UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**F
      O R M 2 0 - F**





£  REGISTRATION
      STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE


SECURITIES
      EXCHANGE ACT OF 1934





OR





T  ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
      ACT OF 1934


For
      the
      fiscal year ended  December 31, 2006





OR





£  TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
      ACT OF 1934


For
      the
      transition period from __________ to ______________





Commission
      file number  0-22216





**CANADIAN
      ZINC CORPORATION**


(Exact
      name of Company as specified in its charter)





Not
      applicable


(Translation
      of Company’s name into English)





Province
      of British Columbia, Canada


(Jurisdiction
      of incorporation or organization)





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


(Address
      of principal executive offices)





Securities
      to be registered pursuant to Section 12(b) of the Act:





Title
                of each class
            
            Name
                of each exchange on which registeredNone





Securities
      to be registered pursuant to Section 12(g) of the Act:





Common
                Shares without par value


(Title
      of
      Class)


Securities
      for which there is a reporting obligation pursuant to Section 15(d) of the
      Act:





None


(Title
      of
      Class)





Indicate
      the number of outstanding shares of each of the Company’s classes of capital or
      common stock as of the close of the period covered by the Annual
      Report:





107,590,212
                Common Shares as at December 31,
                2006





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





YesT
            No£





Indicate
      by check mark which financial statement item the Company has elected to
      follow:




Item
                17T
            Item
                18£





(APPLICABLE
      ONLY TO COMPANYS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PAST FIVE
      YEARS)





Indicate
      by check mark whether the Company has filed all documents and reports required
      to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934
      subsequent to the distribution of securities under a plan confirmed by a
      court.





Yes£
            No£
            Not
                ApplicableT





The
      information set forth in this Annual Report on Form 20-F is as at December
      31,
      2006 unless an earlier or later date is indicated.





Financial
      information is presented in accordance with accounting principles generally
      accepted in Canada. Significant measurement differences between accounting
      principles generally accepted in Canada and in the United States, as applicable
      to the Company, are set forth in Item 5 of this Annual Report and in Note 13
      to
      the accompanying Financial Statements of the Company.





**Statements
      in this Annual Report regarding expected completion dates of feasibility
      studies, anticipated commencement dates of mining or metal production
      operations, projected quantities of future metal production and anticipated
      production rates, operating efficiencies, costs and expenditures are
      forward-looking statements. Actual results could differ materially depending
      upon the availability of materials, equipment, required permits or approvals
      and
      financing, the occurrence of unusual weather or operating conditions, the
      accuracy of reserve estimates, lower than expected ore grades or the failure
      of
      equipment or processes to operate in accordance with specifications. See “Risk
      Factors” for other factors that may affect the Company’s future financial
      performance.**





i








**FORM
      20-F ANNUAL REPORT**


**FISCAL
      YEAR ENDED DECEMBER 31, 2006**


**TABLE
      OF CONTENTS**







**PART
                I.**ITEM
                1.
            IDENTITY
              OF DIRECTORS, SENIOR MANAGEMENT AND
              ADVISORS
            2ITEM
                2.
            OFFER
              STATISTICS AND EXPECTED TIMETABLE
            2ITEM
                3.
            KEY
              INFORMATION
            2ITEM
                4.
            INFORMATION
              ON THE COMPANY
            5ITEM
                5.
            OPERATING
              AND FINANCIAL REVIEW AND PROSPECTS
            22ITEM
                6.
            DIRECTORS,
                SENIOR MANAGEMENT AND
                EMPLOYEES
            29ITEM
                7.
            MAJOR
              SHAREHOLDER AND RELATED PARTY
              TRANSACTIONS
            31ITEM
                8.
            FINANCIAL
                INFORMATION
            32ITEM
                9.
            THE
              OFFER AND LISTING
            32ITEM
                10.
            ADDITIONAL
                INFORMATION
            32ITEM
                11.
            QUANTITATIVE
              AND QUALITATIVE DISCLOSURES ABOUT MARKET
              RISK
            39**PART
                II.**ITEM
                12.
            DESCRIPTION
                OF SECURITIES OTHER THAN EQUITY
                SECURITIES
            39ITEM
                13.
            DEFAULTS,
              DIVIDEND ARREARS AND
              DELINQUENCIES
            39ITEM
                14.
            MATERIAL
              MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
              AND USE OF PROCEEDS
            39ITEM
                15.
            CONTROLS
              AND PROCEDURES.
            39ITEM
                16.
            [RESERVED]
            40**PART
                III.**ITEM
                17.
            FINANCIAL
              STATEMENTS
            41ITEM
                18.
            FINANCIAL
              STATEMENTS
            42ITEM
                19.
            EXHIBITS
            42**SIGNATURES**
            
            42






1


**PART
      I**








**ITEM
      1.****IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS**





This
      Form
      20-F is being filed as an Annual Report under the Exchange Act and, as such,
      there is no requirement to provide any information under this item.





**ITEM
      2.****OFFER
      STATISTICS AND EXPECTED TIMETABLE**





This
      Form
      20-F is being filed as an Annual Report under the Exchange Act and, as such,
      there is no requirement to provide any information under this item.





**ITEM
      3.****KEY
      INFORMATION**





**A.** **Selected
      Financial Data**





The
      following selected financial data of the Company for 2006, 2005 2004, 2003
      and
      2002, expressed in accordance with United States generally accepted accounting
      principles (U.S. GAAP) are derived from the financial statements of the Company,
      which have been prepared in accordance with Canadian generally accepted
      accounting principles (Canadian GAAP), the application of which, in the case
      of
      the Company, conforms in all material respects for the periods presented with
      U.S. GAAP, except as referred to in Note 13 to the financial
      statements.





The
      selected financial data should be read in conjunction with the financial
      statements and other financial information included elsewhere in this Annual
      Report.








**Selected
      Financial Data**


**(CDN$
      in 000, except per share data)**


**Information
      in Accordance with U.S. GAAP**








Year
            Year
            Year
            Year
            YearEnded
            Ended
            Ended
            Ended
            EndedDec
                31/06
            Dec
                31/05
            Dec
                31/04
            Dec
                31/03
            Dec
                31/02Net
                income (loss)
            (9,615)
            (3,633)
            (3,038)
            (1,155)
            (1,296)Net
                income (loss) per Share
            (0.10)
            (0.05)
            (0.05)
            (0.03)
            (0.04)Wgt.
                Avg. No. Shares
            94,735
            71,378
            67,175
            39,889
            33,549Dividends
                Per Share
            0
            0
            0
            0
            0Working
                Capital
            29,142
            16,040
            12,758
            13,186
            (5)Prairie
                Creek Mine Prop.
            4,800
            4,723
            4,822
            3,470
            3,250Current
                Liability
            464
            48
            175
            209
            77Additional
                paid in capital
            66,492
            46,096
            39,375
            36,523
            22,011Shareholders'
                Equity
            30,353
            19,572
            16,485
            16,671
            3,383Total
                Assets
            34,862
            20,923
            17,888
            16,998
            3,460





2





The
      following selected financial data of the Company for 2006, 2005, 2004, 2003
      and
      2002, prepared in accordance with Canadian GAAP are derived from the financial
      statements of the Company, which have been prepared in accordance with Canadian
      GAAP.








**Selected
      Financial Data**


**(CDN$
      in 000, except per share data)**


**Information
      in Accordance with Canadian GAAP**





Year
            Year
            Year
            Year
            YearEnded
            Ended
            Ended
            Ended
            EndedDec
                31/06
            Dec
                31/05
            Dec
                31/04
            Dec
                31/03
            Dec
                31/02Net
                income (loss)
            (1,486)
            (1,967)
            (679)
            (905)
            (937)Net
                income (loss) Per Share
            (0.02)
            (0.03)
            (0.01)
            (0.02)
            (0.03)Wgt.
                Avg. No. Shares
            94,735
            71,378
            67,175
            39,889
            33,548Working
                Capital
            29,142
            16,040
            12,758
            13,130
            (6)Prairie
                Creek Mine Prop.
            26,700
            18,495
            16,928
            13,216
            12,746Current
                Liability
            464
            48
            175
            209
            77Shareholders'
                Equity
            53,784
            33,344
            28,591
            26,417
            12,879Total
                Assets
            56,762
            34,695
            29,994
            26,745
            12,956





In
      this
      Annual Report on Form 20-F, unless otherwise specified, all monetary amounts
      are
      expressed in Canadian dollars. On December 31, 2006 the exchange rate, based
      on
      the noon buying rate published by The Bank of Canada, for the conversion of
      Canadian dollars into United States dollars (the “Noon Rate of Exchange”) was
      1.17.





The
      following table sets out the high and low exchange rates for each of the last
      six months.






April
              March
              February
              January
              December
              NovemberHigh
                  for period
              1.16
              1.18
              1.18
              1.18
              1.38
              1.14Low
                  for period
              1.10
              1.15
              1.16
              1.16
              1.16
              1.13
  The
      following table sets out the average exchange rates for the five most recent
      financial years calculated by using the average of the Noon Rate of Exchange
      on
      the last day of each month during the period.








Year
                ended December 312006
            2005
            2004
            2003
            2002Average
                for the period
            1.13
            1.21
            1.30
            1.40
            1.57








**B.** **Capitalization
      and Indebtedness**





This
      Form
      20-F is being filed as an Annual Report under the Exchange Act and, as such,
      there is no requirement to provide any information under this item.





**C.** **Reasons
      For The Offer and Use of Proceeds**





This
      Form
      20-F is being filed as an Annual Report under the Exchange Act and, as such,
      there is no requirement to provide any information under this
      item.


3


**D.** **Risk
      Factors**





The
      following is a brief 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. A more detailed discussion is described in Section 3 of the
      Company’s Annual Information Form dated March 30, 2007 filed as Exhibit 15.A
      hereto and incorporated herein by reference.





**Political
      and Legislative**





Canadian
      Zinc conducts its operations in the Mackenzie Valley in the Northwest
      Territories of Canada in an area which is claimed by the Deh Cho First Nations
      as their traditional territory. No land claim settlement agreement has been
      reached between Canada and the Deh Cho and title to the land is in dispute.
      The
      Company’s operations are potentially subject to a number of political and
      legislative risks and the Company is not able to determine the impact of these
      risks on its business. The Company’s operations and exploration activities are
      subject to extensive federal, provincial, territorial and local laws and
      regulations. Such laws and regulations are subject to change and can become
      more
      stringent and costly over time.





In
      2000
      there was a major change to the legislative and regulatory framework and
      regulations in the Mackenzie Valley. There can be no assurance that these laws
      and regulations will not change in the future in a manner that could have an
      adverse effect on the Company’s activities and financial condition.





**Permitting
      and Environment**





The
      Prairie Creek Project is located in an environmentally sensitive remote area
      in
      the Mackenzie Mountains, within the watershed of the South Nahanni River and
      in
      proximity to, but outside, the Nahanni National Park Reserve. The Company is
      required to obtain various permits to carry on its activities and is subject
      to
      various reclamation and environmental conditions. Canadian Zinc does not have
      all of the permits necessary to operate the Prairie Creek Mine and there can
      be
      no assurance that it will be able to obtain those permits or obtain them within
      a reasonable time. The Company has experienced long delays in obtaining permits
      to date.





The
      Company anticipates continuing difficulties with its permitting activities
      and
      faces ongoing opposition and legal challenges from certain
      interests.





**Exploration
      and Development**





Exploration
      for minerals and development of mining operations involve many risks, many
      of
      which are outside the Company’s control. In addition to the normal and usual
      risks of exploration and mining, the Prairie Creek Property is situated in
      a
      remote location and does not have the benefit of major infrastructure or easy
      access.





In
      accordance with United States Standards of Disclosure for Mineral Projects
      the
      Prairie Creek Project would be regarded as being in the exploration stage and
      under United States Generally Accepted Accounting Principles Canadian Zinc
      would
      be regarded as an exploration stage enterprise. The Prairie Creek Project does
      not have proven or probable mineral reserves as such terms are recognized by
      the
      United States Securities and Exchange Commission (see Item 4.D Principal
      Property - Prairie Creek Property - Northwest Territories - Resource
      Estimation).





The
      Resource Estimation uses the terms “measured”, “indicated” and “inferred”
mineral resources. While such terms are recognized and required by Canadian
      regulations, the United States Securities and Exchange Commission does not
      recognize these terms. “Inferred mineral resources” have significant uncertainty
      as to their existence and as to their economic feasibility. There is significant
      risk that all or part of an inferred mineral resource may not exist or may
      not
      be economically mineable. It cannot be assumed that all or any part


4


of
      an
      inferred mineral resource would ever be upgraded to a higher category. It cannot
      be assumed that all or any part of measured or indicated resources will ever
      be
      converted into mineral reserves.





Under
      Canadian GAAP, the Company is considered to be a development stage enterprise
      as
      it is in the process of developing the Prairie Creek Project towards production.
      This development plan is based upon a Scoping Study prepared internally by
      the
      Company in 2001. A Scoping Study is not a Feasibility Study. The Scoping Study
      outlined the plan for the development of the Prairie Creek Project based on
      the
      historical development and existing infrastructure at the Prairie Creek Property
      and on the Resource Estimation. The Resource Estimation does not constitute
      mineable reserves. The historical development was carried out principally in
      1980 to 1982 and the infrastructure, including the mill, was constructed in
      the
      same period, based on a feasibility study prepared by Kilborn Engineering
      (Pacific) Limited in 1980. The Kilborn feasibility study is outdated and cannot
      be relied upon. The existing infrastructure, including the mill, buildings,
      camp
      etc. is now twenty-five years old and, although it has been held under care
      and
      maintenance, it has lain idle for twenty-five years and was never operated.
      There is significant risk attaching to the proposed operation of aged
      equipment.





**Metal
      Prices and Market Sentiment**





The
      prices of metals fluctuate widely and are affected by many factors outside
      the
      Company's control. The relative prices of metals and future expectations for
      such prices have a significant impact on the market sentiment for investment
      in
      mining and mineral exploration companies. Metal price fluctuations may be either
      exacerbated or mitigated by international currency fluctuations which affect
      the
      metal price received in terms of the domestic currency in which they are
      produced. The Company relies on equity financings for its working capital
      requirements and to fund its exploration, development and permitting activities.
      The Company does not have sufficient funds to put the Prairie Creek Property
      into production from its own financial resources. There is no assurance that
      such financing will be available to the Company, or that it will be available
      on
      acceptable terms.


**Enforcement
      of Foreign Judgments**





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.





**ITEM
      4.****INFORMATION
      ON THE COMPANY**





**A.** **History
      and Development of the Company**





Canadian
      Zinc Corporation (“the Company” or “CZN”) 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.





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





The
      authorized capital of the Company is an unlimited number of common shares
      without par value of which 107,590,212 shares were issued and outstanding as
      at
      December 31, 2006.





The
      Company is a public company listed on the Toronto Stock Exchange (“TSX”) under
      the symbol "CZN” and traded in the United States (Other OTC) by the National
      Association of Securities Dealers Quotation System


5


under
      the
      symbol “CZICF”. In April 2007 the Company’s shares were admitted for quotation
      on the OTC Bulletin Board under the symbol “OTCBB-CZICF”





The
      Company is engaged in the business of exploration and, when warranted,
      development of natural resource properties. The Company is exploring the Prairie
      Creek Property and adjacent ground (a zinc/lead/silver property) located
      approximately 500 kilometers west of Yellowknife in the Northwest Territories,
      Canada.





For
      the
      purposes of the United States regulatory requirements and United States
      Generally Accepted Accounting Principles the Company is considered to be an
      exploration stage enterprise.





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.
      (an unaffiliated third party). 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. (“Titan”) with a maximum payout of $8.2 million.





The
      purchase price for the mineral interests was $3,250,000 paid between 1993 and
      1995 in full, in cash and shares. The purchase price was allocated $2,750,000
      to
      the land and $500,000 to the plant and equipment.





In
      January 2004 the Company completed an agreement with Titan to purchase Titan's
      interest in the Prairie Creek Mine Property. Under the Agreement, the Company
      acquired the outstanding 40% interest in the physical plant and equipment
      at Prairie Creek, which it did not already own, and also repurchased the 2%
      net
      smelter royalty interest with a face value of $8.2 million. The consideration
      was the issue to Titan of 300,000 common shares and 250,000 share purchase
      warrants exercisable at $1.25 per share until June 22, 2005. The transaction
      simplified and consolidated the Company's 100% royalty free ownership interest
      of the Prairie Creek Property.


The
      Company relies on equity financings to fund its financial commitments. During
      2003, the Company completed a number of financings to fund its on going
      programs, resulting in a total of $15.6 million being raised. During 2004 the
      Company raised $2,444,625 through the exercise of share purchase warrants and
      employee stock options. During 2005 the Company raised $5,406,368 through the
      private placement of shares and the exercise of share purchase warrants. During
      2006 the Company raised $22,037,177 (net) through the private placement of
      shares and the exercise of share purchase warrants and employee stock
      options.





**B.** **Business
      Overview**





The
      Company’s principal focus is the exploration and development of the Prairie
      Creek mine, a large high-grade zinc/lead/silver property located in the
      Northwest Territories of Canada.





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. This permit expired in 1969 and 6,659 acres (210 claims)
      were selected by Cadillac and brought to lease.





During
      1966 to 1969, trenching was carried out on a number of zones and underground
      exploration commenced. 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.


6


In
      1980
      an independent feasibility study was completed by Kilborn Engineering (Pacific)
      Limited which resulted in a decision to put the property into production. In
      December 1980, Procan Exploration Company Ltd. ("Procan") (a company associated
      with Nelson and Bunker Hunt of Texas) agreed to provide financing for
      construction, mine development and working capital necessary to attain
      production based on the Kilborn feasibility study. Between 1980 and 1982,
      extensive mine development took place. Cadillac acquired a 1000-ton per day
      concentrator and transported it to the minesite. The mill was erected and a
      camp
      constructed. Two adits were established and extensive underground development
      took place. During this time the site was serviced by winter road and over
      500
      loads of supplies were transported to site. Construction activities continued
      until May 1982 and were almost complete when they were suspended due to lack
      of
      financing. Subsequently Cadillac went into bankruptcy in May 1983 and site
      maintenance and operations were taken over by Procan.





In
      1991,
      Nanisivik Mines Limited acquired the property through the bankruptcy
      proceedings. In August 1991, Nanisivik granted the Company an option to earn
      a
      60% interest in the property and in March 1993, the Company acquired a 100%
      interest in the Prairie Creek Property, subject to a 2% net smelter return
      royalty in favour of Titan Pacific Resources Ltd. In January 2004 the Company
      acquired Titan’s 2% royalty and consolidated the Company’s 100% royalty free
      ownership interest in the Prairie Creek Property.





Between
      1991 and 2000 the Company carried out various exploration programs on the
      Prairie Creek Property.





In
      January of 2001, the Company completed a Scoping Study designed to outline
      and
      guide the re-development of the existing mine and mill on the Prairie Creek
      Property. The preliminary study indicated the feasibility of a mining and
      milling operation on the site and identified a number of different development
      and production scenarios. The operation would utilize the existing mine and
      mill
      infrastructure put in place in 1982, but never operated. Indicated capital
      costs
      for the new operation were estimated in 2000 to be $40.5 million, including
      the
      construction of an all weather access road to the site. The Scoping Study has
      not been updated.





The
      Prairie Creek Project is located in an environmentally sensitive remote area
      in
      the Mackenzie Mountains, within the watershed of the South Nahanni River and
      in
      proximity to, but outside, the Nahanni National Park Reserve. The Company is
      required to obtain various permits to carry on its activities and is subject
      to
      various reclamation and environmental conditions. Canadian Zinc does not have
      all of the permits necessary to operate the Prairie Creek Mine and there can
      be
      no assurance that it will be able to obtain those permits or obtain them within
      a reasonable time. The Company has experienced long delays in obtaining permits
      to date. The Company anticipates continuing difficulties with its permitting
      activities and faces ongoing opposition and legal challenges from certain
      interests.





Throughout
      the years 2003 through 2006, the Company’s principal focus was its efforts to
      advance the Prairie Creek Project towards development, principally in the
      permitting process. In 2001 the Company applied for two surface exploration
      drilling permits, an underground exploration permit, a pilot plant metallurgical
      permit and a permit for use of part of the road from the Property. Following
      Environmental Assessment the two surface exploration land use permits were
      issued in 2001. The underground exploration and pilot plant permit applications
      were referred for Environmental Assessment which lasted throughout all of 2001,
      2002 and into June of 2003.





The
      improvement in metal prices during 2003, including in particular, zinc, lead
      and
      silver, enhanced the attractiveness of the Prairie Creek Project. With the
      general improvement in metal prices, and the investment market for resource
      companies, during the second half of 2003 the Company completed a number of
      financings to fund the ongoing permitting, exploration and development of the
      Prairie Creek Property.





In
      September 2003, a Land Use Permit and Water Licence for underground exploration
      and development and for metallurgical testing in a pilot plant were issued
      to
      the Company by the Mackenzie Valley Land and Water Board. An appeal to the
      Federal Court seeking judicial review of the decision of the Water Board to
      issue the Water Licence was filed in October 2003 by the Deh Cho First Nations
      and heard by the Court in August 2005.


7


In
      December 2005 the Court issued its Judgment directing the Water Board to reissue
      the Licence containing modified language which had been agreed between the
      Company and the Minister of Indian and Northern Affairs Canada. The Licence
      was
      reissued by the Board in February 2006.





In
      2003
      the Company submitted a separate application for a Land Use Permit for use
      of
      the existing road from the Liard Highway to the mine site and claimed legal
      exemption from the Environmental Assessment process. The claim for exemption
      was
      denied by the Water Board and the Company filed an appeal to the Supreme Court
      of the Northwest Territories. That Appeal was heard by the Court in December
      2004 and in May 2005 the Court issued its Judgment ruling that the proposed
      development is exempt under the Act from Environmental Assessment. The Land
      Use
      Permit was issued in April 2007 and is valid for a period of five years to
      April
      10, 2012.





In
      the
      spring of 2004 the Company applied to the Mackenzie Valley Land and Water Board
      for an amendment to expand the area of the existing surface exploration Land
      Use
      Permit. The application was referred for Environmental Assessment and this
      assessment was conducted by the Mackenzie Valley Impact Review Board throughout
      2005, culminating in a decision dated December 20, 2005 in which the Review
      Board recommended to the Minister of Indian Affairs and Northern Development
      that the development proceed to the regulatory phase of approvals. On February
      3, 2006 the Minister accepted the recommendations of the Review Board and the
      application was referred back to the Water Board to finalize the terms and
      conditions of the permit. The Land Use Permit was issued by the Board in May
      2006, is valid for a period of five years and permits the Company to conduct
      exploration, including drilling, anywhere on the Prairie Creek
      Property.





During
      2005 the Company carried out an extensive program of site rehabilitation and
      maintenance including design of a new water treatment plant, upgrade of fuel
      facilities and the construction of a new water polishing pond. **





During
      2006 the Company undertook a major underground exploration and development
      program driving a new decline about 400 meters within the underground mine,
      from
      which a detailed underground drilling program was initiated. A surface
      exploration program was carried out on Zone 5 about five kilometers south of
      the
      minesite.




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





The
      Company continues to search for projects of merit and has examined a number
      of
      opportunities during the year, none of which have come to fruition at this
      time.
      The Company will scrutinize all new projects and carry out a thorough
      investigation of each property, before committing the Company’s capital and
      resources on any project.





**C.** **Organizational
      Structure**





The
      Company has no subsidiaries and, to the best of its knowledge, no shareholders
      holding more than 10% of its issued and outstanding shares.





**D.** **Property,
      Plant and Equipment**





The
      properties of the Company are in the exploration and development stage only.
      The
      Company has no producing properties and has not had any revenue from mining
      since incorporation. The
      existing infrastructure, including the mill, buildings, camp etc. is now
      twenty-five years old and, although it has been held under care and maintenance,
      it has lain idle for twenty-five years and was never operated.


8





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





The
      Prairie Creek Property consists of a 100% interest in the mining leases, surface
      leases and staked mineral claims described below .





**1.**
            **Land
                Tenure**





The
      Prairie Creek Property is comprised of **:**





·
            **Mining
                Leases**Numbers 2854, 2931, 2932, 2933, 3313, 3314, 3315, and 3338; (8,749.4
                acres, expiring from July 13, 2010 to August 5, 2020).




·
            **Surface
                Leases**Numbers 95 F/10-5-5 and 95 F/10-7-4; (325.81 acres). The Surface
                Leases
                are held from the Department of Indian Affairs and Northern Development
                and expire March 31, 2012.




·
            **Mineral
                Claims:**Four additional mineral claims, referred to as the Gate Claims, were
                staked in 1999 in the vicinity of the Prairie Creek Property. These
                claims
                consist of the Gate 1-4 Claims covering an area of 9,245.35 hectares.
                Sufficient assessment work has been filed on these claims to hold
                them in
                good standing until July 19, 2007. Six additional mineral claims
                Way 1-6
                covering an area of 10,196.18 acres were staked in 2006 adjacent
                to
                existing mining leases or mineral claims to enlarge the size of the
                Prairie Creek property and are in good standing until November 11,
                2008.




All
      of
      the above leases and claims are in good standing at the date
      hereof.




The
      Prairie Creek Mine is located on land claimed by the Nahanni Butte Dene Band
      of
      the Deh Cho First Nations (“DCFN”) as their traditional territory. The DCFN are
      engaged in ongoing land settlement negotiations with the Government of Canada
      and the Government of the Northwest Territories in what is referred to as the
      Deh Cho Process. [Refer to Section D.10 on First Nations below].





In
      July
      2003, as part of the Interim Measures Agreement between Canada and the DCFN
      as
      part of the Deh Cho Process, Canada made an interim withdrawal of certain lands
      for a period of five years. Part of the lands withdrawn under the interim
      withdrawal order include the area represented by the Company’s Mining Lease No.
      2854, a portion of Mining Leases No. 2931, 3314 and 3313 and part of the area
      over which the road that connects the Property to the highway passes. In
      accordance with Sections 19 and 23 of the Interim Measures Agreement such
      withdrawal is subject to the continuing exercise of existing rights, titles,
      interests, entitlements, licences, permits, reservations, benefits and
      privileges and does not affect access to or across withdrawn land





**2.**  **Location,
      Access and Climate**





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









Year
      round access to the Property is provided by aircraft to a 3000-foot gravel
      airstrip immediately adjacent to the camp. The Prairie Creek Property was also
      accessible by road which extends from the Property to the Liard Highway, a
      distance of 170 kilometers and which was originally permitted for use in the
      winter months throughout its full length and for year round use for the first
      40
      kilometers out from the mine site. In April 2007 the Company received a five
      year permit to use the road in the winter months. The road needs to be
      re-established. The Liard Highway is the major north-south transportation route,
      which connects Fort Nelson, British Columbia to Fort Simpson, Northwest
      Territories.





The
      climate is sub-Arctic, being characterized by long cold winters with pleasant
      summers. Snowfall is moderate and only minor difficulty has been experienced
      in
      operating throughout the winter months.





**3.**
            **Property
                Geological Summary**





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





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





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





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





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





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





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





**4.**
            **Geological
                Setting**





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





Structurally
      the prevalent orientation of faulting and folding is north-south. Faults and
      fold axial planes dip both east and west. A number of north trending thrust
      faults cut through the region. The east dipping Tundra Thrust Fault and, 30
      kilometers to the west, the west dipping Arnica Thrust Fault define the present
      margins of the Prairie Creek paleobasin, which accumulated a thick Devonian
      sequence of sediments (including the Cadillac and Funeral Formations). The
      two
      principal styles of base metal sulphide mineralization occur within the Prairie
      Creek basinal feature in the Ordovician-Silurian Whittaker and Road River
      Formations.





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


9


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





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





***Property
      Base Metal*** ***Mineralization***





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





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





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





***Vein
      Sulphides***





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





The
      Vein
      in Zone 3 strikes approximately north and dips steeply to the east (variable
      from -40 ° E
      to
      -90 ° and
      averages -65 ° E).
      Most
      of the surface mineralized zones at Prairie Creek occur within Road River
      Formation shales. These showings generally occur close to the axial plane of
      a
      tight north-south doubly plunging anticline. Mineralization comprises massive
      to
      disseminated galena, sphalerite, with lesser pyrite, and tennantite-tetrahedrite
      in a quartz-carbonate-dolomite matrix. Silver is present in equal amounts both
      in galena and tennantite-tetrahedrite. Vein widths are variable (from <0.1m
      to >5m) but overall averages indicate a horizontal thickness of approximately
      2.7 meters. The most extensive known Vein occurrence is in Zone 3 where
      underground development has proven 940 meters of strike length and diamond
      drilling has indicated a continuance of the Vein for a further 1.2 kilometers.
      The Vein remains open to the north and is expected to continue at depth for
      a
      further 4 kilometers. Evidence of the Vein continuing is the vein mineralization
      occurrence at the Rico Showing on surface 4 kilometers north on strike of the
      vein in Zone 3. In Zone 3, the Vein appears to be a tensional fault feature
      co-planar to a tight North-South trending fold axis.


10


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





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





***Stratabound
      Sulphides***





Stratabound
      mineralization was discovered in 1992 while drilling to extend Vein resources
      at
      depth. So far indications of Stratabound mineralization have been found by
      drilling along the trend of the Prairie Creek Vein System over a strike length
      of more than 3 kilometers. This type of deposit has so far been located by
      drill
      holes in Zones 3, 4, 5 and 6. Stratabound massive sulphides occur largely within
      a mottled dolostone unit of the Whittaker Formation close to both the Vein
      system and the axis of the Prairie Creek anticline. With additional drill hole
      information on the structural and stratigraphic setting of the deposit it was
      proposed that a model along the lines of some of the Irish carbonate hosted
      lead/zinc deposits (i.e., Lisheen, Galmoy and Silvermines) may be the most
      appropriate analogy for the Prairie Creek Stratabound deposit.





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





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





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





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





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





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


11


**5.**  **Gate
      Claims** ****





During
      1999 the Gate 1-4 Mineral Claims were staked covering an area of 9,245.35 acres
      to the west of the main property adjacent to the existing land holdings. A
      small
      exploration program on the newly staked mineral claims consisted of geological
      mapping, soil and rock sampling over areas that contain similar geology with
      that of the Prairie Creek Property. This exploration resulted in the discovery
      of a Vein in outcrop, with select samples grading similar with that of the
      main
      established Vein at the Prairie Creek Property. Also a large zinc soil anomaly
      was located over favourable geology.





**6.**  **Resource
      Estimation**





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





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





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





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





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





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





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





12


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





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





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





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





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





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





13


**Cautionary
      Note to United States Investors Concerning Estimates of Measured, Indicated
      or
      Inferred Resources:**





**The
      information presented herein uses the terms “measured”, “indicated” and
“inferred” mineral resources. United States investors are advised that while
      such terms are recognized and required by Canadian regulations, the United
      States Securities and Exchange Commission does not recognize these terms.
“Inferred mineral resources” have significant uncertainty as to their existence,
      and as to their economic feasibility. United States investors are cautioned
      not
      to assume that all or any part of an inferred mineral resource exists or is
      economically mineable. It cannot be assumed that all or any part of an inferred
      mineral resource would ever be upgraded to a higher category. United States
      investors are cautioned not to assume that all or any part of measured or
      indicated mineral resources will ever be converted into mineral reserves.**





**7.**  **Scoping
      Study**





In
      2000/2001, the Company completed a preliminary Scoping Study designed to outline
      and guide the re-development of the existing mine and mill on the Prairie Creek
      Property.





The
      Study
      took six months to complete and included metallurgical testwork, mill re-design,
      alternative mining methods, inclusion of paste backfill in the mine design,
      capital and operating cost estimates, a review of smelter terms and conditions
      for the Prairie Creek concentrates and other operating parameters. In connection
      with the Scoping Study further metallurgical samples were collected and the
      mill
      equipment was reassessed. The road access corridor, tailings pond and the
      underground workings were re-examined for future production considerations
      and
      capital cost estimates. The Scoping Study was prepared in house using
      consultants and contractors at a cost of approximately $400,000. The Scoping
      Study has not been updated.





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





The
      complete Scoping Study has been filed on SEDAR, and may be found under the
      Company’s profile on SEDAR at **www.SEDAR.com** [Technical Reports April 24, 2001] and is incorporated herein by
      reference.





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





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





Discussions
      with concentrate sales professionals and preliminary discussions with smelters
      indicate that the Prairie Creek concentrates will be readily saleable, subject
      to the payment of usual penalties for elevated impurity levels, including
      mercury, in the Vein zinc, lead and copper concentrates. Cash flows have been
      prepared taking into account these penalties. Subsequent work in 2002 has
      indicated that the zinc concentrate can be smelted using the Sherrit
      hydrometallurgical process, opening up the market for the concentrates to hydro
      as well as conventional pyro-metallurgical smelters. A number of upside
      scenarios exist for the operation, including reduction of penalty levels in
      the
      concentrate and further mechanization in the mine to reduce costs. These
      alternatives will be examined further during the follow-up feasibility study
      process and do not form part of the base case.





The
      base
      case financial model in the Scoping Study indicates that the operation at a
      capital cost of $40.5 million would have a pre-tax and financing IRR of 45.6%
      and an NPV (at 10% discounted cash flow) of $97.2 million over the first ten
      years of a minimum 18 year mine life. The Scoping Study used long term metal
      prices of US$0.90 per lb Cu, US$0.50 per lb Zn, US$0.25 per lb Pb and US$5.50
      per ounce Ag and generally prevailing 2000 smelter treatment charges. The
      Canadian dollar was kept constant at US$0.66. The base case indicated a
      break-even cash cost of production of US 34.5 cents per pound of saleable zinc
      after by-product credits, but before financing and taxation. For every cent
      the
      Zn price is over the break-even production cost of US 34.5 cents per pound,
      pre-tax and financing cash flow increases by around US$0.64 million per
      annum.





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





**It
      should be noted that the economic assessment in the Scoping Study is preliminary
      and based, in part, on mineral resources that are considered too speculative
      geologically to have the economic considerations applied to them that would
      enable them to be categorized as reserves in accordance with National Instrument
      43-101. Mineral resources that are not mineral reserves do not have demonstrated
      economic viability. In addition, the Scoping Study is preliminary in nature,
      despite the existing underground development and the on-site mill, and the
      assumptions made within the Scoping Study and its subsequent results may not
      be
      attained.**





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





The
      development plan for the Prairie Creek Project is based upon the Scoping Study
      prepared internally by the Company in 2001. A Scoping Study is not a Feasibility
      Study. The Scoping Study outlined the plan for the development of the Prairie
      Creek Project based on the historical development and existing infrastructure
      at
      the Prairie Creek Property and on the Resource Estimation. The Resource
      Estimation does not constitute mineable reserves. The historical development
      was
      carried out principally in 1980 to 1982 and the infrastructure, including the
      mill, was constructed in the same period based on a feasibility study prepared
      by Kilborn Engineering (Pacific) Limited in 1980. The Kilborn feasibility study
      is outdated and cannot be relied upon. The existing infrastructure, including
      the mill, buildings, camp etc. is now twenty-five years old and although it
      has
      been held under care and maintenance it has lain idle for twenty-five years
      and
      was never operated. There is a significant risk attaching to the proposed
      operation of aged equipment.





During
      2004, 2005 and 2006 metallurgical testing was carried out on the ore from the
      Prairie Creek Mine.





During
      2004 representative bulk samples of vein mineralization were extracted from
      various locations within the existing underground workings at the Prairie Creek
      Mine. In addition, diamond drill core samples of Stratabound Mineralization
      were
      also collected from this deeper lying deposit which has not yet been accessed
      by
      underground development. One ore type is representative of the vein
      mineralization in the upper and lower level of existing developed underground
      workings. It is typically high in zinc, silver and lead in a mixture of sulphide
      and oxide minerals. The second ore type of Stratabound mineralization contains
      zinc, lead, silver and iron sulphide minerals.





The
      samples were shipped to SGS Lakefield Research Laboratories at Lakefield,
      Ontario where a total of 60 bench scale tests were undertaken over six months
      under the direction of the Company’s metallurgical consultant. The samples were
      first assayed for both sulphide and oxide mineralization and then combined
      into
      composite samples to ensure true representation of the Prairie Creek mineral
      deposit. Mineral samples from two separate zones of vein mineralization (Upper
      and Lower Zones), and including both sulphide and oxide mineralization, and
      from
      the stratabound zone, and additional composite samples from all three zones,
      were tested to develop and optimize the Prairie Creek mill flow sheet. The
      batch
      and locked cycle tests provided extensive analytical information and positive
      metallurgical results.





During
      2006 a new metallurgical bulk sample was collected from multiple headings of
      the
      vein within the existing underground development and also shipped to Lakefield
      for further testing and optimization studies. These samples were composited
      and
      blended to create representative samples of the ore that will provide feed
      to a
      future operating mill. The metallurgical program has shown that heavy media
      separation, demonstrated in earlier tests, is repeatable and that higher grade
      concentrates can be produced by processing the upgraded material.





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





**8.**  **Permitting
      at Prairie Creek**




***(a)*** ***Regulatory
      Framework***





At
      the
      time of its construction in 1980 - 1982, the Prairie Creek Mine had been fully
      permitted for full scale mining and milling operations. Permitting had been
      undertaken under the regulatory regime of the day, which involved a
      comprehensive environmental assessment and public review before the Northwest
      Territories Water Board. A considerable number of technical and baseline studies
      describing the proposed development and the physical and biological environment
      were undertaken at that time.





Water
      Licence N3L3-0932 was issued by the Department of Indian Affairs and Northern
      Development on July 1, 1982 pursuant to the Northern Inland Waters Act and
      Regulations, authorizing use of up to 1,150 m 3 /day
      and
      420,000 m 3 /year
      of
      water from the Prairie Creek Valley Aquifer and setting standards for discharge
      of process effluent to Prairie Creek. Land Use Permit N80F249 was issued July
      2,
      1980 for the road connecting Prairie Creek to the Liard Highway, the first
      40
      kilometers being permitted for year round use with the remaining 130 kilometers
      permitted for use in winter months only. The Land Use Permit was extended in
      1981 and again in 1982 to June 1983. Surface Leases were issued for the minesite
      area and airstrip. The Water Licence and Land Use Permit subsequently
      expired.





In
      1998,
      a totally new regulatory and resource management scheme was introduced in this
      part of Canada. During the negotiation of native land claim settlements in
      the
      Mackenzie Valley, first with the Dene/Metis in the late 1980’s and then with the
      Gwich’in and Sahtu Dene/Metis people, the Federal Government agreed to establish
      a new resources management system through the creation of boards with joint
      membership which reflects First Nations’ desire to participate more effectively
      in the regulation of land and water throughout the Mackenzie
      Valley.





*The
      Mackenzie Valley Resource Management Act (“MVRMA”)* or
      (the
“Act”) was enacted in 1998 for a defined area called the “Mackenzie Valley”,
      which includes the area where the Prairie Creek Mine is situated. Prior to
      that,
      the applicable legislation was the *Canadian
      Environmental Assessment Act, S.C. 1992 c.37. (“CEAA”)* The
      CEAA
      no longer applies in the Mackenzie Valley, except under very specific
      situations.





14


The
      MVRMA
      is a piece of federal legislation that creates an integrated co-management
      structure for public and private lands and waters throughout the Mackenzie
      Valley in the Northwest Territories. The Act was proclaimed December 22, 1998;
      however, Part IV, which establishes the Mackenzie Valley Land and Water Board,
      was not proclaimed until March 31, 2000.





The
      overall legislative scheme of the MVRMA is designed to implement the Gwich’in
      and the Sahtu Land Claim Settlement Agreements (collectively the “Comprehensive
      Agreements”) by providing for an integrated system of land and water management
      in the Mackenzie Valley. Under the Comprehensive Agreements, Land Use Planning
      Boards and Land and Water Boards must be established for the settlement areas
      referred to in those Agreements. In addition, an Environmental Impact Review
      Board must be established for the Mackenzie Valley along with a Land and Water
      Board for an area extending beyond the settlement areas.





The
      Act
      established public boards to regulate the use of land and water, to prepare
      regional land use plans to guide development, and to carry out environmental
      assessment and reviews of proposed projects in the Mackenzie Valley. The Act
      also makes provisions for monitoring cumulative impacts on the environment,
      and
      for periodic, independent environmental audits.





As
      institutions of public government, the Boards regulate all uses of land and
      water while considering the economic, social and cultural well-being of
      residents and communities in the Mackenzie Valley. These Boards are charged
      with
      regulating all land and water uses, including deposits of waste, in the areas
      in
      the Mackenzie Valley under their jurisdiction.





The
      MVRMA
      ensures a greater role for Aboriginal people in land use planning, environmental
      assessment, and the regulation of land and water use. As stated in the MVRMA,
      "the purpose of the establishment of boards by this Act is to enable residents
      of the Mackenzie Valley to participate in the management of its resources for
      the benefit of the residents and of other Canadians." (Section 9.1. MVRMA).
      To
      reflect the desire of First Nations to be more actively involved in resource
      management decision-making, half the members of each Board will be nominated
      by
      First Nations, and half by the Federal and Territorial governments. ** Public
      boards are formed through nominations. Under the land claims agreements, First
      Nations are entitled to nominate one-half of the members of the board,
      reflecting the board’s jurisdiction over all lands including First Nation
      settlement lands. The Federal Government, Territorial Government and First
      Nations can each nominate at their own discretion.





The
      Act
      also anticipates amendments to accommodate new land settlements and
      self-governments as they are finalized. As land claims are settled, the Act
      provides for additional regional boards to be established in the Deh Cho, North
      Slave and South Slave regions. The Deh Cho area is not settled. Prior to
      additional regional Boards being established, First Nations in the Deh Cho
      region were asked to participate in the new system by recommending members
      to
      the Mackenzie Valley Environmental Impact Review Board and the Mackenzie Valley
      Land and Water Board.





Under
      the
      MVRMA, public boards are responsible for:





·
            preparing
                regional land use plans to guide the development and use of land,
                waters
                and other resources [Land Use Planning
                Board];




·
            regulating
                all uses of land and water [Mackenzie Valley Land and Water Board
                (MVLWB)]; and




·
            carrying
                out the environmental assessment and review process [Mackenzie Valley
                Environmental Impact Review Board (MVEIRB)].




Consultation
      is the cornerstone of the MVRMA. Public Boards under the Act have established
      their own consultation guidelines.





15


Each
      Board has its own specific jurisdiction.





The
      Land
      Use Planning Board develops and implements a land use plan for the respective
      settlement areas in the Mackenzie Valley.





Land
      and
      water boards issue land use permits and water licences under the *Mackenzie
      Valley Land Use Regulations* and ** the *Northwest
      Territories Waters Act and Regulations* ,
      within
      the Mackenzie Valley.





The
      MVEIRB is responsible for environmental impact review and assessment at a
      valley-wide level, including the Sahtu and Gwich’in settlement
      areas.





The
      public boards perform regulatory functions, such as permitting and licensing,
      and conducting environmental reviews, previously undertaken by the Department
      of
      Indian Affairs and Northern Development (DIAND) and the NWT Water Board.
      Inspection and enforcement continue to be the responsibility of
      DIAND.





After
      consultation with the Land and Water Board, the Minister of DIAND may give
      written policy direction to the Board with respect to the exercise of any of
      its
      functions. The Minister also approves the issuance of Type A water licences.
      Regarding a Type 'A' water licence, the Minister may attach terms and conditions
      such as provision for a security deposit, a requirement for water quality and
      quantity measurements, and a requirement for abandonment and restoration
      plans.





DIAND
      controls, manages and administers all Crown lands in the Mackenzie Valley under
      the authority of the *Territorial
      Lands Act* ,
      and the *Federal
      Real Property Act* .
      Aside
      from managing Crown lands and waters, DIAND is still responsible for the
      administration, inspection and enforcement requirements associated with
      renewable, non-renewable and environmental legislation. This includes the *Mackenzie
      Valley Resource Management Act* ,
      the *Northwest
      Territories Waters Act* ,
      and the *Federal
      Real Property Act* .





DIAND
      inspectors are responsible for ensuring compliance with legislation, regulations
      and the terms and conditions that are part of permits and licences issued by
      the
      Land and Water Boards. These responsibilities are exercised by DIAND under
      the
      authority of the *Territorial
      Lands Regulations, Territorial Quarry Regulations* , *Canada
      Mining Regulations* and the *Federal
      Property Regulations.*





Under
      the *Northwest
      Territories Waters Act, S.C. 1992, (C.29) (Waters Act)* no
      person can use water or deposit waste in specific areas in the Northwest
      Territories without a licence to do so, S 8 and 9. Section 102 of the MVRMA
      provides that it is the MVLWB which has the jurisdiction with respect of all
      uses of water and deposits of waste in the area for which a licence is required
      under the Waters Act. The MVLWB may issue, amend, renew and cancel licences
      in
      accordance with the Waters Act and exercise any other power of the Northwest
      Territories Water Board under the Waters Act.





The
      stated objective of the MVLWB is to "regulate the use of land and waters and
      the
      deposit of waste so as to provide for the conservation, development and
      utilization of land and water resources in a manner that will provide optimum
      benefit to the residents of the settlement areas and of the Mackenzie Valley
      and
      to all Canadians." The MVLWB’s main function which is relevant to the Company,
      is to issue land use permits and water licences on land in unsettled land claim
      areas in the Mackenzie Valley, inclusive of the Deh Cho area.




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





All
      applications for a land use permit or a water licence in relation to a
      development in the Mackenzie Valley are made to the Water Board or one of its
      regional boards, as determined by the location of the development. In the case
      of Prairie Creek, being located within the Deh Cho First Nations territory,
      for
      which a land claim settlement agreement has not as yet been reached,
      applications are processed by the MVLWB.





16


There
      are
      three stages in the environmental impact assessment process in the Mackenzie
      Valley: preliminary screening, environmental assessment and environmental impact
      review. Not all developments will necessarily go through each of the three
      stages. All projects undergo a preliminary screening, after which it is decided
      whether a project must proceed to a full environmental assessment or go straight
      to the regulatory phase.





The
      environmental impact assessment process is triggered by an application to the
      MVLWB for a water licence. The application requires the inclusion of certain
      baseline and other technical information to allow them to be appropriately
      assessed and processed. Information provided with an application is used for
      undertaking a preliminary screening and for regulatory review of the
      application.





Preliminary
      screening is the first step in the environmental impact assessment process.
      Preliminary screening applications are done by the Land and Water Board. It
      is
      during the preliminary screening that the Board determines whether there is
      any
      public concern related to a proposed project or if it might have significant
      adverse environmental impacts.





During
      the preliminary screening, a systematic approach is taken to documenting the
      potential environmental effects of a proposed project. Next, the Board
      determines whether these effects need to be eliminated or minimized and, if
      so,
      how the project plan should be modified. In the end, the Board makes a
      recommendation on the need for further assessment.





The
      legislation requires that the MVLWB conduct a pre-screening of a proposal for
      development (s.124). Where the MVLWB determines that the development might
      have
      a significant adverse impact on the environment, or might be a cause of public
      concern, the MVLWB refers the proposal to the MVEIRB for an environmental
      assessment (s.125).





Environmental
      assessment is the second stage of the environmental impact assessment process.
      Projects may be referred to the MVEIRB by the Water Board (the preliminary
      screener), some other government department or agency, the First Nation
      qualified to make a referral, or on the Mackenzie Valley Environmental Impact
      Review Board’s own motion.





The
      MVEIRB is responsible for the environmental impact assessment process throughout
      the Mackenzie Valley. It is the main instrument for environmental assessment
      and
      review, replacing the CEAA in the Mackenzie Valley except under specific
      instances.





The
      MVEIRB:





·
            Conducts
                environmental assessments;


·
            Conducts
                environmental impact reviews;


·
            Maintains
                a public registry of all preliminary screenings conducted by Regulatory
                Authorities; and


·
            Makes
                recommendations to the Minister of DIAND for rejection or approval
                of any
                proposal.





Once
      a
      development proposal is referred to the Mackenzie Valley Environmental Impact
      Review Board for an environmental assessment, notices are placed in northern
      newspapers. The next step is for the developer to submit a “project description”
to the Review Board. The project description describes what the developer plans
      to do and how it will be carried out. The MVEIRB develops a work plan and terms
      of reference in order to conduct the Environmental Assessment.





17


The
      public has an opportunity to comment on the project and identify issues which
      may require consideration. Public information submitted to the Review Board
      throughout this process, including the project description, and all technical
      and public submissions, are placed on a public registry.





The
      Review Board has guidelines for how they conduct environmental assessments.
      These guidelines provide information for submissions to the Review Board,
      including timelines and opportunities to present information at any public
      hearings that may be held. The environmental impact assessment process has
      several points where the local government and other stakeholders can contribute
      to and affect the regulatory process. There will also be occasions where the
      local government will be asked to comment on a proposed development.





The
      environmental assessment process looks at the same factors considered in the
      preliminary screening, as well as addressing potential cumulative effects,
      socio-cultural considerations and alternate means of carrying out the project
      that are technically and economically feasible and the potential environmental
      effects of such alternate means. If the Mackenzie Valley Environmental Impact
      Review Board determines there will be significant adverse environmental impact
      from a project, it has the choice of referring the development to an
      environmental impact public review before a panel. The Review Board may also
      recommend measures to prevent or mitigate these impacts.





The
      environmental impact review (EIR) stage is a detailed analysis and public
      review. This is normally reserved for development projects where the
      environmental impact may be significant and could include public hearings in
      affected communities. An environmental impact review is conducted by a panel
      consisting of members of the Mackenzie Valley Environmental Impact Review Board,
      as well as any expert members they may appoint. The panel is required to issue
      terms of reference and the applicant must submit an impact statement. There
      must
      be public notification of the submission of the impact statement, and public
      consultation or hearings in communities which may be affected by the
      development. The panel conducts an analysis of the information
      received.





Upon
      completing the assessment, the MVEIRB submits its Environmental Assessment
      Report (EAR) to the Federal Minister of Indian Affairs and Northern Development
      who is responsible for distributing the EAR to other Ministers with jurisdiction
      over the proposed development (s.128).





The
      Minister of DIAND, along with the other Responsible Ministers, is required
      to
      make a decision on the EAR. The Minister may adopt the recommendations of the
      Mackenzie Valley Environmental Impact Review Board, refer the report back to
      the
      Review Board for further consideration (s.130) or reject the Report and order
      further environmental impact review. Once the recommendations contained in
      the
      EAR are adopted by the Minister, and the other responsible Ministers, those
      recommendations are to be included by the MVLWB as conditions of any Water
      Licence or Land Use Permit that it issues for that proposed development
      (s.62).





When
      finally adopted by the Minister the application is sent to MVLWB for issuance
      of
      permits and licences by the MVLWB in the regulatory phase. The regulatory phase
      is the process of issuing regulatory authorizations once the development is
      approved through the environmental assessment process. The authorizations
      include terms and conditions which reflect the recommendations approved during
      the EA process, as well as other standard conditions for carrying out
      development.





Decisions
      of the Mackenzie Valley Land and Water Board are subject to review by the
      Supreme Court of the Northwest Territories.


18


**(c)    "****Grandfather”
        Provisions**




Part
      5 of
      the Mackenzie Valley Resource Management Act, S.C. 1998, C.25 requires that
      any
“proposals for development” comply with environmental assessment process
      consisting of a preliminary screening by the regulatory authority and, if
      applicable, an environmental assessment and an environmental impact review
      by
      the Mackenzie Valley Environmental Impact Review Board.





However,
      Section 157.1 of the Act provides that Part 5 does not apply in respect of
      any
      licence, permit or other authorization related to an undertaking that is the
      subject of a licence or a permit issued before June 22, 1984, except the
      licence, permit, or other authorization for an abandonment, decommissioning
      or
      other significant alteration of the project.





Section
      157.1 of the Act has been considered by the Court of Appeal of the Northwest
      Territories in the case *North American Tungsten Corporation Ltd. V Mackenzie
      Valley Land and Water Board*(2003 NWTCA5). In that case the Court said (at
      paragraphs 24 to 27):





*“24* *However,
      both the
      Comprehensive Agreements and the MVRMA also clearly recognize that a full scale
      environmental review will not be appropriate in respect of certain existing
      permits, projects and licences. Instead, both reflect some grandfathering of
      existing developments is required to balance competing interests. Those
      interests include the legitimate goal of protecting land and water resources
      in
      the Mackenzie Valley for the benefit of its citizens, on the one hand, while,
      at
      the same time, exempting from the full force of the new environmental
      legislation undertakings developed under an earlier legislative regime. For
      example, the Comprehensive Agreements explicitly protect certain mineral
      interests, and arguably the rights associated therewith, in existence as of
      the
      date of the settlement legislation.”*





*“25* *This
      respect for
      vested interests is reflected in the MVRMA. Part 7 contains a number of
      transitional provisions designed to preserve and protect the existing rights
      and
      interests. For example, Section 151 provides that certain existing permits
      continue in effect despite the implementation of the new legislation. Section
      152 protects all existing rights to the use of any lands under any lease,
      easement, or other interest granted under any territorial law, again despite
      what would otherwise have been the impact of the new legislation on such
      interests....”*





*“26* *Further
      confirmation that Parliament did not intend the MVRMA to interfere with existing
      rights can be seen in the fact that even pending applications for permits and
      licences are to be dealt with under the prior applicable legislation and not
      under the MVRMA....”*





*“27* *These
      provisions
      collectively reflect that Parliament did not intend to impose an entirely new
      environmental review process on every project in the Mackenzie Valley
      irrespective of the status of that project at the time the MVRMA came into
      effect. Instead, the MVRMA grandfathered certain projects and provided that
      others yet would be dealt with under prior applicable legislation. In
      interpreting Section 157.1 therefore, one must recognize that it is designed
      to
      grandfather certain undertakings which predate June 22, 1984. Accordingly,
      this
      section must be interpreted in a manner which best comports with its intended
      purpose.”*





The
      Prairie Creek Project was the subject of both a Water Licence and Land Use
      Permit issued prior to June 22, 1984.





In
      May
      2003, the Company applied to the MVLWB for a Land Use Permit for use of the
      existing road from the Liard Highway to the Prairie Creek Mine. The Company
      submitted that this development is exempt from the Environmental Assessment
      process by virtue of Section 157.1 of the Act. The Company’s argument was
      rejected by the Water Board on June 1, 2004 and the Company filed an Appeal
      to
      the Supreme Court of the Northwest Territories seeking judicial review of the
      decision of the Water Board. The Appeal was heard by the Supreme Court in
      December 2004.





In
      a
      written decision dated May 6, 2005 in the case *Canadian Zinc Corporation v
      Mackenzie Valley Land and Water Board (SCNWT S-0001-CV2004)* the Supreme
      Court of the Northwest Territories ruled in favour of the Company that its
      Winter Road permit application is “*grandfathered”*and is therefore
      exempt from the environmental assessment process under the *Mackenzie Valley
      Resource Management Act (“MVRMA”).*





The
      Supreme Court quoted with approval, the earlier 2003 decision of the Northwest
      Territories Court of Appeal in the case *North American Tungsten Corp. Ltd. v
      Mackenzie Valley Land and Water Board.* The Supreme Court
      found:





*“The
      reasoning in Tungsten appears to apply squarely to the circumstances of CZC’s
      (Canadian Zinc Corporation’s) permit application. The Court (of Appeal) referred
      to the legislative intention that projects which predate June 22, 1984 are
      to be
      subjected to a full scale environmental assessment only if they depart
      significantly from their approved mode of operation and engage in
      decommissioning, abandonment or significant alteration of the project. The
      project, in this case, the operation of the winter access road, predates June
      22, 1984. As found by the (Water) Board, the permit sought by CZC (Canadian
      Zinc) is not based on any intentions to significantly alter that project or
      to
      abandon or decommission it”.*





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




(d) Recent Permitting History at Prairie Creek


In
        1992
        the Company was granted an Exploration Land Use Permit by the Minister of
        Indian
        Affairs and Northern Development under the *Territorial
        Lands Act* .
        Further
        baseline studies were undertaken in 1994 in support of planned re-development
        and permitting activity at that time. A permit application was screened in
        1995
        as a Level 1 screening pursuant to the *Canadian
        Environmental Assessment Act* (CEAA)
        and it was determined that that project could proceed as it was not likely
        to
        cause significant adverse effects pursuant to section 20(1)(a) of the CEAA.
        A
        new Exploration Land Use Permit N95F346 was issued by the Minister in 1995
        under
        the Territorial Lands Act, which included use of a portion of the winter
        road.
  In
      1995
      environmental and geotechnical studies were carried out to facilitate the
      preproduction permitting process. A project description report was compiled
      by
      Rescan Environmental Ltd. and filed with the Northwest Territories Regional
      Environmental Review Committee (RERC). This report contains details of all
      the
      environmental work completed at the Prairie Creek Property. The report was
      filed
      to elicit terms of reference for an initial environmental evaluation report.
      A
      Land Use Permit Application for upgrading the access road to an all-weather
      road
      was also filed with the appropriate government agency. While the re-permitting
      process was subsequently discontinued in 1995, these studies represent a
      significant contribution to the information database in support the Prairie
      Creek Project.





The
      Mackenzie Valley Land and Water Board (MVLWB) was created on March 31, 2000.
      The
      MVLWB and its associated regional boards took over regulatory functions
      previously performed by the DIAND, the Northwest Territories Water Board, and
      the Government of the Northwest Territory’s Department of Municipal and
      Community Affairs on Commissioner’s Lands.





The
      Company initiated preliminary discussions with the new MVLWB and regulatory
      authorities in Yellowknife in August, 2000 with respect to re-development and
      re-permitting of the Prairie Creek Mine. A follow up presentation was made
      to
      the Governmental Mineral Development Advisory Group (MDAG) in November 2000
      to
      elicit specific feedback from each of the regulatory agencies on the information
      requirements necessary for them to fulfill their roles in review of an
      environmental impact report to be submitted in support of applications for
      permits and licences authorizing full production from the Prairie Creek
      Mine.





Since
      August 2000, Prairie Creek has undergone six Environmental Assessments by the
      MVEIRB and has received five separate Land Use Permits and a Water Licence
      to
      carry out exploration at the Prairie Creek Mine and in the immediately
      surrounding area, through the new Mackenzie Valley Resource Management
      Process.


(e) Land
        Use Permit  – Phase 1 Exploration
  Canadian
      Zinc applied to MVLWB on July 28, 2000 for a Land Use Permit (LUP) (MV2000C0030)
      to carry out a seven drill hole program and to access the Sundog (or CAT) Camp
      located along the winter road to retrieve fuel and clean up the camp area,
      which
      work was planned for the fall of 2000. On October 4, 2000 MVLWB referred the
      application to the Mackenzie Valley Environmental Impact Review Board for
      environmental assessment. The application was then split into separate LUP
      applications with specific reference to the drilling program and the Cat Camp
      clean-up.





Following
      environmental assessment, a LUP was issued by MVLWB on June 14, 2001 which
      permitted the seven drill hole program (MV2000C0030A).




**(f)****Sundog (CAT) Camp – Clean Up
        Permit**


On
      May 9, 2001, the Review Board issued its Report to the Minister recommending
      that the Cat Camp permit be approved but that the work be done in winter
      2001/2002. Canadian Zinc preferred to do it in the summer season when the
      Prairie Creek Camp was open and there would be easier access. In June 2001
      Environment Canada issued a direction to DIAND to take steps to prevent the
      deposit of petroleum products at Cat Camp into the surrounding environment.
      In
      March 2002 DIAND flew in and incinerated the fuel. On June 17, 2002, three
      months after the fuel was incinerated, the Minister of Indian Affairs and
      Northern Development referred the Environmental Assessment Report back to the
      Review Board for further consideration, pointing out that it was no longer
      possible to carry out the proposed development work as there was no longer
      any
      fuel to be retrieved. In July 2002 the Review Board dismissed the
      proceeding.


(g) Land Use Permit – Phase 2 Exploration


On
      March
      5, 2001, the Company submitted a Land Use Permit application for a Phase 2
      Exploration Drilling Program and this application was also referred for
      Environmental Assessment. After Environmental Assessment by the Review Board,
      on
      November 30, 2001 the Water Board issued Land Use Permit MV2001C0022A, valid
      for
      a period of five years, authorizing the drilling of up to 60 exploration holes
      on the Zone 3 Mining Lease and within 1000 meters of the Prairie Creek Mine.
      In
      November 2006 this Land Use Permit was renewed for a further period of two
      years
      to November 30, 2008.




(h) Water Licence and Land Use Permit – Underground
        Development
  The
        Company applied to the Mackenzie Valley Land and Water Board on March 5,
        2001
        for Type ‘B’ Water Licence and a Land Use Permit (MV2001L2-0003) for underground
        decline development and metallurgical pilot plant operation planned for the
        Prairie Creek minesite. The application was distributed to government agencies,
        First Nations communities and other organizations in order for the MVLWB
        to
        conduct a preliminary screening as required by *Part
        5 of the Mackenzie Valley Resource Management Act* .





However
      in April 2001, both the Parks Canada Agency and Pehdzeh Ki First Nation referred
      the proposal to the Mackenzie Valley Environmental Impact Review Board for
      Environmental Assessment (EA) pursuant to section 126(2) of the MVRMA. The
      referral to EA occurred prior to the Water Board’s completion of its preliminary
      screening of the proposed development.





19


The
      Environmental Assessment was conducted throughout 2001 and into 2002. The MVEIRB
      submitted its Report of Environmental Assessment (EA Report) on February 5,
      2002
      to the Minister of Indian Affairs and Northern Development. On September 3,
      2002, the Minister requested that, as per section 130(1)(b)(i) of the MVRMA,
      the
      MVEIRB was to give further consideration to unresolved issues in the EA Report
      relating to the tailings containment area and water treatment in
      general.





Following
      further assessment the MVEIRB submitted its Reasons for Decision on April 4,
      2003, outlining recommended revisions and additions to the recommendations
      in
      its February 5, 2002 EA Report. On June 16, 2003, the Minister approved the
      Reasons for Decision and directed the MVLWB to proceed with the licensing
      process.





On
      September 10, 2003 the Water Board approved the issue of Water Licence
      MV2001L2-0003, and the Land Use Permit MV2001C0023 subject to the conditions
      set
      out therein. The Water Licence contains the terms and conditions that the Board
      felt necessary to protect the environment, conserve the water resources of
      the
      Prairie Creek watershed and provide appropriate safeguards in respect of the
      Company’s use of waters and deposit of wastes.





On
      October 10, 2003 an appeal to the Federal Court was filed by the Nahanni Butte
      Dene Band, Pehdzeh Ki First Nation and the Deh Cho First Nations against the
      Mackenzie Valley Land and Water Board and the Company seeking Judicial Review
      of
      the decision of the Water Board to issue the Water Licence to the Company.
      The
      Applicants’ grounds were that the Water Board issued the Water Licence without
      including certain conditions included in the recommendations of the MVEIRB
      and
      in the Minister’s approval, and that the Water Board failed to provide the
      Applicants with adequate consultation throughout the Licence process.
      Subsequently both the Attorney General of Canada, representing the Minister
      of
      Indian Affairs and Northern Development and the Canadian Parks and Wilderness
      Society, represented by the Sierra Legal Defense Fund, applied to the Federal
      Court to be joined as Intervenors in this Appeal.





The
      Judicial Review hearing was heard by the Court in August 2005. The Lawyers
      representing the First Nations had argued that the Water Board had exceeded
      its
      jurisdiction in issuing the Water Licence without including certain conditions
      on water treatment which had been recommended by the Mackenzie Valley
      Environmental Impact Review Board and approved by the Minister, and that the
      Water Board had failed to observe the principles of natural
      justice.





In
      December 2005 the Court issued its Judgment directing the Water Board to reissue
      the Water Licence with the inclusion of additional language which had been
      agreed between the Company and the Minister of Indian Affairs and Northern
      Development. On February 6, 2006 the Water Board reissued the Water Licence
      incorporating the wording as per the Order of the Federal Court of
      Canada.





As
      contemplated in the Water Licence, the following plans were prepared and have
      been approved by the Water Board: Minewater Treatment Contingency Plan; Effluent
      Treatment Options Plan; Abandonment and Reclamation Plan. An existing Fuel
      Spill
      Contingency Plan was revised and approved. A Probable Maximum Flood calculation
      was updated and approved, and flood protection structures and the tank farm
      facility and associated containment structures were inspected and
      approved.





**(i)**  ***Land
      Use Permit - Winter Road***





In
      May
      2003, the Company applied to the MVLWB for a Land Use Permit for use of the
      existing Winter Road from the Liard Highway to the Prairie Creek Mine. The
      Company argued that this application is exempt from the Environmental Assessment
      process by virtue of Section 157.1 of the Act. [See 3.1.8(c) “Grandfather”
Provisions] The Company’s argument was rejected by the Water Board on June 1,
      2004. The Company filed an Appeal to the Supreme Court of the Northwest
      Territories seeking judicial review of the decision of the Water Board. The
      Appeal was heard by the Supreme Court in December 2004.





In
      a
      written decision dated May 6, 2005 in the case *Canadian
      Zinc Corporation v Mackenzie Valley Land and Water Board (SCNWT
      S-0001-CV2004)* the
      Supreme Court of the Northwest Territories ruled in favour of the Company that
      its Winter Road permit application is “ *grandfathered”* and
      is
      therefore exempt from the Environmental Assessment process under the *Mackenzie
      Valley Resource Management Act (“MVRMA”).*





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





This
      application for a Land Use Permit for the road was referred back to the Water
      Board. In June 2005 the Nahanni Butte Dene Band wrote to the Water Board
      asserting infringement of Aboriginal rights and inadequate consultation under
      Section 35 of the Constitution of Canada. The issue was referred to the
      Department of Indian Affairs and Northern Development which conducted a
      preliminary assessment and submitted its report to the Water Board in February
      2007. On April 11, 2007 the Water Board approved the issue of Land Use Permit
      MV2003F0028 for a period of five years to April 10, 2012.





**(j)**  ***Land
      Use Permit - Phase 3 Exploration***





In
      April
      2004, Canadian Zinc applied to the Mackenzie Valley Land and Water Board for
      an
      amendment to its previously approved Land Use Permit MV2001C0022A allowing
      a 60
      hole mineral exploration program within 1,000 meters of the Prairie Creek Mine
      site facility. The amendment was submitted in order to obtain permission to
      drill anywhere on the extensive mineral leases and claims held by Canadian
      Zinc
      at the Prairie Creek Property. Following a Preliminary Screening in June 2004,
      the Water Board referred the proposed development for Environmental Assessment
      to the Mackenzie Valley Environmental Impact Review Board citing “public concern
      about the cumulative effects of this project on the South Nahanni
      Watershed”.





A
      detailed Environmental Assessment was carried out throughout 2005. Five
      government agencies, two first nations and one non-governmental organization
      (CPAWS) participated in the Environmental Assessment, which continued over
      a
      period of about eighteen months. Canadian Zinc submitted a Detailed Development
      Description dated December 2004. The Review Board issued its Terms of Reference
      in April 2005 and held scoping sessions (public meetings) during March and
      April
      2005 in the NWT communities of Fort Liard, Fort Simpson and Wrigley, NT.
      Canadian Zinc submitted its Developer’s Assessment Report in May 2005 and
      Technical Reports were submitted by the end of August 2005. A Public Hearing
      was
      held in Fort Simpson NT, on October 6, 2005.





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





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





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





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.





20


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





“The
      Review Board is of the view that the full responsibility for monitoring,
      evaluation and management should not necessarily rest on the Company alone.
      Expert agencies of government, such as Department of Indian Affairs and Northern
      Development, Environment Canada, Department of Fisheries and Oceans, and
      Government of the Northwest Territories, should be involved co-operatively
      in
      the design of this comprehensive monitoring program”.





The
      Review Board noted that incremental development in the Prairie Creek area is
      likely to continue and is likely to increase rather than decrease in the
      foreseeable future. There has already been considerable development in the
      Prairie Creek watershed and development is likely to increase. On the other
      hand, all present and reasonable foreseeable future developments are by the
      same
      developer, are in close proximity, and are operated, if not as one development,
      in a co-ordinated and overlapping fashion. This provides Canadian Zinc with
      an
      opportunity to effectively manage cumulative effects through responsible
      environmental management of its activities in each of the developments in the
      area.





The
      Review Board recommended approval of the proposed development subject to three
      mitigation measures. The measures are the actions necessary, in the opinion
      of
      the Review Board, to prevent or mitigate adverse impacts on the environment.
      The
      three measures recommended by the Review Board are:





·
            Government
                and regulatory authorities are to ensure that all drill waste is
                disposed
                of in a manner that does not allow any harmful substance to enter
                surface
                waters.





·
            Canadian
                Zinc shall take every reasonable effort to employ a local person,
                selected
                in consultation with the Deh Cho First Nations, as community environmental
                monitor, who will independently report back to the Deh Cho First
                Nations.





·
            DIAND
                shall ensure that a comprehensive program to monitor cumulative impacts
                on
                fish, wildlife, vegetation and water quality is
                implemented.





In
      February 2006 the Minister of Indian Affairs and Northern Development, and
      on
      behalf of the Responsible Ministers with jurisdiction (Environment and Natural
      Resources, Government of the Northwest Territories, Fisheries and Oceans, and
      the Minister of the Environment on behalf of Environment Canada and Parks
      Canada), approved the report of the Review Board.





In
      May
      2006 the MVLWB issued the Land Use Permit for the Phase 3 exploration drill
      program, which is valid for five years commencing May 11, 2006.





**(k)**  ***Permit
      Delays***





Since
      August 2000 Canadian Zinc has been working on moving the Prairie Creek Project
      through the permitting process. The Mackenzie Valley resource management and
      permitting process is very cumbersome, slow and political, and to date has
      caused extreme delays to the Company in its efforts develop the Prairie Creek
      Property. Various permit applications have been the subject of six separate
      Environmental Assessments. Five Land Use Permits, including a permit to use
      the
      access road in winter months, and a Water Licence have been issued to the
      Company since 2001 and two appeals for judicial review have been made to the
      Courts, in both of which the Company has prevailed. The Company intends to
      submit an application for a Type ‘A’ Water Licence for the operation of the
      Prairie Creek Mine during 2007. It is estimated the remaining permitting work
      will take around two years and cost between $3 and $5 million, depending on
      the
      level of environmental review and assessment work required to be carried
      out.





**9.**  **Environmental
      Considerations** ****





***Nahanni
      National Park Reserve***





The
      Prairie Creek Mine, located adjacent to Prairie Creek, is within the watershed
      of the South Nahanni River, 32 kilometers upstream of the point where Prairie
      Creek crosses the boundary of the Nahanni National Park Reserve and 48
      kilometers upstream of the point where Prairie Creek joins the South Nahanni
      River. The confluence of Prairie Creek and the South Nahanni River is 65
      kilometers upstream of the point where the South Nahanni River leaves the
      Nahanni National Park Reserve crossing its downstream boundary.





The
      South
      Nahanni River is 500 kilometers in length of which 300 kilometers are contained
      within the Nahanni National Park Reserve. The watershed of the South Nahanni
      River is 37,000 km 2 ,
      of
      which 4,766 km 2 are
      contained within the Nahanni National Park Reserve. The watershed of Prairie
      Creek above the minesite is 495 km 2 ,
      or less
      than 2% of South Nahanni watershed. In accordance with the relative sizes of
      their respective watersheds, water flow in the South Nahanni averages 75 times
      that of Prairie Creek and ranges from 50 to 180 times as much.





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





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





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





Nahanni
      National Park Reserve is considered to be of global significance. In 1978,
      it
      was the first area added by UNESCO to its list of World Heritage Sites. There
      are only 13 sites in Canada designated as World Heritage Sites, eight of them
      being National Parks. Nahanni received this designation because of the
      geological processes and natural phenomena in the area. In UNESCO’s view,
      Nahanni is special because it is an unexploited natural area. The presence
      in
      this area of three river canyons cutting at right angles to the mountain ranges,
      with walls of up to 1,000 meters high, Virginia Falls which falls over 90
      meters, hot springs, sink holes and karst topography are considered a special
      combination.





In
      considering and approving the nomination of Nahanni National Park Reserve for
      World Heritage Status, the World Heritage Committee stated that “it would be
      desirable to incorporate the entire upstream watershed in the World Heritage
      Site”. In 1977, the Minister responsible for Parks Canada directed Parks Canada
      to examine the possibility of expanding Nahanni National Park Reserve to include
      more of the head waters of the South Nahanni and the karst terrain. Several
      studies were conducted to assess this potential.





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





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





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





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





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





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





In
      November 2001, at the invitation of the Deh Cho Process, Parks Canada tabled
      information on areas of high conservation value around Nahanni National Park
      Reserve for possible inclusion in the expanded Park. Through the Deh Cho
      Process, a proposal to “withdraw” from development a considerable portion of the
      South Nahanni River watershed received favourable review by both Canada and
      the
      Deh Cho First Nations. These areas, along with other proposed conservation
      lands
      and development zones, were reviewed by the Deh Cho Land Working Group and
      were
      included within the Interim Land Withdrawal area. This land was withdrawn by
      Order in Council dated August 13, 2003 and ** results
      in the lands surrounding Nahanni National Park Reserve being withdrawn from
      the
      possibility of new development. Existing interests including mining will be
      allowed to continue according to their permits, but new activities will not
      be
      allowed. [See section 10. “First Nations” below].





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





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





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





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




***Endangered
      Species***





The
      Committee on the Status of Endangered Wildlife in Canada (COSEWIC) lists two
      species in the area of the Prairie Creek Mine. These are the Grizzly Bear (Ursus
      arctos) and the Wolverine (Gulo gulo), both of which are listed in the Special
      Concern category. In areas removed from the minesite, COSEWIC lists the Anatum
      Peregrin Falcon (Falco peregrinus anatum), the Woodland Caribou, Boreal
      population (Rangifer tarandus caribou) and the Wood Bison (Bison bison
      athabascae), each of which are considered threatened.





Detailed
      field studies of wildlife populations and wildlife habitat in the area of the
      Prairie Creek Mine and the access road were conducted by Beak Consultants in
      1980-81 and again by Rescan in 1994. None of the listed species and no critical
      habitat, such as denning or nesting areas, were identified in the area of the
      mine. Grizzly bears and wolverine have been observed or encountered only very
      infrequently in the area surrounding the mine over the past 20
      years.





Caribou
      populations and potential caribou habitat have been identified in areas removed
      from the minesite to the north and east in the Mackenzie Mountains. Potential
      impacts to these populations are primarily transportation related and can be
      mitigated through standard road safety practices. Specific surveys of potential
      Peregrine falcon nesting habitat have identified no nesting sites in the area
      of
      the minesite.





Wood
      bison were re-introduced into the Nahanni Butte area, 90 kilometers to the
      southeast of the Prairie Creek Mine, in 1980 with additions to the herd made
      in
      1989 and again in 1998. As with caribou, ****** potential
      impacts to these populations are primarily transportation related, in this
      case
      primarily in the area of the Liard Highway, and can be mitigated through
      standard road safety practices.





No
      rare
      or highly valued species of vegetation or plant communities have been identified
      in the area. COSEWIC does not list any plant species as endangered, threatened
      or of special concern in the area of the Prairie Creek Mine.





***Acid
      Rock Drainage***





The
      mineral resources at the Prairie Creek Mine are hosted in carbonate rocks.
      The
      low sulphide values and high excess neutralization potential of the host rocks
      (and tailings products) indicate that these materials will pose no long term
      hazard to the environment through sulphide oxidation processes. Rescan
      Environmental of Vancouver, B.C. undertook a detailed analysis of the acid
      generating characteristics of all dominant rock types at the Prairie Creek
      Mine
      in 1994. The results indicated an overwhelming dominance of acid neutralizing
      minerals, with acid neutralizing carbonate minerals exceeding the total capacity
      to generate acidity by an average factor of almost 200. Initial analysis of
      flotation tailings generated from metallurgical testwork has indicated a similar
      excess of neutralization potential. The Company does not anticipate the
      potential for any acid rock drainage impacts. Further static and kinetic
      geochemical testing of rocks and mineralization are being
      undertaken.





***Hazardous
      Materials***





Hazardous
      and toxic waste materials are currently stored at the Prairie Creek minesite,
      including sodium cyanide and PCB’s that remain from Cadillac operations in the
      early 1980’s. The substances are stored in a secured manner and are regularly
      inspected by government agencies. A substantial quantity of diesel fuel is
      also
      stored on site. A disposal project for the cyanide and PCB’s has been developed
      but removal requires the opening of the road to the Liard Highway.





**10.**  **First
      Nations**





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





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





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





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





In
      the
      Mackenzie Valley, land is owned, or managed, controlled and administered by
      different governments or landowners. Land can be either Crown or Commissioner’s
      land administered by land managers, or privately owned.





In
      the
      Northwest Territories, private lands are owned largely by First Nations with
      settled land claims. There are currently three major landowners in the Mackenzie
      Valley- the Gwich’in, Sahtu and Tlicho. It is anticipated that as claims are
      settled in the Deh Cho region, more private lands will be created and Aboriginal
      groups will become recognized landowners in their respective
      regions.





The
      Federal Government has recognized that the inherent right of self government
      is
      an existing Aboriginal right recognized and affirmed by Section 35 of the
      Constitution Act, 1982. The Deh Cho are engaged in ongoing land settlement
      negotiations with the Government of Canada and the Government of the Northwest
      Territories in what is referred to as the *“Deh
      Cho Process”* .
      The
      Federal Government first attempted to negotiate land claim settlements in the
      Northwest Territories, with the Dene/Metis in the late 1980’s without success.
      Subsequently settlement agreements were reached first with the Gwich’in and
      Sahtu Dene/Metis people and later with the Tlicho in 2005. The Deh Cho have
      not
      settled their land claim with the Federal Government. The Deh Cho and the
      Federal Government of Canada both claim legal title to this territory, the
      Deh
      Cho by virtue of historical occupation and the Federal Government under Treaty
      8, signed in 1900, and Treaty 11 signed in 1921 and 1922. The Federal Government
      and the Deh Cho First Nations disagree on the interpretation of Treaties 8
      and
      11 and legal title to the land remains in dispute. Canada maintains that under
      the Treaties the Deh Cho extinguished ownership of their traditional lands.
      The
      Deh Cho have threatened to take the Federal Government to court, or to the
      United Nations, over the key issue of sovereignty. The Deh Cho territory has
      an
      area of approximately 210,000 square kilometers and has a native population
      of
      approximately 6,000.





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





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





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





In
      2001,
      the Federal Government and the Deh Cho First Nations entered into a *Framework
      Agreement* dated
      May
      23, 2001. The Framework Agreement contemplates providing a structure for the
      negotiation of the *Final
      Agreement* .
      However, all negotiations are without prejudice to the legal position of the
      parties and nothing in the Framework Agreement is to be interpreted as creating,
      recognizing or denying rights or obligations of any of the parties. The Federal
      Government and the Deh Cho agreed that it is desirable that the negotiations
      proceed at a pace which allows for the people of the Deh Cho territory, and
      particularly the Elders, to remain fully informed and involved in the
      process.





As
      contemplated in the Framework Agreement, an *Interim
      Measures Agreement* ,
      also
      dated May 23, 2001, was executed between the parties to provide for interim
      arrangements pending the negotiation and signing of the Deh Cho Final
      Agreement.





Under
      the
      Interim Measures Agreement, the Governments and the Deh Cho agreed to develop
      a
      land use plan for the Deh Cho lands outside Nahanni National Park Reserve and
      for that purpose to establish a Land Use Planning Committee. The purpose of
      the
      Land Use Plan is to provide for the conservation, development and utilization
      of
      the land, waters and other resources in the Deh Cho territory, taking into
      consideration the principles of respect for the land, as understood and
      explained by the Deh Cho Elders, and sustainable development.





Under
      the
      Interim Measures Agreement, Canada and the Deh Cho agreed to negotiate for
      the
      purpose of identifying lands to be withdrawn from disposal and mineral staking
      and Canada agreed to withdraw from disposal, by Order in Council under the *Territorial
      Lands Act* ,
      the
      lands identified in this process.





The
      Interim Measures Agreement specifically provides at sections 19 and 23 that
      land
      withdrawn from disposal under the Agreement shall be subject to the continuing
      exercise of existing rights, titles, interests, entitlements, licences and
      permits and that the provisions of the Agreement shall not effect access to
      or
      across withdrawn lands.





The
      Agreement also provides that no new water licences or land use permits will
      be
      issued under the *Mackenzie
      Valley Resource Management Act* within
      the Deh Cho territory except after written notice to the Deh Cho First Nations
      and after a reasonable period of time for the Deh Cho to make representations
      with respect to the application for such licence or permit. Canada also agreed
      not to issue any new prospecting permits under the *Canada
      Mining Regulations* in the
      Deh Cho territory without the support of the affected Deh Cho First Nation.





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





Canada
      also agreed that the Final Agreement will ensure that a major mining project
      that requires any authorization from Canada, and that will impact on the Deh
      Cho, shall be subject to negotiation with the Deh Cho of an agreement relating
      to that project. A major mining project is defined as a project related to
      the
      development or production of minerals that will employ an average of 50 persons
      annually for the first five years in the Deh Cho territory and for which more
      that $50 million will be expended in capital costs. The Company believes that
      the Prairie Creek Project is currently the only such major mining project in
      the
      Deh Cho territory.





The
      Interim Measures Agreement also provided that the Deh Cho may propose protected
      areas for land withdrawal or permanent protection under the Northwest
      Territories Protected Areas Strategy. The parties also agreed to negotiate
      an
      interim management arrangement respecting the management of Nahanni National
      Park Reserve.





The
      Interim Measures Agreement was made without prejudice to the legal position
      of
      the parties and nothing in the Agreement is to be interpreted as creating,
      recognizing or denying rights or obligations on the part of the
      parties.





In
      2003,
      Canada and the Deh Cho agreed to an interim withdrawal of lands covering an
      area
      of approximately 80,000 square kilometers for a period of five years. The
      withdrawal was confirmed by Order in Council dated August 13, 2003. The areas
      of
      the withdrawn lands do not include the Prairie Creek Mine but include all of
      the
      Company’s Mining Lease 2854 and part of Mining Leases 2931, 3314 and 3313. The
      withdrawn land also includes an area over which part of the Company’s road to
      the Prairie Creek Property passes. However in accordance with Sections 19 and
      23
      of the Interim Measures Agreement such withdrawal is subject to the continuing
      exercise of existing rights, titles, interests, entitlements, licences, permits,
      reservations, benefits and privileges and does not affect access to or across
      withdrawn land.





In
      August
      2003, a *Memorandum
      of Understanding respecting the expansion of Nahanni National Park
      Reserve* dated 24
      June 2003 was signed between the Deh Cho and the Parks Canada Agency, whereby
      as
      part of the Deh Cho Process, Parks Canada and the Deh Cho agreed to work
      co-operatively towards completion of a feasibility study towards the addition
      of
      the identified lands to the Nahanni National Parks Reserve and to recommend
      an
      amendment to the Canada National Parks Act for a new boundary for the expansion
      of the Nahanni National Park Reserve and, as part of the Deh Cho Final
      Agreement, moving the Nahanni National Park Reserve to full National Park status
      under the Canada National Parks Act.





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





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





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





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





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





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





In
      the
      Settlement Agreement the parties affirmed the Interim Resource Development
      Agreement dated April 17, 2003 and agreed to take immediate steps to establish
      a
      working group comprised of the parties to the Deh Cho First Nations Interim
      Measures Agreement for the purposes of ensuring that the issues arising from
      the
      implementation of the Resource Development Agreement are addressed in a timely
      manner. The parties also agreed that once an Agreement in Principle is ratified,
      the resource royalty sharing formula set out in the Interim Resource Development
      Agreement will be replaced with any Resource Revenue Sharing Formula agreed
      to
      in the Agreement in Principle.





The
      Settlement Agreement further provides that, except for certain specified
      articles of the Agreement, the Settlement Agreement is not legally binding
      and
      is intended as an expression of goodwill and as a political
      commitment.





Negotiations
      under the Deh Cho Process continued during 2006 with Canada presenting a formal
      comprehensive offer of land selection, local governance provisions and financial
      compensation but this offer was rejected by the Deh Cho First
      Nations.





The *Deh
      Cho Land Use Planning Committee* (the
      Committee), was formally established in February 2002 under the authority of
      the
      Deh Cho Interim Measures Agreement with the responsibility to prepare a land
      use
      plan for the Deh Cho territory. The land use planning process is a community
      driven process where the goals and values of the residents of the Deh Cho guide
      the development of the Plan. The Committee works closely with other planning
      partners such as governments, public agencies, non-government organizations
      and
      businesses to fulfill its mandate.





Land
      use
      planning boards are responsible for preparing comprehensive land use plans
      for
      their respective settlement areas. These plans guide the use of Crown,
      settlement, and other private lands and provide direction for the conservation,
      development and use of land, waters and other resources. Essentially, the land
      use planning boards create plans which lay out the permitted and prohibited
      uses
      of all land within a settlement area. They develop land use plans for their
      regions and recommend approvals, exceptions and amendments to related
      plans.





A
      Land
      Use Plan is a public document that sets aside different areas for different
      uses, and describes what activities are permitted or not permitted in specified
      areas. The land use plan applies to both Crown and settlement lands. It does
      not
      apply to lands within municipal boundaries or lands within national parks or
      historic sites.





Once
      the
      land use planning board has adopted a Land Use Plan, it must submit the plan
      to
      the First Nation of the settlement area, the Territorial Minister and the
      Federal Minister for approval.





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





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





The
      Deh
      Cho Land Use Planning Committee includes representatives of the Deh Cho First
      Nations, the Government of the Northwest Territories and Government of Canada.
      As outlined under the Deh Cho Interim Measures Agreement the DCFN appointed
      two
      members while the two Governments each appointed one member. Upon the
      recommendation of the Committee, the parties to the Interim Measures Agreement
      appoint a fifth member as Chairperson.





Once
      approved the Land Use Plan will provide legally binding direction to regulatory
      agencies and decision-makers in their assessment of development projects,
      protected areas proposals and other land uses.





The
      Land
      Use planning process considered the traditional use and occupancy information
      that was gathered to determine the Interim Land Withdrawals, along with other
      information on the natural resources and the economic and social needs of the
      communities. In turn, the Plan will guide the revision of the Interim Land
      Withdrawals based on the new information that has been gathered. Representatives
      of the Planning Committee visited the Prairie Creek minesite in September
      2004.





The
      Company made a detailed submission to the Deh Cho Land Use Planning Committee
      and participated in the planning process. The Company commented on each draft
      of
      the Plan as such draft was produced and participated in various Public Forums.
      The Company had concerns about the latest draft of the Land Use Plan (November
      2005 - Revised February 2006) and recommended that the draft in its current
      form
      not be approved. The Department of Indian Affairs and Northern Development
      has
      also expressed concern to the Committee (January 2006).





The
      draft
      Land Use Plan was approved by the General Assembly of the Deh Cho First Nations
      in May 2006 and submitted to the Minister for consideration. 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 Deh Cho First
      Nations entered into an agreement to form a new committee with representatives
      from all sides to negotiate a new revised plan. The new plan is expected to
      be
      ready by October 2007.




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





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


**11.****Nahanni Co-Operation
        Agreement**


The
      Prairie Creek Mine is located 90 kilometers from the nearest settled community
      of Nahanni Butte, located at the confluence of the South Nahanni and Liard
      Rivers, 146 kilometers downstream of the minesite. The population of Nahanni
      Butte is approximately 100 people and water for domestic purposes is supplied
      by
      well. There is no permanent road access into the Prairie Creek Property, other
      than the existing Winter Road which was established in 1981. Regular access
      is
      by air only to a private airstrip controlled by the Company. There is no other
      existing land occupation, nor commercial land or water based activities in
      the
      vicinity of the mine. Similarly, no traditional use or trapping activity has
      been observed in the minesite area in recent history.





On
      December 10, 1996 the Company completed the negotiation of the Prairie Creek
      Development Co-Operation Agreement with the Nahanni Butte Dene Band (the “Band”)
      of the Deh Cho First Nations. The agreement provides that in consideration
      for
      the Band providing support for the project, quiet enjoyment, access easements,
      assistance in obtaining permits, potential cost savings as a result of the
      Band's involvement, and assembling and providing the Band's traditional
      knowledge in support of the project, the Company will:







Following
      commencement of production, the Band and the Company will jointly fund (a)
      the
      establishment of an education centre to a maximum of $150,000 and annual
      operating costs up to $50,000; and (b) a scholarship fund of $20,000 per year,
      increasing to $30,000 per year following payback of all capital costs. In
      addition, the project will contribute $25,000 per year to a trust on
      commencement of construction of access to the project, to compensate traditional
      harvesters who are negatively affected by the project and the
      access.





The
      overall intent of the Co-Operation Agreement was to establish and maintain
      a
      positive and cooperative working relationship between the Company and the
      Nahanni Band in respect of the further development and operation of the Prairie
      Creek Mine, while at the same time supporting an economically viable and
      environmentally sound operation and maximizing economic opportunity and benefits
      to the Band and other Deh Cho First Nations. This Agreement foresaw the many
      benefits which could accrue to the Nahanni Band and the DCFN in conjunction
      with
      development of the road and mine, and made provision for maximizing
      opportunities to realize these benefits. To this end, the Agreement provides
      employment and contracting opportunities, as well as equity participation for
      the Band and the DCFN.





In
      the
      Agreement, the Band proclaimed its support for the Prairie Creek Mine and the
      establishment of the access road in recognition of the significant benefits
      to
      the Band and the DCFN communities as a whole, and undertook to assist the
      Company in procuring permits, approvals and licences necessary to bring the
      mine
      into production, as well as grants, guarantees or other financial assistance
      from Government towards the establishment of the access road.





On
      November 28, 1996 the Nahanni Butte Dene Band issued a Band Council Resolution
      stating that the Band on behalf of its membership “does fully ratify and endorse
      the Prairie Creek Development Co-Operation Agreement” in which the Nahanni Butte
      Dene Band proclaimed its support for the Prairie Creek Mine and the
      establishment of an all weather access road to the mine in recognition of the
      significant benefits to Nahanni Butte and the DCFN communities as a whole.
      The
      Agreement was supported as well by the DCFN by Tribal Council
      Resolution.





The
      Nahanni Butte Dene Band issued a Band Council Resolution on May 18, 2000 in
      support of protecting the South Nahanni watershed, stating that “the Nahanni
      National Park Reserve was created without the consent or participation of the
      Deh Cho First Nations” and that the “Final Agreement should provide for the
      recognition of Deh Cho First Nations jurisdiction over the entire Nahanni
      watershed, including the Park or Park Reserve”.





On
      January 29, 2001 the Band issued a further Band Council Resolution rescinding
      their support for the Protected Areas Strategy for the Nahanni National Park
      Reserve watershed.





On
      January 17, 2002 the Band issued a further resolution reconfirming their support
      for the Prairie Creek Mine Project.





A
      change
      in Band leadership occurred in September 2003 following elections for Chief.
      Thereafter yet another different Band Chief was elected during
      2004.





On
      October 10, 2003 an appeal to the Federal Court was filed by the Nahanni Butte
      Dene Band, Pehdzeh KI First Nation and the Deh Cho First Nations, against the
      Mackenzie Valley Land and Water Board and the Company seeking judicial review
      of
      the decision of the Water Board to grant a Water Licence to the Company. Filing
      of these proceedings by the Nahanni Butte Dene Band was in breach of the
      Co-Operation Agreement. The Nahanni Butte Dene Band informed the Company that
      Nahanni considers the Agreement terminated. Such termination is not in
      accordance with the provisions of the Agreement.





Canadian
      Zinc seeks to consult on a regular basis with the Nahanni Butte Dene Band and
      other First Nations and local communities to keep them informed about the
      Prairie Creek project and as to opportunities for implementing the provisions
      of
      the Co-Operation Agreement as the Company moves forward with its plans for
      re-development of the property. In 2004 the Company opened a Community Liaison
      and Information Office in Fort Simpson and since 2004 significantly increased
      its First Nations and local communities information and awareness programs
      and
      activities.





In
      June
      2005 the Chief of Nahanni wrote to the Mackenzie Valley Land & Water Board
      in connection with the Company’s application for a Land Use Permit to use the
      winter road which connects the mine with the Liard Highway [see Section 8(c)
      above] alleging infringement of aboriginal rights and inadequate consultation
      under Section 35 of the Constitution of Canada. The Water Board referred the
      matter to the Department of Indian Affairs and Northern Development which
      conducted a preliminary assessment which lasted throughout most of 2006. In
      February 2007 the Department issued its report on consultation to the Water
      Board in which it concluded that in the Department of Indian Affairs and
      Northern Development’s view adequate consultation had taken place and in which
      it made certain recommendations. The Water Board issued the Land Use Permit
      in
      April 2007 and included among the Permit terms and conditions those
      recommendations from the consultation report that are within the Board’s
      mandate, including provisions for the protection of wildlife habitat





The
      Company believes that the separate goals of the Deh Cho First Nations in
      achieving political sovereignty and economic self-sufficiency whilst protecting
      the environment are compatible. The Prairie Creek Development Co-operation
      Agreement provides for a positive and cooperative working relationship between
      the Company, Nahanni Butte and the Deh Cho First Nations in respect of
      developing and operating an environmentally sound mining undertaking at Prairie
      Creek, which will not have significant adverse environmental effects on the
      ecological integrity of the South Nahanni River or the Nahanni National Park
      Reserve.




21


**ITEM
      5.****OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS**





**A.** **Operating
      Results**





The
      Company’s loss for the year ended December 31, 2006, as determined under U.S.
      GAAP, totaled $9,615,252 ($0.10 per share) compared to a loss of $3,633,448
      ($0.05 per share) in 2005 and $3,038,163 ($0.05 per share) in 2004, with the
      major differences being the level of expenditures on the Prairie Creek
      Property.





Under
      Canadian GAAP the Company reported a net loss of $1,486,416 ($0.02 per share)
      in
      2006 compared to a loss of $1,967,312 ($0.03 per share) in 2005 and compared
      to
      a loss of $679,127 ($0.01 per share) in 2004. The major difference between
      the
      losses as determined under Canadian GAAP and U.S. GAAP is that U.S. GAAP
      requires that all exploration and development costs not be capitalized and
      deferred and be written off as incurred. The amount of this write off was
      $8,128,836 in 2006, compared to $1,666,136 in 2005 and $2,359,036 in 2004.
      Under
      U.S. GAAP the Company would be regarded as an exploration stage
      enterprise.





The
      losses for 2006 and 2005 included non-cash charges of $1,023,000 and $1,314,000
      respectively in respect of stock based compensation arising on the issue during
      the year of stock options to employees and directors. There was no similar
      expense in 2004.




**Exploration
      and Development**





During
      2006 the Company expended $7,871,494 (excluding amortization and accretion)
      on
      exploration and development on the Prairie Creek Property, the principal
      components of which were underground exploration and drilling. The Company
      also
      expended $205,000 on lease and property abandonment deposits.





During
      2005 the Company expended $1,426,212 (excluding amortization and accretion)
      on
      exploration and development on the Prairie Creek Property, the principal
      components of which were site preparation, camp operations, metallurgy,
      transportation, lease rentals and permitting and $30,000 on abandonment
      deposits.





During
      2004 the Company expended $2,120,663 on the Prairie Creek Property and $30,000
      on abandonment deposits.





Particulars
      of the exploration and development costs are shown in Note 4 to the Financial
      Statements.





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





During
      2006 a new bulk metallurgical sample was collected from multiple headings of
      the
      vein within the existing underground development. These samples were composited
      and blended to create representative samples of the ore that will provide feed
      to a future operating mill.





A
      surface
      diamond drill exploration program was started in Zone 8 located a distance
      of 5
      kilometers south of the minesite. This drill program totaled 600 m and returned
      significant mineralized intercepts which will be followed up on in the 2007
      season.





During
      2005 the Company carried out an extensive site preparation program at the
      Prairie Creek Property investing a total of $1,426,212 on mine development.
      The
      underground workings were further rehabilitated and a new electrical substation
      installed underground in preparation for the planned decline and underground
      drilling program. Important site maintenance and environmental work was also
      carried out including the installation of a new water treatment plant and
      construction of a new water polishing pond. A major metallurgical testing
      program was also carried out with encouraging results.





Steady
      progress in permitting the Prairie Creek Mine was made during the year
      2006.





The
      environmental assessment of the Company’s application for a Land Use Permit for
      its Phase 3 Exploration Program at Prairie Creek was completed in December
      2005
      with the issue of a report by the Mackenzie Valley Environmental Impact Review
      Board recommending that the project be approved. In February 2006 the report
      of
      the Review Board was approved by the Minister of Indian Affairs and Northern
      Development and the permit was issued by the Water Board in May 2006. This
      Land
      Use Permit is valid until May 2011 and enables the Company, for the first time,
      to explore and drill anywhere on the extensive Prairie Creek
      property.





The
      Land
      Use Permit for the Phase 2 Exploration Program, originally issued to the Company
      in November 2001, was renewed by the Water Board in November 2006 for a further
      period of two years. This permit enables the Company to drill up to 60 surface
      holes within a 1,000 meter radius of the Prairie Creek mine site and is valid
      until November 30, 2008.





Following
      a decision of the Federal Court of Canada in December 2005 directing the Water
      Board to reissue the Licence, the Type ‘B’ Water Licence, originally issued in
      September 2003 was reissued to Canadian Zinc in February 2006 containing the
      amended terms which had been agreed between the Company and the Minister. The
      Water Licence is valid until September 2008 and is renewable
      thereafter.





**Revenue
      and Interest Income**





The
      Company is in the exploration and development stage and does not generate any
      cash flow. To date the Company has not earned any significant revenues other
      than interest income. Interest income in 2006 was $948,148 compared to $329,115
      in 2005 and $330,076 in 2004, the increase being attributable to higher cash
      balances invested throughout the full year.





**Administrative
      Expenses**





Administrative
      expenses for 2006 (excluding stock based compensation, write off of mining
      equipment and amortization) were $1,380,481, compared to $979,310 in 2005 and
      $1,005,409 in 2004. The major components of expenses were management
      compensation, shareholder and investor communication and professional
      fees.


22


**Stock
      Based Compensation**





In
      2006
      and 2005 the Company recorded stock based compensation expenses of $1,023,000
      and $1,314,000 respectively in respect of the grant of stock options to
      employees and directors. There was no stock based compensation expense in
      2004.





**Amortization
      and Write-offs**





Amortization
      of mining plant and equipment of $50,714 ($36,988 - 2005; $42,837 - 2004) and
      asset retirement obligation of $128,720 ($128,720 - 2005; $128,719 - 2004)
      was
      capitalized to deferred exploration and development costs under Canadian GAAP
      but included in exploration costs written off under U.S. GAAP. Amortization
      expense of $4,403 compared to $3,117 in 2005 and $3,794 in 2004 relates to
      the
      amortization of office equipment. A loss of $26,680 was also recorded on the
      write off of a diesel generator used at the Prairie Creek mine in
      2006.





**Asset
      Retirement Obligations**





The
      Company follows the policy of recognizing the fair value of liabilities for
      asset retirement obligations in the period in which they are incurred. A
      corresponding increase to the carrying amount of the related asset is generally
      recorded and amortized over the life of the asset. During 2004 the Company
      provided $1,227,996 in asset retirement obligations related to the Prairie
      Creek
      Property and a corresponding increase in resource interest assets. At December
      31, 2006 the provision had increased to $1,380,120. Under Canadian GAAP
      amortization of the asset retirement obligation of $128,720 and asset retirement
      accretion of $77,908 (totaling $206,628) was capitalized to deferred exploration
      and development costs in 2006 compared to a total of $202,936 in 2005 and
      $195,536 in 2004. Under U.S. GAAP this amortization and accretion was included
      in exploration and development costs written off.





**Income
      Tax**





The
      Company is currently not taxable and had no income tax expense for 2006, 2005
      or
      2004. The Company has applied the accounting treatment recommended by the
      Canadian Institute of Chartered Accountants Emerging Issues Committee #146
      (EIC-146) requiring the tax effect of the renunciation of $5,675,000 upon the
      issue in 2005 of flow through shares to be recorded in the 2006 fiscal period.
      The net effect of the adoption of EIC-146 has resulted in the recognition of
      a
      future tax liability in respect of the issue of flow through shares of
      $1,134,000 and a corresponding reduction in shareholders’ equity.





**Financial
      Instruments**





Cash
      equivalents and short term investments usually consist of liquid investments
      which are readily convertible into cash. The Company places its cash and cash
      equivalents with high credit quality financial institutions which invest the
      funds in high quality financial instruments. The Company is not exposed to
      significant interest or currency risks arising from these financial
      instruments.





**Critical
      Accounting Policies And Estimates**





Canadian
      Zinc’s accounting policies are described in Note 2 to the financial statements.
      Management considers the following to be the most critical in understanding
      the
      judgments that are involved in preparing the Company’s financial statements and
      the uncertainties that could impact its results of operations, financial
      condition and future cash flows.


23





(i)
            Use
                of
                Estimates





The
      preparation of financial statements requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities at the
      date of the financial statements. The most significant estimates are related
      to
      the carrying value of resource interests and its recoverability, site
      restoration costs and asset retirement and related obligations. Actual results
      could differ from those estimates.





(ii)
            Resource
                Interests





Under
      U.S. GAAP the Company capitalizes only acquisition costs incurred on its Prairie
      Creek Property and exploration and development costs are written off as
      incurred. Under Canadian GAAP the Company capitalizes all exploration and
      development costs incurred on the Prairie Creek Property. The amounts shown
      for
      resource interests do not necessarily reflect present or future values.





The
      carrying value of resource interests are reviewed at least annually or when
      events or changes in circumstances suggest the carrying value of such assets
      may
      not be recoverable or may have become impaired. Management considers assets
      to
      be impaired if the carrying value exceeds the estimated undiscounted cash flows
      expected to result from the use of the asset and its eventual disposition.
      If
      impairment is deemed to exist the asset will be written down to its estimated
      fair value, usually determined using a discounted cash flow analysis. The
      Company includes both measured and indicated resources and some inferred
      resources in its carrying value impairment calculations. These resources have
      not been estimated in accordance with Canadian National Instrument 43-101.
      Management’s estimates of the recoverable reserves and resources, operating and
      capital costs and future metal prices are all subject to risks and uncertainties
      which may affect the assessment of recoverability of amounts recorded for
      resource interests.





(iii)
            Asset
                Retirement Obligations





The
      Company follows the policy which requires that the fair value of liabilities
      for
      an asset retirement obligation be recognized in the period in which they are
      incurred. The Company’s exploration and development activities are subject to
      various laws and regulations governing the protection of the environment. These
      laws and regulations are continually changing and, over time, have become and
      are becoming more restrictive. Future changes to environmental laws and
      regulations could increase the liabilities for asset retirement obligations
      and
      the extent of reclamation and remediation work required to be performed by
      the
      Company.





(iv)
            Stock
                Based Compensation





The
      Company follows the fair value accounting based method for stock options. The
      fair value of stock options is determined by the widely used Black-Scholes
      option pricing model which was developed for use in estimating the fair value
      of
      freely traded options which are fully transferable and have no vesting
      restrictions. The Company’s options have characteristics that are significantly
      different from those of traded options and changes in any of the assumptions
      used can materially affect fair value estimates.





**B.** **Liquidity
      and Capital Resources**





**Cash
      Flow**





Canadian
      Zinc does not generate any cash flow and has no income other than interest
      income. The Company relies on equity financings for its working capital
      requirements and to fund its planned exploration, development and permitting
      activities. Interest income in 2006 was $948,148 compared to $329,115 in 2005
      and $330,076 in 2004.


24




**Source
      of Cash - Financing Activities**





During
      2006 the Company generated $22,037,177 net proceeds from financing activities
      through the issue of a total 27,843,000 shares in private placements, the
      exercise of options and the conversion of warrants.





Of
      the
      total raised $1,530,435 represented proceeds on the issue of flow through shares
      at a premium over the quoted market value and under U.S. GAAP this amount is
      recognized as a liability and will be included in income when the related tax
      benefits are renounced by the Company





During
      2005 the Company generated $5,406,368 net proceeds from financing activities
      through the issue of a total of 10,352,270 shares.





During
      2004 the Company generated $2,444,625 from the exercise of share purchase
      warrants and employee stock options on a total of 4,612,010 shares.





**Use
      of Cash - Investing Activities**





In
      2006,
      cash used in operating activities in accordance with U.S. GAAP was $8,338,136
      the principal component of which was exploration and development costs of
      $7,871,494, whilst cash used in investing activities was, $16,154,553, which
      includes short term investments of $15,478,718. All the exploration and
      development costs were made on the Prairie Creek Property. Details of the
      Company’s exploration and development costs are given in Note 4 to the financial
      statements which show the major components of expenditure.




In
      2005
      cash used in operating activities in accordance with U.S. GAAP was $2,232,546
      which represents corporate and operating expenses plus exploration costs of
      $1,426,212, whilst cash used in investing activities was $17,943.





In
      2004
      cash used in operating activities was $2,830,413 which represents corporate
      and
      operating expenses plus exploration costs of $2,120,663, whilst cash used in
      investing activities was, $45,657.





**Liquidity,
      Financial Condition and Capital Resources**





Canadian
      Zinc’s cash position, including cash equivalents and short term investments was
      $29,087,082 at December 31, 2006 compared to $16,063,876 at December 31, 2005
      and $12,907,997 at December 31, 2004. The increase in 2006 was attributable
      to
      funds raised during the year. The Company’s working capital increased to
      $29,142,161 at December 31, 2006 compared to $16,039,646 at December 31, 2005
      and $12,757,628 at December 31, 2004.





Cash
      and
      working capital at December 31, 2006 include an amount of $6,796,900 in respect
      of unexpended flow through funds, which under U.S. GAAP is classified as
      restricted cash, compared to $5,675,000 at December 31, 2005 and nil at December
      31, 2004.





Under
      U.S. GAAP, the carrying value of the Company’s resource interests at December
      31, 2006 was $4,799,630, compared to $4,723,350 at December 31, 2005 and
      $4,822,070 at December 31, 2004.





In
      accordance with SFAS 144 the Company carried out an impairment review at
      December 31, 2006 and determined that no impairment was deemed to exist and
      no
      write down of the carrying value of the resource interests, determined under
      U.S. GAAP, was required.


25





At
      December 31, 2006, under U.S. GAAP the Company had total liabilities of
      $4,508,902, the principal components of which are: future income tax liabilities
      $1,134,000; flow through share premium $1,530,435 and future asset retirement
      obligations $1,380,120; with the remaining $464,347 representing accounts
      payable and accrued liabilities.





The
      Company is in its strongest ever financial position and is well financed to
      carry out its planned exploration, development and permitting activities. At
      December 31, 2006 the Company had committed to incur Canadian exploration
      expenditures of $8 million in respect of which the Company has renounced to
      certain subscribing shareholders the applicable Canadian exploration expenditure
      (CEE) tax deductions of which $6,796,900 remained to be expended in
      2007.





At
      December 31, 2006 the Company had 107,590,212 common shares outstanding, with
      an
      unlimited authorized capital, compared to 79,747,212 shares at December 31,
      2005
      and 69,394,942 common shares at December 31, 2004. During 2004 at a meeting
      of
      shareholders the Company’s authorized capital increased from 200,000,000 common
      shares of no par value to an unlimited number of common shares of no par value.
      All common shares have one vote and rank equally for the payment of dividends
      or
      distribution of capital.





At
      December 31, 2006 the Company had outstanding 4,780,000 stock options
      exercisable between $0.23 to $0.90 with expiring dates of between March 18,
      2007
      and December 13, 2011 and 11,995,493 share purchase warrants outstanding
      exercisable at prices between $0.72 to $1.15 per share and with expiry dates
      of
      January 30, 2008 and November 23, 2008. Exercise of all outstanding options
      and
      warrants would generate $15,399,000 in total proceeds.





**C.** **Research
      and Development, Patents and Licenses, etc.**





As
      the
      Company is a mineral exploration company with no producing properties, the
      information required by this section is inapplicable.





**D.** **Trend
      Information**





The
      Company is a mineral exploration company with no producing properties, no
      operations and no cash flow. The Company is in the process of exploring and
      developing the Prairie Creek Mine property.





Canadian
      Zinc is currently in an exploration and development phase. At December 31,
      2006
      the Company held cash, cash equivalents and short term investments of $29
      million, placing the Company in a strong financial position to carry out its
      planned exploration, development and permitting activities.





The
      principal minerals in the Prairie Creek deposit are zinc, lead and silver.
      Demand for zinc and lead increased in 2006 with strong global economic growth
      led by China and other Asian countries. The price of zinc rose throughout 2006
      from a price of US$0.87 per pound at the beginning of the year to US $1.96
      per
      pound at year end, averaging US$1.43 per pound for the year, up significantly
      from an average of US$0.63 per pound in 2005. LME stocks of zinc fell by over
      300,000 tonnes to about 88,000 tonnes. The price of lead increased from US$0.50
      per pound at the beginning of the year to US$0.80 per pound at year end. The
      market for lead was also strong in 2006 with demand exceeding supply resulting
      in a reduced level of stocks. The price of silver improved strongly during
      2006
      from US$8.83 per ounce at the start of the year, reaching a high of US$14.94
      per
      ounce in May, ending the year at US$12.90 per ounce and averaging US$11.55
      per
      ounce for the year.





The
      prices of zinc, silver and lead are expected to remain strong over the medium
      term. Economic growth in China will continue to be the major factor influencing
      global supply and demand of zinc and lead while the silver price will be
      influenced by investment and speculative economic
      considerations.


26


The
      prices of metals fluctuate widely and are affected by many factors outside
      the
      Company's control. The relative prices of metals and future expectations for
      such prices have a significant impact on the market sentiment for investment
      in
      mining and mineral exploration companies. Metal price fluctuations may be either
      exacerbated or mitigated by international currency fluctuations which affect
      the
      metal price received in terms of the domestic currency in which they are
      produced. The Company relies on equity financings for its working capital
      requirements and to fund its exploration, development and permitting activities.
      The Company does not have sufficient funds to put the Prairie Creek Property
      into production from its own financial resources. There is no assurance that
      such financing will be available to the Company, or that it will be available
      on
      acceptable terms.





Plans
      for
      2007 include continuing the Company’s ongoing underground exploration and infill
      drilling program, as well as a large exploration program on the Prairie Creek
      property outside the immediate currently known resource area. At the same time
      ongoing technical and metallurgical studies will continue to advance the project
      towards commercial production. The Company will also continue with its
      permitting activities. The application for the Land Use Permits and Water
      Licence for the commercial operation of the Prairie Creek Mine will be filed
      during the year. It is estimated that the remaining permitting work will take
      approximately two years and will cost $3.0 to $5.0 million, depending on the
      level of environmental and assessment work required. A budget of $ 9.0 million
      has been approved for the Prairie Creek project for 2007.





The
      Company has also undertaken the review of a number of other new mining
      investment opportunities during 2006 and this activity will continue in
      2007.





To
      carry
      out exploration and development and to bring the Prairie Creek Property into
      commercial production will require substantial financing as the Company has
      insufficient funds on hand to complete the project at this time. The Company
      believes that the work currently underway will demonstrate sufficient potential
      commercial values that future equity/debt financings and/or joint ventures
      can
      be arranged to bring the project to a successful completion.





However,
      there is no assurance that additional funding will be available to the Company
      to complete exploration or development. Although the Company has been successful
      in the past in obtaining financing through the sale of equity securities, there
      can be no assurance that the Company will be able to obtain adequate financing
      in the future or that the terms of such financing will be favorable. Failure
      to
      obtain such additional financing could result in delay or indefinite
      postponement of development with the possible impairment or loss of the
      property.





**E.** **Off-Balance
      Sheet Arrangements**





Canadian
      Zinc has no off balance sheet financing arrangements in place.





**F.** **Contractual
      Obligations**





Canadian
      Zinc is debt free, has no long term debt, or material lease or purchase
      contractual obligations in place.


**G. Safe
        Harbor**




Some
      of
      the statements contained in this document are forward-looking statements, such
      as estimates and statements that describe the Company’s future plans, objectives
      or goals, including words to the effect that the Company or management expects
      a
      stated condition or result to occur. Forward-looking statements may be
      identified by such terms as “believes”, “anticipates”, “expects”, “estimates”,
“may”, “could”, “would”, “will”, or “plan”. Such forward-looking statements are
      made pursuant to the safe harbour provisions of the United States Private
      Securities Litigation Reform Act of 1995.





27


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





Other
      factors that may cause actual results to vary materially include, but are not
      limited to, delays in the receipt of permits or regulatory approvals, changes
      in
      commodity and power prices, changes in interest and currency exchange rates,
      geological and metallurgical assumptions (including with respect to the size,
      grade and recoverability of mineral resources) unanticipated operational
      difficulties (including failure with plant, equipment or processes to operate
      in
      accordance with specifications or expectations) cost escalation, unavailability
      of materials and equipment, industrial disturbances or other job action, and
      unanticipated events related to health, safety and environmental matters,
      political risk, social unrest, and changes in general economic conditions or
      conditions in the financial markets. Mineral resources that are not mineral
      reserves do not have demonstrated economic viability. Inferred mineral resources
      are considered too speculative geologically to have economic considerations
      applied to them that would enable them to be categorized as mineral reserves.
      There is no certainty that mineral resources will be converted into mineral
      reserves. The Company does not currently hold a permit for the operation of
      the
      Prairie Creek Mine.





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


28


**ITEM
      6.****DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES**


**A.**                
        **Directors and Senior Management**


**Name,
                Province or State and Country of Ordinary Residence and Position
                Held with
                the Company**
            **Age**
            **Principal
                Occupation During Preceding**
              **Five
                Years**
            **Date
                First Became Director of the Company**
            **Common
                Shares beneficially owned, directly or indirectly, or over which
                control
                or direction is exercised**Robert
                Gayton
              British
                Columbia, Canada Director
            67
            Chartered
                accountant/financial consultant; Director of eleven public companies,
                including Western Copper Corp., Bravo Venture Group, Intrinsyc Software
                Inc., Doublestar Resources Ltd., Northern Orion Resources Inc. ,
                Nevsun
                Resources Ltd. and Quaterra Resources Inc.
            May
                2000
            5,000
                common sharesJohn
                F. Kearney
              Ontario,
                Canada
              Chairman,
                President, Chief Executive Officer and Director
            56
            Chairman,
                President and Chief Executive Officer of Canadian Zinc Corporation
                since
                2003; Chairman of Conquest Resources Limited since 2001; Chairman
                of
                Anglesey Mining plc since 1994.
            November
                2001
            765,409
                common sharesJohn
                MacPherson
              British
                Columbia, Canada
              Director
            63
            Chairman
                of Tower Energy Ltd.; Chairman of Canadian Zinc Corporation from
                2000 to
                June 2003.
            May
                1999
            50,000
                common sharesDave
                Nickerson
              Northwest
                Territories, Canada
              Director
            62
            Professional
                Engineer, Mining consultant, Director, Tyhee Development Corp.; previously
                Chairman of Northwest Territories Water Board; Member of Parliament,
                Member of NWT Legislative Assembly; Government Minister
            March
                2004
            NilAlan
                C. Savage
              British
                Columbia, Canada
              Director
            64
            Chairman
                of Doublestar Resources Ltd.; Director of Copper Ridge Exploration
                Ltd.
            June
                2003
            2,000
                common sharesAlan
                Taylor
              British
                Columbia, Canada
              Vice
                President, Exploration, Chief Operating Officer and
                Director
            50
            Vice
                President, Exploration of Canadian Zinc Corporation since 1999 and
                Chief
                Operating Officer of Canadian Zinc Corporation since March 2004.
                Director
                of Sunrise Minerals Inc.
            March
                2004
            NilDanesh
                D. Varma
              Surrey,
                United Kingdom
              Chief
                Financial Officer
            57
            Chartered
                Accountant, Beer & Partners Limited (corporate finance firm);
                President American Resource Corporation Limited (investment company);
                Director Anglesey Mining plc
            N/A
            NilBea
                Service
              Ontario,
                Canada
              Secretary
            56
            Treasurer,
                Energold Minerals Inc. (resource company); Administrator, Conquest
                Resources Inc. (resource company)
            N/A
            Nil


As
      at May
      11, 2007, the Directors and senior officers as a group beneficially own,
      directly or indirectly, less than 1% of the outstanding common shares of the
      Company.


29


**B.** **Compensation**




The
      Company has three executive officers (comprised of persons who are the Chairman
      and President; the Chief Operating Officer; and the Chief Financial Officer),
      who perform policy making functions. Particulars of compensation paid and stock
      options granted to Directors and Executive Officers are contained in the
      Company’s Information Circular dated May 11, 2007 filed as Exhibit 15.B hereto
      and incorporated herein by reference.





The
      following table sets forth all annual and long-term compensation for services
      in
      all capacities to the Company and its subsidiaries for the three most recently
      completed financial years in respect of John F. Kearney, the Chief Executive
      Officer of the Company, Alan Taylor, the Chief Operating Officer of the Company,
      and Danesh Varma, the Chief Financial Officer of the Company (the " **Named**  **Executive
      Officers** ").
      No
      other executive officers of the Company were in receipt of salaries or bonuses
      in excess of $150,000 during the financial year ended December 31,
      2006.







**Summary
      Compensation Table**


**Annual
                Compensation**
            **Long-Term
                Compensation****Awards**
            **Payouts****Name**
              **And**
              **Principal**
              **Position**
            **Year**
            **Salary**
              
              **($)**
            **Bonus**
              **($)**
            **Other**
              **Annual**
              **Compen-sation**
              
              **($)**
            **Securities
                Under Options/**
              **SARs
                Granted**
              
              **(#)**
            **Shares
                or Units Subject to Resale Restrictions**
              
              **($)**
            **LTIP
                Payouts**
              
              **($)**
            **All
                Other Compen-sation**
              
              **($)**John
                F. Kearney
              Chairman,
                President and Chief Executive Officer
            2006
              2005
              2004
            $180,000(1)
              144,000
              110,000
            $72,000(1)
              Nil
              97,500
            Nil
              Nil
              Nil
            200,000
              1,000,000
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              NilAlan
                B. Taylor
              Chief
                Operating Officer
            2006
              2005
              2004
            $176,069
              144,000
              119,750
            $72,000
              Nil
              50,000
            Nil
              Nil
              Nil
            200,000
              700,000
              Nil
            Nil
              Nil
            Nil
              Nil
            Nil
              NilDanesh
                D. Varma
              Chief
                Financial Officer(2)
            2006
              2005
            12,000
              12,490
            Nil
              Nil
            Nil
              Nil
            Nil
              Nil
            Nil
              Nil
            Nil
              Nil
            Nil
              Nil


(1)
            Paid
                to a private company controlled by John F.
                Kearney.




(2)
            Mr.
                Varma was appointed CFO in February 2005.











For
      the
      financial year 2006, the Company paid each Director, other than executive
      officers, an annual fee of $10,000 plus $500 for each meeting or committee
      meeting attended. An aggregate of $68,100 was paid to Directors for their
      services as directors during 2006.





From
      time
      to time, Directors may be retained to provide specific services to the Company
      and will be compensated on a basis to be negotiated. In 2004 John MacPherson
      was
      paid $10,554 for consulting services.





The
      Company has no plans, other than the Company's stock option 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. Directors are eligible to participate in
      the
      stock option plans. During the financial years ended December 31, 2006 and
      2005,
      stock options on a total 1,200,000 and 3,300,000 shares respectively were
      granted to Directors of the Company pursuant to the Company’s Stock Option
      Plan.


30


Plans





The
      Company does not have any pension plans, stock purchase plans or any other
      arrangements whereby compensation is paid, directly or indirectly, to its
      insiders, directors, executive officers or employees.





Stock
      Options





The
      following table sets out certain information with respect to options to purchase
      Common Shares exercised by the Company’s Named Executive Officers during the
      financial year ended December 31, 2006 and options held by them at the end
      of
      such year.





**Name**
            **Securities
                Acquired**
              **on
                Exercise**
              **(#)**
            **Aggregate**
              **Value**
              **Realized**
              **($)**
            **Unexercised
                Options/SARs**
              **at
                Financial**
              **Year-End**
              **(#)**
              **Exercisable/**
              **Unexercisable**
            **Value
                of Unexercised**
              **In-the-Money**
              **Options/SARs**
              **at
                Financial Year-End**(1)
              **($)**
              **Exercisable/**
              **Unexercisable**John
                F. Kearney
            Nil
            Nil
            1,650,000/Nil
            $535,500/NilAlan
                B. Taylor
            Nil
            Nil
            900,000/Nil
            $174,000/NilDanesh
                Varma
            Nil
            Nil
            Nil
            Nil


(1) The
      closing price of the common shares of the Company on The Toronto Stock Exchange
      (the " **TSX** ")


on
      December 29, 2006 was $0.86.







Following
      amendments made by the Toronto Stock Exchange to its Company Manual effective
      January 1, 2005, the Company has implemented amendments to its Stock Option
      Plan
      to change the maximum number of common shares which may be made subject to
      option from time to time from a fixed number to a rolling maximum of 10% of
      the
      Company's issued and outstanding share capital at the time of grant. Current
      outstanding options will continue to be exercisable and will be governed by
      and
      subject to the terms of the amended plan.




Termination
      of Employment or Change of Control





There
      exists no plan or arrangement in respect of which compensation has been paid
      or
      may be paid to executive officers or directors to compensate them for
      termination of employment, retirement or resignation or in the event of a change
      in duties or responsibilities as a result of a change of control of the
      Company.





Indebtedness
      of Directors and Senior Officers





No
      director or Senior Officer of the Company, or associate or affiliate of any
      such
      director or senior officer is indebted to the Company.





**C.** **Board
      Practices**





The
      Directors hold office for a term of one year or until the next annual general
      meeting of the Company, at which time all directors retire, and are eligible
      for
      re-election. There are two board committees: the Audit Committee comprised
      of
      Messrs. Gayton, Nickerson and Savage; and the Compensation Committee comprised
      of Messrs. Gayton and Savage. The Audit Committee operates under an Audit
      Committee Charter.





See
      Statement of Corporate Governance Practices and Report on Executive Compensation
      contained in the Company’s Information Circular dated May 11, 2007 filed as
      Exhibit 15.B hereto and incorporated herein by reference.





The
      Company does not have any directors service contract.





**D.** **Employees**





During
      the fiscal years ended December 31, 2006, 2005 and 2004, the Company had an
      average of thirteen, seven and seven employees, respectively. At December 31,
      2006, of the thirteen employees, two worked in management roles, one in
      accounting, one in administrative roles or in other aspects of the Company’s
      mineral exploration work. During 2006 the Company also employed an average
      of
      nine temporary employees (excluding contractor personnel) on a seasonal
      basis.





**E.** **Share
      Ownership**





The
      share
      ownership of those persons listed in subsection 6.B is shown on the table
      included in subsection 6.A and the table included in subsection 6.B includes
      details of all options or warrants to purchase shares of the Company held by
      such persons.





**ITEM
      7.****MAJOR
      SHAREHOLDER AND RELATED PARTY TRANSACTIONS**





**A.** **Major
      Shareholders**





To
      the
      best of the Company’s knowledge, there are no beneficial owners of more than 5%
      of the Company’s common shares.





As
      of May
      11, 2007, the Directors and Senior Officers of the Company as a group
      beneficially own, directly or indirectly, less than 1% of the outstanding common
      shares of the Company.





**B.** **Related
      Party Transactions**





There
      were no material transactions in the fiscal year ended December 31, 2006, or
      proposed material transactions between the Company or any of its subsidiaries
      and:





(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 executive and director compensation as set out in Note 8 to
                Financial
                Statements.


31


**C.** **Interests
      of Experts and Counsel**





This
      Form
      20-F is being filed as an Annual Report under the Exchange Act and, as such,
      there is no requirement to provide any information under this
      section.




**ITEM
      8.****FINANCIAL
      INFORMATION**





**A.** **Consolidated
      Statements and Other Financial Information**





This
      Annual Report contains the financial statements for the Company for the fiscal
      year ended December 31, 2006 which contains an Audit Report dated March 22,
      2007, Balance Sheets as at December 31, 2006 and 2005; Statements of Loss and
      Deficit for the Fiscal Years Ended December 31, 2006, 2005 and 2004; Statements
      of Cash Flows for the Fiscal Years Ended December 31, 2006, 2005 and 2004 and
      Notes to the Financial Statements.





**B.**
            **Significant
                Changes**





No
      significant change has occurred since the date of the annual financial
      statements included in this Annual Report on Form 20-F.





**ITEM
      9.****THE
      OFFER AND LISTING**





**A.**
            **Offer
                and Listing
                Details**





The
      high
      and low sale prices for the common shares of the Company on the Toronto Stock
      Exchange (“TSX”) for each of the most recent ix months (being the first four
      months of 2007 and last two months of 2006), each financial quarter in each
      of
      the last two full financial years and in each of the last five full financial
      years are as follows:





High
            LowCan.$
            Can.$April
                2007
            $0.95
            $0.69March
                2007
            $0.72
            $0.58February
                2007
            $0.76
            $0.63January
                2007
            $0.92
            $0.72December
                2006
            $0.91
            $0.74November
                2006
            $1.02
            $0.7720064thQuarter
            $1.02
            $0.563rdQuarter
            $0.94
            $0.532ndQuarter
            $1.63
            $0.711stQuarter
            $1.34
            $0.7520054thQuarter
            $0.88
            $0.443rdQuarter
            $0.58
            $0.402ndQuarter
            $0.68
            $0.251stQuarter
            $0.83
            $0.512005
            $0.88
            $0.252004
            $2.04
            $0.512003
            $1.73
            $0.092002
            $0.32
            $0.132001
            $0.42
            $0.12





The
      high
      and low prices for the common shares of the Company as quoted on the
      (Non-NASDAQ) “Over the Counter - Other” Quotation System, for each of the most
      recent six months (being the first four months of 2007and last two months of
      2006), each financial quarter in each of the last two full financial years
      and
      in each of the last five full financial years are as follows:





High
            LowUS$
            US$April
                2007
            $0.82
            $0.59March
                2007
            $0.63
            $0.48February
                2007
            $0.66
            $0.54January
                2007
            $0.77
            $0.60December
                2006
            $0.80
            $0.64November
                2006
            $0.89
            $0.6820064thQuarter
            $0.89
            $0.643rdQuarter
            $0.76
            $0.352ndQuarter
            $1.32
            $0.631stQuarter
            $1.16
            $0.0820054thQuarter
            $0.75
            $0.383rdQuarter
            $0.50
            $0.322ndQuarter
            $0.51
            $0.281stQuarter
            $0.68
            $0.4020044thQuarter
            $0.67
            $0.393rdQuarter
            $0.75
            $0.452ndQuarter
            $1.02
            $0.361stQuarter
            $1.60
            $0.802005
            $0.75
            $0.282004
            $1.60
            $0.362003
            $1.36
            $0.062002
            $0.23
            $0.082001
            $0.28
            $0.08





**B.** **Plan
      of Distribution**





This
      Form
      20-F is being filed as an Annual Report under the Exchange Act, as such there
      is
      no requirement to provide any information under this section.





**C.** **Markets**





The
      Company's common shares trade on the “TSX" in Toronto, Ontario, Canada, under
      the trading symbol "CZN" and CUSIP #136802105.





The
      Company's common shares commenced trading on the TSX on December 7, 1993 and
      under the name Canadian Zinc Corporation commenced trading June 2,
      1999.





The
      Company’s common shares are traded in the United States (Non-NASDAQ Over the
      Counter Other) by the National Association of Securities Dealers Quotation
      System under the symbol “CZICF”. In April 2007 the Company’s shares were
      admitted for quotation on the OTC Bulletin Board under the symbol OTCBB-“CZICF”,
      and are also dually quoted on the OTC Pink Sheets.





**D.** **Selling
      Shareholders**





This
      Form
      20-F is being filed as an Annual Report under the Exchange Act and, as such,
      there is no requirement to provide any information under this
      section.





**E.** **Dilution**





This
      Form
      20-F is being filed as an Annual Report under the Exchange Act and, as such,
      there is no requirement to provide any information under this
      section.





**F.** **Expenses
      of the Issue**





This
      Form
      20-F is being filed as an Annual Report under the Exchange Act and, as such,
      there is no requirement to provide any information under this
      section.





**ITEM
      10.****ADDITIONAL
      INFORMATION**





**A.** **Share
      Capital**





This
      Form
      20-F is being filed as an Annual Report under the Exchange Act and, as such,
      there is no requirement to provide any information under this section.





**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


32


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.





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**





The
      Company has not entered into any contracts other than in the ordinary course
      of
      business during the past two years.





**D.** **Exchange
      Controls**





The
      Investment Canada Act (the “ICA”), which became effective on June 30, 1985,
      regulates the acquisition by non-Canadians of control of a Canadian business
      enterprise. In effect, the ICA required review by Investment Canada, the agency
      which administers the ICA, and approval by the Canadian government in the case
      of an acquisition of control of a Canadian business by a non-Canadian (other
      that a “NAFTA investor” as defined in the ICA) where: (i) in the case of a
      direct 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 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.





In
      the
      context of the Company, in essence, three methods of acquiring control of a
      Canadian business are regulated by the ICA: (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
      shares 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 ICA. 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 venture 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
      1988,
      the ICA was amended pursuant to the Free Trade Agreement dated January 2, 1988
      between Canada and the United States to relax the restriction of the ICA. As
      a
      result of these amendments, except where the Canadian business is in the
      cultural, oil and gas, uranium, financial services or transportation sectors,
      the threshold for direct acquisition of control by U.S. investors and other
      foreign investors acquiring control of a Canadian business from U.S. investors
      has been raised from $5 million to $150 million of gross assets, and indirect
      acquisitions are not reviewable.





In
      addition to the foregoing, the ICA 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**





The
      following summary of the material Canadian federal income tax considerations
      generally applicable in respect of the common shares reflects the Company’s
      opinion to the best of its knowledge. **It
      is not**  **intended
      as legal or tax advice to any particular holder of common stock and should
      not
      be so construed. Each shareholder should consult his own tax advisor with
      respect to the income tax consequences applicable to him in his own particular
      circumstances.** The tax
      consequences to any particular holder of common shares will vary according
      to
      the status of that holder as an individual, trust, corporation or member of
      a
      partnership, the jurisdiction in which that holder is subject to taxation,
      the
      place where that holder is resident and, generally, according to that holder’s
      particular circumstances. This summary is applicable only to holders who are
      resident in the United States, have never been resident in Canada, deal at
      arm’s
      length with the Company, hold their common shares as capital property and who
      will not use or hold the common shares in carrying on business in Canada.
      Special rules, which are not discussed in this summary, may apply to a United
      States holder that is a Company that carries on business in Canada and
      elsewhere.





This
      summary is based upon the provisions of the Income Tax Act of Canada and the
      regulations thereunder (collectively, the “Tax Act, or ITA”) and the
      Canada-United States Tax Convention as amended by the Protocols thereto (the
      “Tax Convention”) as at the date of this Annual Report and the current
      administrative practices of Canada and Revenue Agency. This summary does not
      take into account Canadian provincial income tax consequences. This summary
      is
      not exhaustive of all possible income tax consequences.





**North
      American Free Trade Agreement (Canada):** The
      Investment Act was amended with the North American Free Trade Agreement (NAFTA)
      to provide for special review thresholds for Americans (including
“American-controlled “entities” as defined in the Investment Act). Under the
      Investment Act, as amended, an investment in the Company’s common shares by an
      American would be reviewable only if it was an investment to acquire control
      of
      the Company and the value of the assets of the Company was equal to or greater
      than a specified amount (the “Review Threshold”), which increases in stages. The
      Review Threshold is currently $150 million.


33


**Disposition
      of Common Shares:** If
      a
      non-resident were to dispose of common shares of the Company to a Canadian
      corporation which deals or is deemed to deal on a non-arm’s length basis with
      the non-resident and which, immediately after the disposition, is connected
      with
      the Company (i.e., which holds shares representing more than 10% of the voting
      power and more than 10% of the market value of all issued and outstanding shares
      of the Company), the amount by which the fair market value of any consideration
      (other than any shares of the purchaser corporation) exceeds the paid-up capital
      of the common shares sold will be deemed to be taxable as a dividend paid by
      the
      purchasing corporation.





**Dividend:** In
      the
      case of any dividends paid to non-residents, the Canadian tax is withheld by
      the
      Company, which remits only the net amount to the shareholder. By virtue of
      Article X of the Tax Convention, the rate of tax on dividends paid to residents
      of the United States is generally limited to 15% of the gross dividend (or
      5% in
      the case of certain corporate shareholders owning at least 10% of the Company’s
      voting shares). In the absence of the Tax Convention provisions, the rate of
      Canadian withholding tax imposed on non-residents is 25% of the gross dividend.
      Stock dividends received by non-residents from the Company are taxable by Canada
      as ordinary dividends and therefore the withholding tax rates will be
      applicable.





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.





**Capital
      Gains:** A
      non-resident of Canada is not subject to tax under the ITA in respect of a
      capital gain realized upon the disposition of a share of a class that is listed
      on a prescribed stock exchange unless the share represents “taxable Canadian
      property’ to the holder thereof. A common share of the Company will be taxable
      Canadian property to a non-resident holder if, at any time during the period
      of
      five years immediately preceding the disposition, the non-resident holder,
      persons with whom the non-resident holder did not deal at arm’s length, or the
      non-resident holder and persons with whom he/she did not deal at arm’s length
      owned 25% or more of the issued shares of any class or series of the Company.
      In
      the case of a non-resident holder to whom shares of the Company represent
      taxable Canadian property and who is resident in the United States, no Canadian
      tax will be payable on a capital gain realized on such shares by reason of
      the
      Tax Convention unless the value of such shares is derived principally from
      real
      property situated in Canada or, in certain circumstances, the non-resident
      shareholder was previously resident in Canada and held the shares at a time
      when
      he/she ceased to be a resident of Canada. The Company believes that the value
      of
      its common shares is not derived from real property situated inside
      Canada.





**Certain
      United States Federal Income Tax Consequences:** The
      following is a summary discussion of certain United States Federal income tax
      considerations, under the law, generally applicable to a U.S. Holder (as defined
      below) of common shares of the Company. This discussion does not address all
      potentially relevant Federal income tax matter and it does not address
      consequences peculiar to persons subject to special provisions of Federal income
      tax law, such as those described below as excluded from the definition of a
      U.S.
      Holder. In addition, this discussion does not cover any state, local or foreign
      tax consequences.





**To
      ensure compliance with United States Treasury Department Internal Revenue
      Service Circular 230, U.S. Holders are hereby notified that (A) any discussion
      of United States Federal Tax issues contained or referred to in this document
      is
      not intended or written to be used or relied upon, and cannot be used or relied
      upon by U.S. Holders, for the purpose of avoiding penalties that may be imposed
      on them under the United States Internal Revenue Code, (B) the discussion
      contained or referred to herein is written to assist U.S. Holders or investors
      who are considering investing in the Company and (C) prospective investors
      should seek advice based on their particular circumstances from an independent
      tax advisor.**





34


The
      following discussion is based upon the sections of the Internal Revenue Code
      of
      1986, as amended (“the Code”), Treasury Regulations, published Internal Revenue
      Service (“IRS”) rulings, published administrative positions of the IRS and court
      decisions that are currently applicable and the Convention between Canada and
      the United States of America with respect to Taxes on Income and on Capital
      signed September 26, 1980 as amended (the “Canada-U.S. Tax Convention”) any or
      all of which could be materially and adversely changed, possibly on a
      retroactive basis, at any time. In addition, the discussion does not consider
      the potential effects, both adverse and beneficial, of recently proposed
      legislation which, if enacted, could be applied, possibly on a retroactive
      basis, at any time.





The
      following discussion is for general information only and is not intended to
      be,
      nor should it be construed to be, legal or tax advice to any holder or
      prospective holder of common shares of the Company and no opinion or
      representation with respect to the United States Federal income tax consequences
      to any such holder or prospective holder is made. Accordingly, holders and
      prospective holders of common shares of the Company should consult their own
      tax
      advisors about the federal, state, local, and foreign tax consequences of
      purchasing, owning and disposing of common shares of the Company.





U.S.
      Holders as used herein, a (“U.S. Holder”) includes a holder of common shares of
      the Company who for U.S. Federal income tax purposes is a citizen or resident
      of
      the United States, a corporation created or organized in or under the laws
      of
      the United States or of any political subdivision thereof and any other person
      or entity whose ownership of common shares of the Company is effectively
      connected with the conduct of a trade or business in the United States. A U.S.
      Holder does not include persons subject to special provisions of Federal income
      tax law, such a tax-exempt organizations, qualified retirement plans, financial
      institutions, insurance companies, real estate investment trusts, regulated
      investment companies, broker-dealers, non-resident alien individuals or foreign
      corporations whose ownership of common shares of the Company is not effectively
      connected with the conduct of a trade or business in the United States and
      shareholders who acquired their stock through the exercise of employee stock
      options or otherwise as compensation.





**Distributions
      on Common Shares of the Company:** U.S.
      Holders receiving dividend distributions (including constructive dividends)
      with
      respect to common shares of the Company are required to include in gross income
      for United States Federal income tax purposes the gross amount of such
      distributions to the extent that the Company has current or accumulated earnings
      and profits, without reduction for any Canadian income tax withheld from such
      distributions. Such Canadian tax withheld may be credited, subject to certain
      limitations, against the U.S. holder’s United States Federal Income tax
      liability or, alternatively, may be deducted in computing the U.S. Holder’s
      United States Federal taxable income by those who itemize deductions (See more
      detailed discussion at “Foreign Tax Credit” below). To the extent that
      distributions exceed current or accumulated earnings and profits of the Company,
      they will be treated first as a return of capital up to the U.S. Holder’s
      adjusted tax basis in the common shares and thereafter as gain from the sale
      or
      exchange of the common shares.





Preferential
      tax rates for long-term capital gains are applicable to a U.S. Holder which
      is
      an individual, estate or trust. There are currently no preferential tax rates
      for long-term capital gains for a U.S. Holder which is a
      corporation.





Dividends
      paid on the common shares of the Company will not generally be eligible for
      the
“dividends received deduction” provided to corporations receiving dividends from
      certain United States corporations. A U.S. Holder which is a corporation may,
      under certain circumstances, be entitled to a 70% deduction of the United States
      source portion of dividends received from the Company (unless the Company
      qualifies as a “foreign personal holding company” or a “passive foreign
      investment company”, as defined below) if such U.S. Holder owns shares
      representing at least 10% of the voting power and value of the Company. The
      availability of this deduction is subject to several complex limitations which
      are beyond the scope of this discussion.





35


For
      taxable years beginning before January 1, 2011, a dividend paid by the Company
      generally will be taxed at the preferential tax rates applicable to long-term
      capital gains if (a) the Company is a “qualified foreign corporation” (as
      defined below), (b) the U.S. Holder receiving such dividend is an individual,
      estate, or trust, and (c) such dividend is paid on Common Shares that have
      been
      held by such U.S. Holder for at least 61 days during the 121-day period
      beginning 60 days before the “ex-dividend date.”





The
      Company generally will be a “qualified foreign corporation” under Section
      I(h)(II) of the Code (a “QFC”) if (a) the Company is eligible for the benefits
      of the Canada-US Tax Convention, or (b) the Common Shares are readily tradable
      on an established securities market in the U.S. However, even if the Company
      satisfies one or more of such requirements, the Company will not be treated
      as a
      QFC if the Company is a PFIC for the taxable year during which the Company
      pays
      a dividend or for the preceding taxable year. As discussed below, the Company
      believes that the Company is not a PFIC (See “Passive Foreign Investment
      Company”, below). The Company can provide no assurances that it will be a QFC
      for future taxable years.





**Distributions
      Paid in Foreign Currency:** The
      amount of a distribution received on the Common Shares in foreign currency
      generally will be equal to the U.S. dollar value of such distribution based
      on
      the exchange rate applicable on the date of receipt. A U.S. Holder that does
      not
      convert foreign currency received as a distribution into U.S. dollars on the
      date of receipt generally will have a tax basis in such foreign currency equal
      to the U.S. dollar value of such foreign currency on the date of receipt. Any
      subsequent changes in the dollar value of the foreign currency could cause
      such
      a U.S. Holder to recognize ordinary income or loss on the sale or other taxable
      disposition of such foreign currency (including an exchange for U.S.
      dollars).





**Foreign
      Tax Credit:** A
      U.S.
      Holder who pays (or has withheld from distributions) Canadian income tax with
      respect to dividends received on the common shares or with respect to the
      ownership of common shares of the Company may be entitled, at the option of
      the
      U.S. Holder, either to a deduction or a tax credit for such foreign tax paid
      or
      withheld. Generally, it will be more advantageous to claim a credit because
      a
      credit reduces United States Federal income taxes on a dollar-for-dollar basis,
      while a deduction merely reduces the taxpayer’s income subject to tax. This
      election is made on a year-by-year basis and applies to all foreign income
      taxes
      (or taxes in lieu of income tax) paid by (or withheld from) the U.S. Holder
      during the year. There are significant and complex limitations which apply
      to
      the foreign tax credit, among which is the general limitation that the credit
      cannot exceed the proportionate share of the U.S. Holder’s United States income
      tax liability that the U.S. Holder’s foreign source income bears to his/her or
      its worldwide taxable income. In the determination of the application of this
      limitation, the various items of income and deduction must be classified into
      foreign and domestic sources. Complex rules govern this classification process.
      There are further limitations on the foreign tax credit for certain types of
      income such as “passive income”, “high withholding tax interest”, “financial
      services income”, “shipping income”, and certain other classifications of
      income. The availability of the foreign tax credit and the application of the
      limitations on the credit are fact specific and holders and prospective holders
      of common shares of the Company should consult their own tax advisors regarding
      their individual circumstances.





**Disposition
      of Common Shares of the Company:** A
      U.S.
      Holder will recognize a gain or loss upon the sale or other taxable disposition
      of common shares of the Company equal to the difference, if any, between (i)
      the
      amount of cash plus the fair market value of any property received, and (ii)
      the
      shareholder’s adjusted tax basis in the common shares of the Company. This gain
      or loss will be a capital gain or loss if the common shares are a capital asset
      in the hands of the U.S. Holder, which will be a short-term or long-term capital
      gain or loss depending upon the holding period of the U.S. Holder. Gains and
      losses are netted and combined according to special rules in arriving at the
      overall capital gain or loss for a particular tax year. Deductions for net
      capital losses are subject to significant limitation. For U.S. Holders which
      are
      individuals, any unused portion of such net capital loss may be carried over
      to
      be used in later tax years until such net capital loss is thereby exhausted.
      For
      U.S. Holders which are corporations (other than corporations subject to
      Subchapter S of the Code), an unused net capital loss may be carried back three
      years from the loss year and carried forward five years from the loss year
      to be
      offset against capital gains until such net capital loss is thereby
      exhausted.


36


**Other
      Considerations:** In
      the
      following four circumstances, the above sections of the discussion may not
      describe the United States Federal income tax consequences resulting from the
      holding and disposition of common shares of the Company. However, on the basis
      of (a) the number of shareholders of its common shares, (b) the majority
      ownership of its shares by Canadian residents, and (c) the majority of its
      assets are actively managed (not passively held), the Company believes that
      it
      is neither a “Foreign Personal Holding Company”, “Foreign Investment Company”,
“Passive Foreign Investment Company”, nor a “Controlled Foreign
      Corporation”.





**Foreign
      Personal Holding Company:** If
      at any
      time during a taxable year more than 50% of the total combined voting power
      or
      the total value of the Company outstanding shares is owned, actually or
      constructively, by five or fewer individuals who are citizens or residents
      of
      the United States and 50% or more of the Company’s gross income for such year
      was derived from certain passive sources (e.g. from dividends received from
      its
      subsidiaries), the Company would be treated as a “foreign personal holding
      company”. In that event, U.S. Holders that hold common shares of the Company
      would be required to include in gross income for such year their allowable
      portions of such passive income to the extent the Company does not actually
      distribute such income.





**Foreign
      Investment Company:** If
      50% or
      more of the combined voting power or total value of the Company outstanding
      shares are held, actually or constructively, by citizens or residents of the
      United States, United States domestic partnerships or corporations, or estates
      or trusts other that foreign estates or trusts (as defined by the Code Section
      7701 (a) (31)), and the Company is found to be engaged primarily in the business
      of investing, reinvesting, or trading in securities, commodities, or any
      interest therein, it is possible that the Company might be treated as a “foreign
      investment company” as defined in Section 1246 of the Code, causing all or part
      of any gain realized by a U.S. Holder selling or exchanging common shares of
      the
      Company to be treated as ordinary income rather than capital gains.





**Passive
      Foreign Investment Company:** As
      a
      foreign corporation with U.S. Holders, the Company could potentially be treated
      as a passive foreign investment company (“PFIC”), as defined in Section 1297 of
      the Code, depending upon the percentage of the Company’s assets which are
      passive, or the percentage of the Company’s assets which are held for the
      purpose of producing passive income. The Company believes that the majority
      of
      its assets are used in active operations; and that it would not currently be
      classified as a PFIC. Certain United States income tax legislation contains
      rules governing PFICs, which can have significant tax effects on U.S.
      shareholders of foreign corporations. These rules do not apply to non-U.S.
      shareholders. Section 1297(a) of the Code defines a PFIC as a corporation that
      is not formed in the United States and, for any taxable year, either (i) 75%
      or
      more of its gross income is “passive income”, which includes interest, dividends
      and certain rents and royalties or (ii) the average percentage, by fair market
      value (or, if the company is a controlled foreign corporation or makes an
      election, by adjusted tax basis), of its assets that produce or are held for
      the
      production of “passive income” is 50% or more. The taxation of a U.S.
      shareholder who owns stock in a PFIC is extremely complex and is therefore
      beyond the scope of this discussion. U.S. persons should consult with their
      own
      tax advisors with regard to the impact of these rules.





**Controlled
      Foreign Corporation:** If
      more
      than 50% of the voting power of all classes of stock or the total value of
      the
      stock of the Company is owned, directly or indirectly, by citizens or residents
      of the United States, United States domestic partnerships and corporations
      or
      estates or trusts other than foreign estates or trusts, each of whom own 10%
      or
      more of the total combined voting power of all classes of stock of the Company
      or the total value of the stock of (“United States shareholder”), the Company
      could be treated as a “controlled foreign corporation” under Subpart F of the
      Code.





37


This
      classification would effect many complex results including the required
      inclusion by such 10% United States shareholders in income of their pro rata
      share: of “Subpart F Income” (as defined in Section 952 of the Code) of earnings
      invested in U.S. property (as defined in Section 956 of the Code); and of
      earnings invested in “excess passive assets” (as specifically defined by the
      Code) of the Company. In addition, under Section 1248 of the Code, a gain from
      the sale or exchange of common shares of the Company by a U.S. person who is
      or
      was a 10% United States shareholder (as defined in the Code) at any time during
      the five years period ending with the sale or exchange is treated as ordinary
      dividend income to the extent of “earnings and profits” of the Company
      attributable to the stock sold or exchanged. Because of the complexity of
      Subpart F a more detailed review of these rules is outside the scope of this
      discussion. The Company does not believe that it currently is, or has previously
      been, a controlled foreign corporation. However, there can be no assurance
      that
      the Company will not become a controlled foreign corporation in the
      future.





U.S.
      holders of shares or prospective investors are strongly encouraged to consult
      their tax advisors in connection with their purchasing, holding or disposing
      of
      shares of the Company. U.S. taxation rules are very complex and are affected
      by
      various factors which may not be properly described above.





**F.** **Dividends
      and Paying Agents**





This
      Form
      20-F is being filed as an Annual Report under the Exchange Act and, as such,
      there is no requirement to provide any information under this
      section.





**G.** **Statements
      by Experts**





This
      Form
      20-F is being filed as an Annual Report under the Exchange Act and, as such,
      there is no requirement to provide any information under this
      section.





**H.** **Documents
      on Display**





Any
      documents referred to in this Annual Report may be inspected at the head office
      of the Company, Suite 1710 - 650 West Georgia Street, Vancouver, British
      Columbia, V6B 4N9, during normal business hours.





**I.** **Subsidiary
      Information**





The
      Company has no subsidiaries at this time.








38


ITEM
        11. QUANTITATIVE AND
        QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  In
        light
        of the Company’s current state of development, it does not believe that it is
        subject to any specific market risk with respect to interest rates, foreign
        currency exchange or commodity price risk other than in so far as such commodity
        price risk may affect equity markets and the ability of the Company to raise
        financing in the equity market. The Company does not intend to purchase or
        sell
        derivative instruments for speculative purposes.


**PART
      II**




**ITEM
      12.****DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES**





This
      Form
      20-F is being filed as an Annual Report under the Exchange Act and, as such,
      there is no requirement to provide any information under this item.





**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**





Neither
      the Company nor, to the best of its knowledge, anyone else has modified
      materially or qualified the rights evidenced by any class of registered
      securities.




**ITEM
      15.****CONTROLS
      AND PROCEDURES**





Disclosure
      Controls and Procedures .
      As of
      December 31, 2006 an evaluation was carried out by the Chief Executive Officer
      and Chief Financial Officer of the effectiveness of the disclosure of controls
      and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the
      Securities and Exchange Act of 1934, as amended). Based on that evaluation,
      the
      Chief Executive Officer and Chief Financial Officer concluded that the
      disclosure controls and procedures were effective to ensure that information
      required to be disclosed in reports filed or submitted under the Exchange Act
      is
      recorded, processed, summarized and reported within the time
      periods.





It
      should
      be noted that while the Company's Chief Executive Officer and Chief Financial
      Officer believe that the Company’s disclosure controls and procedures provide a
      reasonable level of assurance and that they are effective, they do not expect
      that the disclosure controls and procedures can prevent all errors or mistakes.
      A control system, no matter how well conceived or operated, can provide only
      reasonable, not absolute, assurance that the objectives of the control system
      are met.





Changes
      in Internal Control and Financing Reporting .
      During
      the fiscal year ended December 31, 2006  the
      Company made certain changes to its systems of internal controls over financial
      reporting that did not materially affect, and are not reasonably likely to
      materially affect, internal control over financial reporting. During this
      process, management identified certain potential deficiencies or weaknesses
      in
      internal control over financial reporting. The design of a control system must
      reflect that there are staffing and financial resource constraints, and that
      the
      benefits of controls must be considered relative to their costs to the Company.
      Due to the limited number of staff at Canadian Zinc, it is not feasible or
      cost
      effective to achieve complete segregation of incompatible duties. These matters
      and their related risks are not uncommon in a company of Canadian Zinc’s size.
      These risks are not considered to be significant. The Company’s management has
      taken such action as it considered appropriate to minimize any potential risks
      from these deficiencies or weaknesses.





39


The
      Company’s management, including the Chief Executive Officer and Chief Financial
      Officer, believe that any internal controls over financial reporting, including
      those systems determined to be effective and no matter how well conceived and
      operated, has inherent limitations and can provide only reasonable, not
      absolute, assurance that the objectives of the control system are met with
      respect to financial statement preparation and presentation. Because of the
      inherent limitations in all control systems, they cannot provide absolute
      assurance that all control issues and instances of fraud, if any, within the
      Company have been prevented or detected. These inherent limitations include
      the
      realities that judgments in decision-making can be faulty, and that breakdowns
      can occur because of simple error or mistake. Additionally, controls can be
      circumvented by the individual acts of some persons, by collusion of two or
      more
      people, or by unauthorized override of the control. The design of any system
      of
      controls is also based in part upon certain assumptions about the likelihood
      of
      future events, and there can be no assurance that any design will succeed in
      achieving its stated goals under all potential future conditions. Accordingly,
      because of the inherent limitations in a cost effective control system,
      misstatements due to error or fraud may occur and not be detected.





**ITEM
      16.****[RESERVED]**





**ITEM
      16.A** **AUDIT
      COMMITTEE FINANCIAL EXPERT**





The
      Board
      of Directors has determined that at least one member of the Company’s Audit
      Committee, Robert Gayton, possesses the educational and professional
      qualifications as well as the experience to qualify as an “Audit Committee
      Financial Expert” as defined in Item 401(e) of Regulation S-B. Mr. Gayton is not
“independent” as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the
      Securities Exchange Act of 1934, as amended. 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
      16.B** **CODE
      OF ETHICS**





The
      Company has not adopted a Code of Business Conduct and Ethics that applies
      to
      the Company’s Chief Executive Officer and or the Company’s Chief Financial
      Officer in light of the size and activity level of the Company. The Board of
      Directors believes that as the Chief Executive Officer and the Chief Financial
      Officer report directly to the Board of Directors there is close communication
      and supervision between the Board and the Chief Executive Officer and the Chief
      Financial Officer. All of the Company’s personnel are accorded full access to
      the Company’s Board of Directors.





40


**ITEM
      16.C** **PRNCIPAL
      ACCOUNTANT FEES AND SERVICES**





The
      aggregate amounts billed by Auditors for the two fiscal years ended December
      31,
      2006 and 2005 for audit fees, audit related fees, tax fees and all other fees
      are set forth below.





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




(1)
            “Audit
                Fees” represent fees for the audit of the annual financial statements,
                and
                review in connection with the statutory and regulatory
                filings.


(2)
            “Audit
                Related Fees” represent fees for assurance and related services that are
                related to the performance of the
                audit.


(3)
            “Tax
                Fees” represent fees for tax compliance, tax advice and
                planning.





The
      Audit
      Committee has adopted procedures requiring Audit Committee review and approval
      in advance of all particular engagement for services provided by independent
      auditors. Consistent with applicable laws, the procedures permit limited amounts
      of services, other than audit, review or attest services, to be approved by
      one
      or more members of the Audit Committee pursuant to authority delegated by the
      Audit Committee, provided the Audit Committee is informed of each particular
      service. All of the engagements and fees for Fiscal 2006 and 2005 were approved
      by the Audit Committee. The Audit Committee reviews with the Auditors whether
      the non-audit services to be provided are compatible with maintaining the
      auditor’s independence.





**ITEM
      16.D** **EXEMPTIONS
      FROM THE LISTINGS STANDARDS FOR AUDIT** **COMMITTEES**





Not
      applicable.


**PART
      III**





**ITEM
      17.****FINANCIAL
      STATEMENTS**





The
      Financial Statements listed in Item 19 hereof and filed as part of this Annual
      Report were prepared in accordance with Canadian GAAP and are expressed in
      Canadian dollars. The audited financial statements for fiscal 2006, 2005 and
      2004 have been reconciled to U.S. GAAP (see Note 13 therein). For the purposes
      of U.S. GAAP the Company is considered to be an exploration stage enterprise.
      For a history of exchange rates in effect for Canadian dollars as against U.S.
      dollars, see Item 3.A of this Annual Report.


41


**ITEM
      18.****FINANCIAL
      STATEMENTS**





Not
      applicable.




**ITEM
      19.****EXHIBITS**





**(a)**  **Financial
      Statements**





Description
                of DocumentCover
                Sheet
              Independent
                Auditor’s Report of Ernst & Young dated
                March 3, 2006
              Independent
                Auditor’s Report of Moore Stevens Ellis
                Foster dated February 25, 2005
              Balance
                Sheets as at December 31, 2006 and
                2005
              Statements
                of Operations and Deficit for years ended
                December 31, 2006, 2005 and 2004
              Statement
                of Cash Flows for years ended December 31,
                2006, 2005 and 2004
              Notes
                to Financial Statements





**(b)**  **Exhibits**





**Exhibit
                Number**
            **Description
                of Document**1.A*
            Notice
                of Articles (of Incorporation)1.B*
            Articles
                (Bylaws)4.B*
            Purchase
                Agreement between Titan Logix Corp. and Canadian Zinc Corporation
                dated
                January 29, 2004.4C*
            10%
                Rolling Stock Option Plan12.A
            Certification
                of President pursuant to Rule 13a-14(a)
                under the Securities Exchange Act of 1934, as
                amended12.B
            Certification
                of Chief Financial Officer Pursuant to
                Rule 13a-14(a) under the Securities Exchange Act of 1934, as
                amended13.A
            Certification
                of President Pursuant to 18 U.S.C. Section
                1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
                of
                200213.B
            Certification
                of Chief Financial Officer Pursuant to 18
                U.S.C. Section 1350, as Adopted Pursuant to 906 of the Sarbanes-Oxley
                Act
                of 200215.A
            Annual
                Information Form dated March 30,
                200715.B
            Notice
                of Meeting and Information Circular dated May11,
                200715.C
            Management
                Discussion and Analysis for year ended
                December 31, 2006 dated March 30,
                2007





* These
      exhibits were previously filed with the Company’s Registration Statement or a
      previous Annual Report on Form 20-F (file no. 0-22216).




**SIGNATURES**





The
      Company hereby certifies that it meets all of the requirements for filing on
      Form 20-F and has duly caused and authorized the undersigned to sign this Annual
      Report on its behalf.





Dated
      at
      Vancouver, British Columbia, this 28 th day of
      May, 2007.





**CANADIAN
      ZINC CORPORATION**


*“John
      F. Kearney”*


Per:
      (signed) John F. Kearney


Title:
      President, Chief Executive Officer & Director