Yukon Zinc AR 05 - Yukon Zinc Corporation

yukonzinc.com

Yukon Zinc AR 05 - Yukon Zinc Corporation

President’s Message

2005 was a year of significant accomplishment for Yukon

Zinc Corporation as it financed and completed extensive

development work on Wolverine to facilitate the completion

of a bankable feasibility study.

The early part of 2006 will be an exciting time for

shareholders as feasibility results become

known and project financing is secured. It has

been a long time since a junior company has

advanced a base metal project from discovery to

production in Canada. Yukon Zinc appears

poised to stand on that threshold shortly.

In preparation for this transition from exploration

to development and production, your company

has expanded its management team to meet the

challenges ahead, and more additions are

planned as we continue to build management

experience and capacity.

The Company is very pleased to have concluded

a Socioeconomic Participation agreement with

the Ross River Dena Council and its members.

This historic agreement provides for their direct

participation in the economic and social benefits

of the development and operation of the

Wolverine project as a mine and their sharing in

the growth of the Company as a shareholder.

These are major accomplishments that pave the

way for strong cooperation between Yukon Zinc

and the First Nations people whose traditional

territory includes the Wolverine deposit.

The December 2004 reorganization of Yukon

Zinc as the successor to Expatriate Resources

Ltd., and the formation of Pacifica Resources

Ltd., has been successful in creating significant

value for shareholders. Yukon Zinc retains an

5.6% interest in Pacifica and has a warrant to

acquire additional shares in this fast growing

company.

As 2005 came to a close, zinc became the

darling of the market and the price of zinc

increased rapidly and broke through its old high

of US$0.91 per pound set in 1989. Zinc price

rose to US$1.09 per pound, in early February

2006 before correcting, and has now risen to

even higher prices. The rapid rise in the zinc

price is due in part to the sharp decline in zinc

inventories on the London Metal Exchange. All

forecasts are for a significant supply deficit for at

least 2006 and 2007, indicating that zinc prices

are likely to remain high for the next several

years. This creates a very favourable

environment for financing the development of

Wolverine.

In December 2005, Yukon Zinc engaged

Macquarie Bank as lead advisor for project

financing. Due diligence is well underway and on

track for advancing project financing by mid

2006, paving the way for a production decision.

With these positive developments achieved,

Wolverine should be in production in late 2007

as the Yukon's first new zinc-silver mine in many

years.

On behalf of the Board and your management

team I wish to thank all of our shareholders for

their support during the past year. 2006

promises to be a very exciting year for

shareholders as we ready Wolverine for a

production decision and transition towards a

producing mining company.

Harlan Meade, President and CEO


Overview

95 M

85 M

Trading Volume

93.3M

$100 M

$90 M

Market Capitalization at Year-end

89.3M

75 M

$80 M

s

M illio ns Sha re 65 M

55 M

45 M

42.0M

s

M illi ons Doll ar $70 M

$60 M

$50 M

$40 M

$47.4M

35 M

30.8M

$30 M

$26.4M

25 M

$20 M

15 M

3.99M

7.84M

$10 M

$2.1M

$5.5M

0 M

2001 2002 2003 2004 2005

$0 M

2001 2002 2003 2004 2005

$20 M

Equity and Convertible Debenture Financings*

$20.0M

$30 M

Exploration Expenditures

$18 M

$16 M

15.5M

$25 M

Mill io ns o f Dolla r s

$14 M

$12 M

$10 M

$8 M

$6 M

rs

M ill ions f Do lla $20 M

$15 M

$10 M

20.3M

$4 M $3.68M

$5 M

$2 M

$1.43M

$0.355M

$0 M

$0 M

2001 2002 2003 2004 2005

* Excludes $7.2M raised for StrataGold Corporation in 2003 and $2.1M raised for Pacifica in 2004.

$4.30M

$2.44M

$0.53M

$0.30M

2001 2002 2003 2004 2005

Mi ll ions o f Pou n ds

9000 M

7500 M

6000 M

4500 M

3000 M

1500 M

0 M

1191 M 1191 M

Zinc Resources Ownership

1936 M

2621 M

7300M

2001 2002 2003 2004 2005

Silver Resources Ownership

Acquisitions have provided a steady growth in zinc and silver resources and reserves (includes indirect interest in Pacifica zinc resources).

s

M illi ons of nce 85M

80M

75M

70M

65M

55M

45M

35M

25M

15M

0 M

45.3M 45.3M

51.3M

80.7M

80.7M

2001 2002 2003 2004 2005

YUKON ZINC 2005 ANNUAL REPORT

PAGE 1


Yukon Zinc's vision is to provide extraordinary

return for its shareholders by being the best that it

can within its community.

2005 Highlights

Completed CAD$19 million test mining and drilling program on Wolverine Deposit, Yukon.

Closed CAD$10 million unit and flow-through financing.

Completed the purchase of a 60% joint venture interest in the Logan Property from Energold Minerals Inc.

Entered into socio-economic participation agreement with Kaska First Nation.

Commissioned Hatch Ltd. to complete bankable feasibility study.

Selected Macquarie Bank as lead for project debt financing.

Corporate Profile

Yukon Zinc Corporation is the renamed Expatriate Resources

Ltd. and is focused on the exploration and development of

base-precious metals deposits in the Yukon. It is one of three

companies comprising the Expatriate Group of Companies

that includes Yukon Zinc Corporation, Pacifica Resources Ltd.

and StrataGold Corporation. The companies share some

common management personnel and benefit from the

aggregate expertise of the Group.

Yukon Zinc's core asset is its large land holding in the

emerging Finlayson Massive Sulphide District in the Yukon,

that contains the exceptionally high grade Wolverine and three

other deposits. Yukon Zinc also owns a 60% joint venture

interest in the Logan deposit in the Rancheria District in

southern Yukon, and recently acquired 100% interest in the Swift

property located to southwest of Logan. The Logan and Swift

properties provide a second exploration and development

opportunity for Yukon Zinc.

The Yukon Zinc-Silver Project is one of the few medium to

large zinc-silver development projects on the Pacific Rim that

can feed the developing shortfall in zinc supply to China and its

neighbours. Completion of a CAD$19 million advanced

exploration, underground development and engineering and

environmental permitting program forms the basis for

advancing Wolverine to bankable feasibility study. Should

Yukon Zinc be able to complete project financing in the first

half of 2006, Wolverine will transition into development and

start down a path to production that would commence in late

2007.

Yukon Zinc's deposits have a significant resource inventory

containing 3.4 billion pounds of zinc, 329 million pounds of

copper, 213 million pounds of lead, 84 million ounces of silver

and 352,000 ounces of gold, making it one of the more

attractive junior resource companies.

Through its current 5.6% interest in Pacifica Resources Ltd. it

has exposure to a broad portfolio of base metals exploration

properties in the Americas; the most important of which is the

Selwyn Project that hosts the giant Howard's Pass zinc-lead

deposits.

The Company's management team is well known for its

expertise in the exploration and development of baseprecious

metals deposits, particularly those of the

volcanogenic massive sulphide type. Recent additions to its

management team add considerable mining and

environmental management expertise.

PAGE 2

YUKON ZINC 2005 ANNUAL REPORT


Exploration Properties

Yukon Zinc Corporation is

focused on the development

of the Wolverine deposit as

the Yukon’s next significant

zinc-silver mine and the

exploration of the Finlayson

Y U

K O

N

Finlayson Project

Ice Deposit

District as Canada’s newest

Volcanogenic Massive

Sulphide District.

Wolverine

Swift

Logan

YUKON ZINC 2005 ANNUAL REPORT PAGE 3


Wolverine Project Development

The Finlayson District is Canada's newest volcanogenic

massive sulphide (VMS) district and is centrally located in

southern Yukon. The District has the potential to become a

major new mining camp supplying base and precious metals.

Initial exploration in the mid 1990's resulted in discovery of

three significant zinc-lead-copper-silver-gold deposits.

The predecessors to Yukon Zinc acquired a large claim

holding in the Finlayson District following the discovery by

Cominco Ltd. in 1994 of the Kudz Ze Kayah deposit.

Following the discovered of the exceptionally silver-rich

Wolverine deposit in the fall of 1995 the Wolverine Joint

Venture acquired a very large claim holding in the District.

Exploration by Expatriate led to discovery of the Ice copper

deposit in 1996 and Cominco discovered the GP4F deposit in

1997.

Expatriate acquired a 60% joint venture interest in the

Wolverine deposit from Boliden Westmin (Canada) Limited in

the spring of 1999 and acquired Atna's joint venture interest in

2004 giving Yukon Zinc a 100% interest in the Wolverine Joint

Venture lands. Yukon Zinc now owns a 100% interest in 178

square kilometers of the former Wolverine Joint Venture

claims and an additional 517 square kilometres in the

surrounding lands covering much of the favourable

stratigraphy in the Finlayson District.

Exploration continued at low levels in 2005 as the focus shifted

to development activities. Resumption of exploration is

planned for 2007.

WOLVERINE BELT

The discovery of Wolverine in fall of 1995 spawned the

Yukon's largest ever staking rush and the initial exploration

fever resulted in discovery of several new areas of

mineralization that remain largely untested.

The mid-Paleozoic volcanic and sedimentary rocks hold the

promise of hosting large tonnages of high-grade massive

sulphides. Similar volcanogenic massive sulphide districts

have been very productive in Canada and abroad and have

enjoyed long histories of discovery and development.

The Wolverine deposit is a classic volcanogenic massive

sulphide (VMS) deposit hosted in felsic volcanic and

argillaceous sedimentary rocks of probable mid-Paleozoic

age. The favourable strata are exposed over a strike length of

more than 20 kilometers on the Wolverine property with

multiple occurrences of mineralization. Stratigraphic drilling

has defined several target areas warranting additional drilling.

WOLVERINE DEPOSIT

The Wolverine deposit consists of massive sulphides that

occur in two tabular semi-continuous lenses. Drilling from

1995 to 1997 defined a resource in all categories (Westmin

Resources Ltd., 1998) of 6,237,000 tonnes grading 12.66%

zinc, 1.55% lead, 1.33% copper, 371 g/t silver and 1.76 g/t

gold. In early 2006, a new resource estimate was prepared

PAGE 4

YUKON ZINC 2005 ANNUAL REPORT


following the completion of an additional 59 drill holes during

definition drilling of the deposit. The Wolverine deposit is open

down-dip and holes drilled by Yukon Zinc in 2000 intersected

massive sulphides on the adjacent WOL claims when they

were under option from Teck Cominco.

OTHER MINERALIZED ZONES

Drilling along the more than 20 km long Wolverine horizon has

intersected significant mineralization in the Sable Zone

southeast of Wolverine and in the Fisher Zone 8 kilometres

northwest of Wolverine. Drilling in the Sable Zone has yielded

thin intersections of high-grade massive sulphide

mineralization including 0.6 metres of exceptionally highgrade

massive sulphides grading 13.3% zinc, 0.8% lead, 0.8%

copper, 416 g/t silver and 1.9 g/t gold. The mineralization is

similar to that forming the periphery of the Wolverine deposit.

Drilling on the Fisher zone has intersected massive sulphide

mineralization and extensive alteration.

selenium content than in the

Kudz Ze Kayah or Wolverine

deposits.

Yukon Zinc's Goal Net and

Red Line properties also host

the basal portion of the Kudz

Ze Kayah sequence. The

morphology of the felsic

volcanic rocks hosting these

targets and the low selenium

content in the sulphide

mineralization suggest that

they are on the lower GP4F

Horizon. By analogy to other mining districts, the giant

deposits in the major VMS districts are generally found on the

lower most mineralized horizon which is considered “elephant

country”.

During 2005, the Company acquired the

right to purchase a 51% interest in the

Money claims east of Wolverine. The

claims cover a relatively unexplored

copper-rich massive sulphide

occurrence in mafic volcanic strata that

overlies Wolverine strata.

KUDZ ZE KAYAH BELT

The predominantly felsic volcanic rocks

hosting Teck Cominco’s Kudz Ze Kayah

deposit are interpreted to be slightly older

than those hosting the Wolverine

deposit. The GP4F deposit occurs

approximately five kilometres to the

southeast of Kudz Ze Kayah and is

interpreted to be lower in the felsic

volcanic sequence than Kudz Ze Kayah,

defining a third lower mineralized

horizon. Mineralization on this lower

horizon is characterized by much smaller

YUKON ZINC 2005 ANNUAL REPORT

PAGE 5


RED LINE AND GOAL NET NORTH

The Red Line and Goal Net North areas, located

approximately 20 km southwest of Wolverine, are contiguous

with strata hosting the nearby GP4F deposit. Drilling in 1996

on the Red Line property intersected narrow intervals of

massive and semi-massive sulphides in three drill holes. Reinterpretation

of the alteration within the rhyolite strata

suggests an attractive target down dip to the north of the

known mineralization.

GoalNet North Area, Finlayson District Yukon

Goal Net North

Geological and geochemical surveys during 1998

and 1999 defined numerous targets over a large

area on the Goal Net North property. Drilling on the

property in 2000 intersected narrow massive

sulphides associated with a strong multi-element

soil geochemical anomaly. Drill hole GN00-02

intersected a 0.73 metre section of semi-massive

sulphide mineralization assaying 3.0% zinc, 1.85%

lead, 0.14% copper, 63 g/t silver and 0.2 g/t gold

within gentle dipping quartz porphyry rhyolite strata.

The sulphides contain very low levels of selenium. A

second drill hole intersected a similar thickness of

semi-massive sulphides 400 metres to the

southeast.

Goal Net South

Drilling continued in 2001, with 9 drill holes

completed on the Goal Net North property. Drill hole

GN01-5, located 4 kilometres to the south of hole

GN00-02, intersected low-grade zinc mineralization

over a 16 metre interval in argillaceous tuff,

suggesting the presence of an attractive

mineralized horizon. The wide spaced holes have

defined one or more favourable horizons of

mineralization and alteration over 30 square

kilometres. More drilling is warranted.

PAGE 6

YUKON ZINC 2005 ANNUAL REPORT


GOAL NET SOUTH AND THUNDERSTRUCK ZONE

Exploration during 2004 focused on the Goal Net South area.

Surface mapping located a new zone of massive sulphide in

the Thunderstruck Zone. The mineralization grades 13.2%

zinc, 5.2% lead, 1.7% copper, 40.7 g/t silver and 0.06 g/t gold

over 0.3 metres in a gently south dipping zone. Mapping

followed the zone for 225 metres before loss in overburden

cover. Three drill holes were completed before winter

conditions brought an end to drilling in late November. All

three drill holes intersected narrow zones of high grade

mineralization over a length of 500 metres downdip from the

surface discovery.

Two drill holes were completed in Thunderstruck during

summer 2004 program to followup the initial thin massive

sulphides encountered in three of the 2004 drill holes. These

large stepout holes continue to intersect strongly altered

mixed felsic volcanic and sedimentary rocks with anomalous

zinc mineralization.

FINLAYSON NORTH AREA

Re-evaluation of the Box claims during summer 2002, defined

an attractive target for drilling. An area of strong acid leaching

of rhyolite strata has been identified within an extensive lead

geochemical anomaly that warrants drilling.

Wolverine Deposit Plan with Massive Sulphide Drill Hole Intersections and Thickness Contours

True Thickness of

massive sulphide

0 - 2m

2 - 6m

6 - 10m

10 - 16m

2 metre

contours

>4m contour

(mine plan)

FOOT claims

(Yukon Zinc)

WOL Claims

(TeckCominco)

Claim

Boundary

Base of the

Massive

Sulphide

Intersection

(True Thickness)

Drill Hole

Not Completed

(Historical)

YUKON ZINC 2005 ANNUAL REPORT

PAGE 7


ICE

The wholly owned Ice deposit is located 80 kilometres

northwest of the Wolverine deposit. An inferred resource of

4,561,863 tonnes grading 1.48% copper has been estimated.

Much of the resource is near surface and may be amenable to

open pit mining. Drill of 8.56% copper over 5.9 metres and

5.2% copper over 20.5 metres define a small high grade core

of mineralization that could be mined from a shallow decline

and provide high-grade copper ore for blending with Wolverine

ores.

WOLVERINE RESOURCES AND RESERVES

2005 Yukon Zinc completed 59 surface drill holes to better

define the resources in the Wolverine deposit and integrated

this data with the historical drill hole results to produce a new

Resource Tonnes Zn Ag Cu Au Pb

Category (%) (g/t) (%) (g/t) (%)

Measured 509,000 12.17 292.3 1.15 1.47 1.46

materials. Mill feed to the mill is projected at 4,462,000 tonnes

grading 11.25% zinc, 1.07% copper, 1.48% lead, 1.56 g/t gold

and 327 g/t silver. This feed provides approximately 10 years

of production. Conversion of the Inferred resources into

mining reserve would add an additional 3.5 years to the

production plan.

TEST MINING AND FEASIBILITY STUDY

In January 2005, Yukon Zinc began mobilizing equipment

and materials into Wolverine for the undertaking of a

CAD$19 million advanced exploration program that consisted

of detailed definition drilling of the resources, engineering

and environmental studies, and test mining to support the

completion of a bankable feasibility and project permitting.

An important part of the test mining was confirming mining

conditions as they relate to mining costs and ore recovery. A

decline was made to the upper part of the Lynx deposit and then

drifting and cross-cutting on the ore to provide bulk sample

material and geotechnical information. This work confirmed that

Indicated 4,002,000 12.03 359.4 1.16 1.71 1.58

Total 4,511,000 12.04 351.5 1.15 1.68 1.57

Inferred 1,694,000 12.16 385.1 1.23 1.71 1.74

National Instrument 43-101 compliant resource estimate. The

Measured and Indicated resources total approximately 4.5

million tonnes which are the basis of the mining reserve. There

is also 1,694,000 tonnes of Inferred resources that need

additional in-fill drilling to improve their confidence level. The

Inferred resources are largely within the deeper portion of the

deposit, and are open across the claim boundary onto the

WOL claims owned by TeckCominco.

The resources are not particularly sensitive to cutoff grade and

the new mining reserves include almost all of the Measured

and Indicated resources. Mining of the Measured and

Indicated resources is estimated to include approximately

18% of external dilution. It is planned to crush this run-of-mine

material to minus one inch and process it through a dense

media separation (DMS) plant to remove less dense waste

rock conditions were better than expected; particularly in the

periphery of the massive sulphide mineralization.

In June 2005, Yukon Zinc commissioned Hatch Ltd. to

undertake a bankable feasibility study. As at March 31, 2006,

the detailed feasibility study was near completion and

PAGE 8

YUKON ZINC 2005 ANNUAL REPORT


The first sulphide rock through the portal

entrance comes 10 years plus a week from

the discovery date of the deposit.

YUKON ZINC 2005 ANNUAL REPORT

PAGE 9


undergoing internal and external review to finalize capital and

operating costs.

Considerable additional metallurgical testwork was completed

in 2005 to finalize process design and determine recoveries

and product quality. This testwork completes a long history of

metallurgical testwork that commenced in early 1996.

Early test work identified abnormally high selenium content in

the test concentrates. In the late 1990's high selenium

contents were considered a possible impediment to their

saleability; particularly for the zinc concentrate. The recent

dramatic increase in selenium price from US$4.00 per pound

to more than US$50 per pound, combined with the serious

shortfall in zinc concentrates, has resulted in much increased

interest in the concentrates. Recenty, all smelters contacted

have expressed interest in the Wolverine concentrates and it

is apparent that Wolverine concentrates can be readily sold.

Discussions are now focused on removal of selenium penalty

on concentrates and possible price participation in sale of

recovered selenium.

The copper and lead concentrates from Wolverine are very

rich in silver and gold increasing their value and marketability.

Furthermore, the byproduct credit for silver and gold

significantly reduces the cash cost of producing zinc.

In late 2004, Yukon Zinc began the evaluation of application of

dense media separation (DMS) technology in an effort to

manage mining dilution to maximize mill efficiency and output.

The testwork conducted at SGS Lakefield Research indcates

that the application of this simple gravity technology would

provide a very effective pre-concentration step. The DMS

process provides for efficient rejection of less dense waste

materials from the dense ore. Testwork indicates recovery of

approximately 98% of base metals and 95% of precious

metals in the dense “sink” portion together with “fines”

products.

Successful application of DMS technology at Wolverine

should reduce mill process costs on a unit of production basis.

However, the main benefit will be in mining where it provides a

means of removing waste material from ores prior to

processing. The effective removal of waste allows mining to

maximize recovery of the high-grade ores; particularly, where

excessive dilution with waste rock occurs due to multiple

bands of massive sulphide mineralization, hangingwall failure,

contamination of ore with footwall material and in the mining of

thin massive sulphide lenses. Application of DMS at Wolverine

will allow the mining of thinner zones of ore and simple

upgrading before milling, therefore increasing mining reserves

and increasing mine life. These thinner ores are commonly

more precious metals rich, which adds significant additional

precious metals recovery.

Planned Development Schedule

Scoping Study

Exploration

Eis

Test Mining

Underground Drilling

Feasibility

Financing

Detailed Engineering

Production Decision

Procurement

Site Preparation

Construction

Startup

Operations

2004 2005 2006 2007

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct

Jan

PAGE 10

YUKON ZINC 2005 ANNUAL REPORT

APPLICATION OF DMS TECHNOLOGY


The Environmental Assessment Report was filed

on October 28, 2005, and is now being reviewed

by the regulators and general public.

PERMITTING, ENVIRONMENTAL & COMMUNITY AFFAIRS

Yukon Zinc resumed permitting of Wolverine development in

summer 2004. The Company submitted its B Water License

Application in July 2004 and received the license in early 2005.

The B Water License and the amended Mining Land Use

Permit are the permits associated with the test mining

program.

for issuance of the Mining License in June of 2006. The Type A

Water License required for operation of a mine and mill is

expected in October 2006.

In the fall of 2004, the Company made application for an A

Water License and submitted a Project Description Report in

support of a Quartz Mining License application for

development of Wolverine. The Yukon Government has

appointed a Project Coordinator to coordinate the review of

submissions and ensure the smooth working process for

review of permitting documents.

The Environmental Assessment Report was submitted in

October 2005 and has progressed through initial regulatory

screening and public consultation. The permitting is on track

In July 2005, the Company completed a socioeconomic

participation agreement with the Ross River Dena Council.

The agreement addresses the concerns of local aboriginal

people whose traditional territory the Wolverine deposit is

located in and provides for their participation in the economic

and social benefits of the development and operation of

Wolverine as a mine. Their support is greatly appreciated and

the Company looks forward to working with them to maximize

benefits to their members and our shareholders.

YUKON ZINC 2005 ANNUAL REPORT

PAGE 11


development in ore to minimize development costs and to

achieve almost total recovery of the resource. The mining plan

provides a large number of working stopes at all times. Natural

blending of the ores as a result of mining from several areas at

any one time provides additional benefits.

The run-of-mine ores will be crushed to minus one-inch and

fed through the DMS plant to produce approximately 1250

tonnes per day of mill feed for grinding and flotation to produce

copper, lead and zinc concentrates. The concentrates will be

trucked 850 kilometres to the port of Stewart in British

Columbia for shipment to the smelters of Asia.

Completion of the bankable feasibility study is scheduled for

early April. Its completion provides the basis for securing

project financing. Macquarie Bank was selected in December

2005 to lead the debt financing and metal hedging activities.

WOLVERINE PRODUCTION AND DEVELOPMENT PLAN

The feasibility study is premised on mining 1470 tonnes per

day by simple cut and fill underground mining methods,

extracting the entire mineralized zone. Mining will proceed

with alternating primary and secondary stopes, utilizing paste

backfill for filling of the primary stopes prior to mining the

secondary stopes. The mining plan has most of the

Construction is expected to begin in July 2006, after receipt of

the Mining License. Assuming the timely completion of project

financing and commencement of construction, production is

schedule to start in late 2007. Commissioning of the mine and

mill is expected to be complete by yearend and full production

reached by January 2008.

Internal

estimates of

concentrate

production

based on

application of

dense media

separation

(average of first

three years).

Production

Estimates based on

Average of first three

Years production

Zinc 80,160 t 43,850 t

Copper 15,260 t 3,970 t

Lead 9,350 t 3,900 t

Silver (in concentrate)

Gold (in concentrate)

1250 tpd Undiluted Ore*

Concentrate

Contained

Metal

4,430,000 oz

16,930 oz

*Metal production forecast on basis of former mine plan,

and subject to change with new production schedule to be

based on new resource and mining reserve and optimized

production plan.

PAGE 12

YUKON ZINC 2005 ANNUAL REPORT


FINLAYSON DISTRICT EXPLORATION & DEVELOPMENT

2006 EXPLORATION PLAN

The Finlayson District contains potential for discovery of

significant additional resources of zinc, copper, lead, silver

and gold that could form the basis of a long life mining camp.

The following table provides a summary of the resources of the

Wolverine and other deposits in the Finlayson District, along

with Logan. It is expected that over time consolidation may

occur in the District providing development synergies.

Yukon Zinc's initial priority is to advance Wolverine to

development. A parallel but separate initiative is to reinstate

the exploration discovery track that ended in 1997 due to

concerns on selenium and low metal prices. Exploration of the

Finlayson District is planned to resume in 2007.

The development of Wolverine will provide the new

infrastructure that will facilitate future development in the

District. The successful construction and operation of

Wolverine would provide the base for development of a long

life sustainable mining future in the Finlayson District.

Exploration in the Finlayson District during 2006 will be

modest with a small amount of drilling planned for the Money

claims and minor work in support of ongoing claim

assessment. A small amount of continued exploration is

planned on the Company's claims in the Rancheria District in

southern Yukon.

RANCHERIA DISTRICT

The district hosts numerous carbonate-hosted zinc-lead-silver

deposits with similarities to the major manto deposits of

Mexico with its world class silver districts. The Logan deposit is

unusual as it occurs within a granitic intrusion in this terrane.

Further west of the platformal carbonate strata are mixed

volcanic-sedimentary strata that host zinc-copper-lead-silvergold

occurrences including the Swift property.

District Reserves and Resources, March 2006

Wolverine 1 Ice 2 Logan 3 Kudz Ze GP4F 5 Kona 6 TOTAL

Kayah 4

CONTAINED

METAL

Ownership 100% 100% 60% 100% 100% 100%

Yukon Zinc Yukon Zinc Yukon Zinc TeckCominco TeckCominco Pacific Ridge

Tonnes 4,511,000 4,500,000 13,080,000 13,720,000 1,500,000 8,200,000

Zn % 12.04 5.10 6.0 6.40

Cu % 1.15 1.48 0.9 0.10 2.1

Pb % 1.57 1.61 3.10

Au g/t 1.68 1.38 2.0 0.73

Ag g/t 351.5 23.7 139.2 90

Zn pounds 1,197,372,000 0 1,470,644,500 1,814,826,700 211,641,600 4,694,484,800

Cu pounds 114,367,000 146,825,300 0 272,224,000 3,306,900 393,521,000 930,244,200

Pb pounds 156,136,000 0 0 486,978,000 102,513,900 745,627,900

Au ounces 243,600 0 0 608,720 96,450 192,000 1,140,770

Ag ounces 50,979,000 0 9,996,000 61,401,200 4,340,300 126,716,500

1. Wolverine Resource ( Measured and Indicated ) Zukon Zinc Corporation, January 10, 2006; also 1,694,000 tonnes of Inferred resources

grading 12.16% zinc, 1.23% copper, 1.74% lead, 1.71 g/t gold and 385.15 g/t silver.

2. Ice Indicated Resource Derry, Michener, Booth and Wahl, 1998.

3. Logan Inferred Resource, Hatch Associates Ltd, March 24, 2004.

4. Kudz Ze Kayah Indicated Resource, Hatch Associates Ltd. November 2000 Prefeasibility Study Report

5. GP4F Geological Resource (Inferred) Cominco Ltd. 1999 Annual Report

6. Kona Geological Resource, Pacific Ridge Exploration Ltd.

YUKON ZINC 2005 ANNUAL REPORT

PAGE 13


LOGAN DEPOSIT

In April 2003, Yukon Zinc entered into an agreement with

Energold Minerals Inc. to acquire a 60% interest in the Logan

deposit located in south central Yukon. Exploration in the late

1980's defined an Inferred resource of 12,300,000 tonnes

grading 6.17% zinc and 26 g/t silver in the Main zone of the

Logan deposit (Stammers, 1989).

The Logan deposit consists of fracture and vein hosted zincsilver

mineralization within a granitic intrusion. The

mineralization is up to 90 metres thick making it attractive for

open pit mining. A re-estimation of resources using a block

model method was completed by Hatch Associates Ltd. in July

SWIFT PROPERTY

The recently acquired Swift Property is situated approximately

55 kilometres southwest of Logan and covers a 20 kilometre

long belt of anomalous soil geochemistry. Numerous massive

sulphide occurrences and boulders have been identified in till.

2005. Hatch estimated an Inferred resource of 13,080,000

tonnes grading 5.1% zinc and 23.7 g/t silver in the Main Zone.

Previous exploration has also defined low grade zinc

mineralization in the East and West Zones that require more

drilling to better define resources. Drilling in the deeper parts of

the Main Zone includes intersections of up to 9 metres grading

10.07% zinc and 65.2 g/t silver that could be amenable to

underground mining. The deposit remains largely unexplored

at depth and along strike.

The Logan deposit provides an attractive base feed for a zinc

mine. Yukon Zinc is evaluating opportunities for discovering

additional higher grade mineralization to add to the resource

base at Logan.

Massive sulphide and oxide mineralization in the Window/Dan

showing occurs defines at least two distinct units within a

complex sequence of phyllite, schist, calc-silicate rocks, and

marble suggestive of stratabound mineralization. Drill results

from hole SR97-06 include 1.2 metres grading 14.6% zinc and

0.2% copper and 3.62% zinc over 3.6 metres. This second

interval includes 0.87 metre intercept grading 13.4% zinc and

0.1% copper.

These and other showings suggest that the mineralization is

characterisitic of a volcanogenic massive sulphide deposit

environment with has potential for higher grade mineralization

that could be developed in conjunction with the Logan deposit.

PAGE 14

YUKON ZINC 2005 ANNUAL REPORT


PACIFICA ADVANCING A GIANT ZINC-LEAD DEPOSIT

After distributing the Pacifica shares received in the plan of

arrangement to its shareholders in December 2004, Yukon

Zinc purchased 4.8 million shares of Pacifica providing it the

initial seed capital to meet listing requirements of the TSX

Venture Exchange. The plan of arrangement provided for the

District. It undertook $3.5 million in exploration during summer

2005 and is aggressively advancing the exploration and

development of the property. The district scale distribution of

mineralization indicates a very large stratabound shalehosted

zinc-lead deposit with potential to exceed 2 billion

tonnes of mineralization, which if realized, would make it the

largest zinc-lead deposit in the world.

sale of Expatriate's claims in the Selwyn Basin in the Yukon,

Yava property in Nunavut, Tillex in Ontario, Blue Moon in

California and several properties in Chile.

Yukon Zinc's $1.2 million investment in Pacifica provided

initial working capital. Pacifica has recently completed $20

million of equity financing and has working capital of $21

million. Yukon Zinc's interest in Pacifica has been diluted to

5.6% of the issued shares. It also has a warrant for an

additional 2.4 million shares that expires in late 2006.

In April 2005, Pacifica acquired the giant Howard's Pass

deposit in the Selwyn Basin area of eastern Yukon. Through

staking it acquired additional lands and now owns 40km of the

NITROSYL TECHNOLOGIES CORPORATION

Nitrosyl Technologies Corporation, established to hold the

technology assets acquired from Boliden Westmin Limited.

Nitrosyl owns 75% of Catalytic Sulphur Corporation that holds

two US patents and numerous international patents for a novel

new process for making sulphuric acid and sulphur gascleaning.

Nitrosyl also owns 50% of Nitrox Metals Corporation

that holds two US patents and other international patents for

leaching of zinc and copper in concentrates. Nitrosyl has

options to increase its interest to 90% in each of the private

companies.

YUKON ZINC 2005 ANNUAL REPORT PAGE 15


CORPORATE

INFORMATION

Capital Structure

Symbol: YZC, TSX Venture Exchange

Issued*: 245,790,654

Fully Diluted*: 290,240,885

*as at April 19, 2006

Major Shareholders

CMP Resources 11.93%

Geologic Resources Partners 10.47%

NCE (Sentry Select) 7.59%

Mavrix 5.42%

Auditors

De Visser Gray

Chartered Accountants

Vancouver, B.C., Canada

Directors and Officers

President, CEO and Director: Dr. Harlan Meade

Chairman and Director: Mr. George Stevens

Director: Mr. Robert Yeoman

Director: Mr. Walter Segsworth

Director: Mr. Lorne Anderson

CFO, Vice-President Corporate Development and Director: Mr. Robert McKnight

Secretary: Mr. Barry Finlayson

Vice President, Exploration: Mr. Jason Dunning

Vice President, Mining: Mr. Richard Goodwin

Vice President Environmental and Community Affairs: Ms. Pamela Ladyman

Controller: Ms. Annikki Puusaari

Solicitors

Lang Michener LLP,

Vancouver, B.C., Canada

Transfer Agent

Pacific Corporate Trust Company

Vancouver, B.C., Canada

Subsidiaries

Nitrosyl Technologies Corporation

Finlayson Minerals Corporation

Investor Relations

info@yukonzinc.com

Conversions

1 hectare (ha) = 10,000 square metres (m2) or 2.471 acres (a)

1 tonne (t)= 1.10231 short tons (ton)

1 troy ounce (oz)= 31.10348 grams (g)

1 gram/tonne (g/t)= 0.02917 troy ounce/short ton (oz/ton)

1 metre (m)= 39.37 inches (in) or 3.281 feet (ft)

1 kilometre (km)= 0.621 miles (mi)

1 kilogram (kg)= 2.20462 pounds (lb)

1 ppm= 1 g/t

ppm = parts per million

ppb = parts per billion

PAGE 16

YUKON ZINC 2005 ANNUAL REPORT


Z INC MARKETS POISED TO OUTPERFORM OTHER BASE METALS

After more than 25 years of under performance, zinc is poised

to outperform due to a chronic supply imbalance. Zinc

inventories on the London Metal Exchange, concentrate

buildup at mine sites and hidden metal inventories, estimated

to total approximately 1.5 million tonnes at their peak in mid

The expected depletion of zinc metal reserves by the end of

2006 has led to strong price speculation by hedge funds and

others, such that zinc has outperformed all of the other base

metals in the first quarter of 2006. This out performance is

expected to continue for the remainder of 2006.

Tonn e s (000)

11,000

10,500

10,000

9,500

9,000

2003, have declined to about 270,000 tonnes by mid April

2006.

World Zinc Supply and Demand

2002 2003 2004 2005E 2006F

Supply

The remarkable drawdown of zinc inventories reflects a

significant supply gap. The production deficit since 2004 is

forecast to continue through at least 2007.

Demand

The decline in LME inventories has fueled a rapid increase in

zinc price from US$0.32 in 2002 to US$1.46 on April 19, 2006.

Traditionally, high metal prices have resulted in increased

production from existing mines and start-up of new mines.

Close examination of current reserves for Western World

production illustrates that 40% could be lost by end of 2008 if

new reserves are not found. This casts a shadow of

uncertainty over current production, as many of these mines

are old and tired and reserve addition will be difficult and

expensive. The future of zinc markets is therefore highly

dependent on new mines, many of which are facing delays

due to permitting and financing problems. Although there have

been new mine construction announcements they are quite

small and not keeping up with recent annual global increase in

consumption of approximately 600,000 tonnes. The lack of

quality new mine projects reflects 30 years of under

investment in zinc exploration and development.

Recently, a spokesperson for TeckCominco, stated that the

World could loose 1.4 million tonnes of current zinc mine

production by 2011. The affect of this on forecast World Zinc

Production suggests that zinc supply will struggle for many

years and support a sustained period of high zinc prices.

140

135

Metal Price Performance

Zinc

100

90

14,000

13,500

World Zinc Concentrate Supply/Demand

CHR Metals

Oct 2005

130

80

13,000

125

120

115

110

Copper

Nickel

105

100

Aluminum

95

90

Jan-06 Feb-06 March-06

70

60

50

40

30

20

10

0

% i ncrease fr o m Jan-

06

12,500

12,000

11,500

11,000

10,500

10,000

9,500

2000

2004

2005

2006

2007

Base Production

2008

Supply-Demand Gap

Teck Cominco forecast

loss of 1.4M tonnes of

current production by 2011

2009

0210

Likely Additions

2011

2012

Most Likely

Scenario

Zinc Concentrate Demand

Base + Likely


A ZINC-SILVER MINE IN THE MAKING

Yukon Zinc Corporation

701 - 475 Howe Street

Vancouver, British Columbia

Canada, V6C 2B3

Telephone: 604. 682.

5474

Facsimile: 604. 682.

5404

International Toll Free: 800 . 8682 . 5474

www.yukonzinc.com

More magazines by this user
Similar magazines