Yukon Zinc AR 05 - Yukon Zinc Corporation
Yukon Zinc AR 05 - Yukon Zinc Corporation
Yukon Zinc AR 05 - Yukon Zinc Corporation
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President’s Message<br />
20<strong>05</strong> was a year of significant accomplishment for <strong>Yukon</strong><br />
<strong>Zinc</strong> <strong>Corporation</strong> as it financed and completed extensive<br />
development work on Wolverine to facilitate the completion<br />
of a bankable feasibility study.<br />
The early part of 2006 will be an exciting time for<br />
shareholders as feasibility results become<br />
known and project financing is secured. It has<br />
been a long time since a junior company has<br />
advanced a base metal project from discovery to<br />
production in Canada. <strong>Yukon</strong> <strong>Zinc</strong> appears<br />
poised to stand on that threshold shortly.<br />
In preparation for this transition from exploration<br />
to development and production, your company<br />
has expanded its management team to meet the<br />
challenges ahead, and more additions are<br />
planned as we continue to build management<br />
experience and capacity.<br />
The Company is very pleased to have concluded<br />
a Socioeconomic Participation agreement with<br />
the Ross River Dena Council and its members.<br />
This historic agreement provides for their direct<br />
participation in the economic and social benefits<br />
of the development and operation of the<br />
Wolverine project as a mine and their sharing in<br />
the growth of the Company as a shareholder.<br />
These are major accomplishments that pave the<br />
way for strong cooperation between <strong>Yukon</strong> <strong>Zinc</strong><br />
and the First Nations people whose traditional<br />
territory includes the Wolverine deposit.<br />
The December 2004 reorganization of <strong>Yukon</strong><br />
<strong>Zinc</strong> as the successor to Expatriate Resources<br />
Ltd., and the formation of Pacifica Resources<br />
Ltd., has been successful in creating significant<br />
value for shareholders. <strong>Yukon</strong> <strong>Zinc</strong> retains an<br />
5.6% interest in Pacifica and has a warrant to<br />
acquire additional shares in this fast growing<br />
company.<br />
As 20<strong>05</strong> came to a close, zinc became the<br />
darling of the market and the price of zinc<br />
increased rapidly and broke through its old high<br />
of US$0.91 per pound set in 1989. <strong>Zinc</strong> price<br />
rose to US$1.09 per pound, in early February<br />
2006 before correcting, and has now risen to<br />
even higher prices. The rapid rise in the zinc<br />
price is due in part to the sharp decline in zinc<br />
inventories on the London Metal Exchange. All<br />
forecasts are for a significant supply deficit for at<br />
least 2006 and 2007, indicating that zinc prices<br />
are likely to remain high for the next several<br />
years. This creates a very favourable<br />
environment for financing the development of<br />
Wolverine.<br />
In December 20<strong>05</strong>, <strong>Yukon</strong> <strong>Zinc</strong> engaged<br />
Macquarie Bank as lead advisor for project<br />
financing. Due diligence is well underway and on<br />
track for advancing project financing by mid<br />
2006, paving the way for a production decision.<br />
With these positive developments achieved,<br />
Wolverine should be in production in late 2007<br />
as the <strong>Yukon</strong>'s first new zinc-silver mine in many<br />
years.<br />
On behalf of the Board and your management<br />
team I wish to thank all of our shareholders for<br />
their support during the past year. 2006<br />
promises to be a very exciting year for<br />
shareholders as we ready Wolverine for a<br />
production decision and transition towards a<br />
producing mining company.<br />
Harlan Meade, President and CEO
Overview<br />
95 M<br />
85 M<br />
Trading Volume<br />
93.3M<br />
$100 M<br />
$90 M<br />
Market Capitalization at Year-end<br />
89.3M<br />
75 M<br />
$80 M<br />
s<br />
M illio ns Sha re 65 M<br />
55 M<br />
45 M<br />
42.0M<br />
s<br />
M illi ons Doll ar $70 M<br />
$60 M<br />
$50 M<br />
$40 M<br />
$47.4M<br />
35 M<br />
30.8M<br />
$30 M<br />
$26.4M<br />
25 M<br />
$20 M<br />
15 M<br />
3.99M<br />
7.84M<br />
$10 M<br />
$2.1M<br />
$5.5M<br />
0 M<br />
2001 2002 2003 2004 20<strong>05</strong><br />
$0 M<br />
2001 2002 2003 2004 20<strong>05</strong><br />
$20 M<br />
Equity and Convertible Debenture Financings*<br />
$20.0M<br />
$30 M<br />
Exploration Expenditures<br />
$18 M<br />
$16 M<br />
15.5M<br />
$25 M<br />
Mill io ns o f Dolla r s<br />
$14 M<br />
$12 M<br />
$10 M<br />
$8 M<br />
$6 M<br />
rs<br />
M ill ions f Do lla $20 M<br />
$15 M<br />
$10 M<br />
20.3M<br />
$4 M $3.68M<br />
$5 M<br />
$2 M<br />
$1.43M<br />
$0.355M<br />
$0 M<br />
$0 M<br />
2001 2002 2003 2004 20<strong>05</strong><br />
* Excludes $7.2M raised for StrataGold <strong>Corporation</strong> in 2003 and $2.1M raised for Pacifica in 2004.<br />
$4.30M<br />
$2.44M<br />
$0.53M<br />
$0.30M<br />
2001 2002 2003 2004 20<strong>05</strong><br />
Mi ll ions o f Pou n ds<br />
9000 M<br />
7500 M<br />
6000 M<br />
4500 M<br />
3000 M<br />
1500 M<br />
0 M<br />
1191 M 1191 M<br />
<strong>Zinc</strong> Resources Ownership<br />
1936 M<br />
2621 M<br />
7300M<br />
2001 2002 2003 2004 20<strong>05</strong><br />
Silver Resources Ownership<br />
Acquisitions have provided a steady growth in zinc and silver resources and reserves (includes indirect interest in Pacifica zinc resources).<br />
s<br />
M illi ons of nce 85M<br />
80M<br />
75M<br />
70M<br />
65M<br />
55M<br />
45M<br />
35M<br />
25M<br />
15M<br />
0 M<br />
45.3M 45.3M<br />
51.3M<br />
80.7M<br />
80.7M<br />
2001 2002 2003 2004 20<strong>05</strong><br />
YUKON ZINC 20<strong>05</strong> ANNUAL REPORT<br />
PAGE 1
<strong>Yukon</strong> <strong>Zinc</strong>'s vision is to provide extraordinary<br />
return for its shareholders by being the best that it<br />
can within its community.<br />
20<strong>05</strong> Highlights<br />
Completed CAD$19 million test mining and drilling program on Wolverine Deposit, <strong>Yukon</strong>.<br />
Closed CAD$10 million unit and flow-through financing.<br />
Completed the purchase of a 60% joint venture interest in the Logan Property from Energold Minerals Inc.<br />
Entered into socio-economic participation agreement with Kaska First Nation.<br />
Commissioned Hatch Ltd. to complete bankable feasibility study.<br />
Selected Macquarie Bank as lead for project debt financing.<br />
Corporate Profile<br />
<strong>Yukon</strong> <strong>Zinc</strong> <strong>Corporation</strong> is the renamed Expatriate Resources<br />
Ltd. and is focused on the exploration and development of<br />
base-precious metals deposits in the <strong>Yukon</strong>. It is one of three<br />
companies comprising the Expatriate Group of Companies<br />
that includes <strong>Yukon</strong> <strong>Zinc</strong> <strong>Corporation</strong>, Pacifica Resources Ltd.<br />
and StrataGold <strong>Corporation</strong>. The companies share some<br />
common management personnel and benefit from the<br />
aggregate expertise of the Group.<br />
<strong>Yukon</strong> <strong>Zinc</strong>'s core asset is its large land holding in the<br />
emerging Finlayson Massive Sulphide District in the <strong>Yukon</strong>,<br />
that contains the exceptionally high grade Wolverine and three<br />
other deposits. <strong>Yukon</strong> <strong>Zinc</strong> also owns a 60% joint venture<br />
interest in the Logan deposit in the Rancheria District in<br />
southern <strong>Yukon</strong>, and recently acquired 100% interest in the Swift<br />
property located to southwest of Logan. The Logan and Swift<br />
properties provide a second exploration and development<br />
opportunity for <strong>Yukon</strong> <strong>Zinc</strong>.<br />
The <strong>Yukon</strong> <strong>Zinc</strong>-Silver Project is one of the few medium to<br />
large zinc-silver development projects on the Pacific Rim that<br />
can feed the developing shortfall in zinc supply to China and its<br />
neighbours. Completion of a CAD$19 million advanced<br />
exploration, underground development and engineering and<br />
environmental permitting program forms the basis for<br />
advancing Wolverine to bankable feasibility study. Should<br />
<strong>Yukon</strong> <strong>Zinc</strong> be able to complete project financing in the first<br />
half of 2006, Wolverine will transition into development and<br />
start down a path to production that would commence in late<br />
2007.<br />
<strong>Yukon</strong> <strong>Zinc</strong>'s deposits have a significant resource inventory<br />
containing 3.4 billion pounds of zinc, 329 million pounds of<br />
copper, 213 million pounds of lead, 84 million ounces of silver<br />
and 352,000 ounces of gold, making it one of the more<br />
attractive junior resource companies.<br />
Through its current 5.6% interest in Pacifica Resources Ltd. it<br />
has exposure to a broad portfolio of base metals exploration<br />
properties in the Americas; the most important of which is the<br />
Selwyn Project that hosts the giant Howard's Pass zinc-lead<br />
deposits.<br />
The Company's management team is well known for its<br />
expertise in the exploration and development of baseprecious<br />
metals deposits, particularly those of the<br />
volcanogenic massive sulphide type. Recent additions to its<br />
management team add considerable mining and<br />
environmental management expertise.<br />
PAGE 2<br />
YUKON ZINC 20<strong>05</strong> ANNUAL REPORT
Exploration Properties<br />
<strong>Yukon</strong> <strong>Zinc</strong> <strong>Corporation</strong> is<br />
focused on the development<br />
of the Wolverine deposit as<br />
the <strong>Yukon</strong>’s next significant<br />
zinc-silver mine and the<br />
exploration of the Finlayson<br />
Y U<br />
K O<br />
N<br />
Finlayson Project<br />
Ice Deposit<br />
District as Canada’s newest<br />
Volcanogenic Massive<br />
Sulphide District.<br />
Wolverine<br />
Swift<br />
Logan<br />
YUKON ZINC 20<strong>05</strong> ANNUAL REPORT PAGE 3
Wolverine Project Development<br />
The Finlayson District is Canada's newest volcanogenic<br />
massive sulphide (VMS) district and is centrally located in<br />
southern <strong>Yukon</strong>. The District has the potential to become a<br />
major new mining camp supplying base and precious metals.<br />
Initial exploration in the mid 1990's resulted in discovery of<br />
three significant zinc-lead-copper-silver-gold deposits.<br />
The predecessors to <strong>Yukon</strong> <strong>Zinc</strong> acquired a large claim<br />
holding in the Finlayson District following the discovery by<br />
Cominco Ltd. in 1994 of the Kudz Ze Kayah deposit.<br />
Following the discovered of the exceptionally silver-rich<br />
Wolverine deposit in the fall of 1995 the Wolverine Joint<br />
Venture acquired a very large claim holding in the District.<br />
Exploration by Expatriate led to discovery of the Ice copper<br />
deposit in 1996 and Cominco discovered the GP4F deposit in<br />
1997.<br />
Expatriate acquired a 60% joint venture interest in the<br />
Wolverine deposit from Boliden Westmin (Canada) Limited in<br />
the spring of 1999 and acquired Atna's joint venture interest in<br />
2004 giving <strong>Yukon</strong> <strong>Zinc</strong> a 100% interest in the Wolverine Joint<br />
Venture lands. <strong>Yukon</strong> <strong>Zinc</strong> now owns a 100% interest in 178<br />
square kilometers of the former Wolverine Joint Venture<br />
claims and an additional 517 square kilometres in the<br />
surrounding lands covering much of the favourable<br />
stratigraphy in the Finlayson District.<br />
Exploration continued at low levels in 20<strong>05</strong> as the focus shifted<br />
to development activities. Resumption of exploration is<br />
planned for 2007.<br />
WOLVERINE BELT<br />
The discovery of Wolverine in fall of 1995 spawned the<br />
<strong>Yukon</strong>'s largest ever staking rush and the initial exploration<br />
fever resulted in discovery of several new areas of<br />
mineralization that remain largely untested.<br />
The mid-Paleozoic volcanic and sedimentary rocks hold the<br />
promise of hosting large tonnages of high-grade massive<br />
sulphides. Similar volcanogenic massive sulphide districts<br />
have been very productive in Canada and abroad and have<br />
enjoyed long histories of discovery and development.<br />
The Wolverine deposit is a classic volcanogenic massive<br />
sulphide (VMS) deposit hosted in felsic volcanic and<br />
argillaceous sedimentary rocks of probable mid-Paleozoic<br />
age. The favourable strata are exposed over a strike length of<br />
more than 20 kilometers on the Wolverine property with<br />
multiple occurrences of mineralization. Stratigraphic drilling<br />
has defined several target areas warranting additional drilling.<br />
WOLVERINE DEPOSIT<br />
The Wolverine deposit consists of massive sulphides that<br />
occur in two tabular semi-continuous lenses. Drilling from<br />
1995 to 1997 defined a resource in all categories (Westmin<br />
Resources Ltd., 1998) of 6,237,000 tonnes grading 12.66%<br />
zinc, 1.55% lead, 1.33% copper, 371 g/t silver and 1.76 g/t<br />
gold. In early 2006, a new resource estimate was prepared<br />
PAGE 4<br />
YUKON ZINC 20<strong>05</strong> ANNUAL REPORT
following the completion of an additional 59 drill holes during<br />
definition drilling of the deposit. The Wolverine deposit is open<br />
down-dip and holes drilled by <strong>Yukon</strong> <strong>Zinc</strong> in 2000 intersected<br />
massive sulphides on the adjacent WOL claims when they<br />
were under option from Teck Cominco.<br />
OTHER MINERALIZED ZONES<br />
Drilling along the more than 20 km long Wolverine horizon has<br />
intersected significant mineralization in the Sable Zone<br />
southeast of Wolverine and in the Fisher Zone 8 kilometres<br />
northwest of Wolverine. Drilling in the Sable Zone has yielded<br />
thin intersections of high-grade massive sulphide<br />
mineralization including 0.6 metres of exceptionally highgrade<br />
massive sulphides grading 13.3% zinc, 0.8% lead, 0.8%<br />
copper, 416 g/t silver and 1.9 g/t gold. The mineralization is<br />
similar to that forming the periphery of the Wolverine deposit.<br />
Drilling on the Fisher zone has intersected massive sulphide<br />
mineralization and extensive alteration.<br />
selenium content than in the<br />
Kudz Ze Kayah or Wolverine<br />
deposits.<br />
<strong>Yukon</strong> <strong>Zinc</strong>'s Goal Net and<br />
Red Line properties also host<br />
the basal portion of the Kudz<br />
Ze Kayah sequence. The<br />
morphology of the felsic<br />
volcanic rocks hosting these<br />
targets and the low selenium<br />
content in the sulphide<br />
mineralization suggest that<br />
they are on the lower GP4F<br />
Horizon. By analogy to other mining districts, the giant<br />
deposits in the major VMS districts are generally found on the<br />
lower most mineralized horizon which is considered “elephant<br />
country”.<br />
During 20<strong>05</strong>, the Company acquired the<br />
right to purchase a 51% interest in the<br />
Money claims east of Wolverine. The<br />
claims cover a relatively unexplored<br />
copper-rich massive sulphide<br />
occurrence in mafic volcanic strata that<br />
overlies Wolverine strata.<br />
KUDZ ZE KAYAH BELT<br />
The predominantly felsic volcanic rocks<br />
hosting Teck Cominco’s Kudz Ze Kayah<br />
deposit are interpreted to be slightly older<br />
than those hosting the Wolverine<br />
deposit. The GP4F deposit occurs<br />
approximately five kilometres to the<br />
southeast of Kudz Ze Kayah and is<br />
interpreted to be lower in the felsic<br />
volcanic sequence than Kudz Ze Kayah,<br />
defining a third lower mineralized<br />
horizon. Mineralization on this lower<br />
horizon is characterized by much smaller<br />
YUKON ZINC 20<strong>05</strong> ANNUAL REPORT<br />
PAGE 5
RED LINE AND GOAL NET NORTH<br />
The Red Line and Goal Net North areas, located<br />
approximately 20 km southwest of Wolverine, are contiguous<br />
with strata hosting the nearby GP4F deposit. Drilling in 1996<br />
on the Red Line property intersected narrow intervals of<br />
massive and semi-massive sulphides in three drill holes. Reinterpretation<br />
of the alteration within the rhyolite strata<br />
suggests an attractive target down dip to the north of the<br />
known mineralization.<br />
GoalNet North Area, Finlayson District <strong>Yukon</strong><br />
Goal Net North<br />
Geological and geochemical surveys during 1998<br />
and 1999 defined numerous targets over a large<br />
area on the Goal Net North property. Drilling on the<br />
property in 2000 intersected narrow massive<br />
sulphides associated with a strong multi-element<br />
soil geochemical anomaly. Drill hole GN00-02<br />
intersected a 0.73 metre section of semi-massive<br />
sulphide mineralization assaying 3.0% zinc, 1.85%<br />
lead, 0.14% copper, 63 g/t silver and 0.2 g/t gold<br />
within gentle dipping quartz porphyry rhyolite strata.<br />
The sulphides contain very low levels of selenium. A<br />
second drill hole intersected a similar thickness of<br />
semi-massive sulphides 400 metres to the<br />
southeast.<br />
Goal Net South<br />
Drilling continued in 2001, with 9 drill holes<br />
completed on the Goal Net North property. Drill hole<br />
GN01-5, located 4 kilometres to the south of hole<br />
GN00-02, intersected low-grade zinc mineralization<br />
over a 16 metre interval in argillaceous tuff,<br />
suggesting the presence of an attractive<br />
mineralized horizon. The wide spaced holes have<br />
defined one or more favourable horizons of<br />
mineralization and alteration over 30 square<br />
kilometres. More drilling is warranted.<br />
PAGE 6<br />
YUKON ZINC 20<strong>05</strong> ANNUAL REPORT
GOAL NET SOUTH AND THUNDERSTRUCK ZONE<br />
Exploration during 2004 focused on the Goal Net South area.<br />
Surface mapping located a new zone of massive sulphide in<br />
the Thunderstruck Zone. The mineralization grades 13.2%<br />
zinc, 5.2% lead, 1.7% copper, 40.7 g/t silver and 0.06 g/t gold<br />
over 0.3 metres in a gently south dipping zone. Mapping<br />
followed the zone for 225 metres before loss in overburden<br />
cover. Three drill holes were completed before winter<br />
conditions brought an end to drilling in late November. All<br />
three drill holes intersected narrow zones of high grade<br />
mineralization over a length of 500 metres downdip from the<br />
surface discovery.<br />
Two drill holes were completed in Thunderstruck during<br />
summer 2004 program to followup the initial thin massive<br />
sulphides encountered in three of the 2004 drill holes. These<br />
large stepout holes continue to intersect strongly altered<br />
mixed felsic volcanic and sedimentary rocks with anomalous<br />
zinc mineralization.<br />
FINLAYSON NORTH <strong>AR</strong>EA<br />
Re-evaluation of the Box claims during summer 2002, defined<br />
an attractive target for drilling. An area of strong acid leaching<br />
of rhyolite strata has been identified within an extensive lead<br />
geochemical anomaly that warrants drilling.<br />
Wolverine Deposit Plan with Massive Sulphide Drill Hole Intersections and Thickness Contours<br />
True Thickness of<br />
massive sulphide<br />
0 - 2m<br />
2 - 6m<br />
6 - 10m<br />
10 - 16m<br />
2 metre<br />
contours<br />
>4m contour<br />
(mine plan)<br />
FOOT claims<br />
(<strong>Yukon</strong> <strong>Zinc</strong>)<br />
WOL Claims<br />
(TeckCominco)<br />
Claim<br />
Boundary<br />
Base of the<br />
Massive<br />
Sulphide<br />
Intersection<br />
(True Thickness)<br />
Drill Hole<br />
Not Completed<br />
(Historical)<br />
YUKON ZINC 20<strong>05</strong> ANNUAL REPORT<br />
PAGE 7
ICE<br />
The wholly owned Ice deposit is located 80 kilometres<br />
northwest of the Wolverine deposit. An inferred resource of<br />
4,561,863 tonnes grading 1.48% copper has been estimated.<br />
Much of the resource is near surface and may be amenable to<br />
open pit mining. Drill of 8.56% copper over 5.9 metres and<br />
5.2% copper over 20.5 metres define a small high grade core<br />
of mineralization that could be mined from a shallow decline<br />
and provide high-grade copper ore for blending with Wolverine<br />
ores.<br />
WOLVERINE RESOURCES AND RESERVES<br />
20<strong>05</strong> <strong>Yukon</strong> <strong>Zinc</strong> completed 59 surface drill holes to better<br />
define the resources in the Wolverine deposit and integrated<br />
this data with the historical drill hole results to produce a new<br />
Resource Tonnes Zn Ag Cu Au Pb<br />
Category (%) (g/t) (%) (g/t) (%)<br />
Measured 509,000 12.17 292.3 1.15 1.47 1.46<br />
materials. Mill feed to the mill is projected at 4,462,000 tonnes<br />
grading 11.25% zinc, 1.07% copper, 1.48% lead, 1.56 g/t gold<br />
and 327 g/t silver. This feed provides approximately 10 years<br />
of production. Conversion of the Inferred resources into<br />
mining reserve would add an additional 3.5 years to the<br />
production plan.<br />
TEST MINING AND FEASIBILITY STUDY<br />
In January 20<strong>05</strong>, <strong>Yukon</strong> <strong>Zinc</strong> began mobilizing equipment<br />
and materials into Wolverine for the undertaking of a<br />
CAD$19 million advanced exploration program that consisted<br />
of detailed definition drilling of the resources, engineering<br />
and environmental studies, and test mining to support the<br />
completion of a bankable feasibility and project permitting.<br />
An important part of the test mining was confirming mining<br />
conditions as they relate to mining costs and ore recovery. A<br />
decline was made to the upper part of the Lynx deposit and then<br />
drifting and cross-cutting on the ore to provide bulk sample<br />
material and geotechnical information. This work confirmed that<br />
Indicated 4,002,000 12.03 359.4 1.16 1.71 1.58<br />
Total 4,511,000 12.04 351.5 1.15 1.68 1.57<br />
Inferred 1,694,000 12.16 385.1 1.23 1.71 1.74<br />
National Instrument 43-101 compliant resource estimate. The<br />
Measured and Indicated resources total approximately 4.5<br />
million tonnes which are the basis of the mining reserve. There<br />
is also 1,694,000 tonnes of Inferred resources that need<br />
additional in-fill drilling to improve their confidence level. The<br />
Inferred resources are largely within the deeper portion of the<br />
deposit, and are open across the claim boundary onto the<br />
WOL claims owned by TeckCominco.<br />
The resources are not particularly sensitive to cutoff grade and<br />
the new mining reserves include almost all of the Measured<br />
and Indicated resources. Mining of the Measured and<br />
Indicated resources is estimated to include approximately<br />
18% of external dilution. It is planned to crush this run-of-mine<br />
material to minus one inch and process it through a dense<br />
media separation (DMS) plant to remove less dense waste<br />
rock conditions were better than expected; particularly in the<br />
periphery of the massive sulphide mineralization.<br />
In June 20<strong>05</strong>, <strong>Yukon</strong> <strong>Zinc</strong> commissioned Hatch Ltd. to<br />
undertake a bankable feasibility study. As at March 31, 2006,<br />
the detailed feasibility study was near completion and<br />
PAGE 8<br />
YUKON ZINC 20<strong>05</strong> ANNUAL REPORT
The first sulphide rock through the portal<br />
entrance comes 10 years plus a week from<br />
the discovery date of the deposit.<br />
YUKON ZINC 20<strong>05</strong> ANNUAL REPORT<br />
PAGE 9
undergoing internal and external review to finalize capital and<br />
operating costs.<br />
Considerable additional metallurgical testwork was completed<br />
in 20<strong>05</strong> to finalize process design and determine recoveries<br />
and product quality. This testwork completes a long history of<br />
metallurgical testwork that commenced in early 1996.<br />
Early test work identified abnormally high selenium content in<br />
the test concentrates. In the late 1990's high selenium<br />
contents were considered a possible impediment to their<br />
saleability; particularly for the zinc concentrate. The recent<br />
dramatic increase in selenium price from US$4.00 per pound<br />
to more than US$50 per pound, combined with the serious<br />
shortfall in zinc concentrates, has resulted in much increased<br />
interest in the concentrates. Recenty, all smelters contacted<br />
have expressed interest in the Wolverine concentrates and it<br />
is apparent that Wolverine concentrates can be readily sold.<br />
Discussions are now focused on removal of selenium penalty<br />
on concentrates and possible price participation in sale of<br />
recovered selenium.<br />
The copper and lead concentrates from Wolverine are very<br />
rich in silver and gold increasing their value and marketability.<br />
Furthermore, the byproduct credit for silver and gold<br />
significantly reduces the cash cost of producing zinc.<br />
In late 2004, <strong>Yukon</strong> <strong>Zinc</strong> began the evaluation of application of<br />
dense media separation (DMS) technology in an effort to<br />
manage mining dilution to maximize mill efficiency and output.<br />
The testwork conducted at SGS Lakefield Research indcates<br />
that the application of this simple gravity technology would<br />
provide a very effective pre-concentration step. The DMS<br />
process provides for efficient rejection of less dense waste<br />
materials from the dense ore. Testwork indicates recovery of<br />
approximately 98% of base metals and 95% of precious<br />
metals in the dense “sink” portion together with “fines”<br />
products.<br />
Successful application of DMS technology at Wolverine<br />
should reduce mill process costs on a unit of production basis.<br />
However, the main benefit will be in mining where it provides a<br />
means of removing waste material from ores prior to<br />
processing. The effective removal of waste allows mining to<br />
maximize recovery of the high-grade ores; particularly, where<br />
excessive dilution with waste rock occurs due to multiple<br />
bands of massive sulphide mineralization, hangingwall failure,<br />
contamination of ore with footwall material and in the mining of<br />
thin massive sulphide lenses. Application of DMS at Wolverine<br />
will allow the mining of thinner zones of ore and simple<br />
upgrading before milling, therefore increasing mining reserves<br />
and increasing mine life. These thinner ores are commonly<br />
more precious metals rich, which adds significant additional<br />
precious metals recovery.<br />
Planned Development Schedule<br />
Scoping Study<br />
Exploration<br />
Eis<br />
Test Mining<br />
Underground Drilling<br />
Feasibility<br />
Financing<br />
Detailed Engineering<br />
Production Decision<br />
Procurement<br />
Site Preparation<br />
Construction<br />
Startup<br />
Operations<br />
2004 20<strong>05</strong> 2006 2007<br />
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct<br />
Jan<br />
PAGE 10<br />
YUKON ZINC 20<strong>05</strong> ANNUAL REPORT<br />
APPLICATION OF DMS TECHNOLOGY
The Environmental Assessment Report was filed<br />
on October 28, 20<strong>05</strong>, and is now being reviewed<br />
by the regulators and general public.<br />
PERMITTING, ENVIRONMENTAL & COMMUNITY AFFAIRS<br />
<strong>Yukon</strong> <strong>Zinc</strong> resumed permitting of Wolverine development in<br />
summer 2004. The Company submitted its B Water License<br />
Application in July 2004 and received the license in early 20<strong>05</strong>.<br />
The B Water License and the amended Mining Land Use<br />
Permit are the permits associated with the test mining<br />
program.<br />
for issuance of the Mining License in June of 2006. The Type A<br />
Water License required for operation of a mine and mill is<br />
expected in October 2006.<br />
In the fall of 2004, the Company made application for an A<br />
Water License and submitted a Project Description Report in<br />
support of a Quartz Mining License application for<br />
development of Wolverine. The <strong>Yukon</strong> Government has<br />
appointed a Project Coordinator to coordinate the review of<br />
submissions and ensure the smooth working process for<br />
review of permitting documents.<br />
The Environmental Assessment Report was submitted in<br />
October 20<strong>05</strong> and has progressed through initial regulatory<br />
screening and public consultation. The permitting is on track<br />
In July 20<strong>05</strong>, the Company completed a socioeconomic<br />
participation agreement with the Ross River Dena Council.<br />
The agreement addresses the concerns of local aboriginal<br />
people whose traditional territory the Wolverine deposit is<br />
located in and provides for their participation in the economic<br />
and social benefits of the development and operation of<br />
Wolverine as a mine. Their support is greatly appreciated and<br />
the Company looks forward to working with them to maximize<br />
benefits to their members and our shareholders.<br />
YUKON ZINC 20<strong>05</strong> ANNUAL REPORT<br />
PAGE 11
development in ore to minimize development costs and to<br />
achieve almost total recovery of the resource. The mining plan<br />
provides a large number of working stopes at all times. Natural<br />
blending of the ores as a result of mining from several areas at<br />
any one time provides additional benefits.<br />
The run-of-mine ores will be crushed to minus one-inch and<br />
fed through the DMS plant to produce approximately 1250<br />
tonnes per day of mill feed for grinding and flotation to produce<br />
copper, lead and zinc concentrates. The concentrates will be<br />
trucked 850 kilometres to the port of Stewart in British<br />
Columbia for shipment to the smelters of Asia.<br />
Completion of the bankable feasibility study is scheduled for<br />
early April. Its completion provides the basis for securing<br />
project financing. Macquarie Bank was selected in December<br />
20<strong>05</strong> to lead the debt financing and metal hedging activities.<br />
WOLVERINE PRODUCTION AND DEVELOPMENT PLAN<br />
The feasibility study is premised on mining 1470 tonnes per<br />
day by simple cut and fill underground mining methods,<br />
extracting the entire mineralized zone. Mining will proceed<br />
with alternating primary and secondary stopes, utilizing paste<br />
backfill for filling of the primary stopes prior to mining the<br />
secondary stopes. The mining plan has most of the<br />
Construction is expected to begin in July 2006, after receipt of<br />
the Mining License. Assuming the timely completion of project<br />
financing and commencement of construction, production is<br />
schedule to start in late 2007. Commissioning of the mine and<br />
mill is expected to be complete by yearend and full production<br />
reached by January 2008.<br />
Internal<br />
estimates of<br />
concentrate<br />
production<br />
based on<br />
application of<br />
dense media<br />
separation<br />
(average of first<br />
three years).<br />
Production<br />
Estimates based on<br />
Average of first three<br />
Years production<br />
<strong>Zinc</strong> 80,160 t 43,850 t<br />
Copper 15,260 t 3,970 t<br />
Lead 9,350 t 3,900 t<br />
Silver (in concentrate)<br />
Gold (in concentrate)<br />
1250 tpd Undiluted Ore*<br />
Concentrate<br />
Contained<br />
Metal<br />
4,430,000 oz<br />
16,930 oz<br />
*Metal production forecast on basis of former mine plan,<br />
and subject to change with new production schedule to be<br />
based on new resource and mining reserve and optimized<br />
production plan.<br />
PAGE 12<br />
YUKON ZINC 20<strong>05</strong> ANNUAL REPORT
FINLAYSON DISTRICT EXPLORATION & DEVELOPMENT<br />
2006 EXPLORATION PLAN<br />
The Finlayson District contains potential for discovery of<br />
significant additional resources of zinc, copper, lead, silver<br />
and gold that could form the basis of a long life mining camp.<br />
The following table provides a summary of the resources of the<br />
Wolverine and other deposits in the Finlayson District, along<br />
with Logan. It is expected that over time consolidation may<br />
occur in the District providing development synergies.<br />
<strong>Yukon</strong> <strong>Zinc</strong>'s initial priority is to advance Wolverine to<br />
development. A parallel but separate initiative is to reinstate<br />
the exploration discovery track that ended in 1997 due to<br />
concerns on selenium and low metal prices. Exploration of the<br />
Finlayson District is planned to resume in 2007.<br />
The development of Wolverine will provide the new<br />
infrastructure that will facilitate future development in the<br />
District. The successful construction and operation of<br />
Wolverine would provide the base for development of a long<br />
life sustainable mining future in the Finlayson District.<br />
Exploration in the Finlayson District during 2006 will be<br />
modest with a small amount of drilling planned for the Money<br />
claims and minor work in support of ongoing claim<br />
assessment. A small amount of continued exploration is<br />
planned on the Company's claims in the Rancheria District in<br />
southern <strong>Yukon</strong>.<br />
RANCHERIA DISTRICT<br />
The district hosts numerous carbonate-hosted zinc-lead-silver<br />
deposits with similarities to the major manto deposits of<br />
Mexico with its world class silver districts. The Logan deposit is<br />
unusual as it occurs within a granitic intrusion in this terrane.<br />
Further west of the platformal carbonate strata are mixed<br />
volcanic-sedimentary strata that host zinc-copper-lead-silvergold<br />
occurrences including the Swift property.<br />
District Reserves and Resources, March 2006<br />
Wolverine 1 Ice 2 Logan 3 Kudz Ze GP4F 5 Kona 6 TOTAL<br />
Kayah 4<br />
CONTAINED<br />
METAL<br />
Ownership 100% 100% 60% 100% 100% 100%<br />
<strong>Yukon</strong> <strong>Zinc</strong> <strong>Yukon</strong> <strong>Zinc</strong> <strong>Yukon</strong> <strong>Zinc</strong> TeckCominco TeckCominco Pacific Ridge<br />
Tonnes 4,511,000 4,500,000 13,080,000 13,720,000 1,500,000 8,200,000<br />
Zn % 12.04 5.10 6.0 6.40<br />
Cu % 1.15 1.48 0.9 0.10 2.1<br />
Pb % 1.57 1.61 3.10<br />
Au g/t 1.68 1.38 2.0 0.73<br />
Ag g/t 351.5 23.7 139.2 90<br />
Zn pounds 1,197,372,000 0 1,470,644,500 1,814,826,700 211,641,600 4,694,484,800<br />
Cu pounds 114,367,000 146,825,300 0 272,224,000 3,306,900 393,521,000 930,244,200<br />
Pb pounds 156,136,000 0 0 486,978,000 102,513,900 745,627,900<br />
Au ounces 243,600 0 0 608,720 96,450 192,000 1,140,770<br />
Ag ounces 50,979,000 0 9,996,000 61,401,200 4,340,300 126,716,500<br />
1. Wolverine Resource ( Measured and Indicated ) Zukon <strong>Zinc</strong> <strong>Corporation</strong>, January 10, 2006; also 1,694,000 tonnes of Inferred resources<br />
grading 12.16% zinc, 1.23% copper, 1.74% lead, 1.71 g/t gold and 385.15 g/t silver.<br />
2. Ice Indicated Resource Derry, Michener, Booth and Wahl, 1998.<br />
3. Logan Inferred Resource, Hatch Associates Ltd, March 24, 2004.<br />
4. Kudz Ze Kayah Indicated Resource, Hatch Associates Ltd. November 2000 Prefeasibility Study Report<br />
5. GP4F Geological Resource (Inferred) Cominco Ltd. 1999 Annual Report<br />
6. Kona Geological Resource, Pacific Ridge Exploration Ltd.<br />
YUKON ZINC 20<strong>05</strong> ANNUAL REPORT<br />
PAGE 13
LOGAN DEPOSIT<br />
In April 2003, <strong>Yukon</strong> <strong>Zinc</strong> entered into an agreement with<br />
Energold Minerals Inc. to acquire a 60% interest in the Logan<br />
deposit located in south central <strong>Yukon</strong>. Exploration in the late<br />
1980's defined an Inferred resource of 12,300,000 tonnes<br />
grading 6.17% zinc and 26 g/t silver in the Main zone of the<br />
Logan deposit (Stammers, 1989).<br />
The Logan deposit consists of fracture and vein hosted zincsilver<br />
mineralization within a granitic intrusion. The<br />
mineralization is up to 90 metres thick making it attractive for<br />
open pit mining. A re-estimation of resources using a block<br />
model method was completed by Hatch Associates Ltd. in July<br />
SWIFT PROPERTY<br />
The recently acquired Swift Property is situated approximately<br />
55 kilometres southwest of Logan and covers a 20 kilometre<br />
long belt of anomalous soil geochemistry. Numerous massive<br />
sulphide occurrences and boulders have been identified in till.<br />
20<strong>05</strong>. Hatch estimated an Inferred resource of 13,080,000<br />
tonnes grading 5.1% zinc and 23.7 g/t silver in the Main Zone.<br />
Previous exploration has also defined low grade zinc<br />
mineralization in the East and West Zones that require more<br />
drilling to better define resources. Drilling in the deeper parts of<br />
the Main Zone includes intersections of up to 9 metres grading<br />
10.07% zinc and 65.2 g/t silver that could be amenable to<br />
underground mining. The deposit remains largely unexplored<br />
at depth and along strike.<br />
The Logan deposit provides an attractive base feed for a zinc<br />
mine. <strong>Yukon</strong> <strong>Zinc</strong> is evaluating opportunities for discovering<br />
additional higher grade mineralization to add to the resource<br />
base at Logan.<br />
Massive sulphide and oxide mineralization in the Window/Dan<br />
showing occurs defines at least two distinct units within a<br />
complex sequence of phyllite, schist, calc-silicate rocks, and<br />
marble suggestive of stratabound mineralization. Drill results<br />
from hole SR97-06 include 1.2 metres grading 14.6% zinc and<br />
0.2% copper and 3.62% zinc over 3.6 metres. This second<br />
interval includes 0.87 metre intercept grading 13.4% zinc and<br />
0.1% copper.<br />
These and other showings suggest that the mineralization is<br />
characterisitic of a volcanogenic massive sulphide deposit<br />
environment with has potential for higher grade mineralization<br />
that could be developed in conjunction with the Logan deposit.<br />
PAGE 14<br />
YUKON ZINC 20<strong>05</strong> ANNUAL REPORT
PACIFICA ADVANCING A GIANT ZINC-LEAD DEPOSIT<br />
After distributing the Pacifica shares received in the plan of<br />
arrangement to its shareholders in December 2004, <strong>Yukon</strong><br />
<strong>Zinc</strong> purchased 4.8 million shares of Pacifica providing it the<br />
initial seed capital to meet listing requirements of the TSX<br />
Venture Exchange. The plan of arrangement provided for the<br />
District. It undertook $3.5 million in exploration during summer<br />
20<strong>05</strong> and is aggressively advancing the exploration and<br />
development of the property. The district scale distribution of<br />
mineralization indicates a very large stratabound shalehosted<br />
zinc-lead deposit with potential to exceed 2 billion<br />
tonnes of mineralization, which if realized, would make it the<br />
largest zinc-lead deposit in the world.<br />
sale of Expatriate's claims in the Selwyn Basin in the <strong>Yukon</strong>,<br />
Yava property in Nunavut, Tillex in Ontario, Blue Moon in<br />
California and several properties in Chile.<br />
<strong>Yukon</strong> <strong>Zinc</strong>'s $1.2 million investment in Pacifica provided<br />
initial working capital. Pacifica has recently completed $20<br />
million of equity financing and has working capital of $21<br />
million. <strong>Yukon</strong> <strong>Zinc</strong>'s interest in Pacifica has been diluted to<br />
5.6% of the issued shares. It also has a warrant for an<br />
additional 2.4 million shares that expires in late 2006.<br />
In April 20<strong>05</strong>, Pacifica acquired the giant Howard's Pass<br />
deposit in the Selwyn Basin area of eastern <strong>Yukon</strong>. Through<br />
staking it acquired additional lands and now owns 40km of the<br />
NITROSYL TECHNOLOGIES CORPORATION<br />
Nitrosyl Technologies <strong>Corporation</strong>, established to hold the<br />
technology assets acquired from Boliden Westmin Limited.<br />
Nitrosyl owns 75% of Catalytic Sulphur <strong>Corporation</strong> that holds<br />
two US patents and numerous international patents for a novel<br />
new process for making sulphuric acid and sulphur gascleaning.<br />
Nitrosyl also owns 50% of Nitrox Metals <strong>Corporation</strong><br />
that holds two US patents and other international patents for<br />
leaching of zinc and copper in concentrates. Nitrosyl has<br />
options to increase its interest to 90% in each of the private<br />
companies.<br />
YUKON ZINC 20<strong>05</strong> ANNUAL REPORT PAGE 15
CORPORATE<br />
INFORMATION<br />
Capital Structure<br />
Symbol: YZC, TSX Venture Exchange<br />
Issued*: 245,790,654<br />
Fully Diluted*: 290,240,885<br />
*as at April 19, 2006<br />
Major Shareholders<br />
CMP Resources 11.93%<br />
Geologic Resources Partners 10.47%<br />
NCE (Sentry Select) 7.59%<br />
Mavrix 5.42%<br />
Auditors<br />
De Visser Gray<br />
Chartered Accountants<br />
Vancouver, B.C., Canada<br />
Directors and Officers<br />
President, CEO and Director: Dr. Harlan Meade<br />
Chairman and Director: Mr. George Stevens<br />
Director: Mr. Robert Yeoman<br />
Director: Mr. Walter Segsworth<br />
Director: Mr. Lorne Anderson<br />
CFO, Vice-President Corporate Development and Director: Mr. Robert McKnight<br />
Secretary: Mr. Barry Finlayson<br />
Vice President, Exploration: Mr. Jason Dunning<br />
Vice President, Mining: Mr. Richard Goodwin<br />
Vice President Environmental and Community Affairs: Ms. Pamela Ladyman<br />
Controller: Ms. Annikki Puusaari<br />
Solicitors<br />
Lang Michener LLP,<br />
Vancouver, B.C., Canada<br />
Transfer Agent<br />
Pacific Corporate Trust Company<br />
Vancouver, B.C., Canada<br />
Subsidiaries<br />
Nitrosyl Technologies <strong>Corporation</strong><br />
Finlayson Minerals <strong>Corporation</strong><br />
Investor Relations<br />
info@yukonzinc.com<br />
Conversions<br />
1 hectare (ha) = 10,000 square metres (m2) or 2.471 acres (a)<br />
1 tonne (t)= 1.10231 short tons (ton)<br />
1 troy ounce (oz)= 31.10348 grams (g)<br />
1 gram/tonne (g/t)= 0.02917 troy ounce/short ton (oz/ton)<br />
1 metre (m)= 39.37 inches (in) or 3.281 feet (ft)<br />
1 kilometre (km)= 0.621 miles (mi)<br />
1 kilogram (kg)= 2.20462 pounds (lb)<br />
1 ppm= 1 g/t<br />
ppm = parts per million<br />
ppb = parts per billion<br />
PAGE 16<br />
YUKON ZINC 20<strong>05</strong> ANNUAL REPORT
Z INC M<strong>AR</strong>KETS POISED TO OUTPERFORM OTHER BASE METALS<br />
After more than 25 years of under performance, zinc is poised<br />
to outperform due to a chronic supply imbalance. <strong>Zinc</strong><br />
inventories on the London Metal Exchange, concentrate<br />
buildup at mine sites and hidden metal inventories, estimated<br />
to total approximately 1.5 million tonnes at their peak in mid<br />
The expected depletion of zinc metal reserves by the end of<br />
2006 has led to strong price speculation by hedge funds and<br />
others, such that zinc has outperformed all of the other base<br />
metals in the first quarter of 2006. This out performance is<br />
expected to continue for the remainder of 2006.<br />
Tonn e s (000)<br />
11,000<br />
10,500<br />
10,000<br />
9,500<br />
9,000<br />
2003, have declined to about 270,000 tonnes by mid April<br />
2006.<br />
World <strong>Zinc</strong> Supply and Demand<br />
2002 2003 2004 20<strong>05</strong>E 2006F<br />
Supply<br />
The remarkable drawdown of zinc inventories reflects a<br />
significant supply gap. The production deficit since 2004 is<br />
forecast to continue through at least 2007.<br />
Demand<br />
The decline in LME inventories has fueled a rapid increase in<br />
zinc price from US$0.32 in 2002 to US$1.46 on April 19, 2006.<br />
Traditionally, high metal prices have resulted in increased<br />
production from existing mines and start-up of new mines.<br />
Close examination of current reserves for Western World<br />
production illustrates that 40% could be lost by end of 2008 if<br />
new reserves are not found. This casts a shadow of<br />
uncertainty over current production, as many of these mines<br />
are old and tired and reserve addition will be difficult and<br />
expensive. The future of zinc markets is therefore highly<br />
dependent on new mines, many of which are facing delays<br />
due to permitting and financing problems. Although there have<br />
been new mine construction announcements they are quite<br />
small and not keeping up with recent annual global increase in<br />
consumption of approximately 600,000 tonnes. The lack of<br />
quality new mine projects reflects 30 years of under<br />
investment in zinc exploration and development.<br />
Recently, a spokesperson for TeckCominco, stated that the<br />
World could loose 1.4 million tonnes of current zinc mine<br />
production by 2011. The affect of this on forecast World <strong>Zinc</strong><br />
Production suggests that zinc supply will struggle for many<br />
years and support a sustained period of high zinc prices.<br />
140<br />
135<br />
Metal Price Performance<br />
<strong>Zinc</strong><br />
100<br />
90<br />
14,000<br />
13,500<br />
World <strong>Zinc</strong> Concentrate Supply/Demand<br />
CHR Metals<br />
Oct 20<strong>05</strong><br />
130<br />
80<br />
13,000<br />
125<br />
120<br />
115<br />
110<br />
Copper<br />
Nickel<br />
1<strong>05</strong><br />
100<br />
Aluminum<br />
95<br />
90<br />
Jan-06 Feb-06 March-06<br />
70<br />
60<br />
50<br />
40<br />
30<br />
20<br />
10<br />
0<br />
% i ncrease fr o m Jan-<br />
06<br />
12,500<br />
12,000<br />
11,500<br />
11,000<br />
10,500<br />
10,000<br />
9,500<br />
2000<br />
2004<br />
20<strong>05</strong><br />
2006<br />
2007<br />
Base Production<br />
2008<br />
Supply-Demand Gap<br />
Teck Cominco forecast<br />
loss of 1.4M tonnes of<br />
current production by 2011<br />
2009<br />
0210<br />
Likely Additions<br />
2011<br />
2012<br />
Most Likely<br />
Scenario<br />
<strong>Zinc</strong> Concentrate Demand<br />
Base + Likely
A ZINC-SILVER MINE IN THE MAKING<br />
<strong>Yukon</strong> <strong>Zinc</strong> <strong>Corporation</strong><br />
701 - 475 Howe Street<br />
Vancouver, British Columbia<br />
Canada, V6C 2B3<br />
Telephone: 604. 682.<br />
5474<br />
Facsimile: 604. 682.<br />
5404<br />
International Toll Free: 800 . 8682 . 5474<br />
www.yukonzinc.com