and economic activity are sorely needed in the Dehcho
region.
 
 The
MVEIRB originally proposed a deadline of October 14, 2008, for interested
parties to provide scoping submissions but this was subsequently
extended.  Initially, the MVEIRB indicated that it anticipated
providing further guidance on how the EA would proceed in the last week of
November 2008.
 
 On
November 6, 2008, the MVEIRB received a Request for Ruling (the “Request”) from
Ecojustice on behalf of Dehcho First Nations and Canadian Parks and Wilderness
Society (“CPAWS”).  The Request concerned the question whether the
winter access road, and its use, should be included in the EA
process.  The MVEIRB subsequently decided to issue information
requests to various parties to ensure that all potentially relevant materials to
assist their decision on the Request would be available to all interested
parties.  The information request was published by the MVEIRB on
November 26, 2008, and noted two questions:
 
 (1)
Whether the winter road should be part of the scope of development and subject
to direct impact assessment during the EA; and
 (2)
Whether existing mine site infrastructure should be part of the scope of
development and subject to direct impact assessment during the EA.
 
 The
MVEIRB proceeded to set deadlines for submissions and
responses.  These timelines were further extended to January 19, 2009,
following a MVEIRB pre-hearing conference on December 17, 2008.  The
MVEIRB considered submissions and responses from interested parties, including
Canadian Zinc which submitted that the winter road and existing mine site
infrastructure should not be part of the assessment and that the EA should focus
on the new developments and the new transfer stations on the winter
road.
 
 On March
5, 2009, the MVEIRB published its Ruling on the Scope of Development, finding
that “all physical works and activities associated with the winter access
road.....and all physical works and
  38
  activities
associated with the mine site.....are part of the scope of development for the
Prairie Creek Mine environmental assessment.”
 
 The
MVEIRB also provided some comments with regard to the scope of assessment,
noting that “In its forthcoming Draft Terms of Reference, the Review Board will
provide its preliminary determination of the scope of assessment – what issues
need to be examined in what level of detail during the environmental assessment
– for review and comment.  The Review Board reminds all interested
parties that while the scope of development defines all the physical works and
activities required to undertake the development, that does not mean that all
physical works and activities are subject to the same level of
assessment.  Depending on their potential for impacts and subject to
Review Board discretion, parts of the scope of development may be considered
very closely, other very little or not at all.
 
 “The
Review Board will give full consideration to historic studies, impact assessment
and operational information about all aspects of the Prairie Creek Mine before
determining whether additional studies are required....The Review Board assures
all interested parties it has no intention of ignoring the wealth of relevant
existing evidence collected on how the existing infrastructure will likely
interact with the environment.
 
 “The
Review Board also notes that the Prairie Creek Mine includes a variety of
existing structures, including the winter access road and much of the mine site
infrastructure.  The Review Board accepts the argument made by
Canadian Zinc and others that conducting an impact assessment on the
construction of facilities, including the road, which have been present on the
land for over 25 years is not likely to generate any useful information even if
it is possible.  The Review Board will not be assessing construction
impacts of already built structures.  The Board has decided that
assessment of these facilities will be restricted to the effects of their
ongoing operation in combination with the effects of other construction and
operations necessary for the operation of the mine.”
 
 The
Review Board is expected to issue Draft Terms of Reference in the coming weeks
that identify the scope of development in more detail, and allow public comment
before finalizing the scope of development to be assessed in the
EA.
 
 All
comments and documents can be viewed on the MVEIRB website at
http://www.mveirb.nt.ca/registry/index.php.
 
 Following
the EA will be a further regulatory stage, managed by the MVLWB (with input from
territorial and federal agencies), before permits are issued.  These
permits will include conditions that will require CZN to meet appropriate
environmental guidelines.
 
 (m)           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 and the applications filed in 2008 are now
undergoing Environmental Assessment. Five Land Use Permits, including a permit
to use the access road in winter months, and two Water Licences 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.
  39
  
 In light
of the likely extended timeframe that the permitting process will require, the
Company has determined that it will limit expenditures at Prairie Creek for the
foreseeable future, with the exception of continuing to carry out projects and
studies that will be of assistance for the EA process and also in determining
and refining future anticipated mine plans.  Given the open-ended
nature of the Mackenzie Valley permitting process, the Company cannot, with any
reasonable assurance at this point in time, provide a detailed estimate as to
the likely costs of permitting activities in 2009.  It is likely,
given the Company’s experience to date, that the EA process will extend for a
considerable time.
 
 When the
Company receives its operating permits, which is not a certain event, additional
finance will be required to bring the mine into commercial
production.  This will be very dependent on future market conditions,
especially with regard to commodity prices, which may impact the Company’s
ability to complete development of Prairie Creek.  The Company is
currently evaluating the cost of the future development required at Prairie
Creek and currently estimates that an additional $80 - 100 million will be
required.  This number, however, is highly uncertain and could
materially change based on final project design, permitting conditions and
economic circumstances conditions at that time.
 
 3.1.11                      Environmental
Matters
 
 Nahanni National Park
Reserve / Parks Canada Memorandum of Understanding
 
 The
Prairie Creek Mine, located adjacent to Prairie Creek, is within the watershed
of the South Nahanni River, 32 kilometres upstream of the point where Prairie
Creek crosses the boundary of the Nahanni National Park Reserve and 48
kilometres upstream of the point where Prairie Creek joins the South Nahanni
River.  The confluence of Prairie Creek and the South Nahanni River is
65 kilometres upstream of the point where the South Nahanni River leaves the
Nahanni National Park Reserve crossing its downstream boundary.
 
 The South
Nahanni River is 500 kilometres in length of which 300 kilometres are contained
within the Nahanni National Park Reserve. The watershed of the South Nahanni
River is 37,000 km2, of
which 4,766 km2 are
contained within the Nahanni National Park Reserve.  The watershed of
Prairie Creek above the minesite is 495 km2, or less
than 2% of South Nahanni watershed.  In accordance with the relative
sizes of their respective watersheds, water flow in the South Nahanni averages
75 times that of Prairie Creek and ranges from 50 to 180 times as
much.
 
 The South
Nahanni is highly valued as a wilderness recreation river and is used for
canoeing trips during the summer months. These wilderness adventure tours are
supported by a number of outfitting companies from as far away as
Ontario.
 
 The
Nahanni National Park Reserve was created in 1972, following a canoe trip down
the river by then Prime Minister Pierre Elliot Trudeau, specifically for the
purpose of setting aside the South Nahanni River for wilderness recreational
purposes. Exploration activity at Prairie Creek had been ongoing for many years
prior to 1972 and underground development was well advanced at that point in
time.
 
 Parliament
formally established Nahanni National Park Reserve of Canada in 1972, legally
protecting it as Canada’s 26th National Park under the Canada National Parks
Act. It was established as a National Park Reserve in view of the fact that
there were outstanding land claims in the area. It will
  40
  only
become a fully fledged National Park once an agreement has been reached with the
Dehcho First Nations.
 
 Nahanni
National Park Reserve is considered to be of global significance.  In
1978, it was the first area added by UNESCO to its list of World Heritage Sites.
There are only 13 sites in Canada designated as World Heritage Sites, eight of
them being National Parks. Nahanni received this designation because of the
geological processes and natural phenomena in the area. In UNESCO’s view,
Nahanni is special because it is an unexploited natural area. The presence in
this area of three river canyons cutting at right angles to the mountain ranges,
with walls of up to 1,000 metres high, Virginia Falls which falls over 90
metres, hot springs, sink holes and karst topography are considered a special
combination.
 
 In
considering and approving the nomination of Nahanni National Park Reserve for
World Heritage Status, the World Heritage Committee stated that “it would be
desirable to incorporate the entire upstream watershed in the World Heritage
Site”. In 1977, the Minister responsible for Parks Canada directed Parks Canada
to examine the possibility of expanding Nahanni National Park Reserve to include
more of the head waters of the South Nahanni and the karst terrain. Several
studies were conducted to assess this potential.
 
 In August
2007 the Prime Minister of Canada visited Fort Simpson to announce the proposed
expansion of Nahanni National Park Reserve. The Prime Minister announced that
the Government of Canada had approved an Order in Council (PC-2007-1202 July 31,
2007), withdrawing certain lands for the proposed park expansion. The area
surrounding the Prairie Creek mine, containing approximately 367 square
kilometres, is not included in the interim land withdrawal area and, as
specified in Schedule 2 to the Order, is specifically excluded and exempted.
Canadian Zinc has been assured by the Government of Canada and by Parks Canada
that the final boundaries of the expanded park will not include the site of or
the access road to the Prairie Creek mine and that in the proposed expansion of
the Nahanni National Park Reserve the existing mining and access rights of
Canadian Zinc to the Prairie Creek mine will be respected and
protected.
 
 In
October 2007 the Nahanni Expansion Working Group undertook a series of open
houses throughout the Dehcho communities to present proposals for developing
boundary options for an expanded park. In a document dated October 2007 entitled
“Expansion of Nahanni National Park Reserve: Boundary Options for Public
Consultation” Parks Canada proposed three options all of which included
protecting all existing third party rights and tenures.  In addition,
all three options include the understanding that access to the Prairie Creek
Minesite will be provided and will require a right of way or corridor across or
through an expanded park.
 
 On July
29, 2008, Parks Canada Agency (“Parks Canada”) and Canadian Zinc entered into a
MOU with regard to the expansion of the Nahanni National Park Reserve and the
development of the Prairie Creek Mine, whereby:
 
 ·
              Parks
      Canada and Canadian Zinc agree to work collaboratively, within their
      respective areas of responsibility, authority and jurisdiction, to achieve
      their respective goals of an expanded NNPR and an operating Prairie Creek
      Mine.
 
 ·
              Parks
      Canada recognizes and respects the right of Canadian Zinc to develop the
      Prairie Creek Mine and will manage the expansion of NNPR so that the
      expansion does not in its own right negatively affect development of, or
      reasonable access to and from, the Prairie Creek
  Mine.
  41
  
 ·
              Canadian
      Zinc accepts and supports the proposed expansion of the NNPR and will
      manage the development of the Prairie Creek Mine so the mine does not, in
      its own right, negatively affect the expansion of the Nahanni
      Park.
 
 Parks
Canada and Canadian Zinc (the “Parties”) have agreed to make every reasonable
effort to address issues of common interest and build a strong working
relationship, including convening a Technical Team, including representatives of
the Dehcho First Nations, which will better identify, define and consider issues
of common interest, including, among other things, access to and from the
Prairie Creek Mine through the proposed expanded Park and the park boundaries
around the Prairie Creek Mine properties.  The Parties have also
agreed to share with one another and the Technical Team any existing technical
and scientific information relevant to a discussion and analysis of issues of
common interest to the Parties.
 
 The MOU,
which is valid for three years is intended to cover the period up to the
development of the Prairie Creek Mine (Phase I) and may be amended or renewed as
agreed by the Parties and may be terminated by either Parks Canada or Canadian
Zinc on not less than three months written notice.  It is contemplated
that the Phase I MOU will be replaced by a further MOU (Phase II) which will
address the operation of the mine and the expanded Nahanni Park.
 
 The MOU
is an expression of the mutual intentions of the parties and is not legally
binding or enforceable.  The MOU does not create any  new
powers or duties or alter or affect any rights, powers or duties established by
law, including by the Parks Canada Agency Act  and the Canada National
Parks Act, or result in the Parties relinquishing any right, jurisdiction,
power, privilege, prerogative or immunity.
 
 To the
extent that the Prairie Creek Mine is subject to regulatory or government
processes, including hearings, Parks Canada reserves the right, while
recognizing the intent of the MOU, to participate in any such process and take
such positions as it sees fit and the MOU does not constrain Parks Canada from
doing so, subject only to the understanding that Parks Canada has agreed not to
object to or oppose, in principle, the development of the Prairie Creek
Mine.
 
 The
exclusion of the Prairie Creek mine from the proposed Nahanni National Park
expansion area has brought clarity to the land use policy objectives for the
region.  Canadian Zinc believes that the Prairie Creek mine and the
expanded NNPR can co-exist and that, properly planned and managed, the expanded
Park will not interfere with the operation of the Prairie Creek mine and
similarly that the operation of the mine will not adversely impact upon the Park
or its ecological integrity.
 
 The final
boundaries for the proposed park expansion have not yet been determined. The
senior Mineral Energy and Resource Assessment (“MERA”) Committee is considering
a number of options regarding the proposed park expansion area.
 
 Canadian
Zinc anticipates that the exclusion of the Prairie Creek mine from the proposed
park expansion area will bring clarity to the different policy objectives for
the region. Canadian Zinc believes that the Prairie Creek mine and the expanded
Nahanni National Park Reserve can co-exist and that, properly planned and
managed, the expanded park will not interfere with the operation of the Prairie
Creek mine and similarly that the operation of the mine will not adversely
impact  upon the Park or its ecological integrity.
  42
  
 Endangered
Species
 
 The
Committee on the Status of Endangered Wildlife in Canada (“COSEWIC”) lists only
two species in the area of the Prairie Creek Mine: the Grizzly Bear (Ursus arctos) and the
Wolverine (Gulo gulo),
both of which are listed in the Special Concern category. In areas removed from
the minesite, COSEWIC lists the Peregrin Falcon (Falco peregrinus anatum), the
Woodland Caribou, Boreal population (Rangifer tarandus caribou)
and the Wood Bison (Bison
bison athabascae), each of which are considered threatened. No rare or
highly valued species of vegetation or plant communities have been identified in
the area. COSEWIC does not list any plant species as endangered, threatened or
of special concern in the area of the Prairie Creek Mine.
 
 Detailed
field studies of wildlife populations and wildlife habitat in the area of the
Prairie Creek Mine and the access road were conducted by Beak Consultants Inc.
in 1980-81 and again by Rescan in 1994.  None of the listed species
and no critical habitats, such as denning or nesting areas, were identified in
the area of the mine. Grizzly bears and wolverine have been observed or
encountered only very infrequently in the area surrounding the mine over the
past 20 years.
 
 Caribou
populations and potential caribou habitat have been identified in areas removed
from the minesite to the north and east in the Mackenzie Mountains. Potential
impacts to these populations are primarily transportation related and can be
mitigated through standard road safety practices.
 
 Specific
surveys of potential Peregrine falcon nesting habitat have identified no nesting
sites in the area of the minesite.
 
 Wood
bison were re-introduced into the Nahanni Butte area, 90 kilometres to the
southeast of the Prairie Creek Mine, in 1980 with additions to the herd made in
1989 and again in 1998. As with caribou, potential impacts to these populations
are primarily transportation related, in this case primarily in the area of the
Liard Highway, and can be mitigated through standard road safety
practices.
 
 Acid Rock
Drainage
 
 The
mineral resources at the Prairie Creek Mine are hosted in carbonate rocks. The
low sulphide values and high excess neutralization potential of the host rocks
(and tailings products) indicate that these materials will pose no long term
hazard to the environment through sulphide oxidation processes.
 
 Rescan
Environmental of Vancouver, B.C. undertook a detailed analysis of the acid
generating characteristics of all dominant rock types at the Prairie Creek Mine
in 1994. The results indicated an overwhelming dominance of acid neutralizing
minerals, with acid neutralizing carbonate minerals exceeding the total capacity
to generate acidity by an average factor of almost 200. Initial analysis of
flotation tailings generated from metallurgical testwork has indicated a similar
excess of neutralization potential. The Company does not anticipate the
potential for any acid rock drainage impacts.
 
 Mesh
Environmental Inc. (“Mesh”) undertook a follow-up study during 2005/06, with the
objectives of significantly expanding Rescan’s 1994 rock sample dataset and
incorporating analyses on mineralized rock samples, tailings and concentrates.
Sample collection was completed by Mesh at the Mine Site during September 2005.
A total 66 samples were included in Mesh’s characterization
program.
  43
  
 A total
of ten process waste samples, including mill rock, flotation feed, tailings and
concentrate samples from tests performed in 2005 were provided by SGS Lakefield
Research Limited in Lakefield, Ontario (“SGS Lakefield”, ISO 9001-2000
accredited). So-called mill rock is wall rock dilution that will be separated
from mineralized material in the processing plant.
 
 Static
laboratory geochemical characterizations were carried out by Mesh, including
acid-base accounting (“ABA”), along with: total inorganic carbon and
multi-element Inductively Coupled
 Plasma
(“ICP”) analyses on all samples; and mineralogy, expanded ABA (pyritic sulphur,
siderite correction, acid-buffering characterization curves) and grain size
analyses on a sub-set of samples. The following conclusions were
made:
 
 • all the
host rock units are non-potentially acid generating (“non-PAG”), due to
generally low amounts of contained sulphur (less than one percent of total
sulphur) and the substantial effective buffering capacity provided by reactive
carbonates, the latter reflecting the carbonate-rich nature of the host rock
material (which conclusion is supported by the behavior of mixed waste rock that
has been exposed on surface at the Mine Site for 25 years, which waste rock does
not demonstrate acidic pH values and remains classified as non-PAG as a
result);
 • Main
Zone vein- and stratabound-mineralization are classified as potentially acid
generating due to an abundance of sulphide mineralization (although Mesh’s
kinetic test data to December 2006 suggests that it may take a substantial
amount of time for acidity to be generated, due to the significant amount of
buffering capacity available from the carbonate host rocks);
 • the two
mill rock samples produced as by-products from Main Zone vein mineralization and
overbreak are non-PAG and contain relatively low sulphur values (approximately
0.3 percent, or less);
 • the
final composite tailings samples are classified as non-PAG and contain
sufficient buffering capacity to maintain neutral conditions under laboratory
conditions;
 •
tailings supernatant is alkaline (pH 10.7 to 10.9), with total solids in
solution (“TSS”) of five to 500 milligrams and relatively high sulphate
concentrations of 170 to 230 milligrams per litre, respectively, over the two
hour test period;
 •
sulphide concentrates are classified as potentially acid generating due to
slightly elevated pyritic sulphur content and very little neutralization
capacity;
 • as a
result of substantially higher neutralization potential, oxide concentrates are
classified as non-PAG (oxide zinc concentrate) and as having uncertain acid
generation potential (oxide lead concentrate).
 
 Mesh
noted that, with regard to the conclusions made in their December 13, 2006
Report, the options being considered for waste rock, mill rock and tailings
management include:
 •
returning all dewatered tailings, the majority of mill rock and waste rock in
close proximity to mineralized areas to the underground workings, as
backfill;
 •
placement of excess mill rock and waste rock in engineered and non-engineered
surface storage facilities; and
 •
storage, treatment and additional settling in a polishing pond of tailings
supernatant, prior to its discharge.
 
 Current
planning calls for concentrates to be bagged and stored on or near site in
sheltered containers, prior to their removal for off-site smelting.
 
  44
  Hazardous
Materials
 
 Hazardous
and toxic waste materials have been stored at the Prairie Creek minesite,
including sodium cyanide and PCB’s that remained from Cadillac’s operations in
the early 1980’s.  Diesel fuel is also stored on site.  All
such substances were stored in a secured manner and are regularly inspected by
government agencies.
 
 A
disposal project for the cyanide and PCB’s was commenced in 2007 which involved
repackaging the materials such that they are ready for removal from the site for
ultimate disposal.  This program contracted professional toxic waste
specialists to repack the new containers which were stored under tarpaulins on
the approved chemical storage pad.  In July 2008, following receipt of
the necessary regulatory approvals, an airlift of the repacked sodium cyanide
drums and associated repackaging waste took place utilizing a DHC-5 rear loading
Buffalo aircraft, which shuttled the material from the Prairie Creek mine site
to Fort Simpson.  From Fort Simpson, Hazco Environmental Services Ltd.
transported the cyanide by truck to Cyanide Destruct Systems in Barrie, Ontario
and the repackaging waste was removed to Earth Tech’s Swan Hills Treatment
Centre in Alberta for destruction and disposal.
 
 Environmental
Obligations
 
 As at
December 31, 2008, the Company has estimated the present value of expenditures
required for reclamation costs at the Prairie Creek Property to be approximately
$1.162 million ($2.383 million on an undiscounted basis), mostly to be incurred
at the end of the life of the mine. Asset retirement obligations are recognized
in the period in which they are incurred if a reasonable estimate of fair value
can be determined.  The fair value of the estimated asset retirement
cost is capitalized as part of the carrying amount of the long-lived asset when
incurred or revised, and amortized over the asset’s estimated useful
life.  Increases in the asset retirement obligation resulting from the
passage of time are recorded as accretion expenses.  Actual
expenditures incurred are charged against the accumulated
obligation.  Various assumptions are used in determining the liability
including current mine plans, future retirement costs and estimates of
resources.  The estimates used require extensive judgment as to the
nature, cost and timing of the work to be completed and may change with future
changes to cost structures, environmental laws and requirements and remediation
practices employed.  Management evaluates the asset retirement
obligation estimates at the end of each reporting period to determine whether
the estimates continue to be appropriate.  Other than specific
environmental matters discussed in this Annual Information Form, the Company is
not aware of any material environmental matter requiring significant capital
outlays in the immediate future.
 
 3.1.12                      First
Nations
 
 The
Prairie Creek Mine is located on land claimed by the Nahanni Butte Dene Band of
the Dehcho First Nations (“Dehcho” or “DCFN”) as their traditional
territory.  The Nahanni Butte (Nahaahdee) First Nation is a “band”
pursuant to the Indian Act RSC 1985.  The members of the Dehcho First
Nations are Aboriginal people within the meaning of Section 35 of the
Constitution Act, 1982.
 
 The
Dehcho are a distinct group of Aboriginal people, whose ancestors were among the
South Slavey people of the Dene Nation of what is now the Northwest Territories,
and the Metis people within the DCFN territory.  The Dehcho have had
their own system of laws, religion, economy, customs,
  45
  traditions
and language since time immemorial.  Many Dehcho people continue to
rely heavily on the land, water and resources within DCFN territory for
sustenance, social and ceremonial purposes.
 
 The DCFN
is an organization representing all of the Dene and Metis peoples in the Dehcho
territory of the Northwest Territories which comprise thirteen separate
communities.  The DCFN have incorporated a society under the laws of
the Northwest Territories in order to provide leadership, governance,
administration and program delivery to their member communities.  The
DCFN is a governing body of the Dehcho people lands, administers oversees a
number of programs and services for its member communities including those
relating to health, employment, education, and land and resource
management.
 
 The DCFN
and their member Aboriginal communities hold collective Aboriginal title and
rights and treaty rights to Dehcho territory and hold other Aboriginal rights as
a collective in relation to their land and governance over the land and the
Dehcho people.
 
 In the
Mackenzie Valley, land is owned, or managed, controlled and administered by
different governments or landowners.  Land can be either Crown or
Commissioner’s land administered by land managers, or privately
owned.
 
 In the
Northwest Territories, private lands are owned largely by First Nations with
settled land claims.  There are currently three major landowners in
the Mackenzie Valley - the Gwich’in, Sahtu and Tlicho.  It is
anticipated that as claims are settled in the Dehcho region, more private lands
will be created and Aboriginal groups will become recognized landowners in their
respective regions.
 
 The
Federal Government has recognized that the inherent right of self government is
an existing Aboriginal right recognized and affirmed by Section 35 of the
Constitution Act, 1982.  The Dehcho are engaged in ongoing land
settlement negotiations with the Government of Canada and the Government of the
Northwest Territories in what is referred to as the “Dehcho
Process.”  The Federal Government first attempted to negotiate
land claim settlements in the Northwest Territories, with the Dene/Metis in the
late 1980’s without success.  Subsequently settlement agreements were
reached first with the Gwich’in and Sahtu Dene/Metis people and later with the
Tlicho in 2005.  The Dehcho have not settled their land claim with the
Federal Government.  The Dehcho and the Federal Government of Canada
both claim legal title to this territory, the Dehcho by virtue of historical
occupation and the Federal Government under Treaty 8, signed in 1900, and Treaty
11 signed in 1921 and 1922.  The Federal Government and the Dehcho
First Nations disagree on the interpretation of Treaties 8 and 11 and legal
title to the land remains in dispute.  Canada maintains that under the
Treaties the Dehcho extinguished ownership of their traditional
lands.  The Dehcho have threatened to take the Federal Government to
court, or to the United Nations, over the key issue of
sovereignty.  The Dehcho territory has an area of approximately
210,000 square kilometres and has a native population of approximately
6,000.
 
 Since the
mid 1990’s the Dehcho and the Federal Government have been engaged in the Dehcho
Process whereby the Federal Government and the Government of the Northwest
Territories have agreed to negotiate with the Dehcho First Nations on a
government to government basis in order to set out land, resources and
governance rights to apply in the Dehcho territory.  The objective of
negotiations is to complete a Dehcho Final Agreement which clarifies and builds
upon existing Treaties by implementing a Dehcho government which will make laws
and deliver programs and services; be a public government based upon Dehcho
First Nations laws and customs and other Canadian laws and customs; and be the
primary government for the delivery of programs and services
  46
  to
residents of the Dehcho territory.  The Final Agreement will also
describe intergovernmental relationships and jurisdictions, provide for
certainty and clarity of rights respecting land, resources and governance and
provide for the use, management and conservation of land, water and other
resources, including wildlife, fish and their habitat in the Dehcho
territory.
 
 Early
negotiations proved very slow in part because the Dehcho initially rejected the
land selection process by which other land claim disputes have been typically
settled in the North.  Under the typical system, the Federal
Government and First Nations select by negotiation particular areas of land in
the area under dispute.  Once selected the Government makes a
financial payment and the claim is settled.  However, the Dehcho have
been holding out for full constitutional, legal and governmental control over
their entire region, where effectively the laws of Canada would no longer apply,
and this has led to lengthy and difficult negotiations.
 
 The
DCFN’s position is that the Mackenzie Valley Resource Management Act cannot and
should not apply within Dehcho territory, that the legislation was enacted
without the participation of, or any consultation with, the DCFN and was imposed
on the Dehcho territory against DCFN wishes.  The DCFN have stated
that the Final Agreement must, among other things, include a new resource
management regime in Dehcho territory other than the Mackenzie Valley Resource
Management Act.
 
 In 2001,
the Federal Government and the Dehcho First Nations entered into a Framework Agreement dated May
23, 2001.  The Framework Agreement contemplates providing a structure
for the negotiation of the Final
Agreement.  However, all negotiations are without prejudice to
the legal position of the parties and nothing in the Framework Agreement is to
be interpreted as creating, recognizing or denying rights or obligations of any
of the parties.  The Federal Government and the Dehcho agreed that it
is desirable that the negotiations proceed at a pace which allows for the people
of the Dehcho territory, and particularly the Elders, to remain fully informed
and involved in the process.
 
 As
contemplated in the Framework Agreement, an Interim Measures Agreement,
also dated May 23, 2001, was executed between the parties to provide for interim
arrangements pending the negotiation and signing of the Dehcho Final
Agreement.
 
 Under the
Interim Measures Agreement, the Governments and the Dehcho agreed to develop a
land use plan for the Dehcho lands outside Nahanni National Park Reserve and for
that purpose to establish a Land Use Planning Committee.  The purpose
of the Land Use Plan is to provide for the conservation, development and
utilization of the land, waters and other resources in the Dehcho territory,
taking into consideration the principles of respect for the land, as understood
and explained by the Dehcho Elders, and sustainable development.
 
 Under the
Interim Measures Agreement, Canada and the Dehcho agreed to negotiate for the
purpose of identifying lands to be withdrawn from disposal and mineral staking
and Canada agreed to withdraw from disposal, by Order in Council under the Territorial Lands Act, the
lands identified in this process.
 
 The
Interim Measures Agreement specifically provides at sections 19 and 23 that land
withdrawn from disposal under the Agreement shall be subject to the continuing
exercise of existing rights, titles, interests, entitlements, licences and
permits and that the provisions of the Agreement shall not effect access to or
across withdrawn lands.
  47
  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 Dehcho territory except after
written notice to the Dehcho First Nations and after a reasonable period of time
for the Dehcho to make representations with respect to the application for such
licence or permit. Canada also agreed not to issue any new prospecting permits
under the Canada Mining
Regulations in the Dehcho territory without the support of the affected
Dehcho First Nation.
 
 The
parties also agreed to enter into negotiations for the purpose of concluding an
Interim Resource Development
Agreement with the objective of fostering resource development in the
Dehcho Territory and to accrue benefits from Canada to the Dehcho First Nations.
An Interim Resource Development Agreement was signed on April 17, 2003 under
which Canada agreed to provide to the Dehcho First Nations a percentage of
Federal resource royalties collected from the Dehcho area of the Mackenzie
Valley.
 
 Canada
also agreed that the Final Agreement will ensure that a major mining project
that requires any authorization from Canada, and that will impact on the Dehcho,
shall be subject to negotiation with the Dehcho of an agreement relating to that
project. A major mining project is defined as a project related to the
development or production of minerals that will employ an average of 50 persons
annually for the first five years in the Dehcho territory and for which more
that $50 million will be expended in capital costs. The Company believes that
the Prairie Creek Project is currently the only such major mining project in the
Dehcho territory.
 
 The
Interim Measures Agreement also provided that the Dehcho may propose protected
areas for land withdrawal or permanent protection under the Northwest
Territories Protected Areas Strategy. The parties also agreed to negotiate an
interim management arrangement respecting the management of Nahanni National
Park Reserve.
 
 The
Interim Measures Agreement was made without prejudice to the legal position of
the parties and nothing in the Agreement is to be interpreted as creating,
recognizing or denying rights or obligations on the part of the
parties.
 
 In 2003,
Canada and the Dehcho agreed to an interim withdrawal of lands covering an area
of approximately 80,000 square kilometres for a period of five
years.  The withdrawal was confirmed by Order in Council dated August
13, 2003. The areas of the withdrawn lands do not include the Prairie Creek Mine
but include all of the Company’s Mining Lease 2854 and part of Mining Leases
2931, 3314 and 3313. The withdrawn land also includes an area over which part of
the Company’s road to the Prairie Creek Property passes. However in accordance
with Sections 19 and 23 of the Interim Measures Agreement such withdrawal is
subject to the continuing exercise of existing rights, titles, interests,
entitlements, 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 Dehcho and the Parks Canada Agency,
whereby as part of the Dehcho Process, Parks Canada and the Dehcho agreed to
work co-operatively towards completion of a feasibility study towards the
addition of the identified lands to the Nahanni National Parks Reserve and to
recommend an amendment to the Canada National Parks Act for a new boundary for
the expansion of the Nahanni National Park Reserve and, as part of the Dehcho
Final Agreement,
  48
  moving
the Nahanni National Park Reserve to full National Park status under the Canada
National Parks Act.
 
 At the
same time in August 2003, an Interim Park Management
Arrangement for the Nahanni National Park Reserve was signed between the
Dehcho and Parks Canada Agency designed to give the Dehcho a greater role in the
Park management process. A Consensus Team was established, comprising three
appointees of Parks Canada and four from the Dehcho First Nations (two from
Nahanni Butte) to address, amongst other things, making recommendations in
respect of impacts of land and resource uses in areas outside Nahanni National
Park Reserve.
 
 Under the
Arrangement the Dehcho and Parks Canada agreed that while the current
jurisdiction of Parks Canada is restricted to Nahanni National Park Reserve, the
ecological integrity of the Park Reserve depends on the ecological integrity of
the South Nahanni River watershed as a whole. The Prairie Creek Mine is located
within the watershed of the South Nahanni River.
 
 The
Interim Park Management Arrangement is a statement of interests only and is not
legally binding.  Nothing in the Arrangement obliges Canada to act in
a manner inconsistent with federal or territorial legislative or regulatory
jurisdictions or authorities and the Nahanni National Park Reserve shall be
administered and managed in accordance with the Canada National Parks
Act.
 
 During
2005 negotiations on the Dehcho Process broke down because of issues surrounding
the proposed Mackenzie Valley gas pipeline. In June 2005 the Dehcho First
Nations entered into a Settlement Agreement with
Canada [represented by the Minister of Indian Affairs and Northern Development]
to settle Court actions which had been commenced by the Dehcho in the Northwest
Territories Supreme Court and in the Federal Court against Canada and the
Mackenzie Valley Environmental Impact Review Board arising out of disputes
concerning the Mackenzie Gas Project.  In the Settlement Agreement
Canada and the Dehcho agreed to resolve issues related to the participation of
the Dehcho in the environmental and regulatory review of the Mackenzie Gas
Project and which they agreed to facilitate.
 
 The
Settlement Agreement recites that Canada and the Dehcho have differing views as
to the existence and scope of the rights of the Dehcho First Nation(s)
recognized by Section 35 of the Constitution Act 1982, and the nature and extent
of Canada’s requirements to consult with the Dehcho First Nations.  In
the Settlement Agreement the parties agreed to take all reasonable steps to
negotiate the terms of the Dehcho Final Agreement which would include agreement
to establish a Dehcho Resource
Management Authority (DCRMA) which will be a body of public government.
The Final Agreement will describe the legal capacity, structure, accountability,
rights, powers, privileges and responsibilities of the DCRMA; source(s) of the
DCRMA’s powers, privileges and responsibilities; relationship of the DCRMA to
the Mackenzie Valley Resource Management Act, and rules regarding conflict of
laws and the priorities of laws. For greater certainty, the Final Agreement may
provide for a stand alone DCRMA harmonized with the Mackenzie Valley Resource
Management Act. The Settlement Agreement provides that the Final Agreement will
provide for the circumstances in which laws within the jurisdiction of the
Dehcho First Nations, any successor organization, or any government established
pursuant to a Final Agreement, will take priority over the laws of Canada in the
event of a conflict.  The parties agreed to negotiate a Final
Agreement in accordance with the Dehcho First Nations Framework
Agreement.
  49
  In the
Settlement Agreement, the parties agreed to implement a Land Use Plan that is
approved by the Dehcho First Nations, approved the Minister of Environment and
Natural Resources of the Northwest Territories, and favourably considered by the
Minister of Indian and Northern Affairs, Canada, as soon as possible after the
Plan’s completion.
 
 In the
2005 Settlement Agreement the parties affirmed the Interim Resource Development
Agreement dated April 17, 2003 and agreed to take immediate steps to establish a
working group comprised of the parties to the Dehcho First Nations Interim
Measures Agreement for the purposes of ensuring that the issues arising from the
implementation of the Resource Development Agreement are addressed in a timely
manner.  The parties also agreed that once an Agreement in Principle
is ratified, the resource royalty sharing formula set out in the Interim
Resource Development Agreement will be replaced with any Resource Revenue
Sharing Formula agreed to in the Agreement in Principle.
 
 The
Settlement Agreement further provides that, except for certain specified
articles of the Agreement, the Settlement Agreement is not legally binding and
is intended as an expression of goodwill and as a political
commitment.
 
 Negotiations
under the Dehcho Process continued during 2006 with Canada presenting a formal
comprehensive offer of land selection, local governance provisions and financial
compensation but this offer was rejected by the Dehcho First Nations. The Dehcho
First Nations are insisting on the approval of a Land Use Plan (see
below).  Negotiations continued intermittently in 2007 and 2008 with
no apparent progress reported.
 
 The Dehcho Land Use Planning
Committee (the Committee), was formally established in February 2002
under the authority of the Dehcho Interim Measures Agreement with the
responsibility to prepare a land use plan for the Dehcho territory. The land use
planning process is a community driven process where the goals and values of the
residents of the Dehcho guide the development of the Plan.  The
Committee works closely with other planning partners such as governments, public
agencies, non-government organizations and businesses to fulfill its
mandate.
 
 Land use
planning boards are responsible for preparing comprehensive land use plans for
their respective settlement areas. These plans guide the use of Crown,
settlement, and other private lands and provide direction for the conservation,
development and use of land, waters and other resources.  Essentially,
the land use planning boards create plans which lay out the permitted and
prohibited uses of all land within a settlement area.  They develop
land use plans for their regions and recommend approvals, exceptions and
amendments to related plans.
 
 A Land
Use Plan is a public document that sets aside different areas for different
uses, and describes what activities are permitted or not permitted in specified
areas.  The land use plan applies to both Crown and settlement lands.
It does not apply to lands within municipal boundaries or lands within national
parks or historic sites.
 
 Once the
land use planning board has adopted a Land Use Plan, it must submit the plan to
the First Nation of the settlement area, the Territorial Minister and the
Federal Minister for approval.
 
 The
mission statement of the Dehcho Land Use Planning Committee is to develop a land
use plan as a management tool to determine what type of land use activities
should occur and where they should take place. The plan will balance economic,
social, environmental and cultural needs and interests.
  50
  The plan
will be guided by the principals of sustainable development and respect for the
land as understood and explained by the Dehcho Elders. The planning area
excludes municipal areas and Nahanni National Park Reserve.
 
 The
purpose of the Land Use Plan is to promote the social, environmental, cultural
and economic well being of residents and communities in the Dehcho territory,
having regard to the interests of all Canadians. The Plan shall provide for the
conservation, development and utilization of the land, waters and other
resources in the Dehcho territory.
 
 The
Dehcho Land Use Planning Committee includes representatives of the Dehcho First
Nations, the Government of the Northwest Territories and Government of Canada.
As outlined under the Dehcho Interim Measures Agreement the DCFN appointed two
members while the two Governments each appointed one member. Upon the
recommendation of the Committee, the parties to the Interim Measures Agreement
appoint a fifth member as Chairperson.
 
 Once
approved the Land Use Plan will provide legally binding direction to regulatory
agencies and decision-makers in their assessment of development projects,
protected areas proposals and other land uses.
 
 The Land
Use planning process considered the traditional use and occupancy information
that was gathered to determine the Interim Land Withdrawals, along with other
information on the natural resources and the economic and social needs of the
communities. In turn, the Plan will guide the revision of the Interim Land
Withdrawals based on the new information that has been
gathered.  Representatives of the Planning Committee visited the
Prairie Creek minesite in September 2004.
 
 The
Company made a detailed submission to the Dehcho Land Use Planning Committee and
participated in the planning process. The Company commented on each draft of the
Plan as such draft was produced and participated in various Public Forums. The
Company had concerns about the latest draft of the Land Use Plan (November 2005
– Revised February 2006) and recommended that the draft in its current form not
be approved. The Department of Indian Affairs and Northern Development has also
expressed concern to the Committee (January 2006).
 
 The draft
Land Use Plan was approved by the General Assembly of the Dehcho First Nations
in May 2006 and submitted to the Minister for consideration. The Minister did
not accept the Plan arguing that it incorporated too much land to be preserved
from development. In April 2007 the Federal Government and the Dehcho First
Nations entered into an agreement to form a new Committee with representatives
from all sides to negotiate a new revised plan.  The Company
understands that negotiations on a draft Land Use Plan are
continuing.
 
 The
outcome of the Dehcho Process negotiations is expected to be a Final Agreement
that will provide, amongst other things, for the implementation of a Dehcho
government within the Dehcho territory. It is expected that the negotiations
towards a Dehcho Final Agreement will take many years to complete.
 
 The
Company cannot predict the impact, if any, that the Dehcho Final Agreement if
eventually approved and signed may have on the Prairie Creek Mine or the
permitting thereof.
  51
  3.1.13                      Nahanni
Butte Dene Band
 
 The
Prairie Creek Mine is located 90 kilometres from the nearest settled community
of Nahanni Butte, located at the confluence of the South Nahanni and Liard
Rivers, 146 kilometres downstream of the minesite.  The population of
Nahanni Butte is approximately 90 people and water for domestic purposes is
supplied by well.  There is no permanent road access into the Prairie
Creek Property, other than the existing Winter Road which was established in
1981.  Regular access is by air only to a private airstrip controlled
by the Company.  There is no other existing land occupation, nor
commercial land or water based activities in the vicinity of the
mine.  Similarly, no traditional use or trapping activity has been
observed in the minesite area in recent history.
 
 On
December 10, 1996, the Company completed the negotiation of the Prairie Creek
Development Co-Operation Agreement with the Nahanni Butte Dene Band (the “Band”)
of the Dehcho First Nations.  The agreement provided 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 would:
 
 (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 were to 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 was to contribute $25,000 per year to
a trust on commencement of construction of access to the project, to compensate
traditional harvesters who were negatively affected by the project and the
access.
 
 The
overall intent of the Co-Operation Agreement was to establish and maintain a
positive and cooperative working relationship between the Company and the
Nahanni Band in respect of the further development and operation of the Prairie
Creek Mine, while at the same time supporting an economically viable and
environmentally sound operation and maximizing economic opportunity and benefits
to the Band and other Dehcho First Nations.  This Agreement foresaw
the many benefits which could accrue to the Nahanni Band and the DCFN in
conjunction with development of the road and mine, and made provision for
maximizing opportunities to realize these benefits.  To this end, the
Agreement provided 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
  52
  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
Dehcho First Nations” and that the “Final Agreement should provide for the
recognition of Dehcho First Nations jurisdiction over the entire Nahanni
watershed, including the Park or Park Reserve.”
 
 On
January 29, 2001 the Band issued a further Band Council Resolution rescinding
their support for the Protected Areas Strategy for the Nahanni National Park
Reserve watershed.
 
 On
January 17, 2002 the Band issued a further resolution reconfirming their support
for the Prairie Creek Mine Project.
 
 A change
in Band leadership occurred in September 2003 following elections for
Chief.  Thereafter yet another different Band Chief was elected during
2004.
 
 On
October 10, 2003 an appeal to the Federal Court was filed by the Nahanni Butte
Dene Band, Pehdzeh KI First Nation and the Dehcho First Nations, against the
Mackenzie Valley Land and Water Board and the Company seeking judicial review of
the decision of the Water Board to grant a Water 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 considered the Agreement
terminated.  Such termination was 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 3.1.10
Permitting at Prairie Creek--(i) Land Use Permit – Winter Road above] alleging
infringement of aboriginal rights and inadequate consultation under Section 35
of the Constitution of Canada.  The Water Board referred the matter to
the Department of Indian Affairs and Northern Development which conducted a
preliminary assessment which lasted throughout most of 2006.  In
February 2007 the Department issued its report on consultation to the Water
Board in
  53
  which it
concluded that in the Department of Indian Affairs and Northern Development’s
view adequate consultation had taken place and in which it made certain
recommendations.  The Water Board issued the Land Use Permit in April
2007 and included among the Permit terms and conditions those recommendations
from the consultation report that are within the Board’s mandate, including
provisions for the protection of wildlife habitat.
 
 In June
2007, the Dehcho First Nations claimed that the Company’s application for a
Class B water licence to rehabilitate a portion of the road in proximity to the
mine [see Section “3.1.10 Permitting at Prairie Creek--(k) Water Licence and
Quarrying Permit – Road Rehabilitation”] constituted a significant alteration to
the Winter Road project and requested that the proposed rehabilitation work be
referred for Environmental Assessment.  They also alleged inadequate
consultation under section 35 of the Constitution of Canada.  In
November 2007 the Mackenzie Valley Land & Water Board ruled that the
proposed work was not a significant alteration to the project.  The
Department of Indian Affairs and Northern Development conducted a preliminary
assessment on consultation with the Nahanni Butte Dene Band and in March 2008
issued its report to the Mackenzie Valley Land & Water Board in which it
concluded that adequate consultation had taken place.  The Water Board
issued the water licence in March 2008.
 
 In
October 2008, Canadian Zinc and the Nahanni Butte Dene Band entered into a MOU,
to establish a mutually beneficial, co-operative and productive
relationship.  In the MOU, the Band agrees to maintain close
communication links with Canadian Zinc, participate in good faith in current and
pending environmental assessment and regulatory processes, and not to oppose,
“in principle,” mining operations at Prairie Creek.  Canadian Zinc has
agreed to apply best efforts to employ Band members and to assist the Band and
its community to benefit from business opportunities associated with the
exploration and development of the Prairie Creek Project.  The MOU
also provides for the subsequent negotiation of an Impact Benefits Agreement
regarding mining operations.  Nothing within the MOU is intended to
define, create or extinguish any rights of the Band or Canadian Zinc and the MOU
is not legally binding on the parties.
 
 The
Company believes that the separate goals of the Dehcho First Nations in
achieving political sovereignty and economic self-sufficiency whilst protecting
the environment are compatible.  The Prairie Creek Development
Co-operation Agreement provided for a positive and cooperative working
relationship between the Company, Nahanni Butte and the Dehcho First Nations in
respect of developing and operating an environmentally sound mining undertaking
at Prairie Creek, which will not have significant adverse environmental effects
on the ecological integrity of the South Nahanni River or the Nahanni National
Park Reserve.
 
 3.1.14                   Liidlii Kue First Nation
(“LKFN”)
 
 On
October 16, 2008, CZN and Liidlii Kue First Nation of Fort Simpson, Northwest
Territories, entered into a Memorandum of Understanding to formally establish a
mutually beneficial, co-operative and productive relationship with regard to the
exploration and development of the Prairie Creek Mine and to demonstrate that
LKFN and Canadian Zinc intend to work together, as responsible corporate
citizens of the region, in a spirit of co-operation for mutual benefit as well
as social, ecological, cultural and economic well-being.
 
 The
Liidlii Kue First Nation of Fort Simpson, Northwest Territories, is a member of
the Dehcho First Nations.  Fort Simpson, located approximately 500
kilometres east of the Prairie Creek Mine, is the
  54
  administrative
centre and main service centre of the Dehcho region.  Fort Simpson has
a population of approximately 1,200 and the LKFN Band, which is the largest in
the Dehcho has 1,175 Members.
 
 The
purpose of the MOU is:
 ·
              to
      provide a process through which Canadian Zinc, in pursuing its exploration
      and development activities at the Prairie Creek Mine, can consult with and
      accommodate the interests of LKFN with a view to amicably reconciling any
      issues that might arise;
 ·
              to
      establish a relationship through which LKFN can identify opportunities for
      its businesses and members to participate in Canadian Zinc’s exploration
      and development activities; and
 ·
              to
      set out the objectives, process and topics for the negotiation of an IBA
      between LKFN and Canadian Zinc, which is specifically intended to cover
      the future operations of the Prairie Creek Mine
  project.
 
 The MOU
provides for implementation of a more formalized structure for communication and
information exchange through, among other things, the appointment of a Community
Information Representative, establishing a Communications Committee and hiring
an Environmental Monitor.
 
 In the
MOU, Canadian Zinc has agreed to make its best efforts to employ LKFN members
and to assist LKFN and its community to benefit from business opportunities
associated with the exploration and development of the Prairie Creek
Project.  Canadian Zinc and LKFN have agreed to use their best efforts
to negotiate an IBA but nothing in the MOU is intended to define, create or
extinguish any rights of LKFN or Canadian Zinc and the MOU is not legally
binding on the parties.
 
 
  55
  
 4.
              RISK FACTORS AND
UNCERTAINTIES
 
 In
conducting its business, Canadian Zinc faces a number of risks common to the
mining and exploration industry.  These are summarized below. There
are also certain specific risks including those listed below, associated with an
investment in the Company and prospective investors and their advisors should
consider carefully these specific risk factors associated with an investment in
Canadian Zinc.
 
 4.1           Political and Legislative
Risk
 
 Canadian
Zinc conducts its operations in the Mackenzie Valley in the Northwest
Territories of Canada in an area which is claimed by the Dehcho First Nations as
their traditional territory. The Dehcho have not settled their land claim with
the Federal Government of Canada. The Dehcho and the Federal Government both
claim legal title to this territory and legal title to the land remains in
dispute. The Company’s operations are potentially subject to a number of
political, legislative and other risks. Canadian Zinc is not able to determine
the impact of political, legislative or other risks on its business or its
future financial position.
 
 Canadian
Zinc’s operations are exposed to various levels of political, legislative and
other risks and uncertainties. These risks and uncertainties include, but are
not limited to, cancellation, renegotiation or nullification of existing leases,
claims, permits and contracts; expropriation or nationalization of property;
changes in laws or regulations; changes in taxation laws or policies; royalty
and tax increases or claims by governmental, Aboriginal or other entities;
retroactive tax or royalty claims and changing political conditions; government
mandated social expenditures; governmental regulations or policies that favour
or require the awarding of contracts to local or Aboriginal contractors or
require contractors to employ residents of, or purchase supplies from, a
particular jurisdiction or area; or that require that an operating project have
a local joint venture partner, which may require to be subsidized; and other
risks arising out of sovereignty or land claims over the area in which Canadian
Zinc’s operations are conducted.
 
 The
mining, processing, development and mineral exploration activities of Canadian
Zinc are subject to extensive federal, territorial and local laws and
regulations, including various laws governing prospecting, development,
production, taxes, labour standards and occupational health, mine safety, toxic
substances, land use, water use and other matters. Such laws and regulations are
subject to change and can become more stringent and costly over time. No
assurance can be given that new rules and regulations will not be enacted or
that existing rules and regulations will not be applied in a manner which could
limit or curtail exploration, production or development. Amendments to current
laws and regulations governing operations and activities of exploration and
mining, or more stringent implementation thereof, could have a substantial
adverse impact on Canadian Zinc.
 
 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
  56
  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’s operations or business.
 
 As noted
at “3.1.11 Environmental Matters--Nahanni National Park Reserve/Parks Canada
MOU” in this Annual Information Form, in August 2007, the Prime Minister of
Canada visited Fort Simpson to announce the proposed expansion of Nahanni
National Park Reserve.  The Prime Minister announced that the
Government of Canada had approved an Order in Council (PC-2007-1202 July 31,
2007), withdrawing certain lands for the proposed park expansion. The area
surrounding the Prairie Creek mine, containing approximately 367 square
kilometres, is not included in the interim land withdrawal area and, as
specified in Schedule 2 to the Order, is specifically excluded and exempted.
While Canadian Zinc has been assured that its current rights will be respected,
there is a risk that the Park Expansion will detrimentally impact the existing
mining and access rights of Canadian Zinc.
 
 Canadian
Zinc’s exploration, development and production activities may be substantially
affected by factors beyond Canadian Zinc’s control, any of which could
materially adversely affect Canadian Zinc’s financial position or results of
operations. The occurrence of these various factors and uncertainties cannot be
accurately predicted. The Company is not able to determine the impact of these
risks on its business.
 
 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
Government of Canada has announced plans to expand the area of Nahanni National
Park and the proposed new boundaries will surround, but exclude, the Prairie
Creek Mine.  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
regulations. 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
  57
  standards
and land reclamation. They also set forth limitations on the generation,
transportation, storage and disposal of solid and hazardous waste. Environmental
legislation is evolving in a manner, which will require stricter standards and
enforcement, increased fines and penalties for non-compliance, and more
stringent environmental assessments of proposed projects. There is no assurance
that future changes in environmental regulation, if any, will not adversely
affect Canadian Zinc’s operations.
 
 Environmental
laws and regulations are complex and have tended to become more stringent over
time. These laws are continuously evolving. Any changes in such laws, or in the
environmental conditions at Prairie Creek, could have a material adverse effect
on Canadian Zinc’s financial condition, liquidity or results of operations.
Canadian Zinc is not able to determine the impact of any future changes in
environmental laws and regulations on its future financial position due to the
uncertainty surrounding the ultimate form such changes may take. The Company
does not currently consider that its expenditures required to maintain ongoing
environmental monitoring obligations at the Prairie Creek mine are material to
the results and financial condition of the Company. However, these costs could
become material in the future and would be reported in the Company’s public
filings at that time.
 
 Although
Canadian Zinc makes provision for reclamation costs, it cannot be assured that
these provisions will be adequate to discharge its obligations for these costs.
As environmental protection laws and administrative policies change, Canadian
Zinc will revise the estimate of its total obligations and may be obliged to
make further provisions or provide further security for mine reclamation cost.
The ultimate amount of reclamation to be incurred for existing and past mining
interests is uncertain. Additional discussion on the impact of reclamation costs
is included in this Annual Information Form at “3.1.11. Environmental
Matters--Environmental Obligations.”
 
 Existing
and possible future environmental legislation, regulations and actions could
cause additional expense, capital expenditures, restrictions and delays in the
activities of the Company, the extent of which cannot be predicted. Before
production can commence on the Prairie Creek Property the Company must obtain
regulatory approval, permits and 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
  58
  health
and safety laws and permits will not materially adversely affect Canadian Zinc’s
business, results of operations or financial condition. Environmental hazards
may exist on the properties on which Canadian Zinc holds interests which are
unknown to Canadian Zinc at present and which have been caused by previous
owners or operators of the properties.
 
 Amendments
to current laws, regulations and permits governing operations and activities of
mining and exploration companies, or more stringent implementation thereof,
could have a material adverse impact on Canadian Zinc Corporation and cause
increases in exploration expenses, capital expenditures or production costs or
require abandonment or delays in the development of mining
properties.
 
 The
Prairie Creek project has, on numerous occasions, experienced significant delays
in obtaining permits and licences necessary for the conduct of its operations.
If at any time in the future permits essential to operations are not obtained,
or not obtained in a timely manner, or exemptions not granted, there is a risk
that the Prairie Creek mine may not be able to operate.
 
 4.3           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, as has recently occurred, the
economic prospects for the Prairie Creek Project could be significantly reduced
or rendered uneconomic. There is no assurance that, even if commercial
quantities of ore are delineated, a profitable market may exist for the sale of
products, including concentrates from that ore. Factors beyond the control of
the Company may affect the marketability of any minerals discovered or
concentrates produced. The marketability of minerals is affected by numerous
other factors beyond the control of the Company, including quality issues,
impurities, government regulations, royalties, allowable production and
importing and exporting of minerals, the effect of which cannot be accurately
predicted. Factors tending to affect the price of metals include:
 
 •
      The relative strength of the U.S. dollar against other
      currencies;
 •
      Government monetary and fiscal
policies;
 •
      Expectations of the future rate of global monetary inflation and interest
      rates;
 •
      General economic conditions and the perception of risk in capital
      markets;
 •
      Political conditions including the threat of terrorism or
    war;
 •
      Speculative trading;
 •
      Investment and industrial demand;
and
 •
      Global production and inventory
stocks.
 
 The
effects of these factors, individually or in aggregate, on the prices of zinc,
lead and/or silver is impossible to predict with accuracy. Fluctuations in metal
prices may adversely affect Canadian Zinc’s financial performance and results of
operations. Further, if the market price of zinc, lead and/or silver falls or
remains depressed, 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.
  59
  
 Metal
prices fluctuate widely and are affected by numerous factors beyond Canadian
Zinc’s control such as the sale or purchase of such commodities by various
central banks and financial institutions, interest rates, exchange rates,
inflation or deflation, fluctuation in the value of the United States dollar and
foreign currencies, global and regional supply and demand, and the political and
economic conditions of major mineral and metal producing countries throughout
the world. Future production from Canadian Zinc’s mining properties is dependent
on mineral prices that are adequate to make these properties economic. The
prices of metals have fluctuated widely in recent years, and future or continued
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.  Appreciation of the Canadian dollar against the U.S.
dollar increases the cost of production in U.S. dollar terms at mines located in
Canada.
 
 The
development of the Company’s properties will depend upon the Company’s ability
to obtain financing through private placement financing, public financing, the
joint venturing of projects, bank financing or other means. There is no
assurance that the Company will be successful in obtaining the required
financing.
 
 Securities
of junior and small-cap companies have experienced substantial volatility in the
past, often based on factors unrelated to the financial performance or prospects
of the companies involved. These factors include macroeconomic developments in
North America and global and market perceptions of the attractiveness of
particular industries. The share price of Canadian Zinc is likely to be
significantly affected by short-term changes in metal prices. Other factors
unrelated to Canadian Zinc’s performance that may have an effect on the price of
its shares include the following: the extent of analytical coverage available to
investors concerning Canadian Zinc’s business may be limited if investment banks
with research capabilities do not follow the Company’s securities; lessening in
trading volume and general market interest in the Company’s securities may
affect an investor’s ability to trade significant numbers of common shares; the
size of Company’s public float may limit the ability of some institutions to
invest in the Company’s securities; and a substantial decline in the price of
the common shares that persists for a significant period of time could cause the
Company’s securities to be delisted from an exchange, further reducing market
liquidity.
 
 As a
result of any of these factors, the market price of the Company’s 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.
  60
  The
development and exploration of Canadian Zinc’s Properties, will require
substantial additional financing. Failure to obtain sufficient financing will
result in delaying or indefinite postponement of exploration, development or
production on Canadian Zinc’s properties or even a loss of property interest.
There can be no assurance that additional capital or other types of financing
will be available when needed or that, if available, the terms of such financing
will be favourable to Canadian Zinc.
 
 4.4           Exploration
and Development Risks
 
 The
business of exploring for minerals and mining involves a high degree of risk.
There is no assurance the Company’s mineral exploration activities will be
successful. Few properties that are explored are ultimately developed into
producing mines. In exploring and developing its mineral deposits the Company is
subjected to an array of complex economic factors and technical considerations.
Unusual or unexpected formations, formation pressures, power outages, labour
disruptions, flooding, explosions, cave-ins, landslides, environmental hazards,
and the inability to obtain suitable or adequate machinery, equipment or labour
are other risks involved in the conduct of exploration and development programs.
Such risks could materially adversely affect the business or the financial
performance of the Company.
 
 There is
no certainty that the expenditures made by Canadian Zinc towards the search and
evaluation of mineral deposits will result in discoveries of commercial
quantities of ore. The exploration for and development of mineral deposits
involves significant risks which even a combination of careful evaluation,
experience and knowledge may not eliminate. Major expenses may be required to
locate and establish mineral reserves, to develop metallurgical processes and to
construct mining and processing facilities at a particular site. It is
impossible to ensure that the exploration or development programs planned by
Canadian Zinc will result in a profitable commercial mining operation. Whether a
mineral deposit will be commercially viable depends on a number of factors, some
of which are: the particular attributes of the deposit, such as size, grade and
proximity to infrastructure; metal prices which are highly cyclical; and
government regulations, including regulations relating to prices, taxes,
royalties, land tenure, land use, importing and exporting of minerals and
environmental protection. The exact effect of these factors cannot be accurately
predicted, but the combination of these factors may result in Canadian Zinc not
receiving an adequate return on invested capital.
 
 A
specific risk associated with the Prairie Creek Property is its remote location.
Mining, processing, development and exploration activities depend, to one degree
or another, on adequate infrastructure. Reliable roads, bridges, power sources
and water supply are important factors, which affect capital and operating
costs. Unusual or infrequent weather phenomena, government or other interference
in the maintenance or provision of such infrastructure could adversely affect
Canadian Zinc’s operations, financial condition and results of
operations.
 
 The
development plan for the Prairie Creek Project is based upon a Project
Description Report prepared internallyby
the Company, with the assistance of outside consultants, in 2008.  A
Project Description Report is not a Feasibility Study.  The Project
Description Report 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 in the 2007 NI 43-101
Technical Report.  The Resource Estimation in the Technical Report
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
  61
  upon. The
existing infrastructure, including the mill, buildings, camp etc. is now over
twenty-five years old and, although it has been held under care and maintenance,
it has lain idle for more than twenty-five years and was never operated. There
is significant risk attaching to the proposed operation of aged equipment. The
Company is working converting the Project Description Report into a
Pre-Feasibility study utilizing the updated October 2007 Technical
Report.
 
 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.
 
 4.5           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 measured and
indicated mineral resources 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 many reasons including the following:
 
 •
      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
  62
  •
      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 or
    resources.
 
 Any of
these factors may require Canadian Zinc to reduce its mineral reserve or mineral
resources estimates.
 
 4.6           Insurance and Uninsured
Risks
 
 Canadian
Zinc’s business is subject to a number of risks and hazards generally, including
adverse environmental conditions, industrial accidents, labour disputes, unusual
or unexpected geological conditions, ground or slope failures, cave-ins, changes
in the regulatory environment and natural phenomena such as inclement weather
conditions, floods and earthquakes. Such occurrences could result in damage to
mineral properties or production facilities, personal injury or death,
environmental damage to Canadian Zinc’s properties or the properties of others,
delays in mining, monetary losses and possible legal liability.
 
 Although
Canadian Zinc maintains insurance to protect against certain risks in such
amounts as it considers to be reasonable, its insurance will not cover all the
potential risks associated with the Company’s mining operations. Canadian Zinc
may also be unable to maintain insurance to cover these risks at economically
feasible premiums. Insurance coverage may not continue to be available or may
not be adequate to cover any resulting liability. Moreover, insurance against
risks such as environmental pollution or other hazards as a result of
exploration and production is not generally available to Canadian Zinc or to
other companies in the mining industry on acceptable terms. In particular, the
Company is not insured for environmental liability or earthquake
damage.
 
 Canadian
Zinc might also become subject to liability for pollution or other hazards which
may not be insured against, or which Canadian Zinc may elect not to insure
against, because of premium costs or other reasons. Losses from these events may
cause Canadian Zinc to incur significant costs that could have a material
adverse effect upon its financial performance and results of
operations.
 
 4.7           Key Executives and Conflicts
of Interest
 
 Canadian
Zinc is dependent on the services of key executives, including the President and
Chief Executive Officer and the Vice President of Exploration and Chief
Operating Officer of the Company, and a small number of other skilled and
experienced executives and personnel. Due to the relatively small size of the
Company, the loss of these persons or Canadian Zinc’s inability to attract and
retain additional highly skilled or experienced employees may adversely affect
its business and future operations.
 
 Certain
of the directors and officers of the Company also serve as directors and/or
officers of, or have significant shareholdings in, other companies involved in
natural resource exploration and development and consequently there exists the
possibility for such directors and officers to be in a position of conflict. Any
decision made by any of such directors and officers involving Canadian Zinc will
be made in accordance with their duties and obligations to deal fairly and in
good faith with a view to the best interests of the Company and its
shareholders. In addition, each of the directors is required to declare and
refrain from voting on any matter in which such directors may have a
conflict
  63
  of
interest in accordance with the procedures set forth in the Business Corporations Act
(British Columbia) and other applicable laws.
 
 To the
extent that such other companies may participate in ventures in which Canadian
Zinc may participate, the directors of Canadian Zinc may have a conflict of
interest in negotiating and concluding terms respecting the extent of such
participation. In the event that such a conflict of interest arises at a meeting
of the Company’s directors, a director who has such a conflict will abstain from
voting for the approval of such participation or such terms.
 
 From time
to time several companies may collectively participate in the acquisition,
exploration and development of natural resource properties thereby allowing for
their participation in larger programs, permitting involvement in a greater
number of programs and reducing financial exposure in respect of any one
program. It may also occur that a particular company will assign all or a
portion of its interest in a particular program to another of these companies
due to the financial position of the company making the assignment. Under the
laws of the Province of British Columbia, the directors of the Company are
required to act honestly, in good faith and in the best interests of the
Company. In determining whether or not Canadian Zinc will participate in a
particular program and the interest therein to be acquired by it, the directors
will primarily consider the degree of risk to which the Company may be exposed
and its financial position at that time.
 
 4.8           Title
Matters
 
 Mining
leases and surface leases issued to the Company by the Federal Government have
been surveyed but other parties may dispute the Company’s title to its mining
properties. The mining claims in which the Company has an interest have not been
surveyed and, accordingly, the precise location of the boundaries of the claims
and ownership of mineral rights on specific tracts of land comprising the claims
may be in doubt. These claims have not been converted to lease, and are,
accordingly, subject to regular compliance with assessment work
requirements.
 
 Failure
to comply strictly with applicable laws, regulations and local practices
relating to mineral right applications and tenure, could result in loss,
reduction or expropriation of entitlements.
 
 While the
Company has investigated its title to all its mining leases, surface leases and
mining claims and, to the best of its knowledge, title to all properties is in
good standing, this should not be construed as a guarantee of title and title
may be affected by undetected defects. The validity and ownership of mining
property holdings can be uncertain and may be contested. There are currently a
number of pending Aboriginal or Native title or Treaty or traditional land
ownership claims relating to Northwest Territories. The Company’s properties at
Prairie Creek are subject to Aboriginal or Native land claims. Title insurance
generally is not available, and Canadian Zinc’s ability to ensure that it has
obtained secure title to individual mineral properties or mining concessions may
be severely constrained. Canadian Zinc’s mineral properties may be subject to
prior unregistered liens, agreements, transfers or claims, including Native land
claims, and title may be affected by, among other things, undetected defects. No
assurances can be given that there are no title defects affecting such
properties.
 
  64
  4.9           Competition
 
 The
mining industry is competitive in all of its phases. There is aggressive
competition within the mining industry for the discovery and acquisition of
properties considered to have commercial potential. Canadian Zinc faces strong
competition from other mining companies in connection with the acquisition of
properties, mineral claims, leases and other mineral interests as well as for
the recruitment and retention of qualified employees and other personnel. Many
of these companies have greater financial resources, operational experience and
technical capabilities than Canadian Zinc. As a result of this competition,
Canadian Zinc may be unable to maintain or acquire attractive mining properties
on terms it considers acceptable or at all. Consequently, Canadian Zinc’s
operations and financial condition could be materially adversely
affected.
 
 4.10           Acquisitions
 
 From time
to time Canadian Zinc undertakes evaluations of opportunities to acquire
additional mining assets and businesses. Any resultant acquisitions may be
significant in size, may change the scale of Canadian Zinc’s business, and may
expose Canadian Zinc to new geographic, political, operating financial and
geological risks. Canadian Zinc’s success in its acquisition activities depends
on its ability to identify suitable acquisition candidates, to acquire them on
acceptable terms, and integrate their operations successfully with those of
Canadian Zinc. Any acquisition would be accompanied by risks, such as a
significant decline in metal prices; the ore body proving to be below
expectations; the difficulty of assimilating the operation and personnel; the
potential disruption of Canadian Zinc’s ongoing business; the inability of
management to maximize the financial and strategic position of Canadian Zinc
through the successful integration of acquired assets and businesses; the
maintenance of uniform standards, control, procedures and policies; the
impairment of relationships with employees, customers and contractors as a
result of any integration of new management personnel; and the potential unknown
liabilities associated with acquired assets and business. In addition Canadian
Zinc may need additional capital to finance an acquisition. Debt financing
related to any acquisition will expose Canadian Zinc to the risk of leverage,
while equity financing may cause existing shareholders to suffer dilution. There
can be no assurance that Canadian Zinc would be successful in overcoming these
risks or any other problems encountered in connection with such
acquisitions.
 
 4.11           Requirements of the
Sarbanes-Oxley Act and Similar Canadian Regulations
 
 Since
2007, the Company has documented and tested its internal control procedures in
order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of
2002 (“SOX”). As of December 31, 2008, SOX requires an annual assessment by
management of the effectiveness of the Company’s internal control over financial
reporting and an attestation by the Company’s independent auditors addressing
internal controls over financial reporting.
 
 Due to
its size, its limited staff resources and financial constraints, the Company is
exposed to certain potential deficiencies in its internal controls over
financial reporting.  If the Company fails to maintain the adequacy of
its internal control over financial reporting, as such standards are modified,
supplemented, or amended from time to time, the Company may not be able to
ensure that it can conclude on an ongoing basis that it has effective internal
controls over financial reporting in accordance with Section 404 of SOX. The
Company’s failure to satisfy the requirements of Section 404 of SOX on an
ongoing, timely basis could result in the loss of investor confidence in the
reliability of its financial statements, which in turn could harm the Company’s
business and negatively impact the
  65
  trading
price of its common shares. In addition, any failure to implement required new
or improved controls, or difficulties encountered in their implementation, could
impact the Company’s operating results or cause it to fail to meet its reporting
obligations. Future acquisitions (if any) may provide the Company with
challenges in implementing the required processes, procedures and controls in
the acquired operations. Acquired companies may not have disclosure controls and
procedures or internal control over financial reporting that are as thorough or
effective as those required by securities laws currently applicable to the
Company.
 
 No
evaluation can provide complete assurance that the Company’s internal control
over financial reporting will detect or uncover all failures of persons within
the Company to disclose material information otherwise required to be reported.
The effectiveness of the Company’s controls and procedures could also be limited
by simple errors or faulty judgments. In addition, as the Company continues to
develop, the challenges involved in implementing appropriate internal controls
over financial reporting will increase and will require that the Company
continue to enhance its internal controls over financial reporting. Although the
Company will be required to devote substantial time and will incur substantial
costs, as necessary, in an effort to ensure ongoing compliance, the Company
cannot be certain that it will be successful in continuing to comply with
Section 404 of SOX.
 
 4.12           History of Losses and No
Assurance of Profitable Operations
 
 The
Company has incurred losses since inception of $46.127 million through December
31, 2008.  There can be no assurance that the Company will be able to
operate profitably during future periods.  If the Company is unable to
operate profitably during future periods, and is not successful in obtaining
additional financing, the Company could be forced to cease its exploration and
development plans as a result of lacking sufficient cash resources.
 
 4.13           Shareholder
Dilution
 
 As of
December 31, 2008 there were 118,969,063 common shares
outstanding.  As of the date hereof, the Company had share purchase
options outstanding allowing the holders of these options to purchase 4,035,000
common shares and share purchase warrants outstanding allowing the holders to
purchase 5,882,500 common shares.  Directors and officers of the
Company (including former directors) hold 3,700,000 of these share purchase
options and 335,000 share purchase options are held by employees and contractors
of the Company.  None of the share purchase warrants are held by
directors and officers.  The exercise of all of the existing share
purchase options and warrants would result in percentage ownership dilution to
the existing shareholders.
 
 4.14           Potential Future Equity
Financings
 
 The
Company has used equity financing in order to meet its needs for capital and may
engage in equity financings during future periods. Subsequent issuances of
equity securities or securities convertible into or exchangeable or exercisable
for equity securities would result in further percentage ownership dilution to
existing shareholders and could depress the price of the Company’s
shares.
 
 
  66
  4.15           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, 2008 the Company had 118,969,063 shares issued and outstanding and
at March 16, 2009 had 118,955,563 shares issued and outstanding.
 
 At
December 31, 2008 the Company also had 4,205,000 stock options and 5,882,500
share purchase warrantsoutstanding.  At
March 16, 2009 the Company had 4,035,000 stock options and 5,882,500 share
purchase warrants outstanding.  Each share purchase warrant and stock
option entitles the holder to purchase one common share.
 
 Stock
      OptionsOptions
                December
      31, 2008
              Options
                March
      16, 2009
              Exercise/Conversion
      Price
              Expiry
      Date2,460,000
              2,460,000
              $0.60
              January
      14, 2010110,000
              70,000
              $0.89
              June
      27, 20111,000,000
              1,000,000
              $0.90
              December
      13, 2011635,000
              505,000
              $0.94
              October
      15, 20124,205,000
              4,035,000
 
 
 WarrantsWarrants
      December 31, 2008
              Warrants
                March
      16, 2009
              Exercise/Conversion
      Price
              Expiry
      Date5,882,500
              5,882,500
              $1.20
              July
      23, 2009
 
 6.
              MARKET FOR SECURITIES
  
 The
Company's common shares trade on the Toronto Stock Exchange under the symbol
“CZN”.
 The
following table shows the price ranges and volume traded of the Company’s common
shares on the Toronto Stock Exchange on a monthly basis for each month of
2008.
 
 
 Price
      Range 2008Month
              High
                Cdn.
      $
              Low
                Cdn
      $
              VolumeJanuary
              0.77
              0.58
              3,642,168February
              0.70
              0.61
              2,611,270March
              0.69
              0.49
              3,902,651April
              0.53
              0.35
              4,880,005May
              0.62
              0.39
              2,926,106June
              0.66
              0.49
              3,010,639July
              0.65
              0.45
              1,713,246August
              0.64
              0.40
              1,284,106September
              0.46
              0.30
              2,483,035October
              0.37
              0.15
              3,189,660November
              0.25
              0.17
              2,738,398December
              0.19
              0.13
              7,136,906Year
      2008
              0.77
              0.13
              39,518,190
 Source: TSX
  67
  
  7.
              DIRECTORS AND OFFICERS
 
 7.1
              Name, Occupation and
      Security Holding
 
 Name,
      Province or State and Country of Ordinary Residence and Position Held with
      the Company
              Principal
      Occupation During Preceding
                Five
      Years
              Date First Became Director of
      the Company(5)
              Common
      Shares  beneficially owned, controlled or directed, directly or
      indirectly(1)
      (6)Brian
      Atkins (2)
                British
      Columbia, Canada Director
              Chartered
      Accountant; Partner at KPMG LLP, Chartered Accountants, from 1978 to 2005;
      Director of North Shore Credit Union; Member of Independent Review
      Committee of Inhance Investment Management Inc.
              June
      2008
              NilJohn
      F. Kearney
                Ontario,
      Canada
                Chairman,
      President, Chief Executive Officer and Director
              Chairman,
      President and Chief Executive Officer of Canadian Zinc Corporation since
      2003;  Chairman of Labrador Iron Mines Limited since May 2007;
      Chairman of Conquest Resources Limited since 2001; Chairman of Anglesey
      Mining plc since 1994
              November
      2001
              1,923,909
      common sharesJohn
      MacPherson (2)
      (3)
                British
      Columbia, Canada
                Director
              Director
      and Chairman of Tower Energy Ltd. until 2007; Private
      Businessman.
              May
      1999
              NilDave
      Nickerson (2)
      (4)
                Northwest
      Territories, Canada
                Director
              Professional
      Engineer, Mining consultant, Director, Tyhee Development Corp.; previously
      Chairman of Northwest Territories Water Board; Member of Parliament,
      Member of NWT Legislative Assembly; Government Minister
              March
      2004
              17,500
      common sharesAlan
      Taylor(4)
                British
      Columbia, Canada
                Vice
      President, Exploration, Chief Operating Officer and
    Director
              Vice
      President, Exploration of Canadian Zinc Corporation since 1999 and Chief
      Operating Officer of Canadian Zinc Corporation since March
      2004.
              March
      2004
              NilMartin
      Rip
                British
      Columbia, Canada
                Chief
      Financial Officer, Vice President Finance and Corporate Secretary(7)
              Chief
      Financial Officer and Vice President Finance of Canadian Zinc Corporation
      since October 2007; Chartered Accountant; former VP Finance and CFO of
      Pine Valley Mining Corporation (February 2005 – June 2007); Senior Manager
      – Grant Thornton LLP (March 2001 – February 2005).
              N/A
              Nil
 (1)
              The
      information as to common shares beneficially owned, controlled or directed
      by the above-named directors as at the date hereof, not being within the
      knowledge of the Company, has been furnished by the respective directors
      individually.
 (2)
              Member
      of the Audit Committee. John MacPherson was appointed to the audit
      committee in January 2009.
 (3)
              Member
      of the Compensation Committee.
 (4)
              Member
      of Health and Safety Committee.
 (5)
              All
      Directors are elected annually to hold office until the next Annual
      Meeting of Shareholders.
 (6)
              All
      directors and executive officers as a group own, control or direct,
      directly or indirectly a total of 1,941,409 common
  shares.
 (7)
              Martin
      Rip was appointed Corporate Secretary of the Company effective March
      2008.
 
  Alan  Savage,
a director of the Company since June 2003, resigned from the Board of Directors
on January 29, 2009.  Mr. Savage was a member of the audit committee
and compensation committee.  John MacPherson was appointed to the
audit committee on January 29, 2009.
  
   68
  7.2           Cease Trade Orders,
Bankruptcies, Penalties or Sanctions
 
 John
Kearney served as a non-executive director of McCarthy Corporation plc from July
2000 to March 2003.  In June 2003, McCarthy Corporation plc adopted a
voluntary arrangement with its creditors pursuant to the legislation of the
United Kingdom.
 
 Martin
Rip served as Chief Financial Officer of Pine Valley Mining Corporation (“Pine
Valley”) which filed for protection under the Companies’ Creditors Arrangement
Act (“CCAA”) on October 20, 2006. Subsequent to filing for CCAA protection, Pine
Valley was suspended from trading on the TSX for failing to meet the minimum
listing requirements. Mr. Rip’s employment with Pine Valley was terminated on
June 29, 2007 as part of the CCAA proceedings.
 
 7.3           Conflicts of
Interest
 
 Certain
of the directors and officers of the Corporation, including the President and
Chief Executive Officer, also serve as directors and/or officers of, or have
significant shareholdings  in, other companies involved in natural
resource exploration and development and consequently there exists the
possibility for such directors and officers to be in a conflict of interest
position.
 
 
 8.
              TRANSFER AGENTS AND
REGISTRARS
 
 The
Transfer Agent and Registrar for the Company’s common shares is:
 Computershare Investor Services
Inc.
 510 Burrard Street, 4th
floor
 Vancouver,
BC    V6C 3B9
 
 and
 
 100
University Avenue
 Toronto, ON    M5J
2Y1
 
 The
Company acts as its own Agent and Registrar for the Company’s Share Purchase
Warrants.  The Share Purchase Warrants are not traded or quoted on any
stock exchange.
 
 9.           MATERIAL CONTRACTS
 
 The
Company is not a party to any material contract, other than a contract entered
into in the ordinary course of business, entered into within the last financial
year or before the last financial year (if the contract is still in
effect).
 
 10.
              INTERESTS OF
EXPERTS
  
 Minefill
Services, Inc. (Dr. David Stone and Stephen Godden – Qualified Independent
Persons (the “Authors”)) prepared the October 2007 Technical Report on the
Prairie Creek Mine (see “3. Description of the Business--3.1.7. 2007 Resource
Estimation”). Minefill and the Authors are independent of the Company and to the
knowledge of the Company, do not hold any registered or beneficial interests,
direct or indirect, in any securities or other property of the
Company.
 
 Alan
Taylor, P.Geo., Vice President of Exploration and Chief Operating Officer of the
Company, who is a Qualified Person as defined in National Instrument 43-101, has
prepared, supervised the preparation of or reviewed, the parts of this Annual
Information Form that are of a scientific or technical nature.  Alan
Taylor does not beneficially own, directly or indirectly, any common shares of
the Company. Mr. Taylor does hold 900,000 stock options to purchase common
shares of the Company at prices ranging from $0.60 to $0.90 per
share.
 
 The
Company’s auditors are Ernst & Young LLP, Chartered Accountants, who have
prepared an independent auditors’ report dated March 9, 2009 in respect of the
Company’s audited financial statements with accompanying notes as at and for the
year ended December 31, 2008 and 2007.  Ernst & Young LLP have
advised that they are independent with respect to the Company within the meaning
of the Rules of Professional Conduct of the Institute of Chartered Accountants
of British Columbia.
 
 11.
              AUDIT COMMITTEE
INFORMATION
 
 11.1           Audit Committee
Charter
 
 The Audit
Committee has adopted a Charter, the text of which is set out
below:
 
 “Charter
of the Audit Committee of the Board of Directors”
 
 I.           MANDATE
  The Audit
Committee (the “Committee”) is appointed by
the Board of Directors (the “Board”) of Canadian Zinc
Corporation (the “Corporation”) to assist the
Board in fulfilling its oversight responsibilities relating to financial
accounting and reporting process and internal controls for the Corporation. The
Committee’s mandate and responsibilities are to:
 
 •           recommend
to the Board the external auditors to be nominated and the compensation of
suchauditor;
  •           oversee
and monitor the work and performance of the Corporation's external
auditors,including meeting with the external auditors and reviewing and
recommending allrenewals or replacements of the external auditors and their
remuneration;
  •           pre-approve
all non-audit services to be provided to the Corporation by the
externalauditors;
  •           review
the financial statements and management's discussion and analysis (MD&A)
andannual and interim financial results press releases of the
Corporation;
  •           oversees
the integrity of internal controls and financial reporting procedures of
theCorporation and ensure implementation of such controls and
procedures;
   69
  •           provide
oversight to any related party transactions entered into by the
Corporation.
  II.           AUTHORITY
OF THE AUDIT COMMITTEE
  The
Committee shall have the authority to:
 (1)
              engage
      independent counsel and other advisors as it determines necessary to carry
      out its duties;
  (2)
              set
      and pay the compensation for advisors employed by the Audit Committee;
      and
  (3)
              communicate
      directly with the external
auditors.
  III.           COMPOSITION
AND MEETINGS
  (1)
              The
      Committee and its membership shall meet all applicable legal, regulatory
      and listing requirements, including those of all applicable securities
      regulatory authorities.
  (2)           The
Committee shall be composed of three directors as shall be designated by the
Boardfrom time to time. The members of the Committee shall appoint from among
themselves amember who shall serve as Chair.  A minimum of two members
of the Committee present either in person or by telephone shall constitute a
quorum.
  The
Committee members will be elected annually at the first meeting of the Board
following the annual general meeting of shareholders.
 
 (1)
              Each
      member of the Committee shall be “independent” and shall be “financially
      literate” (as each such term is defined in Multilateral Instrument
      52-110)
  (2)
              The
      Committee shall meet at least quarterly, as circumstances dictate or as
      may be required by applicable legal or listing
    requirements.
  (3)
              Any
      member of the Committee may participate in the meeting of the Committee by
      means of conference telephone or other communication equipment, and the
      member participating in a meeting pursuant to this paragraph shall be
      deemed, for purposes hereof, to be present in person at the
      meeting.
  IV.           RESPONSIBILITIES
  (1)
              The
      Committee shall review the annual audited financial statements to satisfy
      itself that they are presented in accordance with applicable generally
      accepted accounting principles (“GAAP”) and report
      thereon to the Board and recommend to the Board whether or not same should
      be approved, prior to their being filed with the appropriate regulatory
      authorities.  The Committee shall also review the interim
      financial statements.
  (2)
              The
      Committee shall review any internal control reports prepared by management
      and the evaluation of such report by the external auditors, together with
      management’s response.
  (3)
              The
      Committee shall be satisfied that adequate procedures are in place for the
      review of the Corporation’s public disclosure of financial information
      extracted or derived from the Corporation’s financial statements,
      management’s discussion and analysis and annual and interim earnings press
      releases before the Corporation publicly discloses this
      information.
  (4)
              The
      Committee shall review management’s discussion and analysis relating to
      annual and interim financial statements and any other public disclosure
      documents, including interim earnings press releases, before the
      Corporation publicly discloses this
information.
   70
  (5)
              The
      Committee shall meet no less frequently than annually with the external
      auditors to review accounting practices, internal controls and such other
      matters as the Committee deems
appropriate.
  (6)
              The
      Committee shall establish procedures
for
  (a)           the
receipt, retention and treatment of complaints received by the
Corporationregarding accounting, internal accounting controls or auditing
matters; and
 (b)           the
confidential, anonymous submission by employees of the Corporation ofconcerns
regarding questionable accounting or auditing matters.
  (7)
              The
      Committee shall provide oversight to any related party transactions
      entered into by the Corporation.
  (8)
              In
      the event that the Corporation wishes to retain the services of the
      Corporation’s external auditors for tax compliance or tax advice or any
      non-audit services the Chief Financial Officer of the Corporation shall
      consult with the Audit Committee, who shall have the authority to approve
      or disapprove such non-audit services.  The Audit Committee
      shall maintain a record of non-audit services approved by the Audit
      Committee for each fiscal year and provide a report to the Board on an
      annual basis.
  (9)
              The
      Committee shall review and approve the Corporation's hiring policies
      regarding partners, employees and former partners and employees of the
      present and former auditors of the
Corporation.
  (10)
              The
      Committee shall perform any other activities consistent with this Charter
      and governing law, as the Committee or the Board deems necessary or
      appropriate.
 
 11.2           Composition of Audit
Committee
 
 The Audit
Committee, as at March 16, 2009, is composed of Brian Atkins, Dave Nickerson and
John MacPherson.  The Company considers each member of the Audit
Committee to be financially literate and independent for the purposes of
National Instrument 52-110 (“NI 52-110”).
 
 The
education and experience of each Audit Committee Member is set out
below:
 
 Brian A.
Atkins, CA graduated from the University of British Columbia with a Bachelor of
Commerce and obtained his Chartered Accountant designation from the British
Columbia Institute of Chartered Accountants.  Mr. Atkins joined KPMG
LLP, Chartered Accountants, in 1969 and was admitted as a partner in
1978.  As a KPMG partner, Mr. Atkins provided audit, accounting and
advisory services to a number of public and private companies continually
throughout the period until his retirement from KPMG in September
2005.  Mr. Atkins is currently a director of the North Shore Credit
Union and a Member of the Independent Review Committee of Inhance Investment
Management Inc.  He has a thorough understanding of generally accepted
accounting principles used by the Company in preparing its annual and quarterly
financial statements.  He has a thorough understanding of internal
controls over 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
  71
  Professional
Engineers, Geologists and Geophysicists of the Northwest
Territories.  He was elected as Member of Parliament for three terms
1979 to 1988, during part of which time he served as a member of the House
Standing Committee on Public Accounts, and as a Member of the Legislative
Assembly of the Northwest Territories 1975 to 1979.  He served as the
Chairman of the Northwest Territories Water Board from 1988 to
1994.  He has served as a director of public companies for a period in
excess of five years.  He has an understanding of the accounting
principles used by the Company to prepare its financial statements and has the
ability to assess the general application of such accounting principles in
connection with the accounting for estimates, accruals and
reserves.   He has experience evaluating financial statements
with accounting issues comparable to the financial statements and issues that
can reasonably be expected to be raised by the Company’s financial
statements.  He has an understanding of internal controls and
procedures for financial reporting.
 
 John
MacPherson has served on the Boards of many public companies as either Chairman,
President or Director for over 38 years.  Having worked in the
investment industry he was licenced to sell securities which required him to
understand and evaluate complex financial reports.  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.
 
 There
were several changes to the composition of the audit committee during, and
subsequent to, the year ended December 31, 2008.  Dr. Robert Gayton, a
director of the Company from May 2000, served on the audit committee during
fiscal 2008 until June 17, 2008, when he was replaced by Mr. Atkins following
his retirement at the Company’s Annual General Meeting.  Alan Savage,
a director of the Company from June 2003 was a member of the audit committee
throughout 2008 until his resignation from the Board of Directors on January 29,
2009.  Mr. Savage was replaced on the audit committee by Mr.
MacPherson.
 
 11.3           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 2007 and 2008
were approved by the Audit Committee.  The Audit Committee reviews
with the auditors whether non-audit services to be provided, if any, are
compatible with maintaining the Auditor’s independence.
 
 Since the
commencement of the Company’s most recently completed financial year (January 1,
2008) 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.
 
  72
  11.4           Audit Fees and
Services
 
 The
aggregate amounts billed by auditors for the two fiscal years ended December 31,
2008 and 2007 for audit fees, audit related fees, tax fees and all other fees
are set forth below:
 
 Year
      Ended
                December
      31, 2008 (4)
              Year
      Ended
                December
      31, 2007Audit
      Fees (1)
              $72,100
              $59,740Audit-Related
      Fees(2)
              33,600
              30,900Tax
      Fees (3)
              -
              -All
      Other Fees
              -
              -Total
              $105,700
              $90,640
 
 (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.
 (4) Fees
for the year ended December 31, 2008, are based upon estimates received by
Canadian Zinc as final invoices are yet to be rendered as at March 16,
2009.
 
 12.
              ADDITIONAL
      INFORMATION
 
 Additional
information relating to the Company may be found on SEDAR at www.SEDAR.com.
 
 Additional
information, including Directors' and officers' remuneration and indebtedness,
principal holders of the Company's securities, and securities authorized for
issuance under equity compensation plans, if applicable, is contained in the
Company's Information Circular for its most recent Annual Meeting of
Shareholders that involved the election of Directors, which may be found on
SEDAR at www.SEDAR.com.
 
 Additional
financial information is contained in the Company’s Audited Financial Statements
and Management’s Discussion and Analysis for its most recently completed
financial year which may be found on SEDAR at www.SEDAR.com.
 
 
  73
  Cautionary Note – Forward Looking Statements
 
 This
Annual Information Form contains forward-looking statements, such as estimates
and statements that describe the Company’s future plans, objectives or goals,
including words to the effect that the Company or management expects a stated
condition or result to occur.  Such forward-looking statements in this
Annual Information Form include the planned/proposed Prairie Creek mine
operations, anticipated future operating descriptions included in the Company’s
Project Description Report (filed for permitting requirements), ongoing work to
convert the Project Description Report into a Pre-Feasibility Study, future cost
estimates, expectations around the process for obtaining operating permits, the
impact to the Company of future accounting standards and discussion of risks and
uncertainties around the Company’s business.  Words such as
“believes”, “anticipates”, “expects”, “estimates”, “may”, “could”, “would”,
“will”, or “plan”, or similar expressions, are intended to identify
forward-looking statements.  Such forward-looking statements are made
pursuant to the safe harbour provisions of the United States Private Securities
Litigation Reform Act of 1995.
 
 Since
forward-looking statements are based on assumptions and address future events
and conditions, by their very nature they involve inherent risks and
uncertainties.  Actual results relating to, among other things,
mineral reserves, mineral resources, results of exploration, reclamation and
other post-closure costs, capital costs, mine production costs, the timing of
exploration, development and mining activities and the Company’s financial
condition and prospects, could differ materially from those currently
anticipated in such statements by reason of factors such as changes in general
economic conditions and conditions in the financial markets, changes in demand
and prices for the minerals the Company expects to produce, delays in obtaining
permits, litigation, legislative, environmental and other judicial, regulatory,
political and competitive developments in areas in which the Company operates,
technological and operational difficulties encountered in connection with the
Company’s activities, labour relations matters, costs and changing foreign
exchange rates and other matters discussed under “Risk Factors” herein and under
“Management’s Discussion and Analysis for the year ended December 31, 2008 –
Liquidity, Financial Condition and Capital Resources and Review of Financial
Results”.
 
 Other
delays in factors that may cause actual results to vary materially include, but
are not limited to, the receipt of permits or approvals, changes in commodity
and power prices, changes in interest and currency exchange rates, geological
and metallurgical assumptions (including with respect to the size, grade
and  recoverability of mineral resources), unanticipated operational
difficulties (including failure with plant, equipment or processes to operate in
accordance with  specifications or expectations), cost escalation,
unavailability of materials and equipment, industrial disturbances or other job
action, and unanticipated events related to health, safety and environmental
matters, political risk, social unrest, and changes in general economic
conditions or conditions in the financial markets.
 
 Mineral
resources that are not mineral reserves do not have demonstrated economic
viability.  Inferred mineral resources are considered too speculative
geologically to have economic considerations applied to them that would enable
them to be categorized as mineral reserves.  There is no certainty
that mineral resources will be converted into mineral reserves. The Company does
not currently hold a permit for the operation of the Prairie Creek
Mine.
 
 This list
is not exhaustive of the factors that may affect any of the Company’s
forward-looking statements.  These and other factors should be
considered carefully and readers should not place undue reliance on the
Company’s forward-looking statements. Further information regarding these and
other factors which may cause results to differ materially from those projected
in forward-looking statements are included in the filings by the Company with
securities regulatory authorities. The Company does not undertake to update any
forward-looking statements that may be made from time to time by the Company or
on its behalf, except in accordance with applicable securities
laws.
 
  Cautionary Note to U.S. Investors
 
 The
United States Securities and Exchange Commission (“SEC”) permits U.S. mining
companies in their filings with the SEC, to disclose only those mineral deposits
that a company can economically and legally extract or produce.  We
use certain terms in this Annual Information Form, such as “measured,”
“indicated,” and “inferred” “resources,” which the SEC guidelines prohibit U.S.
registered companies from including in their filings with the
SEC.  U.S. Investors are urged to consider closely the disclosure in
our Form 20-F which may be secured from us, or from the SEC’s website at
http://www.sec.gov/edgar.shtml.
 
   74