Mr. John Kearney reports

CANADIAN ZINC MODIFIES 2016 PRELIMINARY FEASIBILITY STUDY

Canadian Zinc Corp., as part of its continuing financing and concentrate marketing activities for its 100-per-cent-owned Prairie Creek lead, zinc, silver mine in the Northwest Territories, has identified an error in the life-of-mine economic model included in its 2016 preliminary feasibility study.

The error caused an overstatement in gross-smelter revenue to $3.7-billion from $3.3-billion, over the projected 17-year life of the Prairie Creek mine. The gross metal value of production (using the same assumptions) remains unchanged. The overestimation resulted from the inclusion in the economic model of smelter revenue for byproduct metals in primary concentrates that may not be payable, depending on final concentrate contract terms.

All other inputs into the economic model and all technical aspects of the 2016 preliminary feasibility study remain unchanged, including all mineral resource and reserve estimates, mining plans and production rates, and estimates of capital and operating costs, and assumptions on concentrate treatment charges and penalties. However, royalties and taxes payable also reduce by $153-million over the projected life of the mine, partially offsetting the impact of lower revenue.

"It is important to note that the error in the economic model has no impact on reserve estimates, metal production or mine life and, notwithstanding the reduction in revenue, the revised financial results remain strongly positive and continue to demonstrate a robust project with undiscounted cumulative cash flow of $710-million at metal prices of $1.00 (U.S.)/pound for zinc and lead, and $19 (U.S.)/ounce for silver," said John Kearney, chairman and chief executive officer. "The revised financial model yields a pretax net present value of $284-million at an 8-per-cent discount rate with an internal rate of return of 23 per cent and a posttax NPV of $155-million with a posttax IRR of 18 per cent."

Revised financial analysis

The net effect on projected cash flows of the adjustment in smelter revenue, with all other factors and inputs remaining unchanged, at metal prices of $1.00 (U.S.)/pound for zinc and lead, and $19 (U.S.)/ounce for silver, and a Canadian-dollar/U.S.-dollar exchange rate of $1.25 to $1 (U.S.), results in an undiscounted cumulative cash flow of $710-million at the base case with a pretax net present value of $284-million, using an 8-per-cent discount rate, with an internal rate of return of 23 per cent and a posttax NPV of $155-million with a posttax IRR of 18 per cent compared with an NPV of $509-million using an 8-per-cent discount rate with an IRR of 32 per cent and a posttax NPV of $302-million with a posttax IRR of 26 per cent, as originally reported in the PFS. The pretax payback period increases from three years to four years out of the projected 17-year mine life.

The table shows revised pretax and posttax NPVs, at 5-per-cent and 8-per-cent discount rates, and internal rates of return (IRR), all at a Canadian-dollar/U.S.-dollar exchange rate of $1.25 to $1 (U.S.), and demonstrates the sensitivity and leverage of the Prairie Creek mine to various metal price scenarios.

 
                                       REVISED PFS HIGHLIGHTS

     Metal prices                          Pretax                               Posttax  
                               
Zinc/lead      Silver  Undiscounted   NPV (5%)  NPV (8%)  IRR  Undiscounted   NPV (5%)  NPV (8%)  IRR
(US$/lb)      (US$/oz)          ($M)      ($M)      ($M)   (%)          ($M)      ($M)      ($M)   (%)

$0.80          $17.00           $99        $-      $(42)  5.0           $35      $(38)     $(70)  2.2
0.90            18.00           405       202       121  15.0           233       100        44  11.1
1.00            19.00           710       405       284  22.5           431       235       155  17.9
1.00(1)         19.00(1)        979       585       429  28.5           598       349       249  23.1
1.10            20.00         1,016       608       447  29.1           623       366       262  23.8
1.20            21.00         1,322       811       611  35.2           810       493       366  29.0
1.30            22.00         1,627     1,014       774  40.9         1,002       624       473  34.1

(1) Foreign exchange assumed to be $1.375 to $1.00 (U.S.) on this line only.                                              

An amended technical report in accordance with National Instrument 43-101 will be prepared and filed on SEDAR as soon as possible as part of which the economic model will be rechecked again.

The summary of the impact of the overstatement in the calculation of smelter revenue in the economic model presented in the 2016 preliminary feasibility study and the summary of the revised financial cash flow model reported in this news release are preliminary, and subject to further review, restatement and/or confirmation in the amended technical report.

Preliminary feasibility study -- 2016

The 2016 PFS and the Prairie Creek property prefeasibility update NI 43-101 technical report (filed on SEDAR on May 12, 2016) were completed by AMC Mining Consultants (Canada) Ltd. and Tetra Tech Inc. with input from Canadian Zinc personnel and consultants. Canadian Zinc personnel were primarily responsible for the financial model, inputs, financial analysis and for Section 22, economic analysis, of the technical report.

The 2016 PFS was undertaken to incorporate the increased mineral resources and mineral reserves, construction and use of an all-season road, advanced engineering details, and updated capital and operating costs.

The projected average annual mine production, which remains unchanged, consists of approximately 60,000 tonnes of zinc concentrate and 55,000 tonnes of lead concentrate containing approximately 86 million pounds of zinc, 82 million pounds of lead, 1.9 million pounds of copper and 1.7 million ounces of silver.

In the 2016 PFS, the company generated estimates for indicative world smelter terms with respect to payables, treatment charges and other standard terms. However in the 2016 PFS, economic model revenue credits were included for all contained metal, and the payability revenue for lead and zinc was calculated incorrectly in the model. In addition, it is projected that, over its life, the mine will produce 14,000 tonnes of copper, contained mostly in lead concentrate, and the assumed value of this copper was included in gross revenue calculations in the economic model. This copper revenue is unlikely to be achieved unless a separate copper concentrate is produced, which was not incorporated in the PFS.

Canadian Zinc has signed memorandums of understanding with each of Korea Zinc and Boliden for the sale of zinc and lead concentrates. The MOUs set out the good faith intentions of Canadian Zinc and each of Korea Zinc and Boliden to enter into concentrate sales agreements for the concentrates to be produced from the Prairie Creek mine on the general terms set out in the MOUs, including commercial terms that are to be kept confidential. No formal concentrate sales contracts have yet been concluded. The MOUs do not provide for agreed or fixed payable percentages or deductions and provide that payables, treatment charges and penalties will be negotiated in good faith annually during the fourth quarter of the preceding year. The MOUs reflect the understanding of the parties and constitute the basis for continued negotiation of definitive binding sales agreements, which the company expects to negotiate and conclude in parallel with concluding senior financing for the development of the Prairie Creek mine.

Conclusion

The revised base-case economic model continues to indicate a robust project at consensus forecasts for the long-term prices of lead and zinc, and there remains good potential for additional project optimization, enhanced economics and further extending the life of the Prairie Creek mine.

There are a number of recommendations for potential enhanced economics identified in the 2016 PFS, including:

• Additional mill studies to further optimize the mill circuit capacity to increase both ore throughput and metal recoveries, including possible mill expansion;
• Further metallurgical tests to optimize the process flowsheet, particularly reagent regimes;
• Further study of on-site or off-site processes to reduce deleterious components of concentrate, thereby reducing smelting penalties.

Any improvements that can be achieved in the metallurgical process to enhance the quality of the concentrates and improve payability will increase the net-smelter revenue and enhance the realization of as much as possible of the contained gross metal value.

The long-term outlook for lead and zinc remains very positive, and Canadian Zinc plans to continue to work toward completion of a definitive bankable feasibility study and evaluate all alternatives and possibilities for raising the financing necessary to complete development and put the Prairie Creek mine into production.

Qualified person

This news release has been reviewed and approved by Alan Taylor, PGeo, chief operating officer, vice-president of exploration and a director of Canadian Zinc, who is a non-independent qualified person under National Instrument 43-101.

An amended technical report in accordance with NI 43-101 will be filed on SEDAR as soon as possible. For the full details and further information with respect to the key assumptions, parameters and risks associated with the results of the modified PFS, including the mineral resource and reserve estimates included therein, and other technical information, please refer to the complete amended technical report when it is made available at SEDAR.

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