Damoti Lake consists of 11,516 acres in 14 contiguous claims and was original owned and drilled by Quest Resources.  Standard Mining, a wholly owned subsidiary of Doublestar Resources LTD, subsequently acquired it in 1998/9.  The deposit was found in 1992 by a government geologist and subsequently staked by Covello and Bryan to whom there is a 2% NSR.  Subsequently Quest spent $14 million drilling 323 holes on the property between 1994 and 1997.  In addition Quest drove a short decline and put in 2 levels at 25 and 40 meters and carried out extensive geophysical work on the property.

The property currently has a Land Use Permit (LUP) for drilling which will require renewal this year.  In addition, it has a class B water licence, which remains current.  The property lies in the Dogrib area, where land claims are close to being settled; so renewing the LUP should not take much longer than the standard 42 days.

There are some exciting looking intercepts, with ounces per ton over significant widths, and lots of un-drilled potential. A resource of 2.08 million tons grading 0.297 opt was established on the whole property in 1997, but this would not meet the requirements of the TSE Instrument 43-101 and cannot be relied upon.  This resource included 451,000 tons in the Horseshoe zone grading 0.415 opt.

The Horseshoe Zone is the only area that has been extensively drilled, but not fully defined.  There are a number of other areas where these tonnages could be greatly extended, without too much imagination, at excellent grade, and this is what attracts the Company to this project.
We have negotiated an Option, which, subject to due diligence and a formal agreement, will provide for us to reach 50% in the project for a total expenditure over 4 years of $2.4 million.  After this the project will be the subject of a Joint Venture agreement between ourselves and Doublestar.  (see press release dated 11th March 2002.)

Damoti Lake will give the Company an opportunity to diversify into an advanced exploration project, in gold, with significant and visible upside.  The project has merit and makes use of our skills, including drilling and permitting in the north, and will allow us to share our costs over the two projects, along with our Prairie Creek zinc / silver mine. 

PRAIRIE CREEK MINE

The Prairie Creek deposit is truly a high-grade resource, without equal in Canada. The Company produced a detailed Scoping Study in January 2001, which indicated a life of mine, cash production cost of saleable zinc of around thirty-four cents U.S. a pound, after taking other metals produced as a by-product credit.  This would place the mine at Prairie Creek among the lowest cost producers in the world. 

This cash cost of production can be significantly further reduced in the early years of production, by selective mining of higher grade feed to the mill, increasing cashflow and reducing or eliminating debt as early as possible.  In times of more normal metals prices, this mine can cashflow $1million Canadian for every 1cent US that the zinc price is over the cash cost of production.  Over the past twelve years, zinc has traded as high as 96.2 US cents per pound and has averaged in excess of 53 cents per pound.  It is this, plus the $100 million of on site infrastructure, which continues to drive the Company forward, even in these times of depressed markets, since we remain committed to bringing the Prairie Creek project forward in a timely and cost efficient manner, to meet the next upturn in the metals cycle. 

However, I think that few of us who work and invest in the minerals industry can fail to have been affected by the changes to the world and the Mining Industry during the past year.  Driven by the World economic slow down, metals prices have become heavily depressed and investor interest in the minerals industry, with the exception of gold and diamonds, is at a similar level. 

Base Metals Prices have been falling since May of last year and are only now starting to climb from all time lows.  The Copper price is 30% below its peak of September 2000.   Zinc metal reached an all time low in real terms at the end of last year and severely affected a number of companies, most notably, Pasminco, Breakwater and Western Metals, as it hit bottom.  This is one of the few occasions in the life of a mine when it pays to be able to say, “We are not in Production!”

Generally, while we have seen a number of closures and tightness in the supply of concentrate, the inventories for zinc metal are still rising and this will hold the metal price down in the short term.  What does all this mean to the shareholders in Canadian Zinc?  As the other companies reduce production and shut older more marginal mines, the recovery in metals prices, when it comes, will be sharper and quicker than previously expected and this will be reflected in the share prices of the remaining producing and developing companies; including Canadian Zinc. 

Exploration

On the positive side, during the summer, the Company carried out a detailed diamond drill exploration program on Prairie Creek, which produced outstanding results that we have published recently.  We continue to work on the interpretation of this program combined with the other 250 holes in the drill hole database and are pleased to report that our first observations indicate that these high-grade holes will significantly enhance the current known resource and further increase our confidence in the deposit. 

The program was designed to enhance and increase confidence in the existing resource model and to identify areas of higher grade and tonnage in advance of initial mining.  Five diamond drill holes were completed in the program totaling 1,711 meters of coring. The results of the program were a confirmation of the resource model and identification of significant further potential for this high-grade deposit.

The drill program was successful in identifying an area of significantly increased thickness and grade, referred to as “a thick-high-grade shoot,” in the existing Vein resource.  Additional, parallel, high-grade veins were also intercepted giving further potential to the identified mineral resource in this area.  This is important, in that this is proximal to where initial mining would take place and will provide significantly increased tonnage and grade per vertical meter, in early mining.  The better intercepts are listed below:

VEIN INTERCEPTS

DDH	From (m)	To (m)	Int.  (m)	True-Width (m)	Pb %	Zn %	Ag g/t	Cu %
PC-01-130	256.1	265.1	9.0	5.2	8.0	9.0	127.4	0.26
PC-01-130	295.9	307.7	11.8	6.8	24.5	2.3	248.5	0.14
PC-01-132	286.1	304.8	18.7	7.0	12.2	4.8	172.7	0.34
PC-01-132	336.6	342.3	5.7	2.1	20.2	3.2	194.8	0.14
PC-01-133	305.4	331.9	26.5	11.0	14.8	10.1	226.3	0.51
PC-01-134	235.4	254.8	19.4	13.7	8.2	8.9	122.6	0.25

A further exciting development was the confirmation and extension of Strata-bound mineralisation between the two existing known strata-bound deposits SD1 and SD2.  The long section diagram above shows the location of this years drill intercepts, including areas of further Stratabound potential and the location of the potential thick high-grade vein shoot in relation to the existing underground workings.

STRATA-BOUND INTERCEPTS 

DDH	From (m)	To. (m)	Int.  (m)	True Width         (m)	Pb   %	Zn    %	Ag g/t	Cu   %
PC-01-130	267.3	270.3	3.0	2.8	6.2	12.3	45.6	0.03
PC-01-130	290.1	295.9	5.8	5.5	3.2	7.9	25.9	0.02
PC-01-130	307.7	322.0	14.3	13.4	4.1	6.9	44.8	0.01
PC-01-131	287.3	293.0	5.7	5.6	3.1	6.2	25.8	0.01
PC-01-132	319.4	326.9	7.5	7.4	3.2	6.4	28.1	0.01

We have been very encouraged with the results of this year’s program.  The use of gravity separation in the mill, as outlined in the Scoping Study completed in January of this year, (see Scoping Study and earlier President’s letter,) when combined with these exceptional widths and grades should allow an increase in milled tonnage and lead to decreased mining costs. 
Prior to this years drilling the mineral resource contained 3.6 million tonnes (measured and indicated) grading 11.8% zinc, 9.7% lead, 142 g/t silver and 0.3% copper, and 8.3 million tonnes (inferred) grading 12.8% zinc, 10.3% lead, 169 g/t silver and 0.4% copper. This produces a combined mineral resource of 11.8 million tonnes grading 12.5% zinc, 10.1% lead, 161 g/t silver and 0.4% copper was estimated in 1998 by MRDI, a wholly owned subsidiary of AMEC E&C Services Limited 

These more recent results further confirm our understanding of the geological interpretation of the deposit. This drilling has re-enforced and significantly enhanced the previous geological interpretations, thus increasing the confidence level of resources within the known Vein and Stratabound bodies of mineralisation.    While it is not the Company’s intention to recalculate the MRDI resource statement at this time, these holes have the potential to add further to that mineral resource model, both in terms of tonnes and grade. 

Additionally a geochemical survey completed this year on the company’s SAN6 mineral claim indicated further anomalous zinc values along the extrapolated strike direction of the Prairie creek vein system 7.5 kilometers north of the minesite. This shows the enormous potential of the deposit and our mineral holdings in this region. 

Permitting

Another milestone of importance was reached in late October as the 2001 Phase II permit application, for a 60-hole drill program at Prairie Creek, completed the Environmental Assessment process with the Mackenzie Valley Environmental Impact Review Board (MVEIRB).  The Board concluded that the program would have no significant environmental impact and recommended approval of the program, which was issued a permit in early 2002. 

The permit applications for operation of the pilot plant and decline development have also cleared environmental review, the report being issued in late January of this year.  This report has now gone to the Minister in Ottawa for statutory review and will then go to the Mackenzie Valley Land and Water Board for issue of the Land Use Permit. The Company is greatly encouraged by our progress through the Permit application progress.  The review of all our permit applications by the Mackenzie Valley Environmental Impact Review Board has been comprehensive and with the support of the Nahanni Butte Dene Band, our First Nations Partners in the development, we continue to make progress on this difficult and lengthy process. 

Because of our concern for the environment and recognition of the sensitive setting of the mine relative to the Nahanni National Park reserve, we are constantly working to improve understanding of the site and your Company’s plans for the re-opening of the mine and mill.  As part of this process, an on-going environmental mitigation program at the site continued throughout the 2001 season.  Also, Members of both the Mackenzie Valley Land and Water Board and the MVEIRB along with many other regulatory officers and members of the local community and the press visited the mine site over the last year.

The Company expects to commence application for the main water licence and land use permit for the revised mine and mill operation at Prairie Creek, in the near future, supported by the work from the current applications.  The mine and mill at Prairie Creek was built in 1982 at a cost of over $100 million in today’s dollars and was permitted at that time, but was never operated.  It is the intention of the Company to re-open the mine and mill with a full operating permit and water license for the mine and mill complex at the earliest opportunity.

Generally, while we have been disappointed by the current economic climate, your Company is now well positioned to take advantage of the expected upturn in the metal prices, which will likely be sharper and faster than previous swings  Metals prices will recover and it is our intention to be ready to move the mine into production in a timely manner to meet this price recovery.   With our life of mine cash production cost of 34.5 US cents per pound of saleable zinc and our ability to go much lower by selective mining, our modest capital cost and our short development time, Canadian Zinc will become a low cost producer of zinc, silver, copper and lead, in the not too distant future. 

In addition, at Damoti Lake, we have now spread the Company’s focus to encompass an advanced gold prospect, which should generate some exciting results over the next season, in high-grade gold exploration in the North.

Yours sincerely,

Malcolm J.A. Swallow
President and CEO

ARCHIVE:
President's Message - February 2001
President's Message - July 2000