UNITED
STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 20-F

(Amendment
No. 1)

| |  ̈ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------------



OR



| | x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
| | - | ------------------------------------------------------------------------------------



For fiscal year ended
December 31, 2015



OR



| |  ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------



For the transition
period from ____ to ______



OR



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



Date of event requiring
this shell company report:



Commission file number: 000-22216







Canadian
Zinc Corporation(Exact Name of Registrant as Specified in its Charter)



|British Columbia, Canada                                           | 1400                                               | N/A                                 
|------------------------------------------------------------------ | -------------------------------------------------- | ------------------------------------
|(Province or other jurisdiction of 
incorporation or organization) | (Primary Standard Industrial
 Classification Code) | (I.R.S. Employer Identification No.)



650 West Georgia Street, Suite 1710Vancouver, British Columbia, Canada V6B 4N9(604) 688-2001
(Address and Telephone Number of Registrant’s Principal Executive Offices)



CT Corporation System, 111 Eighth Avenue,
New York, NY, 10011, (212) 590-9070

(Name, address (including zip code) and telephone
number (including area code) of agent for service in the United States)



Securities registered or to be registered
pursuant to Section 12(b) of the Act: None



Securities registered or to be registered
pursuant to Section 12(g) of the Act: Common Shares, no par value



Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act: None



Indicate the number of outstanding shares
of each of the issuer's classes of capital or common stock as of December 31, 2015: 218,047,709 common shares



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



Yes  ̈
      No x



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



Yes  ̈
      No x



Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.



Yes x
      No  ̈



Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).



Yes  ̈
      No  ̈



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



|Large accelerated filer  ̈ | Accelerated filer  ̈ | Non-accelerated filer  x
|------------------------- | ------------------- | ------------------------



Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:



|U.S. GAAP   ̈ | International Financial Reporting Standards as issued
by the International Accounting Standards Board x | Other ̈
|------------ | ------------------------------------------------------------------------------------------------------- | ------



If "Other" has been checked in
response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:



 ̈
Item 17         ̈ Item 18



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



Yes  ̈
No x











CONTENTS





|EXPLANATORY NOTE                                              | 4  
|------------------------------------------------------------- | ---
|                                                              |    
|Forward-Looking Statements                                    | 4  
|                                                              |    
|Resource and Reserve Estimates                                | 5  
|                                                              |    
|Measurement Conversion Information                            | 6  
|                                                              |    
|Glossary of Names and Terms                                   | 6  
|                                                              |    
|National Instrument 43-101 Definitions                        | 7  
|                                                              |    
|Part I                                                        | 8  
|                                                              |    
|Item 1. Identity of Directors, Senior Management and Advisers | 8  
|                                                              |    
|Item 2. Offer Statistics and Expected Timetable               | 8  
|                                                              |    
|Item 3. Key Information                                       | 8  
|A. Selected Financial Data                                    | 8  
|B. Capitalization and Indebtedness                            | 9  
|C. Reasons for the Offer and Use of Proceeds                  | 9  
|D. Risk Factors                                               | 9  
|                                                              |    
|Item 4. Information on the Company                            | 20 
|A. History and Development of the Company                     | 20 
|B. Business Overview                                          | 27 
|C. Organizational Structure                                   | 28 
|D. Property, Plant and Equipment                              | 28 
|                                                              |    
|Item 4A. Unresolved Staff Comments                            | 85 
|                                                              |    
|Item 5. Operating and Financial Review and Prospects          | 85 
|A. Operating Results                                          | 85 
|B. Liquidity and Capital Resources                            | 87 
|C. Research and Development, Patents and Licences, Etc.       | 88 
|D. Trend Information                                          | 88 
|E. Off-balance Sheet Arrangements                             | 89 
|F. Tabular Disclosure of Contractual Obligations              | 89 
|                                                              |    
|Item 6. Directors, Senior Management and Employees            | 89 
|A. Directors and Senior Management                            | 89 
|B. Compensation                                               | 90 
|C. Disclosure of Corporate Governance Practices               | 102
|D. Employees                                                  | 109
|E. Share Ownership                                            | 110
|                                                              |    
|Item 7. Major Shareholders and Related Party Transactions     | 110
|A. Major Shareholders                                         | 110
|B. Related Party Transactions                                 | 110
|C. Interests of Experts and Counsel                           | 111
|                                                              |    
|Item 8. Financial Information                                 | 111
|A. Consolidated Statements and Other Financial Information    | 111
|B. Significant Changes                                        | 111
|                                                              |    
|Item 9. The Offer and Listing                                 | 112
|A. Offer and Listing Details                                  | 112
|B. Plan of Distribution                                       | 113
|C. Markets                                                    | 113
|D. Selling Shareholders                                       | 113
|E. Dilution                                                   | 113
|F. Expenses of the Issue                                      | 114



2









|Item 10. Additional Information                                                       | 114
|------------------------------------------------------------------------------------- | ---
|A. Share Capital                                                                      | 114
|B. Memorandum and Articles of Association                                             | 114
|C. Material Contracts                                                                 | 115
|D. Exchange Controls                                                                  | 115
|E. Taxation                                                                           | 115
|F. Dividends and Paying Agents                                                        | 125
|G. Statements by Experts                                                              | 125
|H. Documents on Display                                                               | 125
|I. Subsidiary Information                                                             | 125
|                                                                                      |    
|Item 11. Quantitative and Qualitative Disclosure About Market Risk                    | 126
|                                                                                      |    
|Item 12. Description of Securities Other Than Equity Securities                       | 127
|                                                                                      |    
|Part II                                                                               | 127
|                                                                                      |    
|Item 13. Defaults, Dividend Arrears and Delinquencies                                 | 127
|                                                                                      |    
|Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds | 127
|A to D.                                                                               | 127
|E. Use of Proceeds                                                                    | 128
|                                                                                      |    
|Item 15. Controls and Procedures                                                      | 128
|A. Disclosure Controls and Procedures                                                 | 128
|B. Management’s Report on Internal Control over Financial Reporting                   | 128
|C. Attestation Report of Registered Public Accounting Firm                            | 129
|D. Changes in Internal Control Over Financial Reporting                               | 129
|                                                                                      |    
|Item 16. [Reserved]                                                                   | 129
|                                                                                      |    
|Item 16A. Audit Committee Financial Expert                                            | 129
|                                                                                      |    
|Item 16B. Code of Ethics                                                              | 129
|                                                                                      |    
|Item 16C. Principal Accountant and Fees and Services                                  | 130
|                                                                                      |    
|Item 16D. Exemptions from the Listings Standards for Audit Committees                 | 130
|                                                                                      |    
|Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers      | 130
|                                                                                      |    
|Item 16F. Change in Registrants’s Certifying Accountant                               | 130
|                                                                                      |    
|Item 16G. Corporate Governance                                                        | 130
|                                                                                      |    
|Item 16H. Mine Safety Disclosure                                                      | 131
|                                                                                      |    
|Part III                                                                              | 131
|                                                                                      |    
|Item 17. Financial Statements                                                         | 131
|                                                                                      |    
|Item 18. Financial Statements                                                         | 131
|                                                                                      |    
|Item 19. Exhibits                                                                     | 131
|                                                                                      |    
|Signatures                                                                            | 133





3









EXPLANATORY
NOTE



This Annual Report on Form 20-F (Amendment
No. 1) is being filed to amend the Annual Report on Form 20-F of Canadian Zinc Corporation (the “Company”,
the “Registrant”, “Canadian Zinc” or “CZN”) for the year ended December
31, 2015, filed with the United States Securities and Exchange Commission (the “SEC”) on April 1, 2016 (the
“Annual Report”) to update the section “Technical Report on Principal Property – Prairie Creek,
Northwest Territories” and other sections of the Annual Report that reference such technical report to reflect the most
recent Technical Report furnished to the SEC under cover of Form 6-K on May 13, 2016 and filed on SEDAR on May 12, 2016 and to
update the disclosure in Item 6 B Compensation and Item 6 C Disclosure of Corporate Governance Parctices to reflect the disclosure
in the Company’s Management Information Circular dated May 12, 2016 and furnished to the SEC under cover of Form 6-K on
May 24, 2016 (the “Amended Annual Report”). No other changes or additions have been made to the original report
which remains effective as of March 30, 2016. This Amended Annual Report is being filed for the purpose of satisfying the Company’s
Annual Information Form requirements under applicable Canadian securities laws.



Forward-Looking
Statements



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



Statements about the Company’s planned/proposed
Prairie Creek Mine operations, which includes future mine grades and recoveries; the Company’s plans for further exploration
at the Prairie Creek Mine and other exploration properties; future cost estimates pertaining to further development of the Prairie
Creek Mine and items such as long-term environmental reclamation obligations; financings and the expected use of proceeds thereof;
the completion of financings and other transactions; the outlook for future prices of zinc, lead and silver; the impact to the
Company of future accounting standards and discussion of risks and uncertainties around the Company’s business are not guarantees
of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore,
the Company's actual results could differ materially and adversely from those expressed in any forward-looking statements as a
result of various factors. You should not place undue reliance on these forward-looking statements.



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



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



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



4







Resource
and Reserve Estimates



This Annual Report on Form 20-F includes
resource and reserve information that has been prepared in accordance with the requirements of the securities laws in effect in
Canada, which differ from the requirements of United States securities laws. The terms “mineral reserve”, “proven
mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance with Canadian
National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute
of Mining, Metallurgy and Petroleum (the “CIM”) - CIM Definition Standards on Mineral Resources and Mineral
Reserves, adopted by the CIM Council, as amended. These definitions differ from the definitions in SEC Industry Guide 7 under
the United States Securities Act of 1933, as amended (the “Securities Act”). Under SEC Industry Guide 7 standards,
a “final” or “bankable” feasibility study is required to report reserves, the three-year historical average
price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must
be filed with the appropriate governmental authority.



In addition, the terms “mineral resource”,
“measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are
defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and
are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to
assume that any part or all of mineral deposits in these categories will ever be converted into reserves. “Inferred mineral
resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal
feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category.
Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies,
except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically
or legally mineable. Disclosure of “contained ounces” or “contained metal” in a resource is permitted disclosure
under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves”
by SEC Industry Guide 7 standards as in place tonnage and grade without reference to unit measures.



U.S. Investors should note that Canadian
Zinc Corporation DOES NOT currently disclose any SEC Industry Guide 7 mineral reserves with regard to its mineral deposits at the
Prairie Creek Mine site.



5







Measurement
Conversion Information



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



1 mile = 1.6093 kilometres

1 metric ton (tonne) = 2,205 pounds

1 foot - 0.305 metres

1 troy ounce = 31.103 grams

1 acre = 0.4047 hectare

1 imperial gallon = 4.546 litres

1 long ton = 2,240 pounds

1 imperial gallon = 1.2010 U.S. gallons



Glossary
of Names and Terms



“BQ”– Referring
to diamond drill core with a diameter of 36.5 mm or 1.438 inches.



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



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



“NQ” – Referring
to diamond drill core with a diameter of 47.6 mm or 1.835 inches.



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



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



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



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



6







National
Instrument 43-101 Definitions



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



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



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



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



7







Part I



Item 1.
Identity of Directors, Senior Management and Advisers



Not applicable.



Item 2.
Offer Statistics and Expected Timetable



Not applicable.



Item 3.
Key Information



A. Selected Financial Data



The following table sets forth our selected
financial data of the Company. This selected financial data is derived from the Company’s audited financial statements and
notes thereto as at December 31, 2015, 2014, 2013, 2012, and 2011. The Company’s financial statements have been prepared
in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, which
differs in certain respects from U.S. GAAP. The selected financial data provided below is not necessarily indicative of the future
results of operations or financial performance of the Company. The Company has not paid any dividends on its common shares and
it does not expect to pay dividends in the foreseeable future. The selected financial data set forth below should be read in conjunction
with “Item 5 – Operating and Financial Review and Prospects,” and the financial statements and the notes thereto
and other financial information which appear elsewhere in this Annual Report.



Selected Financial Data

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



|                                                                         |  | Year ended December 31, |            
|------------------------------------------------------------------------ |  | ----------------------- | -----------
|                                                                         |  | 2015                    |            
|Amounts in accordance with IFRS:                                         |  |                         |            
|Net income (loss)                                                        |  | $                       | (8,262     
|Basic and diluted income (loss) per share                                |  |                         | (0.04      
|Total assets                                                             |  |                         | 11,183     
|Net assets                                                               |  |                         | 8,907      
|Share capital                                                            |  |                         | 104,028    
|Reserves                                                                 |  |                         | 14,394     
|Dividends declared (per share)                                           |  | $                       | 0.00       
|Weighted average number of common shares outstanding – basic and diluted |  |                         | 218,047,709
|Number of common shares outstanding                                      |  |                         | 218,047,709



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



Since June 1, 1970, the Government of Canada
has permitted a floating exchange rate to determine the value of the Canadian dollar against the U.S. dollar. The high and low
exchange rates, the average rates (average of the exchange rates on the last day of each month during the period), and the end
of the period rates for Canadian dollars, expressed in U.S. dollars, from January 1, 2011 to December 31, 2015 were as follows:



|              |  | U.S. DOLLARS PER $1.00 (CDN) |       
|------------- |  | ---------------------------- | ------
|              |  | Years ended December 31      |       
|              |  | 2015                         |       
|High          |  |                              | 0.8527
|Low           |  |                              | 0.7148
|Average       |  |                              | 0.7820
|End of Period |  |                              | 0.7225



8







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



|     |  | U.S. DOLLARS PER $1.00 (CDN) |       
|---- |  | ---------------------------- | ------
|     |  | Monthly                      |       
|     |  | September ‘15                |       
|High |  |                              | 0.7606
|Low  |  |                              | 0.7455



The exchange rate on March 29, 2016 was
0.7602.



B. Capitalization and Indebtedness



Not applicable.



C. Reasons for the Offer and Use of
Proceeds



Not applicable.



D. Risk Factors



The following is a discussion of those
distinctive or special characteristics of the Company’s operations and industry which may have a material impact on, or constitute
risk factors in respect of, the Company’s future financial performance.



Permitting, Environmental and
Other Regulatory Requirements



The Company’s operations are subject
to permitting, environmental and other regulatory requirements which the Company may not be able to comply with.



The operations of Canadian Zinc require
licences and permits from various governmental and regulatory authorities. Canadian Zinc holds all necessary licences and permits
under applicable laws and regulations for the operation of the Prairie Creek Mine. 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. There can be no guarantee Canadian Zinc will be able to maintain all necessary licences and
permits as are required to explore and develop its properties, including the Prairie Creek Property, commence construction or operation
of mining facilities or properties under exploration or development.



The Prairie Creek Project is located in
an environmentally sensitive and remote area in the Mackenzie Mountains of the Northwest Territories, within the watershed of the
South Nahanni River. The South Nahanni River is considered to be of global significance, is highly valued as a wilderness recreation
river and is a designated World Heritage Site. The South Nahanni River flows through the Nahanni National Park Reserve.



The Prairie Creek Property is encircled
by the Nahanni National Park Reserve; however, an area of approximately 300 square kilometres immediately surrounding the Prairie
Creek Mine is specifically excluded from the Park. In 2009 new legislation entitled “An Act to Amend the Canada National
Parks Act to enlarge Nahanni National Park Reserve of Canada” was enacted, which also authorized the Minister of Environment
to enter into leases, licences of occupation or easements over Nahanni Park lands for the purposes of a mining access road leading
to the Prairie Creek Mine area, including the sites of storage and other facilities connected with that road. The Company has obtained
permits from the Parks Canada Agency for the purposes of accessing the Prairie Creek Mine area. There can be no guarantee Canadian
Zinc will be able to maintain all necessary permits on acceptable terms.



9







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 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. United Nations proposals for a global treaty on mercury, intended to result in
reduced global emissions of mercury, may place restrictions on the production, use and international movement of mercury and mercury-containing
wastes which may, if adopted, result in restrictions on shipment of concentrates or other mineral products containing by-product
or trace mercury. There is no assurance that future changes in environmental laws or regulations, 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 the Prairie Creek Property, 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 expenditures required to maintain ongoing environmental monitoring obligations at
the Prairie Creek Property 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 such provision is adequate to discharge its obligations for these costs. As environmental
protection laws and administrative policies change, Canadian Zinc will revise the estimate of its total obligations and may be
obliged to make further provisions or provide further security for mine reclamation costs. The ultimate amount of reclamation to
be incurred for existing and past mining interests is uncertain.



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. The Company must obtain various regulatory approvals, permits and licences
relating to the Prairie Creek Property and there is no assurance that such approvals will be obtained. No assurance can be given
that new rules and regulations will not be enacted or made, or that existing rules and regulations will not be applied, in a manner
which could limit or curtail production or development.



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



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



Failure to comply with applicable environmental
and health and safety laws can result in injunctions, damages, suspension or revocation of permits and imposition of penalties.
There can be no assurance that Canadian Zinc has been or will be at all times in complete compliance with all such laws, regulations
and permits, or that the costs of complying with current and future environmental and health and safety laws and permits will not
materially adversely affect Canadian Zinc’s business, results of operations or financial condition. Environmental hazards
may exist on the properties, including the Prairie Creek Property, 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 and cause increases in exploration expenses, capital expenditures or production
costs or require abandonment or delays in the development of mining properties.



10







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 permits essential to operations are not obtained, or not obtained in a timely manner, or are cancelled or revoked, there
is a risk that the Company may not be able to operate a mine at the Prairie Creek Property.



Political and Legislative



Canadian Zinc’s operations are exposed
to various levels of political, legislative and other risks and uncertainties.



Canadian Zinc conducts its operations in
Canada and specifically in the Northwest Territories and the province of Newfoundland and Labrador. The Mackenzie Valley in the
Northwest Territories of Canada is 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 mineral exploration, mine development,
and proposed mining, processing activities of Canadian Zinc, and the anticipated production, transportation and sale of mineral
concentrates are subject to extensive federal, territorial, international and local laws, regulations and treaties, including various
laws governing prospecting, development, production, transportation taxes, labour standards and occupational health, mine safety,
toxic substances including mercury, 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 laws, rules and regulations will not be enacted
or that existing laws, rules and regulations will not be applied in a manner which could limit or curtail exploration, development,
mining, processing, production and sale of concentrates. 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.



There was a major change to the legislative
and regulatory framework and regulations in the Mackenzie Valley between 1998 and 2000. 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 2007, the Federal Government announced the Northern Regulatory Improvement Initiative to improve the
current regulatory regime in the north of Canada and in May 2010 announced an Action Plan to improve northern regulatory regimes,
which anticipate changes to the current legislative framework and regulatory processes. In 2013, the Federal Government introduced
Bill C-15 The Northwest Territories Devolution Act which includes proposed amendments to the Mackenzie Valley Resource Management
Act, which amendments may impose additional regulations, obligations or restrictions on mining operations in the Mackenzie Valley.



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



11







On April 1, 2014 Bill C-15 -The Northwest
Territories Devolution Act came into law providing for the devolution of lands and resource management in the NWT from the Government
of Canada to the Government of the Northwest Territories (“GNWT”). Devolution in the NWT represents the transfer of
decision-making and administration for land and resource management from the Government of Canada to the Government of the Northwest
Territories. The territorial government is now responsible for the management of onshore lands and the issuance of rights and interests
with respect to onshore minerals and oil and gas. Devolution also gives the GNWT the power to collect and share in resource revenues
generated in the territory.



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.



Financing and Going Concern



The successful 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. Additional financing will be required in the short term to fund
its corporate administration costs and working capital and to continue the development of the Prairie Creek Project and in the
longer term to put the Prairie Creek Mine into production. 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.



Canadian Zinc does not currently generate
any cash flow from its operations and will need to generate additional financial resources in the short term to fund its corporate
administration costs and working capital and to continue the development of the Prairie Creek Project and in the longer term to
put the Prairie Creek Mine into production. The ability of the Company to carry out its planned business objectives is dependent
on its ability to raise adequate financing from lenders, shareholders and other investors. There is a risk that additional financing
will not be available to the Company on a timely basis or on acceptable terms. The Company is currently evaluating various opportunities
and seeking additional sources of financing. There is no assurance that such financing will be available on a timely basis or on
acceptable terms.



There are no assurances that the Company
will continue to be able to obtain additional financial resources and/or achieve positive cash flows or profitability. Canadian
Zinc has a history of losses with no operating revenue other than minor interest income, and had working capital of $2,482,000
as at December 31, 2015. The Company has not achieved profitable operations, has an accumulated deficit since inception and expects
to incur further losses in the development of its business. If the Company is unable to obtain adequate additional financing, the
Company will be required to curtail operations and its exploration and development activities. These conditions indicate the existence
of material uncertainties which cast significant doubt about the Company’s ability to continue as a going concern. .Failure
to continue as a going concern would require that the Company’s assets and liabilities be restated on a liquidation basis
which would differ significantly from the going concern basis.



12







The development of the Prairie Creek Mine
will require substantial additional financing. The 2016 Preliminary Feasibility Study estimated that the additional capital required
to install the planned new facilities and to bring the Prairie Creek Mine into production will aggregate $216 million, plus a contingency
of $27 million for a total of $243 million. Working capital required upon commencement of production is estimated to be $30 million
plus a contingency of $6 million for a total of $36 million.



Supported by the results of the 2016 Preliminary
Feasibility Study, Canadian Zinc will continue to evaluate all alternatives and possibilities for raising the financing necessary
to complete the development and construction and put the Prairie Creek Mine into production. However the ability to raise financing
is impacted by conditions beyond the control of the Company, including depressed commodity prices, continued uncertainty in the
capital markets and the current lack of investor interest in the resource sector. There are no assurances that the Company will
continue to be able to obtain such financing on a timely basis or on acceptable terms.



Metal Prices and Marketability
of Minerals



The market price of metals and minerals
is volatile and cannot be controlled. Metal prices have fluctuated widely, particularly in recent years. If the price of metals
and minerals should drop significantly, the economic prospects for the Prairie Creek Project could be significantly reduced or
rendered uneconomic. There is no assurance that, a profitable market may exist for the sale of products, including concentrates
from the Prairie Creek Project. Factors beyond the control of the Company may affect the marketability of minerals or concentrates
produced. It is expected that the zinc concentrates to be produced from the Prairie Creek Mine will contain relatively high levels
of mercury. United Nations proposals for a global treaty on mercury, intended to result in reduced global emissions of mercury,
may place restrictions on the production, use and international movement of mercury and mercury-containing wastes which may, if
adopted, result in restrictions on shipment of concentrates or other mineral products containing by-product or trace mercury.



The marketability of minerals is affected
by numerous other factors beyond the control of the Company, including quality issues, impurities, deleterious elements, government
regulations, royalties, allowable production and regulations regarding the 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 and existing 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.



13







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, if any, 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 may never commence commercial production and may lose its interest
in, or may be forced to sell, its properties.



The zinc concentrates to be produced from
the Prairie Creek Mine will contain, to varying degrees, relatively high levels of mercury. Canadian Zinc has signed MOUs with
Korea Zinc and Boliden for the sale of zinc concentrates. The MOUs set out the intentions of Canadian Zinc and each of Korea Zinc
and Boliden to enter into concentrate sales agreements for the concentrates to be produced from the Prairie Creek Mine on the general
terms set out in the MOUs, including commercial terms which are to be kept confidential. The sales agreements will provide that
treatment charges will be set annually at the annual benchmark treatment charges and scales, as agreed between major smelters and
major miners. Payables and penalties will be negotiated in good faith annually during the fourth quarter of the preceding year,
including industry standard penalties based on indicative terms and agreed limits specified in each MOU.



Treatment and refining charges, including
deductibles and penalties, vary with smelter location, and individual smelter terms and conditions. The economic model used in
the 2016 Preliminary Feasibility Study has been prepared assuming average blended indicative treatment charges and penalties, however,
no smelter or concentrate buyer has contractually committed to the assumed treatment charges or penalties. There can be no assurance
that the assumed terms will be available to the Company.



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.



Exploration and Evaluation



Mineral exploration involves a high degree
of risk.



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.



14







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.



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.



Uncertainty in the Estimation
of Mineral Reserves and Mineral Resources



There is uncertainty in the estimation
of mineral reserves and mineral resources.



The figures for Mineral Reserves and 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 Reserves and Mineral Resources can be mined
or processed profitably. There are numerous uncertainties inherent in estimating Mineral Reserves and Mineral Resources, including
many factors beyond Canadian Zinc’s control. Such estimation is a subjective process, and the accuracy of any reserve and
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 Reserves or Mineral Resources, or of
Canadian Zinc’s ability to extract these Mineral Reserves or 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 reserve or 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 Reserves or Mineral Resources uneconomic;

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

• The grade of 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 reserves or resources.



Any of these factors may require Canadian
Zinc to reduce its Mineral Reserve or Mineral Resources estimates.



15







Insurance and Uninsured Risks



The Company is not insured to cover all
potential 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 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.



Title Matters



Title to the Company’s mineral properties
may be challenged or defective. Aboriginal groups may raise title disputes in relation to land claims and any impairment or defect
in title could have a negative impact on the Company.



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.



Executives and Conflicts of
Interest



The Company is dependent on certain key
executives and the loss of these executives may adversely affect our business and results of operations.



Canadian Zinc is dependent on the services
of key executives, including the President & Chief Executive Officer, the Vice President of Exploration & Chief Operating
Officer, and the Chief Financial Officer of the Company. 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.



16







Certain officers and directors of the Company
may be in a position of conflicts of interest.



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



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



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



Acquisitions



From time to time Canadian Zinc undertakes
evaluations of opportunities to acquire additional mining assets and businesses. Any resultant acquisitions, such as those discussed
in this Annual Report, 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.



Competition



The resource industry is very competitive.



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.



17







Requirements of the Sarbanes-Oxley
Act and Similar Canadian Regulations



The Company is subject to the requirements
of the Sarbanes-Oxley Act and similar Canadian regulations and there are no assurances that the Company will be able to continue
to comply with these heightened regulatory requirements.



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”), which 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 is unable 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 inability
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 consolidated financial statements, which in turn could harm the Company’s business and negatively
impact the trading price of its common shares. In addition, any inability to implement required new or improved controls, or difficulties
encountered in their implementation, could impact the Company’s operating results or cause it to be unable 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.



History of Losses and No Assurance
of Profitable Operations



The Company has a history of losses and
no assurance of profitable operations.



The Company has incurred losses since inception
of $109,515,000 through December 31, 2015, which includes $80,247,000 of exploration and development expenditures on the Prairie
Creek property and central Newfoundland properties which have been expensed in accordance with the Company’s accounting policies.
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 evaluation programs and mine development activities as a result of insufficient cash resources.



Shareholder Dilution



The exercise of outstanding options and
warrants would lead to dilution of current shareholders.



18







As of December 31, 2015, there were 218,047,709
common shares outstanding. As of December 31, 2015, the Company had 973,800 share purchase options and 16,908,360 warrants outstanding
allowing the holders to purchase 17,882,160 common shares. Directors and officers of the Company hold 400,000 of these share purchase
options, contractors and employees of the Company hold 573,800 share purchase options and third-party entities hold 16,908,360
share purchase warrants. In addition, 3,926,340 share units are outstanding allowing the holders to receive an equal amount of
common shares upon payout. Directors and officers of the company hold 3,026,340 of these share units with the balance being held
by contractors and employees of the Company.



As of March 30, 2016, there were 218,047,709
common shares outstanding and the Company had 673,800 share purchase options and 16,908,360 warrants outstanding allowing the holders
to purchase 17,582,160 common shares. In addition, 3,926,340 share units are outstanding allowing the holders to receive an equal
amount of common shares upon payout. The exercise or payout of all of the existing share purchase options; share units and warrants
would result in percentage ownership dilution to the existing shareholders.



Potential Future Equity Financings



Additional financing may be needed for
our business operations which may lead to dilution of the Company’s current shareholders.



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.



Enforcement of Foreign Judgments



The Company is a foreign corporation and
all of the Company’s directors and officers are outside of the United States, which may make enforcement of civil liabilities
difficult.



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



Foreign Private Issuer Status



As a foreign private issuer, the Company’s
shareholders may have less complete and timely data.



The Company is a “foreign private
issuer” as defined in Rule 3b-4 under the United States Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Equity securities of the Company are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the
Exchange Act pursuant to Rule 3a12-3 of the Exchange Act. Therefore, the Company is not required to file a Schedule 14A proxy
statement in relation to the annual meeting of shareholders. The submission of proxy and annual meeting of shareholder information
on Form 6-K may result in shareholders having less complete and timely information in connection with shareholder actions. The
exemption from Section 16 rules regarding reports of beneficial ownership and purchases and sales of common shares by insiders
and restrictions on insider trading in the Company’s securities may result in shareholders having less data and there being
fewer restrictions on insiders’ activities in the Company’s securities.



U.S. Tax Matters



The
Company’s Passive Foreign Investment Company status has possible adverse tax consequences for U.S. investors.



19







Because
the Company is an exploration stage company and its only material revenues consist of passive investment income on its cash investments,
U.S. holders of common shares should be aware that the Company believes it was classified as a passive foreign investment company
(“PFIC”) during the tax year ended December 31, 2014, and based on current business plans and financial expectations,
the Company anticipates that it may be a PFIC for the current tax year and may be a PFIC in future tax years. If the Company is
a PFIC for any year during a U.S. shareholder’s holding period of the common shares, then such U.S. shareholder generally
will be required to treat any gain realized upon a disposition of common shares, or any “excess distribution” received
on its common shares, as ordinary income, and to pay an interest charge on a portion of such gain or distribution, unless the shareholder
makes a timely and effective "qualified electing fund" election (“QEF Election”) or a "mark-to-market"
election with respect to the common shares. A U.S. shareholder who makes a QEF Election generally must report on a current basis
its share of the Company's net capital gain and ordinary earnings for any year in which the Company is a PFIC, whether or not the
Company distributes any amounts to its shareholders. However, U.S. shareholders should be aware that there can be no assurance
that the Company will satisfy the record keeping requirements that apply to a qualified electing fund, or that the Company will
supply U.S. shareholders with information that such U.S. shareholders require to report under the QEF Election rules, in the event
that the Company is a PFIC and a U.S. shareholder wishes to make a QEF Election. Thus, U.S. shareholders may not be able to make
a QEF Election with respect to their common shares. A U.S. shareholder who makes a mark-to-market election generally must include
as ordinary income each year the excess of the fair market value of the common shares over the taxpayer’s adjusted tax basis
therein. This paragraph is qualified in its entirety by the discussion below under the heading “Certain United States Federal
Income Tax Consequences.” Each U.S. shareholder should consult its own tax advisors regarding the PFIC rules and the U.S.
federal income tax consequences of the acquisition, ownership, and disposition of common shares.



Penny Stock Rules



The Company’s securities may be subject
to penny stock regulations.



The SEC has adopted Rule 15g-9 which generally
defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to certain exceptions. The penny stock rules impose additional sales practice
requirements on broker-dealers who sell to persons other than established customers and “accredited investors.” The
term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with
a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document in a form prepared by the SEC, which provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for
the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing
the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given
to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to
a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock
that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade
the Company’s securities.



Item 4.
Information on the Company



A. History and Development of the
Company



The Company was incorporated in British
Columbia, Canada, on December 16, 1965 under the former 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 then new Business Corporations
Act (British Columbia).



20







The Company's head office, which is also
its registered and records office, is located at Suite 1710, 650 West Georgia Street, Vancouver, British Columbia, Canada V6B 4N9.



The Company’s shareholders passed
a resolution to amend the Company’s 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.



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 OTCQB 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
the development of the Prairie Creek property (the “Prairie Creek Property”, “Prairie Creek Project” or
“Prairie Creek Mine”) in the Northwest Territories, Canada and the exploration of base metal properties in Newfoundland
and Labrador, Canada.



The Prairie Creek Property contains a zinc/lead/silver
mineral resource located approximately 500 kilometres west of Yellowknife in the Northwest Territories, Canada. The Prairie Creek
Mine already has extensive infrastructure in place including five kilometres of underground workings on three levels, a 1,000 tonne
per day mill, a fleet of heavy duty and light duty surface vehicles, three surface exploration diamond drills, camp accommodation,
maintenance and water treatment facilities and a 1,000 long gravel metre airstrip.



Over the past seven years Canadian Zinc
has successfully completed six environmental assessments and obtained all the significant regulatory permits and social licences
required to complete construction and development at the mine site and a winter access road to allow commencement of mining and
milling at Prairie Creek. An environmental assessment for the permit of an all season road into Prairie Creek is currently underway.



During 2015 an underground exploration
program at Prairie Creek successfully increased resources with total Measured and Indicated Resource tonnages increased by 32%
to 8.7 million tonnes at combined grade of approximately 19% Pb and Zn plus 136 g/t Ag, while total Inferred Resource tonnages
remained relatively unchanged.



An updated Pre-Feasibility
Study, based on optimization work completed over the past three years, was completed in March 2016 and indicates a Pre Tax
Net Present Value, using an 8% discount of $509 million, with an internal rate of return of 32.0% and Post-tax Net Present
Value (“NPV”), using an 8% discount, of $302 million, with a post-tax internal rate of return (“IRR”)
of 26% with an initial mine life of 17 years and payback period of three years. The updated study indicates average annual
production of 60,000t of zinc concentrate and 55,000t of lead concentrate containing 86M lbs of zinc, 82M lbs of
lead and 1.7M ounces of silver, yielding average annual after tax earnings before interest taxes depreciation and
amortization (“EBITDA”) of $90M per year and $1.4 billion over the 17 year life of the Project.



Canadian Zinc’s primary objective
is to bring the Prairie Creek Mine into production at the earliest opportunity and in pursuit of that objective to secure the necessary
financing to put the Project into production.



Canadian Zinc also owns an extensive land
package in central Newfoundland, Canada, with known lead/zinc deposits and extensive exploration potential, which includes the
South Tally Pond project, which hosts the Lemarchant deposit, the Tulks South project, which hosts the Boomerang and Domino deposits,
and the Long Lake project.



The Company’s exploration strategy
in Newfoundland is to continue to build on its existing polymetallic resource base with the aim of developing either a stand-alone
mine, similar to the past-producing mine at Buchans or the Duck Pond mine, or a number of smaller deposits that could be developed
simultaneously and processed in a central milling facility.



21









Three Year History



Throughout the years 2013, 2014 and 2015,
the Company’s principal focus has been its efforts to advance the Prairie Creek Project towards completion of development
and subsequent production.



2012 Preliminary Feasibility
Study







In June 2012 a Preliminary Feasibility
Study (“2012 PFS” or “2012 Preliminary Feasibility Study”) was prepared by SNC-Lavalin Inc. (“SNC”
or “SNC-Lavalin”) of Vancouver and a corresponding technical report dated effective June 15, 2012 was filed on SEDAR
on August 9, 2012. Such report was revised to incorporate post-tax results and was filed on SEDAR on July 23, 2014. The revised
report (the “2012 AMC Technical Report”) by AMC Mining Consultants (Canada) Ltd. is titled “Prairie Creek Property,
Northwest Territories, Canada, Technical Report for Canadian Zinc Corporation”. The Qualified Persons responsible are J.
M. Shannon, P. Geo., AMC Mining Consultants Ltd.; D. Nussipakynova, P. Geo., AMC Mining Consultants Ltd.; JB Hancock, P. Eng.,
Barrie Hancock & Associates Inc.; and F. Sveinson, P. Eng., SNC-Lavalin Inc.





The 2012 PFS included a number of recommendations
for further work and studies to optimize the Prairie Creek Project, including detailed mine planning, construction engineering,
transport efficiencies, reducing start-up time and addressing working capital requirements.



Optimization Studies



In order to address the recommendations
of the 2012 PFS, and move the Prairie Creek Project towards full feasibility for financing, Canadian Zinc embarked on a series
of optimization projects in late 2013, which continued throughout 2014 and into 2015. The main objectives have been to improve
the project economics by increasing the mine life; defining, with feasibility level accuracy, the capital cost required to place
the mine into production, refining the projected costs to operate the mine; and developing a transportation plan and marketing
strategy for all of the Prairie Creek concentrate production.



New Resource Estimate



During 2014, the Company engaged AMC Mining
Consultants (“AMC”) to undertake an underground optimization study of the mine with a view to reducing the initial
cost of mine development, improving the mining methods, minimize mine operating costs and incorporate results of recent exploration
drilling programs into an updated mineral resource estimate. AMC also undertook a number of underground mine studies, including
a geotechnical assessment to determine the optimum mining methods for use in the design of the new mine plan. Underground ventilation
and backfill studies were also completed.



An updated mineral resource estimate, completed
by AMC in March 2015 demonstrated an increase in overall resource tonnages in the Indicated and the Inferred categories. The resource
estimate was based on a newly constructed and revised and more detailed geological wireframe block model, developed over the previous
year, which defines and constrains the mineralized system for inclusion in the new mine plan. The March 2015 resource estimate
also included results from additional drilling and underground sampling not included in previous estimates.



Following completion of the 2015 underground
exploration program a new mineral resource estimate was completed by AMC Mining Consultants in September 2015, which
demonstrated an increase in overall resource tonnages in the Indicated and the Inferred categories.



| | · | Total Measured and Indicated Resource tonnages increased by 32% to 8.7 million tonnes at combined
grade of approximately 19% Pb and Zn plus 136 g/t Ag.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Total Inferred Resource tonnages remained relatively unchanged with an increase in Stockwork replacing
upgraded Main Quartz Vein resource.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



The September 2015 Prairie Creek mineral
resource estimate was completed by AMC [Gregory Z. Mosher P.Geo., Qualified Persons as defined by NI 43-101] and reported in the
Company’s September 17, 2015 press release. AMC also completed the previous mineral resource estimates in 2012 and March
2015.



22









2016 Preliminary Feasibility
Study



In March 2016, a Preliminary Feasibility
Study (“PFS”, “2016 PFS” or “Preliminary Feasibility Study”) was completed by AMC Mining Consultants
(Canada) Ltd., and Tetra Tech Inc. A new Technical Report entitled Prairie Creek Property Prefeasibility Update NI 43-101 Technical
Reporthas been compiled in accordance with National Instrument 43-101 Standards for Disclosure for Mineral Projects
(“NI 43-101”) to provide the results of the 2016 PFS and has been filed on SEDAR and EDGAR.





Exploration and Site Programs



The Company conducted surface exploration drill programs; site maintenance and facility upgrade programs
during 2013. In October 2014, the Company awarded an underground exploration and development program to Procon Mining and Tunneling
Ltd. (“Procon”) and undertook the first stage of the program that included dewatering and re-installation of electrical
and ventilation services to the 650 metre-long decline tunnel located at the end of the 870m underground level. In 2015, Canadian
Zinc carried out an underground exploration diamond drill program at the Prairie Creek Mine totaling 5,484 metres of diamond drill
coring in 21 drill holes. The drill program was completed in July 2016.





The results of the 2015 underground
exploration drilling program are considered very positive, with all holes intercepting the MQV structure and/or Stockwork mineralization,
with some excellent grades and widths. The objectives of testing for new areas of mineralization in proximity to the existing
underground workings and increasing the projected life of the mine by converting part of the currently Inferred Resource to an
Indicated category were both achieved.





Concentrate sale arrangements



On March 3, 2016 Canadian Zinc announced
it had signed agreements with Korea Zinc and Boliden for the sale of zinc and lead concentrates. These offtake arrangements with
two of the pre-eminent smelting companies in the world, confirm the marketability of Prairie Creek’s zinc and lead concentrates.



These sale agreements will represent all
of the planned production of zinc concentrate and about half of the planned production of lead concentrate for the first five years
of operation at the Prairie Creek Mine. It is expected that shipments will be made from the Port of Vancouver with the exact shipping
schedule and lot sizes in each delivery to be mutually agreed within the project’s shipping season.



Permitting at Prairie Creek



On December 8, 2011, the Mackenzie Valley
Environmental Impact Review Board (the “Review Board”) issued its Report of Environmental Assessment and Reasons
for Decision (the “EA Report”) for the Company’s proposed Prairie Creek Mine in which it concluded that the
proposed development of the Prairie Creek Mine is not likely to have any significant adverse impacts on the environment or to be
a cause for significant public concern; that an environmental impact review of this proposed development is not necessary; and
that the proposed Prairie Creek Mine project should proceed to the regulatory phase for approvals by the Water Board.



In June 2013, the MVLWB issued Land Use
Permit MV2008D0014 which permits Canadian Zinc to extract ore and waste rock from the Prairie Creek Mine, operate a flotation mill
concentrator to produce zinc and lead concentrates, create a waste rock facility, and refurbish and develop site facilities in
support of the mining operation, along with the eventual closure and reclamation of the mine site.



In September 2013, the Minister of Aboriginal
Affairs and Northern Development Canada (“AANDC”), approved and signed the Type “A” Water Licence for the
Prairie Creek Mine in the Northwest Territories, Canada. The Type “A” Water Licence, MV2008L2-002, was issued by the
Water Board on September 24, 2013 and entitles Canadian Zinc to use water, dewater the underground mine for the purposes of mining
and to dispose of waste for mining and milling.





In April 2014, Canadian Zinc made application
to the MVLWB and Parks Canada for permits to construct, maintain and operate an all season road from the Mine to the Liard Highway.
The MVLWB referred the applications to the Mackenzie Valley Environmental Impact Review Board (“MVRB”) in May 2014
for environmental assessment. In June 2014, the Company presented its Developer’s scoping document to local communities
and organizations. In September 2014, the MVRB issued the final Terms of Reference and the Company submitted the Developer’s
Assessment Report to the MVRB in April 2015.







23







In April 2015, Canadian Zinc submitted
its Developer's Assessment Report (“DAR”) to the MVRB. The MVRB completed a preliminary review of the DAR in
response to which the Company provided supplementary information to the MVRB partly in the form of a comprehensive DAR Addendum,
which was submitted to the MVRB in September 2015 and followed by additional Terrain Analysis data which was submitted in November
2015. The Review Board concluded that the environmental assessment could proceed on existing information but requested some additional
information which was subsequently submitted.



In February 2016, the Company received
Information requests from interested parties which the Company is in the process of responding to. Once all responses to the information
requests are submitted a Technical Session will be scheduled and held in Yellowknife. The Company anticipates the environmental
assessment process for this all season road application will take most of 2016 to complete.



In June 2015, the Mackenzie Valley Land
and Water Board approved the Company’s application that the Type “A” Water Licence be held in abeyance until
more certainty develops around the actual commencement of construction and the mine development schedule and also approved the
Company’s applications for amendments to the timing schedules of the various reclamation security deposits to be provided
under the Water Licence and the Land Use Permit. The Company, accordingly, deposited a total of $1.55 million as security with
the Government of the Northwest Territories in August of 2015 to increase the financial assurance relating to current reclamation
and closure obligations of the Prairie Creek Mine site as it now exists with its current infrastructure under the Company’s
existing surface leases, land use permits and Type “B” Water Licence.



In November 2015, Canadian Zinc and Parks
Canada signed a Memorandum of Understanding Phase III (“MOU”) regarding the operation and development of the
Prairie Creek Mine and the management of Nahanni National Park Reserve. The Phase III MOU, which is valid for five years from November
2015, renews the previous MOUs signed between the Parties in 2008 and 2012.



In the renewed MOU, Parks Canada and Canadian
Zinc agree to work collaboratively, within their respective areas of responsibility, authority and jurisdiction, to achieve their
respective goals of managing Nahanni National Park Reserve and an operating Prairie Creek Mine.



In the renewed MOU, Canadian Zinc and Parks
Canada further agree to make every reasonable effort to address issues of common interest and build a strong working relationship,
including convening a Technical Team, which will, among other things, better identify, define and consider issues of common interest
including, among other things, development and use of the access to and from the Prairie Creek Mine through Nahanni National Park
Reserve and operation of the Prairie Creek Mine.



Lead / Zinc Exploration in
Newfoundland



Canadian
Zinc owns an extensive land package in central Newfoundland that includesthree VMS projects, each with defined deposits,
which are being explored by Canadian Zinc. Key deposits on each project are listed below:



South Tally Pond Project
- Lemarchant deposit; Indicated Mineral Resource of 1.24 million tonnes grading 5.4% zinc, 0.5% copper, 1.2% lead, 1.0 g/t gold
and 59.27 g/t silver plus an additional Inferred Mineral Resource of 1.34 million tonnes grading 3.7% zinc, 0.4% copper, 0.9% lead,
1.0 g/t gold and 50.4 g/t silver (Giroux Consultants 2012);



Tulks South Project -
Boomerang-Domino deposit: Indicated Mineral Resource of 1.36 million tonnes grading 7.1% zinc, 3.0% lead, 0.5% copper, 110 g/t
silver and 1.7 g/t gold plus an additional Inferred Mineral Resource of 0.69 million tonnes grading 6.5% zinc, 2.8% lead, 0.4%
copper, 95 g/t silver and 1.0 g/t gold (Snowden 2007); and the Hurricane and Tulks East prospects; and





24







Long Lake Project - Long
Lake deposit: Indicated Mineral Resource of 0.48 million tonnes grading 7.8% zinc, 1.6% lead, 0.97% copper, 49 g/t silver and 0.57
g/t gold plus an additional Inferred Mineral Resource of 78,000 tonnes grading 5.7% zinc, 1.2% lead, 0.7% copper, 34 g/t silver
and 0.48 g/t gold (SRK, 2012).



During 2014, the Company conducted three
drill programs on the South Tally Pond; Tulks South and Long Lake projects in central Newfoundland. The 2014 drill programs in
central Newfoundland were successful, and considered very encouraging, in that 20 of the 27 holes intersected the targeted mineralization,
including some massive sulphide intercepts ranging up to 25% zinc and 15% lead.



The Company’s exploration strategy
in Newfoundland is to continue to build on its existing polymetallic resource base with the aim of developing either a stand-alone
mine, similar to the past-producing mine at Buchans or the Duck Pond Mine, or a number of smaller deposits that could be developed
simultaneously and processed in a central milling facility.





On June 30, 2015, the Company entered
into a collaboration agreement with Buchans Minerals Corporation ("Buchans Minerals"), a wholly owned subsidiary of
Minco Plc (AIM: MIO), whereby the two Companies will share research data on their respective central Newfoundland Zn-Pb-Cu-Ag-Au
deposits. The collaboration agreement is focused on seven VMS deposits located in central Newfoundland. Four of the deposits are
held the Company (Lemarchant, Boomerang-Domino, Tulks East, and Long Lake) and three of the deposits are held by Buchans Minerals
(Bobbys Pond, Daniels Pond and Tulks Hill).



The seven deposits have demonstrated
resources of various sizes and quality, are all located near the communities of Millertown and Buchans, NL and within trucking
distance (30-90 km) of the recently closed Duck Pond Cu-Zn Mine. Individually at this time, the various deposits are not large
enough to support stand-alone operations, but could potentially be developed with improving economic factors and by utilizing
a central mill facility.



The intent and objective of the research
is to determine the technical and economic viability of developing the companies' deposits into producing operations by utilizing
a central milling facility. The concept is based on the potential that collectively, the satellite deposits can be economically
mined, pre-concentrated, trucked and then milled simultaneously or sequentially through a central mill.



In conjunction with the collaboration
agreement, the Company was awarded research funding by the Research & Development Corporation of Newfoundland and Labrador
("RDC") in December, 2015. The funding was provided to undertake a research program to complete physical and
metallurgical bench scale studies on the seven VMS deposits located in central Newfoundland. The RDC is providing funding of $535,000
for the project through the GeoEXPLORE Industry-led R&D Technology Development and Demonstration Program. The total cost of
the research project is estimated at $735,000 with Buchans Minerals and the Company each contributing up to $100,000.





Acquisitions



On September 24, 2012, Canadian Zinc acquired
all of the outstanding common shares of Paragon Minerals Corporation in exchange for common shares of Canadian Zinc on the basis
of 0.136 of a share of Canadian Zinc for each share of Paragon.



On December 20, 2013, Canadian Zinc acquired
all of the outstanding common shares of Messina Minerals Inc. in exchange for 2,132,714 common shares of Canadian Zinc by way of
a statutory plan of arrangement on the basis of one share of Canadian Zinc for 5.9 shares of Messina.



Financing





In May 2013, Canadian Zinc raised $10.3
million by the sale to Sandstorm Metals & Energy Ltd. (“Sandstorm”) of a 1.2% net smelter return royalty (“NSR”)
on the Prairie Creek Mine. In addition, as part of the agreement, Sandstorm has granted Canadian Zinc the option, for a period
of 30 months, to repurchase 100% of the NSR without premium or penalty for US$10 million, if Canadian Zinc enters into a metal
stream agreement with Sandstorm under which Sandstorm will provide Canadian Zinc with an upfront deposit of not less than US$90
million to be used to finance part of the capital cost to develop the Prairie Creek Mine. Canadian Zinc has granted Sandstorm
with a right of first refusal on any future royalty or stream financing for the Prairie Creek Project.







25







The Company does not consider the 1.2%
net smelter return royalty sold in May of 2013 to have a material impact on the economic analysis in the 2012 Preliminary Feasibility
Study. The Company expects that the 1.2% net smelter return royalty will result in a reduction of 2.4% in annual earnings before
interest, taxes, depreciation and amortization.



In August, 2013, the Company issued by
way of a bought deal private placement 6,460,000 flow-through shares on a brokered basis at $0.62 per share, for aggregate gross
proceeds of $4,005,000.



In July 2014, Canadian Zinc raised $15.75
million through the sale of 28,572,000 Units priced at $0.35 per Unit and 15,134,000 common shares, which qualify as “flow-through”
shares, at a price of $0.38 per flow-through share in a bought deal financing through a syndicate of underwriters led by Dundee
Securities Ltd. and including Canaccord Genuity and Paradigm Capital. Each Unit is composed of one common share and a one half
of one common share purchase warrant. Each full warrant entitles the holder to purchase one common share at an exercise price of
$0.50 on or before July 31, 2017.



The proceeds of the Unit financing were
used to initiate underground development at the Prairie Creek mine, to complete ongoing optimization studies and to undertake engineering
and preliminary procurement. The net proceeds of the flow-through financing were used to undertake exploration program on the Prairie
Creek Property.



The Company undertook no equity financing
during 2015.



Outlook



Canadian Zinc’s focus for 2016 will
be to continue to advance the Prairie Creek Mine towards production.



The updated 2016 Pre-Feasibility Study,
indicates a robust project at consensus forecasts for the long term prices of lead and zinc and there is good potential for additional
project optimization, enhanced economics and further extending the mine life.



The 2016 PFS, with the Base Case economic
model, indicates a Pre Tax Net Present Value, using an 8% discount of $509 million, with an internal rate of return of 32.0% and
Post-tax Net Present Value (“NPV”), using an 8% discount, of $302 million, and a post-tax internal rate of return (“IRR”)
of 26% with an initial mine life of 17 years and payback period of three years.



The development of the Prairie Creek Mine
will require substantial financing. The pre-production capital cost has been estimated at a total of $244 million including a contingency
of $28 million. Several commercial banks have expressed indicative interest in providing senior, secured project financing for
the Project. It is expected that the 2016 PFS, and the financial model, will be shared with these banks to solicit indicative terms
of financing. In parallel to bank financing, alternative funding structures will also be explored with royalty and streaming finance
providers, who have expressed an indicative interest to provide a structured funding package. These could include royalty financing,
stream financing, commodity related financing or other financing instruments.



At December 31, 2015, Canadian Zinc
had working capital of $2.48 million and expects it will be able to meet its minimum commitments for 2016. Canadian Zinc does
not currently generate any cash flow from its operations and will need to generate additional financial resources in the short
term to fund its corporate administration costs and working capital and to continue the development of the Prairie Creek Project
and in the longer term to put the Prairie Creek Mine into production. The ability of the Company to carry out its planned business
objectives is dependent on its ability to raise adequate financing There is a risk that additional financing will not be available
to the Company on a timely basis or on acceptable terms. These conditions indicate the existence of material uncertainties which
cast significant doubt about the Company’s ability to continue as a going concern. The Company is currently evaluating various
opportunities and seeking additional sources of financing. There is no assurance that such financing will be available on a timely
basis or on acceptable terms. Careful management and preservation of cash is a top priority. Site programs have been reduced to
a minimum. Cost reduction measures have been implemented across the Company, including reductions in staff, corporate salaries
and expenses and directors fees.





26







The long term outlook for lead and zinc
remains very positive and, supported by the positive results of the 2016 PFS, Canadian Zinc will continue to evaluate all alternatives
and possibilities for raising the senior financing necessary to complete the development and construction and put the Prairie Creek
Mine into production. However the ability to raise financing is impacted by conditions beyond the control of the Company, including
depressed commodity prices, continued uncertainty in the capital markets and the current lack of investor interest in the resource
sector.



B. Business Overview



The Company’s principal focus is
exploration and development of the Prairie Creek Property (a zinc/lead/silver, partially developed property) located approximately
500 kilometres west of Yellowknife in the Northwest Territories, Canada.



Canadian Zinc’s primary objective
is to bring the Prairie Creek Mine into production at the earliest opportunity and in pursuit of that objective to secure the necessary
financing to rehabilitate, upgrade and modernize the Mine, including the processing plant and other site infrastructure.



Canadian Zinc also owns an extensive mineral
land package in central Newfoundland covering three large VMS projects with known mineral deposits and excellent exploration potential,
including the South Tally Pond project, which hosts the Lemarchant deposit; the Tulks South project, which hosts the Boomerang
and Domino deposits and the Hurricane and Tulks East prospects; and the Long Lake project.



The Company’s exploration strategy
in Newfoundland is to continue to build on its existing polymetallic resource base with the aim of developing either a stand-alone
mine, similar to the past-producing mine at Buchans or the Duck Pond mine, or a number of smaller deposits that could be developed
simultaneously and processed in a central milling facility.



The Company is considered to be in the
exploration and development stage given that its exploration properties are not yet in production and, to date, have not earned
any significant revenues. The recoverability of amounts shown for exploration and evaluation assets shown on the Company’s
balance sheet is dependent on the existence of economically recoverable reserves, obtaining and/or maintaining the necessary permits
to operate a mine, obtaining the financing to complete construction and development and future profitable mine production.



The market price of metals and minerals
is volatile and cannot be controlled. Metal prices have fluctuated widely, particularly in recent years. If the price of metals
and minerals should drop significantly, the economic prospects for the Prairie Creek Project could be significantly reduced or
rendered uneconomic. There is no assurance that, even if commercial quantities of ore are delineated, a profitable market may exist
for the sale of products, including concentrates from that ore. Factors beyond the control of the Company may affect the marketability
of any minerals discovered or concentrates produced. The marketability of minerals is affected by numerous 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.



27







C. Organizational Structure



At the end of its most recently completed
financial year the Company structure includes a wholly-owned subsidiary Paragon Minerals Corporation (“Paragon”), which
is organized under the laws of Canada and a wholly-owned subsidiary Messina Minerals Inc. (“Messina”), which is organized
under the laws of British Columbia. (See “General Development of the Business – Company Acquisitions”) The following
chart shows the intercorporate relationship between the Company and its subsidiaries:







D. Property, Plant and Equipment



The Company presently maintains offices
in Vancouver, Fort Simpson and Toronto (all in Canada). The Company’s head office is located in Vancouver and is approximately
3,000 square feet in size. The Company presently maintains office space in Fort Simpson which supports a Community Liaison Director
and acts as an information source on Prairie Creek for the local community to access. In addition the office can receive any questions,
issues or concerns from the community about the development. The Company’s Toronto office is maintained for the use of the
Chief Executive Officer and Vice-president – Investor Relations.



Mineral Properties



History
of Prairie Creek – the Company’s Principal Property



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 by Cadillac on a number of zones and underground exploration commenced. The 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.



28









In 1991, Nanisivik Mines Limited (an unaffiliated
third party) acquired the property through the bankruptcy proceedings. Pursuant to an August 23, 1991 Option Agreement, the Company
entered into an option to acquire a 60% interest in the Prairie Creek Property from Nanisivik Mines Ltd. Subsequently, pursuant
to a March 29, 1993 Asset Purchase Agreement that superseded the Option Agreement, the Company acquired a 100% interest in the
Prairie Creek Property, and a 60% interest in the plant and equipment, subject to a net smelter royalty of 2% in favour of Titan
Pacific Resources Ltd. which as successor to Titan held the remaining 40% interest. 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 Scoping Study indicated
the feasibility of a mining and milling operation on the site and identified a number of different development and production scenarios.



In 2006 and 2007, the Company carried out
an underground exploration program, driving a decline about 550 metres and completing approximately 10,600 metres of underground
drilling. In October 2007, an updated Technical Report (the “Minefill 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 Minefill Report verifies and confirmed the previous historical
resource estimate completed by MRDI in 1998 and notes significant upgrades in resource categories. The Minefill 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 Minefill Report confirms that there is also 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. This positive report led the Company to submit a formal application to the regulatory authorities in 2008 to secure
the necessary licences and permits required for an operating mine at Prairie Creek.



As noted above, a Preliminary Feasibility
Study prepared by SNC-Lavalin Inc. of Vancouver was submitted to the Company in June 2012 and a corresponding Technical Report
dated effective June 15, 2012 was filed on SEDAR on August 9, 2012. Such report was revised to incorporate post-tax results and
was filed on SEDAR on July 23, 2014. The Preliminary Feasibility Study was based on a Mineral Reserve of 5.2 million tonnes averaging
9.4% zinc, 9.5% lead and 151 g/t silver, calculated from a AMC Mineral Resource estimate of June 2012 of 5.4 million tonnes averaging
10.8% zinc, 10.2% lead and 160 g/t silver and an Inferred Resource of 6.2 million tonnes averaging 14.5% zinc, 11.5% lead, 0.57%
copper and 229 g/t silver.



An updated Mineral Resource estimate completed
in March 2015 by AMC Mining Consultants (Canada) Ltd. (Gregory Z. Mosher P.Geo. and J. Morton Shannon P.Geo., Qualified Persons
(“QP”), as defined by National Instrument 43-101) demonstrated an increase in overall Mineral Resource tonnages in
the Indicated category and in the Inferred category. The new Mineral Resource updates the previous Mineral Resource Estimate of
June 2012.



In 2015, Canadian Zinc completed its underground
exploration diamond drill program at the Prairie Creek Mine totaling 5,484 metres of diamond drill coring in 21 drill holes.





The results of the 2015 underground
exploration drilling program are considered very positive, with all holes intercepting the MQV structure and/or Stockwork mineralization,
with some excellent grades and widths. The objectives of testing for new areas of mineralization in proximity to the existing
underground workings and increasing the projected life of the mine by converting part of the currently Inferred Resource to an
Indicated category have both been achieved.





Following completion of the 2015 underground
exploration program a new mineral resource estimate was completed by AMC Mining Consultants in September 2015, which demonstrated
an increase in overall resource tonnages in the Indicated and the Inferred categories.



| | · | Total Measured and Indicated Resource tonnages increased by 32% to 8.7 million tonnes at combined
grade of approximately 19% Pb and Zn plus 136 g/t Ag.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Total Inferred Resource tonnages remained relatively unchanged with an increase in Stockwork replacing
upgraded Main Quartz Vein resource.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



29







The September 2015 Prairie Creek mineral
resource estimate was completed by AMC [Gregory Z. Mosher P.Geo., Qualified Persons as defined by NI 43-101] and reported in the
Company’s September 17, 2015 press release. AMC also completed the previous mineral resource estimates in 2012 and March
2015.





An updated 2016 Prefeasibility Study,
based on optimization work undertaken over the prior three years, was completed by AMC Mining Consultants (Canada) Ltd., of Vancouver,
Canada, in conjunction with Tetra Tech Inc. (Tetra Tech), Vancouver, on behalf of Canadian Zinc Corporation, in March 2016. The
2016 Prefeasibility Study supersedes the 2012 Prefeasibility Study completed by SNC Lavalin.



Permitting



A Project Description Report (“PDR”)
was prepared and filed with the MVLWB 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.



After review of the PDR, the MVLWB in August
2008 referred the application to Environmental Assessment under the jurisdiction of the Review Board. In March 2010, the Company
submitted its Developer’s Assessment Report to the Review Board.



In December 2011, The Review Board issued
its Report of Environmental Assessment and Reasons for Decision for Canadian Zinc’s proposed Prairie Creek Mine. The
Review Board concluded the proposed development is not likely to have any significant adverse impacts on the environment or to
be a cause for significant public concern, an environmental impact review of the proposed development is not necessary and the
project should proceed to the regulatory phase for approvals. In June 2012, the Minister of Aboriginal Affairs and Northern Development
advised the Review Board that an environmental impact review of the proposed development of the Prairie Creek Mine is not necessary.



In a decision dated June 8, 2012, the Minister
of Aboriginal Affairs and Northern Development, on behalf of the responsible Ministers with jurisdiction, including the Minister
of the Environment, the Minister of Fisheries and Oceans, the Minister of Environment and Natural Resources, the Minister of Transport
Canada and the Minister of Environment and Natural Resources of Government of the Northwest Territories, advised the Review Board
of the decision that the Ministers will not order an environmental impact review of the proposed development of the Prairie Creek
Mine, nor will they refer the proposal to the Minister of the Environment for a Canadian Environmental Assessment Act joint panel
review.



In January 2012, following the completion
of the Environmental Assessment in December 2011, the Water Board commenced the regulatory process for the issue of a Type “A”
Water Licence and Land Use Permits for the operation of the Prairie Creek Mine. In February 2012, the Company submitted a Consolidated
Project Description (“CPD”), highlighting the changes that resulted from commitments made by Canadian Zinc during the
EA process.



In June 2013, the MVLWB issued Land Use
Permit MV2008D0014, which permits Canadian Zinc to extract ore and waste rock from the Prairie Creek Mine, operate a flotation
mill concentrator to produce zinc and lead concentrates, create a waste rock facility, and refurbish and develop site facilities
in support of the mining operation, along with the eventual closure and reclamation of the mine site. This permit, which is valid
for a term of five years, with an optional two year extension, is subject to numerous conditions including the requirement to deposit
with the Minister of Aboriginal Affairs and Northern Development Canada security of $3 million within ninety days of the issue
of the permit and an additional $1 million prior to the commencement of construction upgrades to the mill.



Also in June 2013, the MVLWB issued LUP
MV2008T0012 which permits Canadian Zinc to construct and operate the Liard Transfer Facility to be situated near the junction of
the existing Prairie Creek Mine access road and the Liard Highway. The Liard Transfer Facility is a staging area at the south end
of the winter access road designed to temporarily store outbound concentrate and inbound supplies. This permit is valid for a term
of five years, with an optional two year extension, and provides for the posting of security in the total amount of $315,000 at
various stages of activity under that permit.





30







In September 2013, the Minister of Aboriginal
Affairs and Northern Development Canada approved and signed the Type “A” Water Licence for the Prairie Creek Mine in
the Northwest Territories, Canada. The Type “A” Water Licence, MV2008L2-002, was issued by the Water Board in September,
2013.



The Type “A” Water Licence
is valid for a term of seven years and entitles Canadian Zinc to use water, dewater the underground mine for the purposes of mining
and to dispose of waste for mining and milling. The Licence is subject to numerous conditions, including the requirement to post,
in stages and maintain security for future reclamation with the Minister of Aboriginal Affairs and Northern Development Canada
totaling $13.07 million on an original schedule of $3 million within ninety days of the effective date of the licence, $5 million
prior to extracting waste rock from the underground mine and $5.07 million prior to commencing milling.



The Type “A” Water Licence
and the Land Use Permit are the key regulatory permits needed for the construction, development and operation of the Prairie Creek
Mine. The successful completion of the regulatory process marked the culmination of many years of effort by the Canadian Zinc team,
the MVLWB, the various government agencies and all the stakeholders in the region. The positive recommendation of the Water Board
demonstrates that a broad consensus has been achieved through the process.



Copies of the Type “A” Water
Licence and Land Use Permit and associated documents may be inspected on the Water Board website (Year 2008, Canadian Zinc MV2008L2-0002)
and under the Company’s profile on SEDAR.



On December 22, 2013, the Company filed
an application to the MVLWB for amendments to the timing schedules of the various security deposits to be provided to the Minister
of of Aboriginal Affairs and Northern Development Canada under the Type “A” Water Licence and the Land Use Permit.
The Department of Aboriginal Affairs and Northern Development Canada has confirmed to the MVLWB that the Board’s assessment
of the Company’s liability for the cost of closure and reclamation is not applicable until a new lease for production replaces the
existing care and maintenance surface lease.



In August 2014, Canadian Zinc submitted
an amended development schedule for the Prairie Creek Mine to the Mackenzie Valley Land and Water Board and this was followed up
by an application to the MVLWB in October 2014 requesting that its Type “A” Water Licence be held in abeyance until
more certainty develops around the actual commencement of construction and the mine development schedule.



In June 2015, the Mackenzie Valley Land
and Water Board approved the Company’s application that the Type “A” Water Licence be held in abeyance until
more certainty develops around the actual commencement of construction and the mine development schedule and also approved the
Company’s applications for amendments to the timing schedules of the various reclamation security deposits to be provided
under the Water Licence and the Land Use Permit. The Company, accordingly, deposited a total of $1.55 million as security with
the Government of the Northwest Territories in August of 2015 to increase the financial assurance relating to current reclamation
and closure obligations of the Prairie Creek Mine site as it now exists with its current infrastructure under the Company’s
existing surface leases, land use permits and Type “B” Water Licence.



Road Land
Use Permits and Water Licences



Nahanni National Park Reserve (“NNPR”)
was expanded in 2009 and now encircles the Prairie Creek Property; however the Prairie Creek Property was excluded from the expansion
area and is not part of the Park. The park expansion area now includes a significant portion of the Prairie Creek Access Road route,
however, when NNPR was expanded the Canada National Parks Act was amended to enable the Minister of the Environment to enter
into leases or licences of occupation of, and easements over, public lands situated in the expansion area for the purposes of a
mining access road leading the Prairie Creek area, including the sites of storage and other facilities connected with that road.



The applications for land use permits,
and water licences relating to the road access are multi-jurisdictional and the Company applied to both to the Water Board and
Parks Canada for road related permits and licences.



In January 2013, the MVLWB issued LUP MV2012F007
for a period of five years, which permits the construction, maintenance, operation and use of the winter road connecting the Prairie
Creek Mine to the Liard Highway. This permit allows the outbound transportation of the zinc and lead concentrates to be produced
at the mine and the inbound transportation of fuel and other supplies during the actual operation of the Prairie Creek Mine. This
road permit incorporates realignment of the original route which will improve access and further reduce potential environmental
impact and provides for the posting of security of $220,000 prior to the commencement of operations.



31







At the same time the Water Board also issued
a Type “B” Water LicenceMV2012L1-0005, valid for a period of seven years commencing January 2013, which permits
the limited use of water and disposal of waste for road construction, maintenance, and operational activities and provides for
the posting of security of $220,000. This Land Use Permit and Water Licence apply to the portion of the winter road traversing
Crown Land which is under the jurisdiction of the Water Board. There are two sections to this portion of the road, the first being
17 kilometres of road from the mine site to the point where the road enters the NNPR and the second, being 80 kilometres of road
from the eastern boundary of the NNPR to the Liard Highway.



In September 2013, the Company received
from Parks Canada permits Parks2012_W001 WL and Parks2012-L001 LUP, both valid for a period of five years valid until August 2018.
The permits authorize road access through the NNPR to connect sections of road outside the Park permitted by the MVLWB. In order
to ensure a harmonized regulatory process, the conditions in the Parks Canada permits largely mirror those in the Land Use Permits
previously issued to the Company by the MVLWB, in respect of that portion of the road that runs outside the NNPR. The Parks Canada
permits provide for the posting of security totaling approximately $2.57 million at various stages prior to the commencement of
operations of the road or construction of the transfer facilities.





Canadian Zinc holds all land use permits
and water licences required for the construction and operation of the entire 184 kilometre winter access road which connects the
Prairie Creek Mine to the Liard Highway and for the construction of two transfer and staging facilities along the road, one near
the Liard River crossing and the second inside the Park at about the half way mark. The access road, part of which passes over
Crown land and part through the expanded Nahanni National Park Reserve, is multi-jurisdictional and the Company has received from
both the Water Board and Parks Canada all necessary road related permits and licences related to their respective jurisdictions.





In April 2014, the Company submitted an
application to the MVLWB and to Parks Canada for Land Use Permits to permit the possible future upgrade of the winter access road
to all season use. The application for permits for an all season road is presently in Environmental Assessment before the Mackenzie
Valley Review Board. In June 2014, the Company presented a Developer’s scoping document to local communities and organizations.
In September 2014, the MVRB issued the final Terms of Reference and the Company submitted the Developer’s Assessment Report
to the MVRB in April 2015.



In April 2015, Canadian Zinc submitted
its Developer's Assessment Report (“DAR”) to the MVRB. The MVRB completed a preliminary review of the DAR in
response to which the Company provided supplementary information to the MVRB partly in the form of a comprehensive DAR Addendum,
which was submitted to the MVRB in September 2015 and followed by additional Terrain Analysis data which was submitted in November
2015. The Review Board concluded that the environmental assessment could proceed on existing information but requested some additional
information which was subsequently submitted. In February 2016, the Company received Information requests from interested parties
which the Company is in the process of responding to. Once all responses to the information requests are submitted a Technical
Session will be scheduled and held in Yellowknife.





An all season road would also have
the potential to reduce energy costs and would enable the consideration of more environmentally friendly alternative energy sources,
as local gas fields in the area may be producing LNG in the near future, which has the potential to reduce reliance on diesel
fuel. An all season road would also have environmental and safety benefits, in that with trucking spread pout over the eyar there
would be much less traffic volume and possible congestion in winter, which would lower the risk of any accidents or spills, and
would also provide the potential to promote tourism in the area and thus create long term benefits for the region.





Incorporation of an all season road for
future operations would have significant financial implications, both in additional capital cost but also in potential savings
and lower finance costs.



The Company anticipates the environmental
assessment process for this all season road application will take most of the year 2016 to complete.



32







2012 Preliminary
Feasibility Study





In June 2012, a Preliminary Feasibility
Study prepared by SNC-Lavalin Inc. of Vancouver was submitted to the Company. This report contains capital cost estimates for
the rehabilitation and upgrading of the mill, power plant and water treatment plant, and for new water storage ponds. It includes
an engineering procurement and construction management plan, as well as working cost estimates for mining, processing and transportation.
A comprehensive cash flow model was designed to estimate the economics of the proposed operation. The 2012 PFS indicated a pre-tax
NPV, using an 8% discount, of $253 million, with an IRR of 40.4% and payback period of three years, with an 11 year mine life,
and pre-production capital costs totaling $193 million. The report indicated a post-tax NPV of $155 million; with an IRR of 31.7%
and payback period of three years.





A Technical Report by AMC Mining Consultants
(Canada) Ltd. dated effective June 15, 2012 was filed on SEDAR on August 9, 2012, and subsequently filed on EDGAR, and revised
to incorporate post-tax results and filed on SEDAR on July 23, 2014. The revised report is titled “Prairie Creek Property,
Northwest Territories, Canada, Technical Report for Canadian Zinc Corporation”. The Qualified Persons responsible are J.
M. Shannon, P. Geo., AMC Mining Consultants Ltd.; D. Nussipakynova, P. Geo., AMC Mining Consultants Ltd.; JB Hancock, P. Eng.,
Barrie Hancock & Associates Inc.; and F. Sveinson, P. Eng., SNC-Lavalin Inc.



The Preliminary Feasibility Study was
based on a Mineral Reserve of 5.2 million tonnes averaging 9.4% zinc, 9.5% lead and 151 g/t silver, calculated from an AMC June
2012 Mineral Resource estimate of 5.4 million tonnes averaging 10.8% zinc and 10.2% lead with 160 g/t silver and an Inferred resource
of 6.2 million tonnes averaging 14.5% zinc,11.5% lead, 0.57% copper and 229 g/t silver (see AMC Technical Report filed on SEDAR).





Highlights of the 2012 Preliminary Feasibility
Study:



| | · | Pre-tax Net Present Value (“NPV”), using an 8% discount, of $253 million, with an internal
rate of return (“IRR”) of 40.4% and payback period of three years, based on base case metal price forecasts of $1.20/lb
for both zinc and lead and $28.00/oz silver, for the first two years of mine production during 2014/15, then reducing to long-term
prices of $1.00/lb zinc, $1.00/lb lead and $26.00/oz silver in 2016 and thereafter. Post-tax NPV resulted in an NPV of $155 million;
an IRR of 31.7% and payback period of three years.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Average annual earnings before interest taxes depreciation and amortization (“EBITDA”)
of $66 million per year and $686 million over the life of the Project.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 11 year mine life based exclusively on a defined mineral reserve of 5.2 million tonnes, grading
9.4% zinc and 9.5% lead, with 151 g/t silver.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------

| | · | Average annual production of 60,000 tonnes of zinc concentrate and 60,000 tonnes of lead concentrate
containing 76M lbs of zinc, 90M lbs of lead and 2.2M ounces of silver.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 100% underground operation with mining rates averaging 1,350 tpd, primarily utilizing the cut-
and-fill mining method and with paste backfill consuming 100% of the tailings stream generated from the 1,000 tpd milling process.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Pre-production capital costs, excluding contingency, is estimated to be $160 million of which $42
million will be incurred in year 1 and $118 million in year 2 with an additional contingency of $33 million.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Working capital is estimated at $41 million, which includes a $7 million contingency and the cost
and delivery of materials, supplies and fuel for the first season of operation in addition to the first three months of operating
expenditures, with the assumption the concentrate will be sold as produced.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Average life-of-mine (“LOM”) cash operating costs of ore mined (before transportation
costs) are estimated at $144/t and a LOM sustaining capital of $11 million. Transportation costs are estimated at $60/t of ore
mined for the LOM.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(All costs $CDN at par with
$US, t=tonne, g=gram, lbs=pounds, tpd=tonnes per day, intended level of accuracy of capital cost estimates are +/- 20%)



33







The 2012 Preliminary Feasibility Study
included a number of recommendations for further work and studies to optimize the Prairie Creek Project, including detailed mine
planning, construction engineering, transport efficiencies, reducing start-up time and addressing working capital requirements,
and specifically:



| | · | Undertaking additional drilling programs, particularly towards the north end of the deposit, to
increase the confidence level in the estimated resources and reserves and to identify additional resources.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Modifying the mine plan to include increased resources and identify areas of the mine amenable
to lower cost bulk mining methods.
| | - | ---------------------------------------------------------------------------------------------------------------------------------

| | · | Use of a form of longhole / sublevel stoping rather than cut and fill in zones of wider mineralization
which could reduce operating costs, increase mine productivity and allow for more tailings to be stored underground with less cement
required during backfill.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Examination of opportunities to improve efficiencies in transport, scheduling and logistics
| | - | -------------------------------------------------------------------------------------------

| | · | Review of opportunities for early completion of construction, engineering and mine development
programs to reduce start-up times required.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------

| | · | Undertaking geotechnical drilling to confirm ground support requirements and stability control
during operations.
| | - | -----------------------------------------------------------------------------------------------------------------

| | · | Preparation of a mine dewatering plan.
| | - | --------------------------------------



Optimization
2014/2015





In order to address the recommendations
of the 2012 PFS, and move the Prairie Creek Project towards full feasibility for financing, Canadian Zinc embarked on a series
of optimization projects in late 2013, which continued throughout 2014 and into 2015. The main objectives have been to improve
the project economics by increasing the mine life; defining, with feasibility level accuracy, the capital cost required to place
the mine into production, refining the projected costs to operate the mine; and developing a transportation plan and marketing
strategy for all of the Prairie Creek concentrate production.



An updated Prefeasibility Study, based
on optimization work completed over the past three years, was published in March 2016 and supersedes the 2012 Prefeasibility Study
completed by SNC Lavalin. The 2016 Prefeasibility Study was completed by AMC Mining Consultants (Canada) Ltd., and Tetratech Inc.
A new Technical Report has been compiled to summarize the PFS and supersedes the June 15, 2012 Technical Report (subsequently
revised July 23, 2014 and filed on SEDAR and EDGAR).





The 2016 PFS update was undertaken
to incorporate the increased resources and longer mine life derived from the 2015 underground exploration program, incorporation
of an all season road to access the mine, advanced engineering details and updated capital and operating costs and to follow up
on a number of other recommendations listed in the 2012 PFS.



New Mineral
Resource Estimates



During 2014, the Company engaged AMC Mining
Consultants to undertake an underground optimization study of the mine with a view to reducing the initial cost of mine development,
improving the mining methods, minimize mine operating costs and incorporate results of recent exploration drilling programs into
an updated mineral resource estimate. AMC also undertook a number of underground mine studies, including a geotechnical assessment
to determine the optimum mining methods for use in the design of the new mine plan, and underground ventilation and backfill studies
were also completed.



AMC also completed a geotechnical analysis
of the existing underground workings and concluded that longhole stoping methods were a viable and preferable mining method for
the project.



An updated mineral resource estimate, prepared
by AMC in March 2015 demonstrated an increase in overall resource tonnages in the Measured plus Indicated and in the Inferred categories.
The new resource estimate is based on a newly constructed and revised and more detailed geological wireframe block model, developed
over the previous year, which defines and constrains the mineralized system for inclusion in the new mine plan. The new resource
estimate also includes results from additional drilling and underground sampling not previously included.



34







| | · | Total Measured and Indicated Resource tonnages increased by 21% to 6.5 million tonnes at combined
grade of approximately 20% Pb and Zn with 150 g/t Ag, details of which include:
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | an 11% increase in Main Quartz Vein tonnage to 4.1 M tonnes grading 12.4% Pb, 11.2% Zn, 199 g/t
Ag;
| | - | ---------------------------------------------------------------------------------------------------

| | o | an increase in Stockwork tonnage to 1.4 M tonnes grading 4.0% Pb, 7.1% Zn, 63 g/t Ag from the previous
stockwork estimate of 410,000 tonnes grading 3.7% Pb, 7.7% Zn, 69g/t Ag;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | a more constrained classification of Stratabound mineralization has shifted the previously reported
tonnage from the Measured category to the Indicated category and decreased the tonnage by 17% to 1.1 M tonnes grading 5.4% Pb,
10.8% Zn, 55 g/t Ag.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Total Inferred Resource tonnages increased by 13% to 7.1 M tonnes grading 9.6% Pb, 11.7% Zn, 177
g/t Ag from 6.2 M tonnes grading 11.5% Pb; 14.5%Zn, 229 g/t Ag.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



Underground
Exploration Program 2014 / 2015



In 2015, Canadian Zinc completed its underground
exploration diamond drill program at the Prairie Creek Mine totaling 5,484 metres of diamond drill coring in 21 drill holes.



The mining contract for the initial underground
exploration and development program at the Prairie Creek Mine was awarded to Procon in October 2014.



The mining contract was awarded to Procon
following a tendering process which included a number of major mining contractors with the objective of optimising mine development
and operating costs related to the Prairie Creek Mine. This involved the creation of a comprehensive mine tender package and an
underground site visit to Prairie Creek by all prospective contractors, which led to tenders being developed by the contractors
and bids submitted which were subsequently assessed by the Company.



In preparation for Procon’s winter
underground exploration program, a diesel airlift was completed utilizing the DHC-5 Buffalo aircraft to bring in approximately
200,000 litres of diesel fuel to support operations. A subsequent airlift of mining equipment and supplies using the same aircraft
was also completed.



The Prairie Creek Mine exploration and
development program has been divided into stages.



The first stage was to re-open access to
the underground by dewatering and re-installing electrical and ventilation services to the 650 metre-long decline which is located
at the end of the 870m underground level. Rehabilitation of the underground workings near the 930m level portal area was completed
by removing all old timbers and bolting and shotcreting the area. The portal area at the 930m level also contains the primary ventilation
fan which distributes air to the lower level. Further rehabilitation of some manway raises and refuge stations is also planned.



After completion of the rehabilitation
stage, Canadian Zinc began an exploration diamond drill program from underground drill stations located at the end of the decline,
with the objective of upgrading part of the currently inferred resources to an indicated category. The drilling is planned on four,
50-metre sections



During dewatering of the decline hydrological
monitors were installed in the 870m level bedrock walls to measure groundwater aquifer flows. Data from this monitoring program
will provide necessary information to predict future underground water pumping requirements and plan water management.



The results of the 2015 underground exploration
drilling program have been very positive, with all holes intercepting the MQV structure and/or Stockwork mineralization, with some
excellent grades and widths. The objectives of testing for new areas of mineralization in proximity to the existing underground
workings and increasing the projected life of the mine by converting part of the currently Inferred Resource to an Indicated category
have been met.



35







Assay results have been received for all
drill holes and the detailed interpretation of the results and findings have been compiled and modelled. Some of the highlights
of the 2015 diamond drilling program include:



| | · | A previously unknown quartz vein fault structure was discovered in the footwall of the MQV. This second
vein system has been intersected in five holes and appears to be defining a structural transition zone which offsets the general
strike trend of the upper part of the MQV.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Hole PCU-15-65, first intersected the MQV grading 4.9% Pb, 22.7% Zn, and 164 g/t across 1.2m. It then
intersected multiple intercepts of STK mineralization, one of which graded 24.7% Pb, 32.7% Zn, and 311 g/t Ag across 2.4m, and
further down another graded 9.5% Pb, 38.1% Zn and 381 g/t Ag across 1.5m. That same hole intersected the new second quartz vein
grading 4.6% Pb, 13.8% Zn, and 92 g/t Ag across 2.9m of estimated true width.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Hole PCU-15-72, the most northern hole, returned substantial MQV mineralization including 17.8% Pb,
33.7% Zn and 247 g/t Ag over 7.5m and an additional intersection of STK mineralization, which graded 6.9% Pb, 12.0% Zn, 116 g/t
Ag over 24.5m of true width, and the intersection of the second vein which graded 5.6% Pb, 3.8% Zn and 88 g/t Ag over 4.5m.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Numerous holes intersected extensions to the previously known STK zone, which occurs mostly outside,
but adjacent to, the calculated Indicated Resource. These intersections will add to the STK resource. The STK intercepted and sampled
during this drill program has also indicated areas within this resource of significant grades and widths that could be targeted
for early selective mining.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Detailed underground chip sampling of the Northwest Drift in the 870m Level workings returned composite
grades of 5.6% Pb, 14.2% Zn and 119 g/t Ag across a true width of 4.4m along the strike length of 71.8m further demonstrating the
potential for early, selective mining of the STK mineralization.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Mineralization remains open to the North into the already defined Inferred Resource.
| | - | ------------------------------------------------------------------------------------



Results from the underground exploration
program were reported in the Company’s press releases dated May 5, 2015; June 9, 2015; June 23, 2015 and August 11, 2015.



The results of the 2015 underground exploration
drilling program were successful in meeting the objectives of locating new areas of mineralization in proximity to the existing
underground workings and increasing the projected life of the mine by converting part of the currently Inferred Resource to an
Indicated category.



Following completion of the 2015 underground
exploration programanew mineral resource estimate was completed by AMC Mining Consultants
in September 2015, which demonstrated an increase in overall resource tonnages in the Indicated and the Inferred categories.



| | · | Total Measured and Indicated Resource
tonnages increased by 32% to 8.7 million tonnes at combined grade of approximately 19% Pb and Zn plus 136 g/t Ag.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Total Inferred Resource tonnages remained
relatively unchanged with an increase in Stockwork replacing upgraded Main Quartz Vein resource.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



The September 2015 Prairie Creek mineral
resource estimate was completed by AMC [Gregory Z. Mosher P.Geo., Qualified Persons as defined by NI 43-101] and reported in the
Company’s September 17, 2015 press release. AMC also completed the previous mineral resource estimates in 2012 and March
2015. The Mineral Resource estimate is based on assays from all underground channel samples and surface and underground drill core
collected by CZN since 1992.



The mineralization at Prairie Creek Mine
occurs within three different styles namely; the Main Quartz Vein (“MQV”), which is the high grade steeply dipping
fault structure that hosts the majority of mineralization; the Stockwork Zone (“STK”), which is a series of narrow
high grade veins occurring at an oblique angle to the Main Quartz Vein; and the Stratabound Massive Sulphide (“SMS”),
which occur as a thick pyrite-rich replacement-type deposit cut by the Main Quartz Vein.



A single block model was created to encompass
the three mineral domains: Main Quartz Vein (MQV), Stockwork (STK) and Stratabound (SMS). Block values were estimated using ordinary
kriging and the inverse distance squared (ID2) method. Grades for silver, lead, zinc, copper, arsenic, cadmium, iron,
mercury, lead oxide, antimony, and zinc oxide were interpolated into the block model in a single pass. Mineral Resources were classified
on the basis of the number of supporting data and their distance from the block centroid, with minor amendments to maintain coherence
of block classification. Bulk density values were also interpolated into the block model but these values consistently understated
the bulk density of the mineralization as determined by regression equations. Therefore, the interpolated values were replaced
by calculated values.



36









The summary results of the estimate for
the three zones combined, at a cut off of 8% Zn equivalent (ZnEq) are shown in the Table below.



September 2015 Mineral Resource
Prairie Creek Mine



|Mineral Zone           |  | Classification       |  | Tonnes (t) |           |  | Silver (g/t) |  |     | Lead (%) |  |  | Zinc (%) | 
|---------------------- |  | -------------------- |  | ---------- | --------- |  | ------------ |  | --- | -------- |  |  | -------- | 
|Main Quartz Vein (MQV) |  | Measured             |  |            | 1,313,000 |  |              |  | 211 |          |  |  | 11.5     | 
|                       |  | Indicated            |  |            | 4,227,000 |  |              |  | 168 |          |  |  | 11.6     | 
|                       |  | Measured & Indicated |  |            | 5,540,000 |  |              |  | 178 |          |  |  | 11.6     | 
|                       |  | Inferred             |  |            | 5,269,000 |  |              |  | 199 |          |  |  | 8.7      | 
|Stockwork (STK)        |  | Measured             |  |            | 169,000   |  |              |  | 116 |          |  |  | 5.3      | 
|                       |  | Indicated            |  |            | 1,953,000 |  |              |  | 61  |          |  |  | 3.5      | 
|                       |  | Measured & Indicated |  |            | 2,122,000 |  |              |  | 66  |          |  |  | 3.6      | 
|                       |  | Inferred             |  |            | 1,610,000 |  |              |  | 70  |          |  |  | 4.6      | 
|Stratabound (SMS)      |  | Indicated            |  |            | 1,042,000 |  |              |  | 54  |          |  |  | 5.2      | 
|                       |  | Measured & Indicated |  |            | 1,042,000 |  |              |  | 54  |          |  |  | 5.2      | 
|                       |  | Inferred             |  |            | 170,000   |  |              |  | 60  |          |  |  | 6.3      | 
|TOTAL                  |  | Measured             |  |            | 1,482,000 |  |              |  | 200 |          |  |  | 10.8     | 
|                       |  | Indicated            |  |            | 7,222,000 |  |              |  | 123 |          |  |  | 8.5      | 
|                       |  | Measured & Indicated |  |            | 8,704,000 |  |              |  | 136 |          |  |  | 8.9      | 
|                       |  | Inferred             |  |            | 7,050,000 |  |              |  | 166 |          |  |  | 7.7      | 



Notes:

Mineral Resources are stated as
of 10 September 2015.

Mineral Resources include those
Resources converted to Mineral Reserves.

Stated at a cut-off grade of 8%
Zn-Eq based on prices of $1.00/lb for both zinc and lead, and $20/oz for silver.

Average processing recovery factors
of 78% for Zn, 89% for Pb, and 93% for Ag.

Average payables of 85% for Zn,
95% for Pb, and 81% for Ag.

ZnEq% = (grade of Zn in %) + [(grade
of lead in % * price of lead in $/lb * 22.046 * recovery of lead in % * payable lead in %) + (grade of silver in g/t* (price of
silver in US$/Troy oz/ 31.10348) * recovery of silver in % * payable silver in %)] / (price of zinc in US$/lb*22.046 * recovery
of zinc in % * payable zinc in %).

$ Exchange rate = 1 CAD/USD.



37







The main differences between the 2015 and
the 2012 resource estimates are attributed to:



| | · | Including data from 50 additional diamond drill holes and underground chip samples.
| | - | -----------------------------------------------------------------------------------

| | · | More constraining factors used in the 2015 estimation, including block size, interpolation and
minimum number of samples used.
| | - | ------------------------------------------------------------------------------------------------------------------------------

| | · | The 2015 Mineral Resource was estimated by ordinary Kriging; the 2012 Mineral Resource was estimated
using inverse distance squared.
| | - | ------------------------------------------------------------------------------------------------------------------------------------

| | · | The 2015 estimate used a regression equation to estimate bulk densities; the 2012 estimate used
interpolated bulk density values and a single fixed value for the STK zone.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The 2015 block model incorporated LIDAR survey data which improved the accuracy in surface control
when incorporating the new drill/chip data.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------

| | · | The geological interpretation was revised to subdivide the Main Quartz Vein into two en-echelon
bodies.
| | - | -------------------------------------------------------------------------------------------------------

| | · | The total Inferred Mineral Resource was estimated with a 13% higher tonnage but at a lower grade
as a result of using more constraining geological factors and more minimum sample points.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2016 PRELIMINARY
FEASIBILITY STUDY





An updated 2016 Prefeasibility Study,
based on optimization work undertaken over the prior three years, was completed by AMC Mining Consultants (Canada) Ltd., of Vancouver,
Canada, in conjunction with Tetra Tech Inc. (Tetra Tech), Vancouver, on behalf of Canadian Zinc Corporation, in March 2016. The
2016 PFS supersedes the 2012 Prefeasibility Study completed by SNC Lavalin.



A Technical Report (“AMC Technical
Report” or “2016 Technical Report”), entitled “Prairie Creek Property Prefeasibility Update NI 43-101
Technical Report”, effective March 31, 2016, was prepared by AMC Mining Consultants (Canada) Ltd., (“AMC”) with
contributions from Tetra Tech Inc. and Canadian Zinc consultants and personnel (collectively “the Authors”), in accordance
with National Instrument 43-101 (“NI 43-101”).



This 2016 Technical Report supersedes
the June 15, 2012 Technical Report (subsequently revised July 23, 2014 and filed on SEDAR and EDGAR).





38









Technical Report on Principal
Property – Prairie Creek, Northwest Territories









The information relating to the Prairie
Creek Property in the following sections has been extracted from the AMC Technical Report effective March 31, 2016, filed on SEDAR
on May 12, 2016, and filed on EDGAR on May 13, 2016 prepared by QPs, as defined by NI 43-101, GZ Mosher, P.Geo., HA Smith, P.Eng.
of AMC Mining Consultants Ltd., H Ghaffari, P.Eng., J Huang, P.Eng. of Tetra Tech Inc., A Taylor, P.Geo. of Canadian Zinc Corporation
and T Morrison, P.Eng. (the “2016 AMC Technical Report”).



For readers to understand the technical
information in this Annual Report they should read the 2016 AMC Technical Report (available on SEDAR at www.sedar.com and
EDGAR at www.sec.gov under the Company's profile) in its entirety, including all qualifications, assumptions and exclusions
that relate to the technical information set out in this Annual Report. The 2016 AMC Technical Report is intended to be read as
a whole, and sections should not be read or relied upon out of context. The technical information in the 2016 AMC Technical Report
is subject to the assumptions and qualifications contained in the 2016 AMC Technical Report.





The Company has included these
website addresses in this Form 20-F Annual Report only as inactive textual references and does not intend them to be active links
to these websites. The contents of these websites, and information accessible through them, do not form part of this Annual Report.



“Introduction



This Technical Report on the Prairie
Creek Property, NWT, Canada (the Property), has been prepared by AMC Mining Consultants (Canada), Ltd. (AMC) of Vancouver, Canada,
in conjunction with Tetra Tech Inc. (Tetra Tech), Vancouver, on behalf of Canadian Zinc Corporation (CZN) of Vancouver, Canada
in accordance with the requirements of National Instrument 43-101 (NI 43-101), “Standards of Disclosure for Mineral Projects”,of the Canadian Securities Administrators (CSA) for Filing on CSA’s “System for Electronic Document Analysis and
Retrieval” (SEDAR).





39







This report is an update to an amended
and restated report titled Prairie Creek Property, Northwest Territories, Canada, Technical Report for Canadian Zinc Corporation,
prepared by AMC and with an effective date of 15 June 2012 (2012 AMC Report) and a revised date of 23 July 2014. This report discloses
the results of an updated Prefeasibility Study (PFS) based on updated Mineral Resources, and ongoing optimization projects and
other engineering studies completed since the date of the 2012 AMC Report. The Mineral Resource estimate incorporates drill assay
results that were not available at the time of the 2012 AMC Report.



Highlights



This updated 2016 Prefeasibility Study
(2016 PFS), based on optimization work completed over the past three years, including the 2015 underground exploration program
at Prairie Creek which increased total Measured and Indicated Resource tonnages by 32%, indicates a Base Case pre-tax Net Present
Value (NPV) of $509 million using an 8% discount rate, with an Internal Rate of Return (IRR) of 32% and a post-tax NPV of $302
million, with a post-tax IRR of 26%.



The
pre-tax and post-tax net present values, at 5% and 8% discount rates, and internal rates of return, are illustrated in the table
below, all at a Canadian/US dollar exchange rate of 1.25:1 (except the Base Case which is also shown at an exchange rate of 1.375:1).
The table also demonstrates the sensitivities of the Prairie Creek Project to zinc, lead and silver prices and to the Canadian/US
dollar exchange rate.



Table
ES.1.1	Sensitivities of the Prairie Creek Project





|Metal Prices     |      |   | Pre-Tax       |  |       | Post-Tax        | 
|---------------- | ---- | - | ------------- |  | ----- | --------------- | 
|Zinc/Lead US$/lb |      |   | Silver US$/oz |  |       | Undiscounted $M | 
|                 | 0.80 |   |               |  | 17.00 |                 | 
|                 | 0.90 |   |               |  | 18.00 |                 | 
|                 | 1.00 |   |               |  | 19.00 |                 | 
|                 | 1.00 | 1 |               |  | 19.00 | 1               | 
|                 | 1.10 |   |               |  | 20.00 |                 | 
|                 | 1.20 |   |               |  | 21.00 |                 | 
|                 | 1.30 |   |               |  | 22.00 |                 | 





1. Foreign Exchange assumed
to be $1.375CAD:$1.00US on this line only



The 2016 PFS
indicates average annual production of approximately 60,000 tonnes of zinc concentrate and 55,000 tonnes of lead concentrate,
containing approximately 86 million pounds of zinc, 82 million pounds of lead and 1.7 million ounces of silver, and yielding
average annual earnings before interest, taxes, depreciation and amortization (EBITDA) of $90 million per year
and cumulative EBITDA earnings of $1.4 billion over an initial mine life of 17 years, using Base Case metal price forecasts
of US$1.00 per pound for both zinc and lead and US$19.00 per ounce for silver.  Pre-production Capital Costs,
including provision for a new all season road, are estimated at $244 million, including contingency, with payback of three
years.





40









Location,
ownership and history



The Property consists of two surface
leases and 12 mining leases totalling 7,487 hectares in area. The Property is situated in the Northwest Territories approximately
500 km west of Yellowknife in the Mackenzie Mountains at an elevation of 850 m above mean sea level. The Property is surrounded
by, but is not included in, the Nahanni National Park Reserve (NNPR).



Year-round access to the Property is
provided by aircraft utilizing a 1,000 m gravel airstrip immediately adjacent to the camp. The Property has also, in the past,
been accessible by a winter road that extended 180 km from the Property to the Liard Highway; this access road is now planned
to be all season and will need to be constructed to support full-time operation of the mine.



The Prairie Creek Property contains
a high-grade, silver-lead-zinc-copper vein, and other lead-zinc deposit types that have been explored since the early 1900s and
were developed by Cadillac Explorations Limited (Cadillac) from 1966 to 1983. The Prairie Creek Mine was developed and fully permitted
and a processing plant, along with other surface infrastructure, built in the early 1980s, when a decline in metal prices resulted
in the closure of the Mine in 1983 prior to commencement of production. San Andreas Resources Corporation became involved with
the Property in 1992 and, through a series of agreements, together with a name change to Canadian Zinc Corporation in 1999, established
an increasing interest in the Property, culminating in 2004 with the acquisition of a 100% interest in the Property and Mine site.



Geology
and mineralization



The Property is located within a westward-thickening
wedge of sedimentary carbonate rocks of mid-Proterozoic to mid-Jurassic age that was deposited along the paleo-continental margin
of western North America (Mackenzie Platform). The Prairie Creek Embayment paleo-basin is interpreted to have developed as a half-graben
controlled by a north-trending fault with down-drop to the west.



In the immediate area of the Property,
north-south trending faulting and folding is apparent. The most significant fold structure is the fault bounded north-south doubly-plunging
Prairie Creek anticlinal structure, which is the host to the Prairie Creek mineralization.



Four styles of base metal mineralization
have been identified on the Property: quartz vein, stratabound, stockwork and Mississippi Valley-type. Only the first three styles
have been found in potentially economic quantities to date. Base metal mineral showings occur along the entire 16 km north to
south length within the main group of mining leases.



The most significant style of mineralization
is the quartz vein-type, on which the underground workings have been developed, which contains the bulk of the currently defined
Mineral Resource. The Main Quartz Vein (MQV) has been exposed in detail by underground development and diamond drilling over a
strike length of 2.1 km (Main Zone). The MQV trends at an azimuth of approximately 20o and dips between vertical and 40o
east, with an average dip of 65o. The MQV consists of massive to disseminated galena and sphalerite with lesser pyrite and
tennantite-tetrahedrite in a quartz-carbonate-dolomite sheared matrix. The galena and tennantite-tetrahedrite also carry economically
significant silver values. This vein style of mineralization has been located, through surface trenching, throughout the entire
16 km length of the mining leases.



Stockwork (STK) mineralization occurs
as a series of narrow, massive sphalerite-galena-tennantite veins striking at about 40o azimuth that occupy tensional-dilatant
fractures within a structural translation zone of the MQV. This mineralization has developed in sub-vertical tensional openings
formed obliquely to, but also related to, the initial primary fault movement along the main vein structure. It has been exposed
in both diamond drilling and underground development.



Stratabound Massive Sulphide (SMS)
mineralization occurs intermittently at the base of the trend of the Prairie Creek vein system over a strike length of more than
3 km. SMS mineralization occurs as semi-massive sphalerite-galena-pyrite replacement located close to both the vein system and
the axis of the Prairie Creek antiform, but has not yet been intersected by underground development. The MQV structure carries
fragments of the SMS indicating the vein mineralization to be more recent in age.





41









Mississippi Valley-type (MVT) lead-zinc
mineralization is exposed on the Property within surface showings of rock formations marginal to the basin and consists of cavity-filling
type breccias in dolostone with host fragments rimmed with colloform sphalerite-marcasite-galena healed with carbonate. This type
of mineralization does not form part of the current resource.



Exploration
and data management



CZN, including its former name San
Andreas Resources Corporation, has been involved with mineral exploration activity across the Prairie Creek Property since 1992.
Somewhat limited exploration drilling had occurred and most of the underground development had been undertaken prior to CZN’s
initial involvement. From 1992 to the end of 2015, CZN completed 296 surface and underground exploration diamond drillholes with
an aggregate length of 78,587 m. In addition, 1,032 underground channel samples forming 365 composites from the three existing
underground levels have been collected and analysed.



The main objective of exploration and
underground development work has been focused on the Main Zone mineralization, where approximately 80% of the total drilling has
been carried out.



Mineral
Resource Estimate



The most recent Mineral Resource estimate,
announced in a press release dated 17 September 2015, was estimated by AMC following completion of the successful 2015 underground
exploration program at Prairie Creek, which increased the Measured and Indicated Mineral Resource tonnages by 32%.



A single block model was created to
encompass the three mineral domains: MQV, STK and SMS. The summary results of the Mineral Resource estimate for the three zones
combined, at a cut-off of 8% Zn equivalent (ZnEq), are shown below.



Table
ES.1.2	September 2015 Mineral Resources Prairie Creek Mine



|Mineral Zone           |  | Classification       |  | Tonnes (t) |           |  | Silver (g/t) |  |     | Lead (%) |  |  | Zinc (%) | 
|---------------------- |  | -------------------- |  | ---------- | --------- |  | ------------ |  | --- | -------- |  |  | -------- | 
|Main Quartz Vein (MQV) |  | Measured             |  |            | 1,313,000 |  |              |  | 211 |          |  |  | 11.5     | 
|                       |  | Indicated            |  |            | 4,227,000 |  |              |  | 168 |          |  |  | 11.6     | 
|                       |  | Measured & Indicated |  |            | 5,540,000 |  |              |  | 178 |          |  |  | 11.6     | 
|                       |  | Inferred             |  |            | 5,269,000 |  |              |  | 199 |          |  |  | 8.7      | 
|Stockwork (STK)        |  | Measured             |  |            | 169,000   |  |              |  | 116 |          |  |  | 5.3      | 
|                       |  | Indicated            |  |            | 1,953,000 |  |              |  | 61  |          |  |  | 3.5      | 
|                       |  | Measured & Indicated |  |            | 2,122,000 |  |              |  | 66  |          |  |  | 3.6      | 
|                       |  | Inferred             |  |            | 1,610,000 |  |              |  | 70  |          |  |  | 4.6      | 
|Stratabound (SMS)      |  | Indicated            |  |            | 1,042,000 |  |              |  | 54  |          |  |  | 5.2      | 
|                       |  | Measured & Indicated |  |            | 1,042,000 |  |              |  | 54  |          |  |  | 5.2      | 
|                       |  | Inferred             |  |            | 170,000   |  |              |  | 60  |          |  |  | 6.3      | 
|TOTAL                  |  | Measured             |  |            | 1,482,000 |  |              |  | 200 |          |  |  | 10.8     | 
|                       |  | Indicated            |  |            | 7,222,000 |  |              |  | 123 |          |  |  | 8.5      | 
|                       |  | Measured & Indicated |  |            | 8,704,000 |  |              |  | 136 |          |  |  | 8.9      | 
|                       |  | Inferred             |  |            | 7,049,000 |  |              |  | 166 |          |  |  | 7.7      | 





Mineral Resources
are stated as of 10 September 2015.

Mineral Resources
include those Resources converted to Mineral Reserves.

Stated at a cut-off
grade of 8% ZnEq based on prices of $1.00/lb for both zinc and lead and $20/oz for silver.

Average processing
recovery factors of 78% for zinc, 89% for lead, and 93% for silver.

Average payables
of 85% for zinc, 95% for lead, and 81% for silver.

ZnEq = (grade of
Zn in %) + [(grade of lead in % * price of lead in $/lb * 22.046 * recovery of lead in % * payable lead in %) + (grade of silver
in g/t* (price of silver in US$/Troy oz/ 31.10348) * recovery of silver in % * payable silver in %)]/(price of zinc in US$/lb*22.046
* recovery of zinc in % * payable zinc in %).

$ Exchange rate =
1 CAD/USD.

Numbers may not compute
exactly due to rounding.

The September 2015
Prairie Creek Mine Mineral Resource estimate was completed by Gregory Z. Mosher, P.Geo, Qualified Person (QP), as defined by National
Instrument 43-101 (NI 43-101) of AMC Mining Consultants (Canada) Ltd.







42







Mineral Reserve Estimate





The September 2015 Measured and Indicated
Mineral Resource was subsequently converted into a new Mineral Reserve estimate of 7.6 million tonnes of Proven and Probable Reserves
at a combined grade of 17% Pb and Zn plus 128 g/t Ag, which represents a 46% increase in Reserve tonnage compared to the 2012
PFS. The estimation of Mineral Reserves by AMC is shown below.





Table
ES.1.3	March 2016 Mineral Reserves, Prairie Creek Mine









|Mineral Zone           |  | Classification |  | Tonnes (t) |           |  | Silver (g/t) |  |        | Lead (%) |  |  | Zinc (%) |  |  | Zinc
    Equivalent |      
|---------------------- |  | -------------- |  | ---------- | --------- |  | ------------ |  | ------ | -------- |  |  | -------- |  |  | ------------------- | -----
|Main Quartz Vein (MQV) |  | Proven         |  |            | 1,199,288 |  |              |  | 186.00 |          |  |  | 10.08    |  |  |                     | 12.09
|                       |  | Probable       |  |            | 3,966,848 |  |              |  | 152.62 |          |  |  | 10.52    |  |  |                     | 8.58 
|                       |  | Total          |  |            | 5,166,136 |  |              |  | 160.37 |          |  |  | 10.42    |  |  |                     | 9.39 
|Stockwork (STK)        |  | Proven         |  |            | 174,656   |  |              |  | 105.01 |          |  |  | 4.80     |  |  |                     | 11.48
|                       |  | Probable       |  |            | 1,297,665 |  |              |  | 60.72  |          |  |  | 3.41     |  |  |                     | 6.64 
|                       |  | Total          |  |            | 1,472,322 |  |              |  | 65.97  |          |  |  | 3.57     |  |  |                     | 7.22 
|Stratabound (SMS)      |  | Proven         |  |            | -         |  |              |  | -      |          |  |  | -        |  |  |                     | -    
|                       |  | Probable       |  |            | 965,132   |  |              |  | 46.09  |          |  |  | 4.38     |  |  |                     | 9.03 
|                       |  | Total          |  |            | 965,132   |  |              |  | 46.09  |          |  |  | 4.38     |  |  |                     | 9.03 
|TOTAL                  |  | Proven         |  |            | 1,373,944 |  |              |  | 175.70 |          |  |  | 9.41     |  |  |                     | 12.02
|                       |  | Probable       |  |            | 6,229,646 |  |              |  | 116.97 |          |  |  | 8.09     |  |  |                     | 8.24 
|                       |  | Total          |  |            | 7,603,590 |  |              |  | 127.58 |          |  |  | 8.33     |  |  |                     | 8.93 







2016 Mineral Reserves are as of 31 March, 2016 and
based on a design cut-off grade of 12% ZnEq for LHOS, 11% ZnEq for DAF, an incremental stoping cut-off grade of 9.7% ZnEq and
7.1% ZnEq for development ore.

Cut-off grades are based on a zinc metal price of
$1.00/lb, recovery of 75% and payable of 85%, a lead metal price of $1.00/lb, recovery of 88% and payable of 95%, and a silver
metal price of $17/oz, recovery of 92% and payable of 81%.

Exchange rate used is C$1.25 = US$1.00.

Average unplanned dilution and mining recovery factors
of 14% and 95%, respectively, for LHOS, and 6% and 95%, respectively, for DAF are assumed.

The March 2016 Prairie Creek Mine Mineral Reserve
estimate was prepared by H. A. Smith, P.Eng, Qualified Person (QP), as defined by National Instrument 43-101 (NI 43-101) of AMC
Mining Consultants (Canada) Ltd.



Mining



The mine will be an underground operation,
based primarily on the MQV and mining an average of 1,350 tonnes per day over a 17-year mine life. During full production, approximately
485,000 tonnes of ore per year will be mined.



Adits were previously driven on three
levels: the 970 mL, the 930 mL and the 883 mL, totalling approximately 5 km of underground workings. Access for mining will be
through an enlarged 883 mL portal and adit with secondary access through the 930 mL. The 970 mL penetrates the topmost limits
of the MQV only and is not part of the current mine plan. As mining progresses to depth, ore from the MQV will be supplemented
by ore from the deeper SMS deposit, both deposits being accessed by a common ramp development.



Mining will be by longhole open stoping
(LHOS) with paste backfill. Mechanized drift-and-fill (DAF) will be used for the SMS ore, also with paste fill. The plan and objective
is to use 100% of flotation tailings as backfill.



Ground conditions in existing development
underground are good and the existing workings have stood unsupported for thirty years with minimal bolting. CZN commissioned
a geotechnical program at the end of 2013, including mapping and examination of drill core. This program demonstrated that the
ground is amenable to longhole open stoping and the results of the program were used for rock support design.



43







The new mine plan envisages slashing
out of some of the existing development in order to establish two spiral ramps to access deeper levels. The existing 883 mL adit
will be enlarged to 4.5 x 4.5 m; two ramps will be driven downward from this level and one upward to access the MQV and SMS ores.
Drifts will be driven on the MQV north and south from the ramp access points to the strike limits of the ore body. Stoping will
begin at the ore limits and retreat to the ramp access points. Pre-production development is expected to take approximately 18
months, before stope ore becomes available as mill feed. This work will be performed by a contractor. On completion of the contracted
scope of work, CZN will have the options of taking over the work itself or continuing with contract mining.



The mine will be wet and managing groundwater
will be a significant aspect of the operation. When in full production, it is estimated that the mine will produce up to 120 L/s
of water. The majority of this water will be collected through pre-drainage boreholes and pumped to surface, avoiding contamination.
All water discharged from the mine will either be sent to the mill as process water, pumped into the existing impoundment pond,
originally planned for tailings storage, which will be modified into a two-cell water storage pond, or directly treated in a new
water treatment plant.



CZN anticipates that, because of the
high concentrate mass pull, even with 100% disposal of tailings underground as paste fill, some shortfall in backfill volume may
occur. Any shortfall will be made up with Dense Media Separation (DMS) float material and development waste rock. Filtered tailings
will be stored in a building on surface during times when no stopes are available for backfill. Development waste and DMS float
material will be stored in a newly created Waste Rock Pile north of the plant site.



Metallurgy
and processing



Metallurgical tests conducted to date
have proved positive. Reasonably good metal recoveries have been achieved with both sulphide and oxide material, with a cyanide-free
reagent suite.



According to the test results the overall
average grade of the blended lead sulphide/oxide concentrate is anticipated to be 67% lead, with an approximately 88% average
recovery of total lead in the plant feed. The zinc sulphide concentrate is estimated to be 58% zinc, with an approximately 83%
recovery of the total zinc in the plant feed. An average of 87% of the total silver values in the plant feed is anticipated to
be recovered within the lead and zinc concentrates. The impurities of antimony, arsenic and mercury are expected to report to
both concentrates.



A complete processing plant/concentrator
was substantially constructed prior to project shutdown in 1982, together with a 1.5 million tonne capacity tailings impoundment,
power plant, and water treatment plant. CZN plans to rehabilitate and upgrade the processing plant, power plant, and water treatment
plant.



The current mill crushing facilities
have a 1,500 tpd capacity, with an installed jaw crusher, short-head cone crusher, double-decked screen, and conveyor systems
feeding a 2,000 t fine ore bin.



A new dense media separation (DMS)
plant, with a nominal feed rate of 58 tph, will be installed downstream of the crushing circuit to process 15-mm to + 1.4-mm sized
material. Indications from metallurgical testing are that the DMS plant is expected to reject an average of approximately 27%
of the feed as waste at minimal metal losses. Milling feed input rates of 1,200 to 1,400 tpd are anticipated; after passing through
the DMS plant, the material to be processed in the grinding/flotation circuit of the mill is estimated to be approximately 960
tpd.



Site
infrastructure



As the Mine was fully permitted but
never achieved production, existing site infrastructure is substantial; these facilities will be utilized and upgraded where possible.
This includes upgrading the existing mill, administration building, workshops, sewage treatment plant, diesel storage tank farm,
warehouses and accommodation facilities.



The mill will require an electrical
upgrade, addition of a thickener, new flotation cells, a reagent storage and mixing facility, a concentrate storage and loadout
facility, an on-stream analyzer and control system, and rehabilitation of the building envelope. The new DMS circuit will be added
to the north side of the mill and the reagent mixing area and concentrate storage and loadout facility will be added to the south
side of the mill. A new paste backfill plant is proposed to be built next to the mine portal.



44







Five new 1.5 MW diesel powered generator
units will provide power and heat for the site. These power generator units will be located within the existing mill powerhouse
after removal of the obsolete units currently in place. Maximum power load for the site is estimated at 5.2 MW. The new generators
will be outfitted with heat recovery systems in order to maximize energy efficiency. The waste heat from the generators will be
used to heat the surface facilities and mine air. Since the Mine will be accessed by an all season road, dual-fuel generators
utilizing diesel/LNG are an option to consider depending on economics at the time of purchase.



Tailings from the mill will be placed
permanently underground as paste backfill, produced in a new paste backfill plant, and augmented by DMS reject material in the
event of any volume shortfall. The majority of DMS reject and mine development material will be placed in a newly created Waste
Rock Pile facility located north of the mill off the Prairie Creek floodplain. Although the waste rock is considered non-acid
generating due to its high content of carbonate material, appropriate precautions will be taken to prevent and mitigate any leaching
that may occur from surface runoff through the waste rock pile.



A 150-person camp and cookhouse exists
on the site, but most of the buildings have deteriorated beyond economical repair. They will be demolished and will be replaced
by a new modular camp adjacent to the upgraded administration building complex.



The site water management plan for
the Prairie Creek Mine proposes the reconfiguration of the present tailings impoundment pond into a two-celled Water Storage Pond
connected to the mine and mill via piping that also connects to a new Water Treatment Plant, and an exfiltration pipe in the bed
of Prairie Creek to provide discharge of the treated waters. The water management system also includes maintaining the real-time
flow measurement gauges presently installed in Prairie Creek upstream of the site.



Access
road and transportation plan



The Prairie Creek Mine was originally
accessed by a 180 km winter road connecting to the Liard Highway (NWT Highway #7). Canadian Zinc currently holds all land use
permits and water licences required for the construction and operation of a revised 184 km winter access road that connects the
Prairie Creek Mine to the Liard Highway, and for the construction of two transfer and staging facilities along the road, one near
the Liard River crossing and the second inside the Park at about the half-way mark.



The access road, part of which passes
over Crown land and part through the expanded Nahanni National Park Reserve, is multi-jurisdictional and the Company has received
from both the Water Board and Parks Canada all necessary road related permits and licences related to their respective jurisdictions.



In January 2013, the Mackenzie Valley
Land and Water Board (MVLWB) issued LUP MV2012F007 for a period of five years, which permits the construction, maintenance, operation
and use of the winter road connecting the Prairie Creek Mine to the Liard Highway. This permit allows the outbound transportation
of the zinc and lead concentrates to be produced at the mine and the inbound transportation of fuel and other supplies during
the actual operation of the Prairie Creek Mine. The Land Use Permit and Water Licence apply to the portion of the winter road
traversing Crown Land, which is under the jurisdiction of the Water Board. There are two sections to this portion of the road,
the first being 17 kilometres of road from the mine site to the point where the road enters the NNPR, and the second being 80
kilometres of road from the eastern boundary of the NNPR to the Liard Highway.



In September 2013, the Company received
from Parks Canada permits (Parks2012_W001 WL and Parks2012-L001 LUP), both valid for a period of five years valid until August
2018. The permits authorize road access through the NNPR to connect sections of road outside the Park permitted by the MVLWB.



The transportation plan utilized in
the 2012 PFS envisaged the use of the access road only in the winter months of each year, both for the outbound transportation
of concentrates and for the inbound transportation of equipment and supplies, including diesel fuel. This winter road plan would
necessitate a large investment in working capital to finance consumables and supplies and also a large build-up in concentrate
inventory awaiting transportation and sale.



In April 2014, the Company submitted
an application to the MVLWB and to Parks Canada for Land Use Permits to permit the upgrade of the current winter access road to
all season use. The application is now undergoing environmental assessment before the Mackenzie Valley Review Board (MVRB).



45







Mining operation based on an all season
road access, compared to winter road only access, will:



| | · | Decrease
                                         working inventory;
| | - | --------------------------------------------------------------------



| | · | Ensure
                                         more timely delivery of product and consistent supply of materials;
| | - | -------------------------------------------------------------------------------------------------------------------



| | · | Lower
                                         logistical risk of transporting concentrate and supplies;
| | - | --------------------------------------------------------------------------------------------------------



| | · | Require
                                         a smaller trucking fleet throughout the year;
| | - | ----------------------------------------------------------------------------------------------



| | · | Allow
                                         alternative energy sources such as Liquid Natural Gas (LNG) to be considered; and
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | · | Increase
                                         pre-production capital cost.
| | - | ------------------------------------------------------------------------------



The all season road will reduce energy
costs and also enable the consideration of more environmentally friendly alternative energy sources. Local gas fields in the area
may be producing LNG in the near future, which may provide an opportunity to reduce reliance on diesel fuel. An all season road
would also have environmental and safety benefits, in that spreading out the trucking schedule over the full year would avoid
high or congested traffic in winter months, therefore lowering the risk of accidents or spills.



Transportation over the all season
road will utilize an ice bridge in winter and a barge in summer to cross the Liard River.



Canadian Zinc currently holds all the significant
regulatory permits for the construction and use of the access road in winter but does not yet hold the permits for the all season
road. The Company anticipates that the environmental assessment process for the proposed all season road permit application will
take most of the year 2016.



Upon reaching the Liard Highway, concentrates
will be trucked to the railhead at Fort Nelson and transported by rail to the port of Vancouver for shipment to smelters overseas.
Inbound freight will be trucked as backhaul over the same route. A staging area will be established at the junction of the mine
access road and the Liard Highway. A loading area will be constructed at the railhead in Fort Nelson.



Transportation costs included in the 2016
PFS have been estimated at $65 per tonne of ore mined, which includes approximately $33/t for road/truck transportation, $24/t
for rail and trans-loading and $8/t for ocean freight.



Concentrate
marketing



The Prairie Creek Project will produce
three types of concentrate: zinc sulphide, lead sulphide and lead oxide. CZN plans to combine the two lead concentrates into one
concentrate at the mill site. The concentrates will then be transported in enclosed haul trucks via the mine access road and Liard
Highway to Fort Nelson, and from there by rail to the Port of Vancouver.



Canadian Zinc has signed a Memorandum
of Understanding (MOU) with each of Korea Zinc and Boliden for the sale of zinc and lead concentrates. The MOUs set out the intentions
of Canadian Zinc and each of Korea Zinc and Boliden to enter into concentrate sales agreements for the concentrates to be produced
from the Prairie Creek Mine on the general terms set out in the MOUs, including commercial terms which are to be kept confidential.



46







The sale agreements will account for
all of the planned production of zinc concentrate and about half of the planned production of lead concentrate for the first five
years of operation at the Prairie Creek Mine. The sales agreements will provide that treatment charges will be set annually at
the annual benchmark treatment charges and scales, as agreed between major smelters and major miners.



Payables, penalties and quotational periods
will be negotiated in good faith annually during the fourth quarter of the preceding year, including industry standard penalties
based on indicative terms and agreed limits specified in each MOU.



Treatment and refining charges, including
deductibles, payable and penalties, vary with smelter location and individual smelter terms and conditions. The Economic Model
used in the 2016 PFS has been prepared assuming average blended indicative treatment charges of US$212 per tonne for zinc sulphide
concentrates and US$195 per tonne for lead concentrates, with industry standard penalties, including mercury penalties of US$1.75
for each 100 ppm above 100 ppm Hg per tonne of concentrate.



Project
execution



The mine start-up schedule is significantly
influenced by the seasonal weather conditions in the Northwest Territories. The project schedule comprises one year of detailed
engineering, including the completion of permitting and design of the all season road, one year to procure long-lead-time items
and prepare the site, followed by one year of site completion and mine development. Mobilization will initially be by winter road,
concurrent with construction of the all season road. The later shipment of concentrates and production supplies will be on the
all season road.



Permitting,
environmental and community



The Prairie Creek Mine is located in
an environmentally sensitive watershed of the South Nahanni River and proximal to the Nahanni National Park Reserve. As a result,
particular attention has been paid by the Company and by regulators to potential impacts on water quality that may be caused by
Project construction and operations.



CZN currently has a number of permits
and licences for both exploration and mine operations issued by the MVLWB under the Mackenzie Valley Resource Management Act.
In addition, CZN also has a LUP and Water Licence from Parks Canada for the portion of an operations winter road that crosses
the NNPR.



The main Licence is the Type “A”
Water Licence (MV2008L2-002) which was issued by the MVLWB on 8 July 2013 that permits CZN to conduct mining, milling and processing
activities at the Prairie Creek Mine Site, use local water, dewater the underground mine and dispose of waste from mining and
milling. Other Land Use Permits and Water Licences provide for winter road, mine site and transfer related facilities.



Water Licence MV2001L2-0003 and LUP
MV2012C0008 allow CZN to continue with underground exploration prior to operations. LUP MV2012C0002 provides for surface exploration
and diamond drilling at sites throughout the Prairie Creek property.



47







A Land Use Permit application for an
all season road was applied for in April 2014 to the MVLWB and is currently in the Environmental Assessment Process with the Mackenzie
Valley Review Board. The Environmental Assessment is well advanced and is expected to conclude prior to year-end.



Prior to the main licences being issued
in 2013, CZN had been involved, since the passage of the Mackenzie Valley Resource Management Act in 1999, in numerous regulatory
processes to obtain various Land Use Permits and Water Licences for exploration and development at the Prairie Creek Mine site.
Regulatory processes included both normal-course permitting and numerous Environmental Assessments.



Innovative water management practices
are necessary at the Prairie Creek Mine during operations due to the nature of the discharge and the receiving environment upstream
of a national park. The volume of water for discharge will vary seasonally, being greatest in summer. Flows in Prairie Creek are
also variable, being very low in winter and fluctuating in summer. Therefore, storage of water in a large pond on site will be
maximized in winter, and treated water discharge will be proportionately tied to creek flows to minimize receiving water concentrations,
meet Water Licence limits and protect the ecosystem downstream. A variable load discharge (VLD) approach to water management was
developed and accepted during the regulatory process. A Water Licence to operate the Mine was issued in 2013 by the MVLWB with
the construction period being regulated by ‘end-of-pipe’ effluent quality criteria, followed by VLD to meet receiving
water objectives during operations. Real-time flow measurements upstream in Prairie Creek are planned in order to track the allowable
load for discharge. A seasonal schedule for treated mine and mill water discharge will apply based on the site water balance;
although the actual discharge rates will be based on the daily on-site analysis of treated water sentinel parameters, and on flows
in Prairie Creek, which may vary on an hourly basis. Discharge will be via an exfiltration trench below the bed of Prairie Creek
that will promote mixing and attenuation of parameter concentrations to meet site specific water quality objectives.



The Prairie Creek Mine site today is
surrounded by the Nahanni National Park Reserve. The original NNPR was created in 1972 for the specific purpose of setting aside
the South Nahanni River for wilderness recreation. Exploration activity at Prairie Creek had been ongoing for many years prior
to 1972, with underground development being well advanced at that time. In June 2009, the NNPR was expanded to include the entire
watershed of the South Nahanni River. However, the Prairie Creek site and a 300-km2 surrounding area were excluded
from the Park. An amendment to the Canada National Parks Act, provided for a right of access through the expanded Park into the
Prairie Creek area. Recognizing the need to work closely together, in 2008 CZN and Parks Canada entered into a MOU that formalized
the intent of both parties 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. The MOU was renewed in 2015 for another
five years.



CZN completed a detailed socio-economic
assessment in support of the Project. The study concluded that the Prairie Creek Mine will be a relatively modest project in a
region of the NWT that has limited economic prospects. The majority of the economic and social benefits will be generated through
the participation of local labour and businesses in the area, including the communities of Nahanni Butte, Fort Simpson and Fort
Liard.



In 2011, Canadian Zinc signed important
Impact and Benefits Agreements with each of Nahanni Butte Dene Band and Liidlii Kue First Nation (Fort Simpson), both part of
the Dehcho First Nations. Later that year, CZN negotiated a Socio-Economic Agreement with the Government of the Northwest Territories
(GNWT), covering social programs and support, commitments regarding hiring and travel, and participation on an advisory committee
to ensure commitments are effective and are carried out.



Employment



Approximately 150 people are expected
to be employed on site during initial project construction. A new accommodation block will be constructed at site to accommodate
this workforce.



During operations the Mine will employ
a total of approximately 316 people on payroll, including truckers, with half of the employees being on-site at any one time,
and with an additional 28 off-site in the Fort Liard and Fort Nelson areas. Personnel will work a regular rotation on site, with
rest periods off site, to be determined, with transport by charter flights to the existing on-site 1,000 m gravel airstrip. Canadian
Zinc’s hiring policy and commitments under its signed Impact and Benefits Agreements are to give preference to qualified
local community residents, followed by northern residents. Training programs will be organized to further promote and maximize
local aboriginal employment.



48









Project
metrics



Table
ES.1.4	               Project metrics – Prairie
Creek Mine



|Mine and Mill Parameters         |  |  |       |  |  |                                         |  | 
|-------------------------------- |  |  | ----- |  |  | --------------------------------------- |  | 
|Total ore mined (million tonnes) |  |  | 7.6   |  |  | Milling rate (tonnes per day) after DMS |  | 
|Mining rate (tonnes per day)     |  |  | 1,350 |  |  | Zinc concentrate (tonnes per year)      |  | 
|Life of Mine (years)             |  |  | 17    |  |  | Lead concentrate (tonnes per year)      |  | 
|Life of Mine Statistics         



|                              |  | Ore Grade Initial 10 Years |         |   | Ore Grade LOM |  |             | Recoveries |  |               | Average Annual
Metal Production |   | Payability |           
|----------------------------- |  | -------------------------- | ------- | - | ------------- |  | ----------- | ---------- |  | ------------- | ------------------------------- | - | ---------- | ----------
|Zinc                          |  |                            | 10.0    | % |               |  | 8.9         | %          |  |               | 83                              | % |            | 86M lbs***
|Lead                          |  |                            | 9.8     | % |               |  | 8.3         | %          |  |               | 88                              | % |            | 82M lbs***
|Silver                        |  |                            | 154 g/t |   |               |  | 128 g/t     |            |  |               | 87                              | % |            | 1.7M oz   
|Project Assumptions Base Case
|Zinc price                    |  |                            |         |   |               |  | US$1.00/lb  |            |  | Exchange Rate |                                 |   |            |           
|Lead price                    |  |                            |         |   |               |  | US$1.00/lb  |            |  | Discount Rate |                                 |   |            |           
|Silver price                  |  |                            |         |   |               |  | US$19.00/oz |            |  |               |                                 |   |            |           



|Operating and Capital Costs
|---------------------------
|Operating Costs**          
|Mining                     
|Processing                 
|Site Services              
|G&A                        
|Transportation*            
|Total**                    



* Includes truck, rail, handling and
ocean shipping

** Does not include treatment, refining
charges or royalty

*** Metals contained in both lead and
zinc concentrates



|Economic Results                         
|-----------------------------------------
|                                         
|NPV @ 8% ($M)                            
|IRR (%)                                  
|Payback period (years from first revenue)
|Average annual EBITDA ($M)               



Note: Rounding of numbers may influence totals.



49







Capital
and operating costs



The general breakdown of the Pre-Production
Capital Cost estimate for the Prairie Creek Project is indicated in the following table:



Table
ES.1.5	            Pre-production capital cost estimate –
Prairie Creek Mine



|                                  |  | Capital ($M)   |     
|--------------------------------- |  | -------------- | ----
|Description                       |  | Project Year 1 |     
|Mine development                  |  |                | -   
|Process plant 1                   |  |                | 6.7 
|Support infrastructure 2          |  |                | 11.5
|Site completion 3                 |  |                | 14.8
|All season road 4                 |  |                | 16.3
|Owner's costs 5                   |  |                | 9.3 
|Total (excluding contingency)     |  |                | 58.6
|Contingency                       |  |                | 14.7
|Total Pre-Production Capital Cost |  |                | 73.3

1. Includes dense media separator; structural
upgrading; instrumentation; flotation circuit upgrade; reagent handling; and piping.

2. Includes power plant;
paste plant; water treatment plant; water storage pond; waste rock pile; camp and housing accommodation; warehousing; and facility
upgrades.

3. Includes engineering and construction of surface
facilities; freight and logistics; initial fills; and spares.

4. Includes Liard River crossing and Fort Nelson
load-out facility.

5. Includes reclamation security and insurance.



Pre-Production Capital Cost refers
to capital costs incurred until the first processing of mined ore, and have been estimated at a total of $216 million, excluding
contingency, and $244 million including a contingency of $28 million, excluding working capital.



Based on proposals or quotations received,
a number of capital items were provided on a lease-to-purchase basis. The main items included on a capital lease basis are: diesel
generators; water treatment plant; paste plant; and some process equipment. The lease costs of such items incurred in the pre-production
period are included in pre-production capital costs; lease costs incurred after production start-up are included in sustaining
capital.



Working Capital has been estimated at $30
million, excluding contingency, and $36 million including a contingency of $6 million.



Sustaining Capital over the full life of
the mine has been estimated at $70 million, of which approximately 90% is incurred in the first five years, and relates largely
to ongoing mine development as the mine is expanded to deeper levels and to the remaining balance of capital lease payments. The
financial model indicates that the sustaining capital can be financed from operational cash flows.



The contingency level of accuracy of
the capital cost estimates ranges between approximately 5% and 25%, with a blended contingency factor of plus or minus 12.7%.
The cost estimate of major equipment packages was determined via a bidding process conducted by Tetra Tech in 2015 and is considered
a firm price. Where no bid price was obtained the contingency was determined based upon professional judgement.



50







The general breakdown of the Operating
Cost Estimate for the Prairie Creek Project is indicated in the following table.



Table
ES.1.6        Operating cost estimate – Prairie Creek Mine



|Operating
                                         Cost Summary |  |                                           |       
|--------------------------------------------------------------- |  | ----------------------------------------- | ------
|Area                                                            |  | Unit Operating Cost $/tonne
    ore mined |       
|Mining                                                          |  |                                           | 78.58 
|Milling/Processing                                              |  |                                           | 40.75 
|G&A costs                                                       |  |                                           | 22.58 
|Surface Costs                                                   |  |                                           | 21.96 
|Transportation*                                                 |  |                                           | 65.10 
|Total Unit Operating Cost                                       |  |                                           | 228.97

* includes truck/rail/handling/shipping



The following list summarizes key project
assumptions used to develop the operating costs, which are in 2016 constant dollars:



| | · | Mine
                                         operating costs are estimated according to unit prices tendered by the mine contractor
                                         multiplied by annual estimated quantities; after the first two years of operations, it
                                         is assumed that mining will revert to the owner for the remainder of the LOM;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | All
                                         electrical power will be produced by diesel generators using a delivered price of diesel
                                         of $0.72/L yielding an estimated LOM power cost of $0.215/kWhr;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Mill,
                                         surface and G&A operating costs are generally deemed to be steady-state per tonne
                                         milled LOM, based on recent labour and materials costs;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Labour
                                         costs are derived from multiple recent sources and include payroll burdens of 46.5%;
| | - | ------------------------------------------------------------------------------------------------------------------------------------

| | · | Manpower
                                         costs for road maintenance and concentrate haul are included in total transport costs.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



Economic
analysis



The Base Case economic model has been
developed using long-term metal price assumptions of US$1.00/lb zinc, US$1.00/lb lead, and US$19.00/oz silver. These long-term
price assumptions are based on consensus price forecasts published by Consensus Economics Inc. as at February 2016, and a review
of market commentary published by various services, including the International Lead and
Zinc Study Group,CRU, Metals Bulletin Research, Wood Mackenzie, and other industry sources as discussed in Section
19.



A sensitivity analysis was conducted
on the Project model to evaluate its robustness against variations in financial parameters, specifically Base Case metal prices
+/- 10% and the Base Case foreign exchange rate plus or minus 10%. The financial analysis with a +/- 10% sensitivity factor centering
on the Base Case, showing average annual EBITDA, NPV (at 8% and 5% discount rates), IRR and payback periods, on a post-tax basis
is presented in the following table.



51







Table
ES.1.7	             Financial analysis – Prairie Creek
Mine



|                                                   |  | Low Case |      |   | Base Case |  |      | High Case | 
|-------------------------------------------------- |  | -------- | ---- | - | --------- |  | ---- | --------- | 
|Metal Price Scenario 1                             |  |          | 90   | % |           |  | 100  | %         | 
|Average Annual EBITDA ($M)                         |  |          | 66   |   |           |  | 90   |           | 
|Post-Tax NPV Undiscounted ($M)                     |  |          | 451  |   |           |  | 685  |           | 
|Post-Tax NPV @ 8% discount ($M)                    |  |          | 171  |   |           |  | 302  |           | 
|Post-Tax NPV @ 5% discount ($M)                    |  |          | 252  |   |           |  | 412  |           | 
|Post-Tax IRR                                       |  |          | 19.0 | % |           |  | 26.1 | %         | 
|Post-Tax Payback Period (years from first revenue) |  |          | 4    |   |           |  | 3    |           | 



|Exchange
    Rate Scenario 2                       |  | $1.125CDN:$1.00US |      |   | $1.25CDN:$1.00US |  |      | $1.375CDN:$1.00US | 
|-------------------------------------------------- |  | ----------------- | ---- | - | ---------------- |  | ---- | ----------------- | 
|Average Annual EBITDA ($M)                         |  |                   | 70   |   |                  |  | 90   |                   | 
|Post-Tax NPV Undiscounted ($M)                     |  |                   | 490  |   |                  |  | 685  |                   | 
|Post-Tax NPV @ 8% discount ($M)                    |  |                   | 192  |   |                  |  | 302  |                   | 
|Post-Tax NPV @ 5% discount ($M)                    |  |                   | 279  |   |                  |  | 412  |                   | 
|Post-Tax IRR                                       |  |                   | 20.2 | % |                  |  | 26.1 | %                 | 
|Post-Tax Payback Period (years from first revenue) |  |                   | 4    |   |                  |  | 3    |                   | 



1. Metal prices varied plus/minus 10% and exchange
rate unchanged.

2. Exchange rate varied plus/minus 10% and Base
Case metal prices unchanged.



A stressed case sensitivity analysis
using assumed metal prices of US$0.80/lb for zinc and lead and US$17/oz for silver, and an exchange rate of CDN$1.40:US$1.00,
would indicate a pre-tax NPV (8%) of $308 million and IRR 24% (post-tax NPV (8%) of $170 million and IRR 19%). Using the average
metal prices for the three years ended 31 March 2016 of US$0.90/lb for zinc; US$0.89/lb for lead and US$18.27 for silver, and
an exchange rate of CDN$1.33:US$1.00 would indicate a pre-tax NPV (8%) of $421 million and IRR 28.5% (post-tax NPV (8%) $244 million
and IRR 23.1%).



Recommendations



As
part of its assessment in the Technical Report, AMC has recommended that:



| | · | A
                                         front-end engineering and design phase to complete detailed engineering and IFC drawings
                                         to definitive feasibility study levels to obtain fixed pricing from construction contractors.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Early
                                         completion of site clearance construction, engineering and mine development programs
                                         to accelerate start-up times. This would include preliminary earthworks on the water
                                         storage pond, waste rock pile, building foundations, portal construction and upgrades
                                         of existing infrastructure in tandem with detailed engineering of new structures.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Complete
                                         permitting of the all season access road.
| | - | -------------------------------------------------------------------------------------------

| | · | Additional
                                         mill studies to further optimize the mill circuit capacity to increase both ore throughput
                                         and metal recoveries.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



52







| | · | Further
                                         metallurgical tests to optimize the process flowsheet, particularly reagent regimes,
                                         including variability tests on the samples from various mineralization zones and ore
                                         types.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Further
                                         study of on-site or off-site processes to reduce deleterious components of concentrates,
                                         thereby reducing smelter penalties.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Studies
                                         to optimize the mine operation by automation and adoption of advanced technology.
| | - | ----------------------------------------------------------------------------------------------------------------------------------

| | · | Additional
                                         underground paste backfill strength studies.
| | - | ------------------------------------------------------------------------------------------------

| | · | Additional
                                         hydrology studies to better design, size and cost water management facilities.
| | - | ----------------------------------------------------------------------------------------------------------------------------------



53







The above recommendations include both
optional and essential items. The cost of essential items is estimated at $9M. The cost of optional items is estimated at $3M.
Details are outlined in the body of the report in Section 26.



Conclusions



The Prairie Creek Property contains a high-grade,
silver-lead-zinc-copper vein along with other lead-zinc deposits and deposit types. The Base
Case economic model indicates a robust project at consensus forecasts for the long-term prices of lead and zinc, generating
a pre-tax NPV (8%) of $509 million with an IRR of 32% and a post-tax NPV of $302 million with a post-tax IRR of 26%. Additional
project optimization, as recommended in this report, would further enhance the economics.



The development of the Prairie Creek mine
offers significant economic advantages. There is broad support among aboriginal organisations and communities in the Dehcho region
for the direct benefit and economic stimulus that the mine would bring to this region of the Northwest Territories. Its envisaged
operation 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. In addition, there will be many indirect business and employment opportunities, related
to transport, supply of the Mine Site and environmental monitoring and management.



The Prairie Creek Project is considered
to be a viable project, based on the Mineral Reserves, mine plan, and production and economic parameters determined within the
2016 PFS. AMC recommends that Canadian Zinc proceed with the development of the Prairie Creek Project.”



The information relating to the Prairie
Creek Property in the preceding sections has been extracted from the AMC Technical Report dated March 31, 2016.








Environmental Assessment and
Permitting



Water Licence
and Land Use Permit – Underground Development



The Company applied to the 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 Water Board 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 Review Board 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 Review Board 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 Review
Board 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 Water Board
to proceed with the licensing process.



54







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 Type
B 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 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 Review Board 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 (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 Type B 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 Type B 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.



In January 2013, the Water Board approved
an amendment and extension to the Company’s Type “B” Water Licence, MV2001L2-0003, for the management, treatment
and discharge of mine water from the mine site. The Water Licence was amended to cover the underground development of the new decline
from the existing 870m level, including pumping, treatment and discharge of water inflows using the existing water treatment infrastructure,
and placement of waste rock on an existing waste rock pile. The term of the Type B Water Licence was extended to September 9, 2019.



An application to revise the compliance
levels to be comparable to the Metal Mining Effluent Regulations was approved by the Water Board on January 23, 2013 for a period
of one year. The Company is in the process of making another application to continue the period of the revised compliance levels.



In June 2015, the Mackenzie Valley Land
and Water Board approved the Company’s application that the Type “A” Water Licence be held in abeyance until
more certainty develops around the actual commencement of construction and the mine development schedule and also approved the
Company’s applications for amendments to the timing schedules of the various reclamation security deposits to be provided
under the Water Licence and the Land Use Permit. The Company, accordingly, deposited a total of $1.55 million as security with
the Government of the Northwest Territories in August of 2015 to increase the financial assurance relating to current reclamation
and closure obligations of the Prairie Creek Mine site as it now exists with its current infrastructure under the Company’s
existing surface leases, land use permits and Type “B” Water Licence.



55







New Mine
Decline Land Use Permit Issued (Exploration)



In May 2012, the Water Board issued a Class
“A” Land Use Permit, MV2012C0008, for the activity of underground decline development, valid for a period of five years
commencing May 10, 2012 and expiring on May 9, 2017. The Land Use Permit entitles CZN to conduct mining exploration and associated
activities, including underground decline development, at the Prairie Creek Mine.



Water Licence
and Land Use Permit – Winter Road



In May 2003, the Company applied to the
Water Board 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. 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 MVRMA.



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



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



On April 11, 2007 the Water Board approved
the issue of Land Use Permit MV2003F0028 for a period of five years to April 10, 2012, which was subsequently extended for a further
period of two years and expired in April 2014.



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.



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 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 was valid for a period of five years expiring March 19, 2013.
The authorization from DFO was received on July 15, 2008.



On June 18, 2009, Parks Canada issued Land
Use Permit 2009 L02 for a period of three years to April 10, 2012 for the use of that portion of the road within Nahanni National
Park Reserve. In July 2012, Parks Canada extended the LUP for that portion of the road that passes through the expanded Nahanni
National Park Reserve for an additional term of two years to April 2014.



MVLWB Land Use Permit MV2003F0028 and Parks
Canada Land Use Permit 2009 L02 permitted CZN to undertake road rehabilitation work and use of the winter road along its original
route for the re-supply and maintenance of the mine, but did not permit for the use of the winter road for mining operations. These
two permits expired in April 2014.



56







In January 2013, the Water Board issued
the Company LUP MV2012F007 for the establishment and operation of the winter road that will service an operating Prairie Creek
Mine. The Land Use Permit was issued for a period of five years ending in January 2018, and permits the construction, maintenance,
operation and use of a portion of the winter road connecting the Prairie Creek Mine to the Liard Highway, situated outside the
expanded Nahanni National Park Reserve. This permit allows the outbound transportation of the zinc and lead concentrates to be
produced at the mine and the inbound transportation of fuel and other supplies during the actual operation of the Prairie Creek
Mine. The road permit also incorporates realignment of the original route which will improve access and further reduce potential
environmental impact. Associated with this LUP the MVLWB also issued a Type “B” Water Licence MV2012L1-0005, valid
for a period of seven years, to allow the limited use of local water resources and disposal of waste during road construction and
operations.



In September 2013, the Company received
from Parks Canada permits Parks2012_W001 WL and Parks2012-L001 LUP, both valid for a period of five years valid until August 2018.
The permits authorize road access through the NNPR to connect sections of road outside the Park permitted by the MVLWB. In order
to ensure a harmonized regulatory process, the conditions in the Parks Canada permits largely mirror those in the Land Use permits
previously issued to the Company by the MVLWB, in respect of that portion of the road that runs outside the NNPR.



Canadian Zinc holds all land use permits
and water licences required for the construction and operation of the entire 184 kilometre winter access road along a realignment
route which connects the Prairie Creek Mine to the Liard Highway and for the construction of two transfer and staging facilities
along the road, one near the Liard River crossing and the second inside the Park at about the half way mark. The winter access
road, part of which passes over Crown land and part through the expanded Nahanni National Park Reserve is multi-jurisdictional
and the Company has received from both the Water Board and Parks Canada all necessary road related land use permits and licences
related to their respective jurisdictions.



All Season
Road Permit



On April 16, 2014 CZN made applications
to the MVLWB and Parks Canada for permits to construct, maintain and operate an all season road from the Mine to the Liard Highway,
and to build and operate an airstrip connected to the road. CZN has proposed to develop the project in two phases. Phase 1 would
include all season road construction from the Mine to the already permitted Tetcela Transfer Station, approximately half way to
the Highway. This will enable the haul of concentrates over the mountainous section year-round, and greatly reduce haul requirements
over the winter period. An airstrip would also be built in Phase 1. Phase 2 would include completion of the all season road to
the Nahanni Butte access road which connects to the Highway, and with operation of a barge on the Liard River, would allow concentrates
to be transported to the market year-round. The all season road would use the same alignment as the already permitted winter road,
although some minor realignments might also be considered.



The MVLWB referred the applications to
the MVRB on May 22, 2014 for environmental assessment EA1415-001. CZN produced a draft Terms of Reference (“ToR”) for
a Developer's Assessment Report on June 4, 2014. Community meetings to consider the scope of the EA were subsequently held in Nahanni
Butte, Fort Liard and Fort Simpson over the period June 9-11, 2014 and a technical scoping meeting was held in Yellowknife on July
8, 2014. The MVRB collated scoping meeting comments, and issued their version of the draft ToR for comment on July 31, 2014. The
MVRB produced a final ToR on September 12, 2014.



A helicopter supported field program was
completed along the road corridor in July 2014 to initially assess and gather additional data in support of the permit application
for an all season road. In September 2014, Canadian Zinc completed a larger phase helicopter-supported engineering and environmental
field studies. Engineering studies were focused on confirming the optimum alignment, determining the location and nature of stream
crossings, and investigating and sampling areas of potential permafrost occurrence or instability, as well as borrow sources. Environmental
studies consisted of a caribou occupancy wildlife survey, habitat data collection at fish-bearing stream crossings, and surface
water and stream sediment sample collection.



57







The
Company submitted its Developer’s Assessment Report to the MVRB in April of 2015. The Company anticipates the environmental
assessment and permitting process for this all season road application will take approximately one year to complete. In
April 2015, Canadian Zinc submitted its Developer's Assessment Report (“DAR”) to the MVRB. The MVRB completed
a preliminary review of the DAR in response to which the Company provided supplementary information to the MVRB partly in the form
of a comprehensive DAR Addendum, which was submitted to the MVRB in September 2015 and followed by additional Terrain Analysis
data which was submitted in November 2015. The Review Board concluded that the environmental assessment could proceed on existing
information but requested some additional information which was subsequently submitted. In February 2016, the Company received
Information requests from interested parties which the Company is in the process of responding to. Once all responses to the information
requests are submitted a Technical Session will be scheduled and held in Yellowknife.



An all season road would also have the
potential to reduce energy costs and would enable the consideration of more environmentally friendly alternative energy sources,
as local gas fields in the area may be producing LNG in the near future, which has the potential to reduce reliance on diesel fuel.
An all season road would also have environmental benefits, in that there would be much less traffic in winter, and therefore a
lower risk of any accidents or spills, and would also provide the potential to promote tourism in the area and thus create long
term benefits for the region.



The Company anticipates the environmental
assessment process for this all season road application will take most of this year 2016 to complete.



Land Use
Permit – Exploration



In April 2004, Canadian Zinc applied to
the 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 (Canadian Parks
and Wilderness Society) participated in the Environmental Assessment, which continued over a period of about eighteen months. Canadian
Zinc submitted a Detailed Development Description dated December 2004. The Review Board issued its Terms of Reference in April
2005 and held scoping sessions (public meetings) during March and April 2005 in the NWT communities of Fort Liard, Fort Simpson
and Wrigley, NT. Canadian Zinc submitted its Developer’s Assessment Report in May 2005 and Technical Reports were submitted
by the end of August 2005. A Public Hearing was held in Fort Simpson NT, on October 6, 2005.



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



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



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



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



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



58







“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 coordinated 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.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Aboriginal Affairs and Northern Development Canada 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 Water Board issued Land
Use Permit MV2004C0030 for the Phase 3 exploration drill program, which was valid for five years commencing May 11, 2006. In May
2011 the Company received a two year extension to this Land Use Permit and it expired May 10, 2013.



In April 2013, the Water Board issued Land
Use Permit MV2013C0002 for the Phase 4 exploration drill program, and essentially replaced LUP MV2004C0030 which expired in May
2013. The replacement land use permit is valid for five years from April 24, 2013 to April 24, 2018 and permits exploration drilling
anywhere on the extensive Prairie Creek Property.



Applications
for Operating Licence/Permit



The Company has secured a Type "A"
Water Licence and all necessary associated Land Use Permits, through the regulatory process established under the MVRMA, that now
permits development and subsequent mine operation and production at Prairie Creek.



Environmental
Assessment



In June 2008, the Company applied to the Mackenzie
Valley Land and Water Board for a Water Licence and associated Land Use Permits to support a mining operation at Prairie Creek.
In August 2008, the application was referred to EA under the Mackenzie Valley Environmental Impact Review Board (the "Review
Board"), the primary authority responsible for all environmental assessment and review throughout the Mackenzie Valley in
the Northwest Territories, and has since been working through the various stages within the EA. These stages included a Written
Hearing on the terms of reference, scoping sessions, submittal of a Developer’s Assessment Report, two formal Information
Requests and two Technical Sessions, a Community Hearing and a two-day Public Hearing, followed by Closing Submissions.



59







On December 8, 2011, the Review Board issued
its Report of Environmental Assessment and Reasons for Decision for the Company’s proposed Prairie Creek Mine (the "EA
Report") and submitted the EA Report and Decision to the Federal Minister of Aboriginal Affairs and Northern Development Canada.
The Review Board concluded that the proposed development of the Prairie Creek Mine, including the list of commitments made by the
Company during the proceedings, is not likely to have any significant adverse impacts on the environment or to be a cause for significant
public concern. The Review Board therefore concluded that an environmental impact review of this proposed development is not necessary
and that the Prairie Creek Mine project should proceed to the regulatory phase for approvals.



The Review Board found that there is broad
support among Aboriginal organizations and communities in the Dehcho Region for the benefits that the Prairie Creek Mine could
bring to the Dehcho Region of the Northwest Territories. The Review Board acknowledged the commitments that the Company has made
toward mitigating potentially adverse social impacts of the project on First Nations and communities in the region.



The Socio-Economic Agreement between the Company
and the GNWT is a key document in the Review Board’s findings on impacts of the project on the human environment. In the
Review Board’s view, the Prairie Creek Mine is not likely to have significant adverse impacts on the human environment of
the Dehcho Region or the Northwest Territories provided the developer’s commitments are followed and enforced and the Socio-Economic
Agreement is implemented.



To achieve its proposed water quality objectives,
the Company made commitments to enhance its water treatment plant, increase water storage capacity and construct an improved mine
effluent outfall for discharge into Prairie Creek. The Company and the Department of Aboriginal Affairs Canada and Northern Development
proposed differing approaches to site specific water quality objectives for Prairie Creek. The Review Board is of the view that
the implementation of either approach to site specific water quality objectives is not likely to significantly impact water quality
in Prairie Creek in the area of the mine site, in Prairie Creek at the Nahanni National Park Reserve boundary, or in Prairie Creek
at its confluence with the South Nahanni River. The Review Board noted that the Water Board will decide in the regulatory phase
the limits to protect water quality that are appropriate for this Project and setting.



The Review Board provided three suggestions
that would improve the monitoring and management of potential impacts from the development of the Prairie Creek Mine:



| | · | The Review Board noted that construction of a second water storage pond may address a broader range
of risks and result in better water management on site and improved water quality in Prairie Creek. The Review Board suggested
that the Water Board consider this during the licensing phase.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



60







| | · | In the Review Board’s opinion, the Company’s approach to tailings management by placing
all tailings underground as tailings paste backfill by the end of mine operations can be achieved and will reduce impacts on water
quality so that they are not likely to be significant. The Review Board suggested that the Company prepare a Tailings Management
Plan for both the permanent storage of tailings underground and the temporary storage of tailings on surface at the mine site.
The Review Board suggests that this Plan should be part of the water licences.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The Review Board suggested that the Company use secondary containment of concentrate during transport
along the winter road to reduce the risk of contaminant dispersal.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Throughout the EA process, Canadian Zinc proposed
certain design modifications to the mine site and access road to improve the project and minimize potentially adverse impacts to
the environment. Key design modifications included commitments to increase water storage capacity at the mine site, an improved
mine effluent design, an enhanced water treatment plant and realignments of the access road.



The EA Report stated that the Review Board
based its decision on the assumption that Canadian Zinc would fulfill its commitments made during the proceedings and that these
commitments were important for the Review Board's decision on the significance of adverse impacts. The Review Board stated that,
in its opinion, it is therefore important that the Company, appropriate regulatory authorities and government agencies ensure that
Canadian Zinc fulfills its commitments. The full list of commitments made by Canadian Zinc is set out in Appendix B to the EA Report.
Investors are urged to read and consider closely the full text of the Report of Environmental Assessment and Reasons for Decision,
including the list of commitments in Appendix A thereof.



The full text of the Report of Environmental
Assessment and Reasons for Decision, together with all proceedings, transcripts, technical reports and detailed information on
the EA (EA0809-002) of the Prairie Creek Mine and letters commenting on the EA Report are available on the website registry of
the Review Board under the file of Canadian Zinc Corporation, and is included as a schedule to the amended material change report
of the Company dated December 22, 2011 and filed on SEDAR on December 22, 2011 in respect of the announcement that the Mackenzie
Valley Environmental Impact Review Board has approved the proposed operation of the Company's Prairie Creek Mine.



The Review Board concluded that the proposed
development of the Prairie Creek Mine is not likely to have any significant adverse impacts on the environment or to be a cause
for significant public concern.



The Review Board concluded that the development
(including the commitments made by Canadian Zinc) is not likely to have significant adverse impacts on the environment, and that
the commitments were already a part of the development, and concluded that no mitigation measures were necessary to ensure that
there would be no adverse effects on the environment. Section 128(1) (b) of the Act allows for the imposition of mitigation measures
did not apply, because of the conclusion that the development is not likely to have adverse impacts.



The Review Board therefore concluded that an
environmental impact review of this proposed development is not necessary and that the Prairie Creek Mine project should proceed
to the regulatory phase for approval. The MVRMA provides that the Minister may order an environmental impact review of the proposal,
notwithstanding the Review Board’s determination.



In a decision dated June 8, 2012, the Minister
of Aboriginal Affairs and Northern Development, on behalf of the responsible Ministers with jurisdiction, including the Minister
of the Environment, the Minister of Fisheries and Oceans, the Minister of Environment and Natural Resources, the Minister of Transport
Canada and the Minister of Environment and Natural Resources of Government of the Northwest Territories, advised the Review Board
of the Decision that the Ministers will not order an environmental impact review of the proposed development of the Prairie Creek
Mine, nor will they refer the proposal to the Minister of the Environment for a Canadian Environmental Assessment Act joint panel
review.



Regulatory
Process



In January 2012, following the completion of
the Environmental Assessment in December 2011, the Water Board commenced the regulatory process for the issue of a Class “A”
Water Licence and Land Use Permits for the operation of the Prairie Creek Mine. In February 2012, the Company submitted a CPD,
highlighting the changes that resulted from commitments made by Canadian Zinc during the environmental assessment process.





61







The Water Board completed its review of the
information contained in the application, Environmental Assessment and the CPD and in May 2012, issued a Directive on additional
information required by the Water Board at this stage of the Regulatory Process.



In November 2012, a series of technical sessions
were held in Yellowknife to review the Company’s submissions to the Water Board. The sessions resulted in triggering 24 additional
Information Requests which the Company responded to in December 2012. Follow-up meetings to further discuss the Information Requests
were held in Yellowknife and Fort Simpson during the week of December 20, 2012.



Formal written interventions to the MVLWB were
submitted by the Intervening Parties on January 11, 2013 and CZN submitted a response to the Interventions on January 18, 2013.
Beginning on January 29, 2013, the Company and Intervenors attended Public Hearings held in Fort Simpson. The three day session
was adjudicated by the Water Board. A Public Hearing scheduled to be held in Nahanni Butte February 1, 2013 was postponed due to
weather and held as a Teleconference on February 8, 2013.



In June 2013, the MVLWB issued LUP “MV2008D0014”
which permits Canadian Zinc to extract ore and waste rock from the Prairie Creek Mine, operate a flotation mill concentrator to
produce zinc and lead concentrates, create a waste rock facility, and refurbish and develop site facilities in support of the mining
operation, along with the eventual closure and reclamation of the mine site.



Also in June 2013, the MVLWB issued LUP “MV2008T0012”
which permits Canadian Zinc to construct and operate the Liard Transfer Facility to be situated near the junction of the existing
Prairie Creek Mine access road and the Liard Highway. The Liard Transfer Facility is a staging area at the south end of the winter
access road designed to temporarily store outbound concentrate and inbound supplies.



Both new LUP permits issued in June 2013 are
valid for a term of five years and with an optional two year extension.



In July 2013, the Water Board completed its
regulatory process and finalized the Type “A” Water Licence, MV2008L2-002, for the Prairie Creek Mine and forwarded
the Licence to the Federal Minister of Aboriginal Affairs and Northern Development Canada with the recommendation that the Minister
approve and sign the Licence.



In September 2013, the Minister of Aboriginal
Affairs and Northern Development Canada, approved and signed the Type “A” Water Licence for the Prairie Creek Mine
in the Northwest Territories, Canada.



The Minister of Aboriginal Affairs and Northern
Development Canada gave his approval for the Water Licence as recommended by the MVLWB in accordance with Section 81 of the Mackenzie
Valley Resource Management Act. In transmitting the signed licence to the Water Board, the Minister noted his understanding “that
this was a particularly challenging licence for all involved in the licencing process. This licence is in relation to a project
that is subject to a series of very unique circumstances which have given rise to the need for innovative solutions.” The
Minister noted “the need for a novel approach to water treatment was identified early on in the regulatory process due to
the unique environmental conditions of the mine site.”



In its recommendation to the Minister, the
Water Board provided some comments on the issues faced and the decisions made in respect of this Licence. The Board accepted the
site-specific water quality objectives derived by Canadian Zinc. These are almost all more stringent than the country-wide guideline
values adopted by the Canadian Council of Ministers of the Environment. The Board also determined, after many months of review
and study, that effluent quality criteria (“EQC”) using a variable load-based discharge approach, as proposed by Canadian
Zinc, will be a more protective and practical way of controlling effluent discharge from the mine to Prairie Creek. The Board recognized
that this is a new approach compared to the standard fixed EQC, but believes that practical and effective mechanisms can be put
in place to ensure compliance.





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On December 22, 2013, the Company filed a request
with the Water Board to amend certain terms of the Type “A” Water Licence and the Land Use Permit, specifically to
extend the term of the permits and to change the timing schedule for the required security deposits to coincide with commencement
of construction and commercial operation. The Department of Aboriginal Affairs and Northern Development Canada has confirmed to
the MVLWB that the Board’s assessment of the Company’s liability for the cost of closure and reclamation is not applicable
until a new lease for production replaces the existing care and maintenance surface lease. The Company has provided responses
to Information Requests and the MVLWB has circulated the application to interested parties for comment.



In August 2014, Canadian Zinc submitted an
amended development schedule for the Prairie Creek Mine to the Mackenzie Valley Land and Water Board and this was followed up by
an application to the MVLWB in October 2014 requesting that its Type “A” Water Licence be held in abeyance until more
certainty develops around the actual commencement of construction and the mine development schedule.



In June 2015, the Mackenzie Valley Land and
Water Board approved the Company’s application that the Type “A” Water Licence be held in abeyance until more
certainty develops around the actual commencement of construction and the mine development schedule and also approved the Company’s
applications for amendments to the timing schedules of the various reclamation security deposits to be provided under the Water
Licence and the Land Use Permit. The Company, accordingly, deposited a total of $1.55 million as security with the Government of
the Northwest Territories in August of 2015 to increase the financial assurance relating to current reclamation and closure obligations
of the Prairie Creek Mine site as it now exists with its current infrastructure under the Company’s existing surface leases,
land use permits and Type “B” Water Licence.



Documentation related to this regulatory process
is posted on the Water Board website (Year 2008, Canadian Zinc MV2008L2-0002).



Environmental Matters



Impact Assessment



The Developer’s Assessment Report submitted
to the Review Board in March 2010 outlines the Company’s assessment of any potential environmental impact that operating
the Prairie Creek mine may have on the region.



Human Environment: The Prairie Creek
Mine is a relatively modest project that is proposed for a region of the Northwest Territories that has limited other confirmed
economic prospects. The real economic and social impact of this project will be generated through the participation of local labour
and business in the area, including the communities of Nahanni Butte, Fort Simpson and Fort Liard. Participation will come in the
form of direct employment, direct supply of goods and services, and spin-off activities. There will be a period of adjustment as
people and communities integrate into the wage economy. The rise in financial wealth and all that it affords will more than offset
this initial adjustment period. For those living in the project area, an operating Prairie Creek Mine offers an opportunity for
a generation of employment, and will result in a population that is better educated, better trained and better able to cope with,
adapt to and capture new opportunities in the future.



Access road operations are expected to increase
traditional land use in the area since a re-aligned access road will afford easier access to hunting areas and trap lines. However,
a cooperative effort is required to control road access because unauthorized use poses risks to safety and to wildlife from hunting
pressures.



Water Quality: Recent studies show that
the historical discharge of untreated mine drainage has had no significant impact on downstream water and stream sediment quality,
or aquatic life. This suggests Prairie Creek is not particularly sensitive to discharges from the Mine. Nevertheless, Canadian
Zinc’s water management strategy for operations will minimize the potential for impacts.



Predictions show that the planned discharge
from the Mine during operations will not cause metal concentrations in Prairie Creek to exceed the targets when creek flows are
in the normal range year round. Canadian Zinc will monitor flows in the creek, and if flows are found to be lower than normal,
the discharge will be temporarily adjusted so that the targets are not exceeded. This will mean no impacts on Prairie Creek water
at the Mine, or 7 kilometres downstream at the new Nahanni National Park Reserve boundary.





63







After mine closure, there will be no drainage
from mine portals because the Mine and access tunnels will be completely filled. However, bedrock surrounding the Mine workings
is expected to allow the passage of groundwater. This water will contain metals, mostly from mineralization considered uneconomic
and not mined, and to a lesser extent from the backfilled waste mixture. A small quantity of seepage from the covered Waste Rock
Pile is also possible.



It is believed that the natural zinc concentrations
that existed in Prairie Creek before any mine development potentially exceeded the water quality target during winter months when
creek flows were lower than normal.



Predictions for Prairie Creek after mine closure
suggest all metal concentrations will remain within the water quality targets when creek flows are in the normal range year round,
but if creek flows are lower than monthly in winter, zinc concentrations could be similar to those predicted to have potentially
occurred before mine development. Post-mine predictions also indicate higher cadmium concentrations in winter if creek flows are
unusually low. However, cadmium is not stable in the natural environment and disappears quickly because of various natural reactions.
Therefore, the target for this metal is unlikely to be exceeded. As such, it is likely that no additional impacts on water quality
will occur after mine closure compared to pre-mine conditions.



Following Technical Sessions held during October
2010 related to the Prairie Creek Environmental Assessment the Mackenzie Valley Review Board issued a Second Round of Information
Requests and the Company received 54 Information Requests from seven agencies. The majority of requests related to further details
of the proposed operating mine water quality and management.



In order to adequately address the Information
Requests the Company needed to generate water products that would be representative of the proposed Prairie Creek operations. This
required the collection of local Prairie Creek Mine site source water products and included the collection of a 285 kg bulk mineralization
composite rock sample from various underground headings, over 200 litres of minewater and water directly from Prairie Creek itself.
SGS Canada Inc., of Vancouver completed a Locked Cycle Test utilizing the collected rock and water samples in a laboratory bench
scale study. The mill process flow sheet used in the Locked Cycle Test had been previously determined through numerous metallurgical
studies. Both concentrates and waste products, including tailings and water, were generated from this laboratory scale milling
process.



SGS-CEMI labs completed further primary treatment
tests on both the process water and minewater. Further analysis related to effluent discharge of the proposed Prairie Creek Mine
was completed by Hatfield Consultants of Vancouver. These included development of proposed site-specific water quality objectives,
definition of an internal dilution zone and development of proposed Effluent Quality Criteria. Additional toxicity studies were
completed, on the product effluent using both fish and organic growth to determine discharge toxicity levels and impact assessment
related to aquatic sensitivities. These studies resulted in developing a more detailed water treatment scheme and water management
system for the proposed Prairie Creek site.



The original proposal to use an end of pipe-type
design to disperse mine effluent did not produce satisfactory mixing condition within the Prairie Creek dilution zone. Additional
investigation of outfall effluent discharge design by Northwest Hydraulic Consultants was completed and a new exfiltration trench
has been proposed and at the outfall location into Prairie Creek. In addition a downstream mixing analysis of the outfall water
with Prairie Creek flows was also completed with the use of proprietary HEC-RAS hydraulic modeling software.



Canadian Zinc and the Department of Aboriginal
Affairs and Northern Development proposed differing approaches to site specific water quality objectives for Prairie Creek.



The “Reference Condition Approach”
(“RCA”), recommend by AANDC, is a method of determining site specific water quality objectives (“SSWQO”)
for the environment, which are in turn used to create effluent quality criteria that are meant to regulate end-of-pipe water discharge
into the environment.



Canadian Zinc believed that technical solutions
acceptable to all parties had been identified for most issues raised in the EA. However, there remained a difference in approach
between the Company and AANDC regarding the methodology used to select site specific water quality objectives relating to the treated
water discharge from the Prairie Creek Mine. CZN and AANDC agreed to collaborate to move forward in a timely manner to further
discuss the issues and seek to reach a mutually acceptable solution and approach. In a letter issued July 15, 2011, the Review
Board encouraged the parties to complete the meetings and report preparation prior to the deadline established for final submissions.





64







During August and September the Company met
numerous times with interested parties to further collaborate on water quality objectives. A number of additional components, including
enhanced water storage and treatment, were suggested to further add to site contingency factors. Progress was made in resolving
certain issues in order to move forward with the broad development of a framework for selecting Site-Specific Water Quality Objectives
prior to the filing of Final Submissions by the parties and by the Company on September 16, 2011.



To achieve its proposed water quality objectives,
Canadian Zinc made commitments to enhance its water treatment plant, increase water storage capacity and construct an improved
mine effluent outfall for discharge into Prairie Creek.



The Review Board addressed the issue of the
Reference Condition Approach in its EA Report under a section entitled “3.1.3 Site specific water quality objectives”.
The Review Board reviewed the submissions from all parties regarding the differing approaches to establishing SSWQOs.



The Review Board is of the view that the implementation
of either approach to site specific water quality objectives is not likely to significantly impact water quality in Prairie Creek
in the area of the mine site, in Prairie Creek at the Nahanni National Park Reserve boundary or in Prairie Creek at its confluence
with the South Nahanni River.



The Review Board concluded that either approach
to SSWQOs would produce a result that was not likely to have any significant adverse impacts on the environment. The Review Board
specifically left the issue of what SSWQOs would be used to establish EQCs to the Mackenzie Valley Land and Water Board, stating
at page 30, “The Review Board will not provide a recommendation on effluent quality criteria because it is the responsibility
of the Mackenzie Valley Land and Water Board.” The Review Board recognizes that the Mackenzie Valley Land and Water Board
will decide the limits to protect water quality that are appropriate for this project and setting.



The Review Board provided a suggestion to improve
the monitoring and management of potential impacts from the development of the Prairie Creek Mine. It noted that construction of
a second water storage pond may address a broader range of risks and result in better water management on site and improved water
quality in Prairie Creek. The Review Board suggested that the Water Board consider this during the licensing phase.



The main purpose of a Water Licence is to regulate
the discharge of water to the environment via the application of licence terms and conditions and the establishment of effluent
quality criteria. CZN proposed a water management plan that includes real-time flow monitoring of the Prairie Creek stream, and
discharge of treated mine water and treated process water according to a ‘load-based’ approach. In this approach, the
volume and the blend of discharge (comprised of treated mine water and treated process water) are varied according to the actual
flow volumes in the receiving stream. In so doing, site-specific water quality objectives can be met, and there is no significant
negative impact on the receiving environment.



The Water Board accepted the site-specific
water quality objectives derived by Canadian Zinc. These are almost all more stringent than the country-wide guideline values adopted
by the Canadian Council of Ministers of the Environment. The Board also determined, after many months of review and study, that
effluent quality criteria using a variable load-based discharge approach, as proposed by Canadian Zinc, will be a more protective
and practical way of controlling effluent discharge from the mine to Prairie Creek. The Board recognized that this is a new approach
compared to the standard fixed EQC, but believes that practical and effective mechanisms can be put in place to ensure compliance.



In 2012 Environment Canada initiated a 10 Year
Review process of the Metal Mining Effluent Regulations (“MMER”). The review is focused on proposed amendments to MMER
that would include more stringent effluent limits and, among other proposals, make changes to the Environmental Effects Monitoring
program. The Company understands that as part of its review Environment Canada proposes to establish BATEA based (best available
technology economically achievable) effluent limits as a means to promote continuous improvement in the sector. The proposed revisions
to the MMER have not yet been adopted.





65







Fish: Bull trout and mountain whitefish
are found in Prairie Creek near the Mine, however numbers are low. Spawning trout have been found in Funeral Creek, a tributary
of Prairie Creek upstream of the Mine. No evidence of spawning has been found downstream of the Mine. Based on the water quality
predictions, mine operations should have no impact on fish. Water quality after Mine closure may cause limited impacts in the immediate
vicinity of the Mine site when Prairie Creek flows are less than normal winter levels. These impacts may have occurred naturally
before the Mine existed.



Air: New power generators and an incinerator
will limit the release of exhaust gases. Humid conditions will naturally control dust. Any impacts will be limited to the Mine
area.



Wildlife and Vegetation: Impacts to
wildlife from Mine operations are expected to be limited and largely avoidable. Dall’s sheep lamb on high ground in the area
in the spring and could be disturbed by air traffic. Flight path management will be adopted. There is a potential for mortality
of Dall’s sheep, woodland caribou and wood bison associated with access road use. A wildlife sighting and notification system
will be adopted, in addition to the posting of speed limits. Grizzly bear-human encounters are possible at the Mine site and programs
to limit any attraction of bears will be implemented, along with training to respond appropriately to bear encounters. No significant
impacts on vegetation are expected because of the relatively small areas of disturbance relative to the large areas of vegetation
types.



Terrain and Stability: No large-scale
landslide features are evident near the Mine and access road, and the risk of major slope failure appears to be small. Small-scale
slope failures and mudflows are possible along the access road east of the Mackenzie Mountains, particularly where permafrost might
exist in lowland areas. Impacts can be minimized by good drainage and avoiding removal of the vegetation layer during annual road
construction. Engineered structures (the Water Storage Pond and Waste Rock Pile) have been designed to be stable during earthquakes.
Dykes protecting the site during major floods were designed and built properly. Maintenance repairs have been made to the armour
rock on the dykes.



Accidents and Malfunctions: The majority
of Mine activities, and all those associated with chemicals, fuel and hazardous material, will take place within a dyke-protected
area, isolated from Prairie Creek. Any spills or contamination can be contained on site, and discharge of site water to the environment
can be stopped temporarily. The potential for spills or leaks along the access road will be minimized by controlling road use and
using industry-standard containers for transport and storage. Winter conditions will assist in the containment of any spills until
a response team can complete a clean-up. The bags of concentrate being transported will be frozen, but road bed tests will be made
along the route to make sure material is not being lost.



Cumulative Effects: Very little other
activity is or will likely be occurring in the area during Mine operations that could cause cumulative effects. If the Mackenzie
Gas Pipeline construction occurs during the life of the Mine, there will be significant regional disruption, but this is unlikely
to significantly affect the Mine because the pipeline will require short-term skilled labour. Unauthorized use of the access road
would raise safety and wildlife concerns. Canadian Zinc is hoping to control access, and will closely monitor road activity.



Monitoring and Reporting: Significant
monitoring of operations and the environment will occur during and after the Mine’s life. Canadian Zinc expects individuals
from local communities to be involved in this, preferably as employees. Canadian Zinc undertakes to share the monitoring results.
Canadian Zinc’s desire is for the current Canadian Zinc-Parks Canada-Dehcho Technical Committee to evolve into a more public,
inclusive committee that meets frequently in the region, and is used as a forum to review Mine performance and to discuss and address
concerns.



In December 2011, the Review Board concluded,
pursuant to paragraph 128 (1) (a) of the Mackenzie Valley Resource Management Act, that the proposed development of the
Prairie Creek Mine as described in the Report of Environmental Assessment, including the list of commitments made by Canadian Zinc
during the proceedings, is not likely to have any significant adverse impacts on the environment or to be a cause for significant
public concern.





66







Acid Rock Drainage



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



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



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



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



Static laboratory geochemical characterizations
were carried out by Mesh, including acid-base accounting (“ABA”), along with: total inorganic carbon and multi-element
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 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).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Hazardous Materials



Hazardous and toxic waste materials have been
stored at the Prairie Creek Mine site, including sodium cyanide and PCB’s that remained from Cadillac’s operations
in the early 1980s. Diesel fuel is also stored on site. All such substances were stored in a secured manner and are regularly inspected
by government agencies.





67







A disposal project for the cyanide and PCB’s
commenced in 2007 and in July 2008, following receipt of the necessary regulatory approvals, the repacked sodium cyanide drums
were transported 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.



In 2010, a program was undertaken to remove,
by airlift, all PCB (polychlorinated biphenyls) contaminated material that has been stored in a dedicated safe facility on site
since 1982. The Company contracted Hazco Environmental Services to repackage, remove and transport the PCB material off-site to
be disposed of, by incineration, at the certified Earth Tech Swan Hills disposal facilities in Northern Alberta.



Endangered
Species



The federal, provincial, and territorial government
signatories under the Accord for the Protection of Species at Risk (1996) agreed to establish complementary legislation and programs
that provide for effective protection of species at risk throughout Canada. Under the Species at Risk Act(S.C. 2002, c.29)
(SARA), the federal competent ministers are responsible for the preparation of recovery strategies for listed Extirpated, Endangered,
and Threatened 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 Peregrine 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 wolverines have been observed or encountered only very infrequently in the area surrounding
the mine over the past 20 years.



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. 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.



In 2011, Environment Canada published a proposed
recovery strategy on the Boreal population of Woodland Caribou (Rangifer tarandus caribou), referred to as boreal caribou,
which were assessed in May 2002 as ‘Threatened’ by the Committee on the Status of Endangered Wildlife in Canada (COSEWIC).
[Environment Canada. 2011. Recovery Strategy for the Woodland Caribou, Boreal population (Rangifer tarandus caribou) in
Canada [Proposed]. Species at Risk ActRecovery Strategy Series.] The long-term recovery goal for boreal caribou is to achieve
self-sustaining local populations throughout their distribution in Canada to the extent possible.



Boreal caribou are primarily threatened by
a reduction in the availability and suitability of habitat necessary to carry out the life processes necessary for their survival
and reproduction. They require large range areas comprised of continuous tracts of undisturbed habitat rich in mature to old-growth
coniferous forest, lichens, muskegs, peatlands, and upland or hilly areas. Large range areas with suitable quality habitat allow
boreal caribou to disperse across the landscape when conditions are unfavourable (e.g. natural wildfire disturbance, anthropogenic
disturbance) and to maintain low population densities throughout the range to reduce the risk of predation. Threats, primarily
habitat alteration (i.e. habitat loss, degradation, and fragmentation) from both anthropogenic and natural stressors, and predation
have resulted in local population declines throughout their distribution.





68







Boreal caribou are distributed broadly throughout
the boreal forest region, including in the Mackenzie Mountains of the Northwest Territories. In 2010, the Company completed two
wildlife surveys with Golder & Associates and Parks Canada, by fixed wing airplane, along the proposed winter road route to
the Prairie Creek Mine in order to further assess the wildlife population, with an emphasis on caribou. Caribou populations and
potential caribou habitat have been identified in areas removed from the Prairie Creek Mine 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.



In September 2014, Canadian Zinc completed
helicopter-supported environmental field studies along the proposed route of an all season road. Environmental studies included
a caribou occupancy wildlife survey, habitat data collection at fish-bearing stream crossings.



Nahanni National
Park Reserve / Parks Canada Memorandum of Understanding



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



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



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



The NNPR 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, NNPR 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 NNPR 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 NNPR to include more of the head waters of the South Nahanni and the karst terrain. Several
studies were conducted to assess this potential.



In June 2009, new legislation was enacted by
the Canadian Parliament entitled “An Act to amend the Canada National Parks Act to enlarge Nahanni National Park Reserve
of Canada” to provide for the expansion of Nahanni National Park Reserve. Nahanni National Park Reserve was expanded
by 30,000 km2, making it the third largest National Park in Canada. The enlarged Park covers most of the South Nahanni
River watershed and completely encircles the Prairie Creek Mine. However, the Mine itself and a large surrounding area of approximately
300 km2 are specifically excluded from the Park and are not part of the expanded Park.



The exclusion of the Prairie Creek Mine from
the NNPR expansion area has brought clarity to the land use policy objectives for the region and will facilitate various aspects
of the environmental assessment process. The Government’s decision on the expansion of NNPR reflects a balanced approach
to development and to conservation which allows for mineral resource and energy development in the Northwest Territories and at
the same time protects the environment.



Section 7(1) of the new Act amended the Canada
National Parks Act to enable the Minister of the Environment to enter into leases or licences of occupation of, and easements
over, public lands situated in the expansion area for the purposes of a mining access road leading to the Prairie Creek Area, including
the sites of storage and other facilities connected with that road. Heretofore, an access road to a mine through a National Park
was not permitted under the Canada National Parks Act, and the Act was amended solely for Nahanni National Park Reserve
and specifically for the purpose of providing access to the Prairie Creek Area.





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On July 29, 2008, Parks Canada Agency (“Parks
Canada”) and Canadian Zinc entered into a MOU with regard to the expansion of the NNPR and the development of the Prairie
Creek Mine, whereby:



| | · | Parks Canada and Canadian Zinc agreed to work collaboratively, within their respective areas of
responsibility, authority and jurisdiction, to achieve their respective goals of an expanded Nahanni National Park Reserve and
an operating Prairie Creek Mine.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Parks Canada recognized and respects the right of Canadian Zinc to develop the Prairie Creek Mine
and was to manage the expansion of Nahanni National Park Reserve so that the expansion did not in its own right negatively affect
development of, or reasonable access to and from, the Prairie Creek Mine.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Canadian Zinc accepted and supported the proposed expansion of the Nahanni National Park Reserve
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 National Park Reserve.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The 2008 MOU was intended to cover the period
up to the development of the Prairie Creek Mine (Phase I).



In February 2012, Canadian Zinc and Parks Canada
signed a renewed Memorandum of Understanding regarding the operation and development of the Prairie Creek Mine and the management
of Nahanni National Park Reserve. The MOU, which was valid for three years, replaced the previous MOU signed between the Parties
in 2008.



In November 2015, Canadian Zinc and Parks Canada
signed a Memorandum of Understanding Phase III regarding the operation and development of the Prairie Creek Mine and the management
of Nahanni National Park Reserve. The Phase III MOU, which is valid for five years from November 2015, renews the previous MOUs
signed between the Parties in 2008 and 2012.



In the renewed MOU:



| | · | Parks Canada and Canadian Zinc agree to work collaboratively, within their respective areas of
responsibility, authority and jurisdiction, to achieve their respective goals of managing Nahanni National Park Reserve and an
operating Prairie Creek Mine.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Parks Canada recognizes and respects the right of Canadian Zinc to develop the Prairie Creek Mine
and has granted Land Use Permit 2009 – L02 to provide road access through the Park to the Mine area.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Canadian Zinc acknowledges the cooperative management relationship Parks Canada shares with the
Dehcho First Nations in the management of Nahanni National Park Reserve. This includes recognition of the 2003 Parks Canada - Dehcho
First Nation Interim Park Management Arrangement and the role of the cooperative management mechanism –Nah?a Dehé
Consensus Team.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In the MOU Parks Canada and Canadian Zinc 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, development of the access to and from the Prairie Creek Mine through Nahanni
National Park Reserve and operation of the Prairie Creek Mine.



The Parties 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 parties have agreed to make reasonable efforts to be timely in regards to permit requests being submitted,
with ample time for review and consultation, such review and consultation will occur without unreasonable delay.



The MOU is an expression of the mutual intentions
of the parties and is not legally binding on them or enforceable against them. The MOU does not create any new powers or duties
or alter or affect any rights, powers and 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.





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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, and is not intended
to constrain Parks Canada from doing so, subject only to the understanding that in doing so Parks Canada will not object to or
oppose, in principle, the development of the Prairie Creek Mine.



Environmental
Obligations



The Company recognizes liabilities for statutory,
contractual, constructive or legal obligations, including those associated with the reclamation of exploration and evaluation assets,
when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a provision
for a decommissioning liability is recognized at its present value in the period in which it is incurred, which is generally when
an environmental disturbance occurs or a constructive obligation is determined. Upon initial recognition of the liability, a corresponding
amount is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the
asset using the unit of production method. Following the initial recognition of a decommissioning liability, the carrying amount
of the liability is increased for the passage of time and adjusted for changes to the current market-based discount rate and the
amount or timing of the underlying cash flows needed to settle the obligation. Changes to estimated future costs are recognized
in the statement of financial position by either increasing or decreasing the decommissioning liability and the decommissioning
asset.



Reclamation and closure costs for the Prairie
Creek Property have been estimated based on the Company’s understanding of its current obligations under its existing surface
leases, land use permits and class “B” Water Licence for reclamation and closure of the Prairie Creek Mine site as
it now exists with the current infrastructure and assuming a mine life of 11 years. These reclamation and closure costs have been
measured based on the net present value of the best estimate of future cash expenditures.



The Company’s decommissioning liability
of the Prairie Creek site, as it currently exists, is calculated as at December 31, 2015 to be $3,142,000 (December 31, 2014 -
$3,142,000), being the estimated future net cash outflows of the reclamation and closure costs, including a 30% contingency and
inflation of 2%, required to satisfy the obligations, settlement of which will occur subsequent to closure of the mine through
to 2032. The discounted decommissioning liability is calculated using a risk free rate of 2.03% per annum (December 31, 2014 –
2.22%).



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 decommissioning liability 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 Report, the Company is not aware of any material environmental matter requiring significant capital outlays
in the immediate future.



The Company currently holds a surface lease,
issued by the Minister of Aboriginal Affairs and Northern Development Canada, which limits the use of the land for mine site care
and maintenance purposes only and establishes the Company's current responsibility for abandonment and restoration in accordance
with an abandonment and restoration plan attached as a schedule to the surface lease. The Company has applied to the Minister of
Aboriginal Affairs and Northern Development Canada for a new lease for production to replace the existing care and maintenance
surface lease.



In September 2013, the Company was issued with
the Type “A” Water Licence MV2008L2-002 by the Mackenzie Valley Water Board. The Licence is subject to numerous conditions,
including the requirement to post and maintain security, in stages, with the Minister of Aboriginal Affairs and Northern Development
Canada totaling $13.07 million, on a schedule of $3 million within ninety days of the effective date of the licence, $5 million
prior to extracting waste rock from the underground mine and $5.07 million prior to commencing milling.



In June 2013, the MVLWB issued Land Use Permit
MV2008D0014 which permits Canadian Zinc to extract ore and waste rock from the Prairie Creek Mine, operate a flotation mill concentrator
to produce zinc and lead concentrates, create a waste rock facility, and refurbish and develop site facilities in support of the
mining operation, along with the eventual closure and reclamation of the mine site. This permit is subject to numerous conditions
including the requirement to deposit, in stages, with the Minister of Aboriginal Affairs and Northern Development Canada security
of $3 million within ninety days of the issue of the permit and additional $1 million prior to the commencement of construction
upgrades to the mill.





71







In June and December 2013, the Company filed
requests with the MVLWB for amendments to the timing schedules of the various security deposits to be provided to the Minister
of Aboriginal Affairs and Northern Development Canada under the Type “A” Water Licence and the Land Use Permit. The
Department of Aboriginal Affairs and Northern Development Canada has confirmed to the MVLWB that the Board’s assessment of
the Company’s liability for the site and cost of closure and reclamation is not applicable until a new lease for production
replaces the existing care and maintenance surface lease.The Company has provided responses
to Information Requests and the MVLWB has circulated the application to interested parties for comment.



In August 2014, CZN submitted an amended development
schedule for the Prairie Creek Mine to the MVLWB and this was followed up by an application to the MVLWB in October 2014 requesting
that the Water Licence be held in abeyance until more certainty develops around the actual commencement of construction and the
mine development schedule.



In June 2015, the Mackenzie Valley Land and
Water Board approved the Company’s application that the Type “A” Water Licence be held in abeyance until more
certainty develops around the actual commencement of construction and the mine development schedule and also approved the Company’s
applications for amendments to the timing schedules of the various reclamation security deposits to be provided under the Water
Licence and the Land Use Permit. The Company, accordingly, deposited a total of $1.55 million as security with the Government of
the Northwest Territories in August of 2015 to increase the financial assurance relating to current reclamation and closure obligations
of the Prairie Creek Mine site as it now exists with its current infrastructure under the Company’s existing surface leases,
land use permits and Type “B” Water Licence.



The Company also holds various land use permits,
water licences and construction permits from the MVLWB and Parks Canada with the requirement to post security for future reclamation
in the total amount of $3.33 million, to be posted prior to construction of infrastructure
or commencement of operations. The Company has previously posted reclamation security deposits in support of current reclamation
obligations in the amount of $525,000 and now has a total of $2.075 million posted. The Company does not anticipate any requirement
to post additional funds until project construction is initiated.



First Nations



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



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



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



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





72







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 1980s 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 km2 and has a native population
of approximately 6,000.



On April 1, 2014 Bill C-15 -The Northwest
Territories Devolution Actcame into law providing for the devolution of lands and resource management in the NWT from the
Government of Canada to the GNWT. Devolution in the NWT represents the transfer of decision-making and administration for land
and resource management from the Government of Canada to the Government of the Northwest Territories. The territorial government
is now responsible for the management of onshore lands and the issuance of rights and interests with respect to onshore minerals
and oil and gas.



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



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



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





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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.



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 than $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 km2 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.





74







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 Park Reserve and to recommend an amendment
to the Canada National Parks Act for a new boundary for the expansion of the Nahanni National Park Reserve and, as part of the
Dehcho Final Agreement, moving the Nahanni National Park Reserve to full National Park status under the Canada National Parks Act.



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



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



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



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



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



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





75







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 since 2006 with no apparent progress reported. Around 2012 the DCFN and the
Government of the Northwest Territories agreed to establish a bi-lateral process to explore new and innovative solutions to break
the log-jams at the main negotiations.



On April 1, 2014 Bill C-15 -The Northwest
Territories Devolution Actcame into law providing for the devolution of lands and resource management from the Government
of Canada to the Government of the Northwest Territories. Devolution in the NWT represents the transfer of decision-making and
administration for land and resource management from the Government of Canada to the Government of the Northwest Territories.



A draft bi-lateral agreement was tabled and
discussed in May and June 2014. The draft agreement provided for land selection, the completion of a Dehcho Land Use Plan and the
structure and responsibilities of a Dehcho Resource Management Authority. It was reported in January 2015 that the GNWT offered
the Dehcho First Nations land selection of 37,500 square kilometres of their traditional territory, with only surface
rights, as well as a generalized interest in the subsurface equivalent of approximately 18% per cent of the Dehcho Settlement Area.
The GNWT stated that the offer to the Dehcho First Nations is consistent with previously settled claims in the Mackenzie Valley.
It has been reported in local media that the GNWT offer is not acceptable to the Dehcho and the DCFN have called for a mediator
to work through the dissensions and come to an agreement. It has been reported that the DCFN are reportedly seeking 50,000
square kilometres of land, with surface and subsurface rights.



The Dehcho Land Use Planning 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 Dehcho Land Use Planning 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.





76







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



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



The Dehcho Land Use Planning Committee
includes representatives of the Dehcho First Nations, the Government of the Northwest Territories and Government of Canada. As
outlined under the Dehcho Interim Measures Agreement the DCFN appointed two members while the two Governments each appointed one
member. Upon the recommendation of the Dehcho Land Use Planning 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 Mine site 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 intermittently.



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.



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.





77







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 agreed 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 continued discussions and engagement
with the Band throughout 2009 and 2010, specifically regarding their Traditional Knowledge and alternate routes for the access
road to Prairie Creek, taking into consideration the expressed preferences of the community of Nahanni Butte. The Band outlined
their concerns with the project and the Company’s responses to date include investigation of road realignment options and
surveys of specific locations along the access road for heritage resources.



In January 2011, the Company signed the NAH?A
DEHE DENE PRAIRIE CREEK AGREEMENT (the “Nahanni Agreement”) which provides for an ongoing working relationship between
Canadian Zinc Corporation and the Nah?a Dehe Dene Band (Nahanni Butte Dene Band) that respects the goals and aspirations of each
party and will enable the Nahanni community members to participate in the opportunities and benefits offered by the Prairie Creek
Project and confirms their support for the Prairie Creek Mine.



The Nahanni Agreement provides a framework
such that training, employment and business contracts are made available to Nahanni to ensure maximization of benefits from opportunities
arising from the Prairie Creek Project in a manner that will be to the mutual benefit of both 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 Nah?a Dehe Dene Prairie Creek Agreement provides for a positive and cooperative working relationship between
the Company and Nahanni Butte 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.



Liidlii Kue
First Nation



In June 2011, the Company signed an Impact
Benefits Agreement (“LKFN Agreement”) with the Liidlii Kue First Nation (“LKFN”) of Fort Simpson. The LKFN
Agreement is similar in many respects to the above mentioned Nahanni Agreement entered into with the Nahanni Butte Dene Band. The
LKFN has agreed to support CZN in obtaining all necessary permits and other regulatory approvals required for the Prairie Creek
Mine Project. The Agreement is intended to ensure that CZN undertakes operations in an environmentally sound manner. LKFN will
appoint a qualified Monitor to monitor environmental compliance and to monitor impacts of the Mine on the environment or wildlife
and to work with CZN to prevent or mitigate such impacts.



The LKFN Agreement provides a framework such
that training, employment and business contracts, and some financial provisions are made available to the LKFN to ensure maximization
of benefits from opportunities arising from the Prairie Creek Project in a manner that will be to the mutual benefit of all parties.
The Liidlii Kue First Nation is a member of the Dehcho First Nations. LKFN is the largest member of the Dehcho First Nations.



Socio-Economic Agreements



In August 2011, the Company signed a Socio-Economic
Agreement with the Government of the Northwest Territories related to the planned development of the Prairie Creek Mine. The Socio-Economic
Agreement establishes the methods and procedures by which the Company and the GNWT have agreed to work together to maximize the
beneficial opportunities and minimize the negative socio–economic impacts arising from an operating Prairie Creek Mine. The
Socio-Economic Agreement defines hiring priorities and employment commitments and practices during the construction, operation
and closure of the Prairie Creek Mine and across the entire spectrum of project-based employment. The Company has targeted employment
levels of at least 60% Northwest Territories residents and 25% Aboriginals. The Company has agreed to implement policies to maximize
business and value-added opportunities for businesses in the Northwest Territories. Canadian Zinc will use its best efforts to
ensure that purchases of goods and services through or from Northwest Territories businesses will be at least 30% during construction
and at least 60% during operations.





78







In August 2011, Human Resource and Skills Development
Canada, a federal department of the Government of Canada, approved a commitment of $3 million over a three-year period to fund
"More Than a Silver Lining", a program to provide Aboriginal participants with training-to-employment opportunities
in a variety of mining-related occupations at the Prairie Creek Mine. In addition to the funding from the Government of Canada,
the program received an additional $1 million from Canadian Zinc, the GNWT and the communities of Nahanni Butte, Fort Simpson,
Fort Liard, Trout Lake and Jean Marie River.



The “More Than a Silver Lining”
program delivered 19 training projects in the Dehcho Region over the three year period ending in 2013. Of the 19 training projects,
six were facilitated by Canadian Zinc at the Prairie Creek Mine. Over the course of three years approximately 300 local individuals
were assessed for participation in the training programs with 250 people actually participating, of which approximately 70 are
reported to have returned to employment and others have moved on to higher education.



In August 2012, Canadian Zinc and the GNWT
Department of Transportation signed a Collaboration Agreement to ensure effective co-operation related to the public transportation
infrastructure that will support the Prairie Creek Mine project and will help ensure that both public needs and mine activities
are supported.



Canadian Zinc plans to use the existing Northwest
Territories public transportation system to bring goods, fuel and equipment by road to the Mine and to transport its mineral products
from the Mine to world markets. As part of this Collaborative Agreement, to assist in priority setting, CZN will provide reports
to the Department of Transportation on its anticipated road transportation requirements for the construction and operation of the
Prairie Creek Mine which will help the Department of Transport to plan future work on these roads to maintain and enhance these
roads effectively and the Department agreed to work closely with Canadian Zinc to ensure public safety by identifying areas of
Highway 7 and the Nahanni Butte access road that require enhancement or upgrading.



From 2012 to 2014, Canadian Zinc, the Mine
Training Society, Government of the Northwest Territories and the Prairie Creek Mine’s neighbouring aboriginal communities
successfully completed a three year, federally funded training program entitled “More Than a Silver Lining”
(“MTSL”) under the Skills Partnership Fund with the Government of Canada. The MTSL training program’s total cost
was $4.3 million, with the majority of the funding being provided by the federal department of Human Resources and Skills Development
Canada. The program was solely focused on the workforce needs of the Prairie Creek Mine.



The MTSL program delivered 19 training projects
in the Dehcho Region over the three year period ending in 2014. Of the 19 training projects, six were facilitated by Canadian Zinc
at the Prairie Creek Mine. Over the course of three years approximately 300 local individuals were assessed for participation in
the training programs with 250 people actually participating, of which approximately 70 are reported to have returned to employment
and others have moved on to higher education.










Newfoundland Properties



Canadian Zinc owns an extensive land package
in central Newfoundland that includes three VMS projects, each with defined deposits, which are being explored by Canadian Zinc.
Key deposits on each project are listed below:



South Tally Pond Project
- Lemarchant deposit; Indicated Mineral Resource of 1.24 million tonnes grading 5.4% zinc, 0.5% copper, 1.2% lead, 1.0 g/t gold
and 59.27 g/t silver plus an additional Inferred Mineral Resource of 1.34 million tonnes grading 3.7% zinc, 0.4% copper, 0.9% lead,
1.0 g/t gold and 50.4 g/t silver (Giroux Consultants 2012);



Tulks South Project - Boomerang-Domino
deposit: Indicated Mineral Resource of 1.36 million tonnes grading 7.1% zinc, 3.0% lead, 0.5% copper, 110 g/t silver and 1.7 g/t
gold plus an additional Inferred Mineral Resource of 0.69 million tonnes grading 6.5% zinc, 2.8% lead, 0.4% copper, 95 g/t silver
and 1.0 g/t gold (Snowden 2007); and the Tulks East deposit; and





79







Long Lake Project - Long
Lake deposit: Indicated Mineral Resource of 0.48 million tonnes grading 7.8% zinc, 1.6% lead, 0.97% copper, 49 g/t silver and 0.57
g/t gold plus an additional Inferred Mineral Resource of 78,000 tonnes grading 5.7% zinc, 1.2% lead, 0.7% copper, 34 g/t silver
and 0.48 g/t gold (SRK, 2012).



The Company’s exploration strategy in
Newfoundland is to continue to build on its existing polymetallic resource base with the aim of developing either a stand-alone
mine, similar to the past-producing mines at Buchans and Duck Pond, or a number of smaller deposits that could be developed simultaneously
and processed in a central milling facility.



On June 30, 2015, the Company entered into
a collaboration agreement with Buchans Minerals Corporation (“Buchans Minerals”), a wholly owned subsidiary
of Minco Plc (AIM: MIO), whereby the two Companies will share research data on their respective central Newfoundland Zn-Pb-Cu-Ag-Au
deposits. The collaboration agreement is focused on seven VMS deposits located in central Newfoundland. Four of the deposits are
held the Company (Lemarchant, Boomerang-Domino, Tulks East, and Long Lake) and three of the deposits are held by Buchans Minerals
(Bobbys Pond, Daniels Pond and Tulks Hill).



The seven deposits have demonstrated resources
of various sizes and quality, are all located near the communities of Millertown and Buchans, NL and within trucking distance (30-90
km) of the recently closed Duck Pond Cu-Zn Mine. Individually at this time, the various deposits are not large enough to support
stand-alone operations, but could potentially be developed with improving economic factors and by utilizing a central mill facility.



The intent and objective of the research is
to determine the technical and economic viability of developing the companies' deposits into producing operations by utilizing
a central milling facility. The concept is based on the potential that collectively, the satellite deposits can be economically
mined, pre-concentrated, trucked and then milled simultaneously or sequentially through a central mill.



In conjunction with the collaboration agreement,
the Company applied and was subsequently awarded research funding by the Research & Development Corporation of Newfoundland
and Labrador ("RDC") in December, 2015. The funding was provided to undertake a research program to complete physical
and metallurgical bench scale studies on the seven VMS deposits located in central Newfoundland. The RDC is providing funding of
$535,000 for the project through the GeoEXPLORE Industry-led R&D Technology Development and Demonstration Program. The total
cost of the research project is estimated at $735,000 with Buchans Minerals and the Company each contributing up to $100,000



The bench scale testing program will be followed-up
by the development of a process simulation and cost assessment model to evaluate and identify the key factors controlling the earning
potential of a centralized milling concept for processing of the satellite base metal deposits. Results from the modelling will
be used to help optimize the exploration and development budgets, by focusing on the key factors that are critical to realizing
the economic potential of the base metal deposits in central Newfoundland.



Thibault & Associates Inc., an applied
process chemical engineering firm located in Fredericton, New Brunswick was awarded the contract to complete bench scale physical/metallurgical
studies and the process simulation and cost modelling.



Work completed on the RDC funded research program
to December 31, 2015 includes:



| | · | Diamond drilling was completed in December to obtain fresh metallurgical samples from four of the
seven VMS deposits. These included Canadian Zinc’s Boomerang-Domino and Lemarchant deposits and Buchans Minerals’ Bobbys
Pond and Daniels Pond deposits. The metallurgical samples and blending instructions were submitted to Thibault & Associates
Inc. for mineralogical investigation, grindability characterization, acid generation assessment and bench scale flotation testing.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Twelve samples (5-10 kg each) were collected and submitted to Thibault & Associates Inc. in
December for bench scale Dense Media Separation (“DMS”) testing. The DMS samples include four (4) samples from the
Boomerang-Domino deposit, two (2) samples from the Lemarchant deposit, two (2) samples from the Bobbys Pond deposit and one (1)
sample from each of the Tulks East, Long Lake, Tulks Hill and Daniels Pond deposits. The DMS testing is designed to assess the
amenability of mineralized samples from the deposits to physical upgrading (pre-concentration) at each site as a potential means
of reducing transportation costs from mine site to the milling facility and to maximize head grade to reduce processing costs.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





80







Subsequent to December 31, 2015, the bench-scale
Dense Media Separation test program was completed in February, 2016. Highlights of the bench scale test results indicate five (5)
of the semi-massive sulphide samples (Long Lake, Domino, Bobbys Pond and Daniels Pond) and one (1) footwall stockwork mineralization
sample (Lemarchant) achieved a technically viable DMS separation with a pre-concentrate weighing 60-80% of the original sample
weight. The remaining six (6) pyritic massive sulphide and/or barite samples (Boomerang, Lemarchant, Tulks East, Tulks Hill) were
not considered technically amenable to upgrading by DMS.



The metallurgical test work including mineralogical
investigation, grindability characterization, acid generation assessment and bench scale flotation testing is in progress. The
program is scheduled to be completed by November 2016.



Acquisition
of Messina Minerals Inc.



On December 20, 2013, the Company completed
its previously announced acquisition of Messina Minerals Inc. Under the terms of the Agreement, Canadian Zinc acquired all of the
outstanding common shares of Messina in exchange for 2,132,714 common shares of Canadian Zinc by way of a statutory plan of arrangement
on the basis of one share of Canadian Zinc for 5.9 shares of Messina.



Total consideration transferred was $1,372,000,
which was comprised of the issuance of 2,132,714 common shares valued at $896,000 based on the closing market price of the Company’s
shares on December 20, 2013 of $0.42 per share, conversion of options and warrants with a fair value of $19,000; Messina shares
amounting to 3,000,000 which were previously acquired and valued at $180,000 based on the closing market price of Messina shares
on December 20, 2013 of $0.06 per share and transaction costs of $277,000. The purchase price was allocated to the assets acquired
and the liabilities assumed based upon their estimated fair value at the date of acquisition.



Canadian Zinc acquired 100% interest in several
base metal properties in central Newfoundland including in the Tulks South Property, which includes the Boomerang, Domino and Long
Lake base and precious metal-rich VMS deposits situated near the Company’s South Tally Pond project in central Newfoundland.



NI 43-101 mineral resource estimates include:



| | · | Boomerang deposit: Indicated mineral resource of 1.36 million tonnes grading 7.1% Zn, 3.0% Pb,
0.5% Cu, 110 g/t Ag and 1.7 g/t Au; and Inferred mineral resource of 0.28 million tonnes grading 6.7% Zn, 2.9% Pb, 0.4% Cu, 96.5
g/t Ag and 1.3 g/t Au;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Domino deposit (adjacent to Boomerang): Inferred resource estimate: 0.41 million tonnes grading
6.3% Zn, 2.8% Pb, 0.4% Cu, 94 g/t Ag and 0.6 g/t Au.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------

(See Messina
Minerals Inc. Technical Report, dated August 1, 2007, Tulks South Property, Central Newfoundland, Canada filed on SEDAR.)



The Boomerang deposit has some of the highest
grade characteristics in the region. Exploration upside and resource expansion potential is believed to exist from numerous identified
targets at surface and along strike to the northeast of the Boomerang deposit.



Tulks South
Property



The Tulks South Property is located in the
Buchans-Victoria Lake area in the Central Mobile Belt of the Dunnage tectonostratigraphic zone of the Appalachian Belt. The Dunnage
tectonostratigraphic zone comprises ophiolitic island arc and back arc rocks. The Buchans-Victoria Lake area is host to numerous
polymetallic (Zn-Pb-Cu-Au-Ag) volcanogenic massive sulphide deposits; including the historic Buchans area polymetallic deposits
and the recently producing Duck Pond copper-zinc mine.





81







The Tulks South Property was the subject of
a previous Technical Report by Dearin (2006). This current Technical Report dated August 2007, is intended to disclose recently
updated Mineral Resources at the Boomerang and Domino deposits, and exploration results at the Tulks East B Zone and the Hurricane
Zone. The Property also includes historic zinc resources at the Tulks East A Zone, Tulks East B Zone, Skidder, and Long Lake Main
Zones. Since the previous Technical Report, Messina has undertaken additional Mineral Resource delineation drilling, Mineral Resource
estimations, exploration drilling, metallurgical test work, and environmental base line studies on the Property.



At a 1% Zn cut-off grade, Indicated Mineral
Resources at Boomerang are reported as 1.4 Mt at 7.1% Zn, 3.0% Pb, 0.5% Cu, 110.4 g/t Ag, and 1.7 g/t Au. Inferred Mineral Resources
at Boomerang are reported as 278 kt at 6.7% Zn, 2.9% Pb, 0.4% Cu, 96.5 g/t Ag, and 1.3 g/t Au at the same cut-off grade.



At Domino, adjacent to the Boomerang deposit,
Inferred Mineral Resources at a 1% Zn cut-off grade are reported as 411 kt at 6.3% Zn, 2.8% Pb, 0.4% Cu, 94 g/t Ag, and 0.6 g/t
Au.



Tulks South
Project 2014 Drill Program



In July 2014, the Company undertook a diamond
drill program on its Tulks South property, focused on expanding the the mineral resource at the Boomerang-Domino deposit, extending
the nearby Hurricane prospect mineralization and testing for extensions to the mineralization at the Tulks East prospect (2,000
metres).



Six drillholes (1,743 metres) tested for up
and down-dip extensions of the Hurricane prospect mineralization and three drillholes (1,287 metres) tested for extensions to the
defined Boomerang-Domino deposit. Highlights include:



| | · | Drillhole GA14-278 intersected 13.23% zinc, 8.24% lead, 0.70% copper, 135.8 g/t silver and 0.67
g/t gold over 2.37 metres in the down-dip extension of the Hurricane Prospect, and;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Drillhole GA14-281 intersected 4.45% zinc, 1.82% lead, 0.18% copper, 52.15 g/t silver and 0.82
g/t gold over 2.49 metres in a previously untested area between the Boomerang and Domino massive sulphide lenses.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Eight of the drillholes intersected the strongly
altered, mineralized rhyolite stratigraphy (footwall), located directly below the mineralized horizon which hosts the Boomerang-Domino
deposit and Hurricane mineralization. The two highlighted massive sulphide intersections are located along this horizon at the
top of the footwall stratigraphy.



Subsequent to the end of the third quarter
four holes (1,377 metres) were completed on the Tulks East prospect. Tulks East is comprised of two zones, A Zone and B Zone, with
earlier historical resources estimates. Two holes successfully extended the A Zone mineralization a further 50 metres down-dip,
which remains open to the northwest and northeast.



The results from drilling programs conducted
in 2014 on the Tulks South Property are not considered material to the previous resource estimates.



Long Lake Project
2014 Drill Program



Following completion of the drill program at
Tulks South, the drill was mobilized to the Long Lake project where a 2,712 metre wide spaced drill program was successful in extending
the copper-lead-zinc massive sulphide mineralization. both up- and down-dip and along strike and showed a marked increase in the
copper, lead, zinc, silver and gold grades to the west of the defined Main Zone deposit. Highlights include:



| | · | Drillhole LL14-50 intersected 25.50% zinc, 5.90% lead, 1.29% copper, 189.7 g/t silver and 1.87
g/t gold over 1.20 metres (core length) from 42.2 to 43.4 metres downhole.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Drillhole LL14-51 intersected 10.81% zinc, 1.99% lead, 1.59% copper, 86.95 g/t silver and 1.39
g/t gold over 2.25 metres (core length) at 175 metres below surface.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Drillhole LL14-52 intersected 19.56% zinc, 6.59% lead, 1.29% copper, 131.42 g/t silver and 1.85
g/t gold over 1.10 metres (core length) 75 metres down-dip of LL14-51.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------





82







A total of 11 drillholes (2,712 metres) was
completed at the Long Lake Main Zone VMS deposit. Ten of the eleven drill holes intersected the mineralized horizon between approximately
50 and 350 metres vertical depth.



The results from drilling programs conducted
in 2014 on the Long Lake Project are not considered material to the previous resource estimates.



Acquisition
of Paragon Minerals Corporation



On September 24, 2012, Canadian Zinc acquired
all of the outstanding common shares of Paragon in exchange for common shares of Canadian Zinc on the basis of 0.136 of a share
of Canadian Zinc for each share of Paragon.



Total consideration transferred was $4,080,000,
which was comprised of the issuance of 7,299,019 common shares valued at $3,394,000 based on the closing market price of the Company’s
shares on September 24, 2012 of $0.465 per share, conversion of options and warrants with a fair value of $53,000, Paragon shares
amounting to 7,000,000 which were previously acquired and valued at $420,000 based on the closing market price of Paragon shares
on September 24, 2012 of $0.06 per share and transaction costs of $213,000. The purchase price was allocated to the assets acquired
and the liabilities assumed based upon their estimated fair value at the date of acquisition.



Paragon’s primary project is its 100%
interest in the South Tally Pond Property, which includes the Lemarchant deposit, and is located in a proven mining district near
Buchans, Newfoundland. The South Tally Pond Property covers 261 km2 and is immediately adjacent to Teck Resources Limited’s
Duck Pond Cu-Zn mine and mill complex. The Lemarchant deposit is a significant precious metal-rich copper-lead-zinc Volcanogenic
Massive Sulphide (“VMS”) discovery with a potential opportunity to develop into a viable economic resource. An initial
NI 43-101 mineral resource estimate that was completed in March 2012 for Paragon on the Lemarchant deposit includes the following
defined mineral resources:



| | · | Indicated resource estimate: 1.24 million tonnes at an average grade of 5.38% Zn, 0.58% Cu, 1.19%
Pb, 1.10 g/t Au and 59.17 g/t Ag; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------

| | · | Inferred resource estimate: 1.34 million tonnes at an average grade of 3.70% Zn, 0.41% Cu, 0.86%
Pb, 1.0 g/t Au and 50.41 g/t Ag.
| | - | ---------------------------------------------------------------------------------------------------------------------------------

(See report entitled “NI
43-101 Technical Report and Mineral Resource Estimate on the Lemarchant Deposit, South Tally Pond VMS Project, Central Newfoundland,
Canada” dated March 2, 2012 and filed on SEDAR under Paragon’s profile on March 9, 2012. (the “South Tally
Pond Technical Report”))



The Lemarchant deposit has been defined to
a 210 m depth and remains open along strike and at depth. The exploration potential outside of the Lemarchant area of the South
Tally Pond Property is still relatively untapped with numerous priority VMS targets that have seen limited or no drilling.



South Tally
Pond Property



The South Tally Pond VMS Project is located
110 kilometres southwest of the town of Grand Falls-Windsor, NL and 35 kilometres south of the community of Millertown, NL. The
Property consists of five, contiguous 100% controlled properties or blocks including the Harpoon Block, Gills Pond Block, Higher
Levels Block, South Tally Pond Block and the South Tally Pond Extension Block. The aggregate land position comprises 8 map-staked
mineral licences (856 claims) covering 21,400 hectares immediately southwest of the Duck Pond Mine. The South Tally Pond Block
is under option from Altius Resources Inc., whereby Paragon can earn a 100% interest in this property by making one remaining share
payment to the vendors. The Harpoon Block is subject to a 2% net smelter return royalty to the property vendors of which 50% is
purchasable by Paragon.



The South Tally Pond project area has been
explored intermittently since the late 1960’s for precious metal-rich polymetallic volcanogenic massive sulphide deposits.
The bulk of the historic exploration work in the area was completed by Noranda and its various partners between 1973 and 1998.
This exploration work resulted in the discovery of the Duck Pond and Boundary deposits. In addition, Noranda discovered numerous
other prospects including the Lemarchant, Rogerson Lake, Bindon’s Pond, Higher Levels, Spencer’s Pond and Beaver Lake
Prospects through geochemical and geophysical surveys. Each of these areas has seen limited to no drilling.





83







The South Tally Pond Project is underlain by
rocks of the Victoria Lake supergroup which consists of a structurally complex, composite collage of bimodal Neoproterozoic to
Ordovician arc-related magmatic and sedimentary rocks. The Victoria Lake supergroup hosts numerous base metal-bearing VMS deposits,
showings and extensive alteration zones, and several gold deposits and showings. This mineralization is distributed throughout
all of the lithotectonic assemblages, including the Tally Pond Volcanic Belt, that comprise the supergroup. The Tally Pond Volcanic
Belt consists of Cambrian-aged volcanic, volcaniclastic and sedimentary rocks that extend from Victoria Lake northeast to Burnt
Pond. The South Tally Pond Project is situated in the same volcanic belt and to the immediate southwest of Teck Resources Limited’s
Duck Pond Copper Zinc Mine (5.1 million tonnes averaging 3.6% Cu, 6.3% Zn, 1.0% Pb, 64 g/t Ag and 0.9 g/t Au for both the Duck
Pond and Boundary deposits).



The Lemarchant Deposit area is underlain by
a north-striking sequence of bimodal submarine volcanic rocks (rhyolites and basalts) of the Tally Pond Volcanic Belt. The mineralization
is hosted within a 4,000 metre long and 700 metre wide sequence of highly altered felsic volcanic rocks. Polymetallic sulphide
mineralization is hosted in moderate to intensely altered rhyolite breccias, massive flows and lesser tuffaceous horizons. The
footwall to the semi-massive to massive sulphide mineralization is characterized by a well-developed, barium-enriched base metal
stringer system, with moderate to intense quartz-sericite-chlorite to quartz-chlorite alteration. On several sections the footwall
alteration zone is cut-off by a frequently recognizable, east-verging thrust fault (Lemarchant Fault) that potentially repeats
the mineralized horizon at depth in the minimally tested Lower Felsic Block. The Lower Felsic Block represents an area of high
exploration potential that warrants aggressive follow-up drilling.



South Tally
Pond 2013 Drill Program



A winter diamond drill program on the South
Tally Pond property was completed in March 2013. A total of 11 drillholes (3,370 metres), including two drillhole extensions, were
completed at the Lemarchant deposit. Highlights of the drill program include:



| | · | New massive sulphide mineralization discovered 250 metres to the northwest of the Lemarchant deposit
in drillholes LM13-73 and LM13-74 (see news release dated February 27, 2013);
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Significant massive sulphide mineralization intersected in drillhole LM13-79 which extends the
Lemarchant deposit mineralization 35 metres up-dip; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Three drillholes testing the south extension to the Lemarchant deposit intersected favourable felsic
volcanic stratigraphy with locally anomalous base metal mineralization.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Beginning in September 2013 and ending in December
2013, fifteen drillholes totaling 4,928 metres of coring, nine of which intersected significant sulphide mineralization, were completed
during the fall drill program on the Lemarchant deposit at the South Tally Pond project. Highlights include:



| | · | Additional massive sulphide mineralization intersected at the Northwest zone discovered in early
2013. The new Northwest zone, located 250 metres northwest of the Lemarchant deposit, now extends over a 100 metre strike length
and remains open for expansion.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Significant precious metal values accompany the Northwest zone base metal mineralization, including
samples assaying 463.0 g/t silver over 1.0 metre and 17.5 g/t gold over 0.8 metre.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Drilling at the North target intersected strongly altered felsic volcanic rocks directly below
the overlying basalts, which is similar to the stratigraphy associated with the massive sulphide mineralization of the Lemarchant
deposit to the immediate south.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



South Tally
Pond 2014 Drill Program



Two drill programs were completed at the South
Tally Pond VMS project in 2014 wherein a total of 5,104 metres was completed to further evaluate the Northwest zone at the Lemarchant
deposit.



A winter diamond drill program on the South
Tally Pond copper-lead-zinc-silver-gold project was completed in March 2014. Six drillholes, totaling 2,350 metres were completed
at the Northwest mineralized zone located 250 metres northwest of the drill-defined Lemarchant Deposit. The 2014 winter drilling
program successfully extended the Northwest zone mineralization which remains open for further expansion.





84







A fall diamond drill program was completed
in December 2014. Six drillholes and two drillhole extensions totaling 2,754 metres were completed at the Northwest zone, located
250 metres northwest of the drill-defined Lemarchant Deposit.



The drilling programs conducted in 2013 and
2014 on the South Tally Pond Property were mostly outside the resource area and the drilling results are not considered material
to the previous resource estimates.



Vatukoula Gold Mines plc



In 2009, the Company acquired an interest in
Vatukoula Gold Mines plc (“Vatukoula”), a UK company which owns and operates the Vatukoula Gold Mine in Fiji.



As at December 31, 2015, the Company held 12,573,380
shares of Vatukoula Gold Mines plc, an unlisted company operating a gold mine in Fiji. The estimated fair value of these shares
was $936,000 based upon the offer by Zhongrun International Mining Co. Ltd. (“Zhongrun”), the major shareholder of
Vatukoula, to purchase all of the shares of Vatukoula that it did not already own through a matched bargain trading facility. In
January 2016, the Company sold all of the 12,573,380 shares of Vatukoula held by the Company to Zhongrun through the matched bargain
trading facility for cash of $936,000.



Item 4A. Unresolved
Staff Comments



Not applicable.



Item 5. Operating
and Financial Review and Prospects



A. Operating Results



Financial Results for the Year
Ended December 31, 2015 Compared to the Year Ended December 31, 2014



This review of the results of operations should
be read in conjunction with the audited consolidated financial statements of the Company for the years ended December 31, 2015
and 2014 and other public disclosure documents of the Company.



For the year ended December 31, 2015, the Company
reported a net loss and comprehensive loss of $8,262,000 compared to a net loss and comprehensive loss of $12,434,000 for the year
ended December 31, 2014.



Included in the loss for the year ended December
31, 2015, were exploration and evaluation expenditures of $7,650,000 compared to $9,996,000 for the previous year. The net loss
in the year ended December 31, 2015 included a gain of $486,000 on the Company’s marketable securities compared to a loss
of $878,000 for the comparative year of 2014 and a gain on changes to the decommissioning provision of $246,000 compared to no
gain or loss in the comparative year of 2014. Excluding the gain or loss on marketable securities and the gain on changes to the
decommissioning provision, the Company recorded a loss of $8,994,000 for the year ended December 31, 2015 compared to a loss of
$11,556,000 the previous year.



Exploration
and Evaluation Costs



For the year ended December 31, 2015, the Company
expensed $7,317,000 on its exploration and evaluation programs at Prairie Creek compared to $7,982,000 for the year ended December
31, 2014. Diamond drilling costs for the Prairie Creek Project in the year ended December 31, 2015 amounted to $3,102,000 compared
to $1,163,000 in the year ended December 31, 2014, while mine planning and feasibility studies costs amounted to $1,045,000 in
2015 compared to $3,301,000 for the previous year.





85







For the year ended December 31, 2015, the Company
also expensed $333,000 on its exploration and evaluation properties in central Newfoundland compared to $2,014,000 for the comparative
year. In the final quarter of 2015, the Company started a research program to complete physical and metallurgical studies on the
Company’s mineral deposits in Newfoundland. This program is being partially funded by the Research & Development Corporation
of Newfoundland and Labrador.



Revenue and
Investment Income



The Company does not generate any cash flows
from operations. To date the Company has not earned any significant revenues other than interest and related investment income.
Investment income for the year ended December 31, 2015 was $107,000 versus $169,000 for the comparative year.



Administrative
Expenses



The Company recorded administrative expenses
(excluding share-based compensation and depreciation) of $1,740,000 for the year ended December 31, 2015 compared to $2,226,000
for the comparative year as cost saving measures, including reductions in corporate payroll costs, were implemented in the current
year.



Share-Based
Compensation



Share-based compensation was $124,000 for the
year ended December 31, 2015 versus $23,000 for the comparative year. The increase is due to issuing 3,650,000 Restricted Share
Units to senior officers and 276,340 Deferred Share Units to directors both issued in conjunction with a reduction in the cash
component of compensation paid to such senior officers and directors.



Other Income
(Expenses)



The Company reported a gain on marketable securities
of $486,000 for the year ended December 31, 2015 compared to loss of $878,000 for the year ended December 31, 2014. The Company’s
marketable securities were completely sold in January 2016 and equal the carrying value as of December 31, 2015.



The Company also recorded a gain on the change
in the decommissioning provision of $246,000 for the current year with no comparable gain or loss in the previous year.



Financial Results for the Year
Ended December 31, 2014 Compared to the Year Ended December 31, 2013



This review of the results of operations should
be read in conjunction with the audited consolidated financial statements of the Company for the years ended December 31, 2014
and 2013 and other public disclosure documents of the Company.



For the year ended December 31, 2014, the Company
reported a net loss and comprehensive loss of $12,434,000 compared to a net loss and comprehensive loss of $6,911,000 for the year
ended December 31, 2013. Included in the loss for the year ended December 31, 2014, were exploration and evaluations costs of $9,996,000,
compared to $6,089,000 for the previous year.



The net loss in the year ended December 31,
2014 included a loss of $878,000 on the Company’s marketable securities compared to a loss of $3,626,000 for the comparative
year of 2013. The net loss in the previous year was reduced by a gain on the sale of a net smelter royalty in the amount of $5,439,000
with no comparable in the current year. Excluding the loss on marketable securities and the gain on the sale of a net smelter royalty,
the Company recorded a loss of $11,556,000 for the year ended December 31, 2014 compared to a loss of $8,724,000 the previous year.



Exploration
and Evaluation Costs



For the year ended December 31, 2014, the Company
expensed $7,982,000 on its exploration and evaluation programs at Prairie Creek compared to $4,928,000 for the year ended December
31, 2013. The overall increase in expenditures for the Prairie Creek Project was due to the increased mine planning and feasibility
studies costs of $3,301,000 in 2014 compared to $1,611,000 for the comparative year along with increased exploration costs of $1,163,000
in 2014 compared to $331,000 as the Company initiated an underground exploration program in the last quarter of 2014.





86







For the year ended December 31, 2014, the Company
also expensed $2,014,000 on its exploration and evaluation properties in central Newfoundland compared to $1,161,000 for the comparative
year as the Company completed a yearlong exploration program on its properties in central Newfoundland.



Details of the exploration and evaluation costs
are shown in Note 13 to the audited consolidated financial statements for the year ended December 31, 2014.



Revenue and
Investment Income



The Company does not generate any cash flows
from operations. To date the Company has not earned any significant revenues other than interest and related investment income.
Investment income for the year ended December 31, 2014 was $169,000 versus $106,000 for the comparative year. The increase is attributable
to the overall increase in amounts available for investment during 2014.



Administrative
Expenses



The Company recorded administrative expenses
(excluding share-based compensation and depreciation) of $2,226,000 for the year ended December 31, 2014 which were lower than
the $2,741,000 for the previous year as incentive bonuses were awarded in 2013 to certain employees and consultants based upon
successful receipt of all necessary permits for the Prairie Creek Project.



Share-Based
Compensation



Share-based compensation was $23,000 for the
year ended December 31, 2014 versus $120,000 for the comparative year due to a lower amount of stock options vesting throughout
the current year. The share-based compensation expense value was calculated using the Black-Scholes valuation method with assumptions
as described in the audited consolidated financial statements of the Company.



Other Income
(Expenses)



The Company reported a loss on marketable securities
of $878,000 for the year ended December 31, 2014 versus a loss of $3,626,000 for the year ended December 31, 2013. All the Company’s
marketable securities have been designated as fair value through profit or loss by the Company.



The Company recorded a gain on the sale of
a 1.2% net smelter royalty on the Prairie Creek Mine to Sandstorm Metals & Energy Ltd. for net proceeds of $10,271,000 in the
second quarter of 2013. The Company’s policy is to recognize, in income, costs recovered on exploration and evaluation assets
when amounts received or receivable are in excess of the carrying amount of the corresponding exploration and evaluation asset.
Accordingly, the Company reduced the carrying value of the Prairie Creek Mine to $nil in the second quarter of 2013 and recognized
a gain on the sale of mineral property interests of $5,439,000 on the consolidated statement of income (loss) with no comparable
amount in 2014.



Excluding the loss on marketable securities
and the gain on the sale of a net smelter returns royalty, the Company recorded a net loss of $11,556,000 during the year ended
December 31, 2014 compared to a net loss of $8,724,000 during the comparative year.



B. Liquidity and Capital Resources



At December 31, 2015, the Company had a positive
working capital balance of $2,482,000 including cash and cash equivalents of $1,674,000, short term investments of $28,000 and
marketable securities of $936,000. In January 2016, the Company’s marketable securities were liquidated for cash of $936,000.





87







The Company’s restricted cash, as at
December 31, 2015, increased to $2,075,000 from $525,000 at December 31, 2014 as the Company posted a security deposit in the amount
of $1,550,000 with the Government of the Northwest Territories as financial assurance in respect of existing reclamation obligations
at the Prairie Cree Mine site.



At December 31, 2014, the Company had cash
and cash equivalents of $8,792,000, short term investments of $5,023,000, marketable securities of $450,000, and a positive working
capital balance of $12,353,000.



There was no cash inflow from financing activities
for year ended December 31, 2015 versus $14,830,000 for the comparative year. During the comparable period 28,572,000 common shares
were issued at $0.35 per share and 15,134,000 flow-through shares at $0.38 per share for total net proceeds of $14,473,000. Additionally,
1,513,134 common shares were issued upon the exercise of employee stock options at exercise prices of $0.23 and $0.30 per common
share for total proceeds of $357,000.



At the end of August 2015, the Company posted
a security deposit in the amount of $1,550,000 with the Minister of Environment and Natural Resources of the Northwest Territories
as financial assurance in respect of existing reclamation obligations at the Prairie Creek Mine.



Accounts payable and accrued and other liabilities
at December 31, 2015 were $451,000 compared to $2,140,000 as at December 31, 2014. The Company has no long term debt.



The ability of the Company to carry out its
planned business objectives is dependent on its ability to raise adequate financing from lenders, shareholders and other investors.
Additional financing will be required in the short term to continue the development of the Prairie Creek Project and in the longer
term to put the Prairie Creek Mine into production. There is no assurance that such financing will be available on a timely basis
or on acceptable terms. If the Company is unable to obtain adequate additional financing, the Company will be required to curtail
operations, exploration and development activities. The Company is currently evaluating various opportunities and seeking additional
sources of financing. These conditions indicate the existence of material uncertainties which cast significant doubt about the
Company’s ability to continue as a going concern. This is discussed in more detail in the “Risk Factors” section
in this Annual Report.



Financing - Use of Proceeds



During 2014, the Company completed an equity
financing, which closed July 31, 2014, by way of a short form Prospectus in Canada dated July 23, 2014, raising gross proceeds
of $15.8 million. The following table details how the net proceeds of the financing have been used up to December 31, 2015 compared
to the anticipated use of the net proceeds set out in the Prospectus, including additional net proceeds derived from the sale of
additional flow-through shares upon the exercise, in part, by the Underwriters of their over-allotment option.



|                                        |  | Net Use of Proceeds |       
|--------------------------------------- |  | ------------------- | ------
|                                        |  | Prospectus          |       
|Prairie Creek Mine Development Programs |  | $                   | 8,000 
|Exploration Programs                    |  |                     | 5,751 
|General and Administrative              |  |                     | 722   
|Total                                   |  | $                   | 14,473



(Unaudited, thousands of Canadian dollars)



C. Research and Development, Patents and
Licences, Etc.



The Company is a mineral exploration company
and does not carry on any research and development activities.



D. Trend Information



As the Company is an exploration company with
no producing mining properties, information regarding trends in production, sales and inventory are not meaningful.





88







E. Off-balance Sheet Arrangements



The Company has no off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.



F. Tabular Disclosure of Contractual Obligations



The following table reflects the Company’s
aggregate contractual commitments as of December 31, 2015:



|(thousands of Canadian dollars) |  | Payment due by period |      
|------------------------------- |  | --------------------- | -----
|Contractual Obligations         |  | Total                 |      
|Operating lease obligation (1)  |  | $                     | 246  
|Decommissioning provision (2)   |  |                       | 2,728
|Annual fees and taxes (3)       |  |                       | 750  
|Total Contractual Obligations   |  | $                     | 3,724



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

(2) The decommissioning
liability obligation represents undiscounted costs which are anticipated to be predominantly incurred at the end of the life of
the Prairie Creek Mine.

(3) Includes the annual fees related to the Company’s
mining leases, surface leases and mineral claims which total approximately $45,000 per annum and property taxes of approximately
$30,000 per annum.



Item 6. Directors,
Senior Management and Employees

A. Directors and Senior Management










|Name, Province or State andCountry of Ordinary Residenceand Position Held with theCompany                                                     |  | Principal Occupation During Preceding
        Five Years                                                                                                                                                                                                                                                       |  | Date First BecameDirector of theCompany(5)
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------
|Brian A. Atkins (2) (3)
        British Columbia, Canada
        Director                                                                     |  | Chartered Professional Accountant, Chartered Accountant; Partner at KPMG LLP, Chartered Accountants, from 1978 to 2005; Director of BlueShore Financial; Member of Independent Review Committee of Inhance Investment Management Inc. until December 2009; Member of the Institute of Corporate Directors.     |  | June 2008                                 
|                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                |  |                                           
|John F. Kearney (2)
        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; Director of Vatukoula Gold Mines plc July 2009 to August 2013. |  | November 2001                             
|                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                |  |                                           
|Dave Nickerson (2) (3) (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                                
|                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                |  |                                           
|Alan B. 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                                
|                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                |  |                                           
|Trevor L. Cunningham
        British Columbia, Canada
        Chief Financial Officer, Vice President Finance
        and Corporate Secretary |  | Chief Financial Officer and Vice President Finance of Canadian Zinc Corporation since January 2011; Chartered Professional Accountant, Certified Management Accountant.                                                                                                                                        |  | N/A                                       








| | (1) | The information as to common shares beneficially owned, controlled or directed by the above-named
directors as at the date hereof, not being within the knowledge of the Company, has been furnished by the respective directors
individually.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Member of the Audit Committee.
| | --- | ------------------------------

| | (3) | Member of the Compensation Committee.
| | --- | -------------------------------------

| | (4) | Member of Health and Safety Committee.
| | --- | --------------------------------------

| | (5) | All Directors are elected annually to hold office until the Company’s next Annual Meeting
of shareholders.
| | --- | ----------------------------------------------------------------------------------------------------------



89







B. Compensation



Compensation Discussion and Analysis



Objectives
of Executive Compensation



The Board has appointed a Compensation
Committee which has responsibility for determining compensation for the directors and senior management. In 2015, the Compensation
Committee consisted of Brian Atkins, John MacPherson (until his resignation) and Dave Nickerson (all considered independent directors).
John MacPherson retired as a director in August 2015. The Company does not have a formal compensation plan in place for its Named
Executive Officers (defined below under the heading “Summary Compensation Table”). The general compensation philosophy
of the Company for executive officers, including for the CEO, is to provide a level of compensation that is competitive within
the North American marketplace and that will attract and retain individuals with the experience and qualifications necessary for
the Company to be successful, and to provide longer-term incentive compensation, such as the grant of stock options, which aligns
the interest of executives with those of shareholders and encourages senior management to have a direct and identifiable impact
on the performance of the Company and to develop and implement a long-range strategy.



The Company is primarily engaged in
the exploration and development of its Prairie Creek property located in the Northwest Territories, Canada. The Company is considered
to be in the exploration and development stage, given that its Prairie Creek property is not in production and, to date, has not
earned any significant revenues and does not generate revenues from operations. Accordingly, the Company is reliant upon funding
from capital raising activities. Therefore, the use of traditional performance standards, such as corporate profitability, is
not considered to be appropriate in the evaluation of corporate or executive performance, and the Board of Directors has to consider
the financial situation of the Company in a wider context and involving the ongoing status of the Prairie Creek project, when
setting its executive compensation levels.



Historically, the compensation of executive
officers of the Company has been comprised primarily of cash compensation and the allocation of incentive stock options and restricted
share units. In establishing levels of remuneration and in granting stock options and restricted share units, the Compensation
Committee, having taken into consideration the financial position of the Company, takes into consideration the executive's performance,
level of expertise, responsibilities and length of service to the Company, as well as comparable levels of remuneration paid to
executives of other companies of comparable size and development within the industry. When determining an element of compensation
to be paid to a particular NEO, the Compensation Committee takes into account the amount of each other element of compensation
that has been paid to that NEO. Interested executives do not participate in reviews, discussions or decisions of the Compensation
Committee or the Board of Directors regarding this remuneration. The Compensation Committee’s responsibilities and composition
are described below under the heading “Corporate Governance Disclosure – Compensation Committee”.



Goals and objectives for the Company
are typically set through discussions at Board meetings, and senior management will then work to achieve these goals and objectives.
Follow-up on progress would typically take place at subsequent Board meetings. The Board did not set formal, person-specific,
performance goals for the Named Executive Officers for 2015. Awarding additional compensation upon successful completion of corporate
objectives is entirely at the discretion of the Compensation Committee. Given the size of the Company, this is considered appropriate
to effectively manage the business and allow the Named Executive Officers to move the business forward.



While the Company does not actively benchmark
its compensation programs for executive officers, and the individual components thereof, it does review compensation levels within
the industry primarily through the use of third-party “Compensation Reports”, which are available through certain
consulting firms. These reports typically include information for larger mining companies but do assist the Compensation Committee
in determining approximately the salary levels and other benefits in place across the industry.



The Compensation Committee relies on
the general knowledge and experience of its members, and recommendations from senior management, in reviewing appropriate levels
of compensation for executive officers and the implementation of, or amendment to, any other aspects of compensation that the
Compensation Committee may review from time to time. All Compensation Committee members have relevant general, but not direct,
experience in executive compensation and compensation policies and practices in the junior mineral resources business gained through
current and prior experience in business, the minerals industry and government. Neither the Company nor the Compensation Committee
currently has nor at any time during 2015 had any contractual arrangement with any compensation consultant.





90







The Compensation Committee is responsible
for considering the risks associated with the Company’s compensation policies and practices and has not identified any specific
risks associated with the Company’s compensation policies and practices that are reasonably likely to have a material adverse
effect.



Because
of the current scale and scope of the Company’s operations, and the limited number of senior management and employees, and
the oversight by the Board of all significant activities, including risk management, the Compensation Committee does not believe
that the Company’s compensation policies and practices would encourage any executive officer to take inappropriate or excessive
risk.



The Company has not prohibited its executive
officers or directors from purchasing financial instruments that are designed to hedge or off-set a decrease in market value of
any securities of the Company granted as compensation or held, directly or indirectly, by an executive officer or director.



Base Salary



The Company traditionally provided
executive officers with base salaries which represent their minimum compensation for services rendered during the fiscal year.
Salary levels are based upon the executive’s experience, responsibilities, performance and time commitment. Base salaries
are usually reviewed annually by the Compensation Committee. In 2015, the Compensation Committee reviewed the base salaries of
the CEO, CFO and COO and did not recommend any adjustments as the base salaries were considered to be appropriate. In August 2015,
having regard to the financial position of the Company and in light of continued uncertainty in the capital markets and the current
lack of investor interest in the resource sector, the Board implemented cost reduction measures which included a change in the
composition of the remuneration of each of the CEO, COO and CFO which involved a reduction in the cash component of base salary
for an agreed period of eighteen months to January 2017, combined with the grant of Restricted Share Units.



Restricted
Share Units



In
2014, the Company adopted a Restricted Share Unit Plan (the “RSU Plan”)
for the benefit of the Company’s employees, directors and consultants. The RSU Plan is intended to assist the Company in
the recruitment and retention of highly qualified employees, directors and eligible consultants by providing a means to reward
performance, to motivate participants under the RSU Plan to achieve important corporate and personal objectives and, through the
proposed issuance by the Company of Common Shares under the RSU Plan, to better align the interests of participants with the long-term
interests of Shareholders.



The Board uses Restricted Share Units (‘‘RSUs’’)
issued under the RSU Plan as part of the Company’s overall executive compensation plan. Since the value of RSUs increase
or decrease with the price of the Common Shares, RSUs reflect a philosophy of aligning the interests of executives with those
of the Shareholders by tying executive compensation to share price performance. In addition, RSUs assist in the retention of qualified
and experienced executives by rewarding those individuals who make a long term commitment.



The RSU Plan is administered by the
Compensation Committee. Each RSU awarded conditionally entitles the participant to receive one Common Share (or the cash equivalent)
upon attainment of the RSU vesting criteria. The maximum number of Common Shares which may be reserved, set aside and made available
for issuance under the RSU Plan is a variable number equal to 3% of the issued and outstanding Common Shares of the Company as
of the date of the grant on a non-diluted basis.



In 2015, the Company granted 3,650,000
RSUs to senior officers. The RSUs granted are subject to an 18 month vesting period; a payout date
of 3 years; an expiry date of 5 years; and were assigned a fair value based on the share price at time of issuance.



Stock Options



The grant of stock options to purchase
common shares of the Company, pursuant to the Company’s stock option plan is an integral component of executive officer
compensation packages. The Company's stock option plan is administered by the Board of Directors, with option grants being recommended
by the Compensation Committee to the Board. The stock option plan is designed to give each option holder an interest in preserving
and maximizing shareholder value in the longer term, to enable the Company to attract and retain individuals with experience and
ability, and to reward individuals for current performance and expected future performance. Previous stock option grants are considered
when reviewing executive officer compensation packages as a whole. No stock options were granted to or exercised by officers or
directors in 2015.



91







Other Incentives



The Company does not have a formal annual incentive
bonus plan in place. Any award of a bonus to executive officers is entirely at the discretion of the Board of Directors based upon
recommendation by the Compensation Committee. In considering the payment of a discretionary bonus to executive officers, the Compensation
Committee takes into account the individual performance and efforts of the executive during the year, the progress made by the
Company in furthering its business plan and the overall economic climate. As discussed above, there are no specific individual
performance targets set ahead of time when determining additional payments such as bonuses.



In 2013, the Compensation Committee
considered that the progress with regard to the on-going development of the Prairie Creek Project, including the achievement of
a major milestone in obtaining all necessary permits and licences to complete construction and development of the Prairie Creek
Mine, were such that the payments of year-end bonuses to each of the CEO, COO and CFO were appropriate. Payment of such bonuses
was split into two equal halves with the first half paid in 2013 and the second half in 2014. No additional incentive bonuses
were awarded in 2014 or 2015.



The Company's health benefit plan is available
to all full-time employees. The benefit plan is designed to protect the health of all employees and their dependents, and to provide
coverage in the event of disability or death.Perquisites and personal benefits provided to executive officers reflect competitive
practices and particular business needs. They are not considered a material component of the executive compensation program.



The Company does not directly link
executive compensation to total cumulative shareholder return, as the Company is not in active operations. Instead, the goals
of the Company at this point in time are more qualitative and geared towards successfully progressing the development of the Prairie
Creek Mine. The Compensation Committee does, however, consider the financial position of the Company and the general economic
situation when assessing compensation. In 2012, 2014 and 2015, the Compensation Committee, after considering the general economic
situation and the Company’s progress, decided not to award any bonus payments. In 2013, the Compensation Committee considered
that the progress with regard to the on-going development of the Prairie Creek Project, including the achievement of a major milestone
in obtaining all necessary permits and licences to complete construction and development of the Prairie Creek Mine, were such
that the payments of year-end bonuses to each of the CEO, COO and CFO were appropriate and that such payment would be split into
two equal halves with the first half paid in 2013 and the second in 2014.



Summary Compensation Table



The following table sets out all annual and
long term compensation for services in all capacities to the Company for the three most recently completed financial years ended
on December 31, 2015, 2014 and 2013 in respect of each of the individuals comprised of each CEO and the CFO (who acted in such
capacity for all or any portion of the most recently completed financial year), and each of the three most highly compensated executive
officers, or the three most highly compensated individuals acting in a similar capacity, (other than the CEO and the CFO), as at
December 31, 2015 whose total compensation was, individually, more than $150,000 for the financial year and any individual who
would have satisfied these criteria but for the fact that individual was neither an executive officer of the Company, nor acting
in a similar capacity, at the end of the most recently completed financial year (collectively, the "Named Executive Officer"
or "NEOs").



|                            |  |      |  |            |         |     |                            |  |         |                             |  |  | Non-equity
                                         incentive plan
                                         compensation ($) |  |  |                                                                         |        |  |                   |  |     |                                                                                                                  | 
|--------------------------- |  | ---- |  | ---------- | ------- | --- | -------------------------- |  | ------- | --------------------------- |  |  | ---------------------------------------------------------------------------------------------------------------------------- |  |  | ----------------------------------------------------------------------- | ------ |  | ----------------- |  | --- | ---------------------------------------------------------------------------------------------------------------- | 
|Name And Principal Position |  | Year |  | Salary ($) |         |     | Share-
based
awards(1) ($) |  |         | Option-
based
awards(1) ($) |  |  | Annual incentive plans
(2)                                                                                                   |  |  | Long- term incentive plans
                                         (2) |        |  | Pension value ($) |  |     | All
                                         other compensation
                                         (3) ($) | 
|                            |  |      |  |            |         |     |                            |  |         |                             |  |  |                                                                                                                              |  |  |                                                                         |        |  |                   |  |     |                                                                                                                  | 
|John F. Kearney             |  | 2015 |  |            | 134,522 |     |                            |  | 110,000 |                             |  |  | Nil                                                                                                                          |  |  |                                                                         | Nil    |  |                   |  | Nil |                                                                                                                  | 
|Chairman, President,        |  | 2014 |  |            | 159,181 |     |                            |  | Nil     |                             |  |  | Nil                                                                                                                          |  |  |                                                                         | 96,792 |  |                   |  | Nil |                                                                                                                  | 
|CEO and Director (4)        |  | 2013 |  |            | 159,181 |     |                            |  | Nil     |                             |  |  | Nil                                                                                                                          |  |  |                                                                         | 96,792 |  |                   |  | Nil |                                                                                                                  | 
|                            |  |      |  |            |         |     |                            |  |         |                             |  |  |                                                                                                                              |  |  |                                                                         |        |  |                   |  |     |                                                                                                                  | 
|Alan B. Taylor              |  | 2015 |  |            | 154,560 |     |                            |  | 110,000 |                             |  |  | Nil                                                                                                                          |  |  |                                                                         | Nil    |  |                   |  | Nil |                                                                                                                  | 
|COO, Vice President,        |  | 2014 |  |            | 268,981 | (5) |                            |  | Nil     |                             |  |  | Nil                                                                                                                          |  |  |                                                                         | 96,792 |  |                   |  | Nil |                                                                                                                  | 
|Exploration, Director (4)   |  | 2013 |  |            | 193,583 |     |                            |  | Nil     |                             |  |  | Nil                                                                                                                          |  |  |                                                                         | 96,792 |  |                   |  | Nil |                                                                                                                  | 
|                            |  |      |  |            |         |     |                            |  |         |                             |  |  |                                                                                                                              |  |  |                                                                         |        |  |                   |  |     |                                                                                                                  | 
|Trevor L. Cunningham        |  | 2015 |  |            | 148,942 |     |                            |  | 82,500  |                             |  |  | Nil                                                                                                                          |  |  |                                                                         | Nil    |  |                   |  | Nil |                                                                                                                  | 
|CFO, Vice President,        |  | 2014 |  |            | 175,000 |     |                            |  | Nil     |                             |  |  | Nil                                                                                                                          |  |  |                                                                         | 35,700 |  |                   |  | Nil |                                                                                                                  | 
|Finance                     |  | 2013 |  |            | 142,800 |     |                            |  | Nil     |                             |  |  | Nil                                                                                                                          |  |  |                                                                         | 35,700 |  |                   |  | Nil |                                                                                                                  | 
|                            |  |      |  |            |         |     |                            |  |         |                             |  |  |                                                                                                                              |  |  |                                                                         |        |  |                   |  |     |                                                                                                                  | 
|Michael Vande Guchte        |  | 2015 |  |            | 138,542 |     |                            |  | 55,000  |                             |  |  | Nil                                                                                                                          |  |  |                                                                         | Nil    |  |                   |  | Nil |                                                                                                                  | 
|Vice President              |  | 2014 |  |            | 175,000 |     |                            |  | Nil     |                             |  |  | Nil                                                                                                                          |  |  |                                                                         | Nil    |  |                   |  | Nil |                                                                                                                  | 
|Exploration (Paragon)       |  | 2013 |  |            | 175,000 |     |                            |  | Nil     |                             |  |  | Nil                                                                                                                          |  |  |                                                                         | Nil    |  |                   |  | Nil |                                                                                                                  | 





92







| | (1) | The value of share-based and option-based awards represents the grant date fair value of the stock
options awarded. The share-based awards granted are subject to an 18 month vesting period; a payout date of 3 years; an expiry
date of 5 years; and are assigned a fair value based on the share price at time of issuance.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The Company does not have a formal bonus plan tied to set targets. Any bonus payments are entirely
discretionary and are reviewed by the Compensation Committee as part of an overall review of performance for the year.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Perquisites have not been included, as they do not exceed 10% of total salary for the financial
years presented.
| | --- | ----------------------------------------------------------------------------------------------------------------



| | (4) | John Kearney and Alan Taylor are directors of the Company but were not compensated for services
in this capacity.
| | --- | -----------------------------------------------------------------------------------------------------------------



| | (5) | Includes $75,398 in vacation pay in respect of unused vacation days accrued in previous years.
| | --- | ----------------------------------------------------------------------------------------------



Outstanding Incentive plan
awards



The following table shows all awards outstanding
to each Named Executive Officer as at December 31, 2015.



|                     |  | Option-based
    Awards                                                                      |         |  | Share-based
    Awards          | 
|-------------------- |  | -------------------------------------------------------------------------------------------- | ------- |  | ------------------------------- | 
|Name                 |  | Number
                                         ofsecuritiesunderlyingunexercisedoptions (#) |         |  | Option
     exercise  price ($) | 
|John F. Kearney      |  |                                                                                              | Nil     |  |                                 | 
|                     |  |                                                                                              |         |  |                                 | 
|Alan B. Taylor       |  |                                                                                              | Nil     |  |                                 | 
|                     |  |                                                                                              |         |  |                                 | 
|Trevor L. Cunningham |  |                                                                                              | 300,000 |  |                                 | 
|                     |  |                                                                                              | 100,000 |  |                                 | 
|                     |  |                                                                                              |         |  |                                 | 
|Michael Vande Guchte |  |                                                                                              | 23,800  |  |                                 | 
|                     |  |                                                                                              | 200,000 |  |                                 | 



| | (1) | Calculated based on the difference between the market value of the shares underlying the option-based
awards at the end of the most recently completed financial year, which was $0.105, and the exercise or base price of the option-based
award.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Calculated based on the market value of the shares underlying the share-based awards at the end
of the most recently completed financial year which was $0.105.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



Incentive plan
awards – value vested or earned during the year ended December 31, 2015



|Name                 |  | Option-based awards – Value vested during the year (1) ($) |  | Share-based awards – Value vested during the year ($) |  | Non-equity incentive plan compensation – Value earned during the year (2) ($)
|-------------------- |  | ---------------------------------------------------------- |  | ----------------------------------------------------- |  | -----------------------------------------------------------------------------
|John F. Kearney      |  | Nil                                                        |  | N/A                                                   |  | Nil                                                                          
|                     |  |                                                            |  |                                                       |  |                                                                              
|Alan B. Taylor       |  | Nil                                                        |  | N/A                                                   |  | Nil                                                                          
|                     |  |                                                            |  |                                                       |  |                                                                              
|Trevor L. Cunningham |  | Nil                                                        |  | N/A                                                   |  | Nil                                                                          
|                     |  |                                                            |  |                                                       |  |                                                                              
|Michael Vande Guchte |  | Nil                                                        |  | N/A                                                   |  | Nil                                                                          



| | (1) | The value of vested options represents the aggregate dollar value that would have been realized
if any of the options granted had been exercised on the vesting dates. The dollar value is the difference between the market price
of the underlying securities at exercise and the exercise price of the options on the vesting date.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The
Company does not have a formal bonus plan tied to set targets. Any bonus payments are entirely discretionary and are reviewed
by the Compensation Committee as part of an overall review of performance for the year.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Stock Option
Plan



Under the 2012 Plan (described below),
options to purchase common shares of the Company may be granted to employees, officers and directors of the Company or subsidiaries
of the Company and other persons or companies engaged to provide ongoing management or consulting services for the Company or
any entity controlled by the Company. In determining the number of common shares of the Company subject to each option granted
under the 2012 Plan, consideration is given to the present and potential contribution by such person or company to the success
of the Company and the appropriate number and percentage of options that should be awarded and held by each party granted options
relative to the total number of shares issued and stock options granted.





93







At December 31, 2015, there were 973,800
stock options outstanding, representing approximately 0.45% of the Company's issued and outstanding common shares as of May 12,
2016, of which 650,000 were granted under the Company's 2012 stock option plan. At the Company's Annual General Meeting held on
June 13, 2012, shareholders approved the adoption of a new stock option plan (the “2012 Plan“). The 2012 Plan
is a fixed stock option plan pursuant to which options on up to 7,500,000 common shares may be issued to directors, officers,
employees and service providers of the Company.



The purpose of the Company’s
equity compensation plans is to attract and motivate directors, officers and employees of and service providers to the Company
(collectively, the “Optionees”) and thereby advance the Company’s interests by affording such persons
with an opportunity to acquire an equity interest in the Company through the stock options. The 2012 Plan authorizes the board
of directors (or compensation committee) to grant stock options to the Optionees on the following terms:



| | · | Options may be granted to directors, officers and employees of the Company as well as persons or
corporations engaged to provide services to the Company (or any entity controlled by the Company) and any individuals employed
by such persons or corporations.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The
                                         maximum number of shares that may be reserved for issue under the 2012 Plan is 7,500,000
                                         common shares, representing approximately 3.44% of the Company's issued and outstanding
                                         shares as of May
                                         12, 2016.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The total number of shares issuable to all insiders of the Company at any time, under all security
based compensation arrangements of the Company, cannot exceed 10% of the Company’s issued and outstanding shares.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The number of shares issued to insiders of the Company as a group, within any one year period,
under all security based compensation arrangements of the Company, cannot exceed 10% of the Company’s issued and outstanding
shares as at the end of such one year period.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The
                                         exercise price for stock options granted under the 2012 Plan must be not less than the
                                         closing market price on the day preceding the date of grant of the stock options.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Vesting
                                         of stock options will be at the discretion of the Boardof Directors, or any committee authorized by the Board of Directors to administer the
                                         2012 Plan.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The
                                         maximum term of stock options granted under the 2012 Plan will be ten years from the
                                         date of grant, subject to extension in the event of a management imposed black-out period.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Any outstanding stock options with an expiry date occurring during a management imposed black-out
period or within five days thereafter will be automatically extended to a date that is ten trading days following the end of the
black-out period.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | If
                                         an Optionee ceases to be eligible to receive options under the 2012 Plan as a result
                                         of termination for cause, any outstanding options held by such Optionee on the date of
                                         such termination shall be cancelled as of that date.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | If
                                         an Optionee ceases to be eligible to receive options under the 2012 Plan for reasons
                                         other than termination for cause (or death), any outstanding options held by such Optionee
                                         at such time shall remain exercisable for a period ending on the earlier of the expiry
                                         time of such stock option or three months after the Optionee ceases to be eligible to
                                         receive stock options. Notwithstanding the foregoing, the Boardof Directors may, on a case by case basis, allow such stock options to remain in full
                                         force and effect until any time up to the original expiry time of such stock options,
                                         irrespective of whether such expiry time is more than three months after the Optionee
                                         ceases to be eligible to receive stock options.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Any outstanding stock options held by an Optionee at the time of his or her death shall remain
exercisable by the person or persons to whom the rights of the Optionee's stock options are passed by the will of the Optionee
or the laws of descent and distribution for a period ending on the earlier of the expiry date of such stock options or one year
after the Optionee's death.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The
                                         Boardof Directors
                                         may from time to time, without shareholder approval and subject to applicable law and
                                         to the prior approval, if required, of TSX or any other regulatory body having authority
                                         over the Company or the 2012 Plan, suspend, terminate or discontinue the 2012 Plan at
                                         any time, or amend or revise the terms of the 2012 Plan or of any option granted under
                                         the 2012 Plan to:
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | make amendments of a clerical
                                         or typographical nature and to include clarifying provisions in the 2012 Plan;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | implement features or requirements that are necessary or desirable under applicable tax and securities
laws;
| | --- | ------------------------------------------------------------------------------------------------------------

| | (c) | change vesting provisions;
| | --- | --------------------------





94







| | (d) | change termination provisions
                                         for an insider provided that the expiry time does not extend beyond the original expiry
                                         time under the 2012 Plan;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | change termination provisions for an Optionee who is not an insider beyond the original expiry
time;
| | --- | ----------------------------------------------------------------------------------------------------

| | (f) | reduce the exercise price of a stock option for an Optionee who is not an insider; and
| | --- | --------------------------------------------------------------------------------------

| | (g) | implement a cashless exercise feature, payable in cash or securities;
| | --- | ---------------------------------------------------------------------





provided that no such amendment,
revision, suspension, termination or discontinuance shall in any manner adversely affect any stock option previously granted to
an Optionee under the 2012 Plan without the consent of that Optionee. Any other amendments to the 2012 Plan or stock options granted
there under will be subject to the approval of the shareholders.

| | · | The
    2012 Plan does not contain any provisions relating to the provision of financial assistance by the Company to Optionees to
    facilitate the purchase of common shares upon the exercise of stock options.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Stock
    options granted under the 2012 Plan are not assignable, but may be exercised by the personal representative of a deceased
    Optionee.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The
    2012 Plan requires adjustments to the numbers of shares which may be acquired and the exercise price of stock options in the
    event the Company proceeds with certain changes or transactions in which the Company’s share capital is altered, some
    form of corporate reorganization or special distribution is completed, a merger, amalgamation, spinout transaction, plan of
    arrangement, takeover bid, compulsory acquisition or going private transaction is completed. In such case the provisions typically
    entitle the Optionee to acquire, at the same aggregate price, the shares, cash, securities or other property to which the
    Optionee would have been entitled had the Optionee held the shares issuable under the stock option before such transaction,
    with certain exceptions.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Restricted Share Unit
Plan



The RSU Plan is administered by the
Compensation Committee of the Board or such other Committee of the Board as may be designated by the Board (the “Committee”).
Employees, directors and eligible consultants of the Company and its designated subsidiaries are eligible to participate in the
RSU Plan. In accordance with the terms of the RSU Plan, the Company, under the authority of the Board of Directors through the
Committee, will approve those employees, directors and eligible consultants who are entitled to receive RSUs and the number of
RSUs to be awarded to each participant. RSUs awarded to participants are credited to them by means of an entry in a notional account
in their favour on the books of the Company. Each RSU awarded conditionally entitles the participant to receive one Common Share
(or the cash equivalent) upon attainment of the RSU vesting criteria. The Committee may impose additional conditions to any particular
RSU award.





95







RSUs
Outstanding



During the year ended December 31,
2015, the Company issued 3,650,000 RSUs to senior officers and employees which remained outstanding at May 12, 2016. The RSUs
granted are subject to an 18 month vesting period; a payout date of 3 years; an expiry date of 5 years; and are assigned a fair
value based on the share price at time of issuance.



Vesting



The vesting of RSUs is conditional
upon the expiry of a time-based vesting period. The duration of the vesting period and other vesting terms applicable to the grant
of the RSUs shall be determined at the time of the grant by the Committee.



Once the RSUs vest, the participant
is entitled to receive the equivalent number of underlying Common Shares or cash equal to the Market Value of the equivalent number
of Common Shares. The vested RSUs may be settled through the issuance of Common Shares from treasury by the delivery of Common
Shares purchased in the open market, in cash or in any combination of the foregoing at the discretion of the Company. If settled
in cash, the amount shall be equal to the number of Common Shares in respect of which the participant is entitled multiplied by
the Market Value of a Common Share on the payout date. “Market Value” per share is defined in the RSU Plan
and means, as at any date (if the Common Shares are listed and posted for trading on the TSX), the volume-weighted average price
of the Common Shares traded on the TSX for the five (5) trading days on which a board lot was traded immediately preceding such
date. The RSUs may be settled on the payout date, which shall be the third anniversary of the date of the grant or such other
date as the Compensation Committee may determine at the time of the grant, which in any event shall be no later than the expiry
date for such RSUs. The expiry date of RSUs will be determined by the Committee at the time of grant. However, the maximum term
for all RSUs is two years after the participant ceases to be an employee or eligible consultant of the Company. All unvested or
expired RSUs are available for future grants.



Maximum
Number of Common Shares Available for Issue Under the RSU Plan



The maximum number of Common Shares
which may be reserved, set aside and made available for issuance under the RSU Plan is a variable number equal to 3% of the issued
and outstanding Common Shares of the Company as of the date of the grant on a non-diluted basis.



The RSU Plan provides that the maximum
number of Common Shares issuable to insiders (as that term is defined by the TSX) pursuant to the RSU Plan, together with any
Common Shares issuable pursuant to any other security-based compensation arrangement of the Company, will not exceed 10% of the
total number of outstanding Common Shares. In addition, the maximum number of Common Shares issued to insiders under the RSU Plan,
together with any Common Shares issued to insiders pursuant to any other security-based compensation arrangement of the Company
within any one year period, will not exceed 10% of the total number of outstanding Common Shares (the ‘‘RSU Insider
Limit’’).



Cessation
of Entitlement



Unless otherwise determined by the
Company in accordance with the RSU Plan, RSUs which have not vested on a participant’s termination date shall terminate
and be forfeited. If a participant who is an employee ceases to be an employee as a result of termination of employment without
cause, in such case, at the Company’s discretion (unless otherwise provided in the applicable Grant Agreement), all or a
portion of such participant’s RSUs may be permitted to continue to vest, in accordance with their terms, during any statutory
or common law severance period or any period of reasonable notice required by law or as otherwise may be determined by the Company
in its sole discretion. All forfeited RSUs are available for future grants.



Transferability
of RSUs



RSUs are not assignable or transferable
other than by operation of law, except, if and on such terms as the Company may permit, to a spouse or minor children or grandchildren
or a personal holding company or family trust controlled by a participant, the sole shareholders or beneficiaries of which, as
the case may be, are any combination of the participant, the participant’s spouse, minor children or minor grandchildren,
and after the participant’s lifetime shall enure to the benefit of and be binding upon the participant’s designated
beneficiary, on such terms and conditions as are appropriate for such transfers to be included in the class of transferees who
may rely on a Form S-8 registration statement under the U.S. Securities Act of 1933, as amended, to sell Common Shares received
pursuant to the RSU.



96







Amendments
to the RSU Plan



The Board may, without notice, at any
time and from time to time, without shareholder or RSU Plan participant approval, amend certain provisions of the RSU Plan in
such manner as the Board, in its sole discretion, determines appropriate including:



| | (a) | for the purposes of making formal
                                         minor or technical modifications to any of the provisions of the RSU Plan;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | to correct any ambiguity, defective
                                         provision, error or omission in the provisions of the RSU Plan;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | to change the vesting provisions
                                         of RSUs;
| | --- | ----------------------------------------------------------------------------------



| | (d) | to change the termination provisions
                                         of RSUs or the RSU Plan that does not entail an extension beyond the original expiry
                                         date of the RSU;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (e) | to preserve the intended tax treatment
                                         of the benefits provided by the RSU Plan, as contemplated therein; or
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | (f) | any amendments necessary or advisable
                                         because of any change in applicable laws;
| | --- | ------------------------------------------------------------------------------------------------------------------------

provided, however,
that:



| | (g) | no such amendment of the RSU Plan
                                         may be made without the consent of each affected participant if such amendment would
                                         adversely affect the rights of such affected participant(s) under the RSU Plan; and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (h) | Shareholder approval shall be
                                         obtained in accordance with the requirements of the TSX for any amendment that results
                                         in:
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | an increase in the percentage of
                                         the outstanding Common Shares issuable pursuant to the RSU Plan ;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | an extension of the expiry date
                                         for RSUs granted to insiders under the RSU Plan;
| | ---- | -------------------------------------------------------------------------------------------------------------------------



| | (iii) | other types of compensation through
                                         Common Share issuance;
| | ----- | ---------------------------------------------------------------------------------------------------



| | (iv) | expansion of the rights of a participant
                                         to assign RSUs beyond what is currently permitted in the RSU Plan;
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | (v) | the addition of new categories of
                                         participants, other than as already contemplated in the RSU Plan;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------



| | (vi) | a change in the issue price of Common
                                         Shares issuable pursuant to the RSU Plan benefitting an insider;
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------



| | (vii) | a change to the amendment provisions
                                         of the RSU Plan; or
| | ----- | -------------------------------------------------------------------------------------------------



| | (viii) | an amendment to remove or exceed
                                         the RSU Insider Limit.
| | ------ | ------------------------------------------------------------------------------------------------



During the year ended December 31, 2015,
the Company issued 3,650,000 RSUs to senior officers and employees which remained outstanding at December 31, 2015. The RSUs granted
are subject to an 18 month vesting period; a payout date of 3 years; an expiry date of 5 years; and are assigned a fair value
based on the share price at time of issuance.



97







Deferred Share
Unit Plan



Administration
of Plan and Eligible Participants



The Deferred Share Unit Plan (the “DSU
Plan”) is used for the benefit of the Company’s non-executive directors. The Board may award Deferred Share Units
(‘‘DSUs’’) under the DSU Plan to a non-executive director in such number as the Board deems advisable
to provide the director with appropriate equity-based compensation for the services he or she renders to the Company.



A DSU is a unit credited to a Participant
by way of a bookkeeping entry in the books of the Company, the value of which is equivalent to a Common Share. All DSUs paid with
respect to such awards will be credited to the director by means of an entry in a notional account in their favour on the books
of the Company (a “DSU Account”). The Board shall determine the date on which such DSUs may be granted and
the date as of which such DSUs shall be credited to the director’s DSU Account. The Company and a director who receives
such an award of DSUs shall enter into a DSU award agreement to evidence the award and the terms applicable thereto.



Additionally, the DSU Plan provides that non-executive
directors may elect to receive up to 50% of their annual compensation amount (the “Annual Base Compensation”)
in DSUs. All DSUs paid with respect to Annual Base Compensation will be credited to the director’s DSU Account when such
Annual Base Compensation is payable. The director’s DSU Account will be credited with the number of DSUs calculated to the
nearest thousandth of a DSU, determined by dividing the dollar amount of compensation payable in DSUs on the payment date by the
Share Price of a Common Share at the time. Share Price is defined in the DSU Plan and means (if the Common Shares are listed and
posted for trading on the TSX) the volume-weighted average price of a Common Share on the TSX over the five (5) consecutive trading
days immediately preceding the date of grant or the redemption date, as the case may be. Fractional Common Shares will not be
issued and any fractional entitlements will be rounded down to the nearest whole number.



Generally, a participant in the DSU
Plan shall be entitled to redeem his or her DSUs during the period commencing on the business day immediately following the date
upon which the non-executive director ceases to hold any position as a director of the Company and its subsidiaries and is no
longer otherwise employed by the Company or its subsidiaries, including in the event of death of the participant (the “Termination
Date”) and ending on the 90th day following the Termination Date. Redemptions under the DSU Plan may be in Common Shares
issued from treasury, may be purchased by the Company on the open market for delivery to the director, or may be settled in cash
or any combination of the foregoing at the discretion of the Company. The Committee may impose additional conditions to any particular
DSU award.



DSUs
Outstanding



During the year ended December 31,
2015, the Company issued 276,340 DSUs and an additional 66,666 DSUs in 2016 to directors. As at May 12, 2016, a total of 343,006
DSUs remain outstanding. The DSUs are fully vested upon issuance; subject to the plan are paid out upon retirement and are assigned
a fair value based on the five day volume weighted average share price upon issuance.



Maximum
Number of Common Shares Available for Issue Under the DSU Plan



DSUs may be granted in accordance with
the DSU Plan, provided the aggregate number of DSUs outstanding pursuant to the DSU Plan from time to time does not exceed 2%
of the issued and outstanding Common Shares from time to time. The maximum number of Common Shares which may be reserved, set
aside and made available for issuance under the DSU Plan is a variable number equal to 2% of the issued and outstanding Common
Shares of the Company as of the date of grant on a non-diluted basis.



The DSU Plan provides that the maximum
number of Common Shares issuable to insiders (as that term is defined by the TSX) pursuant to the DSU Plan, together with any
Common Shares issuable pursuant to any other security- based compensation arrangement of the Company, will not exceed 10% of the
total number of outstanding Common Shares. In addition, the maximum number of Common Shares issued to insiders under the DSU Plan,
together with any Common Shares issued to insiders pursuant to any other security-based compensation arrangement of the Company
within any one year period, will not exceed 10% of the total number of outstanding Common Shares (‘‘DSU Insider
Limit").





98







Transferability
of DSUs



No right to receive payment of deferred
compensation or retirement awards shall be transferable or assignable by any participant under the DSU Plan except by will or
laws of descent and distribution.





Amendments
to the DSU Plan



The Board may at any time, and from
time to time, and without shareholder or DSU Plan participant approval, amend certain provisions of the DSU Plan, subject to any
regulatory or stock exchange requirement at the time of such amendment, including:



| | (a) | for the purposes of making formal
                                         minor or technical modifications to any of the provisions of the DSU Plan including amendments
                                         of a “clerical” or “housekeeping” nature;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | to correct any ambiguity, defective
                                         provision, error or omission in the provisions of the DSU Plan;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | amendments to the termination provisions
                                         of the DSU Plan;
| | --- | --------------------------------------------------------------------------------------------------



| | (d) | amendments necessary or advisable
                                         because of any change in applicable laws;
| | --- | --------------------------------------------------------------------------------------------------------------------



| | (e) | amendments to the transferability
                                         of DSUs;
| | --- | -----------------------------------------------------------------------------------



| | (f) | amendments relating to the administration
                                         of the DSU Plan; or
| | --- | ------------------------------------------------------------------------------------------------------



| | (g) | any other amendment, fundamental
                                         or otherwise, not requiring shareholder approval under applicable laws;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------

provided, however,
that:



| | (h) | no such amendment of the DSU Plan
                                         may be made without the consent of each affected participant in the DSU Plan if such
                                         amendment would adversely affect the rights of such affected participant(s) under the
                                         DSU Plan; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | shareholder approval shall be
                                         obtained in accordance with the requirements of the TSX for any amendment:
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | to increase the maximum number of
                                         Common Shares which may be issued under the DSU Plan;
| | --- | --------------------------------------------------------------------------------------------------------------------------------



| | (ii) | to the amendment provisions of the
                                         DSU Plan;
| | ---- | -------------------------------------------------------------------------------------



| | (iii) | to the definition of “Participant”;
| | ----- | -----------------------------------



| | (iv) | to remove or exceed the DSU Insider
                                         Limit; or
| | ---- | --------------------------------------------------------------------------------------



| | (v) | to change the issue price of Common
                                         Shares issuable pursuant to the DSU Plan benefitting an insider.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



99







Equity Compensation Plan Information



The following table sets out certain details
as at December 31, 2015 with respect to compensation plans pursuant to which equity securities of the Company are authorized for
issuance:



|Plan
                                         Category             |  | Number
                                         of securities to beissued upon exercise ofoutstanding options,warrants and rights(1)  (a) |           |  | Weighted-average
                                         exerciseprice of outstanding options,warrants and rights(2)  (b) |   |      | Number
                                         of securitiesremaining available forfuture issuance underequity compensation plans(excluding securitiesreflected in
                                         column (a))  (c) | 
|------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------- | --------- |  | -------------------------------------------------------------------------------------------------------------------------- | - | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|2012 Stock Option Plan                                             |  |                                                                                                                                           | 650,000   |  |                                                                                                                            | $ | 0.46 |                                                                                                                                                                                                                               | 
|Deferred Share Unit Plan                                           |  |                                                                                                                                           | 276,340   |  |                                                                                                                            |   | n/a  |                                                                                                                                                                                                                               | 
|Restricted Share Unit Plan                                         |  |                                                                                                                                           | 3,650,000 |  |                                                                                                                            |   | n/a  |                                                                                                                                                                                                                               | 
|Sub-total – equity compensation plans approved by security holders |  |                                                                                                                                           | 4,576,340 |  |                                                                                                                            |   | n/a  |                                                                                                                                                                                                                               | 
|Equity compensation plans not approved by security holders (3)     |  |                                                                                                                                           | 323,800   |  |                                                                                                                            | $ | 0.72 |                                                                                                                                                                                                                               | 
|Total                                                              |  |                                                                                                                                           | 4,900,140 |  |                                                                                                                            |   | n/a  |                                                                                                                                                                                                                               | 

| | (1) | Represents
                                         the number of common shares reserved for issuance upon exercise of outstanding options,
                                         RSUs and DSUs.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Since RSUs
                                         and DSUs do not have an exercise price, they have not been factored into the weighted
                                         average price calculation.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Incentive
                                         stock options in the amount of 300,000 were granted outside of the Company’s stock
                                         option plan and in accordance with the policies of the TSX. Upon the Company’s
                                         acquisition of Paragon Minerals Corporation, incentive stock options were converted from
                                         options previously granted and 23,800 remain outstanding at December 31, 2015.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Pension Plan Benefits



The Company does not provide any form of group
pension plan benefits to employees, officers or directors.



Termination and Change of Control
Benefits



Except as otherwise disclosed herein, the Company
has no compensatory plan or arrangement in respect of compensation received, or that may be received, by a Named Executive Officer
in the Company's most recently completed or current financial year to compensate such NEO in the event of the termination of employment
(whether voluntary, involuntary or constructive), resignation, retirement, a change of control of the Company or a change in responsibilities
of the NEO following a change in control.



The Company entered into an Employment
Agreement dated effective January 1, 2010 with Mr. Alan Taylor, Chief Operating Officer, for his continuing services as an officer
of the Company (the “Taylor Agreement”). Certain provisions in the Taylor Agreement deal with events around
termination of employment or resignation following a change of control of the Company, which is defined as the acquisition by
any entity, directly or indirectly, of not less than fifty percent (50%) of the outstanding voting securities of the Company or
the votes attached to those securities that are sufficient, if exercised, to elect a majority of the Board of Directors (a "Change
of Control"). Should Mr. Taylor’s employment with the Company be terminated without cause, Mr. Taylor is entitled
to receive an amount equal to his then current annual salary upon termination, and a further amount equal to 50% of the initial
termination pay amount on the first anniversary of his termination. In the event of a Change of Control and subsequent termination
by the Company without cause, or resignation of Mr. Taylor, within 12 months of the Change of Control, Mr. Taylor is entitled
to receive an amount equal to twenty-four months of his then current annual salary (calculated as his base salary before the reduction
in the cash component and excluding the grant of any RSUs).





100







A summary of the potential payments to
Mr. Taylor, assuming the applicable resignation or termination had occurred on December 31, 2015, is: termination without cause
- $290,374; termination without cause or resignation following a change of control - $387,166.



The Company entered into an Employment
Agreement effective January 17, 2011 with Mr. Trevor Cunningham, CFO, for his continuing services as an officer of the Company
(the “Cunningham Agreement”). Certain provisions in the Cunningham Agreement deal with events around termination
of employment and change in responsibilities amounting to constructive dismissal following a Change of Control. If Mr. Cunningham’s
employment is terminated without cause, Mr. Cunningham is entitled to receive twelve months' termination pay at his then current
annual salary. In the event of a Change of Control and subsequent termination or constructive dismissal within 12 months of the
Change of Control, Mr. Cunningham is entitled to receive, in addition to termination pay, a further amount equal to six months'
termination pay at his then current annual salary (calculated as his base salary before the reduction in the cash component and
excluding the grant of any RSUs).



A summary of the potential payments to
Mr. Cunningham, assuming the termination had occurred on December 31, 2015, is: termination without cause - $175,000; termination
without cause following a change of control - $262,500.



Director Compensation



The following table shows director compensation
for each director, other than directors that are also Named Executive Officers, for the year ended December 31, 2015.



|Name                   |  | Feesearned ($) |        |  | Share-basedawards (1)($) |  |        | Option-basedawards(2)($) |  |  | Non-equity  incentive
    plan  compensation ($) |  |  | Pension  value
    ($) |     |  | All other  compensation
    ($) |  |     | Total ($) | 
|---------------------- |  | -------------- | ------ |  | ------------------------ |  | ------ | ------------------------ |  |  | ------------------------------------------------ |  |  | ---------------------- | --- |  | ------------------------------- |  | --- | --------- | 
|Brian A. Atkins        |  |                | 20,333 |  |                          |  | 12,500 |                          |  |  | Nil                                              |  |  |                        | Nil |  |                                 |  | N/A |           | 
|                       |  |                |        |  |                          |  |        |                          |  |  |                                                  |  |  |                        |     |  |                                 |  |     |           | 
|John A. MacPherson (3) |  |                | 15,462 |  |                          |  | N/A    |                          |  |  | Nil                                              |  |  |                        | Nil |  |                                 |  | N/A |           | 
|                       |  |                |        |  |                          |  |        |                          |  |  |                                                  |  |  |                        |     |  |                                 |  |     |           | 
|Dave Nickerson         |  |                | 19,333 |  |                          |  | 12,500 |                          |  |  | Nil                                              |  |  |                        | Nil |  |                                 |  | N/A |           | 



| | (1) | Upon issuance, the DSUs are
                                         fully vested and are assigned a fair value based on the five day volume weighted average
                                         share price. Subject to the terms and conditions of the DSU Plan, DSUs are paid out upon
                                         retirement.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | The value of option-based
                                         awards represents the grant date fair value of the stock options awarded.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Mr. MacPherson retired as
                                         a director effective August 12, 2015.
| | --- | --------------------------------------------------------------------------------------------------------



Prior to August 2015, the Company paid
each director, other than directors that are also Named Executive Officers, an annual fee of $20,000, (payable quarterly and pro-rated
for partial months served) plus $500 for each meeting or committee meeting attended. The Chair of the Audit Committee and Compensation
Committee (providing the Chair is not also an executive officer of the Company) receives an additional $500 per meeting attended.
In August 2015, having regard to the financial position of the Company and in light of continued uncertainty in the capital markets
and the current lack of investor interest in the resource sector, the Board implemented cost reduction measures which included
a change in the composition of Directors’ remuneration to reduce the cash component form $20,000 per year to $10,000 per
year and to award the grant of Deferred Share Units to a value of $20,000 per year, payable quarterly. An aggregate of $80,128
was paid to directors for their services as directors during 2015.



From time to time, directors may be
retained to provide specific services to the Company, or sit on additional sub-committees of the Board of Directors, and will
be compensated on a basis to be determined at the time.



Share-based
awards, option-based awards and non-equity incentive plan compensation



The following table shows all option-based
and share-based awards outstanding to each director, other than those that are also Named Executive Officers, as at December 31,
2015.



|                                                       |  | Option-based
    Awards                                |     |  | Share-based
    Awards | 
|------------------------------------------------------ |  | ------------------------------------------------------ | --- |  | ---------------------- | 
|Name                                                   |  | Number
    ofsecuritiesunderlyingunexercisedoptions(#) |     |  | Optionexerciseprice($) | 
|Brian A. Atkins                                        |  |                                                        | Nil |  |                        | 
|                                                       |  |                                                        |     |  |                        | 
|John
                                    A. MacPherson |  |                                                        | Nil |  |                        | 
|                                                       |  |                                                        |     |  |                        | 
|Dave Nickerson                                         |  |                                                        | Nil |  |                        | 



| | (1) | Calculated based on the market value of the shares underlying the share-based awards at the end
of the most recently completed financial year which was $0.105.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



101







Incentive plan
awards – value vested or earned during the year



The following table shows all incentive plan
awards values vested or earned for each director, other than those that are Named Executive Officers, during the year ended December
31, 2015.



|Name               |  | Option-based
                                         awards – Valuevested during the year(1) ($) |     |  | Share-based
    awards – Valuevested during the year (2)($) |  |        | Non-equity incentive
    plan  compensation – Value earned  during the year ($) | 
|------------------ |  | ------------------------------------------------------------------------------------------------- | --- |  | ----------------------------------------------------------- |  | ------ | ------------------------------------------------------------------------------- | 
|Brian A. Atkins    |  |                                                                                                   | Nil |  |                                                             |  | 12,500 |                                                                                 | 
|                   |  |                                                                                                   |     |  |                                                             |  |        |                                                                                 | 
|John A. MacPherson |  |                                                                                                   | Nil |  |                                                             |  | Nil    |                                                                                 | 
|                   |  |                                                                                                   |     |  |                                                             |  |        |                                                                                 | 
|Dave Nickerson     |  |                                                                                                   | Nil |  |                                                             |  | 12,500 |                                                                                 | 



| | (1) | The value of vested options represents the aggregate dollar value that would have been realized
if any of the options granted had been exercised on the vesting dates. The dollar value is the difference between the market price
of the underlying securities at exercise and the exercise price of the options on the vesting date.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | The value of vested share-based awards represents the aggregate dollar value that would have been
realized if the share-based awards granted had been exercised on the vesting dates.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other than the DSU Plan, the Company
has no plans pursuant to which cash or non-cash compensation was paid or distributed to directors during the most recently completed
financial year or is proposed to be paid or distributed in a subsequent year.



In 2014, the Company adopted a Deferred
Share Unit Plan for the benefit of the Company’s, directors. The DSU Plan is intended to assist the Company in the recruitment
and retention of qualified, directors by providing a means to compensate directors and through the proposed issuance by the Company
of Common Shares under the DSU Plan, to better align the interests of directors with the long-term interests of Shareholders.



Directors
are eligible to participate in the 2012 Plan and the DSU Plan. During the financial year ended December 31, 2015, 276,340 DSUs
were granted to the directors of the Company.



Directors’ and Officers’
Liability Insurance



Section 21 of the Articles of the Company provides
for mandatory indemnification of directors and former directors against all costs, charges and expenses in respect of any proceeding
to which they are made a party by reason of being a director or officer of the Company, subject any limitations contained in the
Articles and in the Business Corporations Act (British Columbia).



The Company maintains insurance for the benefit
of the Company’s directors and officers against liability incurred by them in their capacity as directors and officers. The
policy provides coverage in respect of a maximum total liability of $5 million, subject to a deductible of $25,000 per event. The
premium for 2015 was $22,000 and in 2016 is $22,000. The policy contains standard industry exclusions and no claims have been made
to date.



Indebtedness to Company
of Directors and Executive Officers



As at May 12, 2016, there was no indebtedness
outstanding of any current or former Director, executive officer or employee of the Company or any of its subsidiaries which is
owing to the Company or any of its subsidiaries or to another entity which is the subject of a guarantee, support agreement, letter
of credit or other similar arrangement or understanding provided by the Company or any of its subsidiaries, entered into in connection
with a purchase of securities or otherwise.



No individual who is, or at any time
during the most recently completed financial year was, a Director or executive officer of the Company, no proposed nominee for
election as a Director of the Company and no associate of such persons:



| | (i) | is or at any time since the beginning
                                         of the most recently completed financial year has been, indebted to the Company or any
                                         of its subsidiaries; or
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | whose indebtedness to another entity
                                         is, or at any time since the beginning of the most recently completed financial year
                                         has been, the subject of a guarantee, support agreement, letter of credit or other similar
                                         arrangement or understanding provided by the Company or any of its subsidiaries,
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



in relation
to a securities purchase program or other program.



C. Disclosure of Corporate Governance
Practices



Independence of Members of Board



Prior to August 2015, the Board of Directors
consisted of five directors. Three of the directors, Brian Atkins, John MacPherson and Dave Nickerson, were considered independent
of management and of any significant shareholder and are considered competent to exercise independent judgment in carrying out
their responsibilities as directors. None of these directors has any direct or indirect material relationship with the Company
nor any relationship pursuant to which he may accept, directly or indirectly, any consulting, advisory or other compensatory fees,
other than as remuneration for acting in his capacity as a member of the Board of Directors or a committee of the Board. John
MacPherson retired as a Director in August 2015.



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





102







Following the retirement of John MacPherson
a majority of the directors is not independent; however the Board is of the opinion that it has continued to function properly
as required.



Brian Atkins, who currently serves
as an independent director and acts as Chairman of the Audit Committee and Compensation Committee, has indicated that he wishes
to retire from the Board at the next Annual Meeting and is not proposed for re-election as a director at the Annual Meeting. It
is proposed that four new nominees be elected as directors at the next Annual Meeting all of whom will be considered independent.



The Chairman of each of the Audit Committee
and the Compensation Committee is an independent director, who provides leadership to those committees, and the Chairman of the
Board does not sit on the Compensation Committee. Following the retirement of John MacPherson as a Director in August 2015, John
Kearney was appointed as a member of the Audit Committee in reliance on the exemption in Section 3.5 of NI 52-110 which permits
a company to appoint a non-independent director to the Audit Committee to fill a vacancy created by the resignation of another
Audit Committee member.



It is expected that the composition
of the Committees will be changed after the 2016 Annual Meeting following the election of four new directors.



Management Supervision by the Board



The Company Officers report upon the operations
of the Company directly to the Board on a regular basis. The Company does not have an appointed lead director. The independent
directors are able to meet at any time they consider necessary without any members of management, including non-independent directors,
being present. The Audit Committee is composed of a majority of independent directors who meet with the Company’s auditors,
and without management in attendance if considered necessary or desirable. The independent directors have regular and full access
to management. Although the independent directors do not hold regularly scheduled meetings at which non-independent directors
and members of management are not in attendance, the independent directors are able to meet at any time without the non-independent
directors being present if considered necessary or desirable. The independent directors hold in camera discussions at every quarterly
Audit Committee meeting to facilitate open and candid discussion amongst themselves.



Participation of Directors in Other
Reporting Issuers



The participation of the Directors in other
reporting issuers is described in the following table:



|Name of Director   |  | Name of Other
    Reporting Issuer                                                                                                                                                                       
|------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|John F. Kearney    |  | Anglesey Mining Plc (1)
        Avnel Gold Mining Limited
        Conquest Resources Limited (1)
        Labrador Iron Mines Holdings Limited
        (1)
        Minco Plc. (1)
        Xtierra Inc. (1)
|                   |  |                                                                                                                                                                                                          
|Dave
    Nickerson |  | Tyhee Gold Corp.                                                                                                                                                                                         



| | (1) | John F. Kearney is a director
                                         of a group of associated public companies, which have some overlapping or common management
                                         and which share office space or other facilities with the Company. In a general sense,
                                         these companies operate as a ‘group’ of which John Kearney may be described
                                         as “group” Chairman. John Kearney is also an independent director of Avnel
                                         Gold Mining Limited.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Participation of Directors in Board
Meetings



In the year ended December 31, 2015, eight
Board meetings were held. In addition, there were four meetings of the Audit Committee, two of the Compensation Committee and one
of the Health & Safety Committee. The attendance record of each director for the Board and applicable committee meetings held
is as follows:



|Name of Director       |  | Board Meetings Attended |  | Committee Meetings Attended
|---------------------- |  | ----------------------- |  | ---------------------------
|Brian A. Atkins        |  | 8 of 8                  |  | 6 of 6                     
|                       |  |                         |  |                            
|John F. Kearney        |  | 8 of 8                  |  | N/A                        
|                       |  |                         |  |                            
|John A. MacPherson (1) |  | 6 of 6                  |  | 3 of 3                     
|                       |  |                         |  |                            
|Dave Nickerson         |  | 8 of 8                  |  | 7 of 7                     
|                       |  |                         |  |                            
|Alan B. Taylor         |  | 8 of 8                  |  | 1 of 1                     



| | 1. | Mr. MacPherson retired as a
                                         director effective August 12, 2015.
| | -- | --------------------------------------------------------------------------------------------------------



Board Mandate



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



103







Position Descriptions



The Board has not developed written position
descriptions for the Chairman of the Board or the chairs of each of the Board Committees. The Board is of the view that the role
and responsibilities of the Chairman of the Board and of the Chairs of the respective Committees are sufficiently specific that
no separate written position descriptions are necessary or advisable.



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



Orientation and Continuing Education



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



Ethical Business Conduct



The Board assumes responsibility for the Company’s
approach to corporate governance matters. The Board views good corporate governance and ethical business conduct as an integral
and essential component to the supervision and management of the Company and to meet responsibilities to shareholders, employees
and other stakeholders.



The Board has adopted a written Code of Ethics
for directors, officers and employees – a copy of this Code can be found on the Company’s website at www.canadianzinc.com.
The Code is intended to define the ethical and regulatory standards applicable to all directors, officers and employees (including
contractors) of the Company, and their family members, and provides guidance as to the following matters (being a summary and not
an exhaustive list): honest and ethical conduct; avoidance of conflicts of interest, whether actual or potential; full, fair, accurate,
timely and understandable disclosures; compliance with legislation and regulations; prompt internal disclosure of any violation
of the Code; and accountability for any failure to respect the Code.



The Code is not considered a comprehensive
guide to all the Company’s policies or to individuals’ responsibilities under applicable laws and regulations. The
Code is intended to provide general parameters and expectations of the Company and is provided to all directors, officers, employees
and key contractors when they commence their services with the Company.



The Board conducts periodic reviews of the
Company’s corporate governance practices and procedures in the light of applicable rules and guidelines and the current status
and stage of development of the Company.



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





104







Nomination of Directors



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



Compensation Committee



The Board has appointed a Compensation Committee
which has responsibility for determining compensation for the directors and senior management. In 2015, the Compensation Committee
of the Board consisted of Brian Atkins, John MacPherson and Dave Nickerson (all considered independent directors). The Compensation
Committee relies on the general knowledge and experience of its members, and recommendations from senior management, in reviewing
appropriate levels of compensation for executive officers and the implementation of, or amendment to, any other aspects of compensation
that the Compensation Committee may review from time to time. All Compensation Committee members have relevant general, but not
direct, experience in executive compensation and compensation policies and practices in the junior mineral resources business gained
through current and prior experience in business, the minerals industry and government.



Pursuant to its Charter, the Compensation Committee
has, among others, the following responsibilities:

| | · | Review and make recommendations to the Board regarding the Company’s compensation plans,
including with respect to incentive-compensation plans and equity-based plans, policies and programs.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Review the level and form of the directors’ compensation and recommend changes to the Board
for consideration and approval.
| | - | ---------------------------------------------------------------------------------------------------------------------------

| | · | Review and monitor the Company’s employee and management compensation and benefit plans and
policies, provide oversight of any employee benefit plan, and review and approve the compensation of the Company’s executive
officers.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Annually review and approve corporate goals and objectives relevant to CEO compensation, evaluate
the CEO’s performance in light of those goals and objectives and establish the individual elements of the CEO’s total
compensation based on this evaluation.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Review and make recommendations to the Board with regard to grants and/or awards of restricted
stock, stock options and other forms of equity-based compensation under the Company’s stock option, incentive-compensation
and equity-based plans (as applicable).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Review and make recommendations for the Board, when and
if appropriate, of employment agreements, severance agreements and change in control provisions / agreements for the CEO and other
executive officers.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
Compensation Committee makes recommendations to the Board with respect to the compensation of the President and CEO. The Compensation
Committee meets as requested by the Board or the CEO, or as considered desirable by the Compensation Committee. The Compensation
Committee has the authority to retain independent advisors as it may deem necessary or appropriate to allow it to discharge its
responsibilities.



Other Committees



In addition to the Audit Committee and the
Compensation Committee, the Board also has a Health & Safety Committee comprised of Board members Alan Taylor and Dave Nickerson
and also the Prairie Creek Site Managers. The function of the Health & Safety Committee is to review the Company’s Health
& Safety Policies, practices and programs, to oversee and regularly evaluate the Company’s health and safety performance
and to monitor and advise the Board on current and anticipated future best practices and regulatory issues relating to health and
safety.





105







Assessment



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



Director Term Limits and Other
Mechanisms of Board Renewal



The Company does not impose term limits
on its directors. The Company believes term limits are an arbitrary mechanism for removing directors, and can result in highly
qualified and experienced directors forced out solely based on the length of their service.



Policies Regarding the
Representation of Women



The Company has not adopted a written
policy relating to the identification and nomination of women directors, as it believes that the interests of the Company would
be best served by ensuring that new directors are identified and selected from the widest possible group of potential candidates.
A formalized written diversity policy governing the identification and selection of potential women candidates may unduly restrict
the Board's ability to select the best and most suitable candidate.



The Board is responsible for establishing
qualifications and skills necessary for an effective Board and for various committees of the Board, including but not limited
to factors such as professional experience, particular areas of expertise, personal character, potential conflicts of interest,
diversity and other commitments.



Although diversity (which includes
diversity in gender, age, ethnicity and cultural background) is one of the factors considered in the Company's director identification
and selection process, other factors, including knowledge and relevant experience, or particular areas of expertise, are given
greater consideration in the director identification and selection process. In light of the Company's view that candidates should
be selected from the widest possible group of qualified individuals, the level of representation of women may be considered but
is not a major factor in identifying and nominating candidates for election to the Board.



As part of the process to identify
and select nominees proposed for election at the 2016 Annual Meeting, to fill the vacancies covered by the retirement of two directors
and to expand and strengthen the composition of the Board, a number of potential women candidates were identified as having the
appropriate and relevant experience but none of these potential candidates were available due to various factors.



The Company's views with respect to
the representation of women in executive officer positions when making executive officer appointments is the same as its views
on the representation of women in the director identification and selection process. In making decisions as to executive officer
appointments, the Company believes that decisions to hire or promote an individual should be based on that person's knowledge
and experience, particular areas of expertise, character and merit. Accordingly, the representation of women in executive officer
positions may be considered but is not a major factor and is not an issue when making executive officer appointments.



The Company has not adopted a target
regarding the representation of women on the Board or in executive officer positions for the reasons set out above. The Company
believes that adopting such a target may unduly restrict its ability to select, hire or promote the best and most suitable candidate
for the position in question.



The Company currently does not have
any women Board members or executive officers.



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”





106







| | I. | MANDATE
| | -- | -------



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



| | · | recommend to the Board the external auditors to be nominated and the compensation of such auditor;
| | - | --------------------------------------------------------------------------------------------------

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

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

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

| | · | oversees the integrity of internal controls and financial reporting procedures of the Corporation
and ensure implementation of such controls and procedures;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | provide oversight to any related party transactions entered into by the Corporation.
| | - | ------------------------------------------------------------------------------------



| | II. | AUTHORITY OF THE AUDIT COMMITTEE
| | --- | --------------------------------



The Committee shall have the authority to:



| | · | engage independent counsel and other advisors as it determines necessary to carry out its duties;
| | - | -------------------------------------------------------------------------------------------------

| | · | set and pay the compensation for advisors employed by the Audit Committee; and
| | - | ------------------------------------------------------------------------------

| | · | communicate directly with the external auditors.
| | - | ------------------------------------------------



| | III. | COMPOSITION AND MEETINGS
| | ---- | ------------------------



| | · | The Committee and its membership shall meet all applicable legal, regulatory and listing requirements,
including those of all applicable securities regulatory authorities.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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



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

| | · | The Committee shall meet at least quarterly, as circumstances dictate or as may be required by
applicable legal or listing requirements.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------





107







| | · | 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
| | --- | ----------------



| | · | The Committee shall review the annual audited financial statements to satisfy itself that they
are presented in accordance with applicable International Financial Reporting Standards 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.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 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.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The Committee shall establish procedures for the receipt, retention and treatment of complaints
received by the Corporation regarding accounting, internal accounting controls or auditing matters; and the confidential, anonymous
submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The Committee shall provide oversight to any related party transactions entered into by the Corporation.
| | - | --------------------------------------------------------------------------------------------------------

| | · | 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.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 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.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The Committee shall perform any other activities consistent with this Charter and governing law,
as the Committee or the Board deems necessary or appropriate.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



Composition of Audit Committee



The
Audit Committee, as of the date of this Annual Report, is composed of Brian Atkins, Dave Nickerson and John Kearney. The Company
considers each member of the Audit Committee to be financially literate for the purposes of National Instrument 52-110 (“NI
52-110”). A majority of the committee members are independent and the Board of Directors, relying on NI 52-110 Section 3.5,
have determined that such reliance will not materially affect the ability of the audit committee to act independently and satisfy
the requirements of NI 52-110. The Company intends to increase the number of independent Board members at the next Annual General
Meeting and will ensure each member of the Audit Committee be independent.



Relevant Education and Experience



The education and experience of each Audit
Committee member that is relevant to the performance of his responsibilities as a member of the Audit Committee 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 BlueShore Financial,
currently a member of the Institute of Corporate Directors and was until December 2009 a Member of the Independent Review Committee
of Inhance Investment Management Inc. He has a thorough understanding of accounting standards used by the Company in preparing
its annual and quarterly financial statements. He has a thorough understanding of internal controls over financial reporting.





108







Dave Nickerson B.Sc., M.Sc., Mr. Nickerson
holds a Bachelors degree in Mining Engineering from the University of Birmingham and a Masters degree in Mineral Exploration from
Laurentian University and has taken Post-Graduate Courses in Mineral Development and in Legislation Strategy at McGill University,
Montreal. He is a Professional Engineer and a member of the Association of Professional Engineers, Geologists and Geophysicists
of the Northwest Territories. He was elected as Member of Parliament for three terms 1979 to 1988, during part of which time he
served as a member of the House Standing Committee on Public Accounts, and as a Member of the Legislative Assembly of the Northwest
Territories 1975 to 1979. He served as the Chairman of the Northwest Territories Water Board from 1988 to 1994. He has served as
a director of public companies for a period in excess of five years. He has an understanding of the accounting principles used
by the Company to prepare its financial statements and has the ability to assess the general application of such accounting principles
in connection with the accounting for estimates, accruals and reserves. He has experience evaluating financial statements with
accounting issues comparable to the financial statements and issues that can reasonably be expected to be raised by the Company’s
financial statements. He has an understanding of internal controls and procedures for financial reporting.



John Kearney is financially literate. He is
a mining and business executive with over forty years’ experience in the mining industry internationally. He holds law and
economics degrees from University College Dublin, a Masters Degree in Business Administration from Trinity College, Dublin and
obtained the designation Associate of the Chartered Institute of Secretaries and Administrators (ACIS) in which he completed advanced
accounting courses. He is a member of the Law Society of Ireland.



Mr. Kearney has been an officer and director
of public companies for a period in excess of forty years. He has an in depth understanding of the accounting principles used by
the Corporation to prepare its financial statements and has the ability to assess the general application of such accounting principles
in connection with the accounting for estimates, accruals and reserves. He has in depth experience in supervising the preparation,
auditing analyzing and evaluation of financial statements with accounting issues at least comparable to the financial statements
and the issues that can be reasonably be expected to be raised by the Corporation’s financial statements. He has an in depth
understanding of internal controls and procedures for financial reporting.



Audit Committee Oversight



Since the commencement of the Company’s
most recently completed financial year (January 1, 2015) 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.



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 2015 and 2014 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.



Interest of Informed Person
in Material Transactions



No informed person or proposed director
of the Company, or any associate or affiliate of any informed person or proposed director, has had a material interest, direct
or indirect, in any transaction of the Company since the commencement of the Company's last fiscal year or in any proposed transaction
which has materially affected or would materially affect the Company.



Management Contracts



Except as disclosed under the heading
“Disclosure of Corporate Governance Practices – Other Committees”, no management functions of the Company
or any of its subsidiaries are performed to any substantial degree by a person other than the directors or executive officers
of the Company.



D. Employees



As of December 31, 2015, the Company had eight
employees. Seven employees are based in the Company’s corporate offices, two in Ontario, Canada and five in British Columbia,
Canada. One employee in Northwest Territories, Canada is based in the Company’s field office. In addition, the Company utilizes
the services of contractors to assist in certain tasks and projects. There has been a decrease in the number of employees over
the last three years as the Company in the most recent fiscal period has moved to contain costs. The Company’s employees
are not members of a labour union.





109







E. Share Ownership



The following table sets forth the shareholdings,
to the best of Management’s knowledge, owned beneficially, directly or indirectly, by the Company’s directors and officers
as of March 30, 2016. There were 218,047,709 common shares issued and outstanding as of March 30, 2016.



|Name                 |  | Common Shares beneficially owned,  controlled or directed, directly or indirectly |           |  | Percentage of Outstanding Common Shares  (%) | 
|-------------------- |  | --------------------------------------------------------------------------------- | --------- |  | -------------------------------------------- | 
|Brian A. Atkins      |  |                                                                                   | 200,000   |  |                                              | 
|John F. Kearney      |  |                                                                                   | 3,500,909 |  |                                              | 
|Dave Nickerson       |  |                                                                                   | 130,000   |  |                                              | 
|Alan B. Taylor       |  |                                                                                   | 124,000   |  |                                              | 
|Trevor L. Cunningham |  |                                                                                   | 15,000    |  |                                              | 



See “Item
6.B. – Compensation” for table setting out the stock options currently outstanding to our directors and officers and
for information regarding equity compensation plans.



Item 7. Major
Shareholders and Related Party Transactions



A. Major Shareholders



To the best of the Company’s knowledge
the following table sets forth information regarding the share ownership of the Company as of March 30, 2016 of shareholders that
are beneficial owners of 5% or more of the Company’s outstanding common shares.



|Name of Owner                          |  | Number of Common  Shares |            |  | Percentage | 
|-------------------------------------- |  | ------------------------ | ---------- |  | ---------- | 
|Zhongrun International Mining Co. Ltd. |  |                          | 15,000,000 |  |            | 



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



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



Outstanding Share Data



As at March 30, 2016, the Company has 218,047,709
common shares issued and outstanding. In addition, there are outstanding stock options; share purchase options and warrants for
a further 673,800; 3,926,340 and 16,908,360 common shares respectively.



As of March 30, 2016, there were 89 shareholders
of record of the Company’s common shares in the United States, holding 1.14% of the outstanding common shares of the Company.



B. Related Party Transactions



During the year ended December 31, 2015, the
Company incurred rent expense in the amount of $24,000 (2014 - $24,000 and 2013 - $24,000) with a corporation in which the Chairman
of the Company is also a director. These transactions were within the normal course of business and have been recorded at amounts
agreed to by the transacting parties. At December 31, 2015, $nil was owed to related parties and was included in accounts payable
and accrued and other liabilities (December 31, 2014 - $2,000).



Other than as noted above, there were no material
transactions in the fiscal year ended December 31, 2015, or proposed material transactions between the Company or any of its subsidiaries
and:





110







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

(b)          associates;

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

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

(e)          enterprises in which a substantial
interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person
is able to exercise significant influence including enterprises owned by directors or major shareholders of the Company and enterprises
that have a member of key management in common with the Company, other than rent expense as set out in Note 18 to the Financial
Statements for the year ended December 31, 2014.



C. Interests of Experts and Counsel



Not applicable.



Item 8. Financial
Information



A. Consolidated Statements and Other Financial
Information



Consolidated Financial Statements



The
consolidated financial statements of the Company and audit report of the Company’s independent auditor are filed as part
of this Form 20-F under Item 18.



Legal or Arbitration Proceedings



The Company currently is not a party to any
material legal or arbitration proceeding.



The Company is not aware of any material proceeding
in which any director, member of senior management or affiliate of the Company is either a party adverse to the Company or any
of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries.



Dividend Policy



The Company
has not paid any dividend or made any other distribution in respect of its outstanding common shares and management does not anticipate
that the Company will pay dividends or make any other distribution in respect on its common shares in the foreseeable future.



B. Significant Changes



There have been no significant changes in the
affairs of the Company since the date of the audited annual consolidated financial statements of the Company as at and for the
year ended December 31, 2015, other than as discussed in this Annual Report.





111







Item 9. The
Offer and Listing



A. Offer and Listing Details



Nature of Trading Market.



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



Trading on the TSX



The following table sets forth the high and
low sale prices on the TSX for the common shares for the last five fiscal years ended December 31, 2015.



|Year Ended        |  | High CDN$ |      |  | Low CDN$ | 
|----------------- |  | --------- | ---- |  | -------- | 
|December 31, 2015 |  |           | 0.24 |  |          | 
|December 31, 2014 |  |           | 0.54 |  |          | 
|December 31, 2013 |  |           | 0.73 |  |          | 
|December 31, 2012 |  |           | 0.78 |  |          | 
|December 31, 2011 |  |           | 1.34 |  |          | 



The following table sets forth the high and
low sale prices on the TSX for the common shares for each quarterly period in the two most recent fiscal years ended December 31,
2015.



|Quarter Ended      |  | High CDN$ |      |  | Low CDN$ | 
|------------------ |  | --------- | ---- |  | -------- | 
|December 31, 2015  |  |           | 0.13 |  |          | 
|September 30, 2015 |  |           | 0.14 |  |          | 
|June 30, 2015      |  |           | 0.21 |  |          | 
|March 31, 2015     |  |           | 0.24 |  |          | 
|December 31, 2014  |  |           | 0.25 |  |          | 
|September 30, 2014 |  |           | 0.39 |  |          | 
|June 30, 2014      |  |           | 0.42 |  |          | 
|March 31, 2014     |  |           | 0.54 |  |          | 



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



|Month Ended        |  | High CDN$ |      |  | Low CDN$ | 
|------------------ |  | --------- | ---- |  | -------- | 
|February 28, 2016  |  |           | 0.12 |  |          | 
|January 31, 2016   |  |           | 0.11 |  |          | 
|December 31, 2015  |  |           | 0.13 |  |          | 
|November 30, 2015  |  |           | 0.09 |  |          | 
|October 31, 2015   |  |           | 0.10 |  |          | 
|September 30, 2015 |  |           | 0.10 |  |          | 



112







Trading on the OTCQB



The following table sets forth the high and
low sale prices on the OTCBB or OTCQB, as applicable, for the common shares of the Company for the last five fiscal years ended
December 31, 2015.



|Year Ended        |  | High U.S.$ |      |  | Low U.S.$ | 
|----------------- |  | ---------- | ---- |  | --------- | 
|December 31, 2015 |  |            | 0.20 |  |           | 
|December 31, 2014 |  |            | 0.48 |  |           | 
|December 31, 2013 |  |            | 0.73 |  |           | 
|December 31, 2012 |  |            | 0.80 |  |           | 
|December 31, 2011 |  |            | 1.38 |  |           | 



The following table sets forth the high and
low sale prices on the OTCBB or OTCQB, as applicable, for the common shares of the Company for each quarterly period in the two
most recent fiscal years ended December 31, 2015.



|Quarter Ended      |  | High U.S.$ |      |  | Low U.S.$ | 
|------------------ |  | ---------- | ---- |  | --------- | 
|December 31, 2015  |  |            | 0.09 |  |           | 
|September 30, 2015 |  |            | 0.13 |  |           | 
|June 30, 2015      |  |            | 0.17 |  |           | 
|March 31, 2015     |  |            | 0.20 |  |           | 
|December 31, 2014  |  |            | 0.23 |  |           | 
|September 30, 2014 |  |            | 0.35 |  |           | 
|June 30, 2014      |  |            | 0.39 |  |           | 
|March 31, 2014     |  |            | 0.48 |  |           | 



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



|Month Ended        |  | High U.S.$ |      |  | Low U.S.$ | 
|------------------ |  | ---------- | ---- |  | --------- | 
|February 28, 2016  |  |            | 0.09 |  |           | 
|January 31, 2016   |  |            | 0.08 |  |           | 
|December 31, 2015  |  |            | 0.09 |  |           | 
|November 30, 2015  |  |            | 0.07 |  |           | 
|October 31, 2015   |  |            | 0.08 |  |           | 
|September 30, 2015 |  |            | 0.08 |  |           | 



B. Plan of Distribution



Not applicable.



C. Markets



The Company's common shares trade on the TSX,
under the trading symbol "CZN".



The Company's common shares are quoted in the
United States on the OTCQB under the symbol “CZICF”.



D. Selling Shareholders



Not applicable.



E. Dilution



Not applicable.



113







F. Expenses of the Issue



Not applicable.



Item 10. Additional
Information



A. Share Capital



Not
applicable.



B. Memorandum and Articles of Association



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



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



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



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



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





114







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



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



C. Material Contracts



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



D. Exchange Controls



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



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



In the case of the direct acquisition of
control of a Canadian business, the threshold for review is $600 million in enterprise value for investments by: (1) WTO investors
that are not state-owned enterprises; and (2) non-WTO investors that are not state-owned enterprises where the Canadian business
that is the subject of the investment is, immediately prior to the implementation of the investment, "controlled by a WTO
investor". A WTO investor is a member of the World Trade Organization, current members of which include the European Union,
Australia, Japan, Mexico, and the United States. The review threshold of $600 million applies starting in 2015 and increases in
subsequent years in accordance with the provisions of the Investment Act.



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



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





115







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



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



E. Taxation



Certain Canadian Federal Income
Tax Consequences



The following summarizes the principal Canadian
federal income tax consequences applicable to the holding and disposition of common shares in the capital of the Company by a holder
who, for purposes of the Income Tax Act (Canada) (the “Tax Act”) and the Canada United States Income Tax Convention,
1980, as amended (the “Canada-U.S. Tax Convention”), is resident in the United States, beneficially holds the common
shares as capital property and does not use or hold the common shares in the course of carrying on a business in Canada (a “U.S.
Holder”). The common shares will generally be considered to be capital property unless the U.S. Holder holds the common shares
in the course of carrying on a business, or acquires the common shares in a transaction or transactions considered to be an adventure
in the nature of trade.



This summary is based on the current provisions
of the Tax Act, the regulations thereunder, all amendments thereto publicly proposed by the government of Canada, the published
administrative practices of the Canada Revenue Agency and the current provisions of the Canada-U.S. Tax Convention. This summary
does not otherwise take into account or anticipate any changes in law, whether by way of legislative, judicial or administrative
action or interpretation, nor does it address any provincial, territorial or foreign (including without limitation, any United
States) tax considerations.



This summary is of a general nature only
and it is not intended to be, nor should it be construed to be, legal or tax advice to any particular U.S. Holder. Accordingly,
U.S. Holders are urged to consult with their own tax advisors about the specific tax consequences of acquiring, holding and disposing
of common shares.



Dividends:



A U.S. Holder will be liable to pay a Canadian
withholding tax on every dividend that is or is deemed to be paid or credited to the U.S. Holder on the U.S. Holder’s common
shares. The rate of withholding tax under the Tax Act is 25% of the gross amount of the dividend paid. However, the Canada-U.S.
Tax Convention will reduce that withholding tax rate, provided the U.S. Holder is eligible for benefits under the Canada-U.S. Tax
Convention. Where applicable, the general rate of withholding tax under the Canada-U.S. Tax Convention will be 15% of the gross
amount of the dividend, but if the U.S. Holder is a company that owns at least 10% of the voting stock of the Company, the rate
of withholding tax will be reduced to 5%. The Company will be required to withhold the applicable tax from the dividend payable
to the U.S. Holder, and to remit that tax to the Receiver General for Canada on account of the U. S. Holder. Not all persons who
are residents of the United States will qualify for benefits under the Canada-U.S. Tax Convention. U.S. Holders are advised to
consult their own tax advisors in this regard.





116







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



Disposition of Common Shares and Capital Gains:



A U.S. Holder will generally not be subject
to tax under the Tax Act in respect of a capital gain realized on the disposition or deemed disposition of a common share, unless
the common share constitutes “taxable Canadian property” to the U.S. Holder for purposes of the Tax Act. Provided that
the common shares are listed on a “designated stock exchange” for purposes of the Tax Act (which includes the TSX)
at the time of disposition, the common shares will generally not constitute “taxable Canadian property” to a U.S. Holder
unless, at any time during the 60-month period immediately preceding the disposition (i) the U.S. Holder, together with persons
with whom the U.S. Holder does not deal at “arm’s length” for the purposes of the Tax Act, owned 25% or more
of the issued shares of any class of shares of the Company and (ii) more than 50% of the fair market value of the common shares
was derived directly or indirectly from one or a combination of real or immovable property situated in Canada, “Canadian
resource properties” or “timber resource properties” (as such terms are defined in the Tax Act), or options or
interests in respect of any such properties.



Provided the common shares are listed at the
time of disposition on the TSX or other “recognized stock exchange” (which includes the TSX) for purposes of the Tax
Act, a U.S. Holder who disposes of common shares will not be required to satisfy the obligations imposed under Section 116 of the
Tax Act and, as such, the purchaser of such shares will not be required to withhold any amount on the purchase price paid and the
US Holder will not have to apply to obtain a certificate of compliance related to the disposition of the common shares.



U.S. Holders whose common shares may constitute
“taxable Canadian property” should consult their own tax advisors.



Certain United States Federal Income
Tax Consequences:



The following is a general summary of certain
material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the
acquisition, ownership and disposition of common shares.



This summary is for general information purposes
only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may
apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of common shares. In addition,
this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the
U.S. federal income tax consequences to such U.S. Holder, including, without limitation, specific tax consequences to a U.S. Holder
under an applicable income tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or
U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal alternative minimum,
U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences to U.S. Holders of the acquisition, ownership,
and disposition of common shares. In addition, except as specifically set forth below, this summary does not discuss applicable
tax reporting requirements. Each prospective U.S. Holder should consult its own tax advisors regarding the U.S. federal, U.S. federal
alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition,
ownership and disposition of common shares.



No legal opinion from U.S. legal counsel or
ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal
income tax consequences of the acquisition, ownership, and disposition of common shares. This summary is not binding on the IRS,
and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary.
In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S.
courts could disagree with one or more of the conclusions described in this summary.



117







Scope of this
Summary



Authorities



This summary is based on the Internal Revenue
Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings
of the IRS, published administrative positions of the IRS, the Canada United States Income Tax Convention, 1980, as amended (the
“Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable, and, in each case, as in effect and available,
as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse
manner at any time, and any such change could be applied retroactively. This summary does not discuss the potential effects, whether
adverse or beneficial, of any proposed legislation.



U.S.
Holders



For purposes of this summary, the term "U.S.
Holder" means a beneficial owner of common shares that is for U.S. federal income tax purposes:



| | · | an individual who is a citizen or resident of the United States;
| | - | ----------------------------------------------------------------

| | · | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) organized
under the laws of the United States, any state thereof or the District of Columbia;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | an estate whose income is subject to U.S. federal income taxation regardless of its source; or
| | - | ----------------------------------------------------------------------------------------------

| | · | a trust that (1) is subject to the primary supervision of a court within the U.S. and the control
of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations
to be treated as a U.S. person.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



U.S.
Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed



This summary does not address the U.S. federal
income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not
limited to, U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or
other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts,
or regulated investment companies; (c) are broker-dealers, dealers, or traders in securities or currencies that elect to apply
a mark-to-market accounting method; (d) have a “functional currency” other than the U.S. dollar; (e) own common shares
as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than
one position; (f) acquire common shares in connection with the exercise of employee stock options or otherwise as compensation
for services; (g) hold common shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property
held for investment purposes); or (h) own, have owned or will own (directly, indirectly, or by attribution) 10% or more of the
total combined voting power of the outstanding shares of the Company. This summary also does not address the U.S. federal income
tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons
that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Income Tax Act (Canada) (the
“Tax Act”); (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold common shares
in connection with carrying on a business in Canada; (d) persons whose common shares constitute “taxable Canadian property”
under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention.
U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately
above, should consult their own tax advisors regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate
and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of common
shares.



If an entity or arrangement that is classified
as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds common shares, the U.S.
federal income tax consequences to such entity or arrangement and the partners (or other owners or participants) of such entity
or arrangement generally will depend on the activities of the entity or arrangement and the status of such partners (or owners
or participants). This summary does not address the tax consequences to any such partner (or owner or participants). Partners (or
other owners or participants) of entities or arrangements that are classified as partnerships or as “pass-through”
entities for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences
arising from and relating to the acquisition, ownership and disposition of common shares.





118







Passive Foreign
Investment Company Rules



PFIC
Status of the Company



If the Company were to constitute a “passive
foreign investment company” under the meaning of Section 1297 of the Code (a “PFIC”, as defined below) for any
year during a U.S. Holder’s holding period, then certain potentially adverse rules may affect the U.S. federal income tax
consequences to a U.S. Holder as a result of the acquisition, ownership and disposition of common shares. The Company believes
that it was classified as a PFIC for the tax year ended December 31, 2015, and based on current business plans and financial expectations,
the Company anticipates that it may be a PFIC for its current tax year and subsequent tax years. The determination of whether any
corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules,
which are subject to differing interpretations. In addition, whether any corporation will be a PFIC for any tax year depends on
the assets and income of such corporation over the course of each such tax year and, as a result, cannot be predicted with certainty
as of the date of this document. Accordingly, there can be no assurance that the IRS will not challenge any determination made
by the Company (or any subsidiary of the Company) concerning its PFIC status. Each U.S. Holder should consult its own tax advisors
regarding the PFIC status of the Company and each subsidiary of the Company.



In any year in which the Company is classified
as a PFIC, a U.S. Holder will be required to file an annual report with the IRS containing such information as Treasury Regulations
and/or other IRS guidance may require. In addition to penalties, a failure to satisfy such reporting requirements may result in
an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding
the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621.



The Company generally will be a PFIC if, for
a tax year, (a) 75% or more of the gross income of the Company is passive income (the “PFIC income test”) or (b) 50%
or more of the value of the Company’s assets either produce passive income or are held for the production of passive income,
based on the quarterly average of the fair market value of such assets (the “PFIC asset test”). “Gross income”
generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside
operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and
royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.



For purposes of the PFIC income test and PFIC
asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares
of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other corporation
and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC
income test and PFIC asset test described above, and assuming certain other requirements are met, “passive income”
does not include certain interest, dividends, rents, or royalties that are received or accrued by the Company from certain “related
persons” (as defined in Section 954(d)(3) of the Code) also organized in Canada, to the extent such items are properly allocable
to the income of such related person that is not passive income.



Under certain attribution rules, if the Company
is a PFIC, U.S. Holders will generally be deemed to own their proportionate share of the Company’s direct or indirect equity
interest in any company that is also a PFIC (a ‘‘Subsidiary PFIC’’), and will generally be subject to U.S.
federal income tax on their proportionate share of (a) any “excess distributions,” as described below, on the stock
of a Subsidiary PFIC and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC by the Company or another Subsidiary
PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC. In addition, U.S. Holders may be subject to
U.S. federal income tax on any indirect gain realized on the stock of a Subsidiary PFIC on the sale or disposition of common shares.
Accordingly, U.S. Holders should be aware that they could be subject to tax under the PFIC rules even if no distributions are received
and no redemptions or other dispositions of common shares are made.





119







Default PFIC
Rules Under Section 1291 of the Code



If the Company is a PFIC for any tax year during
which a U.S. Holder owns common shares, the U.S. federal income tax consequences to such U.S. Holder of the acquisition, ownership,
and disposition of common shares will depend on whether and when such U.S. Holder makes an election to treat the Company and each
Subsidiary PFIC, if any, as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “QEF
Election”) or makes a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”). A
U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing
U.S. Holder.”



A Non-Electing U.S. Holder will be subject
to the rules of Section 1291 of the Code (described below) with respect to (a) any gain recognized on the sale or other taxable
disposition of common shares and (b) any “excess distribution” received on the common shares. A distribution generally
will be an “excess distribution” to the extent that such distribution (together with all other distributions received
in the current tax year) exceeds 125% of the average distributions received during the three preceding tax years (or during a U.S.
Holder’s holding period for the common shares, if shorter).



Under Section 1291 of the Code, any gain recognized
on the sale or other taxable disposition of common shares (including an indirect disposition of the stock of any Subsidiary PFIC),
and any “excess distribution” received on common shares or with respect to the stock of a Subsidiary PFIC, must be
ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the respective common shares. The amount
of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess distribution and
to years before the entity became a PFIC, if any, would be taxed as ordinary income (and not eligible for certain preferred rates).
The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to ordinary
income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated as if such
tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any such interest
paid as “personal interest,” which is not deductible.



If the Company is a PFIC for any tax year during
which a Non-Electing U.S. Holder holds common shares, the Company will continue to be treated as a PFIC with respect to such Non-Electing
U.S. Holder, regardless of whether the Company ceases to be a PFIC in one or more subsequent tax years. A Non-Electing U.S. Holder
may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules of Section 1291 of the
Code discussed above), but not loss, as if such common shares were sold on the last day of the last tax year for which the Company
was a PFIC.



QEF Election



A U.S. Holder that makes a timely and effective
QEF Election for the first tax year in which the holding period of its common shares begins generally will not be subject to the
rules of Section 1291 of the Code discussed above with respect to its common shares. A U.S. Holder that makes a timely and effective
QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) the net capital gain
of the Company, which will be taxed as long-term capital gain to such U.S. Holder, and (b) the ordinary earnings of the Company,
which will be taxed as ordinary income to such U.S. Holder. Generally, “net capital gain” is the excess of (a) net
long-term capital gain over (b) net short-term capital loss, and “ordinary earnings” are the excess of (a) “earnings
and profits” over (b) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax
on such amounts for each tax year in which the Company is a PFIC, regardless of whether such amounts are actually distributed to
such U.S. Holder by the Company. However, for any tax year in which the Company is a PFIC and has no net income or gain, U.S. Holders
that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made
a QEF Election has an income inclusion, such a U.S. Holder may, subject to certain limitations, elect to defer payment of current
U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest
paid will be treated as “personal interest,” which is not deductible.



A U.S. Holder that makes a timely and effective
QEF Election with respect to the Company generally (a) may receive a tax-free distribution from the Company to the extent that
such distribution represents “earnings and profits” of the Company that were previously included in income by the U.S.
Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in the common shares to reflect the
amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes
a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of common shares.





120







The procedure for making a QEF Election, and
the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election
will be treated as “timely” if such QEF Election is made for the first year in the U.S. Holder’s holding period
for the common shares in which the Company was a PFIC. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF
Election documents at the time such U.S. Holder files a U.S. federal income tax return for such year. If a U.S. Holder does not
make a timely and effective QEF Election for the first year in the U.S. Holder’s holding period for the common shares, the
U.S. Holder may still be able to make a timely and effective QEF Election in a subsequent year if such U.S. Holder meets certain
requirements and makes a “purging” election to recognize gain (which will be taxed under the rules of Section 1291
of the Code discussed above) as if such common shares were sold for their fair market value on the day the QEF Election is effective.
If a U.S. Holder makes a QEF Election but does not make a “purging” election to recognize gain as discussed in the
preceding sentence, then such U.S. Holder shall be subject to the QEF Election rules and shall continue to be subject to tax under
the rules of Section 1291 discussed above with respect to its common shares. If a U.S. Holder owns PFIC stock indirectly through
another PFIC, separate QEF Elections must be made for the PFIC in which the U.S. Holder is a direct shareholder and the Subsidiary
PFIC for the QEF rules to apply to both PFICs.



A QEF Election will apply to the tax year for
which such QEF Election is timely made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or
the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, the Company
ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which
the Company is not a PFIC. Accordingly, if the Company becomes a PFIC in another subsequent tax year, the QEF Election will be
effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which the Company
qualifies as a PFIC.



U.S. Holders should be aware that there can
be no assurances that the Company will satisfy the record keeping requirements that apply to a QEF, or that the Company will supply
U.S. Holders with information that such U.S. Holders are required to report under the QEF rules, in the event that the Company
is a PFIC. Thus, U.S. Holders may not be able to make a QEF Election with respect to their common shares. Each U.S. Holder should
consult its own tax advisors regarding the availability of, and procedure for making, a QEF Election.



A
U.S. Holder makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely
filed United States federal income tax return. However, if the Company does not provide the required information with regard to
the Company or any of its Subsidiary PFICs, U.S. Holders will not be able to make a QEF Election for such entity and will continue
to be subject to the rules of Section 1291 of the Code discussed above that apply to Non-Electing U.S. Holders with respect to
the taxation of gains and excess distributions.



Mark-to-Market
Election



A U.S. Holder may make a Mark-to-Market Election
only if the common shares are marketable stock. The common shares generally will be “marketable stock” if the common
shares are regularly traded on (a) a national securities exchange that is registered with the Securities and Exchange Commission,
(b) the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, or (c) a foreign
securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located,
provided that (i) such foreign exchange has trading volume, listing, financial disclosure, and surveillance requirements, and meets
other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign
exchange, ensure that such requirements are actually enforced and (ii) the rules of such foreign exchange effectively promote active
trading of listed stocks. If such stock is traded on such a qualified exchange or other market, such stock generally will be “regularly
traded” for any calendar year during which such stock is traded, other than in de minimis quantities, on at least 15 days
during each calendar quarter. Provided that the common shares are “regularly traded” as described in the preceding
sentence, the common shares are expected to be marketable stock. However, each U.S. Holder should consult its own tax advisor in
this regard.





121







A U.S. Holder that makes a Mark-to-Market Election
with respect to its common shares generally will not be subject to the rules of Section 1291 of the Code discussed above with respect
to such common shares. However, if a U.S. Holder does not make a Mark-to-Market Election beginning in the first tax year of such
U.S. Holder’s holding period for the common shares for which the Company is a PFIC and such U.S. Holder has not made a timely
QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on,
the common shares.



A U.S. Holder that makes a Mark-to-Market Election
will include in ordinary income, for each tax year in which the Company is a PFIC, an amount equal to the excess, if any, of (a)
the fair market value of the common shares, as of the close of such tax year over (b) such U.S. Holder’s adjusted tax basis
in such common shares. A U.S. Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal to the
excess, if any, of (a) such U.S. Holder’s adjusted tax basis in the common shares, over (b) the fair market value of such
common shares (but only to the extent of the net amount of previously included income as a result of the Mark-to-Market Election
for prior tax years).



A U.S. Holder that makes a Mark-to-Market Election
generally also will adjust such U.S. Holder’s tax basis in the common shares to reflect the amount included in gross income
or allowed as a deduction because of such Mark-to-Market Election. In addition, upon a sale or other taxable disposition of common
shares, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or ordinary loss (not to exceed the excess,
if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior tax years over (b) the
amount allowed as a deduction because of such Mark-to-Market Election for prior tax years). Losses that exceed this limitation
are subject to the rules generally applicable to losses provided in the Code and Treasury Regulations.



A U.S. Holder makes a Mark-to-Market Election
by attaching a completed IRS Form 8621 to a timely filed United States federal income tax return. A Mark-to-Market Election applies
to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless the common shares cease to
be “marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax
advisors regarding the availability of, and procedure for making, a Mark-to-Market Election.



Although a U.S. Holder may be eligible to make
a Mark-to-Market Election with respect to the common shares, no such election may be made with respect to the stock of any Subsidiary
PFIC that a U.S. Holder is treated as owning, because such stock is not marketable. Hence, the Mark-to-Market Election will not
be effective to avoid the application of the default rules of Section 1291 of the Code described above with respect to deemed dispositions
of Subsidiary PFIC stock or excess distributions from a Subsidiary PFIC to its shareholder.



Other PFIC
Rules



Under Section 1291(f) of the Code, the IRS
has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely
QEF Election to recognize gain (but not loss) upon certain transfers of common shares that would otherwise be tax-deferred (e.g.,
gifts and exchanges pursuant to corporate reorganizations). However, the specific U.S. federal income tax consequences to a U.S.
Holder may vary based on the manner in which common shares are transferred.



Certain additional adverse rules may apply
with respect to a U.S. Holder if the Company is a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example,
under Section 1298(b)(6) of the Code, a U.S. Holder that uses common shares as security for a loan will, except as may be provided
in Treasury Regulations, be treated as having made a taxable disposition of such common shares.



Special rules also apply to the amount of foreign
tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such special rules, foreign taxes paid with respect
to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to distributions
by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult with its own tax advisors
regarding the availability of the foreign tax credit with respect to distributions by a PFIC.



The PFIC rules are complex, and each U.S. Holder
should consult its own tax advisors regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences
of the acquisition, ownership, and disposition of common shares.





122







General Rules
Applicable to the Ownership and Disposition of Common Shares



The following discussion describes the general
rules applicable to the ownership and disposition of the common shares but is subject in its entirety to the special rules described
above under the heading “Passive Foreign Investment Company Rules.”



Distributions
on Common Shares



A U.S. Holder that receives a distribution,
including a constructive distribution, with respect to a common share will be required to include the amount of such distribution
in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of
the current and accumulated “earnings and profits” of the Company, as computed for U.S. federal income tax purposes.
A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if the Company is a PFIC for the tax year of such
distribution or the preceding tax year. To the extent that a distribution exceeds the current and accumulated “earnings and
profits” of the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S.
Holder's tax basis in the common shares and thereafter as gain from the sale or exchange of such common shares. (See “Sale
or Other Taxable Disposition of Common Shares” below). However, the Company may not maintain the calculations of its earnings
and profits in accordance with U.S. federal income tax principles, and each U.S. Holder may have to assume that any distribution
by the Company with respect to the common shares will constitute ordinary dividend income. Dividends received on common shares
by corporate U.S. Holders generally will not be eligible for the “dividends received deduction.” Subject to applicable
limitations and provided the Company is eligible for the benefits of the Canada-U.S. Tax Convention, dividends paid by the Company
to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term
capital gains for dividends, provided certain holding period and other conditions are satisfied, including that the Company not
be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each
U.S. Holder should consult its own tax advisors regarding the application of such rules.



Sale
or Other Taxable Disposition of Common Shares



Upon the sale or other taxable disposition
of common shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the
U.S. dollar value of cash received plus the fair market value of any property received and such U.S. Holder's tax basis in such
common shares sold or otherwise disposed of. A U.S. Holder’s tax basis in common shares generally will be such holder’s
U.S. dollar cost for such common shares. Gain or loss recognized on such sale or other disposition generally will be long-term
capital gain or loss if, at the time of the sale or other disposition, the common shares have been held for more than one year.



Preferential tax rates currently apply to long-term
capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term
capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under
the Code.



Additional
Considerations



Additional
Tax on Passive Income



Certain U.S. Holders that are individuals,
estates or trusts (other than trusts that are exempt from tax) will be subject to a 3.8% tax on all or a portion of their “net
investment income,” which includes dividends on the common shares and net gains from the disposition of the common shares.
Further, excess distributions treated as dividends, gains treated as excess distributions under the PFIC rules discussed above,
and mark-to-market inclusions and deductions are all included in the calculation of net investment income.



Treasury Regulations provide, subject to the
election described in the following paragraph, that solely for purposes of this additional tax, that distributions of previously
taxed income will be treated as dividends and included in net investment income subject to the additional 3.8% tax. Additionally,
to determine the amount of any capital gain from the sale or other taxable disposition of common shares that will be subject to
the additional tax on net investment income, a U.S. Holder who has made a QEF Election will be required to recalculate its basis
in the common shares excluding QEF basis adjustments.





123







Alternatively, a U.S. Holder
may make an election which will be effective with respect to all interests in controlled foreign corporations and QEFs held in
that year or acquired in future years. Under this election, a U.S. Holder pays the additional 3.8% tax on QEF income inclusions
and on gains calculated after giving effect to related tax basis adjustments. U.S. Holders that are individuals, estates or trusts
should consult their own tax advisors regarding the applicability of this tax to any of their income or gains in respect of the
common shares.



Receipt
of Foreign Currency



The amount of any distribution paid to a U.S.
Holder in foreign currency, or on the sale, exchange or other taxable disposition of common shares, generally will be equal to
the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether
such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal
to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after
the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally
will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method.
Each U.S. Holder should consult its own U.S. tax advisors regarding the U.S. federal income tax consequences of receiving, owning,
and disposing of foreign currency.



Foreign
Tax Credit



Subject to the PFIC rules discussed above,
a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the common
shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian
income tax. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis,
whereas a deduction will reduce a U.S. Holder’s income that is subject to U.S. federal income tax. This election is made
on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during
a year.



Complex limitations apply to the foreign tax
credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal
income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s
worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified,
under complex rules, as either “foreign source” or “U.S. source.” Generally, dividends paid by a foreign
corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a foreign corporation
by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty,
and if an election is properly made under the Code. However, the amount of a distribution with respect to the common shares that
is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal income
tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated
separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should
consult its own U.S. tax advisors regarding the foreign tax credit rules.



Backup Withholding
and Information Reporting



Under U.S. federal income tax law, certain
categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation.
For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold
certain specified foreign financial assets in excess of certain thresholds. The definition of specified foreign financial assets
includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained
by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment
that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to
these reporting requirements unless their common shares are held in an account at certain financial institutions. Penalties for
failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding
the requirements of filing information returns, including the requirement to file an IRS Form 8938.





124







Payments
made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable
disposition of, common shares will generally be subject to information reporting and backup withholding tax, at the rate of 28%,
if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form
W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously
failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such
U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that
it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting
and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding
tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded,
if such U.S. Holder furnishes required information to the IRS in a timely manner.



The discussion of reporting requirements
set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder.
A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess
a tax and, under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting
requirement. Each U.S. Holder should consult its own tax advisors regarding the information reporting and backup withholding rules.



THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE
A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP, AND DISPOSITION
OF COMMON SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN THEIR OWN
PARTICULAR CIRCUMSTANCES



F. Dividends and Paying Agents



Not applicable.



G. Statements by Experts



Not applicable.



H. Documents on Display



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



100 F Street, N.W. Room
1580

Washington, DC 20549



Copies of these materials can also be obtained
by mail at prescribed rates. You may also call the SEC at 1-800-SEC-0330. The SEC maintains a website that contains registration
statements, reports and other information regarding registrants that file electronically with the SEC at http://www.sec.gov.



I. Subsidiary Information



See Item 4.C for information regarding the
Company’s subsidiaries.



125







Item 11. Quantitative
and Qualitative Disclosure About Market Risk



Financial Instruments



Financial assets are initially recorded at
fair value and designated upon inception into one of the following four categories: held-to-maturity, available-for-sale, loans
and receivables or at fair value through profit or loss (“FVTPL”).



Financial assets classified as loans and receivables
are measured at amortized cost less impairment. The Company has classified its other receivables as loans and receivables.



Financial assets classified as FVTPL are measured
at fair value with unrealized gains and losses recognized through earnings. The Company has classified its cash and cash equivalents,
short-term investments, marketable securities and other long-term assets as FVTPL. The Company designated its marketable securities
as FVTPL upon initial recognition in accordance with an investment strategy that management uses to evaluate performance on a fair
value basis.



Financial assets classified as held-to-maturity
are measured at amortized cost. The Company has no financial assets classified as held-to-maturity.



Financial assets classified as available-for-sale
are measured at fair value with unrealized gains and losses recognized in other comprehensive income (loss) except for losses in
value that are considered other than temporary. The Company has no financial assets classified as available-for-sale.



Transaction costs associated with FVTPL financial
assets are expensed as incurred, while transaction costs associated with all other financial assets are included in the initial
carrying amount of the asset.



Financial liabilities are initially recorded
at fair value and designated upon inception as FVTPL or classified as other financial liabilities.



Financial liabilities classified as other financial
liabilities are initially recognized at fair value less directly attributable transaction costs. Subsequently, they are measured
at amortized cost using the effective interest method. The Company has classified its accounts payable and accrued liabilities
as other financial liabilities.



Financial liabilities classified as FVTPL include
financial liabilities held-for-trading and financial liabilities designated upon initial recognition as FVTPL. Fair value changes
on financial liabilities classified as FVTPL are recognized through the consolidated statement of comprehensive income or loss.
The Company has no financial liabilities classified as FVTPL.



Categories of financial instruments





|                              |  |                             |  | December 31, 2015 |       |   | December 31, 2014 |  
|----------------------------- |  | --------------------------- |  | ----------------- | ----- | - | ----------------- | -
|Cash and cash equivalents     |  | FVTPL                       |  | $                 | 1,674 |   |                   | $
|Short-term investments        |  | FVTPL                       |  |                   | 28    |   |                   |  
|Marketable securities         |  | FVTPL                       |  |                   | 936   |   |                   |  
|Other receivables             |  | Loans and receivables       |  |                   | 54    |   |                   |  
|Other long-term assets        |  | FVTPL                       |  |                   | 2,075 |   |                   |  
|Accounts payable              |  | Other financial liabilities |  |                   | (298  | ) |                   |  
|Accrued and other liabilities |  | Other financial liabilities |  |                   | (153  | ) |                   |  



In respect of financial assets, the Company’s
policy is to invest cash at floating rates of interest and cash reserves are to be maintained in cash equivalents in order to maintain
liquidity. Fluctuations in interest rates impact the value of cash equivalents. Included in the net loss for the year ended December
31, 2015, is investment income on the Company’s cash and cash equivalents and short-term investments. As at December 31,
2015, with other variables unchanged, 1% increase or decrease in the Prime rate would have resulted in a decrease or increase,
respectively, to net loss of approximately $71,000. The Company does not have any debt obligations which expose it to interest
rate risk.





126







Fluctuations in foreign currencies may impact
profitability of the Company and may also affect the value of the Company’s assets and the amount of shareholders’
equity. The Company held marketable securities denominated in U.K. pounds sterling. Based upon the marketable securities held at
December 31, 2015, and assuming no changes in number of shares or stock price, for every $0.01 fluctuation in exchange rate between
the Canadian dollar and U.K. pound sterling, the Company’s net income or loss would increase or decrease by $4,000, respectively.



Credit risk is the risk that one party to a
financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company does
not currently generate any revenues from sales to customers nor does it hold derivative type instruments that would require a counterparty
to fulfil a contractual obligation resulting in a credit risk. The Company has never held any asset-backed paper instruments. The
Company seeks to place its cash and cash equivalents, short-term investments and restricted cash with reputable financial institutions.



The Company considers the following financial
assets to be exposed to credit risk: cash and cash equivalents, short-term investments, marketable securities and restricted cash.
The carrying value of these financial assets at December 31, 2015 is $4,713,000 (December 31, 2014 - $14,790,000). At December
31, 2015, the Company’s cash and cash equivalents, short-term investments and restricted cash were invested with three financial
institutions.



Liquidity risk encompasses the risk that the
Company cannot meet its financial obligations as they fall due. The Company ensures that there is sufficient capital in order to
meet short-term business requirements. The Company’s policy is to invest cash at floating rates of interest, while cash reserves
are maintained in cash equivalents in order to maintain liquidity after taking into account the Company’s holdings of cash
equivalents, money market investments, marketable securities and receivables. As at December 31, 2015, the Company had positive
working capital of $2,482,000 (December 31, 2014 - $12,353,000). Given positive working capital, the Company believes it will be
able to meet its current obligations. However, the Company will require significant additional funding in the future in order to
complete the development of the Prairie Creek Mine site and bring the mine into production. Accordingly, there is a risk that the
Company may not be able to secure adequate funding on reasonable terms, or at all, at that future date.



Item 12. Description
of Securities Other Than Equity Securities



Not applicable.



Part II



Item 13. Defaults,
Dividend Arrears and Delinquencies



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



Item 14. Material
Modifications to the Rights of Security Holders and Use of Proceeds



A to D.



None.





127







E. Use of Proceeds



Not applicable.



Item 15. Controls
and Procedures



A. Disclosure Controls and Procedures



The Company’s disclosure controls and
procedures are designed to provide reasonable assurance that material items requiring disclosure by the Company in its annual filings,
interim filings or other reports filed or submitted by it under securities legislations is recorded, processed, summarized and
reported within the time periods specified in the securities legislation and include controls and procedures designed to ensure
that information required to be disclosed by the Company in its annual filing, interim filings or other reports filed or submitted
under securities legislation is accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate
to allow timely decisions regarding required disclosure.



Based on current securities legislation in
Canada and the United States, the CEO and the CFO of the Company have evaluated the design and effectiveness of the Company’s
disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of December 31, 2015, and have concluded
that such disclosure controls and procedures were operating effectively at that date.



It should be noted that, while the Company’s
CEO and CFO believe that the Company’s disclosure controls and procedures provide a reasonable level of assurance and that
they are effective, they do not expect that the disclosure controls and procedures can prevent all errors or mistakes. A control
system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the
control system are met.



B. Management’s
Report on Internal Control over Financial Reporting



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



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



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



The CEO and the CFO have evaluated the design
and effectiveness of internal controls over financial reporting based on the framework in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 Framework). Based on this evaluation, as at
December 31, 2015, the Company believes that its internal controls over financial reporting were designed and operating effectively
to provide reasonable, but not absolute, assurance that the objectives of the control system are met.





128







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



The registered public accounting firm that
audited the financial statements included in this Annual Report has issued an attestation report on management’s assessment
of the Company’s internal control over financial reporting.



C. Attestation Report of Registered Public
Accounting Firm



The effectiveness
of the Company’s internal control over financial reporting as of December 31, 2015, has been audited by the Company’s
independent registered public accounting firm, KPMG LLP. KPMG LLP has expressed an unqualified opinion on the Company’s internal
control over financial reporting as of December 31, 2015, and their report is included with the Company’s consolidated financial
statements.



D. Changes in Internal Control Over Financial
Reporting



Based upon their evaluation of the Company’s
internal control over financial reporting, the Company’s CEO and CFO have concluded that, there were no significant changes
in the Company’s internal control over financial reporting or in other factors during the company’s last fiscal year
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.



Item 16. [Reserved]



Item 16A. Audit
Committee Financial Expert



The Board has determined that at least one
member of the Company’s Audit Committee, Brian Atkins, an independent director of the Company pursuant to the criteria set
out in the NYSE MKT Company Guide, possesses the educational and professional qualifications as well as the experience to qualify
as an “Audit Committee Financial Expert” as defined in Item 16A of Form 20-F. In addition, the Company believes that
the other members of the Audit Committee are capable of analyzing and evaluating the financial statements and understanding internal
controls and procedures for financial reporting.



Item 16B. Code
of Ethics



The Company has adopted a Code of Business
Conduct and Ethics that applies to all directors, senior officers and employees of the Company.



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



There have been no waivers or amendments to
the Code of Ethics during the year ended December 31, 2014.





129







Item 16C. Principal
Accountant and Fees and Services



The aggregate amounts billed by the Company’s
principal auditors for the two fiscal years ended December 31, 2015 for audit fees, audit related fees, tax fees and all other
fees are set forth below:



|                      |  | Year Ended December 31, 2015 (4) |         |  | Year Ended December 31, 2014 |  
|--------------------- |  | -------------------------------- | ------- |  | ---------------------------- | -
|Audit Fees (1)        |  | $                                | 110,000 |  |                              | $
|Audit-Related Fees(2) |  |                                  | -       |  |                              |  
|Tax Fees (3)          |  |                                  | -       |  |                              |  
|All Other Fees        |  |                                  | -       |  |                              |  
|Total                 |  | $                                | 110,000 |  |                              | $



(1) “Audit Fees” represent
fees for the audit of the annual consolidated 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, 2014, are based, in part, upon estimates received by Canadian Zinc as final invoices are yet to be rendered as of the date
of this Annual Report.



Item 16D. Exemptions
from the Listings Standards for Audit Committees



Not applicable.



Item 16E. Purchases
of Equity Securities by the Issuer and Affiliated Purchasers



Not applicable.



Item 16F. Change
in Registrants’s Certifying Accountant



Following completion of the 2014 audit,
the Board carried out an assessment of the audit requirements of the Company and, in the interest of cost saving and efficiency,
conducted a review and selection process for the appointment of an auditor. Proposals were requested and received from three auditing
firms, including the former auditors Ernst & Young LLP. Following an assessment of the various proposals received, the Board
recommended the appointment of KPMG LLP as auditors of the Company.



Ernst & Young LLP, the predecessor auditor,
has not issued a report on the Company’s financial statements of the previous two years ending December 31, 2014 containing
an adverse opinion, a disclaimer, or was qualified or uncertain. Additionally, the Company has not in the previous two years ending
December 31, 2014 disagreed with Ernst & Young LLP with regard to accounting principles or practices, financial statement disclosure
or audit scope or procedure.



At the Annual General Meeting, held in June
2015, KPMG LLP, Chartered Accountants, were appointed as auditors of the Company.



Item 16G. Corporate
Governance



Not applicable.





130







Item 16H. Mine
Safety Disclosure



Not applicable.



Part III



Item 17. Financial
Statements



Not applicable.



Item 18. Financial
Statements



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



Item 19. Exhibits



Financial Statements







131















Annual Consolidated Financial Statements



For the years ended December 31, 2015, 2014
and 2013



(Expressed in thousands of Canadian dollars,
unless otherwise stated)



F-1











| | KPMG LLP                           | Telephone | (604) 691-3000
| | ---------------------------------- | --------- | --------------
| | Chartered Professional Accountants | Fax       | (604) 691-3031
| | PO Box 10426 777 Dunsmuir Street   | Internet  | www.kpmg.ca   
| | Vancouver BC V7Y 1K3               |           |               
| | Canada                             |           |               



REPORT OF
INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM



To the Shareholders and Directors of Canadian
Zinc Corporation



We have audited Canadian Zinc Corporation’s
internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Canadian Zinc Corporation’s
management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the accompanying report titled “Management’s Report on Internal
Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.



We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.



A company’s internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.



Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.



KPMG LLP is a Canadian limited liability partnership
and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.



F-2











Canadian Zinc Corporation

Page 2



In our opinion, Canadian Zinc Corporation maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).



We also have audited, in accordance with Canadian
generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated
statement of financial position of Canadian Zinc Corporation as of December 31, 2015, and the related consolidated statements of
comprehensive loss, shareholders’ equity, and cash flows for the year then ended and our report dated March 30, 2016 expressed
an unqualified opinion on those consolidated financial statements.



//s// KPMG LLP



Chartered Professional Accountants



March 30, 2016

Vancouver, Canada





F-3















| | KPMG LLP                           | Telephone | (604) 691-3000
| | ---------------------------------- | --------- | --------------
| | Chartered Professional Accountants | Fax       | (604) 691-3031
| | PO Box 10426 777 Dunsmuir Street   | Internet  | www.kpmg.ca   
| | Vancouver BC V7Y 1K3               |           |               
| | Canada                             |           |               



INDEPENDENT
AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM



To the Shareholders and Directors of Canadian
Zinc Corporation



We have audited the accompanying consolidated
financial statements of Canadian Zinc Corporation, which comprise the consolidated statement of financial position as at December
31, 2015, the consolidated statements of comprehensive loss, changes in shareholders’ equity and cash flows for the year
then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.



Management’s Responsibility for
the Consolidated Financial Statements



Management is responsible for the preparation
and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board,
and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.



Auditors’ Responsibility



Our responsibility is to express an opinion
on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted
auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.



An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend
on our judgment, including the assessment of the risks of material misstatement of the consolidatedfinancial statements,
whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation
and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the
circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.



We believe that the audit evidence we have
obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion.





KPMG LLP is a Canadian limited liability partnership
and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.





F-4













Canadian Zinc Corporation

Page 2





Opinion



In our opinion, the consolidated financial
statements present fairly, in all material respects, the consolidated financial position of Canadian Zinc Corporation as at December
31, 2015, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with
International Financial Reporting Standards as issued
by the International Accounting Standards Board.



Emphasis of Matter



Without qualifying our opinion, we draw
attention to Note 1 in the consolidated financial statements which describes that Canadian Zinc Corporation has no current sources
of revenue and its ability to carry out its planned business objectives is dependent on its ability to raise adequate financing
to continue the development of the Prairie Creek Mine. These conditions, along with other matters as set forth in Note 1, indicate
the existence of material uncertainties that cast substantial doubt about Canadian Zinc Corporation’s ability to continue
as a going concern.



Comparative Information



The consolidated financial statements of Canadian Zinc Corporation
as at December 31, 2014 and for the years ended December 31, 2014 and 2013 were audited by another auditor who expressed an unmodified
opinion on those consolidated financial statements on March 31, 2015.



Other Matter



We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States), Canadian Zinc Corporation’s internal control
over financial reporting as of December 31, 2015, based on the criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March
30, 2016 expressed an unqualified opinion on the effectiveness of Canadian Zinc Corporation’s internal control over financial
reporting.





//s// KPMG LLP



Chartered Professional Accountants



March 30, 2016

Vancouver, Canada



F-5







CANADIAN ZINC CORPORATION

Consolidated Statements of Financial Position

(Expressed in thousands of Canadian dollars, unless otherwise
stated)








|                                                |  | As at December 31, 2015 |          |   | As at December 31, 2014 |  
|----------------------------------------------- |  | ----------------------- | -------- | - | ----------------------- | -
|                                                |  |                         |          |   |                         |  
|ASSETS                                          |  |                         |          |   |                         |  
|Current                                         |  |                         |          |   |                         |  
|Cash and cash equivalents (Note 4)              |  | $                       | 1,674    |   |                         | $
|Short-term investments (Note 5)                 |  |                         | 28       |   |                         |  
|Marketable securities (Note 6)                  |  |                         | 936      |   |                         |  
|Other receivables and prepaid expenses          |  |                         | 295      |   |                         |  
|                                                |  |                         |          |   |                         |  
|Total Current Assets                            |  |                         | 2,933    |   |                         |  
|                                                |  |                         |          |   |                         |  
|Restricted cash (Note 7)                        |  |                         | 2,075    |   |                         |  
|Property, plant and equipment (Note 8)          |  |                         | 777      |   |                         |  
|Exploration and evaluation assets (Note 9)      |  |                         | 5,398    |   |                         |  
|                                                |  |                         |          |   |                         |  
|Total Assets                                    |  | $                       | 11,183   |   |                         | $
|                                                |  |                         |          |   |                         |  
|LIABILITIES                                     |  |                         |          |   |                         |  
|Current                                         |  |                         |          |   |                         |  
|Accounts payable                                |  | $                       | 298      |   |                         | $
|Accrued and other liabilities                   |  |                         | 153      |   |                         |  
|Flow-through share premium (Note 11 and 14)     |  |                         | -        |   |                         |  
|                                                |  |                         |          |   |                         |  
|Total Current Liabilities                       |  |                         | 451      |   |                         |  
|                                                |  |                         |          |   |                         |  
|Decommissioning provision (Note 10)             |  |                         | 1,825    |   |                         |  
|                                                |  |                         |          |   |                         |  
|Total Liabilities                               |  |                         | 2,276    |   |                         |  
|                                                |  |                         |          |   |                         |  
|SHAREHOLDERS' EQUITY                            |  |                         |          |   |                         |  
|Share capital (Note 11)                         |  |                         | 104,028  |   |                         |  
|Reserves (Note 12)                              |  |                         | 14,394   |   |                         |  
|Deficit                                         |  |                         | (109,515 | ) |                         |  
|                                                |  |                         |          |   |                         |  
|Total Shareholders’ Equity                      |  |                         | 8,907    |   |                         |  
|                                                |  |                         |          |   |                         |  
|Total Liabilities and Shareholders’ Equity      |  | $                       | 11,183   |   |                         | $
|Nature of Operations and Going Concern (Note 1) |  |                         |          |   |                         |  
|Subsequent Event (Note 6)                       |  |                         |          |   |                         |  
|Commitments (Note 20)                           |  |                         |          |   |                         |  



|Approved by the Board of Directors: |  | 
|----------------------------------- |  | 



| | “John F. Kearney” |  | “Brian A. Atkins, CPA, CA”
| | ----------------- |  | --------------------------
| | Director          |  | Director                  



The accompanying notes are an integral part of these consolidated
financial statements.



F-6







CANADIAN ZINC CORPORATION

Consolidated Statements of Comprehensive Loss

(Expressed in thousands of Canadian dollars, except for share
information)








|                                                      |  | Years ended December 31, |            
|----------------------------------------------------- |  | ------------------------ | -----------
|                                                      |  | 2015                     |            
|                                                      |  |                          |            
|Income                                                |  |                          |            
|Investment income                                     |  | $                        | 107        
|                                                      |  |                          |            
|Expenses                                              |  |                          |            
|Depreciation                                          |  |                          | 10         
|Exploration and evaluation (Note 13)                  |  |                          | 7,650      
|Listing and regulatory                                |  |                          | 85         
|Management and directors                              |  |                          | 690        
|Office and general                                    |  |                          | 531        
|Professional                                          |  |                          | 189        
|Project evaluation                                    |  |                          | -          
|Shareholder and investor communications               |  |                          | 245        
|Share-based compensation (Note 12)                    |  |                          | 124        
|                                                      |  |                          | 9,524      
|                                                      |  |                          |            
|Other income (expense)                                |  |                          |            
|Gain (loss) on marketable securities (Note 6)         |  |                          | 486        
|Gain on sale of net smelter return royalty (Note 9)   |  |                          | -          
|Finance costs (Note 10)                               |  |                          | (48        
|Gain on change in decommissioning provision (Note 10) |  |                          | 246        
|Tax deduction recovery (Note 14)                      |  |                          | 471        
|                                                      |  |                          | 1,155      
|                                                      |  |                          |            
|Net loss for the year                                 |  |                          | (8,262     
|                                                      |  |                          |            
|Other comprehensive income (loss)                     |  |                          | -          
|                                                      |  |                          |            
|Comprehensive loss for the year                       |  | $                        | (8,262     
|                                                      |  |                          |            
|Net loss per share - basic
    and diluted            |  | $                        | (0.04      
|                                                      |  |                          |            
|Weighted average number of shares outstanding         |  |                          |            
|                                                      |  |                          |            
|Basic and diluted                                     |  |                          | 218,047,709



The accompanying notes are an integral part of these consolidated
financial statements.



F-7







CANADIAN ZINC CORPORATION

Consolidated Statements of Cash Flows

(Expressed in thousands of Canadian dollars, unless otherwise
stated)








|                                                            |  | Years ended December 31, |        
|----------------------------------------------------------- |  | ------------------------ | -------
|                                                            |  | 2015                     |        
|                                                            |  |                          |        
|Operating Activities                                        |  |                          |        
|Net loss for the year                                       |  | $                        | (8,262 
|Adjustments for items not involving cash:                   |  |                          |        
|Accretion and depreciation expense (Note 8 and 10)          |  |                          | 129    
|Loss (gain) on marketable securities (Note 6)               |  |                          | (486   
|Share-based compensation (Note 12)                          |  |                          | 124    
|Gain on sale of net smelter return royalty (Note 9)         |  |                          | -      
|Gain on changes to decommissioning provision (Note 10)      |  |                          | (246   
|Tax deduction recovery (Note 14)                            |  |                          | (471   
|Change in non-cash working capital items:                   |  |                          |        
|Other receivables and prepaid expenses                      |  |                          | 401    
|Accounts payable and accrued liabilities                    |  |                          | (1,681 
|                                                            |  |                          | (10,492
|                                                            |  |                          |        
|Financing Activities                                        |  |                          |        
|Capital stock issued (Note 11)                              |  |                          | -      
|Issuance costs (Note 11)                                    |  |                          | -      
|Proceeds from exercise of options and/or warrants (Note 12) |  |                          | -      
|                                                            |  |                          | -      
|                                                            |  |                          |        
|Investing Activities                                        |  |                          |        
|Redemption (purchase) of short-term investments (Note 5)    |  |                          | 5,000  
|Payment of reclamation security deposits (Note 7)           |  |                          | (1,550 
|Property, plant and equipment (Note 8)                      |  |                          | (76    
|Sale of NSR (Note 9)                                        |  |                          | -      
|Exploration and evaluation assets (Note 3)                  |  |                          | -      
|                                                            |  |                          | 3,374  
|                                                            |  |                          |        
|Net change in cash and cash equivalents                     |  | $                        | (7,118 
|                                                            |  |                          |        
|Cash and cash equivalents, beginning
    of year            |  | $                        | 8,792  
|                                                            |  |                          |        
|Net change in cash and cash equivalents                     |  |                          | (7,118 
|                                                            |  |                          |        
|Cash and cash equivalents, end
    of year                  |  | $                        | 1,674  



The accompanying notes are an integral part of these consolidated
financial statements.



F-8







CANADIAN ZINC CORPORATION

Consolidated Statements of Changes in Shareholders’
Equity

(Expressed in thousands of Canadian dollars, except for share
information)








|                                                        |  | Share Capital |             |  |        |   |         |          |  |   |         |  
|------------------------------------------------------- |  | ------------- | ----------- |  | ------ | - | ------- | -------- |  | - | ------- | -
|                                                        |  | Number        |             |  | Amount |   |         | Reserves |  |   | Deficit |  
|Balance, December 31, 2012                              |  |               | 164,031,781 |  |        | $ | 87,250  |          |  | $ | 12,470  |  
|Issue of shares at $0.62 per share                      |  |               | 6,460,000   |  |        |   | 4,005   |          |  |   | -       |  
|Share issuance costs                                    |  |               | -           |  |        |   | (304    | )        |  |   | -       |  
|Share purchase warrants                                 |  |               | -           |  |        |   | (92     | )        |  |   | 92      |  
|Exercise of options at $0.23 per share                  |  |               | 200,000     |  |        |   | 66      |          |  |   | (20     | )
|Messina Minerals Acquisition (Note 3)                   |  |               | 2,132,714   |  |        |   | 896     |          |  |   | -       |  
|Options and warrants converted upon Messina acquisition |  |               | -           |  |        |   | -       |          |  |   | 19      |  
|Exploration and evaluation asset acquisition (Note 3)   |  |               | 4,080       |  |        |   | 2       |          |  |   | -       |  
|Share-based compensation                                |  |               | -           |  |        |   | -       |          |  |   | 120     |  
|Net loss for the year                                   |  |               | -           |  |        |   | -       |          |  |   | -       |  
|Balance, December 31, 2013                              |  |               | 172,828,575 |  |        | $ | 91,823  |          |  | $ | 12,681  |  
|Issue of shares at $0.35 per share                      |  |               | 28,572,000  |  |        |   | 10,000  |          |  |   | -       |  
|Issue of shares at $0.38 per share                      |  |               | 15,134,000  |  |        |   | 4,692   |          |  |   | -       |  
|Share issuance costs                                    |  |               | -           |  |        |   | (1,278  | )        |  |   | -       |  
|Share purchase warrants                                 |  |               | -           |  |        |   | (1,723  | )        |  |   | 1,723   |  
|Exercise of options at $0.23 per share                  |  |               | 1,513,134   |  |        |   | 514     |          |  |   | (157    | )
|Share-based compensation                                |  |               | -           |  |        |   | -       |          |  |   | 23      |  
|Net loss for the year                                   |  |               | -           |  |        |   | -       |          |  |   | -       |  
|Balance, December 31, 2014                              |  |               | 218,047,709 |  |        | $ | 104,028 |          |  | $ | 14,270  |  
|Share-based compensation                                |  |               | -           |  |        |   | -       |          |  |   | 124     |  
|Net loss for the year                                   |  |               | -           |  |        |   | -       |          |  |   | -       |  
|Balance, December
    31, 2015                          |  |               | 218,047,709 |  |        | $ | 104,028 |          |  | $ | 14,394  |  



The
accompanying notes are an integral part of these consolidated financial statements.



F-9







CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)








1.         Nature of Operations and Going
Concern



Canadian Zinc Corporation (the
“Company” or “Canadian Zinc”) is incorporated under the laws of the Province of British Columbia, Canada,
and its principal business activity is the exploration and development of natural resource properties. The address of the Company’s
registered office is Suite 1710, 650 West Georgia Street, PO Box 11644, Vancouver, British Columbia, Canada, V6B 4N9. The Company
currently exists under the Business Corporations Act(British Columbia) and its common shares are listed on the Toronto
Stock Exchange (“TSX”) under the symbol “CZN” and on the OTCQB under the symbol “CZICF”.



The Company is primarily engaged
in the exploration, development and permitting of its mineral properties. The Company is considered to be in the exploration and
development stage given that its mineral properties are not yet in production and, to date, have not earned any significant revenues.
The recoverability of amounts shown for exploration and evaluation assets is dependent on the existence of economically recoverable
reserves, obtaining and maintaining the necessary permits to operate a mine, obtaining the financing to complete development and
future profitable production.



These consolidated financial
statements have been prepared on the basis of accounting principles applicable to a going concern which assumes that the Company
will realize its assets and discharge its liabilities in the normal course of business. There are however material uncertainties
that may cast significant doubt upon the Company’s ability to continue as a going concern which are discussed below.



The Company has a history of
losses with no operating revenue other than interest income, and has working capital of $2,482,000 as at December 31, 2015. The
ability of the Company to carry out its planned business objectives is dependent on its ability to raise adequate financing from
lenders, shareholders and other investors. Additional financing will be required in the short term to continue the development
of the Prairie Creek Project and in the longer term to put the Prairie Creek Mine into production. There is no assurance that such
financing will be available on a timely basis or on acceptable terms. If the Company is unable to obtain adequate additional financing,
the Company will be required to curtail operations, exploration and development activities. The Company is currently evaluating
various opportunities and seeking additional sources of financing. These conditions indicate the existence of material uncertainties
which cast significant doubt about the Company’s ability to continue as a going concern.



These consolidated financial
statements do not give effect to any adjustment which could be material and which would be necessary should the Company be unable
to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the
normal course of business and at amounts different than those reflected in the consolidated financial statements.



2.         Significant Accounting Policies



| | (a) | Statement of Compliance
| | --- | -----------------------



These consolidated financial
statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by
the International Accounting Standards Board (“IASB”) and were approved and authorized for issue by the Board of Directors
on March 30, 2016.



| | (b) | Basis of Preparation and Consolidation
| | --- | --------------------------------------



These audited consolidated
financial statements have been prepared on a historical cost basis except for financial instruments classified as fair value through
profit or loss which are stated at their fair value. These audited consolidated financial statements are presented in Canadian
dollars and have been prepared on the basis of IFRS standards that are effective on December 31, 2015. The accounting policies
adopted by the Company have been applied consistently to all periods presented. These audited consolidated financial statements
are presented in the Company’s functional currency of Canadian dollars.



These audited consolidated
financial statements include the accounts of Canadian Zinc Corporation and its wholly-owned subsidiaries Paragon Minerals Corporation
(“Paragon”) and Messina Minerals Inc. (“Messina”), collectively the group. Subsidiaries are consolidated
from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date
when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent
company, using consistent accounting policies. All intra-group balances, transactions, unrealized gains and losses resulting from
intra-group transactions and dividends are eliminated in full upon consolidation.



F-10







CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)








2.         Significant Accounting Policies (continued)



| | (c) | Significant Accounting Judgments, Estimates and Assumptions
| | --- | -----------------------------------------------------------



The preparation of consolidated
financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application
of policies and reported amounts of assets and liabilities at the reporting date and the reported amounts of income and expenses
during the reporting year. Actual results may differ from these estimates.



| | i. | Business and asset acquisitions: Identifying a purchase
transaction as being a business combination or an asset purchase requires judgment regarding whether the set of assets acquired
and liabilities assumed constitutes a business based on the particular circumstances. Estimation is also required to determine
the fair values of assets acquired and liabilities assumed.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                   

| | ii. | Valuation of exploration and evaluation assets: Significant judgment is required when determining
whether facts and circumstances suggest that the carrying amount of exploration and evaluation assets may exceed its recoverable
amount. Significant judgment must be exercised in determining when a project of the Company moves from the exploration and evaluation
phase and into the development phase. The existence and extent of proven or probable mineral reserves; retention of regulatory
permits and licences; the availability of development financing; current and future metal prices; and market sentiment are all
factors considered by the Company. Accordingly, the Company having not secured development financing has deemed all projects to
be in the exploration and evaluation phase.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| | iii. | Decommissioning provision: Decommissioning provisions are recognized in the period in which they
arise and are stated at the best estimate of the present value of estimated future costs. These estimates require significant judgment
about the nature, cost and timing of the work to be completed, and may change with future changes to costs, environmental laws,
regulations and remediation practices and the expected timing of remediation work.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| | iv. | Share-based compensation: The Company measures the cost of equity-settled transactions with employees
by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based
payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions
of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected
life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for
estimating fair value for share-based payment transactions are disclosed in Note 12.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| | (d) | Financial Assets
| | --- | ----------------



Financial assets are initially
recorded at fair value and designated upon initial recognition into one of the following four categories: held-to-maturity, available-for-sale,
loans and receivables or at fair value through profit or loss (“FVTPL”).



Financial assets classified
as loans and receivables are measured at amortized cost less impairment, if any. The Company has classified its other receivables
as loans and receivables.



Financial assets classified
as FVTPL are measured at fair value with unrealized gains and losses recognized through earnings. The Company has classified its
cash and cash equivalents, short-term investments, marketable securities, and restricted cash as FVTPL. The Company designated
its marketable securities as FVTPL upon initial recognition in accordance with an investment strategy that management uses to evaluate
performance on a fair value basis.



Financial assets classified
as held-to-maturity are measured at amortized cost. The Company has no financial assets classified as held-to-maturity.



Financial assets classified
as available-for-sale are measured at fair value with unrealized gains and losses recognized in other comprehensive income (loss)
except for losses in value that are considered other than temporary, which are recorded in profit or loss. The Company has no financial
assets classified as available-for-sale.



Transaction costs associated
with FVTPL financial assets are expensed as incurred, while transaction costs associated with all other financial assets are included
in the initial carrying value of the asset.



F-11







CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)








Significant Accounting Policies (continued)



| | (e) | Impairment of Non-Financial Assets
| | --- | ----------------------------------



The Company assesses at each
reporting date the carrying amounts of non-financial assets to determine whether there is an indication of impairment. If such
an indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss.
Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount
of the cash-generating unit to which the asset belongs.



The recoverable amount of an
asset or cash-generating unit is the greater of fair value less costs to sell and its value in use. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and risks specific to the asset. In determining fair value less costs to sell, recent market
transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is
used. For the purpose of impairment testing, assets are grouped at lowest levels that generate cash inflows from continuing use
that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”).



If the recoverable amount of
an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating
unit is reduced to its recoverable amount. An impairment loss is recognized immediately in the consolidated statement of comprehensive
income or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation
decrease.



Impairment losses recognized
in prior years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment
charge is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have
been determined, net of depreciation or amortization, if no impairment loss had been recognized. A previously recognized impairment
loss is reversed only if there has been a significant change in or reversal of the circumstances or events that gave rise to the
previously recognize impairment loss.



| | (f) | Cash and Cash Equivalents
| | --- | -------------------------



Cash and cash equivalents consist
of cash and liquid investments which are readily convertible into cash with maturities of three months or less from the date of
purchase.



| | (g) | Short-term Investments
| | --- | ----------------------



Short-term investments, which
consist primarily of investments in Bankers Acceptances and Guaranteed Investment Certificates, are investments with maturities
of more than three months and less than one year from the date of purchase.



| | (h) | Marketable Securities
| | --- | ---------------------



Marketable securities are recorded
at their fair market value on the date of acquisition and are classified as FVTPL. The carrying value of the marketable securities
is adjusted at each subsequent reporting period to their estimated fair value (based upon the market bid price and the Bank of
Canada quoted exchange rate if applicable) with the resulting unrealized gains or losses recognized in comprehensive income or
loss for the year. Transaction costs relating to the purchase of marketable securities are expensed directly to profit or loss.



| | (i) | Foreign Currency Transactions
| | --- | -----------------------------



The Company’s reporting
currency and the functional currency of its subsidiaries is the Canadian dollar as this is the principal currency of the economic
environment in which the Company operates. Foreign currency transactions are translated using the exchange rates prevailing at
the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated
to the functional currency at the exchange rate in effect at the financial statement date. Foreign exchange gains or losses arising
from translation are recognized in profit and loss for the reporting year.



F-12







CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)








2.         Significant Accounting Policies (continued)



| | (j) | Property, Plant and Equipment (“PPE”)
| | --- | -------------------------------------



Items of PPE are carried at
acquisition cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly
attributable to the acquisition of the asset. Depreciation is provided on a declining-balance basis, less the estimated residual
value, at the following annual rates:



|Mining equipment | 30%
|---------------- | ---
|Office equipment | 20%



Buildings and leasehold improvements
are recorded at cost, net of accumulated depreciation. Depreciation on buildings and leasehold improvements are provided on a straight-line
basis over the life of the asset.



Depreciation methods, material
residual value estimates and estimates of useful lives are reviewed at each reporting date and updated as required. Gains or losses
arising on the disposal of PPE are determined as the difference between the proceeds on disposition and the carrying value of the
assets and are recognized in profit or loss at the time of the disposal. Amortization of the Prairie Creek plant and mill will
be based on the unit-of-production method using estimated proven and probable reserves.



| | (k) | Exploration and Evaluation Assets
| | --- | ---------------------------------



Exploration and evaluation
assets include acquired mineral use rights for mineral properties held by the Company. The amount of consideration paid (in cash
or share value) for mineral use rights is capitalized. The amounts shown for exploration and evaluation assets represent costs
of acquisition incurred to date, less recoveries and impairments, if any, and do not necessarily reflect present or future values.
Amounts received for the sale of mineral properties and for option payments are treated as reductions of the cost of the property,
with payments in excess of capitalized costs recognized in income.



The recoverability of the amounts
capitalized for the undeveloped mineral properties is dependent upon the determination of economically recoverable ore reserves,
confirmation of the Company's interest in the underlying mineral claims, the ability to obtain the necessary financing to complete
their development, and future profitable production or proceeds from the disposition thereof. Subsequent recovery of the resulting
carrying value depends on successful development or sale of the mineral property. If a mineral property does not prove viable,
all unrecoverable costs associated with the project net of any impairment provisions are written off



Exploration and evaluation
assets will be amortized to profit or loss once commercial production has been achieved or written off if the exploration and evaluation
assets are abandoned or sold. Depletion of costs capitalized on projects put into commercial production will be recorded using
the unit-of-production method based upon estimated proven and probable reserves.



Included in the cost of exploration
and evaluation assets is the cost of the estimated decommissioning provision.



Ownership in exploration and
evaluation assets involves certain inherent risks, including geological, fluctuation in metal prices, operating costs, and permitting
risks. Many of these risks are outside the Company’s control. The ultimate recoverability of the amounts capitalized for
the exploration and evaluation assets is dependent upon the delineation of economically recoverable ore reserves, obtaining the
necessary financing to complete their development, obtaining and retaining the necessary permits to operate a mine, and realizing
profitable production or proceeds from the disposition thereof. Estimates of the recoverability of the Company’s investment
in exploration and evaluation assets have been based on current and expected conditions. However, it is possible that changes could
occur which may adversely affect management’s estimates and may result in future write downs of exploration and evaluation
assets carrying values.



Title to mineral properties
involves inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems
arising from the frequently unreliable conveyance history characteristics of many mineral properties.



F-13







CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)








2.         Significant Accounting Policies (continued)



| | (l) | Financial Liabilities
| | --- | ---------------------



Financial liabilities are initially
recorded at fair value and designated upon inception as FVTPL or classified as other financial liabilities.



Financial liabilities classified
as other financial liabilities are initially recognized at fair value less directly attributable transaction costs. Subsequently,
they are measured at amortized cost using the effective interest method. The Company has classified its accounts payable and accrued
liabilities as other financial liabilities.



Financial liabilities classified
as FVTPL include financial liabilities held-for-trading and financial liabilities designated upon initial recognition as FVTPL.
Fair value changes on financial liabilities classified as FVTPL are recognized through profit or loss. The Company has no financial
liabilities classified as FVTPL.



| | (m) | Decommissioning, Restoration and Other Provisions
| | --- | -------------------------------------------------



The Company recognizes provisions
for statutory, contractual, constructive or legal obligations, including those associated with the reclamation of exploration and
evaluation assets and PPE, when those obligations result from the acquisition, construction, development or normal operation of
the assets. Initially, a decommissioning provision is recognized at its present value in the period in which it is incurred, which
is generally when an environmental disturbance occurs or a constructive obligation is determined. Upon initial recognition of the
provision, a corresponding amount is added to the carrying amount of the related asset and the cost is amortized as an expense
over the economic life of the asset using the unit-of-production method. Subsequent to initial recognition the carrying value of
the provision is increased for the passage of time and adjusted for changes to the current market-based discount rate and the amount
or timing of the underlying cash flows needed to settle the obligation. This accretion expense is recognized in profit or loss
as finance costs. Changes to estimated future decommissioning costs are recognized in the consolidated statement of financial position
by either increasing or decreasing the decommissioning provision and the related asset.



| | (n) | Flow-Through Shares
| | --- | -------------------



Current Canadian tax legislation
permits mining entities to issue flow-through shares to investors. Flow-through shares are securities issued to investors whereby
the deductions for tax purposes related to exploration and evaluation expenditures may be claimed by investors instead of the entity.
The issue of flow-through shares is in substance an issue of ordinary shares and the sale of tax deductions. At the time the Company
issues flow-through shares, the sale of tax deductions is deferred and presented as other liabilities in the consolidated statement
of financial position to recognize the obligation to incur and renounce eligible resource exploration and evaluation expenditures.
The tax deduction is measured as the difference between the current market price of the Company’s common shares and the issue
price of the flow-through share. Upon incurring and renouncing eligible resource exploration and evaluation expenditures, the Company
recognizes the sale of tax deductions as a tax deduction recovery on the consolidated statement of comprehensive income or loss
and accordingly reduces the liability for flow-through shares premium.



| | (o) | Investment Income
| | --- | -----------------



Investment income on cash and
cash equivalents and short-term investments is recognized as it is earned.



| | (p) | Exploration and Evaluation Expenditures
| | --- | ---------------------------------------



Exploration and evaluation
expenditures, other than those described in Note 2(k), are recognized in profit and loss. Expenditures incurred before the company
has obtained legal rights to explore areas of interest are also recognized in profit and loss. Expenditures incurred by the Company
in connection with the development of mineral resources after such time as mineral reserves are proven or probable; permits to
operate the mineral resource property are received; financing to complete development has been obtained; and approval of the Board
of Directors to commence mining development and operations are capitalized as deferred development expenditures within the exploration
and evaluation asset (see Note 2(k)).



F-14







CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)








2.         Significant Accounting Policies (continued)



| | (q) | Share-based Compensation
| | --- | ------------------------



The Company follows the fair
value method of accounting for the stock option awards granted to employees, directors and consultants. The fair value of stock
options is determined by the Black-Scholes Option Pricing Model with assumptions for risk-free interest rates, dividend yields,
volatility of the expected market price of the Company’s common shares and the expected life of the options. The number of
stock option awards expected to vest are estimated using a forfeiture rate based on historical experience and future expectations.
The fair value of direct awards of stock is determined by the quoted market price of the Company’s stock. Share-based compensation
is amortized to earnings over the vesting period of the related option.



The Company uses graded or
accelerated amortization which specifies that each vesting tranche must be accounted for as a separate arrangement with a unique
fair value measurement. Each vesting tranche is subsequently amortized separately and in parallel from the grant date.



Option-pricing models require
the use of highly subjective estimates and assumptions including the expected stock price volatility. Changes in the underlying
assumptions can materially affect the fair value estimates and, therefore, existing models do not necessarily provide reliable
measurement of the fair value of the Company’s stock options.



| | (r) | Income Taxes
| | --- | ------------



The Company follows the asset
and liability method of accounting for income taxes. Deferred income tax assets and liabilities are recognized in the period for
temporary differences between the tax and accounting bases of assets and liabilities as well as for the potential benefit of income
tax losses and other deductions carried forward to future years.



Deferred income tax assets
and liabilities are measured using substantively enacted tax rates and laws expected to apply in the years in which temporary differences
are expected to be recovered or settled. The effect of a change in tax rates on deferred income tax assets and liabilities is recognized
in the year that includes the substantive enactment date. The value of deferred income tax assets is reviewed annually and adjusted,
if necessary, to reflect the amount probable of being realized.



| | (s) | Earnings (Loss) Per Common Share
| | --- | --------------------------------



Earnings (loss) per share calculations
are based on the net income (loss) attributable to common shareholders for the year divided by the weighted average number of common
shares issued and outstanding during the year.



Diluted earnings per share
calculations are based on the net income attributable to common shareholders for the year divided by the weighted average number
of common shares outstanding during the year plus the effects of dilutive common share equivalents. This method requires that the
dilutive effect of outstanding options and warrants issued be calculated using the treasury stock method. This method assumes that
all common share equivalents have been exercised at the beginning of the year (or at the time of issuance, if later), and that
the funds obtained thereby were used to purchase common shares of the Company at the average trading price of common shares during
the year. The incremental number of common shares that would be issued is included in the calculation of diluted earnings (loss)
per share.



Diluted loss per share calculations
are based on the net loss attributable to common shareholders for the year divided by the weighted average number of common shares
issued and outstanding during the year. Stock options and share purchase warrants are not included in the computation of loss per
share as such inclusion would be anti-dilutive.



| | (t) | Government Grants
| | --- | -----------------



Grants from the government
are recognized at their fair value where there is a reasonable assurance that the Company has complied with all conditions necessary
to receive the grants and collectability is reasonably assured. Government grants relating to costs are accrued as receivable and
recognized in the consolidated statement of comprehensive income or loss as a reduction of the related expense. Government grants
relating to property, plant and equipment are accrued as receivable and recognized in the consolidated statement of financial position
as a reduction of the carrying value of the related asset.



F-15







CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)








2.         Significant Accounting Policies (continued)



| | (u) | IFRS Standards Adopted
| | --- | ----------------------



As of January 1, 2015, the
Company adopted the new and amended IFRS pronouncements in accordance with transitional provisions outlined in the respective standards.



|IFRS 2 (Amendment)  | Share-based Payment          
|------------------- | -----------------------------
|IFRS 3 (Amendment)  | Business Combinations        
|IFRS 8 (Amendment)  | Operating Segments           
|IFRS 13 (Amendment) | Fair Value Measurement       
|IAS 16 (Amendment)  | Property, Plant and Equipment
|IAS 19 (Amendment)  | Employee Benefits            
|IAS 24 (Amendment)  | Related Party Disclosures    
|IAS 38 (Amendment)  | Intangible Assets            
|IAS 40 (Amendment)  | Investment Property          



The adoption of these standards
did not have a material impact on the consolidated results and financial position of the Company.



| | (v) | IFRS Standards Issued But Not Yet Effective
| | --- | -------------------------------------------



A number of new standards, amendments
to standards and interpretations, are not yet effective for the year ended December 31, 2015, and have not been applied in preparing
these consolidated financial statements. The following pronouncements are those that the Company considers most significant and
are not intended to be a complete list of new pronouncements that effect the financial statements.



IFRS 9 Financial Instruments (“IFRS 9”)



In November 2009, the IASB issued
IFRS 9 as the first step in its project to replace IAS 39, Financial Instruments: Recognition and Measurement. On July 24,
2014 the IASB issued the complete IFRS 9. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary
measurement categories for financial assets: amortized cost and fair value. The basis of classification depends on an entity’s
business model and the contractual cash flows of the financial asset. Classification is made at the time the financial asset is
initially recognized, namely when the entity becomes a party to the contractual provisions of the instrument.



IFRS 9 amends some of the requirements
of IFRS 7, Financial Instruments: Disclosures, including added disclosures about investments in equity instruments measured
at fair value in other comprehensive income, and guidance on the measurement of financial liabilities and de-recognition of financial
instruments. The mandatory effective date of IFRS 9 is for annual periods beginning on or after January 1, 2018 with early adoption
permitted, and must be applied retrospectively with some exemptions permitted. The Company does not expect the adoption of IFRS
9 to have a material effect on its consolidated financial statements.



Amendments to IAS 1, Presentation
of Financial Statements (“IAS 1”)



On December 18, 2014, the IASB
issued amendments to IAS 1 as part of its major initiative to improve presentation and disclosure in financial reports. The amendments
are effective for annual periods beginning on or after January 1, 2016 with early adoption permitted. The Company intends to adopt
these amendments in its financial statements for the annual period beginning on January 1, 2016. The Company does not anticipate
this amendment to have a significant impact on its consolidated financial statements.



IFRS 16, Leases (“IFRS
16”)



On January 13, 2016, the International
Accounting Standards Board published a new standard, IFRS 16, Leases, eliminating the current dual accounting model for
lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Under the new standard,
a lease becomes an on-balance sheet liability that attracts interest, together with a new right-of-use asset. In addition, lessees
will recognize a front-loaded pattern of expense for most leases, even when cash rentals are constant. IFRS 16 is effective for
annual periods beginning on or after January 1, 2019, with earlier adoption permitted. The Company is evaluating the impact of
adopting this standard on its consolidated financial statements.



F-16







CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)








3.         Messina Minerals Inc. Acquisition



The Company undertook no significant
acquisitions during the years ended December 31, 2015 and 2014.



On December 20, 2013, the Company
acquired the outstanding shares of Messina Minerals Inc. (“Messina”), a company which holds mineral interests in the
Canadian province of Newfoundland and Labrador.



Total consideration paid was
$1,372,000, which was comprised of the issuance of 2,132,714 common shares valued at $896,000 based on the closing market price
of the Company’s shares on December 20, 2013 of $0.42 per share, conversion of options and warrants with a fair value of
$19,000 (See Note 12), 3,000,000 Messina shares previously acquired and valued at $180,000 based on the closing market price of
Messina shares on December 20, 2013 of $0.06 per share and transaction costs of $277,000. A fair value of $1,324,000 was allocated
to exploration and evaluation assets for the mineral interests. (See Note 9).



4.         Cash and Cash Equivalents



The Company’s cash and
cash equivalents at December 31, 2015 consisted of cash of $301,000 and cash equivalents of $1,373,000 (December 31, 2014 - cash
of $446,000 and cash equivalents of $8,346,000).



5.         Short-term Investments



Short-term investments, which
consist primarily of investments in Bankers Acceptances and Guaranteed Investment Certificates, are investments with maturities
of more than three months and less than one year from the date of purchase. At December 31, 2015, short-term investments had a
carrying value of $28,000, earning income at a rate of 0.75% (December 31, 2014 - $5,023,000, earning income at a rate of 1.75%).
The carrying values of short-term investments approximate their fair values due to the relatively short period to maturity.



6.         Marketable Securities



As at December 31, 2015, the
Company held 12,573,380 shares of Vatukoula Gold Mines plc (“Vatukoula”), an unlisted company operating a gold mine
in Fiji. The estimated fair value of these shares was $936,000 based upon the offer by Zhongrun International Mining Co. Ltd. (“Zhongrun”),
the major shareholder of Vatukoula, to purchase all of the shares of Vatukoula that it did not already own through a matched bargain
trading facility. In January 2016, the Company sold all of the 12,573,380 shares of Vatukoula held by the Company to Zhongrun through
the matched bargain trading facility for cash of $936,000.



7.         Restricted Cash



As
at December 31, 2015, restricted cash comprised reclamation security deposits totaling $2,075,000 (December 31, 2014 - $525,000)
held by government agencies as financial assurance in respect of certain reclamation obligations at the Prairie Creek Property.
During the year ended December 31, 2015, the Company remitted $1,550,000 (December 31, 2014 – nil) to the Minister of Environment
and Natural Resources of the Northwest Territories as financial assurance in respect of existing reclamation obligations.



F-17







CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)








8.         Property, Plant and Equipment



|                          |  | Land |    |  | Prairie Creek Plant & Mill |   |     | Mining Equipment |  |   | Office Equipment |  |  | Buildings and Leasehold Improvements |     |  | Total |  
|------------------------- |  | ---- | -- |  | -------------------------- | - | --- | ---------------- |  | - | ---------------- |  |  | ------------------------------------ | --- |  | ----- | -
|Acquisition Cost          |  |      |    |  |                            |   |     |                  |  |   |                  |  |  |                                      |     |  |       |  
|December 31, 2013         |  | $    | 40 |  |                            | $ | 500 |                  |  | $ | 1,673            |  |  | $                                    | 164 |  |       | $
|Additions during the year |  |      | -  |  |                            |   | -   |                  |  |   | 16               |  |  |                                      | -   |  |       |  
|December 31, 2014         |  |      | 40 |  |                            |   | 500 |                  |  |   | 1,689            |  |  |                                      | 164 |  |       |  
|Additions during the year |  |      | -  |  |                            |   | -   |                  |  |   | 53               |  |  |                                      | 23  |  |       |  
|December 31, 2015         |  |      | 40 |  |                            | $ | 500 |                  |  | $ | 1,742            |  |  | $                                    | 187 |  |       | $
|                          |  |      |    |  |                            |   |     |                  |  |   |                  |  |  |                                      |     |  |       |  
|Accumulated Depreciation  |  |      |    |  |                            |   |     |                  |  |   |                  |  |  |                                      |     |  |       |  
|December 31, 2013         |  | $    | -  |  |                            | $ | -   |                  |  | $ | 1,396            |  |  | $                                    | 141 |  |       | $
|Depreciation for the year |  |      | -  |  |                            |   | -   |                  |  |   | 86               |  |  |                                      | 6   |  |       |  
|December 31, 2014         |  |      | -  |  |                            |   | -   |                  |  |   | 1,482            |  |  |                                      | 147 |  |       |  
|Depreciation for the year |  |      | -  |  |                            |   | -   |                  |  |   | 71               |  |  |                                      | 7   |  |       |  
|December 31, 2015         |  | $    | -  |  |                            | $ | -   |                  |  | $ | 1,553            |  |  | $                                    | 154 |  |       | $
|                          |  |      |    |  |                            |   |     |                  |  |   |                  |  |  |                                      |     |  |       |  
|Net Book Value            |  |      |    |  |                            |   |     |                  |  |   |                  |  |  |                                      |     |  |       |  
|December 31, 2013         |  | $    | 40 |  |                            | $ | 500 |                  |  | $ | 277              |  |  | $                                    | 23  |  |       | $
|December 31, 2014         |  |      | 40 |  |                            |   | 500 |                  |  |   | 207              |  |  |                                      | 17  |  |       |  
|December 31, 2015         |  |      | 40 |  |                            |   | 500 |                  |  |   | 189              |  |  |                                      | 33  |  |       |  



F-18







CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)








9.         Exploration and Evaluation
Assets



The Company holds a 100% interest
in the Prairie Creek Mine property located in the Northwest Territories, Canada. It also holds, through the Company’s wholly-owned
subsidiaries Paragon and Messina, a 100% interest in the South Tally Pond, Tulks South and Long Lake properties in Newfoundland
and Labrador.



In May 2013, the Company sold
a 1.2% net smelter returns royalty on the Prairie Creek Mine for net proceeds of $10,271,000 to Sandstorm Metals & Energy Ltd.



|                        |  | December 31, 2015 |       |  | December 31, 2014 |  
|----------------------- |  | ----------------- | ----- |  | ----------------- | -
|Prairie Creek Mine      |  | $                 | -     |  |                   | $
|Newfoundland properties |  |                   | 5,398 |  |                   |  
|                        |  |                   |       |  |                   |  
|                        |  | $                 | 5,398 |  |                   | $



The Company has incurred historical
exploration and evaluation costs of $76,651,000 on the Prairie Creek Mine asset and $3,596,000 on exploration properties in central
Newfoundland (see Note 13) and has expensed these costs pursuant to its accounting policy.



10.      Decommissioning Provision



Reclamation and closure costs
for the Prairie Creek Property have been estimated based on an Abandonment and Restoration Plan agreed to by the Mackenzie Valley
Land and Water Board and the Company based upon current obligations under existing surface leases, land use permits and class “B”
Water Licence for reclamation and closure of the Prairie Creek Mine site as it now exists with the current infrastructure and assuming
a mine life of 17 years. These reclamation and closure costs have been measured based on the net present value of the best estimate
of future cash expenditures.



The Company’s undiscounted
decommissioning provision for the Prairie Creek site, as it currently exists, is $2,728,000 (December 31, 2014 - $3,142,000), being
the estimated future net cash outflows of the reclamation and closure costs, including a 25% contingency and inflation rate of
2% per annum, required to satisfy the obligations, settlement of which will occur subsequent to closure of the mine estimated to
be 2035. The decommissioning provision is discounted using a risk free rate of 2.03% (December 31, 2014 – 2.22%).



The accretion expense is included
in finance costs in the consolidated statement of comprehensive loss. Reclamation and closure costs are capitalized into exploration
and evaluation assets and amortized over the life of the Prairie Creek Mine asset. Changes in the reclamation and closure costs
resulting from changes in the timing, estimated cost or discount rate requires an offsetting change in the carrying value of the
corresponding exploration and evaluation asset. Decreases in the decommissioning provision result in a corresponding decrease to
the asset until the corresponding asset is reduced to nil, after which a decrease in the decommissioning provision is recognized
as a gain in the consolidated statement of comprehensive loss.



For the year ended December
31, 2015, a change in cost estimates reduced the decommissioning provision by $466,000, resulting in a reduction in the carrying
value of the Prairie Creek Mine asset by $220,000 (see Note 9) with the excess recognized as a gain on change in estimate of the
decommissioning provision of $246,000 (2014 - $nil and 2013 - $177,000) and included in other income on the consolidated statement
of comprehensive loss.



|                            |  | December 31, 2015 |       |   | December 31, 2014 |   |       | December 31, 2013 | 
|--------------------------- |  | ----------------- | ----- | - | ----------------- | - | ----- | ----------------- | 
|Balance – beginning of year |  | $                 | 2,243 |   |                   | $ | 1,963 |                   | 
|Accretion expense           |  |                   | 48    |   |                   |   | 60    |                   | 
|Change in estimates         |  |                   | (466  | ) |                   |   | 220   |                   | 
|                            |  |                   |       |   |                   |   |       |                   | 
|Balance – end of year       |  | $                 | 1,825 |   |                   | $ | 2,243 |                   | 



F-19









CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)














| | 11. | Share Capital
| | --- | -------------



Authorized: Unlimited common
shares with no par value (2014 – unlimited).



Issued and outstanding: 218,047,709
common shares (December 31, 2014 – 218,047,709).



| | (a) | During the year ended December 31, 2014
| | --- | ---------------------------------------



| | i. | On July 31, 2014, the Company completed a bought deal public offering of units and flow-through
shares (the “Offering”) through a syndicate of underwriters led by Dundee Securities Ltd. and included Canaccord Genuity
Corp. and Paradigm Capital Inc. (together, the ("Underwriters")). The Company issued 28,572,000 units (“Units”)
at a price of $0.35 per Unit for gross proceeds of $10,000,000, and 15,134,000 common shares, which qualify as “flow-through”
shares (the "FT Shares”) at a price of $0.38 per FT Share for gross proceeds of $5,751,000. Each Unit is comprised of
one common share and one half of one common share purchase warrant (each full warrant, a “Warrant”). Each Warrant entitles
the holder to purchase one common share at an exercise price of $0.50 on or before July 31, 2017.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In total, the gross proceeds
of the Offering amounted to $15,751,000. The Underwriters were paid a commission of 6% of the gross proceeds from the offering
and received compensation warrants to acquire 2,622,360 non-flow-through shares at any time until July 31, 2016 at a price of $0.35
per share. Net proceeds from the issuance were $14,473,000 after issuance costs comprised of the agent’s commission of $945,000
and other issuance costs of $333,000. The Company also recognized non-cash costs for the fair value of the warrants granted of
$1,723,000. The sale of tax deductions of $1,059,000, measured as the difference between the market price of the Company’s
shares at the date of issue and the issue price of the flow-through shares, was deferred and recorded as a current liability in
the consolidated statement of financial position.



| | ii. | 1,513,134 stock options were exercised at prices between $0.23 and $0.30 per common share for proceeds
of $357,000.
| | --- | -------------------------------------------------------------------------------------------------------------------



| | (b) | During the year ended December 31, 2013
| | --- | ---------------------------------------



| | i. | On August 20, 2013, the Company issued by way of a bought deal private placement 6,460,000 flow-through
shares on a brokered basis at $0.62 per share, for aggregate gross proceeds of $4,005,000. The agent to the private placement was
paid a commission of 5% of the gross proceeds from the offering and received broker’s warrants to acquire 387,600 non-flow-through
shares at any time until February 20, 2015 at a price of $0.63 per share. Net proceeds from the issuance were $3,701,000 after
issuance costs comprised of the agent’s commission of $200,000 and other issuance costs of $104,000. The Company also recognized
non-cash costs for the fair value of the broker’s warrants granted of $92,000.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ii. | 200,000 stock options were exercised at a price of $0.23 per common share for proceeds of $46,000.
| | --- | --------------------------------------------------------------------------------------------------



| | iii. | On September 16, 2013, the Company issued 4,080 common shares valued at $2,000 and $13,000 in cash
pursuant to an agreement by Paragon Minerals Corporation to acquire an exploration property.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | iv. | On December 20, 2013, the Company acquired Messina Minerals Inc. and issued 2,132,714 common shares
valued at $896,000 based on the Company’s closing market price on December 31, 2013 of $0.42 per share in exchange for all
outstanding Messina shares that the Company did not already own.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-20









CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)








| | 12. | Reserves
| | --- | --------



| | (a) | Stock Options
| | --- | -------------



At December 31, 2015, there
were 973,800 incentive stock options outstanding. Each stock option is exercisable for one ordinary share of the Company. No amounts
are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights.
Options may be exercised at any time from the date of vesting to the date of their expiry. The Company’s stock option plan
is a fixed share stock option plan pursuant to which options on up to 7,500,000 common shares may be issued to directors, officers,
employees and service providers of the Company. Each option granted shall be for a term not exceeding five years from the date
of grant and the vesting period is determined at the discretion of the Board. The option exercise price is set at the date of grant
and cannot be less than the closing market price of the Company’s common shares on the TSX on the day of grant.



|                               |  | December 31, 2015 |            |   | December 31, 2014               |   |      | December 31, 2013 | 
|------------------------------ |  | ----------------- | ---------- | - | ------------------------------- | - | ---- | ----------------- | 
|                               |  | Number of Options |            |   | Weighted Average Exercise Price |   |      | Number of Options | 
|Outstanding, beginning of year |  |                   | 5,693,800  |   |                                 | $ | 0.47 |                   | 
|Exercised                      |  |                   | -          |   |                                 |   | -    |                   | 
|Converted                      |  |                   | -          |   |                                 |   | -    |                   | 
|Expired                        |  |                   | (4,060,000 | ) |                                 |   | 0.45 |                   | 
|Forfeited                      |  |                   | (660,000   | ) |                                 |   | 0.45 |                   | 
|Outstanding, end of year       |  |                   | 973,800    |   |                                 | $ | 0.55 |                   | 



As at December 31, 2015, the
Company has outstanding and exercisable stock options, with a weighted average remaining contractual life of 1.2 years, to purchase
an aggregate 973,800 common shares as follows:



|                 |  | Options Outstanding and Exercisable |        
|---------------- |  | ----------------------------------- | -------
|Expiry Date      |  | Number of Options                   |        
|January 27, 2016 |  |                                     | 300,000
|July 4, 2016     |  |                                     | 23,800 
|October 3, 2017  |  |                                     | 650,000
|                 |  |                                     | 973,800



For the year ended December
31, 2015, the Company did not recognize any share-based compensation expense for stock options granted to directors, officers and
employees (2014 - $23,000 and 2013 - $120,000).

F-21









CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)








| | 12. | Reserves (continued)
| | --- | --------------------



| | (b) | Restricted Share Units (“RSUs”) and Deferred Share Units (“DSUs”)
| | --- | -----------------------------------------------------------------



During the year ended December
31, 2015, the Company issued 3,650,000 RSUs to senior officers and 276,340 DSUs to directors (2014 – nil and nil). At the
Annual General Meeting held on June 19, 2014, shareholders approved the adoption of a Restricted Share Unit Plan (the “RSU
Plan”) and a Deferred Share Unit Plan (the “DSU Plan”). The RSU Plan and the DSU Plan provide for the issuance
of shares to eligible employees, directors and consultants, subject to certain vesting and deferral provisions, to a maximum number,
equal to 3% and 2% respectively, of the issued and outstanding common shares of the Company. At December 31, 2015, there were 3,650,000
RSUs and 276,340 DSUs outstanding.



|                               |  | Year ended December 31, 2015 |          
|------------------------------ |  | ---------------------------- | ---------
|                               |  | Number of RSUs               |          
|Outstanding, beginning of year |  |                              | -        
|Granted                        |  |                              | 3,650,000
|Outstanding, end of year       |  |                              | 3,650,000



The RSUs granted are subject
to an 18 month vesting period; a pay-out date of 3 years; an expiry date of 5 years; and are assigned a fair value based on the
share price at time of issuance. Upon issuance, the DSUs are fully vested and are assigned a fair value based on the five day volume
weighted average share price. Subject to the terms and conditions of the DSU Plan, DSUs are paid out upon retirement.



For the year ended December
31, 2015, the Company recognized share-based compensation expense of $124,000 in respect of the RSUs and DSUs (years ended December
31, 2014 and 2013 – $nil and $nil).



F-22









CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)










| | 12. | Reserves (continued)
| | --- | --------------------



| | (c) | Share Purchase Warrants
| | --- | -----------------------



As at December 31, 2015, the
Company has outstanding exercisable warrants to purchase an aggregate 16,908,360 common shares, with a weighted average remaining
contractual life of 1.4 years, as follows:



|                               |  | December 31, 2015   |            |   | December 31, 2014               |   |      | December 31, 2013   | 
|------------------------------ |  | ------------------- | ---------- | - | ------------------------------- | - | ---- | ------------------- | 
|                               |  | Number of  Warrants |            |   | Weighted Average Exercise Price |   |      | Number of  Warrants | 
|Outstanding, beginning of year |  |                     | 17,295,960 |   |                                 | $ | 0.48 |                     | 
|Issued                         |  |                     | -          |   |                                 |   | -    |                     | 
|Converted                      |  |                     | -          |   |                                 |   | -    |                     | 
|Expired                        |  |                     | (387,600   | ) |                                 |   | 0.63 |                     | 
|Outstanding, end of year       |  |                     | 16,908,360 |   |                                 | $ | 0.48 |                     | 



|              |  | Warrants Outstanding and Exercisable |           
|------------- |  | ------------------------------------ | ----------
|Expiry Date   |  | Number of  Warrants                  |           
|July 31, 2016 |  |                                      | 2,622,360 
|July 31, 2017 |  |                                      | 14,286,000
|              |  |                                      | 16,908,360



The fair value of the warrants
issued was determined using the Black-Scholes option pricing model, based on the following terms and assumptions:



|Year of Grant                          |  | Year ended December 31, 2014 |                 
|-------------------------------------- |  | ---------------------------- | ----------------
|Dividend Yield                         |  |                              | 0               
|Risk free interest rate                |  |                              | 1.08% to 1.41   
|Expected life                          |  |                              | 2.0 to 3.0 years
|Expected volatility (1)                |  |                              | 66.23% to 68.46 
|Weighted average grant date fair value |  | $                            | 0.10            



(1)Determined based on historical volatility of
the Company’s share price.



F-23









CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)










| | 12. | Reserves (continued)
| | --- | --------------------



| | (d) | Summary
| | --- | -------



A summary of the changes to
the reserves is summarized below as follows:



|                           |  | Share Options  and Units |        |   | Warrants |   |        | Unexercised Share Options,  Units and  Warrants |  |   | Normal Course Issuer Bid |  |  | Total |    
|-------------------------- |  | ------------------------ | ------ | - | -------- | - | ------ | ----------------------------------------------- |  | - | ------------------------ |  |  | ----- | ---
|Balance, December 31, 2013 |  | $                        | 1,420  |   |          | $ | 1,582  |                                                 |  | $ | 9,075                    |  |  | $     | 604
|Share-based compensation   |  |                          | 23     |   |          |   | -      |                                                 |  |   | -                        |  |  |       | -  
|Stock options exercised    |  |                          | (157   | ) |          |   | -      |                                                 |  |   | -                        |  |  |       | -  
|Unit warrants issued       |  |                          | -      |   |          |   | 1,456  |                                                 |  |   | -                        |  |  |       | -  
|Broker warrants issued     |  |                          | -      |   |          |   | 267    |                                                 |  |   | -                        |  |  |       | -  
|Warrants expired           |  |                          | -      |   |          |   | (1,491 | )                                               |  |   | 1,491                    |  |  |       | -  
|Balance, December 31, 2014 |  |                          | 1,286  |   |          |   | 1,814  |                                                 |  |   | 10,566                   |  |  |       | 604
|Share-based compensation   |  |                          | 124    |   |          |   | -      |                                                 |  |   | -                        |  |  |       | -  
|Stock options expired      |  |                          | (1,022 | ) |          |   | -      |                                                 |  |   | 1,022                    |  |  |       | -  
|Stock options forfeited    |  |                          | (154   | ) |          |   | -      |                                                 |  |   | 154                      |  |  |       | -  
|Warrants expired           |  |                          | -      |   |          |   | (92    | )                                               |  |   | 92                       |  |  |       | -  
|Balance, December 31, 2015 |  | $                        | 234    |   |          | $ | 1,722  |                                                 |  | $ | 11,834                   |  |  | $     | 604



F-24









CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)








| | 13. | Exploration and Evaluation Expenditures
| | --- | ---------------------------------------



|                                                                               |  | Years ended December 31, |       
|------------------------------------------------------------------------------ |  | ------------------------ | ------
|Prairie Creek Mine                                                             |  | 2015                     |       
|Camp operation and project development                                         |  | $                        | 2,106 
|Diamond drilling                                                               |  |                          | 3,102 
|Mine planning and feasibility studies                                          |  |                          | 1,045 
|Permitting and environmental                                                   |  |                          | 993   
|                                                                               |  |                          | 7,246 
|                                                                               |  |                          |       
|Depreciation – mining plant and equipment                                      |  |                          | 71    
|Total exploration and evaluation expenditures                                  |  | $                        | 7,317 
|                                                                               |  |                          |       
|Exploration and evaluation expenditures (inception to date), beginning of year |  | $                        | 69,334
|Total exploration and evaluation expenditures                                  |  |                          | 7,317 
|Exploration and evaluation expenditures (inception to date), end of year       |  | $                        | 76,651



|                                                                               |  | Years ended December 31, |      
|------------------------------------------------------------------------------ |  | ------------------------ | -----
|Messina & Paragon Properties                                                   |  | 2015                     |      
|Camp operation and project development                                         |  | $                        | 428  
|Diamond drilling (1)                                                           |  |                          | (95  
|Permitting and environmental                                                   |  |                          | -    
|Total exploration and evaluation expenditures                                  |  | $                        | 333  
|                                                                               |  |                          |      
|Exploration and evaluation expenditures (inception to date), beginning of year |  | $                        | 3,263
|Total exploration and evaluation expenditures                                  |  |                          | 333  
|Exploration and evaluation expenditures (inception to date), end of year       |  | $                        | 3,596



| | (1) | The Company received additional government grants in 2015 relating
to the 2014 drill programs in Newfoundland (see Note 15).
| | --- | ----------------------------------------------------------------------------------------------------------------------------



For the year ended December
31, 2015, employee wages and benefits of $1,314,000 were included in exploration and evaluation expenditures (2014 - $1,339,000
and 2013 - $1,344,000).



F-25









CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)








| | 14. | Tax Deduction Recovery
| | --- | ----------------------



During
the year ended December 31, 2015, the Company recognized a tax deduction recovery of $471,000 (2014 - $588,000 and 2013 - $nil)
in respect of flow-through shares previously issued (see Note 11).



| | 15. | Government Grants
| | --- | -----------------



During the year ended December
31, 2015, the Company received government grants in the amount of $398,000 (2014 - $170,000 and 2013 - $547,000). The grants received
or receivable were accounted for as a reduction of the related expense or as a reduction of the carrying value of the related asset.



As at December 31, 2015, a
prepayment of $40,000 was recorded, presented within accrued and other liabilities, for work associated with a grant received from
the Research and Development Corporation of Newfoundland and Labrador for work to be completed in 2016 (December 31, 2014 - $nil).
As at December 31, 2014, a receivable of $170,000 was due from the government of Newfoundland and Labrador and is presented within
other receivables and prepaid expenses (December 31, 2015 - $nil).



| | 16. | Income Taxes
| | --- | ------------



The Company’s current
and deferred income tax expense for the year ended December 31, 2015, is $nil and $nil (2014 - $nil and $nil and 2013 - $nil and
$nil). A reconciliation of the statutory tax rate to the effective rate for the Company is as follows:



|                                                                |  | 2015 |        |   | 2014 |   |        | 2013 | 
|--------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- | 
|Statutory tax rate                                              |  |      | 26.74  | % |      |   | 26.56  | %    | 
|Income taxes/(recovery) computed at statutory rates             |  | $    | (2,209 | ) |      | $ | (3,303 | )    | 
|Expired losses                                                  |  |      | -      |   |      |   | 236    |      | 
|Flow-through share premium recovery                             |  |      | (126   | ) |      |   | (156   | )    | 
|Income tax rate changes                                         |  |      | (112   | ) |      |   | 20     |      | 
|Loss on marketable securities subject to capital gains tax rate |  |      | (66    | ) |      |   | (118   | )    | 
|Non-refundable investment tax credits                           |  |      | (1,651 | ) |      |   | -      |      | 
|Other                                                           |  |      | (95    | ) |      |   | 7      |      | 
|Permanent differences                                           |  |      | 40     |   |      |   | 249    |      | 
|Renunciation of resource expenditures                           |  |      | 779    |   |      |   | 1,899  |      | 
|Tax benefits not yet recognized                                 |  |      | 3,440  |   |      |   | 1,166  |      | 
|                                                                |  |      | -      |   |      |   | -      |      | 



The approximate tax effect
of each type of temporary difference that gives rise to the Company’s deferred income tax assets and liabilities are as follows:



|                                           |  | 2015 |        |  | 2014 |   |        | 2013 | 
|------------------------------------------ |  | ---- | ------ |  | ---- | - | ------ | ---- | 
|Non-capital loss carry forwards            |  | $    | 10,942 |  |      | $ | 9,868  |      | 
|Investment tax credits                     |  |      | 1,651  |  |      |   | -      |      | 
|Marketable securities                      |  |      | 1,258  |  |      |   | 1,314  |      | 
|Plant and equipment                        |  |      | 433    |  |      |   | 409    |      | 
|Resource interests                         |  |      | 10,294 |  |      |   | 9,329  |      | 
|Other                                      |  |      | 776    |  |      |   | 994    |      | 
|Net unrecognized deferred income tax asset |  | $    | 25,354 |  |      | $ | 21,914 |      | 



F-26









CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)








| | 16. | Income Taxes (continued)
| | --- | ------------------------



At December 31, 2015, the Company
has approximately $41,126,000 (2014 - $37,300,000 and 2013 - $31,998,000) of non-capital losses for tax purposes available to be
carried forward to various dates until 2035 and applied against future income for tax purposes and approximately $38,889,000 (2014
- $35,422,000 and 2013 - $40,425,000) of unused cumulative Canadian exploration and development expenses for tax purposes available
to be carried forward indefinitely and applied against future income for tax purposes. The non-capital losses expire as follows:



|Year |  | Total |       
|---- |  | ----- | ------
|2026 |  | $     | 2,011 
|2027 |  |       | 3,511 
|2028 |  |       | 5,500 
|2029 |  |       | 3,547 
|2030 |  |       | 3,605 
|2031 |  |       | 3,915 
|2032 |  |       | 6,741 
|2033 |  |       | 2,282 
|2034 |  |       | 6,555 
|2035 |  |       | 3,459 
|     |  | $     | 41,126



The non-refundable investment
tax credits of $1.6 million expire between 2025 and 2032.



| | 17. | Capital Management
| | --- | ------------------



The
Company manages its cash and cash equivalents, short-term investments, marketable securities, common shares, stock options and
share purchase warrants as capital. As the Company is in the exploration and evaluation stage, its principal source of funds for
its operations is from the issuance of common shares. The issuance of common shares requires approval of the Board of Directors.
It is the Company’s objective to safeguard its ability to continue as a going concern, so that it can continue to explore
its Canadian properties and develop its Prairie Creek project for the benefit of its shareholders.



| | 18. | Related Party Transactions
| | --- | --------------------------



During the year ended December
31, 2015, the Company incurred rent expense in the amount of $24,000 (2014 - $24,000 and 2013 - $24,000) with a corporation in
which the Chairman of the Company is also a director. These transactions were within the normal course of business and have been
recorded at amounts agreed to by the transacting parties. At December 31, 2014, $2,000 was owed to related parties and was included
in accounts payable and accrued and other liabilities (December 31, 2015 - $nil).



During the year ended December
31, 2015, the Company incurred short-term employee remuneration and benefits to officers and directors in the amount of $690,000
(2014 - $850,000 and 2013 - $1,278,000) and share-based compensation with officers and directors in the amount of $124,000 (2014
- $2,000 and 2013 - $13,000).



F-27









CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)








| | 19. | Financial Instruments
| | --- | ---------------------



| | (a) | Categories of financial instruments
| | --- | -----------------------------------



|                              |  |                             |  | Fair Value Hierarchy |  | December 31, 2015 |       |   | December 31, 2014 |  
|----------------------------- |  | --------------------------- |  | -------------------- |  | ----------------- | ----- | - | ----------------- | -
|Cash and cash equivalents     |  | FVTPL                       |  |                      |  | $                 | 1,674 |   |                   | $
|Short-term investments        |  | FVTPL                       |  |                      |  |                   | 28    |   |                   |  
|Marketable securities         |  | FVTPL                       |  | Level 3              |  |                   | 936   |   |                   |  
|Other receivables             |  | Loans and receivables       |  |                      |  |                   | 54    |   |                   |  
|Restricted cash               |  | FVTPL                       |  |                      |  |                   | 2,075 |   |                   |  
|Accounts payable              |  | Other financial liabilities |  |                      |  |                   | (298  | ) |                   |  
|Accrued and other liabilities |  | Other financial liabilities |  |                      |  |                   | (153  | ) |                   |  



The carrying value of the Company’s
financial assets and liabilities reasonably approximate their fair values.



| | (b) | Interest rate risk
| | --- | ------------------



In respect of financial assets,
the Company’s policy is to invest cash at floating rates of interest and cash reserves are to be maintained in cash equivalents
in order to maintain liquidity. Fluctuations in interest rates impact the value of cash equivalents. Included in the net loss for
the year ended December 31, 2015, is investment income on the Company’s cash and cash equivalents and short-term investments.
As at December 31, 2015, with other variables unchanged, 1% increase or decrease in the Prime rate would have resulted in a decrease
or increase, respectively, to net loss of approximately $71,000. The Company does not have any debt obligations which expose it
to interest rate risk.



| | (c) | Foreign currency risk
| | --- | ---------------------



Fluctuations in foreign currencies
may impact profitability of the Company and may also affect the value of the Company’s assets and the amount of shareholders’
equity. The Company held marketable securities denominated in U.K. pounds sterling. Based upon the marketable securities held at
December 31, 2015, and assuming no changes in number of shares or stock price, for every $0.01 fluctuation in exchange rate between
the Canadian dollar and U.K. pound sterling, the Company’s net income or loss would increase or decrease by $4,000, respectively.



| | (d) | Credit risk
| | --- | -----------



Credit risk is the risk that
one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The
Company does not currently generate any revenues from sales to customers nor does it hold derivative type instruments that would
require a counterparty to fulfil a contractual obligation resulting in a credit risk. The Company has never held any asset-backed
paper instruments. The Company seeks to place its cash and cash equivalents, short-term investments and restricted cash with reputable
financial institutions.



The Company considers the following
financial assets to be exposed to credit risk: cash and cash equivalents, short-term investments, marketable securities and restricted
cash. The carrying value of these financial assets at December 31, 2015 is $4,713,000 (December 31, 2014 - $14,790,000). At December
31, 2015, the Company’s cash and cash equivalents, short-term investments and restricted cash were invested with three financial
institutions.



| | (e) | Liquidity risk
| | --- | --------------



Liquidity risk encompasses
the risk that the Company cannot meet its financial obligations as they fall due. The Company ensures that there is sufficient
capital in order to meet short-term business requirements. The Company’s policy is to invest cash at floating rates of interest,
while cash reserves are maintained in cash equivalents in order to maintain liquidity after taking into account the Company’s
holdings of cash equivalents, money market investments, marketable securities and receivables. As at December 31, 2015, the Company
had positive working capital of $2,482,000 (December 31, 2014 - $12,353,000). Additional financing will be required in the short
term to continue the development of the Prairie Creek Project and in the longer term to put the Prairie Creek Mine into production.
Accordingly, there is a risk that the Company may not be able to secure adequate funding on reasonable terms, or at all.



F-28









CANADIAN ZINC CORPORATION

Notes to the Consolidated Financial Statements

For the years ended December 31, 2015 and 2014

(Tabular amounts expressed in thousands of Canadian dollars,
except for shares, price per share and per share amounts)








| | 20. | Commitments
| | --- | -----------



The Company has entered into
certain operating lease agreements for office space and equipment. These agreements require the Company to make the following lease
payments:



|Year ending December 31, |  | Total |    
|------------------------ |  | ----- | ---
|2016                     |  | $     | 157
|2017                     |  |       | 89 
|2018                     |  |       | -  
|                         |  | $     | 246



During the year ended December
31, 2015, the Company recognized lease expense of $209,000 (2014 - $207,000 and 2013 - $209,000).



F-29















Management’s
Discussion and Analysis



For the year ended December 31, 2015



As of March
30, 2016











TABLE OF CONTENTS



|Preliminary Notes and Introduction                   | 1 
|---------------------------------------------------- | --
|                                                     |   
|Overview                                             | 3 
|                                                     |   
|Prairie Creek Project                                | 4 
|                                                     |   
|Newfoundland Properties                              | 10
|                                                     |   
|Marketable Securities – Vatukoula Gold Mines plc     | 12
|                                                     |   
|Metal Prices                                         | 12
|                                                     |   
|Outlook                                              | 15
|                                                     |   
|Selected Annual Financial Information                | 16
|                                                     |   
|Fourth Quarter                                       | 16
|                                                     |   
|Summary of Quarterly Results                         | 17
|                                                     |   
|Review of Financial Results                          | 17
|                                                     |   
|Liquidity, Financial Condition and Capital Resources | 18
|                                                     |   
|Financing - Use of Proceeds                          | 20
|                                                     |   
|Outstanding Share Data                               | 20
|                                                     |   
|Off-Balance Sheet Arrangements                       | 20
|                                                     |   
|Transactions Between Related Parties                 | 20
|                                                     |   
|Critical Accounting Estimates and Judgments          | 20
|                                                     |   
|Financial Instruments                                | 22
|                                                     |   
|Disclosure Controls and Procedures                   | 24
|                                                     |   
|Risk Factors                                         | 25
|                                                     |   
|Dividends and Distributions Policy                   | 36
|                                                     |   
|Additional Information                               | 37











Preliminary
Notes and Introduction



This Management’s Discussion and Analysis
(“MD&A”), dated March 30, 2016, focuses upon the activities, results of operations, liquidity, financial
condition and capital resources of Canadian Zinc Corporation (the “Company” or “Canadian Zinc”
or “CZN”) for the year ended December 31, 2015 compared to those of the previous year. In order to better understand
the MD&A, it should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto
for the years ended December 31, 2015 and 2014.



The Company’s audited consolidated financial
statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board. The Company reports its financial information in Canadian dollars and all monetary
amounts set forth herein are expressed in Canadian dollars unless specifically stated otherwise.



The Company is considered to be in the exploration
and development stage given that its exploration properties are not yet in production and, to date, have not earned any significant
revenues. The recoverability of amounts shown for exploration and evaluation assets on the Company’s balance sheet is dependent
on the existence of economically recoverable mineral reserves, obtaining and/or maintaining the necessary permits to operate a
mine, obtaining the financing to complete development and construction and future profitable mine production.



Cautionary Note Regarding Forward-Looking
Statements:This MD&A contains “forward-looking information” within the meaning of applicable Canadian
securities legislation and “forward-looking statements” with the meaning of the United States Private Securities Litigation
Reform Act of 1995 (collectively, “forward-looking statements”), such as estimates and statements that describe
the Company’s future plans, objectives or goals, including words to the effect that the Company or management expects a
stated condition or result to occur. Forward-looking statements in this MD&A include statements with respect to:



| | · | the
                                         Company’s planned/proposed Prairie Creek Mine operations, which includes future
                                         mine grades and recoveries;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the
                                         Company’s plans for further exploration at the Prairie Creek Mine and other exploration
                                         properties;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | future
                                         cost estimates pertaining to further development of the Prairie Creek Mine and items
                                         such as long-term environmental reclamation obligations;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | financings
                                         and the expected use of proceeds thereof;
| | - | ---------------------------------------------------------------------------------------------

| | · | the
                                         completion of financings and other transactions;
| | - | ---------------------------------------------------------------------------------------------

| | · | the
                                         outlook for future prices of zinc, lead and silver; and
| | - | ----------------------------------------------------------------------------------------------------

| | · | 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 which
could cause actual results or events to differ materially from those reflected in the forward-looking statements, including risks
relating to, among other things: mineral reserves, mineral resources (including with respect to the size, grade and recoverability
of mineral resources), results of exploration, reclamation and other post-closure costs, capital and construction costs, mine
production costs, the timing of exploration, development and mining activities, and the Company’s financial condition and
prospects not being consistent with the Company's expectations, changes in general economic conditions and conditions in the financial
markets; changes in demand and prices for the minerals the Company expects to produce; inability to obtain and/or maintain permits
or approvals; litigation; legislative, environmental and other judicial, regulatory, political and competitive developments in
areas in which the Company operates; technological and operational difficulties (including failure of plant, equipment or processes
to operate in accordance with specifications or expectations) encountered in connection with the Company’s activities; unavailability
of materials and equipment, and the sources of such items; labour relations matters, industrial disturbances or other job action;
inherent uncertainty of production and cost estimates and the potential for unexpected costs and expenses; changing interest and
foreign exchange rates; 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 and other matters discussed under “Risk
Factors”; “Liquidity, Financial Condition and Capital Resources”; and “Review of Financial Results”herein.





1







These forward-looking statements are based
on certain assumptions which the Company believes are reasonable, including that current zinc, lead, silver and other commodity
prices will be sustained, or will improve; the proposed development of the Company's mineral projects will be viable operationally
and economically and proceed as expected; any additional financing required by the Company will be available on reasonable terms;
that general business and economic conditions will not change in a materially adverse manner; that all necessary governmental
approvals for the planned exploration on the Prairie Creek Project will be maintained on acceptable terms; and the Company will
not experience any material accident, labour dispute or failure of plant or equipment.



The above 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.Readers should be aware that historical results are not necessarily indicative of future performance; actual results will
vary from estimates and variances may be significant.



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. The Company uses 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 the Company’s
Form 20-F which may be obtained from Canadian Zinc, or from the SEC’s website at www.sec.gov. “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.



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.



Additional information about the Company,
including the Company’s Annual Information Form, is available under the Company’s profile on SEDAR at www.sedar.comand on the Company’s website at www.canadianzinc.com. Information is also available through the EDGAR system
accessible through the United States Securities and Exchange Commission’s website www.sec.gov.



Qualified Person: Alan Taylor, P.Geo.,
Vice President of Exploration, Chief Operating Officer and Director of the Company, who is a Non-Independent Qualified Person
as defined in National Instrument 43-101 – Standards of Disclosure for Mineral Projects(“NI 43-101”),
has prepared, supervised the preparation of or reviewed, the parts of this MD&A that are of a scientific or technical nature.





2







Overview



Canadian Zinc Corporation currently exists
under the Business Corporations Act (British Columbia). The Company was incorporated in British Columbia, Canada, on December
16, 1965, under the Companies Act of 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 address of the Company’s registered
office is Suite 1710, 650 West Georgia Street, Vancouver, British Columbia, Canada, V6B 4N9. The Company’s common shares
are listed on the Toronto Stock Exchange under the symbol “CZN” and on the OTCQB tier of the OTC Link under the symbol
“CZICF”.



Prairie Creek Mine



The Company’s key project is the 100%-owned
Prairie Creek Mine, an advanced-staged, permitted, partially developed zinc-lead-silver property, located in the Northwest Territories,
Canada (the “Prairie Creek Property”, “Prairie Creek Project” or “Prairie Creek
Mine”).



The Prairie Creek Mine contains a NI 43-101
Measured and Indicated resource of 8.7 million tonnes grading 9.5% Zn; 8.9% Pb and 136 g/t Ag, together with an Inferred resource
of 7.0 million tonnes grading 11.3% Zn, 7.7% Pb, and 166 g/t Ag. These are combined zinc plus lead grades of approximately 19%,
which ranks Prairie Creek amongst the highest grade base metal deposits in the world.



The Prairie Creek Mine already has extensive
infrastructure in place including five kilometres of underground workings on three levels, a 1,000 ton per day mill, a fleet of
heavy duty and light duty surface vehicles, three surface exploration diamond drill rigs, camp accommodation, maintenance and
water treatment facilities and a 1,000 metre long gravel airstrip.



Over the past seven years Canadian Zinc has
successfully completed six environmental assessments and obtained all the significant regulatory permits and social licences required
to complete construction and development at the mine site and a winter access road to allow commencement of mining and milling
at Prairie Creek. An environmental assessment for the permit of an all season road into Prairie Creek is currently underway.



An updated 2016 Preliminary Feasibility Study,
based on optimization work completed over the past three years, including the 2015 underground exploration program at Prairie
Creek which increased total Measured and Indicated Resource tonnages by 32%, indicates a Base Case pre-tax Net Present Value (“NPV”)
of $509 million using an 8% discount rate, with an Internal Rate of Return (“IRR”) of 32% and a post-tax NPV
of $302 million, with a post-tax IRR of 26%.



The 2016 PFS indicates average annual production
of 60,000t of zinc concentrate and 55,000t of lead concentrate containing 86M lbs of zinc, 82M lbs of lead and 1.7M ounces of
silver, yielding average annual after tax earnings before interest taxes depreciation and amortization (“EBITDA”)
of $90M per year and cumulative EBITDA of $1.4 billion over the 17 year life of the Project.



During 2015 an underground exploration program
at Prairie Creek successfully increased resources with total Measured and Indicated Resource tonnages increased by 32% to 8.7
million tonnes at combined grade of approximately 19% Pb and Zn plus 136 g/t Ag, while total Inferred Resource tonnages remained
relatively unchanged. The 2016 PFS estimated a new mineral reserve of 7.6 million tonnes of Proven and Probable Reserves at a
combined grade of 17% Pb and Zn plus 128 g/t Ag, which represents a 46% increase in reserves compared to the previous 2012 PFS.



Canadian Zinc’s primary objective is
to bring the Prairie Creek Mine into production at the earliest opportunity and in pursuit of that objective to secure the necessary
financing to complete the development and construction of the Project.





3







Lead / Zinc Exploration in Central Newfoundland



Canadian Zinc owns an extensive mineral land
package in central Newfoundland covering three large Volcanogenic Massive Sulphide (“VMS”) projects with known
mineral deposits and excellent exploration potential, including the South Tally Pond Project, which hosts the Lemarchant deposit;
the Tulks South Project, which hosts the Boomerang and Domino deposits and the Hurricane and Tulks East prospects; and the Long
Lake Project.



The Company’s exploration strategy in
Newfoundland is to continue to build on its existing polymetallic resource base with the aim of developing either a stand-alone
mine, similar to the past-producing mine at Buchans or the Duck Pond mine, or a number of smaller deposits that could be developed
simultaneously and processed in a central milling facility.



Prairie Creek
Project



An updated Pre-Feasibility Study (“2016
PFS”), based on optimization work undertaken over the past three years, was completed in March 2016 and supersedes the
2012 Pre-Feasibility Study (“2012 PFS”) completed by SNC Lavalin. The 2016 Pre-Feasibility Study was completed
by AMC Mining Consultants (Canada) Ltd., and Tetratech Inc. A new Technical Report has been compiled to summarize the PFS and
supersedes the June 15, 2012 Technical Report (subsequently revised July 23, 2014 and filed on SEDAR).



Updated Preliminary Feasibility Study



The 2016 PFS update was undertaken to incorporate
the increased resources and longer mine life derived from the 2015 underground exploration program which increased total Measured
and Indicated Resource tonnages by 32%, incorporation of an all season road to access the mine, advanced engineering details and
updated capital and operating costs and to follow up on a number of other recommendations listed in the 2012 PFS.



The Company engaged AMC Mining Consultants
to complete the resource and reserve estimation, and produce a comprehensive underground mine plan and associated underground
capital and operating costs. Tetratech Inc. completed a comprehensive capital cost estimate for refurbishing the mill and associated
surface infrastructure.



The updated 2016 PFS is indicates a Base Case
pre-tax NPV of $509 million using an 8% discount rate, with an IRR of 32% and a post-tax NPV of $302 million, with a post-tax
IRR of 26%.



The pre-tax and post-tax net present values,
at 5% and 8% discount rates, and internal rates of return, are illustrated in the table below, all at a Canadian/US exchange rate
of 1.25:1 (except the Base Case which is also shown at an exchange rate of 1.375:1). The table also demonstrates the sensitivities
of the Prairie Creek Project to zinc, lead and silver prices and to the Canadian/US dollar exchange rate.





4







|Metal
    Prices |      |   | Pre-Tax       |  |       | Post-Tax        | 
|---------------- | ---- | - | ------------- |  | ----- | --------------- | 
|Zinc/Lead US$/lb |      |   | Silver US$/oz |  |       | Undiscounted $M | 
|                 | 0.80 |   |               |  | 17.00 |                 | 
|                 | 0.90 |   |               |  | 18.00 |                 | 
|                 | 1.00 |   |               |  | 19.00 |                 | 
|                 | 1.00 | 1 |               |  | 19.00 | 1               | 
|                 | 1.10 |   |               |  | 20.00 |                 | 
|                 | 1.20 |   |               |  | 21.00 |                 | 
|                 | 1.30 |   |               |  | 22.00 |                 | 



Note 1: Foreign Exchange assumed to be $1.375CAD:$1.00US on this
line only.



The 2016 PFS indicates average annual production
of approximately 60,000 tonnes of zinc concentrate and 55,000 tonnes of lead concentrate, containing approximately 86 million
pounds of zinc, 82 million pounds of lead and 1.7 million ounces of silver, and yielding average annual EBITDA of $90 million
per year and cumulative EBITDA earnings of $1.4 billion over an initial mine life of 17 years, using Base Case metal price forecasts
of US$1.00 per pound for both zinc and lead and US$19.00 per ounce for silver.



Pre-Production Capital Cost refers to capital
costs incurred until the first processing of mined ore, and has been estimated at a total of $216 million, excluding contingency,
and $244 million including a contingency of $28 million, excluding working capital. Working Capital has been estimated at $30
million, excluding contingency, and $36 million including a contingency of $6 million.



Sustaining Capital over the full life of the
mine has been estimated at $70 million, of which approximately 90% is incurred in the first five years, and relates largely to
ongoing mine development as the mine is expanded to deeper levels and to the remaining balance of capital lease payments. The
financial model indicates that the sustaining capital can be financed from operational cash flows.



Highlights of the 2016 Prairie Creek Prefeasibility
Study Update



(All costs are in Canadian dollars unless
indicated otherwise, t=tonne, M=million, g=gram, lb=pound, lbs=pounds, oz=ounces, tpd=tonnes per day, dmt=dry metric tonnes, LOM=life
of mine, CDN=Canadian, US=United States).



| | · | Post-tax
                                         Net Present Value, using an 8% discount, of $302M, with a post-tax internal rate of return
                                         of 26%, based on base case metal price forecasts of US$1.00/lb for both zinc and lead
                                         and US$19.00/oz silver, for the life of mine (“LOM”) production at
                                         an exchange rate of $1.25CDN:$1.00US.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Average
                                         EBITDA of $90M per year and cumulative EBITDA of $1,432M over the LOM.
| | - | -----------------------------------------------------------------------------------------------------------------------

| | · | 17
                                         year mine life based exclusively on a defined mineral reserve of 7.6 million tonnes,
                                         grading 8.9% zinc and 8.3% lead, with 128 g/t silver,including
                                         a defined Mineral Reserve in the Main Quartz Vein of 5.2 million tonnes, grading 9.4%
                                         zinc, 10.4% lead and 160 g/t silver.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Average
                                         annual production of 60,000 dmt of zinc concentrate and 55,000 dmt of lead concentrate
                                         containing 86M lbs of zinc, 82M lbs of lead and 1.7M ounces of silver.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Pre-production
                                         capital cost is estimated to be $216M of which $59M will be incurred in year 1 and $157M
                                         in year 2, with an additional contingency of $28M.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Average
                                         LOM cash operating costs per tonne of ore mined (before transportation costs) are estimated
                                         at $165/t.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





5







The 2016 PFS does not take into consideration
the Inferred Resources of 7.0 million tonnes of 11.3% zinc, 7.7% lead and 166 g/t silver, which is currently too speculative geologically
to have economic considerations applied to them, but could have the potential to more than double the presently considered mine
life. The Prairie Creek orebody continues open-ended at increasing depths to the north.



Recommendations for Optimization



A number of recommendations for further optimization
and potentially enhanced economics are identified in the 2016 PFS including:



| | · | Early
                                         completion of construction, engineering and mine development programs to reduce start-up
                                         times. This would include preliminary earthworks on water storage pond, waste rock pile,
                                         foundations, and upgrades of existing infrastructure in tandem with completing further
                                         engineering of new structures.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Further
                                         optimization of transportation scheme to reduce closure periods and maximize usage
| | - | -----------------------------------------------------------------------------------------------------------------------------------

| | · | Complete
                                         permitting of the all season access road.
| | - | -------------------------------------------------------------------------------------------

| | · | Additional
                                         mill studies to further optimize the mill circuit capacity to increase both ore throughput
                                         and metal recoveries since there is a high level of confidence that daily mine feed rate
                                         could be increased.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Further
                                         metallurgical tests to optimize process flowsheet, particularly reagent regimes.
| | - | ---------------------------------------------------------------------------------------------------------------------------------

| | · | Further
                                         study of on-site or off-site processes to reduce deleterious components of concentrate
                                         thereby reducing smelting penalties.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Studies
                                         to optimize the mine operation by automation and adoption of latest technology.
| | - | --------------------------------------------------------------------------------------------------------------------------------

| | · | Completion
                                         of detailed structural geology study to assist in ore control and better target future
                                         exploration.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Definition
                                         drilling to convert some of the existing Inferred Mineral Resources to Indicated or Measured
                                         category to increase LOM.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Additional
                                         underground paste backfill strength studies.
| | - | ------------------------------------------------------------------------------------------------

| | · | Additional
                                         hydrology studies to better design, size and cost water management facilities.
| | - | ----------------------------------------------------------------------------------------------------------------------------------

| | · | Utilizing
                                         LNG to partially replace use of diesel to power electrical generation, with the goal
                                         of reducing operating costs and further reducing potential environmental impact..
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2015 Underground Exploration Program



In 2015, Canadian Zinc completed its underground
exploration diamond drill program at the Prairie Creek Mine totaling 5,484 metres of diamond drill coring in 21 drill holes.



The results of the 2015 underground exploration
drilling program have been very positive, with all holes intercepting the MQV structure and/or Stockwork mineralization, with
some excellent grades and widths. The objectives of testing for new areas of mineralization in proximity to the existing underground
workings and increasing the projected life of the mine by converting part of the currently Inferred Resource to an Indicated category
have been met.



Assay results have now been received for all
drill holes and the detailed interpretation of the results and findings have been compiled and modelled. Some of the highlights
of the 2015 diamond drilling program include:



| | · | A
                                         previously unknown quartz vein fault structure was discovered in the footwall of the
                                         MQV. This second vein system has been intersected in five holes and appears to be defining
                                         a structural transition zone which offsets the general strike trend of the upper part
                                         of the MQV.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Hole
                                         PCU-15-65, first intersected the MQV grading 4.9% Pb, 22.7% Zn, and 164 g/t across 1.2m.
                                         It then intersected multiple intercepts of STK mineralization, one of which graded 24.7%
                                         Pb, 32.7% Zn, and 311 g/t Ag across 2.4m, and further down another graded 9.5% Pb, 38.1%
                                         Zn and 381 g/t Ag across 1.5m. That same hole intersected the new second quartz vein
                                         grading 4.6% Pb, 13.8% Zn, and 92 g/t Ag across 2.9m of estimated true width.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





6







| | · | Hole
                                         PCU-15-72, the most northern hole, returned substantial MQV mineralization including
                                         17.8% Pb, 33.7% Zn and 247 g/t Ag over 7.5m and an additional intersection of STK mineralization,
                                         which graded 6.9% Pb, 12.0% Zn, 116 g/t Ag over 24.5m of true width, and the intersection
                                         of the second vein which graded 5.6% Pb, 3.8% Zn and 88 g/t Ag over 4.5m.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Numerous
                                         holes intersected extensions to the previously known STK zone, which occurs mostly outside,
                                         but adjacent to, the calculated Indicated Resource. These intersections will add to the
                                         STK resource. The STK intercepted and sampled during this drill program has also indicated
                                         areas within this resource of significant grades and widths that could be targeted for
                                         early selective mining.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Detailed
                                         underground chip sampling of the Northwest Drift in the 870m Level workings returned
                                         composite grades of 5.6% Pb, 14.2% Zn and 119 g/t Ag across a true width of 4.4m along
                                         the strike length of 71.8m further demonstrating the potential for early, selective mining
                                         of the STK mineralization.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Mineralization
                                         remains open to the North into the already defined Inferred Resource.
| | - | -----------------------------------------------------------------------------------------------------------------------------



Results from the underground exploration program
were reported in the Company’s press releases dated May 5, 2015; June 9, 2015; June 23, 2015 and August 11, 2015.



The results of the 2015 underground exploration
drilling program were successful in meeting the objectives of locating new areas of mineralization in proximity to the existing
underground workings and increasing the projected life of the mine by converting part of the currently Inferred Resource to an
Indicated category.



Following completion of the 2015 underground
exploration program, a new mineral resource estimate was completed by AMC Mining Consultants in September 2015, which demonstrated
an increase in overall resource tonnages in the Indicated and the Inferred categories.



| | · | Total
                                         Measured and Indicated Resource tonnages increased by 32% to 8.7 million tonnes at combined
                                         grade of approximately 19% Pb and Zn plus 136 g/t Ag.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Total
                                         Inferred Resource tonnages remained relatively unchanged with an increase in Stockwork
                                         replacing upgraded Main Quartz Vein resource.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The most recent Mineral Resource estimate
was previously announced in a press release dated September 17, 2015. The Mineral Resource was estimated by AMC following completion
of the successful 2015 underground exploration program at Prairie Creek which increased total Measured and Indicated Resource
tonnages by 32%.



A single block model was created to encompass
the three mineral domains: Main Quartz Vein (“MQV”), Stockwork (“STK”) and Stratabound (“SMS”).
The summary results of the resource estimate for the three zones combined, at a cut off of 8% Zn equivalent (“ZnEq”),
are shown in the table below.





7







September
2015 Mineral Resource Prairie Creek Mine



|Mineral Zone           |  | Classification       |  | Tonnes (t) |           |  | Silver (g/t) |  |     | Lead (%) |  |  | Zinc (%) | 
|---------------------- |  | -------------------- |  | ---------- | --------- |  | ------------ |  | --- | -------- |  |  | -------- | 
|Main Quartz Vein (MQV) |  | Measured             |  |            | 1,313,000 |  |              |  | 211 |          |  |  | 11.5     | 
|                       |  | Indicated            |  |            | 4,227,000 |  |              |  | 168 |          |  |  | 11.6     | 
|                       |  | Measured & Indicated |  |            | 5,540,000 |  |              |  | 178 |          |  |  | 11.6     | 
|                       |  | Inferred             |  |            | 5,269,000 |  |              |  | 199 |          |  |  | 8.7      | 
|Stockwork (STK)        |  | Measured             |  |            | 169,000   |  |              |  | 116 |          |  |  | 5.3      | 
|                       |  | Indicated            |  |            | 1,953,000 |  |              |  | 61  |          |  |  | 3.5      | 
|                       |  | Measured & Indicated |  |            | 2,122,000 |  |              |  | 66  |          |  |  | 3.6      | 
|                       |  | Inferred             |  |            | 1,610,000 |  |              |  | 70  |          |  |  | 4.6      | 
|Stratabound (SMS)      |  | Indicated            |  |            | 1,042,000 |  |              |  | 54  |          |  |  | 5.2      | 
|                       |  | Measured & Indicated |  |            | 1,042,000 |  |              |  | 54  |          |  |  | 5.2      | 
|                       |  | Inferred             |  |            | 170,000   |  |              |  | 60  |          |  |  | 6.3      | 
|TOTAL                  |  | Measured             |  |            | 1,482,000 |  |              |  | 200 |          |  |  | 10.8     | 
|                       |  | Indicated            |  |            | 7,222,000 |  |              |  | 123 |          |  |  | 8.5      | 
|                       |  | Measured & Indicated |  |            | 8,704,000 |  |              |  | 136 |          |  |  | 8.9      | 
|                       |  | Inferred             |  |            | 7,050,000 |  |              |  | 166 |          |  |  | 7.7      | 



Notes: Mineral Resources are stated as of
10 September 2015. Mineral Resources include those Resources converted to Mineral Reserves. Stated at a cut-off grade of 8% ZnEq
based on prices of US$1.00/lb for both zinc and lead, and US$20/oz for silver. Average processing recovery factors of 78% for
Zn, 89% for Pb, and 93% for Ag. Average payables of 85% for Zn, 95% for Pb, and 81% for Ag. ZnEq% = (grade of Zn in %) + [(grade
of lead in % * price of lead in $/lb * 22.046 * recovery of lead in % * payable lead in %) + (grade of silver in g/t* (price of
silver in US$/Troy oz/ 31.10348) * recovery of silver in % * payable silver in %)] / (price of zinc in US$/lb*22.046 * recovery
of zinc in % * payable zinc in %). $ Exchange rate = 1 CAD/USD. The September 2015 Prairie Creek Mine Mineral Resource estimate
was completed by Gregory Z. Mosher, P.Geo, Qualified Person (“QP”), as defined by National Instrument 43-101 (“NI
43-101”) of AMC Mining Consultants (Canada) Ltd.



MOUs signed for Concentrate Production



As announced On March 3, 2016 Canadian Zinc
has signed agreements with Korea Zinc and Boliden for the sale of zinc and lead concentrates to be produced at Canadian Zinc’s
100% owned Prairie Creek Mine. These offtake arrangements with two of the pre-eminent smelting companies in the world, confirming
the marketability of Prairie Creek’s zinc and lead concentrates, represent a major step forward in the development of the
Prairie Creek Mine and move Canadian Zinc closer to production.



Canadian Zinc has entered into a Memorandum
of Understanding with Korea Zinc Co., Ltd (“Korea Zinc”) for the sale to Korea Zinc of approximately 20,000
to 30,000 wet metric tonnes of zinc sulphide concentrates, approximately 15,000 to 20,000 wet metric tonnes of lead sulphide concentrates
and approximately 5,000 tonnes of lead oxide concentrates, per year, for a minimum period of five years from the date of startup
of the Prairie Creek Mine, with exact annual quantiles to be mutually agreed.



Canadian Zinc has also entered into a Memorandum
of Understanding with Boliden Commercial AB, (“Boliden”) for the sale to Boliden of a minimum of 20,000 dry
metric tonnes and up to 40,000 dry metric tonnes of zinc sulphide concentrates, per year, for a minimum of five years from the
start of regular deliveries, with exact annual quantities to be mutually agreed.



The MOUs with each of Korea Zinc and Boliden
set out the intentions of Canadian Zinc and each of Korea Zinc and Boliden to enter into concentrate sales agreements for the
concentrates to be produced from the Prairie Creek Mine on the general terms set out in the MOUs, including commercial terms which
are to be kept confidential.





8







These sale agreements will represent all of
the planned production of zinc concentrate and about half of the planned production of lead concentrate for the first five years
of operation at the Prairie Creek Mine. It is expected that shipments will be made from the Port of Vancouver with the exact shipping
schedule and lot sizes in each delivery to be mutually agreed within the project’s shipping season.



The sales agreements will provide that treatment
charges will be set annually at the annual benchmark treatment charges and scales, as agreed between major smelters and major
miners. Payables, penalties and quotational periods will be negotiated in good faith annually during the fourth quarter of the
preceding year, including industry standard penalties for mercury contained in the zinc concentrate based on indicative terms
and agreed limits specified in each MOU.



Korea Zinc Co., Ltd. is a Korea-based world
class general non-ferrous metal smelting company principally engaged in the manufacture and marketing of non-ferrous metal products.



Korea Zinc owns and operates zinc smelters
in Korea and Australia and a lead smelter in Korea and its metal products consist of zinc products, including zinc slab ingots,
zinc alloy jumbo blocks, zinc anode ingots and zinc die-casting ingots and precious metal products, including gold and silver
products. Korea Zinc is leading the world resource market as the global number one in terms of zinc production and market share.



Boliden is a metals company with a commitment
to sustainable development. The roots are Nordic, but the business is global. The company’s core competence is within the
fields of exploration, mining, smelting and metals recycling. Boliden has a total of approximately 4,900 employees and a turnover
of SEK 40 billion. Its shares is listed on NASDAQ OMX Stockholm, segment Large Cap.



Boliden is one of the world’s biggest
zinc mining and smelting companies owning and operating zinc smelters in Norway and Finland and is Europe’s leading copper
and nickel company. Boliden is the world’s fifth largest zinc mining company and the sixth largest zinc smelting company.
Boliden is also the eleventh biggest lead mining company in the world and a medium-sized lead smelting company in terms of primary
lead.



In negotiating these arrangements for the
future sale of Prairie Creek concentrates, Canadian Zinc has secured the annual offtake and sale of a minimum of 40,000, and potentially
up to 70,000 metric tonnes, of zinc concentrates and 20,000 to 25,000 tonnes of lead concentrates, per year, and with the flexibility
for any remaining unallocated concentrate being available for third party or spot market sales.



Prairie Creek Permitting Update



The transportation plan utilized in the 2012
PFS envisaged the use of the access road from the mine site to the Liard Highway only in the winter months of each year, both
for the outbound transportation of concentrates and for the inbound transportation of equipment and supplies, including diesel
fuel. This winter road plan would necessitate a large investment in working capital to finance consumables and supplies and also
a large build up in concentrate inventory awaiting transportation and sale, and would also involve a major mobilization and logistical
exercise.



Over the past year, Canadian Zinc has been
working to identify optimum transportation routes and methods, along with the associated costs in pursuit of possible improved
economics and less risk. Consideration is now being given to the construction and use of an all season road which would enable
the transportation of both supplies and concentrates in smaller volumes spread throughout the year.



In April 2014, the Company submitted an application
to the Mackenzie Valley Land and Water Board and to Parks Canada for Land Use Permits to permit the possible future upgrade of
the current winter access road to all season use. The application is now undergoing environmental assessment before the Mackenzie
Valley Review Board (“MVRB”).





9







In April 2015, Canadian Zinc submitted its
Developer's Assessment Report (“DAR”) to the MVRB. The MVRB completed a preliminary review of the DAR in response
to which the Company provided supplementary information to the MVRB partly in the form of a comprehensive DAR Addendum, which
was submitted to the MVRB in September 2015 and followed by additional Terrain Analysis data which was submitted in November 2015.
The Review Board concluded that the environmental assessment could proceed on existing information but requested some additional
information which was subsequently submitted. In February 2016, the Company received Information requests from interested parties
which the Company is in the process of responding to. Once all responses to the information requests are submitted a Technical
Session will be scheduled and held in Yellowknife.



The all season road will reduce energy costs
and also enable the consideration of more environmentally friendly alternative energy sources. Local gas fields in the area may
be producing LNG in the near future, which may provide an opportunity to reduce reliance on diesel fuel. An all season road would
also have environmental and safety benefits, in that spreading out the trucking schedule over the full year would avoid high or
congested traffic in winter months, therefore lower the risk of any accidents or spills.



Incorporation of an all season road for future
operations has significant financial implications, both in additional capital cost but also in potential savings and lower finance
costs.



The Company anticipates the environmental
assessment process for this all season road application will take most of the year 2016 to complete.



In June 2015, the Mackenzie Valley Land and
Water Board approved the Company’s application that the Type “A” Water Licence be held in abeyance until more
certainty develops around the actual commencement of construction and the mine development schedule and also approved the Company’s
applications for amendments to the timing schedules of the various reclamation security deposits to be provided under the Water
Licence and the Land Use Permit. The Company, accordingly, deposited a total of $1.55 million as security with the Government
of the Northwest Territories in August of 2015 to increase the financial assurance relating to current reclamation and closure
obligations of the Prairie Creek Mine site as it now exists with its current infrastructure under the Company’s existing
surface leases, land use permits and Type “B” Water Licence.



In November 2015, Canadian Zinc and Parks
Canada signed a Memorandum of Understanding Phase III (“MOU”) regarding the operation and development of the
Prairie Creek Mine and the management of Nahanni National Park Reserve. The Phase III MOU, which is valid for five years from
November 2015, renews the previous MOUs signed between the Parties in 2008 and 2012.



In the renewed MOU, Parks Canada and Canadian
Zinc agree to work collaboratively, within their respective areas of responsibility, authority and jurisdiction, to achieve their
respective goals of managing Nahanni National Park Reserve and an operating Prairie Creek Mine.



In the renewed MOU, Canadian Zinc and Parks
Canada further agree to make every reasonable effort to address issues of common interest and build a strong working relationship,
including convening a Technical Team, which will, among other things, better identify, define and consider issues of common interest
including, among other things, development and use of the access to and from the Prairie Creek Mine through Nahanni National Park
Reserve and operation of the Prairie Creek Mine.



NEWFOUNDLAND PROPERTIES



Canadian Zinc owns an extensive land package
in central Newfoundland that includes three VMS projects, each with defined deposits, which are being explored by Canadian Zinc.
Key deposits on each project are listed below:





10







South Tally Pond Project
- Lemarchant deposit; Indicated Mineral Resource of 1.24 million tonnes grading 5.4% zinc, 0.5% copper, 1.2% lead, 1.0 g/t gold
and 59.27 g/t silver plus an additional Inferred Mineral Resource of 1.34 million tonnes grading 3.7% zinc, 0.4% copper, 0.9%
lead, 1.0 g/t gold and 50.4 g/t silver (Giroux Consultants 2012);



Tulks South Project - Boomerang-Domino
deposit: Indicated Mineral Resource of 1.36 million tonnes grading 7.1% zinc, 3.0% lead, 0.5% copper, 110 g/t silver and 1.7 g/t
gold plus an additional Inferred Mineral Resource of 0.69 million tonnes grading 6.5% zinc, 2.8% lead, 0.4% copper, 95 g/t silver
and 1.0 g/t gold (Snowden 2007); and the Tulks East deposit; and



Long Lake Project - Long
Lake deposit: Indicated Mineral Resource of 0.48 million tonnes grading 7.8% zinc, 1.6% lead, 0.97% copper, 49 g/t silver and
0.57 g/t gold plus an additional Inferred Mineral Resource of 78,000 tonnes grading 5.7% zinc, 1.2% lead, 0.7% copper, 34 g/t
silver and 0.48 g/t gold (SRK, 2012).



The Company’s exploration strategy in
Newfoundland is to continue to build on its existing polymetallic resource base with the aim of developing either a stand-alone
mine, similar to the past-producing mines at Buchans and Duck Pond, or a number of smaller deposits that could be developed simultaneously
and processed in a central milling facility.



On June 30, 2015, the Company entered into
a collaboration agreement with Buchans Minerals Corporation (“Buchans Minerals”), a wholly owned subsidiary
of Minco Plc (AIM: MIO), whereby the two Companies will share research data on their respective central Newfoundland Zn-Pb-Cu-Ag-Au
deposits. The collaboration agreement is focused on seven VMS deposits located in central Newfoundland. Four of the deposits are
held the Company (Lemarchant, Boomerang-Domino, Tulks East, and Long Lake) and three of the deposits are held by Buchans Minerals
(Bobbys Pond, Daniels Pond and Tulks Hill).



The seven deposits have demonstrated resources
of various sizes and quality, are all located near the communities of Millertown and Buchans, NL and within trucking distance
(30-90 km) of the recently closed Duck Pond Cu-Zn Mine. Individually at this time, the various deposits are not large enough to
support stand-alone operations, but could potentially be developed with improving economic factors and by utilizing a central
mill facility.



The intent and objective of the research is
to determine the technical and economic viability of developing the companies' deposits into producing operations by utilizing
a central milling facility. The concept is based on the potential that collectively, the satellite deposits can be economically
mined, pre-concentrated, trucked and then milled simultaneously or sequentially through a central mill.



In conjunction with the collaboration agreement,
the Company applied and was subsequently awarded research funding by the Research & Development Corporation of Newfoundland
and Labrador ("RDC") in December, 2015. The funding was provided to undertake a research program to complete
physical and metallurgical bench scale studies on the seven VMS deposits located in central Newfoundland. The RDC is providing
funding of $535,000 for the project through the GeoEXPLORE Industry-led R&D Technology Development and Demonstration Program.
The total cost of the research project is estimated at $735,000 with Buchans Minerals and the Company each contributing up to
$100,000



The bench scale testing program will be followed-up
by the development of a process simulation and cost assessment model to evaluate and identify the key factors controlling the
earning potential of a centralized milling concept for processing of the satellite base metal deposits. Results from the modelling
will be used to help optimize the exploration and development budgets, by focusing on the key factors that are critical to realizing
the economic potential of the base metal deposits in central Newfoundland.



Thibault & Associates Inc., an applied
process chemical engineering firm located in Fredericton, New Brunswick was awarded the contract to complete bench scale physical/metallurgical
studies and the process simulation and cost modelling.





11







Work completed on the RDC funded research
program to December 31, 2015 includes:



| | · | Diamond
                                         drilling was completed in December to obtain fresh metallurgical samples from four of
                                         the seven VMS deposits. These included Canadian Zinc’s Boomerang-Domino and Lemarchant
                                         deposits and Buchans Minerals’ Bobbys Pond and Daniels Pond deposits. The metallurgical
                                         samples and blending instructions were submitted to Thibault & Associates Inc. for
                                         mineralogical investigation, grindability characterization, acid generation assessment
                                         and bench scale flotation testing.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Twelve
                                         samples (5-10 kg each) were collected and submitted to Thibault & Associates Inc.
                                         in December for bench scale Dense Media Separation (“DMS”) testing. The DMS
                                         samples include four (4) samples from the Boomerang-Domino deposit, two (2) samples from
                                         the Lemarchant deposit, two (2) samples from the Bobbys Pond deposit and one (1) sample
                                         from each of the Tulks East, Long Lake, Tulks Hill and Daniels Pond deposits. The DMS
                                         testing is designed to assess the amenability of mineralized samples from the deposits
                                         to physical upgrading (pre-concentration) at each site as a potential means of reducing
                                         transportation costs from mine site to the milling facility and to maximize head grade
                                         to reduce processing costs.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Subsequent to December 31, 2015, the bench-scale
Dense Media Separation test program was completed in February, 2016. Highlights of the bench scale test results indicate five
(5) of the semi-massive sulphide samples (Long Lake, Domino, Bobbys Pond and Daniels Pond) and one (1) footwall stockwork mineralization
sample (Lemarchant) achieved a technically viable DMS separation with a pre-concentrate weighing 60-80% of the original sample
weight. The remaining six (6) pyritic massive sulphide and/or barite samples (Boomerang, Lemarchant, Tulks East, Tulks Hill) were
not considered technically amenable to upgrading by DMS.



The metallurgical test work including mineralogical
investigation, grindability characterization, acid generation assessment and bench scale flotation testing is in progress. The
program is scheduled to be completed by November 2016.



Marketable
Securities – Vatukoula Gold Mines plc



As at December 31, 2015, the Company held
12,573,380 shares of Vatukoula Gold Mines plc (“Vatukoula”), an unlisted company operating a gold mine in Fiji.
The estimated fair value of these shares was $936,000 based upon the offer by Zhongrun International Mining Co. Ltd. (“Zhongrun”),
the major shareholder of Vatukoula, to purchase all of the shares of Vatukoula that it did not already own through a matched bargain
trading facility. In January 2016, the Company sold all of the 12,573,380 shares of Vatukoula held by the Company to Zhongrun
through the matched bargain trading facility for cash of $936,000.



Metal Prices



Metal prices will play a very important part
in the Company’s ability to finance and develop the Prairie Creek Project.



The prices of lead, zinc and silver, expressed
in US dollars, were generally lower in 2015 than in 2014. Metal prices rose during the first half of the year, but declined later
in the year as economic indicators signaled lower growth rates in China.



The
US dollar strengthened significantly against most of the world’s currencies in 2015, largely due to the relatively stronger
performance by the US economy and expectations of US interest rate rises which resulted in declining local costs in producing
countries measured in US dollars.





12







Zinc



Zinc prices on the LME averaged US$0.87 per
pound for the year, down US$0.11, or 11%, per pound from the 2014 average on weak global demand for galvanized steel (which accounts
for more than half of end use zinc consumption) and strong refined production growth in China. The price of zinc rose during the
spring, reaching a high of just over US$2,400/tonne (US$1.09/lb), before falling again and by the end of the year had fallen back
to US$1,600/tonne (US$0.73/lb) despite falling London Metal Exchange (“LME”) stocks and announced production cuts.



Global mine production in 2015 grew by 3.2%
to 13.4 million tonnes of contained zinc, while global smelter production rose by 4.9% to 13.9 million tonnes.



Initial data compiled by the International
Lead and Zinc Study Group(“ILZSG”) for the year 2015 show that the global market for refined zinc metal recorded
a surplus during the first half of the year but was in deficit during the second half. Other sources reported that in 2015, global
refined zinc metal demand was 14.1 million tonnes, which was an increase of 1.5% over 2014 levels. Refined zinc metal demand in
China is estimated to have grown 3.7% in 2015 to 6.7 million tonnes corresponding to approximately 47% of global consumption.
Demand fell in the rest of the world by just over 1%.



The ILZSG is anticipating that global demand
for refined zinc metal will increase by 3.3% to 14.37 million tonnes in 2016. This growth will be primarily driven by rises in
China where usage is forecast to increase by 4.9% in 2016 mainly as a consequence of further rises in galvanised steel sheet output.



Wood Mackenzie believes that 2016’s
global zinc mine production will fall 2.1% over 2015 to 13.1 million tonnes. Mine production in the rest of the world is expected
to contract by about 8% in 2016 following the closure of the Century and Lisheen mines and the cutbacks by other operators including
Glencore which in October 2015 announced a reduction mine production by 500,000 tonnes. Despite some mine production increases,
closures of large long-life mines and production curtailments announced by major suppliers are expected to reduce annual global
mine production by more than 1.2 million tonnes of contained zinc in 2016.



Wood Mackenzie is also forecasting an increase
in global zinc refined metal demand in 2016 of 3.6% to 14.6 million tonnes, exceeding current estimates for global supply, keeping
the refined market in deficit and further reducing global stockpiles of zinc metal.



Metals
Bulletin Research has lowered their expectations for Chinese refined production of zinc for 2016, reflecting a greater reliance
on imported zinc concentrates following the drop in Chinese domestic mine output in 2015. Metals Bulletin suggests there will
be deeper annual supply deficits and expect a shortfall of 180,000 tonnes in 2016, which rises to 400,000 tonnes by 2018. The
main risk identified that could change this outlook is the uncertainty in the global economic recovery which could push the timing
of these forecast deficits further into the future.



Lead



The prices of lead on the LME averaged US$1783/t
(US$0.80/lb) during 2015, 14.9% lower than during 2014. Global demand for lead totaled 11.1 M tonnes, corresponding to an increase
during the year of just under 1%. There was a modest increase in demand for batteries, both for new vehicles and for the replacement
market. Lead demand in China remained virtually unchanged, year on year.



Preliminary data compiled by the ILZSG indicates
that in the global market for refined lead metal supply exceeded demand during 2015. A reduction in global lead mine production
of 12.1% was due mainly to a significant 25.2% fall in Chinese production. A slowdown in the production and sales of e-bikes,
which account for about a third of Chinese refined lead metal usage, is continuing to adversely affect demand in China. Chinese
imports of lead contained in lead concentrates in 2015 increased by 5.9% compared to 2014 to total a record 1.03 million tonnes.





13







The ILZSG is forecasting global demand for
refined lead metal to increase by 2.6% to 11.11 million tonnes in 2016 due to increased usage in the automotive and industrial
battery sectors.



Metals
Bulletin suggested that lead could become one of the leading metals in 2016 as supply fundamentals continue to tighten. Auto sales
in the three largest auto markets of the USA, China and Europe remain upbeat, but as lead prices increase, so too does the potential
for additional scrap lead to enter the supply chain.



Silver



Precious metal prices in 2015 were also generally
lower than in 2014, reflecting a stronger US dollar and expectations of continued low global rates of inflation. Silver prices
continued to fall in 2015, in line with investor sentiment for gold and weak industrial demand. The gold/silver price ratio ended
the year at 76 (compared with an average of 66 the past three decades).



Reduced
silver intensity in the electronic and photovoltaic sectors, combined with declining trends in photographic applications, contributed
to declining consumption. Mine supply of primary silver is down owing to reductions in Australia, but production continues to
expand elsewhere.



Longer Term Metal Price Outlook



With the Century mine in Australia and the
Lisheen mine in Ireland now closed, almost 1.5 billion lbs. of annual zinc production, representing almost 5% of global production,
has been removed from supply. Glencore has announced plans to cut zinc production by 500,000 tonnes, Nyrstar has announced plans
to sell all of that company’s mining assets which would cut its zinc concentrate production by 400,000 tonnes and a number
of Chinese smelters have announced agreed smelter output reductions. According to published reports, closures and reductions announced
since 2013 have removed, or potentially will remove, approximately 4.9 billion lbs. of annual zinc production, representing approximately
15% of the global supply and well above the most optimistic forecasts of foreseeable zinc mine additions.



CRU noted that closures, contractions and
cutbacks occurring outside of China are expected to lead to a loss in zinc production of approximately 1.6 million tonnes between
2015 and 2020. Additional closures are also expected in light of the decline in the zinc price, and given the current zinc price
and exchange rates; zinc production from Chinese mines is seen as being especially vulnerable. Taking into account only the anticipated
closures, total zinc stocks are expected to plummet, and given the expected modest growth in demand zinc supply, CRU expects the
zinc market to stay tight for the foreseeable future.



Wood Mackenzie is forecasting an increase
in global zinc refined metal demand in 2016, exceeding current estimates for global supply, keeping the refined market in deficit
and further reducing global stockpiles of zinc metal.



The ILZSG is forecasting global demand for
refined lead metal to increase due to increased usage in the automotive and industrial battery sectors and Metals Bulletin Research
suggested that lead could become one of the leading metals in 2016 as supply fundamentals continue to tighten.



The long term outlook for both lead and zinc
remains very positive and these fundamentals, with the continuing Canadian-US dollar exchange rate which improves metal prices
expressed in Canadian dollars, impact favorably on the Prairie Creek Project.



(Sources: Published information extracted
from: International Lead and Zinc Study Group; World Bank Group; CRU; Wood Mackenzie; Metals Bulletin Research; Boliden 2015 Annual
Report; Teck 2015 Annual Report)





14







OUTLOOK



Canadian Zinc’s focus for 2016 will
be to continue to advance the Prairie Creek Mine towards production.



The updated 2016 Pre-Feasibility Study indicates
a robust project at consensus forecasts for the long term prices of lead and zinc and there is good potential for additional project
optimization, enhanced economics and further extending the mine life.



The 2016 PFS, with the Base Case economic
model, indicates a Pre Tax Net Present Value, using an 8% discount of $509 million, with an internal rate of return of 32% and
Post-tax Net Present Value (“NPV”), using an 8% discount, of $302 million, and a post-tax internal rate of return
(“IRR”) of 26% with an initial mine life of 17 years and payback period of three years.



The development of the Prairie Creek Mine
will require substantial financing. The pre-production capital cost has been estimated at a total of $244 million including a
contingency of $28 million. Several commercial banks have expressed indicative interest in providing senior, secured project financing
for the Project. It is expected that the 2016 PFS, and the financial model, will be shared with select banks to solicit indicative
terms of financing. In parallel to bank financing, alternative funding structures will also be explored with royalty and streaming
finance providers, who have expressed an indicative interest to provide a structured funding package. These could include royalty
financing, stream financing, commodity related financing or other financing instruments.



At December 31, 2015, Canadian Zinc had working
capital of $2.48 million and expects it will be able to meet its minimum commitments for 2016. Canadian Zinc does not currently
generate any cash flow from its operations and will need to generate additional financial resources in the short term to fund
its corporate administration costs and working capital and to continue the development of the Prairie Creek Project and in the
longer term to put the Prairie Creek Mine into production. The ability of the Company to carry out its planned business objectives
is dependent on its ability to raise adequate financing from lenders, shareholders and other investors. There is a risk that additional
financing will not be available to the Company on a timely basis or on acceptable terms. These conditions indicate the existence
of material uncertainties which cast significant doubt about the Company’s ability to continue as a going concern. The Company
is currently evaluating various opportunities and seeking additional sources of financing. There is no assurance that such financing
will be available on a timely basis or on acceptable terms. Careful management and preservation of cash is a top priority. Site
programs have been reduced to a minimum. Cost reduction measures have been implemented across the Company, including reductions
in staff, corporate salaries and expenses and directors fees.



The long term outlook for lead and zinc remains
very positive and, supported by the results of the 2016 PFS, Canadian Zinc will continue to evaluate all alternatives and possibilities
for raising the senior financing necessary to complete the development and construction and put the Prairie Creek Mine into production.
However the ability to raise financing is impacted by conditions beyond the control of the Company, including depressed commodity
prices, continued uncertainty in the capital markets and the current lack of investor interest in the resource sector.





15







Selected Annual
Financial Information



The following summary financial information
has been derived from the consolidated financial statements of the Company.



|                                                  |  | Year ended December 31, |       
|------------------------------------------------- |  | ----------------------- | ------
|                                                  |  | 2015                    |       
|Statement of Comprehensive Loss                   |  |                         |       
|Comprehensive loss                                |  | $                       | (8,262
|Basic and diluted loss per share                  |  |                         | (0.04 
|                                                  |  |                         |       
|Statement of Financial Position                   |  |                         |       
|Cash, cash equivalents and short-term investments |  |                         | 1,702 
|Marketable securities                             |  |                         | 936   
|Total assets                                      |  |                         | 11,183
|Total liabilities                                 |  |                         | 2,276 
|Shareholders’ equity                              |  |                         | 8,907 



(thousands of Canadian dollars except per share
amounts)



The Company is at the exploration and evaluation
stage and does not generate revenue or cash flows from operations. There have been no distributions or cash dividends declared
or paid. The losses in all years represent exploration and evaluation expenditures incurred on the Company’s mineral properties
as well as losses on marketable securities.



Fourth Quarter



During the fourth quarter of 2015 the Company
incurred a loss of $49,000 (Q4 2014 - $3,677,000) mainly due to recording a gain on marketable securities and changes in the decommissioning
provision which were offset by ongoing exploration and evaluation expenses associated with the Prairie Creek Property. Exploration
and evaluation expenses incurred in the fourth quarter of 2015 amounted to $486,000 (Q4 2014 - $3,549,000) as the Company continued
engineering and mine planning activities associated with the updated preliminary feasibility study. In the fourth quarter of 2014,
the Company initiated an underground exploration program at the Prairie Creek Mine sites which was completed in July 2015. The
Company also incurred a gain on marketable securities of $486,000 during the fourth quarter of 2015 versus a loss of $76,000 in
the comparable period. The gain on changes in the decommissioning provision was $246,000 during the fourth quarter of 2015 compared
to no gain or loss in the fourth quarter of 2014.





16







Summary of
Quarterly Results



|(Unaudited)        |  |                   |    |  |          |   |        | Net Loss per                     | 
|------------------ |  | ----------------- | -- |  | -------- | - | ------ | -------------------------------- | 
|Quarter ended      |  | Investment Income |    |  | Net Loss |   |        | Common Share – basic and diluted | 
|December 31, 2015  |  | $                 | 7  |  |          | $ | (49    | )                                | 
|September 30, 2015 |  |                   | 20 |  |          |   | (1,778 | )                                | 
|June 30, 2015      |  |                   | 32 |  |          |   | (2,613 | )                                | 
|March 31, 2015     |  |                   | 48 |  |          |   | (3,822 | )                                | 
|December 31, 2014  |  |                   | 67 |  |          |   | (3,677 | )                                | 
|September 30, 2014 |  |                   | 38 |  |          |   | (3,659 | )                                | 
|June 30, 2014      |  |                   | 28 |  |          |   | (3,071 | )                                | 
|March 31, 2014     |  |                   | 36 |  |          |   | (2,027 | )                                | 



(prepared in accordance with IFRS; thousands
of Canadian dollars except per share amounts)



The Company completed equity financings in
the third quarter of 2014 which increased cash, cash equivalents and short-term investments and provided the Company with increased
investment income. Investment income decreased in all other periods as the Company funded its operating activities. In addition,
the rate of return for such investments has remained low for all eight quarters.



The net losses in all quarters were significantly
affected by the Company’s exploration and evaluation costs which, in accordance with the Company’s accounting policy,
are expensed as incurred. All quarters, except the fourth quarter of 2015 and the first quarter of 2014, were affected by a loss
in the fair market value of the Company’s marketable securities. The fourth quarter of 2015 was impacted by a gain on changes
in the decommissioning provision.



Review of
Financial Results



This review of the results of operations should
be read in conjunction with the audited consolidated financial statements of the Company for the years ended December 31, 2015
and 2014 and other public disclosure documents of the Company.



For the year ended December 31, 2015, the
Company reported a net loss and comprehensive loss of $8,262,000 compared to a net loss and comprehensive loss of $12,434,000
for the year ended December 31, 2014.



Included in the loss for the year ended December
31, 2015, were exploration and evaluation expenditures of $7,650,000 compared to $9,996,000 for the previous year. The net loss
in the year ended December 31, 2015 included a gain of $486,000 on the Company’s marketable securities compared to a loss
of $878,000 for the comparative year of 2014 and a gain on changes to the decommissioning provision of $246,000 compared to no
gain or loss in the comparative year of 2014. Excluding the gain or loss on marketable securities and the gain on changes to the
decommissioning provision, the Company recorded a loss of $8,994,000 for the year ended December 31, 2015 compared to a loss of
$11,556,000 the previous year.



Exploration and Evaluation Costs



For the year ended December 31, 2015, the
Company expensed $7,317,000 on its exploration and evaluation programs at Prairie Creek compared to $7,982,000 for the year ended
December 31, 2014. Diamond drilling costs for the Prairie Creek Project in the year ended December 31, 2015 amounted to $3,102,000
compared to $1,163,000 in the year ended December 31, 2014. While mine planning and feasibility studies costs amounted to $1,045,000
in 2015 compared to $3,301,000 for the previous year.





17







For the
year ended December 31, 2015, the Company also expensed $333,000 on its exploration and evaluation properties in central Newfoundland
compared to $2,014,000 for the comparative year. In the final quarter of 2015, the Company started a research program to complete
physical and metallurgical studies on the Company’s mineral deposits in Newfoundland. This program is being partially funded
by the Research & Development Corporation of Newfoundland and Labrador.



Revenue and Investment Income



The Company does not generate any cash flows
from operations. To date the Company has not earned any significant revenues other than interest and related investment income.
Investment income for the year ended December 31, 2015 was $107,000 versus $169,000 for the comparative year.



Administrative Expenses



The Company recorded administrative expenses
(excluding share-based compensation and depreciation) of $1,740,000 for the year ended December 31, 2015 compared to $2,226,000
for the comparative year with the reduction the result of cost saving measures implemented during the year.



Share-Based Compensation



Share-based compensation was $124,000 for
the year ended December 31, 2015 versus $23,000 for the comparative year. The increase is due to issuing 3,650,000 Restricted
Share Units to senior officers and 276,340 Deferred Share Units to directors both issued in conjunction with a reduction in the
cash component of compensation paid to such senior officers and directors.



Other Income (Expenses)



The Company reported a gain on marketable
securities of $486,000 for the year ended December 31, 2015 compared to loss of $878,000 for the year ended December 31, 2014.
The Company’s marketable securities were sold in January 2016 for proceeds equal to the carrying value as of December 31,
2015.



The Company also recorded a gain on the change
in the decommissioning provision of $246,000 for the current year with no comparable gain or loss in the previous year.



Liquidity,
Financial Condition and Capital Resources



At December 31, 2015, the Company had a positive
working capital balance of $2,482,000 including cash and cash equivalents of $1,674,000, short term investments of $28,000 and
marketable securities of $936,000. In January 2016, the Company’s marketable securities were liquidated for cash of $936,000.



The Company’s restricted cash, as at
December 31, 2015, increased to $2,075,000 from $525,000 at December 31, 2014 as the Company posted a security deposit in the
amount of $1,550,000 with the Government of the Northwest Territories as financial assurance in respect of existing reclamation
obligations at the Prairie Cree Mine site.



At December 31, 2014, the Company had cash
and cash equivalents of $8,792,000, short term investments of $5,023,000, marketable securities of $450,000, and a positive working
capital balance of $12,353,000.



There was no cash inflow from financing activities
for year ended December 31, 2015 versus $14,830,000 for the comparative year. During the comparable period 28,572,000 common shares
were issued at $0.35 per share and 15,134,000 flow-through shares at $0.38 per share for total net proceeds of $14,473,000. Additionally,
1,513,134 common shares were issued upon the exercise of employee stock options at exercise prices of $0.23 and $0.30 per common
share for total proceeds of $357,000.





18







At the end of August 2015, the Company posted
a security deposit in the amount of $1,550,000 with the Minister of Environment and Natural Resources of the Northwest Territories
as financial assurance in respect of existing reclamation obligations at the Prairie Creek Mine.



Accounts payable and accrued and other liabilities
at December 31, 2015 were $451,000 compared to $2,140,000 as at December 31, 2014. The Company has no long term debt.



The ability of the Company to carry out its
planned business objectives is dependent on its ability to raise adequate financing from lenders, shareholders and other investors.
Additional financing will be required in the short term to continue the development of the Prairie Creek Project and in the longer
term to put the Prairie Creek Mine into production. There is no assurance that such financing will be available on a timely basis
or on acceptable terms. If the Company is unable to obtain adequate additional financing, the Company will be required to curtail
operations, exploration and development activities. The Company is currently evaluating various opportunities and seeking additional
sources of financing. These conditions indicate the existence of material uncertainties which cast significant doubt about the
Company’s ability to continue as a going concern. This is discussed in more detail in the “Risk Factors” section
in this MD&A.



The following table reflects the Company’s
aggregate contractual commitments as of December 31, 2015:



|(thousands of Canadian dollars) |  | Payment due by period |      
|------------------------------- |  | --------------------- | -----
|Contractual Obligations         |  | Total                 |      
|Operating lease obligation (1)  |  | $                     | 246  
|Decommissioning provision (2)   |  |                       | 2,728
|Annual fees and taxes (3)       |  |                       | 750  
|Total Contractual Obligations   |  | $                     | 3,724



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

(2) The decommissioning liability
obligation represents undiscounted costs which are anticipated to be predominantly incurred at the end of the life of the Prairie
Creek Mine.

(3) Includes the annual fees related to the Company’s mining
leases, surface leases and mineral claims which total approximately $45,000 per annum and property taxes of approximately $30,000
per annum.





19







Financing
- Use of Proceeds



During 2014, the Company completed an equity
financing, which closed July 31, 2014, by way of a short form Prospectus dated July 23, 2014, raising gross proceeds of $15.8
million. The following table details how the net proceeds of the financing have been used up to December 31, 2015 compared to
the anticipated use of the net proceeds set out in the Prospectus, including additional net proceeds derived from the sale of
additional flow-through shares upon the exercise, in part, by the Underwriters of their over-allotment option.



|                                        |  | Net Use of Proceeds |       
|--------------------------------------- |  | ------------------- | ------
|                                        |  | Prospectus          |       
|Prairie Creek Mine Development Programs |  | $                   | 8,000 
|Exploration Programs                    |  |                     | 5,751 
|General and Administrative              |  |                     | 722   
|Total                                   |  | $                   | 14,473



(Unaudited, thousands of Canadian dollars)



Outstanding
Share Data



As at the date of this MD&A, the Company
has 218,047,709 common shares issued and outstanding. In addition, there are outstanding stock options, share units and warrants
for a further 673,800, 3,926,340 and 16,908,360 common shares respectively.



Off-Balance
Sheet Arrangements



The Company has no off-balance sheet arrangements
as at the date of this MD&A.



Transactions
Between Related Parties



During the year ended December 31, 2015, the
Company incurred rent expense in the amount of $24,000 (2014 - $24,000 and 2013 - $24,000) with a corporation in which the Chairman
of the Company is also a director. These transactions were within the normal course of business and have been recorded at amounts
agreed to by the transacting parties. At December 31, 2014, $2,000 was owed to related parties and was included in accounts payable
and accrued and other liabilities (December 31, 2015 - $nil).



During the year ended December 31, 2015, the
Company incurred short-term employee remuneration and benefits to officers and directors in the amount of $690,000 (2014 - $850,000
and 2013 - $1,278,000) and share-based compensation with officers and directors in the amount of $124,000 (2014 - $2,000 and 2013
- $13,000).



Critical Accounting
Estimates and Judgments



The preparation of consolidated financial
statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application
of policies and reported amounts of assets and liabilities, income and expenses. Management uses its best estimates for these
purposes, based on assumptions that it believes reflect the most probable set of economic conditions and planned courses of action.
Actual results may differ from these estimates. The critical accounting estimates used in determining the Company’s financial
results and position are listed below.





20







Decommissioning provision (environmental estimates)



The Company recognizes provisions for statutory,
contractual, constructive or legal obligations, including those associated with the reclamation of exploration and evaluation
assets and PPE, when those obligations result from the acquisition, construction, development or normal operation of the assets.
Initially, a decommissioning provision is recognized at its present value in the period in which it is incurred, which is generally
when an environmental disturbance occurs or a constructive obligation is determined. Upon initial recognition of the provision,
a corresponding amount is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic
life of the asset using the unit-of-production method. Subsequent to initial recognition the carrying value of the provision is
increased for the passage of time and adjusted for changes to the current market-based discount rate and the amount or timing
of the underlying cash flows needed to settle the obligation. This accretion expense is recognized in profit or loss as finance
costs. Changes to estimated future decommissioning costs are recognized in the consolidated statement of financial position by
either increasing or decreasing the decommissioning provision and the related asset.



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 decommissioning provision estimates
at the end of each reporting period to determine whether the estimates continue to be appropriate.



The Company’s undiscounted decommissioning
provision for the Prairie Creek site, as it currently exists, is $2,728,000 (December 31, 2014 - $3,142,000), being the estimated
future net cash outflows of the reclamation and closure costs, including a 25% contingency and inflation rate of 2% per annum,
required to satisfy the obligations, settlement of which will occur subsequent to closure of the mine through to 2035. The discounted
decommissioning provision is discounted using a risk free rate of 2.03% (December 31, 2014 – 2.22%).



Reclamation
and closure costs for the Prairie Creek Property have been estimated based on an Abandonment and Restoration Plan agreed to by
the Mackenzie Valley Land and Water Board and the Company based upon current obligations under existing surface leases, land use
permits and class “B” Water Licence for reclamation and closure of the Prairie Creek Mine site as it now exists with
the current infrastructure and assuming a mine life of 16 years. The Company will recognize an increased decommissioning liability
for additional reclamation and closure costs upon undertaking future development, construction and mining activities. The new
water licences and land use permits issued in 2013 together provide for the posting, in stages, of a total of approximately $20.4
million in respect of security deposits or financial assurance required to secure expected decommissioning liabilities.



Exploration and evaluation asset policy



Significant judgement must be exercised in
determining when a project of the Company moves from the exploration and evaluation phase and into the development phase. The
existence and extent of proven or probable mineral reserves; retention of regulatory permits and licences; the availability of
development financing; current and future metal prices; and market sentiment are all indications leading to the Company’s
project moving to the development phase. Exploration and evaluation costs are capitalized as deferred development expenditures
and included within exploration and evaluation assets upon a project moving to the development phase. There are currently no projects
that have moved to the development phase. The Company evaluates the status of each project at the end of each reporting period
to determine the current phase of each project and whether to subsequently capitalize applicable costs.



Impairment of long-lived assets



The carrying value of property, plant and
equipment at December 31, 2015 was $777,000 (December 31, 2014 - $782,000) and for exploration and evaluation assets was $5,398,000
(December 31, 2014 - $5,628,000).





21







The Company assesses at each date of the consolidated
statement of financial position the carrying amounts of non-financial assets to determine whether there is an indication that
those assets have suffered an impairment loss. If such an indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual
asset, the Company estimates the recoverable amount of the cash-generating unit to which the assets belong.



Recoverable amount is the greater of fair
value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments for the time value of money and risks specific
to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account, if available.
If no such transactions can be identified, an appropriate valuation model is used.



If the recoverable amount of an asset (or
cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit)
is reduced to its recoverable amount. An impairment loss is recognized immediately in the consolidated statement of comprehensive
income or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation
decrease.



Where an impairment loss subsequently reverses,
the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but
so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss
been recognized for the asset (or cash-generating unit) in prior years. A previously recognized impairment loss is reversed only
if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment
loss was recognized.



As at December 31, 2015, management carried
out an impairment assessment and determined that, notwithstanding the Company’s history of losses, and based upon best estimates
available, no impairment of the carrying value of exploration and evaluation assets was indicated.



In assessing the future estimated cash flows
management uses various estimates including, but not limited to estimated future operating and capital costs as well as future
commodity prices and estimates based upon indicated and inferred resources. By their very nature, there can be no assurance that
these estimates will actually be reflected in the future construction or operation of a mine. The ultimate recoverability of amounts
deferred for exploration and evaluation assets is dependent upon, amongst other things, obtaining the necessary financing to complete
the development of, and obtaining the necessary permits to operate, a mine.



Company acquisitions



Identifying a purchase transaction as being
a business combination or an asset purchase requires judgment regarding whether the set of assets acquired and liabilities assumed
constitutes a business based on the particular circumstances.



Financial
Instruments



Financial assets are initially recorded at
fair value and designated upon inception into one of the following four categories: held-to-maturity, available-for-sale, loans
and receivables or at fair value through profit or loss (“FVTPL”).



Financial assets classified as loans and receivables
are measured at amortized cost less impairment. The Company has classified its other receivables as loans and receivables.





22







Financial assets classified as FVTPL are measured
at fair value with unrealized gains and losses recognized through earnings. The Company has classified its cash and cash equivalents,
short-term investments, marketable securities and restricted cash as FVTPL. The Company designated its marketable securities as
FVTPL upon initial recognition in accordance with an investment strategy that management uses to evaluate performance on a fair
value basis.



Financial assets classified as held-to-maturity
are measured at amortized cost. The Company has no financial assets classified as held-to-maturity.



Financial assets classified as available-for-sale
are measured at fair value with unrealized gains and losses recognized in other comprehensive income (loss) except for losses
in value that are considered other than temporary. The Company has no financial assets classified as available-for-sale.



Transaction costs associated with FVTPL financial
assets are expensed as incurred, while transaction costs associated with all other financial assets are included in the initial
carrying amount of the asset.



Financial liabilities are initially recorded
at fair value and designated upon inception as FVTPL or classified as other financial liabilities.



Financial liabilities classified as other
financial liabilities are initially recognized at fair value less directly attributable transaction costs. Subsequently, they
are measured at amortized cost using the effective interest method. The Company has classified its accounts payable and accrued
liabilities as other financial liabilities.



Financial liabilities classified as FVTPL
include financial liabilities held-for-trading and financial liabilities designated upon initial recognition as FVTPL. Fair value
changes on financial liabilities classified as FVTPL are recognized through the consolidated statement of comprehensive income
or loss. The Company has no financial liabilities classified as FVTPL.



The following table reflects the Company’s
categories of financial instruments as at the specified date:



|                              |  |                             |  | December 31, 2015 |       |   | December 31, 2014 |  
|----------------------------- |  | --------------------------- |  | ----------------- | ----- | - | ----------------- | -
|Cash and cash equivalents     |  | FVTPL                       |  | $                 | 1,674 |   |                   | $
|Short-term investments        |  | FVTPL                       |  |                   | 28    |   |                   |  
|Marketable securities (1)     |  | FVTPL                       |  |                   | 936   |   |                   |  
|Other receivables             |  | Loans and receivables       |  |                   | 54    |   |                   |  
|Restricted cash               |  | FVTPL                       |  |                   | 2,075 |   |                   |  
|Accounts payable              |  | Other financial liabilities |  |                   | (298  | ) |                   |  
|Accrued and other liabilities |  | Other financial liabilities |  |                   | (153  | ) |                   |  



| | (1) | Classified under Level 3 fair value hierarchy
| | --- | ---------------------------------------------



In respect of financial assets, the Company’s
policy is to invest cash at floating rates of interest and cash reserves are to be maintained in cash equivalents in order to
maintain liquidity. Fluctuations in interest rates impact the value of cash equivalents. Included in the net loss for the year
ended December 31, 2015, is investment income on the Company’s cash and cash equivalents and short-term investments. As
at December 31, 2015, with other variables unchanged, 1% increase or decrease in the Prime rate would have resulted in a decrease
or increase, respectively, to net loss of approximately $71,000. The Company does not have any debt obligations which expose it
to interest rate risk.



Fluctuations in foreign currencies may impact
profitability of the Company and may also affect the value of the Company’s assets and the amount of shareholders’
equity. The Company held marketable securities denominated in U.K. pounds sterling. Based upon the marketable securities held
at December 31, 2015, and assuming no changes in number of shares or stock price, for every $0.01 fluctuation in exchange rate
between the Canadian dollar and U.K. pound sterling, the Company’s net income or loss would increase or decrease by $4,000,
respectively.





23







Credit risk is the risk that one party to
a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company does
not currently generate any revenues from sales to customers nor does it hold derivative type instruments that would require a
counterparty to fulfil a contractual obligation resulting in a credit risk. The Company has never held any asset-backed paper
instruments. The Company seeks to place its cash and cash equivalents, short-term investments and restricted cash with reputable
financial institutions.



The Company considers the following financial
assets to be exposed to credit risk: cash and cash equivalents, short-term investments, marketable securities and restricted cash.
The carrying value of these financial assets at December 31, 2015 is $4,713,000 (December 31, 2014 - $14,790,000). At December
31, 2015, the Company’s cash and cash equivalents, short-term investments and restricted cash were invested with three financial
institutions.



Liquidity risk encompasses the risk that the
Company cannot meet its financial obligations as they fall due. The Company ensures that there is sufficient capital in order
to meet short-term business requirements. The Company’s policy is to invest cash at floating rates of interest, while cash
reserves are maintained in cash equivalents in order to maintain liquidity after taking into account the Company’s holdings
of cash equivalents, money market investments, marketable securities and receivables. As at December 31, 2015, the Company had
positive working capital of $2,482,000 (December 31, 2014 - $12,353,000). Given positive working capital, the Company believes
it will be able to meet its current obligations. However, the Company will require significant additional funding in the future
in order to complete the development of the Prairie Creek Mine site and bring the mine into production. Accordingly, there is
a risk that the Company may not be able to secure adequate funding on reasonable terms, or at all, at that future date.



Disclosure
Controls and Procedures



The Company’s disclosure controls and
procedures are designed to provide reasonable assurance that material items requiring disclosure by the Company in its annual
filings, interim filings or other reports filed or submitted by it under securities legislations is recorded, processed, summarized
and reported within the time periods specified in the securities legislation and include controls and procedures designed to ensure
that information required to be disclosed by the Company in its annual filing, interim filings or other reports filed or submitted
under securities legislation is accumulated and communicated to the Company’s management, including its Chief Executive
Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding
required disclosure.



As required under National Instrument 52-109
and based on current securities legislation in Canada and the United States, the CEO and the CFO of the Company have evaluated
the design and effectiveness of the Company’s disclosure controls and procedures as of December 31, 2015, and have concluded
that such disclosure controls and procedures were operating effectively at that date.



It should be noted that, while the Company’s
CEO and CFO believe that the Company’s disclosure controls and procedures provide a reasonable level of assurance and that
they are effective, they do not expect that the disclosure controls and procedures can prevent all errors or mistakes. A control
system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met.



Management’s Report on Internal Control
over Financial Reporting



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





24







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



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



The CEO and the CFO have evaluated the design
and effectiveness of internal controls over financial reporting based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this evaluation,
as at December 31, 2015, the Company believes that its internal controls over financial reporting were designed and operating
effectively to provide reasonable, but not absolute, assurance that the objectives of the control system are met. There have been
no material changes to internal controls since the year ended December 31, 2015.



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



KPMG LLP, an independent registered public
accounting firm, has audited the Company’s consolidated financial statements for the year ended December 31, 2015, and expressed
an unqualified opinion thereon. KPMG LLP has also expressed an unqualified opinion on the Company’s internal control over
financial reporting as of December 31, 2015.



Risk Factors



In conducting its business, Canadian Zinc
faces a number of risks and uncertainties, many of which are beyond its ability to control or predict. Because of these risks
and uncertainties, actual results may differ materially from those expressed or implied by forward-looking statements, and investors
are cautioned not to place undue reliance on such statements, which speak only as of the date hereof. Investors are urged to review
the discussion of risk factors associated with the Company’s business as set out in the Company’s Annual Information
Form dated as of the date of this MD&A, as well as in the Company’s audited consolidated financial statements (under
the headings “Nature of Operations and Going Concern” and “Significant Accounting Policies” and elsewhere
within that document) for its most recently completed financial year, being the year ended December 31, 2015, and its other disclosure
documents, all as filed on the SEDAR website at www.sedar.com.





25







Additional risks and uncertainties not currently
known to the Company or that the Company currently deems to be immaterial may also impair the Company, and the Company's failure
to successfully address any such risks and uncertainties could have a material adverse effect on its business, financial condition
and/or results of operations, and the future trading price of its common shares may decline and investors may lose all or part
of their investment. The risk factors outlined in this section and elsewhere in this MD&A should be carefully considered by
investors when evaluating an investment in the Company.



The management of Canadian Zinc has sought
to manage risks within its control using several key components:



Corporate Values: Canadian Zinc promotes
its corporate values throughout the Company and has a written Code of Business Conduct and Ethics (the “Code”)
that is distributed to all employees and signed by them to acknowledge receipt and compliance with the Code. A copy of the Code
is available on the Company’s website and is also available at no charge upon written request.



Policies: Canadian Zinc maintains a
set of corporate policies designed to provide guidelines and determine authority levels for certain transactions.



Internal Reporting: Canadian Zinc holds
regularly scheduled board meetings and also provides reports, on a monthly basis, to the board of directors. The Company believes
that the frequency of regular reporting and meetings, supplemented by additional meetings as needed, provides for effective and
timely risk management and oversight.



Whistleblower System: Canadian Zinc
has a system in place, using a third-party independent service provider, where employees or other interested stakeholders may
report any potential ethical concerns. The reports can be made on a confidential basis and any concerns reported are received
by the Chairman of the Audit Committee. Should a matter be reported, the audit committee has been empowered to seek assistance
from any personnel it deems relevant and also external legal counsel. All employees receive a copy of the whistleblower policy
upon commencing employment with Canadian Zinc and are required to acknowledge receipt thereof.



Though the following are major risk factors
identified by management, they do not comprise a definitive list of all risk factors related to the Company’s business,
financial condition and/or operating results.



Permitting, Environmental and Other Regulatory Requirements



The operations of Canadian Zinc require licences
and permits from various governmental and regulatory authorities. Canadian Zinc holds all necessary licences and permits under
applicable laws and regulations for the operation of the Prairie Creek Mine. 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. There can be no guarantee Canadian Zinc will be able to maintain all necessary licences and permits
as are required to explore and develop its properties, including the Prairie Creek Property, commence construction or operation
of mining facilities or properties under exploration or development.



The Prairie Creek Project is located in an
environmentally sensitive and remote area in the Mackenzie Mountains of the Northwest Territories, within the watershed of the
South Nahanni River. The South Nahanni River is considered to be of global significance, is highly valued as a wilderness recreation
river and is a designated World Heritage Site. The South Nahanni River flows through the Nahanni National Park Reserve.





26







The Prairie Creek Property is encircled by
the Nahanni National Park Reserve; however, an area of approximately 300 square kilometres immediately surrounding the Prairie
Creek Mine is specifically excluded from the Park. In 2009 new legislation entitled “An Act to Amend the Canada National
Parks Act to enlarge Nahanni National Park Reserve of Canada” was enacted, which also authorized the Minister of Environment
to enter into leases, licences of occupation or easements over Nahanni Park lands for the purposes of a mining access road leading
to the Prairie Creek Mine area, including the sites of storage and other facilities connected with that road. The Company has
obtained permits from the Parks Canada Agency for the purposes of accessing the Prairie Creek Mine area. There can be no guarantee
Canadian Zinc will be able to maintain all necessary permits on acceptable terms.



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 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. United Nations proposals for a global treaty on mercury, intended to result in
reduced global emissions of mercury, may place restrictions on the production, use and international movement of mercury and mercury-containing
wastes which may, if adopted, result in restrictions on shipment of concentrates or other mineral products containing by-product
or trace mercury. There is no assurance that future changes in environmental laws or regulations, 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 the Prairie Creek Property, 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 Property 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 such provision is adequate to discharge its obligations for these costs. As environmental
protection laws and administrative policies change, Canadian Zinc will revise the estimate of its total obligations and may be
obliged to make further provisions or provide further security for mine reclamation costs. The ultimate amount of reclamation
to be incurred for existing and past mining interests is uncertain. Additional discussion on the impact of reclamation costs is
included in this MD&A in the section “Critical Accounting Estimates”.



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. The Company must obtain various regulatory approvals, permits and licences
relating to the Prairie Creek Property 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.





27







Failure to comply with applicable environmental
and health and safety laws can result in injunctions, damages, suspension or revocation of permits and imposition of penalties.
There can be no assurance that Canadian Zinc has been or will be at all times in complete compliance with all such laws, regulations
and permits, or that the costs of complying with current and future environmental and health and safety laws and permits will
not materially adversely affect Canadian Zinc’s business, results of operations or financial condition. Environmental hazards
may exist on the properties, including the Prairie Creek Property, 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 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 permits essential to operations are not obtained, or not obtained in a timely manner, or are
cancelled or revoked, there is a risk that the Company may not be able to operate a mine at the Prairie Creek Property.



Political and Legislative



Canadian Zinc conducts its operations in Canada
and specifically in the Northwest Territories and the province of Newfoundland and Labrador. The Mackenzie Valley in the Northwest
Territories of Canada is 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 mineral exploration, mine development,
and proposed mining, processing activities of Canadian Zinc, and the anticipated production, transportation and sale of mineral
concentrates are subject to extensive federal, territorial, international and local laws, regulations and treaties, including
various laws governing prospecting, development, production, transportation taxes, labour standards and occupational health, mine
safety, toxic substances including mercury, 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 laws, rules and regulations will not be
enacted or that existing laws, rules and regulations will not be applied in a manner which could limit or curtail exploration,
development, mining, processing, production and sale of concentrates. 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.





28







There was a major change to the legislative
and regulatory framework and regulations in the Mackenzie Valley between 1998 and 2000. 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 2007, the Federal Government announced the Northern Regulatory Improvement Initiative to improve
the current regulatory regime in the north of Canada and in May 2010 announced an Action Plan to improve northern regulatory regimes,
which anticipate changes to the current legislative framework and regulatory processes.



On April 1, 2014 The Northwest Territories
Devolution Act which provides for the devolution of lands and resource management from the Government of Canada to the Government
of the Northwest Territories (GNWT) came into force. Devolution in the Northwest Territories means the transfer of decision-making
and administration for land and resource management in the NWT from the Government of Canada to the Government of the Northwest
Territories. The Territorial government is now responsible for the management of onshore lands and the issuance of rights and
interests with respect to onshore minerals and oil and gas. The GNWT now has the power to collect and share in resource revenues
generated in the territory. The Northwest Territories Devolution Act includes certain amendments to the Mackenzie Valley
Resource Management Act, which impose additional regulations and obligations on mining operations in the Mackenzie Valley.



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



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.



Financing and Going Concern



The successful 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. Additional financing will be required in the short term to fund
its corporate administration costs and working capital and to continue the development of the Prairie Creek Project and in the
longer term to put the Prairie Creek Mine into production. 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.





29







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.



Canadian Zinc does not currently generate
any cash flow from its operations and will need to generate additional financial resources in the short term to fund its corporate
administration costs and working capital and to continue the development of the Prairie Creek Project and in the longer term to
put the Prairie Creek Mine into production. The ability of the Company to carry out its planned business objectives is dependent
on its ability to raise adequate financing from lenders, shareholders and other investors. There is a risk that additional financing
will not be available to the Company on a timely basis or on acceptable terms. The Company is currently evaluating various opportunities
and seeking additional sources of financing. There is no assurance that such financing will be available on a timely basis or
on acceptable terms.



There are no assurances that the Company will
continue to be able to obtain additional financial resources and/or achieve positive cash flows or profitability. Canadian Zinc
has a history of losses with no operating revenue other than minor interest income, and had working capital of $2,482,000 as at
December 31, 2015. The Company has not achieved profitable operations, has an accumulated deficit since inception and expects
to incur further losses in the development of its business. If the Company is unable to obtain adequate additional financing,
the Company will be required to curtail operations and its exploration and development activities. These conditions indicate the
existence of material uncertainties which cast significant doubt about the Company’s ability to continue as a going concern.
..Failure to continue as a going concern would require that the Company’s assets and liabilities be restated on a liquidation
basis which would differ significantly from the going concern basis.



The development of the Prairie Creek Mine
will require substantial additional financing. The 2016 Preliminary Feasibility Study estimated that the additional capital required
to install the planned new facilities and to bring the Prairie Creek Mine into production will aggregate $216 million, plus a
contingency of $27 million for a total of $243 million. Working capital required upon commencement of production is estimated
to be $30 million plus a contingency of $6 million for a total of $36 million.



Supported by the results of the 2016 Preliminary
Feasibility Study, Canadian Zinc will continue to evaluate all alternatives and possibilities for raising the financing necessary
to complete the development and construction and put the Prairie Creek Mine into production. However the ability to raise financing
is impacted by conditions beyond the control of the Company, including depressed commodity prices, continued uncertainty in the
capital markets and the current lack of investor interest in the resource sector. There are no assurances that the Company will
continue to be able to obtain such financing on a timely basis or on acceptable terms.



Metal Prices and Marketability of Minerals



The market price of metals and minerals is
volatile and cannot be controlled. Metal prices have fluctuated widely, particularly in recent years. If the price of metals and
minerals should drop significantly, the economic prospects for the Prairie Creek Project could be significantly reduced or rendered
uneconomic. There is no assurance that, a profitable market may exist for the sale of products, including concentrates from the
Prairie Creek Project. Factors beyond the control of the Company may affect the marketability of minerals or concentrates produced.
It is expected that the zinc concentrates to be produced from the Prairie Creek Mine will contain relatively high levels of mercury.
United Nations proposals for a global treaty on mercury, intended to result in reduced global emissions of mercury, may place
restrictions on the production, use and international movement of mercury and mercury-containing wastes which may, if adopted,
result in restrictions on shipment of concentrates or other mineral products containing by-product or trace mercury.





30







The marketability of minerals is affected
by numerous other factors beyond the control of the Company, including quality issues, impurities, deleterious elements, government
regulations, royalties, allowable production and regulations regarding the 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 and existing projects; reduce funds available for mineral exploration and may result in the
recording of a write-down of mining interests due to the determination that future cash flows would not be expected to recover
the carrying value.



Metal prices fluctuate widely and are affected
by numerous factors beyond Canadian Zinc’s control such as the sale or purchase of such commodities by various central banks
and financial institutions, interest rates, exchange rates, inflation or deflation, fluctuation in the value of the United States
dollar and foreign currencies, global and regional supply and demand, and the political and economic conditions of major mineral
and metal producing countries throughout the world.



Future production, if any, 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 may never commence commercial production and may lose its interest in, or may be forced
to sell, its properties.



The zinc concentrates to be produced from
the Prairie Creek Mine will contain, to varying degrees, relatively high levels of mercury. Canadian Zinc has signed MOUs with
Korea Zinc and Boliden for the sale of zinc concentrates. The MOUs set out the intentions of Canadian Zinc and each of Korea Zinc
and Boliden to enter into concentrate sales agreements for the concentrates to be produced from the Prairie Creek Mine on the
general terms set out in the MOUs, including commercial terms which are to be kept confidential. The sales agreements will provide
that treatment charges will be set annually at the annual benchmark treatment charges and scales, as agreed between major smelters
and major miners. Payables and penalties will be negotiated in good faith annually during the fourth quarter of the preceding
year, including industry standard penalties based on indicative terms and agreed limits specified in each MOU.



Treatment and refining charges, including
deductibles and penalties, vary with smelter location, and individual smelter terms and conditions. The economic model used in
the 2016 Preliminary Feasibility Studyhas been prepared assuming average blended indicative
treatment charges and penalties,however, no smelter or concentrate buyer has contractually committed
to the assumed treatment charges or penalties. There can be no assurance that the assumed terms will be available to the Company.





31







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.



Exploration and Evaluation



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.



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.



Uncertainty in the Estimation of Mineral Reserves and Mineral
Resources



The figures for Mineral Reserves and 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 Reserves and Mineral Resources can be
mined or processed profitably. There are numerous uncertainties inherent in estimating Mineral Reserves and Mineral Resources,
including many factors beyond Canadian Zinc’s control. Such estimation is a subjective process, and the accuracy of any
reserve and 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.





32







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 Reserves or Mineral Resources, or of Canadian
Zinc’s ability to extract these Mineral Reserves or 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 reserve or 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 Reserves
                                         or Mineral Resources uneconomic;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | • | The grade of 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 reserves or resources.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Any of these factors may require Canadian
Zinc to reduce its Mineral Reserve or Mineral Resources estimates.



Insurance and Uninsured Risks



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



Although Canadian Zinc maintains insurance
to protect against certain risks in such amounts as it considers 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.





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Title Matters



Mining leases and surface leases issued to
the Company by the 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.



Executives and Conflicts of Interest



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



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



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



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





34







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.



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.



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”),
which 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 is unable 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 inability
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 consolidated financial statements, which in turn could harm the Company’s business and negatively
impact the trading price of its common shares. In addition, any inability to implement required new or improved controls, or difficulties
encountered in their implementation, could impact the Company’s operating results or cause it to be unable 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.





35







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.



History of Losses and No Assurance of Profitable Operations



The Company has incurred losses since inception
of $109,515,000 through December 31, 2015, which includes $80,247,000 of exploration and development expenditures on the Prairie
Creek property and central Newfoundland properties which have been expensed in accordance with the Company’s accounting
policies. 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 evaluation programs and mine development activities as a result of insufficient cash resources.



Shareholder Dilution



As of December 31, 2015, there were 218,047,709
common shares outstanding. As of December 31, 2015, the Company had 973,800 share purchase options and 16,908,360 warrants outstanding
allowing the holders to purchase 17,882,160 common shares. Directors and officers of the Company hold 400,000 of these share purchase
options, contractors and employees of the Company hold 573,800 share purchase options and third-party entities hold 16,908,360
share purchase warrants. In addition, 3,926,340 share units are outstanding allowing the holders to receive an equal amount of
common shares upon payout. Directors and officers of the company hold 3,026,340 of these share units with the balance being held
by contractors and employees of the Company.



As of March 30, 2016, there were 218,047,709
common shares outstanding and the Company had 673,800 share purchase options and 16,908,360 warrants outstanding allowing the
holders to purchase 17,582,160 common shares. In addition, 3,926,340 share units are outstanding allowing the holders to receive
an equal amount of common shares upon payout. The exercise or payout of all of the existing share purchase options; share units
and warrants would result in percentage ownership dilution to the existing shareholders.



Potential Future Equity Financings



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



Dividends
and Distributions 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.





36







Additional
Information



Additional information relating to the Company,
including directors' and officers' remuneration and indebtedness, principal holders of the Company's securities, and securities
authorized for issuance under equity compensation plans, 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. Information
is also available through the EDGAR system accessible through the United States Securities and Exchange Commission’s website
www.sec.gov.



37











|Exhibit
    Number |  | Description of Document                                                                                                                              
|------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|1.1                |  | Notice of Articles (of Incorporation)(1)                                                                                                             
|1.2                |  | Articles (Bylaws)(2)                                                                                                                                 
|4.1                |  | Form of Option Commitment (Senior Officers) dated October 15, 2007 to acquire common shares
    under the Company’s Stock Option Plan.(3)            
|4.2                |  | Form of Option Commitment (Directors and Senior Officers) dated March 27, 2009 to acquire
    common shares under the Company’s Stock Option Plan.(4)
|4.3                |  | Employment Agreement between the Company and Alan Taylor dated January 1, 2010.(5)                                                                   
|4.4                |  | Employment Agreement between the Company and Trevor Cunningham dated January 17, 2011.
    (6)                                                       
|4.5                |  | 2012 Fixed Stock Option Plan. (7)                                                                                                                    
|4.6                |  | Deferred Share Unit Plan. (8)                                                                                                                        
|4.7                |  | Restricted Share Unit Plan. (9)                                                                                                                      
|4.8                |  | Warrant Indenture dated as July 31, 2014. (10)                                                                                                       
|4.9                |  | Base Metal and Precious Metal Net Smelter Returns Royalties Agreement dated May 31, 2013.
    (11)                                                   
|4.10               |  | Arrangement Agreement among the Company, Messina Minerals Inc. and 0980829 B.C. Ltd. Dated
    as of October 21, 2013. (12)                          
|4.11               |  | Underwriting Agreement dated July 15, 2014. (13)                                                                                                     
|4.12               |  | Prairie Creek Property Prefeasibility Update NI 43-101 Technical
                                    Report. (14)                                    
|12.1               |  | Certification of President pursuant to Rule 13a-14(a) under the Securities Exchange Act
    of 1934, as amended.                                     
|12.2               |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities
    Exchange Act of 1934, as amended.                       
|13.1               |  | Certification of President Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
    906 of the Sarbanes-Oxley Act of 2002.             
|13.2               |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
    Pursuant to 906 of the Sarbanes-Oxley Act of 2002.       



| | (1) | Previously filed as exhibit 1.A to the Company’s 20-F annual report filed on July 26, 2005.
| | --- | -------------------------------------------------------------------------------------------

| | (2) | Previously filed as exhibit 1.B to the Company’s 20-F annual report filed on July 26, 2005.
| | --- | -------------------------------------------------------------------------------------------

| | (3) | Previously filed as exhibit 4.5 to the Company’s 20-F annual report filed on April 11, 2008.
| | --- | --------------------------------------------------------------------------------------------

| | (4) | Previously filed as exhibit 4.6 to the Company’s 20-F annual report filed on May 27, 2009.
| | --- | ------------------------------------------------------------------------------------------

| | (5) | Previously filed as exhibit 4.7 to the Company’s 20-F annual report filed on May 13, 2010.
| | --- | ------------------------------------------------------------------------------------------

| | (6) | Previously filed as exhibit 4.8 to the Company’s 20-F annual report filed on May 2, 2011.
| | --- | -----------------------------------------------------------------------------------------

| | (7) | Previously filed as exhibit 4.5 to the Company’s 20-F annual report filed on April 30, 2015.
| | --- | --------------------------------------------------------------------------------------------

| | (8) | Previously filed as exhibit 4.6 to the Company’s 20-F annual report filed on April 30, 2015.
| | --- | --------------------------------------------------------------------------------------------

| | (9) | Previously filed as exhibit 4.7 to the Company’s 20-F annual report filed on April 30, 2015.
| | --- | --------------------------------------------------------------------------------------------

| | (10) | Previously filed as exhibit 4.8 to the Company’s 20-F annual report filed on April 30, 2015.
| | ---- | --------------------------------------------------------------------------------------------

| | (11) | Previously filed as exhibit 4.9 to the Company’s 20-F annual report filed on April 30, 2015.
| | ---- | --------------------------------------------------------------------------------------------

| | (12) | Previously filed as exhibit 4.10 to the Company’s 20-F annual report filed on April 30, 2015.
| | ---- | ---------------------------------------------------------------------------------------------

| | (13) | Previously filed as exhibit 4.11 to the Company’s 20-F annual report filed on April 30, 2015.
| | ---- | ---------------------------------------------------------------------------------------------

| | (14) | Filed on EDGAR May 12, 2016
| | ---- | ---------------------------



132







Signatures



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



Dated at Vancouver, British Columbia, this
24th day of May, 2016.



CANADIAN ZINC CORPORATION



“John F. Kearney”

Per: (signed) John F. Kearney

Title: President, Chief Executive Officer &
Director



133