Permitting moves Prairie Creek forward (April 01, 2002)

Vancouver — Canadian Zinc (CZN-V) has received five more permits for exploration and development at the Prairie Creek mine and mill facility in the Northwest Territories.

The property is 338 km north of Fort Nelson in a remote area of the eastern Mackenzie Mountains, 17 km from the northern boundary of the Nahanni National Park Reserve. The wholly owned mine contains more than $100 million worth of unused mine site infrastructure, including a mill with a daily capacity of 1,000 tonnes. In the 1980s, the project, under different owners, was financed to within months of startup. It was aborted when funding dried up and the price of silver collapsed.

The latest permit is for a 60-hole drill program designed to infill and extend the existing high-grade zinc-lead silver deposit. The resource stands at 11.8 million tonnes grading 12.5% zinc, 10.1% lead and 0.4% copper, plus 161 grams silver per tonne. The measured and indicated portion of the resource contains 3.6 million tonnes grading 11.8% zinc, 9.7% lead, 0.3% copper and 142 grams silver.

In addition to drilling, Canadian Zinc has applied for permits to operate a pilot plant and to drive another decline into the deposit.

The permits specify a 1-tonne-per-hour pilot plant within the existing mill building. Canadian Zinc will also be able to develop a decline in order to obtain a fresh sample of mined material from below the existing underground workings. The decline will also provide a platform for subsequent infill drilling.

Canadian Zinc is also working on the re-permitting of the Prarie Creek operation as a whole. The original permits have now lapsed, and the junior expects that discussions for an operating permit and water licence will begin soon. The current work program is aimed at progressing to a full bankable feasibility study over the next year.

The company continues to work on a joint development program for an all-weather road to the site. The mine is on territory belonging to the Nahanni Butte Dene Band of the Deh Cho first Nations.

In January 2001, Canadian Zinc released an independent scoping study that envisaged a 1,500-tonne-per-day operation capable of producing 43,000 tonnes zinc annually over 18 years, based on current resources.

The base-case financial model indicates that, with a capital investment of $40.5 million, the pretax cash flow would be $106.5 million and the internal rate of return, 45.7%. The net present value of this cash flow, using a 10% discount rate, is $56.7 million. These calculations are based on long-term metal prices of US90 per lb. for copper, US50 per lb. for zinc, US25 per lb. for lead and US$5.50 per oz. for silver.

Micon International proposed an alternate financial case using US80 per lb. for copper, US20 per lb. for lead and US$5 per oz. for silver and came up with a cash flow of $40.4 million, an internal rate of return of 18.5%, and a net present value of $13 million at a 10% discount rate.

The project’s cash flow is sensitive to changes in head grades, mill recovery, the price of zinc, and operating costs.

Most of the mineralized zones at Prairie Creek are hosted in shales and tend to occur close to the axial plane of a tight north-south-plunging anticline.

Three types of mineralization have been discovered on the property: quartz-vein sulphide, stratiform, and Mississippi Valley Type. Quartz-vein was the first type of mineralization discovered there. The veins strike north-south and dip steeply to the west and east. Mineralization consists of galena, sphalerite, minor pyrite and tennantite-tetrahedrite. Silver is found in both the galena and tennantite-tetrahedrite. The most extensive vein occurrence is in Zone 3, where underground development has followed the vein for 940 metres of strike length. Diamond drilling has traced the vein for an additional 1.2 km.

Stratiform mineralization was discovered in 1992, while the vein resource was being drill-tested at depth. This mineralization hosts a resource of 1.4 million tonnes grading 10.3% zinc, 5% lead and 53 grams silver per tonne. The sulphides — pyrite, sphalerite and galena –occur wholly within dolostones. The stratiform mineralization is up to 28 metres thick.

The cavity-infilling Mississippi Valley type mineralization has been discovered at the Zebra showing, about 8 km northwest of the mine site. However, only limited exploration has been performed in this area.