In a cavern, in a canyon

Question

Excavating for a mine
Dwelt a miner forty-niner
And his daughter, Clementine

Oh, my darling, oh, my darling
Oh, my darling Clementine
You are lost and gone forever
Dreadful sorry, Clementine
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(Does the front part of the lyric mean #1 or #2?)

1. A miner forty-niner and his daughter, Clementine dwelt in a cavern,in a canyon excavating for a mine.

2. A miner forty-niner and his daughter, Clementine dwelt in a cavern,in a canyon while they were excavating for a mine.

(Q2: Which one is grammatical, 'dreadfully sorry' or dreadful sorry'?)

Answer 1

2 is better, but grammatically it should be "dreadfully." However, many old folk songs pay no attention to grammar rules.

By the way, "forty-niner" refers to people who went to California in 1849 to find gold.