UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 20-F



| |   |  | REGISTRATION STATEMENT
    PURSUANT TO SECTION 12(b) OR (g)
| | - |  | -----------------------------------------------------------
| |   |  | OF THE
    SECURITIES EXCHANGE ACT OF 1934                 
| |   |  | OR                                                         
| | X |  | ANNUAL
    REPORT PURSUANT TO SECTION 13 OR 15 (d)         
| |   |  | OF THE
    SECURITIES EXCHANGE ACT OF 1934                 
| |   |  | For the fiscal year ended December 31, 2003                
| |   |  | OR                                                         
| |   |  | TRANSITION
    REPORT PURSUANT TO SECTION 13 OR 15(d)      
| |   |  | OF THE
    SECURITIES EXCHANGE ACT OF 1934                 
| |   |  | For the
    transition period from to                      

| | Commission file number 000-31645                                                              
| | ----------------------------------------------------------------------------------------------
| | BIRCH MOUNTAIN RESOURCES LTD.                                                                 
| | (Exact name or Registrant as specified in
    its charter)                                    
| | Not Applicable                                                                                
| | (Translation of Registrant's name into
    English)                                           
| | Alberta, Canada                                                                               
| | (Jurisdiction of incorporation or
    organization)                                           
| | Suite 300, 250 - 6th Avenue
    S.W.                                                          
| | Calgary, Alberta, Canada                                                                      
| | T2P 3H7                                                                                       
| | (Address of principal executive offices)                                                      
| | Securities registered or to be registered
    pursuant to Section 12(b) of the Act:           
| | None                                                                                          
| | Securities registered or to be registered
    pursuant to Section 12(g) of the Act:           
| | Common shares, without par value and
    Shareholders Rights                                  
| | (Title of Class)                                                                              
| | Securities for which there is a reporting
    obligation pursuant to Section 15(d) of the Act:
| | None                                                                                          

Indicate the
number of outstanding shares of each of the issuer's classes of capital stock as
of the close of the period covered by the annual report.

50,449,085 Common Shares

Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such report), and (2) has been subject
to such filing requirements for the past 90 days.

|Yes |  | X |  | No |  | 
|--- |  | - |  | -- |  | 

Indicated by check mark which financial statement item the
registrant has elected to follow.

|Item 17 |  | x |  | Item 18 |  | 
|------- |  | - |  | ------- |  | 



-1-



TABLE OF CONTENTS

|GLOSSARY & ABBREVIATIONS                          | 4                                                          
|------------------------------------------------- | -----------------------------------------------------------
|SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS | 5                                                          
|REPORTING CURRENCY AND FINANCIAL INFORMATION      | 6                                                          
|ITEM 1                                            | IDENTITY OF DIRECTORS,
      SENIOR MANAGEMENT AND ADVISORS
|                                                  | A.                                                         
|                                                  | B.                                                         
|                                                  | C.                                                         
|ITEM 2                                            | OFFER STATISTICS AND
      EXPECTED TIMETABLE              
|ITEM 3                                            | KEY INFORMATION                                            
|                                                  | A.                                                         
|                                                  | B.                                                         
|                                                  | C.                                                         
|                                                  | D.                                                         
|ITEM 4                                            | INFORMATION ON BIRCH                                       
|                                                  | A.                                                         
|                                                  | B.                                                         
|                                                  | C.                                                         
|                                                  | D.                                                         
|ITEM 5                                            | OPERATING AND FINANCIAL
      REVIEW AND PROSPECTS         
|                                                  | A.                                                         
|                                                  | B.                                                         
|                                                  | C.                                                         
|                                                  | D.                                                         
|                                                  | E.                                                         
|                                                  | F.                                                         
|ITEM 6                                            | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                 
|                                                  | A.                                                         
|                                                  | B.                                                         
|                                                  | C.                                                         
|                                                  | D.                                                         
|                                                  | E.                                                         
|ITEM 7                                            | MAJOR SHAREHOLDERS AND
      RELATED PARTY TRANSACTIONS    
|                                                  | A.                                                         
|                                                  | B.                                                         
|                                                  | C.                                                         
|ITEM 8                                            | FINANCIAL INFORMATION                                      
|                                                  | A.                                                         
|                                                  | B.                                                         
|ITEM 9                                            | THE OFFER AND LISTING                                      
|                                                  | A.                                                         
|                                                  | B.                                                         
|                                                  | C.                                                         
|                                                  | D.                                                         
|                                                  | E.                                                         
|                                                  | F.                                                         
|ITEM 10                                           | ADDITIONAL INFORMATION                                     
|                                                  | A.                                                         
|                                                  | B.                                                         
|                                                  | C.                                                         
|                                                  | D.                                                         
|                                                  | E.                                                         
|                                                  | F.                                                         
|                                                  | G.                                                         

|         | H.                                                                                | Documents on Display   | 42
|-------- | --------------------------------------------------------------------------------- | ---------------------- | --
|         | I.                                                                                | Subsidiary Information | 42
|ITEM 11  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                        | 42                    
|ITEM 12  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                            | 42                    
|ITEM 13  | DEFAULTS, DIVIDEND
      ARREARAGES AND DELINQUENCIES                             | 42                    
|ITEM 14  | MATERIAL MODIFICATIONS TO
      THE RIGHTS OF SECURITYHOLDERS AND USE OF PROCEEDS | 43                    
|ITEM 15  | CONTROLS AND PROCEDURES                                                           | 43                    
|ITEM 16  | RESERVED BY THE SEC                                                               | 43                    
|ITEM 16A | AUDIT COMMITTEE
      FINANCIAL EXPERT                                            | 43                    
|ITEM 16B | CODE OF ETHICS                                                                    | 43                    
|ITEM 16C | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                            | 44                    
|ITEM 16D | EXEMPTIONS FROM THE
      LISTING REQUIREMENTS AND STANDARDS FOR AUDIT COMMITTEE  | 44                    
|ITEM 16E | PURCHASE OF EQUITY
    SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS         | 44                    
|ITEM 17  | FINANCIAL STATEMENTS                                                              | 45                    
|ITEM 18  | FINANCIAL STATEMENTS                                                              | 45                    
|ITEM 19  | EXHIBITS                                                                          | 46                    





-2-



GLOSSARY & ABBREVIATIONS

Certain terms and their usage used throughout this annual
report are defined below.



ABCA
    Means the Business Corporation Act (Alberta).Assay or fire assay
    A high-temperature process involving the melting of a
    rock to determine its metal content.Basement
    The part of the Earth's crust that occurs beneath a cover
    of sedimentary rocks.Carbonate
    A sedimentary rock composed of minerals containing carbon
    and oxygen in the form of carbonate (CO3); for example,
    limestone.Cretaceous
    The geological time period between about 135 and 65
    million years ago.Devonian
    The geological time period between about 410 and 360
    million years ago.Electric Log or E-Log
    A graphic or digital record of the measured properties of
    rocks in a drill hole, recorded as a function of depth.Evaporite
    A sedimentary rock containing minerals formed from the
    evaporation of marine and non-marine waters.Exchange or TSXV
    The TSX Venture Exchange Inc. and its predecessors.Extraction
    A chemical or physical process by which a metal or
    mineral is separated and removed from a host rock.Fault
    A discrete surface separating two rock masses which have
    moved past one another.Formation or Geological
    Formation
    A body of rock having easily recognizable boundaries and
    properties that allow it to be identified in the field without resorting to
    microscopic or chemical analyses.Grade
    The relative quantity of ore-mineral content in a
    mineralized body, e.g. grams of gold per tonne of rock or percent of copper.Hectare
    A metric measurement of area equivalent to 10,000 square
    meters or 2.4711 acres.Igneous
    A rock that has cooled and solidified from a melt.Kilometre
    A metric measure of length: one kilometre is equivalent
    to 1000 metres or 0.6214 miles.Limestone
    A rock predominantly composed of the mineral calcite
    (calcium carbonate (CaCO3)).Microparticulate or Microparticle
    Composed of particles on the order of 0.1 to 100
    micrometres in size.Mineral
    A naturally occurring homogeneous substance having fixed
    physical properties and chemical composition and a defined crystal form.Mineral Deposit
    A body of rock enriched in naturally occurring minerals
    of potential commercial value.Mineral Property
    Any form of title or right to explore and/or mine granted
    by a government pursuant to one or more of: a claim, contract of work,
    special exploration permit, mineral lease or mineral permit.Mineral Reserve
    That part of a mineral deposit which could be
    economically and legally extracted or produced at the time of the reserve
    determination.Mineralization
    Generically refers to (i) the process of formation of
    minerals in a specific area or geological formation, or (ii) an occurrence
    of potentially valuable minerals. The term has no economic implicationsMineralized Material
    A mineralized body that has been delineated by
    appropriately spaced drilling and/or underground sampling to support a
    sufficient tonnage and average grade of materials. Such a deposit does not
    qualify as a reserve until a comprehensive evaluation based upon unit cost,
    grade, recoveries and other material factors concludes legal and economic
    feasibility.Nanoparticulate or Nanoparticle
    Composed of particles on the order of 0.1 to 100
    nanometres in size. -3- Oil Sand Deposit
    A porous body of sandstone containing liquid hydrocarbons
    or bitumen.Prairie Gold Model
    An exploration model postulating the origin of
    microparticulate precious and non-precious metals observed in rocks from the
    Athabasca region of Alberta and the Dawson Bay area of Manitoba. In this
    model, metals are carried in brines of sedimentary origin and are deposited
    where oxidation-reduction reactions cause the metals to precipitate.Precambrian Era
    The major period of geologic time before 570 million
    years ago.Precious metals
    A group of unoxidizable metals of relatively high
    economic value; includes silver, gold, platinum and palladium.Sedimentary Rock
    A rock originating from the weathering of pre-existing
    rocks which is deposited in layers on the Earth's surface by air, water or
    ice.Structure
    The physical arrangement of rock related to its
    deformation by, for example, faulting.Tailings
    The material removed from the milling circuit after
    separation of the valuable metals.Troy ounce
    Unit of weight measurement used for all precious metals.
    The familiar 16-ounce avoirdupois pound equals 14.583 troy ounces. One troy
    ounce is equivalent to 31.1034 grams.Unmetamorphosed
    Refers to rocks that have not undergone metamorphism,
    where metamorphism is the process by which the mineralogy and textures of a
    rock changes during deep burial or by contact with igneous rocks at high
    temperature and/or pressure.U.S.
    Refers to the United States of America.






|CONVERSION FACTORS: | 1 Troy ounce         | = | 31.1034 Grams                                       
|------------------- | -------------------- | - | ----------------------------------------------------
|                    | 1 Tonne              | = | 1.1023 Short tons, 1,000 kilograms or 2,204.6 Pounds
|                    | 1 Troy ounce per ton | = | 34.3 grams per tonne                                
|                    | 1 Hectare            | = | 2.4711 Acres                                        
|                    | 1 Kilometre          | = | 0.6214 Miles                                        
|                    | 1 Metre              | = | 3.28084 Feet                                        
|                    | 1 micrometre         | = | 0.000001 metre                                      
|                    | 1 nanometre          | = | 0.000000001 metre                                   
|                    |                      |   |                                                     
|SYMBOLS:            | Au                   | = | Gold                                                
|                    | g/t                  | = | Gram per tonne                                      



In this annual report, the Company may provide
cross-references relevant to the information being provided. These
cross-references are provided for ease of reference only and are not meant to be
exclusionary to other relevant information in this annual report which may
relate to the disclosure in question.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

The information presented in or incorporated by reference in
this annual report includes both historical information and "forward-looking
statements" (within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended)
relating to the future results of Birch Mountain Resources Ltd. (including
projections and business trends), which involve risks and uncertainties. Except
where the context indicates otherwise, "Company" or "Birch" means Birch Mountain
Resources Ltd., its predecessors and subsidiaries.

Numerous factors could cause actual results to differ
materially from those in the forward-looking statements, including without
limitation the risk of developing new technology, protection of intellectual
property, exploration of mineral properties and related activities, the ability
to finance future exploration, market prices for precious metals, the ability to
produce and market precious metals, the actions of government authorities
including increases in taxes, changes in environmental and other regulations,
and changes in government, and the dependence upon the abilities and continued
participation of certain key employees of Birch. As a result of the foregoing
and other factors, no assurance can be given as to future results, levels of
activity and achievements.

-4-

Investors are cautioned not to put undue reliance on
forward-looking statements, and should not infer that there has been no change
in the affairs of Birch since the date of this report that would warrant any
modification of any forward-looking statement made in this document or other
documents filed periodically with securities regulators. All subsequent written
and oral forward-looking statements attributable to Birch or persons acting on
its behalf are expressly qualified in their entirety by this notice. Except as
required by law, Birch disclaims any intent or obligation to update publicly
these forward-looking statements, whether as a result of new information, future
events or otherwise.

REPORTING CURRENCY AND FINANCIAL INFORMATION

Currency and Exchange Rates

Financial information in this annual report is expressed in
Canadian dollars; therefore, unless otherwise noted, references to "Cdn$" or "$"
are to Canadian dollars. The following tables sets forth, for the period
indicated, the high and low exchange rates, the average of the month-end
exchange rates and the period-end exchange rate of the Canadian dollar in
exchange for United States dollars, based upon the inverse of exchange rates
reported by the Federal Reserve Bank of New York at the noon buying rates in New
York City for cable transfers payable in Canadian dollars as certified for
customs purposes. As of December 31, 2003, the noon rate of exchange, as
reported by the Federal Reserve Bank of New York for the conversion of United
States dollars into Canadian dollars was US$0.7738 (US$1.00 = CDN$1.2923). As of
June 22, 2004, the noon rate of exchange, as reported by the Federal Reserve
Bank of New York for the conversion of United States dollars into Canadian
dollars was US$0.7357 (US$1.00 = CDN$1.3592).



|                           | Three Months 
    Ended
    March 31, | Twelve Months Ended December 31,
|-------------------------- | ------------------------------------- | --------------------------------
|                           | 2004                                  | 2003                            
|                           |                                       |                                 
|Rate at End of Period      | $0.7648                               | $0.7727                         
|                           |                                       |                                 
|Average Rate During Period | 0.7594                                | 0.7163                          
|                           |                                       |                                 
|High Rate During Period    | 0.7883                                | 0.7747                          
|                           |                                       |                                 
|Low Rate During Period     | 0.7357                                | 0.6327                          

Note:

|(1) | Average Rate During Period means the average rate of exchange based upon the
    closing rate of exchange on the last day of each month during the year or
    period indicated.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table sets forth the high and low exchange
rates for the Canadian dollar in exchange for United States dollars, for each
month during the previous six months, based upon the inverse of exchange rates
reported by the Federal Reserve Bank of New York at the noon buying rates in New
York city for cable transfers payable in Canadian dollars as certified for
customs purposes.

|                           | May     | April   | March   | February | January | December
|-------------------------- | ------- | ------- | ------- | -------- | ------- | --------
|                           |         |         |         |          |         |         
|Rate at End of Period      | $0.7342 | $0.7297 | $0.7648 | $0.7494  | $0.7521 | $0.7727 
|Average Rate During Period | 0.7264  | 0.7474  | 0.7529  | 0.7529   | 0.7719  | 0.7618  
|High Rate During Period    | 0.7375  | 0.7685  | 0.7659  | 0.7650   | 0.7883  | 0.7747  
|Low Rate During Period     | 0.7138  | 0.7263  | 0.7357  | 0.7398   | 0.7481  | 0.7447  



-5-

ITEM 1         IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISORS

A. Directors and Senior
    Management

This item is not applicable.

B. Advisors

This item is not applicable.

C. Auditors

This item is not applicable.

ITEM 2         OFFER STATISTICS AND EXPECTED TIMETABLE

This item is not applicable.

ITEM 3         KEY INFORMATION

A. Selected Financial
    Information

The following selected consolidated financial data for the
years ended December 31, 2003, 2002, 2001, 2000 and 1999 are derived from the
audited consolidated financial statements for the periods indicated and should
be read in conjunction therewith. References to the three-month periods ended
March 31, 2004 and 2003 are derived from Birch unaudited quarterly reports to
shareholders and should be read in conjunction therewith.

|                                   | Three
    Months Ended March 31                                                                              |         | Twelve Months Ended December 31,
|---------------------------------- | ------------------------------------------------------------------------------------------------------------ | ------- | --------------------------------
|                                   | 2004                                                                                                         | 2003    |                                 
|Canadian GAAP (1)                  | (in thousands of Canadian dollars, except loss per share
    in dollars and shares outstanding in thousands)
|Revenues                           | 8                                                                                                            | 0       |                                 
|Expenses                           | 667                                                                                                          | 495     |                                 
|(Loss) before income taxes         | (660)                                                                                                        | (495)   |                                 
|Net (loss) for the year            | (660)                                                                                                        | (471)   |                                 
|(Loss) per share(2)                | (0.01)                                                                                                       | (0.01)  |                                 
|Total Assets                       | 2,636                                                                                                        | 233     |                                 
|Liabilities                        | 593                                                                                                          | 1,280   |                                 
|Shareholders' Equity               | 2,043                                                                                                        | (1,048) |                                 
|Total Common Shares outstanding(3) | 51,342                                                                                                       | 37,352  |                                 
|                                   |                                                                                                              |         |                                 
|                                   | Three
    Months Ended March 31                                                                              |         | Twelve Months Ended December 31,
|                                   | 2004                                                                                                         | 2003    |                                 
|U.S. GAAP (4)                      | (in thousands of Canadian dollars, except loss per share
    in dollars and shares outstanding in thousands)
|Revenues                           | 8                                                                                                            | 0       |                                 
|Expenses                           | 1,482                                                                                                        | 495     |                                 
|(Loss) before income taxes         | (1,475)                                                                                                      | (471)   |                                 
|Net (loss) for the year            | (1,475)                                                                                                      | (495)   |                                 
|(Loss) per share(2)                | (0.03)                                                                                                       | (0.01)  |                                 
|Total Assets                       | 1,485                                                                                                        | 233     |                                 
|Liabilities                        | 593                                                                                                          | 1,280   |                                 

-6-

|Shareholders' Equity               | 892    | (1,048) |  | 1,939  | (669)  | 301    | 2,768  | 828   
|---------------------------------- | ------ | ------- |  | ------ | ------ | ------ | ------ | ------
|Total Common Shares outstanding(3) | 51,342 | 37,352  |  | 50,449 | 36,886 | 33,647 | 33,553 | 26,681
|                                   |        |         | 

Notes:

|(1) | Refers to Canadian Generally Accepted Accounting Principles.                                                                                                                                                 
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The net loss per common share was calculated using the weighted average
    number of common shares outstanding during the period indicated.                                                                 
|(3) | Based on the number of common shares outstanding at
    the end of the period indicated. Excludes common shares issuable upon
    exercise of stock options and any other outstanding convertible securities.
|(4) | Refers to U.S. Generally Accepted Accounting Principles.                                                                                                                                                     



Neither Birch nor its predecessors have declared or paid
dividends on its common shares during the last five fiscal years. Any future
decision to declare dividends on Birch common shares will be made by the Board
of Directors depending upon the financial requirements of Birch to finance
growth, the financial condition of Birch and other factors that the Board of
Directors of Birch may consider appropriate in the circumstances. Birch
anticipates that future earnings will be retained for the development of its
business and does not anticipate the payment of dividends to shareholders for
the foreseeable future.

B. Capitalization and
    Indebtedness

This item is not applicable.

C. Reasons for the Offer and
    Use of Proceeds

This item is not applicable.

D. Risk Factors

Risk factor on Penny Stock Rules



Penny stock rules may make it more difficult to trade the
Company's common shares.  The Securities and Exchange Commission has adopted
regulations which generally define a "penny stock" to be any equity security
that has a market price, as defined, less than US$5.00 per share or an exercise
price of less than US$5.00 per share, subject to certain exceptions.  Our
securities may be covered by the penny stock rules, which impose additional
sales practice requirements on broker-dealers who sell to persons other than
established customers and accredited investors such as, institutions with assets
in excess of US$5,000,000 or an individual with net worth in excess of
US$1,000,000 or annual income exceeding US$200,000 or US$300,000 jointly with
his or her spouse. For transactions covered by this rule, the broker-dealers
must make a special suitability determination for the purchase and receive the
purchaser's written agreement of the transaction prior to the sale.
 Consequently, the rule may affect the ability of broker-dealers to sell our
securities and also affect the ability of our investors to sell their shares in
the secondary market.

Legal, Regulatory and Stock Exchange Listing Risks

In all areas where Birch conducts exploration activities,
there are statutory provisions regulating exploration of mineral resources.
Birch may be constrained or forbidden to develop a mine in areas of economic
mineral deposits as a result of conflicting regulations governing other natural
resource extraction activities. Regulatory agencies may impose operating
limitations that may adversely affect Birch's revenues and/or the economic
viability of a project.

Based on the past experience of the Company with respect to
the TSXV, management of the Company believes there is a risk that the Company's
common shares may be halted or suspended from trading on the TSXV. On the basis
of statements made by the Company, trading of the Company's common shares was
halted by the TSXV on June 16, 2000. In January 2002, Birch accepted a proposal
from the TSXV for a negotiated settlement

-7-

and the matter was resolved in the
Company's favour. Trading in Birch's common shares resumed on March 11, 2002.
The TSXV advised that, "no adverse inference should be drawn from the
suspension."

Contractual and Financing Risks

The Company holds large land blocks under metallic and
industrial mineral permits and mineral leases issued by the Government of
Alberta. The terms and conditions of mineral permits require a prescribed level
of exploration expenditures for each two-year period in order to continue to
hold the rights to explore the land. Mineral leases require an annual rental
payment in order to hold the leases in good standing.

Exploration assessment reports are filed with the government
to document the work, results and money spent on exploration conducted by the
Company for each two-year period on lands held under mineral permits. Assessment
costs are an escalating work requirement ranging from $5.00 to $15.00 per
hectare (approximately $2.00 to $6.00 per acre) in two-year increments over the
ten-year term of the mineral permits. The Company continues its exploration and
anticipates that the extent of its mineral properties will be reduced in the
future to areas Birch believes to be the most prospective. Annual rental
payments on mineral leases of the Athabasca property will cost $655,681 in the
year 2004, and in each year thereafter, unless the Company elects to convert
additional lands to mineral lease or drop existing mineral leases. Under a
September 2002 agreement, Suncor Energy Inc. has agreed to pay $53,185 of these
lease rentals, covering eight mineral leases (including two mineral leases
obtained in 2004). The ability to hold mineral leases in good standing is not
related to the requirement to make exploration expenditures. There is no
assurance that the Company will be able to raise additional funds or have
sufficient exploration expenditures to be able to hold all the land in good
standing beyond the current term.

Technology Development Risk

The Company has developed new mineral technology for which it
filed a U.S. patent application in mid-2000. In December 2002 Birch was awarded
U.S. patent number 6,494,392 entitled, "Recovery of Natural Nanoclusters and the
Nanoclusters Isolated Thereby". The Company will continue to file additional
applications as the technology is further developed, but there is no assurance
that Birch will receive patent protection for its new technology or that patents
granted to the Company will not be successfully challenged. The Company will
continue to develop new mineral technology, but there is no assurance that it
will be economically viable or that there will be a market for the new
technology.

Intellectual Property Protection

The Company relies on a combination of patent,
confidentiality procedures and contractual provisions to protect its proprietary
rights to its technology. The Company generally enters into confidentiality
agreements with its employees, consultants and advisors and limits access to,
and distribution of, its proprietary information. Despite the Company's efforts
to safeguard and maintain its proprietary rights both in the U.S. and abroad,
there can be no assurance that the Company will be successful in doing so or
that the steps taken by the Company in this regard will be adequate to deter
misappropriation or independent third-party development of the Company's
technology or to prevent an unauthorized third party from copying or otherwise
obtaining and using the Company's technology. In addition, policing unauthorized
use of the Company's technology is difficult and expensive.

There can be no assurance that third parties will not assert
infringement or misappropriation claims against the Company in the future with
respect to current or future products or intellectual property. Any claims or
litigation, which are without merit, could be time consuming, result in costly
litigation and diversion of management's attention. Adverse determinations in
such claims or litigation also could have a material adverse effect on the
Company's business, operating results and financial condition.

Litigation to defend and enforce the Company's intellectual
property rights could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, operating
results and financial condition, regardless of the final outcome of such
litigation.

-8-

Exploration Risk

Birch is an exploration stage company. Mineral exploration
involves a high degree of risk that even a combination of experience, knowledge
and careful evaluation may not be able to overcome. There is no assurance that
Birch's mineral properties will prove to be economically viable. Even if Birch
discovers potentially economically viable mineral deposits, there is no
assurance that profitable marketing and sales arrangements can be implemented or
that Birch will be operated as a profitable business. Birch competes with larger
companies that have greater assets and financial and human resources than Birch,
and which may be able to sustain larger losses than Birch to develop business.
Any investment in Birch at this time is highly speculative.

Mineral exploration activities are subject to numerous risks,
many of which are beyond Birch's control. These factors include the cost of
labour, materials and services, cost of financing, technological change, demand
for and price of commodities, and government regulation, including regulations
related to taxes, royalties and environmental protection, the exact effects of
which cannot be accurately predicted. There is a risk that no commercial
deposits of precious or non-precious metals or industrial minerals will be
discovered.

There is no conclusive evidence supportive of the occurrence
of precious metals in potentially economic concentrations or quantities on
Birch's mineral properties. There is no assurance that the Company has a
commercially viable mineral deposit on its mineral properties. Much more
drilling and testing will be required together with internal and independent
technical evaluations of the data before the Company can conclude that there is
an economically feasible mineral reserve suitable for development.

The Company faces certain risks over and above those of
conventional mineral exploration companies. Conventional fire assay has not, in
general, produced repeatable precious metals concentrations above trace levels
for rocks from the Company's mineral properties. There is a risk that an
effective fire assay method may not be developed. The failure to obtain
repeatable precious metal concentrations by standard methods may mean that there
are no significant concentrations of precious metals. If Birch is not successful
in identifying a method to quantitatively determine precious metals
concentrations, it may or may not be possible to define a precious metal
deposit, if such a deposit exists. If a precious metal deposit can be defined, a
method for commercial production of precious metals may or may not be available.

Environmental

The mining industry is subject to environmental regulation
pursuant to extensive legislation enacted by federal and provincial governments
in Canada. Birch is able to conduct its exploration within the provisions of the
applicable environmental legislation without undue constraint on its ability to
carry on efficient operations. Public expectation of the mining industry's
environmental performance remains high and this continues to translate into new
and generally more rigorous environmental policies, legislation and regulations.
The approval of new mines in Canada has, for the past two decades, been the
subject of detailed review through a clearly established public hearing process.
Vigorous interventions by well-organized environmental groups in the public
hearing process have demonstrated their interest in resource development
projects, particularly if the development includes a mine. Birch has established
environmental policies and procedures that it believes should allow it to
operate effectively under increasingly stringent environmental laws, but there
is no assurance that the Company will be granted all of the necessary permits in
the future.

Going Concern Qualification to Financial Statements

The Company's auditors have raised the issue that Birch may
not be able to continue as a going concern as a result of a lack of profits. The
Company has used substantial amounts of working capital in its operations and
has sustained significant operating losses. During the fiscal year ended
December 31, 2003, the Company raised approximately $4.5 million from private
placements. The funds raised in 2003 eliminated the working capital deficiency
and provided working capital to sustain basic operations well into 2004. The
Company may not be able to continue as a going concern thereafter if it does not
generate profits or secure additional financing.

-9-

Management

At December 31, 2003, Birch had ten full time employees and
one part time employee working for the Company, including Douglas J. Rowe,
President and Chief Executive Officer, Donald L. Dabbs, Vice President and Chief
Financial Officer, and Hugh J. Abercrombie, Vice President, Exploration.

Birch also relies on the services of a number of consultants
for technical and operational guidance. Although Birch believes that its
relations with its employees, management and consultants are satisfactory, there
can be no assurance that such individuals will remain with Birch for the
immediate or foreseeable future. From time to time, Birch also utilizes the
services of independent consultants and contractors to perform various specific
professional services, particularly in the areas of drilling, analytical
services, research and environmental assessment.

Birch is relying upon the good faith, expertise and judgment
of the officers and directors of the Company to make appropriate decisions with
respect to investments and operations. Birch will be dependent on maintaining
its key staff to advance its technology and explore for and delineate mineral
deposits on the Company's mineral properties. Birch may rely on joint ventures
or other business relations with companies to advance the development of its
technology and mineral properties.

Shareholders Rights Plan

Although the Company's shareholders rights plan ("Rights
Plan") is not intended to prevent a take over of the Company, to secure
continuance of current management or the directors in office or to deter fair
offers for the Common Shares of the Company, it may have the result of
discouraging certain transactions by making such transactions impractical. See
Item 10 - "Additional Information - Memorandum and Articles of Association -
Rights and Privileges of Shareholders".

Gold and Precious Metal Pricing Risks

If the Company were able to identify an economic mineral
deposit on its mineral permits or leases, the price of precious and non-precious
metals may have a significant influence on the market price of the Company's
shares and the Company's business activities. The price of gold is affected by
numerous factors beyond the Company's control, such as the level of inflation,
fluctuation of the U.S. dollar and foreign currencies, global and regional
demand, sale of gold by central banks, forward selling by producing companies
and the political and economic conditions of major gold producing countries
throughout the world as well as the level of international conflict.

In the past two years the price of gold has moved off its 20
year lows. As of June 10, 2004, the closing New York spot price for gold was
US$385.60 per troy ounce. The following table sets forth the average of the
daily closing prices for gold for the periods indicated, as reported by the
London Metal Exchange:



Year Ended December 31,5 Yr. Avg
    2003
    2002
    2001
    2000
    1999Gold 
    (US$/troy ounce)
    300.45
    363.38
    309.73
    271.04
    279.11
    278.98






Enforcement of Civil Liabilities

The enforcement by investors of civil liabilities under the
federal securities laws of the United States may be affected adversely by the
fact that the Company is incorporated under the laws of Alberta, Canada, that
the independent auditors who have audited the Company's financial statements and
some or all of its directors and officers may be residents of Canada or
elsewhere, and that all or a substantial portion of the Company's assets and
said persons are located outside the United States. As a result, it may be
difficult for holders of the common shares to effect service of process within
the United States upon people who are not residents of the United

-10-

States or to realize in the United States upon judgments of
courts of the United States predicated upon civil liabilities under the federal
securities laws of the United States.

Generally, there are two ways for a foreign party to enforce
a United States judgment in an Alberta Court. The simplest mechanism is pursuant
to Alberta's Reciprocal Enforcement of Judgments Act, Chapter R-6,
Statutes of Alberta. Simply put, if the foreign judgment was given in a
reciprocating jurisdiction, the foreign judgment creditor may apply to the
Alberta Court of Queen's Bench to simply register the judgment in Alberta. This
Act has limited applicability since, pursuant to the Reciprocating
Jurisdictions Regulation, the only reciprocating jurisdictions outside of
Canada are Australia, Washington, Idaho and Montana.

If the Reciprocal Enforcement of Judgments Act
applies, however, it is relatively simple to register a foreign judgment and, in
certain cases, the court application may even be made on an ex parte
basis. If the judgment debtor was not personally served with the process or did
not otherwise attorn to the foreign jurisdiction, then the court application
must be brought on notice.

The second mechanism of enforcing a foreign judgment in
Alberta is to sue upon the judgment, essentially seeking a declaration that the
foreign judgment is final and there should be no scrutiny or litigation of the
underlying issues. This used to be more difficult than it is today. Today,
Canadian courts generally will not revisit or re-try a U.S. judgment if basic
conditions are satisfied. The basic preconditions for enforcing a foreign
judgment in Canada are merely that:

|(1) | It must be final and for a definite sum of money; and                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                           
|(2) | The foreign court must have had a real and substantial connection to the
    subject matter of the action and the parties.

Assuming that these preconditions are met, there are only
three available defences to the enforcement of a foreign judgment in Canada
namely, the defence of fraud, the defence of natural justice and the defence of
public policy. If the judgment was obtained fraudulently, it could not be
imported. This defence is less likely to be available if the judgment was
obtained in the United States which has a valid legal system well known for
extending due process.

The defence of natural justice refers to the procedures
followed by the foreign court in arriving at its decision. The Alberta court
would examine whether the defendants had the proper opportunity to defend and
whether they were given sufficient notice of the action. Again, the United
States legal system provides such safeguards.

The defence of public policy primarily relates to whether the
foreign laws are consistent with Canadian values and, yet again, on this basis,
a judgment obtained in the United States is much more likely to be enforced than
one obtained in countries with a less evolved legal system.

In conclusion, then, with a United States' judgment, a
Canadian court would be disinclined to revisit the issues that were or could
have been litigated in the United States. The court will not insist that the
defendant have submitted or attorned to the U.S. jurisdiction as long as the
U.S. court had jurisdiction. Perhaps the most compelling question arising from
all of this is whether or not a Canadian court would agree that the United
States court had a real and substantial connection to the subject matter of the
action and the parties. This depends on such considerations as whether the
parties attorned to the jurisdiction, the residence of the parties, the nexus of
the cause of action with the foreign jurisdiction, the location of the "breach"
and whatever other issues would apply to determine whether the United States
jurisdiction had properly exercised its jurisdiction in hearing the matter.

Foreign investors can bring original actions in Alberta
courts in certain circumstances. The main issue is whether or not the Alberta
Court of Queen's Bench has jurisdiction to hear the matter. The fact that Birch
is registered and carries on business in Alberta makes it very likely that an
action against it in Alberta would stand regardless of the jurisdiction of the
plaintiffs. The basic test is whether or not Alberta would be the "forum
convenines" for such an action or whether, alternatively, there is another forum
more suitable for the ends of

-11-

justice. The onus would be on Birch to positively demonstrate
that there is another available forum that is clearly or distinctly more
suitable, which is often a difficult burden to meet. This issue typically arises
in the context of "exclusive jurisdiction" clauses in contracts as in some
circumstances an Alberta corporation or resident can argue that jurisdiction is
specifically and exclusively provided by contract. This principle would appear
to have little application in the present context. Absent a contract, sometimes
an Alberta corporation or resident would be able to establish that another
jurisdiction is a more suitable forum, for example, if all of the activities,
documents and witnesses were connected to some other location. For example, an
Alberta court might be reluctant to hear a case that would depend on an
interpretation of U.S. federal securities laws since that would involve expert
legal witnesses on those laws attending in Alberta to testify and educate the
court. Similarly, in such circumstances, all of the Plaintiffs would likely be
resident elsewhere. It is always a question of fact whether or not the Alberta
court would determine that an action against an Alberta corporation or resident
should actually be litigated elsewhere.

Assuming that an action by foreign plaintiffs was validly
bought in Alberta, then normally those plaintiffs would be required by the court
to post security for the defendant's costs of the action.

ITEM 4         INFORMATION ON BIRCH

A. 
    
    History and Development
    of Birch

According to a Certificate of Amalgamation issued on
December 31, 1995, under the provisions of the ABCA, Birch was formed by the
merger of one of Birch's predecessors, also named Birch Mountain Resources Ltd.,
and its wholly owned subsidiary, Birch Mountain Minerals Ltd.

Birch's head office and registered office are located at
Suite 300, 250 - Sixth Avenue S.W., Bow Valley Square 4, Calgary, Alberta T2P
3H7, phone: (403) 262-1838, and Suite 1000, 400 Third Avenue S.W., Calgary,
Alberta T2P 4H2, phone (403) 232-9780, respectively.

The mineral rights held by the Company offer an immediate
business opportunity to develop a limestone quarry for aggregate sales and the
manufacturing of quicklime for use in the oil sands industry. Consequently
management elected to focus on the business opportunity in the limestone and
most of the business activity in 2003 and to date in 2004 have been focused on
capturing this business opportunity.

Birch was founded in 1995 as a junior mineral exploration
company. Prior to 2000 it explored for precious metals, base metals and diamonds
on properties in western Canada and Kalimantan, Indonesia. Since 2000, the
Company has expanded beyond conventional mineral exploration to include research
and development on naturally occurring precious and non-precious metal
microparticles and nanoparticles as well as industrial minerals. Currently,
Birch is only active in Alberta, Canada. In March 2002, Birch formally
established two divisions, Mineral Exploration and Mineral Technology, to
differentiate its mineral exploration activities from its research and
development program. In June 2002, Birch established an Industrial Mineral
Division to pursue opportunities arising from its ownership of industrial
minerals in the Athabasca region of northeastern Alberta, including a proposed
dual-purpose limestone quarry to provide crushed limestone aggregate and
quicklime to the Fort McMurray market.

In 2000 Birch established a Scientific Advisory Board ("SAB")
to provide independent advice to the Board and management on the Company's
scientific and technical program and to provide liaison with external scientific
institutions and researchers. Presently, the SAB comprises Dr. Richard
Puddephatt, FRS, FRSC, Professor of Chemistry at the University of Western
Ontario, and Dr. Robert Fitch, President of Fitch and Associates, Taos, New
Mexico. The SAB was active through to the end of 2001, but has not met since.
Currently, Birch does not forsee reconvening the SAB in 2004.

Since early 2000, the Company's work has lead to the
development of methods to extract and image, using high-resolution transmission
electron microscopes, naturally occurring nanoparticulate base and precious
metals in rocks and oil sands tailings from the Athabasca region of northeastern
Alberta. The commercial significance of

-12-

these findings has not been determined.
These results are being used to assist in acquiring or developing, and
independently verifying, methods to measure the concentration of nanoparticulate
precious metals contained in these materials. A reliable method for measuring
precious metal concentration has not yet been independently verified. In
December 2002, Birch was awarded U.S. patent 6,494,932 entitled, "Recovery of
Natural Nanoclusters and the Nanoclusters Isolated Thereby", which covers
processes for the recovery of natural nanoparticles from geological materials
and their processed counterparts.

In previous years the Company focussed exclusively on
precious metal exploration and technology development. Funding constraints in
2002 and 2003 resulted in the deferral of further technology development and
verification. When funding is available the Company intends to continue its
research and development related to precious metal. In-house investigation of
assay methods has continued at a low level with minimal expenditures.

B. 
    Business Overview

Birch is an exploration stage junior mining company searching
for commercial deposits of precious and non-precious metals and industrial
minerals. The Company has no assurance that a commercial deposit exists on any
of its mineral properties and no mineral reserves have been identified on any of
the Company's properties. The Company is also researching methods to recover
naturally occurring nanoparticulate metals from sedimentary rocks on its mineral
properties in northeastern Alberta and from tailings produced as a byproduct of
oil sands mining. There is no assurance that there are commercial concentrations
of nanoparticulate metals, or that a commercially viable process will be
developed to extract these metals from rocks or oil sands tailings.

Prior to 2002, the Company had only received $390,000 from
the sale of exploration data plus incidental interest and other minor revenue.
In 2002, Birch sold limestone to Suncor Energy Inc. for $250,000. Suncor also
paid $39,000 in each of 2002 and 2003 to the Alberta Government to cover lease
rental payments for six mineral leases owned by Birch to which Suncor, by
agreement, was granted access to quarryable materials, including limestone.

Industrial Minerals

Birch formed its Industrial Mineral Division in June 2002, to
pursue market opportunities for the sale of limestone from its Athabasca mineral
property. In September 2002, Suncor Energy Inc. purchased rights to extract
limestone from Birch's mineral leases underlying their Steepbank and Millenium
oil sands mines. The following table lists annual limestone production from
these Birch leases by Suncor, as reported in royalty reports to the Government
of Alberta:



|Year Ended December 31,
|-----------------------
|                       
|Limestone (tonnes)     





Shortly after the sale of limestone to Suncor, Birch
initiated the application process to license a limestone quarry. The original
application was to develop a quarry to supply crushed limestone aggregate to the
local market. As geological evaluation of the proposed Muskeg Valley Quarry
progressed, testing of core from a 1996 drill hole and from new holes drilled in
late 2002 and early 2003, confirmed the presence of high-calcium limestone
suitable for producing quicklime. Quicklime is used in a range of industrial and
environmental applications including flue gas desulphurization, which removes
sulphur and other contaminants from atmospheric emissions from bitumen
upgrading, and in water treatment to remove heavy metals. Birch has determined
that a number of oil sands operators are interested in a local source of
quicklime and intends to pursue the business opportunity to establish a
quicklime plant on its proposed quarry site. The Muskeg Valley Quarry initially
covered an area of about 350 hectares (864 acres), which was expanded to
approximately 1550 hectares (3,829 acres) to meet increased demand projections
for calcinable limestone and limestone aggregate.

-13-

Birch has no assurance that a commercial high-calcium
limestone deposit exists at this location or that it will be successful in
negotiating contracts for the sale of aggregate or quicklime.

In February 2004, Birch released an independent technical
report on the Muskeg Valley Quarry project entitled, Muskeg Valley Project,
Alberta - Independent Qualified Person's Review and Technical Report(the
"2004 Technical Report"). Digital copies of the 2004 Technical Report may be
obtained through the Company's filings at www.sec.gov and www.sedar.com. The
2004 Technical Report was authored by AMEC E&C Services Limited with a
contribution on limestone aggregate by Russ Gerrish Consulting. The 2004
Technical Report is a preliminary assessment of the aggregate and calcinable
limestone potential of the proposed Muskeg Valley Quarry. It includes a mineral
resource estimate for calcinable and aggregate grade limestone, and a
preliminary financial model, as permitted under Canadian Securities
Administrators National Instrument 43-101 ("NI 43-101"). None of the mineralized
material included in the 2004 Technical Report, comprising 37.1 million tonnes
of calcinable limestone, could be classified as a mineral reserve under US SEC
Industry Guide 7. Additional in-place mineralization comprising limestone
believed to be suitable for quicklime and aggregate production was identified in
the technical report, but could not be classified as mineralized material.

Birch is conducting a prefeasibility study with the objective
of advancing a major part of its limestone resource to mineral reserve status
under NI 43-101. A total of ten drill holes were drilled in February 2004 and
testing of limestone for aggregate and quicklime purposes is underway for
inclusion in the prefeasibility report. It cannot be assumed that definition of
a mineral reserve under NI 43-101 in Canada will mean that a mineral reserve has
been established in the US under SEC Industry Guide 7 and current SEC
engineering practise. In the US, the SEC requires: (i) the level of engineering
information reported by the Company to be sufficient to conclude legal and
economic feasibility, and (ii) all permits be in hand or expected shortly.

In March 2004, Birch filed an Environmental Impact Assessment
("EIA") with Alberta Environment and an application to construct, operate and
reclaim the Muskeg Valley Quarry with the Alberta Natural Resources Conservation
Board. The EIA covered production of aggregate only from the north part of the
Quarry, and Birch intends to file an additional application later this year for
limestone production from the other areas, as well as for a quicklime plant. If
the project is approved on a timely basis in Q3 2004, Birch anticipates
receiving all necessary permits to open a contractor-operated aggregate quarry
in the north area in Q4 2004 and receiving first revenue from aggregate sales in
Q4 2004 or Q1 2005.

Precious Metals

Birch did not conduct field exploration for precious metals
in 2002 or 2003. In 2003, Birch conducted limited in-house work toward
developing a reliable precious metals assay technique, and continued to review
new developments in precious metal assaying that may prove useful in exploring
the Athabasca property. Any further field exploration for precious metals is
contingent on developing or acquiring, and independently verifying, a technology
to accurately and reliably determine the concentrations of precious metals in
rocks and other materials that may contain precious metals in nanoparticulate or
microparticulate form.

In May 2003, Birch filed an independent technical report by
APEX Geoscience Ltd. entitled, 2003 Technical Report on the Gold Potential of
the Athabasca Property(the "2003 Technical Report").APEX
synthesized more than 80 years of published and unpublished information relevant
to exploration for low-temperature sediment-hosted precious metal deposits on
the Athabasca property. The authors concluded that anomalous to potentially
economic concentrations of precious metals, including gold, platinum and
palladium, exist on the Athabasca property and recommended additional precious
metals exploration be conducted.

When funding is available, Birch intends to continue its work
related to developing and improving its precious metal extraction and
measurement technologies, both in the Company's lab and in external
metallurgical and research facilities, with verification of results in
independent testing laboratories.

In early 2002, Birch entered into an agreement with AuRIC
Precious Metals, Inc., or AuRIC, to purchase a customized fire assay method
developed by AuRIC to analyze precious metals in rock from the Company's
Athabasca property in northeastern Alberta. Under the terms of the agreement, if
certain criteria are met,

-14-

including achieving a verified fire assay grade in
excess of 1 g/t precious metal in a chain-of-custody sample from the Athabasca
property, Birch will pay AuRIC a combination of common shares and cash in return
for exclusive rights to the technology in the regions of Athabasca, Alberta and
Dawson Bay, Manitoba, and non-exclusive rights elsewhere. Tests conducted in
AuRIC's facility by independent qualified persons using a double blind, chain of
custody protocol yielded results exceeding the 1 g/t total precious metal
criterion. However, the results of subsequent verification testing using the
same protocol in a Canadian laboratory did not meet the 1 g/t criterion,
although precious metals were detected in the chain of custody samples.
Verification of the AuRIC method was suspended pending financing. Birch intends
to re-evaluate its decision to suspend the AuRIC verification testing when
finances are available to do so.

C. Organizational Structure

Birch has three inactive, wholly owned subsidiaries, Dawson
Bay Minerals Inc., incorporated pursuant to the Corporations Act
(Manitoba), Muskeg Valley Minerals Inc., incorporated pursuant to the Business Corporations Act (Alberta) and Rockyview Development Limited, and
its subsidiaries, incorporated pursuant to the laws of the British Virgin
Islands.

The work activities of the Company are organized under three
divisions: Mineral Exploration, Mineral Technology and Industrial Minerals.

D. 
    
    Property, Plants and
    Equipment

Birch maintains head office in Calgary. Executive,
administrative and support staff work in the 7,972 square foot office space that
also contains a boardroom. The rental commitment is $206,000 per year.

Mineral Technology Division

Intellectual Property

In December 2002, Birch was awarded U.S. patent number
6,494,932 entitled, "Recovery of natural nanoclusters and the nanoclusters
isolated thereby". Birch has also filed a similar patent application for
protection under the International Patent Cooperation Treaty. A divisional
patent derived from the original patent application is currently before the U.S.
Patent and Trademark Office.

Metallurgical Laboratory

Birch's research activities are principally carried out at
the Company's Calgary laboratory. The laboratory is housed in a 1,800 square
foot facility, which is leased at a cost of $19,200 per year. The laboratory is
equipped for sample preparation, fire assay and wet chemical treatments.
Instrumental analyses are done offsite using rented analytical instruments at
the University of Calgary or commercial analytical services.

Mineral Exploration Division

Core Laboratory

Birch maintains core analysis and secure storage facilities
in Calgary. Core drilled by Birch and core obtained from oil sands mining
companies is shipped to Calgary for cutting, logging and sampling. Drill core
and samples are archived in a secure storage facility. The core analysis
facility is leased at an annual cost of $15,400. Long-term storage facilities
are leased at an annual cost of $14,000.

Exploration Properties

At one time Birch held the mineral exploration rights to
about 10 million acres in northeastern Alberta. Through time this has been
reduced to approximately 316,761 hectares (782,748 acres) distributed across
Birch's two Alberta mineral properties: Athabasca and Birch Mountains. Birch
anticipates that as it continues its

-15-

exploration the extent of its mineral properties will be
reduced, to areas Birch believes to be the most prospective for precious metals
and industrial minerals.

Mineral Tenure in Alberta

Metallic and Industrial Mineral Permits: The majority of
Birch's Alberta mineral properties are held under metallic and industrial
mineral permits, or "mineral permits", issued by the Provincial Government of
Alberta. Mineral permits may be held for up to ten years and convey the right to
explore for metallic and industrial minerals. Assessment costs must be filed
every two years against an escalating work requirement ranging from $5.00 to
$15.00 per hectare (approximately $2.00 to $6.00 per acre) for each 2-year
assessment period. Birch owns a 100% working interest in virtually all of its
mineral permits held in Alberta. Some mineral permits are subject to a royalty
payable to the original mineral permit holder; Birch has the option to purchase
most of these royalties for a fixed price. A small minority convey a royalty
right to the original mineral permit holder or its designees, with no right to
purchase the royalty.

Metallic and Industrial Mineral Leases: Birch also holds
a number of metallic and industrial mineral leases, or "mineral leases". Mineral
leases are granted by the Alberta Government and convey the right to explore and
produce minerals, subject to meeting development approvals. Mineral leases have
a renewable 15-year term, subject to payment of an annual rent of $3.50 per
hectare ($1.42 per acre). In Alberta, mineral permits held in good standing may
be converted to mineral leases any time prior to the expiry of their 10-year
term.

Overlapping Mineral Rights: Ownership of metallic and
industrial minerals within the area of the Athabasca Oil Sands Mining Area, as
defined by the Alberta Government, is split between oil sands leaseholders and
mineral lease and mineral permit holders. The Athabasca Oil Sands Mining Area
covers all of Birch's mineral leases and most of Birch's Athabasca mineral
permits. Within this area, the oil sands leaseholders own the rights to all
minerals that occur within the geological formations mined for oil. Oil sands
leaseholders do not own metallic or industrial mineral rights in either the
overlying sedimentary rocks, nor in the underlying Devonian limestone, which
rights are owned by the mineral permit and lease holders.

Athabasca Mineral Property

Location and Access: The Athabasca mineral property is
located in the Fort McMurray-Fort MacKay region of northeastern Alberta. The
City of Fort McMurray is located 375 km northeast of the provincial capital of
Edmonton and can be reached by paved highways 2 and 63 or by regularly scheduled
airline flights and bus service from Edmonton. Infrastructure north of Fort
McMurray, in the vicinity of Fort McKay, is excellent due to the presence of
large oil sands mining operations located about 45 km north of Fort McMurray.
Fort McKay and the oil sands operations are accessed from Fort McMurray by
provincial highway 63. All major services, including goods and accommodation,
air and helicopter service, vehicle servicing and expediting can be obtained in
Fort McMurray. Accommodation for up to 500 workers is available in work camp
facilities located on the Athabasca Property.

Near the Athabasca River, between Fort McMurray and Fort
McKay, road access is good; once away from the river and further north, the
number and condition of the roads decreases. A winter road exists from Fort
McKay to Fort Chipewyan. The Athabasca Property is generally accessible by road
or all terrain vehicle, with some of the more remote locations requiring the use
of a helicopter. Major power lines cross the Athabasca Property and additional
power transmission lines are planned. Exploration activities are curtailed on
certain exploration permits during moose and caribou calving season; this
restriction occurs during spring break-up, which precludes land access at this
time in any case.

Mineral Title: Birch's currently active Athabasca mineral
permits and leases were either originally acquired from the Crown, or were
acquired by purchase or option from other companies or individuals. At April 30,
2004 the Athabasca mineral property covers 233,817 hectares (577,772 acres)
includes 8 mineral permits covering approximately 46,480 hectares (114,854
acres) and 32 mineral leases covering approximately 53,719 hectares (132,743
acres). In 2004, Birch applied to convert 30 expiring permits to 59 mineral
leases covering 133,618 hectares (330,176 acres), and allowed 2 other permits to
expire.

-16-

Athabasca Mineral Permits by Issue Date.



|Year Issued | Term Expiry | No. of Permits | Area (hectares) | Area (acres)
|----------- | ----------- | -------------- | --------------- | ------------
|1996        | 2006        | 5              | 32,256          | 79,706      
|1998        | 2008        | 2              | 8,448           | 20,875      
|2003        | 2013        | 1              | 5,776           | 14,273      



Athabasca Mineral Leases by Issue Date.



|Year Issued | Term Expiry | No. of Leases | Area (hectares) | Area (acres)
|----------- | ----------- | ------------- | --------------- | ------------
|1991        | 2006        | 1             | 112             | 277         
|1994        | 2009        | 2             | 1,991           | 4,920       
|1999        | 2014        | 3             | 1,472           | 3,637       
|2000        | 2015        | 23            | 45,658          | 112,823     
|2003        | 2018        | 3             | 4,486           | 11,086      



Athabasca Mineral Permit-to-Lease Conversion Applications.



|Year | Term Expiry | No. of Leases | Area (hectares) | Area (acres)
|---- | ----------- | ------------- | --------------- | ------------
|2004 | 2019        | 59            | 133,618         | 330,176     





Previous Mineral Exploration: Prior exploration of the
Athabasca property has included exploration for precious metals, diamonds and
limestone. Comprehensive details of all known prior exploration are included in
a report entitled "2003 Technical Report on the Gold Potential of the Athabasca
Property" dated May, 20003, prepared by M.B. Dufresne and D.J. Besserer of APEX
Goescience Ltd. (the "2003 Technical Report"). The 2003 Technical Report was
filed in May 2003 in Canada and on June 3, 2003 under a Form 6-K in the U.S.A.,
is incorporated herein by reference and is available in the Company's public
documents at www.sedar.com and www.sec.gov.

Precious metals exploration on the Athabasca property began
in 1911/1912 when American wildcatter Homer Bradley drilled a series of holes to
basement seeking the source of the Athabasca oil sands. Although the origin of
the tar sands was not discovered, an Alberta government report indicates that
gold was assayed in core from drill hole Athabasca Oils No. 1. From this time
on, sporadic exploration for precious metals occurred through to 1993, when the
current round of precious metals exploration began. In the period from 1993 to
1995, Birch, Focal Resources Ltd., Tintina Mines Limited, NSR Resources Inc.,
Winslow Gold Ltd., LAC North America Ltd. ("LAC"), Ultrasonic Industries Ltd.,
Mr. K. Richardson and associated companies HMS Properties Ltd. ("HMS") and RMS
Masonry Systems Inc. ("RMS"), Mr. L. MacGougan and associated company 777195
Alberta Inc., Grizzly Gold, and possibly others, explored for precious metals in
areas that are now part of Birch's Athabasca mineral property. Birch is unaware
of any current precious metals exploration other than its own in this area,
although Mr. K. Richardson still holds mineral properties in the vicinity of the
Athabasca property.

In 1997-98, in a joint venture with Tahera Corporation, Birch
explored for diamonds on its Athabasca mineral property. Much of the information
resulting from this exploration program is available through assessment reports
filed with the Alberta Government and is covered in the 2003 Technical Report.
No potentially diamond-bearing rocks were found during this exploration program.

Prior exploration for limestone was restricted to now-expired
land holdings within the area of the Athabasca permits. No limestone development
is known within the Athabasca property. In 2002 and 2003, Graymont Western
Canada Inc. acquired mineral permits on the perimeter of Birch's Athabasca
property.

-17

Current Status: The Athabasca property is without known
reserves of either precious metals or limestone, and Birch's continuing work is
exploratory in nature. Since 1993, Birch or its predecessor companies have
conducted extensive precious metals exploration on the Athabasca property,
including field mapping and prospecting, land and airborne geochemical and
geophysical surveys, drilling, core logging, sampling and analysis, and a wide
variety of analytical testing and mineralogical research. The authors of the
2003 Technical Report concluded, "Although precious metals, including gold,
silver, platinum and palladium have been discovered on a few rare occasions in
concentrations that might constitute economic concentrations if a resource can
be identified, Birch's Athabasca Property is considered an early stage, high
risk precious metals exploration property."

Birch does not plan to conduct field exploration for precious
metals until such time that it has acquired or developed, and independently
verified, a method for reliably determining precious metals concentrations in
rocks from its Athabasca property.

In late 2002 and early 2003, Birch conducted a drilling
program for limestone in the area of its proposed limestone quarry. Testing of
limestone recovered from this drill program and one hole from a 1996 drill
program resulted in the identification of high-calcium limestone suitable for
the production of quicklime. As discussed under Industrial Minerals, above,
Birch has initiated the regulatory process to license a limestone quarry on its
Athabasca mineral property and is currently undertaking a prefeasibility study
on limestone production from the Muskeg Valley Quarry. More information on the
proposed limestone quarry is available in the 2004 Technical Report available
digitally at www.sedar.com and www.sec.gov.

Plant and Equipment: Apart from currently active oil
sands mining operations operated by oil sands companies unrelated to Birch, no
other mining-related plant or equipment exists on Birch's Athabasca property.

Rock Formations and Mineralization: Precious metals and
limestone are the principal exploration targets on the Athabasca mineral
property. The geology of the Athabasca property is relatively simple, and is
characterized by Precambrian basement overlain by about 300 m of shallow
westward dipping, unmetamorphosed sedimentary rocks chiefly of Devonian and
Cretaceous age. The Devonian rocks are predominantly marine dolostones,
limestones and evaporites while overlying Cretaceous rocks are sandstones and
shales, including oil-bearing sandstone, or oil sands, of the McMurray
Formation. Structurally, the property is underlain by complexly folded and
faulted Precambrian basement rocks, but the sedimentary rocks are largely
undeformed, although fault zones with limited offset are characterized by minor
normal or reverse normal offset and minor rotation. A large structure, the
Bitumount Graben, has resulted in an aggregate total downdrop of up to 200 m of
both sedimentary and basement rocks along numerous structures in the
north-central part of the Athabasca property.

Precious metal microparticles and nanoparticles have been
identified in both sedimentary and basement rocks from the Athabasca property
and are the target of Birch's precious metal exploration. A comprehensive
discussion of the geology and mineralization of the Athabasca property is
included in the 2003 Technical Report.

Birch Mountains Mineral Property:

Mineral Title: At April 30, 2004, the Birch Mountains
mineral property comprised 9 mineral permits issued in 1994, covering
approximately 82,944 hectares (204,959 acres). All 9 Birch Mountains mineral
permits will reach their 10 year term expiry date in August, 2004.

Current Status: The Birch Mountains mineral property is
without known mineral reserves. No further exploration work on the Birch
Mountains is planned for 2004 and all remaining Birch Mountains mineral permits
will reach the end of their 10 year terms in August, 2004.

-18-

2003 Assessment Filings

Alberta Mineral Properties

No exploration expenditures were filed for assessment
purposes in 2003. Mineral permits reaching the end of their 10 year term were
converted to mineral leases or dropped. One mineral permit in the Birch
Mountains was dropped in advance of it reaching its 10 year term. Additional
assessment-eligible work has been completed and will be available for future
assessment reports.

Industrial Minerals Division

The Company's mineral leases convey the rights to metallic
and industrial minerals, including limestone. In 2002, Birch established an
Industrial Minerals Division to take advantage of potential business
opportunities arising from the Company's ownership of the rights to mine and
market limestone from its Athabasca mineral leases. A sale of limestone to
Suncor Energy Ltd. for $250,000 was announced in September 2002. Following this,
a geological appraisal of a potential limestone quarry located about 60
kilometres north of Fort McMurray was completed. After consultations with
Alberta Environment, in October 2002 Birch initiated the regulatory process to
licence a limestone quarry, issuing a Public Disclosure Document and the Draft
Terms of Reference for an Environmental Impact Assessment. The Public Disclosure
Document is available on the Birch website at www.birchmountain.com. The
information on Birch's website is not incorporated herein by reference.
Subsequently, the Company received the Final Terms of Reference and prepared and
filed in March 2004 an Environmental Impact Assessment and Application to the
Natural Resources Conservation Board for the development, operation and
reclamation of the quarry. In the fourth quarter of 2003, Birch sold $100,000 of
limestone at the base of the Aurora Mine to Syncrude Canada Ltd.

ITEM 5         OPERATING AND FINANCIAL REVIEW AND PROSPECTS

General

This discussion should be read in conjunction with Birch's
consolidated financial statements. Birch's consolidated financial statements
have been prepared in accordance with Canadian GAAP, which differ from U.S. GAAP.
For a discussion of these differences, see the notes to Birch's consolidated
financial statements.

A. Operating Results

Years Ended December 31, 2003, 2002 and 2001

Prior to 2002, the Company focused exclusively on precious
metal exploration and technology development. In 2002, we identified a business
opportunity to develop a limestone quarry for aggregate sales and the
manufacturing of quicklime for use by the oil sands industry. As a result, since
2002, we have focused on advancing this limestone business opportunity and
deferred funding for precious metal exploration and further technology
development. When funding is available, Birch Mountain intends to continue
research and development of precious metals.

The geological, engineering and economic assessments
conducted over the past 18 months have identified a significant development
opportunity for aggregate production and sales from leases owned by Birch
Mountain in the lower Muskeg River valley north of Fort McMurray, Alberta. The
regulatory review process is underway, and approval of the application for the
north quarry project is anticipated in the fall of 2004. It will be necessary to
build about two kilometres of road to access the initial quarry pit and prepare
the site for tree removal to expose the limestone for production. An estimated
capital investment of $600,000 will be required to construct the road and
prepare the site in late fall in order to start production. We plan to use local
contractors and their equipment for the first stages of quarry operations.

Although we believe the likelihood of the following occurring
is low, risks associated with these plans include regulatory complications that
could result in the delay of project approval until early or mid-2005, lack of

-19-

market familiarity and acceptance of limestone aggregate
could result in slower than anticipated sales in the first year or more, and a
major drop in oil prices could result in a slowdown of oil sands development
resulting in a reduced demand for construction aggregate.

Birch Mountain has initiated geological and environmental
fieldwork to be used in regulatory filings, including an EIA and Application for
an expansion of the Quarry (south quarry project) and a quicklime plant.
Engineering, environmental and regulatory costs to complete and file an
application are projected to be approximately $2.7 million. As this is a
preliminary estimate, the final cost for regulatory approval of the expanded
project could be as much as 30% higher than current estimates as a large project
has a high probability of being referred to a public hearing. If a public
hearing is required, then both time and expenses will increase.

Corporate Costs and Expenses

Total costs in 2003 were $1,136,023 (excluding $744,385 of
mineral exploration and industrial mineral costs), and in 2002 were $1,170,931
(excluding $976,305 of mineral exploration and industrial mineral costs) down
from $1,685,713 (excluding $941,530 of mineral exploration costs) in 2001. G&A
expenditures in 2003 and 2002 remained fairly constant, averaging $100,000 per
month. The Company adopted the stock-based compensation and other stock-based
payment standards set out in the CICA Handbook 3870. The impact of the adoption
of this standard for the year ended December 31, 2003, was an additional
compensation expense of $66,681 and additional mineral exploration costs of
$1,231 and share issue costs of $22,045.

Expenses in 2002 and 2003 reflected an increased focus on the
industrial mineral potential of the Athabasca leases. Expenses in 2001 reflected
the increase in laboratory work, the filing of U.S. and international patent
applications, and the preparation of assessment filings to hold the Company's
Athabasca mineral permits.

The Company incurred a loss before income taxes of $1,568,435
in the year ended December 31, 2003 (2002 - $1,896,250; 2001-$2,539,220) and as
at December 31, 2003, had an accumulated deficit of $26,413,384.

Mineral Exploration Costs

In addition to the $471,191 exploration expense for
industrial minerals in 2003, we have also capitalized $336,136 of expenses.

Precious Metals Exploration Costs

With the Company's dedicated focus on industrial minerals in
2003, exploration costs related to precious metals decreased to $273,194 from
$863,845 in 2002, $941,530 in 2001 and $1,792,388 in 2000. All 2002 exploration
was on the Company's Athabasca mineral properties. In 2001, the Company focused
on the two prairie gold prospects, directing 99% of exploration expenditures to
the Athabasca project and the balance to the Dawson Bay play.

Mineral Technology Costs

Spending on scientific research directed to developing
proprietary extraction and analytical techniques for precious metals was $11,150
in 2003 and $42,514 in 2002, down sharply from $128,065 in 2001. There were no
similar research expenditures in previous years. The results of our research led
to the filing of a U.S. and international patent application in the spring of
2000. Birch Mountain was granted a U.S. patent in December 2002.

|Mineral Exploration Costs | Mineral
    Exploration | Mineral
    Technology | Industrial
    Minerals
|------------------------- | ----------------------- | ---------------------- | -----------------------
|2003                      | $                       | 273,194                | $                      
|2002                      | 863,845                 | 42,514                 | 112,460                
|2001                      | $                       | 941,530                | $                      



-20-

Industrial Minerals Costs

In 2002, the Company established an Industrial Minerals
Division. This Division spent $112,460 in 2002. In 2003, we focused most of our
financial resources, $471,191 plus the capitalization of $336,136, on a
geological evaluation of the potential Quarry, initial drilling and preparation
for environmental approvals. Birch Mountain will continue to invest in the
Quarry. We sold $100,000 of limestone to Syncrude Canada Ltd. in 2003 and
$250,000 to Suncor Energy Ltd. in 2002.

Corporate Income

Birch Mountain and its subsidiaries have limited income from
production as the Industrial Minerals Division is in the early stages of
development, all other properties are still at the exploration stage, and
technology is still under development.

The Company's ability to continue as a going concern largely
depends on our success in obtaining sufficient funds to carry the development of
the limestone Quarry through to production, carry out exploration properties,
establish the existence of economically recoverable mineral reserves, achieve
successful results from our research efforts and obtain the financing to
complete the development and achieve future profitable production or,
alternatively, on the Company's ability to dispose of our interests on an
advantageous basis. In the past, Birch Mountain has been successful in raising
funds in the equity markets, but there is no assurance that the Company will be
able to do so in the future. If future financing efforts do not meet with
success, there is substantial doubt about the ability of the Company to continue
as a going concern as it would likely have to dispose of assets on less than
advantageous terms.

Three Months Ended March 31, 2004 and 2003

The Company incurred a net loss of $659,599 in the period
ended March 31, 2004.

Corporate Costs and Expenses

Total costs during the period were $367,034 (excluding
$300,314 in mineral exploration and industrial mineral costs). These expenses
reflect an increase in professional fees mainly related to legal and audit fees
for the period with a total of $99,844. This contrasts with the $2,277 for the
same period in 2003, which reflects the very limited activities and payment of
legal and audit fees in subsequent periods.

The Company adopted the stock-based compensation and other
stock-based payment standards set out in the CICA Handbook 3870. The impact of
the adoption of this standard for the first quarter ended March 31, 2004, was an
additional compensation expense of $48,191.

Mineral Exploration Costs

|To March 31, 2004    | Mineral Exploration | Mineral Technology | Industrial Minerals
|-------------------- | ------------------- | ------------------ | -------------------
|Expenditures         | $300,314            | -                  | -                  
|Capitalized expenses | -                   | -                  | $815,186           



The Company
incurred total expenditures during the first quarter of $1,115,500 with $300,314
for mineral exploration, and $815,186 in industrial minerals.

Precious Metals Exploration Costs

With the Company's dedicated focus on
industrial minerals in 2004, exploration costs related to precious metals
decreased from $45,155 in the first quarter of 2003, to $18,926 ($300,314 less
$281,388 for permit to lease conversions) in the same period in 2004.

-21-

Mineral Technology Costs

There was no activity in this division
during the first quarter of 2004.

Industrial Minerals Costs

During the first quarter almost all
work was focused on this division, with capital expenditures of over $815,186,
with 80% of this cost related to consulting fees for the preparation and filing
the quarry application, and a field drilling program. Salaries accounted for
only 14% of the expenditures to March 31, 2004.

Corporate Income

The Company's main source of income
from year-to-year has been interest earned on our term deposits. At March 31,
2004 the interest earned was $7,749. Our interest income has varied with the
amount of money in term deposits and has not been a significant component of our
ability to operate.

The Company's ability to continue as a
going concern largely depends on our success in obtaining sufficient funds to
carry out exploration activities on our mineral properties, establish the
existence of economically recoverable mineral reserves, achieve successful
results from our research efforts and obtain the financing to complete the
development and achieve future profitable production or, alternatively, on the
Company's ability to dispose of our interests on an advantageous basis. In the
past, Birch Mountain has been successful in raising funds in the equity markets,
but there is no assurance that the Company will be able to do so in the future.
If future financing efforts do not meet with success, there is substantial doubt
about the ability of the Company to continue as a going concern as it would
likely have to dispose of our assets on less than advantageous terms.

B. Liquidity and Capital
    Resources

Years Ended December 31, 2003, 2002 and 2001

The Company's primary source of cash has been private
placements. Working Capital at the year-end 2003 was $1,780,829, a significant
improvement from 2002 when it was negative $832,000. Working capital at year-end
2001 was $75,000.

During 2003, Birch Mountain successfully raised approximately
$4.5 million through various private placements versus $926,705 in 2002 and only
one private placement of $72,500 in 2001.

The funds raised in 2003 eliminated the working capital
deficit and provided working capital to sustain basic operations well into 2004.
Project-specific financing may be available to advance the limestone/quickline
project in 2004 and beyond.

At December 31, 2003, the Company had renounced flow-through
commitments of $2.5 million.

The Company re-priced to $0.50 per warrant the following
common share purchase warrants issued by private placement: 881,652 were
extended to June 7, 2004; 2,071,910 were extended to June 21, 2004; 285,715 were
extended to July 19, 2004 and 465,712 will expire July 24, 2004.

Birth Mountain received $65,000 from the exercise of stock
options in 2003, and no options were exercised in 2002 or 2001.

The Company has initiated the regulatory approval process to
licence our Quarry, which, if approved and in operation, will produce long-term
cash flow. In addition, the opportunity to produce quicklime from the same
quarry for sale to oil sands companies is under active consideration.

The Company's existing capital resources are adequate to
maintain operations at our current rate of investment in the development of the
Industrial Minerals Division to mid-2004. G&A expenditures in 2003 and 2002 have

-22-

been consistent, averaging $100,000 per month. We are working on plan to raise
additional operating capital to advance the regulatory approval of our Quarry
for the sale of aggregate and business opportunities associated with quicklime
production from the same Quarry, to reactivite research and precious metal assay
program development and to continue ongoing corporate activities. To the extent
the Company raises additional capital by issuing equity or convertible debt
securities, ownership dilution to shareholders will result, but not necessarily
a dilution in value. To fulfill flow-through commitments, expenditures of
$1,951,093 will be invested in qualifying work associated with the Quarry.

During 2001, the Company entered into an agreement with Shear
Minerals Ltd. ("Shear") and Marum Resources Inc. ("Marum"). Under the terms of
the agreement, Birch Mountain received 50,000 common shares of Shear and 100,000
common shares of Marum, with a market value of $20,000 on receipt. These share
were sold in 2003 for net proceeds of $26,768.

Capital Resources

Commitments for capital resources relate to the maintenance
of the mineral permits and leases granted to the Company by the Government of
Alberta. The Company is rationalizing our landholdings and converting certain
exploration permits to mineral leases.

Total Landholdings under Mineral Leases and Permits at
December 31

In 2003, Birch Mountain applied to convert 3 permits to 3
mineral leases to preserve its rights in areas prospective for precious metals
and industrial minerals, allowing 4 permits to expire at the end of their term.
In 2004, we applied to convert an additional 30 permits to 59 mineral leases and
allowed 2 permits to expire. At April 30, 2004, we reduced the Athabasca mineral
leases and permits from year-end 2003 to 233, 817 hectare (577,773 acres). In
the Birch Mountains, 1 permit lapsed in April 2004, reducing that area to 82,944
hectares (204,958 acres).

Lease payments in 2003 were net $148,275, while the capital
commitments in 2004 will be approximately $685,200, which includes the fee
payable to the Crown for the conversion from permits to leases. Lease payments
beyond 2004 will be approximately $602,500 if we continue to hold all of our
mineral leases into the future. Following further exploration, we may choose to
reduce our landholdlings, which will reduce our capital commitments for
maintaining the mineral leases in good standing.

Additional private placement financing or sale of limestone
may be required to meet the capital resource requirement of the Company.

Three Months Ended March 31, 2004 and 2003

Working capital at the March 31, 2004 was $788,705.

During the first quarter 233,750 options and 659,400 warrants
were exercised resulting in $399,625 of cash to support operations. Additional
funds may be forthcoming as warrants, exercisable at $0.50, come due:
881,652 on June 7, 2004; 2,071,910 on June 21, 2004; 285,715 on July 19, 2004;
and 465,712 on July 24, 2004.

The Company's existing capital
resources are adequate to maintain operations at our current rate of investment
in the development of the Industrial Minerals Division to mid-2004. G&A
expenditures in 2003 and 2002 have been consistent, averaging $100,000 per
month. We are working on plans to raise additional operating capital to advance
the regulatory approval of our quarry for the sale of aggregate and business
opportunities associated with quicklime production from the same quarry, to
reactivate research and precious metal assay program development, and to
continue ongoing corporate activities. To the extent the Company raises
additional capital by issuing equity or convertible debt securities, ownership
dilution to shareholders will result, though not necessarily a dilution of
value. To fulfill flow-through commitments, expenditures of $1,951,093 will be
invested in work associated with the quarry. At March 31, 2004 approximate 43%,
or $835,000 of the flow-through obligations had been expended.

-23-

Capital Resources

Commitments for capital resources
relate to the maintenance of the mineral permits and leases granted to the
Company by the Government of Alberta. The Company is rationalizing our
landholdings and converting certain exploration permits to mineral leases.

Birch's mineral lease rental
payments were $148,275 in the year 2003. Under a September 2002 agreement,
Suncor Energy Inc. covered $39,000 of this amount. Capital commitments in 2004
for mineral lease rental payments will be approximately $655,681, with Suncor
covering $53,185 of this amount. Additionally, a one time fee payable to the
Crown for the conversion from permits to leases of approximately $30,000 will be
required in 2004. Net ongoing lease payments will be approximately $602,500 if
Birch Mountain continues to hold all of our mineral leases into the future.
Following further exploration, we may choose to reduce our landholdings, which
will reduce our capital commitments for maintaining the mineral leases in good
standing.

C. Research and Development,
    Patent and Licenses

During the fiscal year ended December 31, 2000, the Company
commenced research in new mineral technology applications. The research resulted
in the filing of a U.S. and international patent applications. It is the
Company's policy that costs associated with such projects are expensed in the
period in which they are incurred. During the fiscal year ended December 31,
2001, the Company spent $128,068 on scientific research compared to $42,514 in
research costs in 2002.

Late in 2002, Birch awarded U.S. patent number 6,494,932
entitled "Recovery of Natural Nanoclusters and the Nanoclusters Isolated
Thereby". Birch has also filed a similar patent application for protection
under the international Patent Cooperation Treaty.

D. Trend Information

Industrial Minerals

There is a growing demand for aggregate and quicklime in the
Fort McMurray region of Alberta and Birch has initiated the application process
to licence a new limestone quarry. The expansion and construction of oil sands
projects requires large volumes of aggregate in addition to aggregate required
for constructing the regional infrastructure to support this development.

The proposed quarry also contains limestone units suitable
for producing quicklime. Quicklime is used to remove sulphur dioxide and other
contaminants from the emission stacks of industrial facilities including oil
sands plants. Quicklime is also used in water treatment plants to remove heavy
metals and other impurities. Birch has been in contact with a number of oil
sands operators regarding future demand for quicklime and intends to
aggressively pursue the business opportunity to establish a quicklime production
facility on its proposed quarry site.

Precious Metals

There has been an upward trend in the spot price of gold and
many analysts predict that the price will continue to be strong for several
years. However, the Company has no expertise in predicting future market trends
in the price of gold or other precious metals. If the price of gold remains
strong, the Company's share price may respond, but Birch has no production and,
therefore, there will be no impact on revenue even if the price of gold remains
at current or higher levels. If the upward trend in the spot price of gold
continues, it may make future financings more attractive to investors.

E. Off-balance Sheet
    Arrangements

The Company has no off-balance sheet arrangements.

-24-

F. Tabular Disclosure of
    Contractual Obligations

As of December 31, 2003, the Company's known contractual
obligations are as follows.

|                                                                                                                                | Payments due by period
|------------------------------------------------------------------------------------------------------------------------------- | ----------------------
|Contractual Obligations                                                                                                         | Total                 
|Long-term Debt Obligations                                                                                                      | -                     
|Capital (Finance) Lease
    Obligations                                                                                         | -                     
|Operating Lease Obligations                                                                                                     | $757,000              
|Purchase Obligations                                                                                                            | -                     
|Other Long-Term Liabilities
    Reflected on the Company's Balance Sheet under the GAAP of the primary
    financial statements | -                     
|Total                                                                                                                           | $757,000              



ITEM 6         DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior
    Management

The following table sets forth the name, business experience,
functions and areas of experience in Birch and principal business activities
performed outside of Birch (including, in the case of directors of Birch, other
principal directorships) of each director, member of senior management and
employees upon whose work Birch is dependent:

|Name            | Business Experience and Function                                        |  | Principal Business Activities and principal Directorships                                                                                                                                                                                                                 | Number of Common Shares and Percentage of Class Held and
    Number of Warrants and Exercisable Stock Options
|--------------- | ----------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------
|Douglas J. Rowe | Director, President and Chief
    Executive Officer of Birch since 1994 |  | Mr. Rowe is President and CEO of the Company, and was
    President and Chairman of the Board of Brougham Geoquest, Ltd., a company
    engaged in mineral exploration and Brougham Energy Corporation, a company
    engaged in oil and gas exploration and development. | 2,152,983 common shares
    (4.3%)
    25,000 warrants(1)
    
    750,000 stock options                     
|Kerry E. Sully  | Chairman of the
    Board and Director since 1995                       |  | Mr. Sully has been President and CEO of CGX Energy Inc.
    since March 1999, and was President, Chief Executive Officer and a director
    of Ranchmen's Resources Ltd. from 1989 to 1995.                                                                               | 250,000 common shares
    (0.5%)
    400,000 stock options                                                   

-25-

|Name                     | Business Experience and Function                                    |  | Principal Business Activities and principal Directorships                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Number of Common Shares and Percentage of Class Held and
    Number of Warrants and Exercisable Stock Options
|------------------------ | ------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------
|Donald L. Dabbs          | Vice-President,
    Chief Financial Officer and Director since 1994 |  | Mr. Dabbs was the President and Chief Executive Officer
    of Niaski Environmental Inc. from February 1998 to August 1999. He was
    Regional Manager, Bovar Environmental, and had served as a Vice-President of
    Concord Environmental Corporation from 1988 to 1994. There, Mr. Dabbs was
    responsible for resource development planning and regulatory approvals for
    clients, particularly in the Athabasca oil sands.                                                                               | 373,972 common shares
    (0.73%)
    505,000 stock options                                                  
|Lanny K. McDonald        | Director since 1995                                                 |  | In 1990, after more than 16 years of National Hockey
    League play, Mr. McDonald joined the Calgary Flames as Vice President for
    ten years. He is now Marketing Director with Baker Hughes Canada.                                                                                                                                                                                                                                                                                                             | 145,000 common shares
    (0.3%)
    375,000 stock options                                                   
|Dr. Hugh
    Abercrombie | Vice-President,
    Explorationsince November 1998                  |  | Dr. Abercrombie joined Birch in 1997, from the Geological
    Survey of Canada where he studied low temperature, metastable geochemical
    processes and developed the theories underlying the Prairie Gold Model.
    Since taking on his current position, Dr. Abercrombie has directed Birch's
    exploration and technology activities, spearheading efforts to understand
    the origin and behaviour of natural nanoparticles.                                                                              | 350,699 common shares (2)
    
    (0.68%)
    122,500 warrants (3)
    
    385,000 stock options           
|Dr. Jack Clark O.C.      | Director since
    April, 2001                                      |  | Dr. Clark is an independent consultant with over 40 years
    of engineering experience. For 15 years (until March 1997) he was President
    & CEO of C-CORE, an applied research company in St. John's, Newfoundland &
    Labrador. Dr. Clark has been an Honorary Professor of Engineering at
    Memorial University of Newfoundland and continues to consult to a wide range
    of government and industry clients.                                                                                           | 100,000 common shares
    (0.2%)
    50,000 warrants (4)
    
    425,000 stock options                      
|Charles Hopper           | Director since
    April, 2001                                      |  | Mr. Hopper is a Managing Director of Lehman Brothers,
    Inc. of New York and has twenty-five years experience in the financial
    industry. During the past five years at Lehman Brothers, Mr. Hopper has been
    responsible for Private Client Services Asset Management.                                                                                                                                                                                                                                      | 425,000 stock options                                                                                        
|Derrick Kershaw          | Director since May, 2004                                            |  | Mr. Kershaw recently retired as General Manager, Aurora
    Mine for Syncrude Canada, where he was responsible for all aspects of the
    new Aurora Mine Project. With Syncrude, he held the position of General
    Manager, Extraction Operations, Manager Overburden and Tailings in Mining
    Operations, and Manager Mine Mobile Maintenance. He also was Manager in
    Syncrude Research Department. Mr. Kershaw served as Chair of the Advisory
    Board for the Fort McMurray Oilsands Discovery Centre. | 31,250 stock options                                                                                         

Notes:

|(1) | Each warrant entitles the holder to purchase one common share at a price of
    $0.50 per share until November 13, 2004.                                                                                                                                        
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Of these, 10,000 common shares are held in trust by Mr. Abercrombie for his
    children.                                                                                                                                                                       
|(3) | 60,000 of these warrants each entitle the holder to acquire one common share
    at a price of $0.50 per share until September 16, 2004 and the remainder
    until October 10, 2004. Of these, 5,000 are held in trust by Mr. Abercrombie
    for his children.

-26-

|(4) | Each warrant entitles the holder to purchase one common share at a price of
    $0.50 per share until September 16, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------



To the knowledge of Birch, there are no arrangements or
understandings with major shareholders, customers, suppliers or others, pursuant
to which any person referred to above was selected as a director or member of
senior management of Birch and there is no family relationship between any of
the persons named above. Pursuant to an Option Agreement dated May 9, 1996,
among Birch, Calvyn M. Loree, James A. Brown, Saskatoon Natural Resources Ltd.
and Robert M. Friedland, Mr. Friedland currently has the right to nominate one
individual to the Board of Directors of Birch; however, no such nomination has
been made by Mr. Friedland for the forthcoming year.

B. Compensation

The following table sets forth the amount of compensation
that was paid (including deferred compensation accrued for the year) and
benefits that were granted in the financial year ended December 31, 2003 to each
of the individuals listed in Item 6(A) above.

|Name                    | Compensation | Benefits
|----------------------- | ------------ | --------
|Douglas J. Rowe(1)      | $179,666     | $1,070  
|Kerry E. Sully          | 0            | 0       
|Donald L. Dabbs(2)      | $133,000     | $1,015  
|Lanny K. McDonald       | 0            | 0       
|Dr. Hugh Abercrombie(3) | $111,593     | $4,810  
|Dr. Jack Clark          | 0            | 0       
|Charles Hopper          | 0            | 0       
|Derrick Kershaw         | 0            | 0       

Notes:

|(1) | Compensation includes $39,667 that was deferred in 2002.
|--- | --------------------------------------------------------
|(2) | Compensation includes $28,000 that was deferred in 2002.
|(3) | Compensation includes $6,593 that was deferred in 2002. 



The Board of Directors of the Corporation adopted the most
recent "rolling" stock option plan of the Corporation on May 8, 2003, which was
ratified by shareholders on July 3, 2003 (the "Amended 1994 Plan"). Pursuant to
the

The Board of Directors of the Corporation also adopted the
most recent "fixed" stock option plan of the Corporation on May 8, 2003, which
was ratified by shareholders on July 3, 2003 (the "Amended 2002 Plan"). Pursuant
to the Amended 2002 Plan, the Board of the Corporation may grant
non-transferable Options to purchase Common Shares of the Corporation to
directors, officers, employees and consultants of the Corporation and its
subsidiaries and employees of a person or company which provides management
services (excluding investor relations services) to the Corporation or its
subsidiaries ("Management Company Employees") (such persons hereinafter
collectively referred to as "2002 Participants"). Under the Amended 2002 Plan,
the number of Common Shares subject to an Option granted to any one Participant
shall be determined by the Board; however, the aggregate number of Common Shares
which may be reserved for

-27-

issuance to any one 2002 Participant shall not exceed the
maximum number of shares permitted by the Exchange. The aggregate number of
shares to be delivered upon the exercise of all Options under the Amended 2002
Plan may not exceed 3,735,211 shares. Options issued pursuant to the Amended
2002 Plan will have an exercise price determined by the Board of the Corporation
provided that such exercise price shall not be less than the price permitted by
the Exchange. The Amended 2002 Plan contains provisions stating that the option
period shall not exceed the maximum period permitted by the Exchange. In
addition, the Amended 2002 Plan contains early termination provisions for
certain situations.



On May 7, 2004 the Board of Directors adopted a new "fixed"
stock option plan (the "Plan") to replace both the Amended 1994 Plan and the
Amended 2002 Plan, which will be presented to shareholders for approval. The
currently issued and outstanding 6,128,900 stock options previously granted
under the Amended 1994 Plan and the Amended 2002 Plan shall be deemed to have
been issued under the Plan and shall be subject to the terms, conditions and
provisions of the Plan. The purpose of the Plan is to advance the interests of
the Corporation by encouraging the directors, officers, employees and
consultants of the Corporation, and of its subsidiaries and affiliates, to
acquire shares in the Corporation, thereby increasing their proprietary interest
in the Corporation, encouraging them to remain associated with the Corporation
and furnishing them with additional incentive in their efforts on behalf of the
Corporation in the conduct of its affairs.



The Plan is administered by the Board of Directors of the
Corporation or by a special committee of the Board of Directors. if appointed,
from time to time (the "Board"). The Plan provides that options will be issued
pursuant to option agreements ("Option Agreements"). A maximum of 10,269,047
Common Shares are currently reserved for issue under the Plan provided that no
one optionee under the Plan shall be granted an option which exceeds the maximum
number permitted by any stock exchange or exchanges on which the Common Shares
of the Corporation are listed (the "Exchange"). Options issued pursuant to the
Plan will have an exercise price determined by the Board, provided that the
exercise price shall not be less than the price permitted by the Exchange.



Options granted under the Plan are non-transferable and
expire the earlier of 5 years from the date of grant or 90 days from the date
the optionee ceases to be a director, officer, employee or consultant of the
Corporation of its subsidiaries or a management company employee (or, in the
case of an optionee performing investor relations activities, within 30 days of
the cessation of services to the Corporation). In the event of death of an
optionee, options held by such optionee will expire the earlier of 5 years from
the date of grant or one year from the date of such death. The Plan is subject
to shareholder approval.

The following table sets forth the number of options to
purchase common shares of Birch granted under both the Amended 1994 Plan and the
Amended 2002 Plan, the purchase price and the expiration date of options granted
to each of the individuals listed in Item 6(A) above.

|Name                    | Number of options to
    purchase Common Shares | Purchase Price                      | Expiry Date                                                        
|----------------------- | ----------------------------------------------- | ----------------------------------- | -------------------------------------------------------------------
|Douglas J. Rowe         | 120,000
    390,000
    90,000
    300,000      | $1.36
    $0.26
    $0.34
    $0.30 | Nov. 18, 2004
    Mar. 18, 2007
    April 03, 2007
    Oct. 2, 2008
|Kerry E. Sully          | 50,000
    150,000
    125,000
    150,000      | $1.36
    $0.26
    $0.34
    $0.30 | Nov. 18, 2004
    Mar. 18, 2007
    April 03, 2007
    Oct. 2, 2008
|Donald L. Dabbs         | 80,000
    200,000
    100,000
    250,000      | $1.36
    $0.26
    $0.34
    $0.30 | Nov. 18, 2004
    Mar. 18, 2007
    April 03, 2007
    Oct. 2, 2008
|Lanny K. McDonald       | 50,000
    100,000
    150,000
    150,000      | $1.36
    $0.26
    $0.34
    $0.30 | Nov. 18, 2004
    Mar. 18, 2007
    April 03, 2007
    Oct. 2, 2008
|Dr. Hugh J. Abercrombie | 120,000
    100,000
    65,000
    200,000      | $1.36
    $0.26
    $0.34
    $0.30 | Nov. 18, 2004
    Mar. 18, 2007
    April 03, 2007
    Oct. 2, 2008

-28-

|Name           | Number of options to
    purchase Common Shares        | Purchase Price                                | Expiry Date                                                                           
|-------------- | ------------------------------------------------------ | --------------------------------------------- | --------------------------------------------------------------------------------------
|Dr. Jack Clark | 125,000
    100,000
    125,000
    150,000            | $0.65
    $0.26
    $0.34
    $0.30           | April 24, 2006
    Mar. 18, 2007
    April 03, 2007
    Oct. 2, 2008                  
|Charles Hopper | 100,000
    25,000
    100,000
    125,000
    150,000 | $0.60
    $0.65
    $0.26
    $0.34
    $0.30 | Jan. 27, 2006
    April 24, 2006
    Mar. 18, 2007
    April 03, 2007
    Oct. 2, 2008



C. Board Practices

Directors are elected annually at Birch's annual meeting of
shareholders and hold office until the earlier of their resignation or removal
from office at a subsequent annual meeting of shareholders. The Board of
Directors may fill vacancies created by departing directors between annual
shareholders meetings. Directors representing in number up to one-third the size
of the board elected at the most recent shareholders meeting may be appointed by
the Board of Directors between shareholders' meetings.

Audit Committee

The Audit Committee of Birch currently consists of Charles
Hopper, Kerry E. Sully and Donald L. Dabbs. There have been no changes to the
membership of this committee since the most recently completed year-end. The
general function of the audit committee is to review the overall audit plan and
Birch system of internal controls, to review the results of the external audit,
and to resolve any potential disputes with Birch's auditors.

Compensation Committee

The Board of Directors established a Compensation Committee
on July 10, 1996, comprises Lanny K. McDonald (Chairman of the Compensation
Committee and a director of the Company), Douglas J. Rowe (the President, Chief
Executive Officer and a director of the Company), Kerry E. Sully (Chairman of
the Board of Directors of the Company).

Compensation Policy

The Company's compensation policy has three components: (i) base
salary/consulting fee and benefits, (ii) the award of stock options and
(iii) bonus. The salary/consulting fee for each executive officer is determined
having regard to such executive officer's responsibilities and performance. The
Compensation Committee has provided greater emphasis on the issuance of stock
options to its executive officers as a major form of compensation. In the view
of the Compensation Committee, the issuance of stock options has had the
advantages of encouraging growth in the Company and its share value, while
reducing the cash expenditures required to pay executive salaries. Previously,
the Compensation Committee undertook a review of the compensation paid by
similar junior natural resources issues in setting guidelines for the
compensation of the Company's executive officers. The Company is currently a
party to an employment contract with Douglas J. Rowe dated December 1, 1995, and
approved by the shareholders of the Company on May 31, 1996. Pursuant to the
employment contract Mr. Rowe receives a salary of $108,000 annually and is
entitled to receive stock options as determined from time to time by the
Committee. On December 5, 2000, the Board of Directors of the Company approved
an increase in Mr. Rowe's annual salary to $140,000 per annum, effective
June 15, 2000.

D. Employees

The following table sets out the number of employees of Birch
at the end of each of the past three financial years, including their main
category of activity and geographic location. All of Birch's employees are
employed in Alberta, Canada.

-29-

|               | Twelve Months Ended December 31
|-------------- | -------------------------------
|               | 2003                           
|Operations(1)  | 6                              
|Accounting     | 1                              
|Administration | 4                              
|Total          | 11                             

Note:

(1)         Includes personnel involved in technology,
    exploration and industrial minerals.

E. Share Ownership

See Item 6 - "Directors, Senior Management and Employees -
Directors and Senior Management" and "Directors, Senior Management and Employees
- Compensation", above, for disclosure regarding share ownership and options of
Birch directors and executive officers.

ITEM 7         MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS

A. Major Shareholders

To the knowledge of Birch there are no persons or entities
who beneficially hold, directly or indirectly or exercise control or direction
over, more than 5% of the voting rights attached to the issued and outstanding
common shares of Birch, except as set forth below:

|Name               | Number of Securities Owned | Percentage of Class
|------------------ | -------------------------- | -------------------
|Douglas J. Rowe(1) | 2,152,983(2)               | 4.3%(3)            

|Notes:
|------
|(1)   
|(2)   
|(3)   



There has been no significant change in Mr. Rowe's percentage
ownership of common shares of Birch during the past three years (2001- 7%) other
than as a result of dilution due to the issuance of additional common shares in
various financings.

The major shareholders of Birch do not have different voting
rights than other shareholders.

As of May 13, 2004, 106 holders having an address of record
within the United States of America owned 11,046,883 common shares, representing
21.5% of Birch's 51,340,235 (as of May 13, 2004) outstanding common shares.

B. Related Party Transactions

Other than the participation by certain of the Company's
directors and executive officers in private placement financings on the same
basis as unrelated third party investors, during the Company's last fiscal year
and up to the date of this annual report, Birch has had no transactions and
there are no presently proposed transactions which are material to Birch or a
related party, or any transactions that are unusual in their nature or
conditions, involving goods, services, or tangible or intangible assets with (a)
enterprises that, directly or indirectly, through one or more intermediaries,
control or are controlled by, or are under common control with, the Company; (b)
associates, being an unconsolidated enterprise in which the Company has a
significant influence or which has significant influence over the Company, where
significant influence over an enterprise is the power to participate in the
financial and operating policy decisions of the enterprise but is less than
control over those polices and where Shareholders beneficially owning a 10%
interest in the voting power of the Company are presumed to have a significant
influence on the Company; (c) individuals owning, directly or indirectly, an
interest in the voting power of the Company that gives them significant
influence over the Company, and close members of any such individual's family;
(d) key management personnel, being those persons having authority

-30-

and responsibility for planning, directing and controlling
the activities of the Company, including directors and senior management of the
Company and close members of such individuals' families; and (e) enterprises in
which a substantial interest in the voting power is owned, directly or
indirectly, by any person described in (c) or (d) over which such person is able
to exercise significant influence. This includes enterprises owed by directors
or major shareholders of the Company and enterprises that have a member of key
management in common with the Company. Close members of individual's family are
those that may be expected to influence, or be influenced by, that person in
their dealings with the Company.

C. Interests of Experts and
    Counsel

This item is not applicable.

ITEM 8         FINANCIAL INFORMATION

A. Consolidated Statements and
    Other Financial Information

Incorporated hereto are the audited consolidated financial
statements for the years ended December 31, 2003, 2002 and 2001 and the
unaudited consolidated interim financial statements for the periods ended
March 31, 2004 and 2003.

Other than as described herein, Birch is not involved in any
legal or arbitration proceedings that may have, or have had in the recent past,
significant effects on Birch's financial position or profitability.

Birch is not aware of any material proceeding in which any
director, any member of senior management or any of Birch's affiliates is a
party adverse to Birch or has a material interest adverse to Birch.

No dividends have been paid on any common shares of Birch.
Birch intends to retain its earnings for use in the business and does not expect
to pay dividends on its common shares in the foreseeable future.

B. Significant Changes

No significant changes have occurred since March 31, 2004.

ITEM 9         THE OFFER AND LISTING

A. Offer and Listing Details

The following table sets forth the high and low market prices
of the common shares on the Exchange for the periods indicated.



|Fiscal Period     | High (Cdn$) | Low (Cdn$)
|----------------- | ----------- | ----------
|Years Ended:      |             |           
|December 31, 1999 | 2.10        | 0.29      
|December 31, 2000 | 3.05        | 0.40      
|December 31, 2001 | 1.10        | 0.50      
|December 31, 2002 | 0.73        | 0.10      
|December 31, 2003 | 0.56        | 0.19      
|                  |             |           
|2004              |             |           
|First Quarter     | 0.98        | 0.46      
|                  |             |           
|2003              |             |           
|Fourth Quarter    | 0.56        | 0.25      
|Third Quarter     | 0.47        | 0.235     
|Second Quarter    | 0.55        | 0.23      
|First Quarter     | 0.40        | 0.19      
|                  |             |           
|2002              |             |           
|Fourth Quarter    | 0.42        | 0.10      
|Third Quarter     | 0.37        | 0.13      
|Second Quarter    | 0.40        | 0.20      
|First Quarter     | 0.73        | 0.23      
|                  |             |           
|Month Ended       |             |           
|May 31, 2004      | 0.55        | 0.48      
|April 30, 2004    | 0.67        | 0.45      
|March 31, 2004    | 0.65        | 0.61      
|February 29, 2004 | 1.08        | 0.66      
|January 31, 2004  | 0.98        | 0.46      
|December 31, 2003 | 0.56        | 0.41      





-31-

The following table sets forth the high and low market prices
of the common shares on the OTC-BB. All financial figures in this table are
expressed in U.S. dollars.



|Fiscal Period     | High (US$) | Low (US$)
|----------------- | ---------- | ---------
|Years Ended:      |            |          
|December 31, 2002 | 0.2950     | 0.0700   
|December 31, 2003 | 0.45       | 0.30     
|                  |            |          
|2004              |            |          
|First Quarter     | 0.95       | 0.40     
|                  |            |          
|2003              |            |          
|Fourth Quarter    | 0.45       | 0.18     
|Third Quarter     | 0.41       | 0.18     
|Second Quarter    | 0.43       | 0.15     
|First Quarter     | 0.2550     | 0.1300   
|                  |            |          
|2002              |            |          
|Fourth Quarter    | 0.2625     | 0.0800   
|Third Quarter     | 0.2400     | 0.0900   
|Second Quarter    | 0.2500     | 0.1300   
|First Quarter     | 0.2950     | 0.2150   
|                  |            |          
|Month Ended       |            |          
|May 31, 2004      | 0.42       | 0.35     
|April 30, 2004    | 0.55       | 0.34     
|March 31, 2004    | 0.68       | 0.46     
|February 29, 2004 | 0.81       | 0.48     
|January 31, 2004  | 0.95       | 0.37     
|December 31, 2003 | 0.45       | 0.30     





B. Plan of Distribution

This item is not applicable.

-32-

C. Markets

Trading in Canada

The Company's common shares trade on the TSXV under the
symbol BMD.

Trading in the U.S.A.

The Company's common shares trade on the OTC-BB under the
symbol BHMNF.

D. Selling Shareholders

This item is not applicable.

E. Dilution

This item is not applicable.

F. Expenses of the Issue

This item is not applicable.

ITEM 10         ADDITIONAL INFORMATION

A. Share Capital

This item is not applicable.

B. Memorandum and Articles of
    Association

Incorporation Details and Objects of Birch

Birch was established pursuant to the issuance on
December 31, 1995 of a Certificate of Amalgamation by the Registrar of
Corporations of the Province of Alberta pursuant to the provisions of the ABCA.
The amalgamating companies were Birch Mountain Resources Ltd. and Birch Mountain
Minerals Ltd. Birch's Alberta Corporate Registry Access Number is 20679269. The
Articles of Amalgamation of Birch provide that there are no restrictions on the
nature of the business to be carried on by Birch.

Summary of Directors Powers and Authorities

The rights, duties, powers and authorities of the Board of
Directors of Birch are set out in the Articles and By-Laws of Birch and the
statutory provisions of the ABCA. The following is a selected summary of the
Articles, By-Laws and applicable provisions of the ABCA as they relate to
selected rights, duties, powers and authorities of the Board of Directors of
Birch.

The Articles of Birch provide for a minimum of one and a
maximum of fifteen directors. The ABCA prescribes that a distributing
corporation must have a minimum of three directors, a majority of whom are
Canadian residents and at least two of whom are not officers or employees of
Birch. The Board of Directors may, between annual shareholders' meetings,
appoint one or more additional directors to serve until the next annual
shareholders' meeting provided that the number of directors so added may not
exceed by one-third (1/3) the number of directors who held office at the
expiration of the last shareholders' meeting.

The Chairman of the Board of Directors or any one director
may call a meeting upon the provisions of forty-eight hours notice to each
director in the manner prescribed in the By-Laws. Any such notice shall include
the items of business to be considered at the meeting. A majority of the
directors constitute a quorum provided that half of those directors present are
Canadian residents. Business cannot be transacted without a quorum. A

-33-

quorum of directors may vote on any matter of business
properly brought before the meeting provided that where a director is a party to
a material contract or proposed material contract or has a material interest in
the matter to be considered, such director must disclose his or her interest at
the earliest possible date, request the conflict be noted in the minutes of the
meeting, and with a few limited exceptions enumerated in the By-Laws, refrain
from voting on the matter in which the director has a material interest. There
is no limitation on the Board of Directors to vote on matters of their
remuneration provided such remuneration is disclosed in the financial statements
and annual shareholder proxy materials.

The Board of Directors has broad borrowing powers and may,
without authorization from the shareholders, (a) borrow money on the credit of
Birch; (b) issue, re-issue, sell or pledge debt obligations of Birch; (c)
subject to restrictions respecting financial assistance prescribed in the ABCA,
give a guarantee on behalf of Birch to secure the performance of an obligation
of any person; and (d) mortgage, hypothecate, pledge or otherwise create a
security interest in all or any property of Birch, owned or subsequently
acquired, to secure any obligation of Birch.

A person is qualified to be or stand for election as a
director provided such person is at least 18 years of age, is not a bankrupt and
is not mentally incapacitated pursuant to applicable Alberta mental health
legislation or pursuant to an order of the Alberta courts. There is no
requirement for a director to hold shares of Birch.

Securities of Birch

The Company has an authorized capital consisting of an
unlimited number of common shares, of which 51,425,627 are issued and
outstanding as of the date of this annual report.

The holders of common shares are entitled to one vote for
each share held of record on all matters to be voted on by stockholders. There
is no cumulative voting with respect to the election of directors, with the
result that the holders of more than 50% of the shares voting for the election
of directors can elect all of the directors. Holders of common shares are
entitled to receive dividends when, as and if declared by the Board of Directors
in its discretion, out of funds legally available therefore. In the event of
liquidation, dissolution or winding up of the Company, the holders of common
shares are entitled to share ratably in the assets of the Company, if any,
legally available for distribution to them after payment of debts and
liabilities of the Company after provision has been made for each class of
stock, if any, having liquidation preference over the common shares. Holders of
common shares have no conversion, pre-emptive or other subscription rights, and
there are no redemption or sinking fund provisions applicable to the common
shares. All of the outstanding common shares are fully paid and non-assessable.

The Company is authorized to issue an unlimited number of
non-voting shares. The holders of the non-voting shares are entitled to
dividends, if, as and when declared by the Board of Directors and, upon
liquidation, to receive such assets of the Company as are distributable to the
holders of the non-voting and common shares.

The Company is authorized to issue an unlimited number of
preferred shares. The preferred shares may be issued from time to time in one or
more series, each consisting of a number of preferred shares as determined by
the Board of Directors of the Company who also may fix the designations, rights,
privileges, restrictions and conditions attaching to the shares of each series
of preferred shares. There are no preferred shares issued and outstanding. The
preferred shares of each series shall, with respect to payment of dividends and
distribution of assets in the event of voluntary or involuntary liquidation,
dissolution or winding-up of the Company or any other distribution of the assets
of the Company among its shareholders for the purpose of winding-up its affairs,
rank on a parity with the preferred shares of every other series and shall be
entitled to preference over the common shares and the shares of any other class
ranking junior to the preferred shares.

Rights and Privileges of Shareholders

The directors of Birch are required to call an annual meeting
of shareholders not later than 15 months after holding the last preceding annual
meeting, subject to obtaining a court order for an extension, and may at any
time call a special meeting of shareholders. Only the registered holders of
common shares on the record date are

-34-

entitled to receive notice of and vote at annual and special
meetings of shareholders. Where the items of business affect the rights of
shareholders other than common shareholders, a special majority of two-thirds of
the votes cast by the effected shareholders at the meeting called for such
purpose is required to approve the item of business. Beneficial holders of
common shares are also entitled to receive proxy materials in respect of
meetings of shareholders in accordance with Canadian Securities Administrators
National Policy No. 41, provided that such proxies are limited in scope to
instructing the registered shareholder (usually a brokerage house) on how to
vote on behalf of the beneficial shareholder. There are no restrictions on the
number of shares that may be held by non-residents other than restrictions set
out in the Investment Canada Act (Canada). See "Additional Information -
Exchange Controls".

There is no specific provisions in the Articles or By-Laws of
Birch that have the effect of delaying, deferring or preventing a change of
control of Birch. Notwithstanding this, the Board of Directors, under the
general powers conferred to it under the By-Laws, have the authority to approve
and invoke a shareholders rights plan that will protect shareholders from
unfair, abusive or coercive take-over strategies, including the acquisition or
control of Birch by a bidder in a transaction or series of transactions that
does not treat all shareholders equally or fairly or that does not afford all
shareholders an equal opportunity to share in any premium paid upon an
acquisition of control.

On May 17, 2000 the Board of Directors (the "Board") of the
Company adopted the rights plan of the Company ("Rights Plan"), which was
implemented pursuant to a shareholders rights plan agreement (the "Rights Plan
Agreement") of the same date between the Company and Montreal Trust Company of
Canada (now Computershare Trust Company of Canada), as rights agent. The
shareholders of the Company approved the Rights Plan on June 22, 2000. The
purpose of the Rights Plan is, firstly, to protect shareholders of the Company
from unfair, abusive or coercive takeover strategies, including the acquisition
of control of the Company by a bidder in a transaction or series of transactions
that does not treat all shareholders equally or fairly or that does not afford
all shareholders an equal opportunity to share in any premium paid upon an
acquisition of control. Secondly, the purpose of the Rights Plan is to afford
both the shareholders of the Company and the Board adequate time to assess an
offer made for the Company's and to pursue, explore and develop alternative
courses of action in any attempt to maximize shareholder value.

The Rights Plan is not intended to deter a person from
seeking to acquire control of the Company if such person is prepared to make a
takeover bid pursuant to a Permitted Bid or Competing Permitted Bid in
accordance with the provisions of the Rights Plan. The Rights Plan is intended
to make it impracticable to acquire 20% percent or more of the outstanding
voting shares of the Company other than by way of a Permitted Bid or a Competing
Permitted Bid. This impracticability arises as a result of the fact that the
Rights will substantially dilute the holdings of a person that seeks to acquire
control of the Company other than by means of a Permitted Bid or a Competing
Permitted Bid.

There are no provisions in the By-laws regarding public
disclosure of individual shareholdings. Notwithstanding this, applicable
Canadian securities legislation required certain public disclosure of persons
owning or acquiring common shares in excess of 10% of a corporation's issued and
outstanding share capital.

C. Material Contracts

Birch has not entered into any material contracts (not made
in the ordinary course of business) in the two years prior the date of filing of
this annual report.

D. Exchange Controls

Canadian Exchange Controls

There are no governmental laws, decrees or regulations in
Canada relating to restrictions on the export or import of capital, or affecting
the remittance of interest, dividends or other payments to non-residents.
Dividends paid to U.S. residents, however, are subject to a 15% withholding tax
or a 5% withholding tax for dividends if the

-35-

shareholder is a corporation owning at least 10% of the
outstanding voting shares of Birch pursuant to Article X of the reciprocal tax
treaty between Canada and the U.S. (See "Additional Information - Taxation")

Except as provided in the Investment Canada Act(the "ICA"),
which has provisions that restrict the holding of voting shares by
non-Canadians, there are no limitations specific to the rights of non-Canadians
to hold or vote the common shares under the laws of Canada or the Province of
Alberta, or in the charter documents of Birch or its subsidiaries.

Management of Birch believes that the following summary
fairly describes those provisions of the ICA pertinent to an investment in Birch
by a person who is not a Canadian resident (a "non-Canadian").

The ICA requires a non-Canadian making an investment which
would result in the acquisition of control of a Canadian business (i.e. the
gross value of the assets of which exceed a certain monetary threshold) to
identify, notify, or file an application for review with the Investment Review
Division of Industry Canada ("IRD").

The notification procedure involves a brief statement of
information about the investment on a prescribed form which is required to be
filed with the IRD by the investor at any time up to 30 days following
implementation of the investment. It is intended that investments requiring only
notification will proceed without government intervention unless the investment
is in a specific type of business activity related to Canada's cultural heritage
and national identity.

If an investment is reviewable under the ICA, an application
for review in the form prescribed is normally required to be filed with the IRD
prior to the investment taking place and the investment may not be implemented
until the review has been completed and the Minister of Industry Canada
("Minister") (the Minister responsible for Investment Canada) is satisfied that
the investment is likely to be of net benefit to Canada. The Minister has up to
75 days to make this determination. If the Minister is not satisfied that the
investment is likely to be of net benefit to Canada, the non-Canadian must not
implement the investment or, if the investment has been implemented, may be
required to divest himself of control of the business that is the subject of the
investment.

The following investments by non-Canadians are subject to
notification under the ICA:

1.         An investment to establish a new Canadian business; and

2.         An investment to acquire control of a Canadian business that is not
    reviewable pursuant to the Act.

The following investments by a non-Canadian are subject to
review under the ICA:

|1. | An investment is reviewable if there is an acquisition of a Canadian
    business and the asset value of the Canadian business being acquired equals
    or exceeds the following thresholds:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                              
|   | (a)                                                                                                                                                                                          
|   |                                                                                                                                                                                              
|   | (b)                                                                                                                                                                                          
|   |                                                                                                                                                                                              
|   | (c)                                                                                                                                                                                          

-36-

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | (i)   | engages in the production of uranium and owns an interest in a
            producing uranium property in Canada;
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----- | ----------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | (ii)  | provides any financial service;                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | (iii) | provides any transportation services; or                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | (iv)  | is a cultural business.                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|2. | Notwithstanding the above, any investment which is usually only notifiable, including the establishment of a new Canadian business, and
    which falls within a specific business activity, including the publication
    and distribution of books, magazines, newspapers, film or video recordings,
    audio or video music recordings, or music in print or machine-readable form
    may be reviewed if an Order-in-Council directing a review is made and a
    notice is sent to the Investor within 21 days following the receipt of a
    certified complete notification.

Generally speaking, an acquisition is direct if it involves
the acquisition of control of the Canadian business or of its direct or indirect
Canadian parent and an acquisition is indirect if it involves the acquisition of
control of a non-Canadian direct or indirect parent of an entity carrying on the
Canadian business. No change of voting control will be deemed to have occurred
if less than one-third of the voting control of a Canadian corporation is
acquired by an investor.

A WTO investor, as defined in the ICA, includes an individual
who is a national of a member country of the WTO or who has the right of
permanent residence in relation that WTO member, a government or government
agency of a WTO investor-controlled corporation, a limited partnership, trust or
joint venture that is neither WTO-investor controlled or Canadian controlled of
which two-thirds of its board of directors, general partners or trustees, as the
case may be, are any combination of Canadians and WTO investors.

The ICA exempts certain transactions from the notification
and review provisions of ICA, including, among others, (a) an acquisition of
voting shares if the acquisition were made in the ordinary course of that
persons' business as a trader or dealer in securities; (b) an acquisition of
control of the company in connection with the realization of a security interest
granted for a loan or other financial assistance and not for any purpose related
to the provisions of the ICA; (c) the acquisition of voting interests by any
person in the ordinary course of a business carried on by that person that
consists of providing, in Canada, venture capital on terms and conditions not
inconsistent with such terms and conditions as may be fixed by the Minister; and
(d) acquisition of control of the company by reason of an amalgamation, merger,
consolidation or corporate reorganization, following which the ultimate direct
or indirect control in fact of the company, through the ownership of voting
interests, remains unchanged.

E. Taxation

The following summary of the material Canadian federal income
tax considerations generally applicable in respect of the common shares reflects
the Company's opinion. The tax consequences to any particular holder of common
shares will vary according to: the status of that holder as an individual,
trust, corporation or member of a partnership, the jurisdiction in which that
holder is subject to taxation, the place where that holder is resident and,
generally, according to that holder's particular circumstances.

This following general discussion in respect of taxation is
based upon the Company's understanding of the rules. No opinion was requested by
the Company or provided by its auditors or lawyers.

This summary is applicable only to holders who are resident
in the U.S., have never been resident in Canada, deal at arm's length with the
Company, hold their common shares as capital property, do not carry on an
insurance business in Canada, and will not use or hold the common shares in
carrying on business in Canada. Special rules, which are not discussed in this
summary, may apply to a U.S. holder that is a corporation that carries on
business in Canada and elsewhere.

-37-

This summary is based upon the provisions of the Income Tax
Act of Canada and the regulations thereunder (collectively, the "Tax Act", or "ITA")
and the Canada-United States Tax Convention (the "Tax Convention") as at the
date of this annual report, and upon the current administrative practices of the
Canada Revenue Agency (formerly the Canada Customs and Revenue Agency).

Each holder should consult his own tax advisor with respect
to the income tax consequences applicable to him in his own particular
circumstances.

Disposition of Common Shares

Under the Tax Act, a gain from the sale of common shares by a
non-resident will not be subject to Canadian tax, provided the shareholder
(together with persons who do not deal at arm's length with the shareholder)
have not owned 25% or more of the shares of any class of the Company's stock at
any time in the five years preceding the disposition. In addition, the Tax
Convention will exempt from Canadian taxation any capital gain realized on a
disposition of common shares by a resident of the U.S., provided that the value
of the common shares is not derived principally from real property situated in
Canada.

However, special rules apply if a non-resident were to
dispose of common shares of the Company to another Canadian corporation which
deals or is deemed to deal on a non-arm's length basis with the non-resident
and, immediately after the disposition, the Company is connected with the
purchaser corporation (i.e., the purchaser corporation holds shares representing
more than 10% of the voting power and more than 10% of the market value of all
issued and outstanding shares of the Company). In this case, the amount by which
the fair market value of any consideration paid by the purchaser corporation
(other than any shares of the purchaser corporation) exceeds the paid-up capital
of the common shares sold will be deemed to be taxable as a dividend paid by the
purchasing corporation, and subject to withholding taxes as described below.

Dividends

In the case of any dividends paid or deemed to be paid to
non-residents, the non-resident is subject to tax on the gross amount of such
dividends. The Canadian tax is withheld by the Company, which remits only the
net amount to the shareholder. By virtue of Article X of the Tax Convention, the
rate of tax on dividends paid to residents of the U.S. is generally limited to
15% of the gross dividend (or 5% in the case of certain corporate shareholders
owning at least 10% of the Company's voting shares). In the absence of the
treaty provisions, the rate of Canadian withholding tax imposed on non-residents
is 25% of the gross dividend. Stock dividends received by non-residents from the
Company are taxable by Canada as ordinary dividends.

Where a holder disposes of common shares to the Company
(unless the Company acquired the common shares in the open market in the manner
in which shares would normally be purchased by any member of the public), this
will result in a deemed dividend to the holder equal to the amount by which the
consideration paid by the Company exceeds the paid-up capital of such shares.
The amount of such deemed dividend will be subject to withholding tax as
described above.

Capital Gains

A non-resident of Canada is not subject to tax under the ITA
in respect of a capital gain realized upon the disposition of a share of a class
that is listed on a prescribed stock exchange unless the share represents
"taxable Canadian property" to the holder thereof. A common share of the Company
will be taxable Canadian property to a non-resident holder if, at any time
during the period of five years immediately preceding the disposition, the
non-resident holder, persons with whom the non-resident holder did not deal at
arm's length, or the non-resident holder and persons with whom he/she did not
deal at arms' length, owned 25% of more of the issued shares of any class or
series of the Company.

In the case of a non-resident holder to whom shares of the
Company represent taxable Canadian property and who is resident in the U.S., no
Canadian tax will be payable on a capital gain realized on such shares by reason
of the Tax Convention unless the value of such shares is derived principally
from real property situated in

-38-

Canada or the non-resident holder previously held the shares
while resident in Canada. Mineral exploration rights are considered to be real
property for this purpose.

United States Federal Income Tax Consequences

The following is a discussion of possible U.S. Federal income
tax consequences, under the law, generally applicable to a U.S. Holder (as
defined below) of common shares of the Company. This discussion does not address
consequences peculiar to persons subject to special provisions of Federal income
tax law, such as those described below as excluded from the definition of a U.S.
Holder. In addition, this discussion does not cover any state, local or foreign
tax consequences.

The following discussion is based upon the sections of the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations,
published Internal Revenue Service ("IRS") rulings, published administrative
positions of the IRS and court decisions that are currently applicable, any or
all of which could be materially and adversely changed, possibly on a
retroactive basis, at any time. In addition, the discussion does not consider
the potential effects, both adverse and beneficial, of recently proposed
legislation which, if enacted, could be applied, possibly on a retroactive
basis, at any time.

Holders and prospective holders of common shares of the
Company should consult their own tax advisors about the federal, state, local,
and foreign tax consequences of purchasing, owning and disposing of common
shares of the Company.

U.S. Holders

As used herein, a U.S. Holder includes a holder of common
shares of the Company who is a citizen or resident of the U.S., a corporation
created or organized in or under the laws of the U.S. or of any political
subdivision thereof and any other person or entity whose ownership of common
shares of the Company is effectively connected with the conduct of a trade or
business in the U.S.

A U.S. Holder does not include persons subject to special
provisions of Federal income tax law, such as tax-exempt organizations,
qualified retirement plans, financial institutions, insurance companies,
broker-dealers, non-resident alien individuals or foreign corporation whose
ownership of common shares of the Company is not effectively connected with the
conduct of a trade or business in the U.S. and shareholders who acquired their
stock through the exercise of employee stock options or otherwise as
compensation.

Distributions on Common Shares of the Company

U.S. Holders receiving dividend distributions (including
constructive dividends) with respect to common shares of the Company are
required to include in gross income (for U.S. Federal income tax purposes) the
gross amount of such distributions, to the extent that the Company has current
or accumulated earnings and profits. This inclusion is done without reduction
for any Canadian income tax withheld from such distributions.

Any Canadian tax withheld may be credited (subject to certain
limitations) against the U.S. Holder's U.S. Federal taxable income. (See more
detailed discussion at "Foreign Tax Credits" below.) To the extent that
distributions exceed current or accumulated earnings and profits of the Company,
they will be treated first as a return of capital up to the U.S. Holder's
adjusted basis in the common shares and thereafter as a gain from the sale or
exchange of the common shares. Preferential tax rates for long-term capital
gains are applicable to an U.S. Holder, which is an individual, estate or trust.
There are currently no preferential tax rates for long-term capital gains for an
U.S. Holder, which is a corporation.

Dividends paid on the common shares of the Company will not
generally be eligible for the dividends-received deduction provided to
corporations receiving dividends from certain U.S. corporations. A U.S. Holder,
that is a corporation may, under certain circumstances, be entitled to a 70%
deduction of the U.S. source-portion of dividends received from the Company
(unless the Company qualifies as a "foreign personal holding company" or a
"passive foreign investment company", as defined below). That occurs if such
U.S. Holder owns shares

-39-

representing at least 10% of the voting power and value of
the Company. The availability of this deduction is subject to several complex
limitations beyond the scope of this discussion.

Foreign Tax Credit

A U.S. Holder who pays (or has withheld from distributions)
Canadian income tax with respect to the ownership of common shares of the
Company may be entitled, at the option of the U.S. Holder, to either a deduction
or a tax credit for such foreign tax paid or withheld. Generally, it will be
more advantageous to claim a credit because a credit reduces U.S. Federal income
taxes on a dollar-for-dollar basis, while a deduction merely reduces the
taxpayer's income subject to tax.

This election is made on a year-by-year basis, and applies to
all foreign income taxes (or taxes in lieu of income tax) paid by (or withheld
from) the U.S. Holder during the year. There are significant and complex
limitations which apply to the credit, among which is the general limitation
that the credit cannot exceed the proportionate share of the U.S. Holder's U.S.
income tax liability that the U.S. Holder's foreign source income bears to
his/her or its worldwide taxable income.

In the determination of the application of this limitation,
the various items of income and deduction must be classified into foreign and
domestic sources. Complex rules govern this classification process. There are
further limitations on the foreign tax credit for certain types of income such
as "passive income", "high withholding tax interest", "financial services
income", "shipping income", and certain other classifications of income. The
availability of the foreign tax credit and the application of the limitations on
the credit are fact-specific and holders and prospective holders of common
shares of the Company should consult their own tax advisors regarding their
individual circumstances.

Disposition of Common Shares of the Company

A U.S. Holder will recognize gain or loss upon the sale of
common shares of the Company equal to the difference, if any, between -

-         the amount of cash plus the fair market value of any
property received, and

-         the shareholders tax basis in the common shares of the
Company.

This gain or loss will be capital gain or loss if the common
shares are a capital asset in the hands of the U.S. Holder, which will be a
short-term or long-term capital gain or loss depending upon the holding period
of the U.S. Holder. Gains and losses are netted and combined according to
special rules in arriving at the overall capital gain or loss for a particular
tax year. Deductions for net capital losses are subject to significant
limitations.

For U.S. Holders, as individuals, any unused portion of such
net capital loss may be carried over to be used in later tax years until such
net capital loss is thereby exhausted. For U.S. Holders, as corporations (other
than corporations subject to subchapter S of the Code), an unused net capital
loss may be carried back three years from the loss year and carried forward five
years from the loss year to be offset against capital gains until such net
capital loss is thereby exhausted.

F. Dividends and Paying Agents

This item is not applicable.

G. Statement by Experts

This item is not applicable.

-40-

H. Documents on Display

Documents concerning Birch which are referred to in this
annual report may be inspected upon written request to the Corporate
Administrator of Birch as follows:

Jane Quinn

Corporate Administrator

Birch Mountain Resources Ltd.

Suite 300, 250 - Sixth Avenue S.W.

Bow Valley Square 4

Calgary, AB, Canada

T2P 3H7

The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, to
the extent required of Canadian companies, files periodic reports and other
information with the Securities and Exchange Commission. All such reports and
information may be read and copied at the public reference facilities listed
below. The Company intends to give its shareholders annual reports containing
audited financial statements and a report thereon from its independent chartered
accountants and quarterly reports for the first three quarters of each fiscal
year containing unaudited interim financial information.

Statements made in this annual report on Form 20-F about the
contents of contracts or other documents are not necessarily complete and the
Company refers you to the copy of such contracts or other documents filed as
exhibits to this annual report.

The Company's Securities and Exchange Commission filings, and
the exhibits thereto, are available for inspection and copying at the public
reference facilities maintained by the Securities and Exchange Commission in
Judiciary Plaza, Room 1024, 450 Fifth Street N.W., Washington, D.C., 20549.
Copies of these filings may be obtained from these offices after the payment of
prescribed fees. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference rooms. These
filings are also available on the Securities and Exchange Commission's website
at www.sec.gov.

The Company will also provide its shareholders with proxy
statements prepared according to Canadian law. As a Canadian company, the
Company is exempt from the Exchange Act rules about prescribing the furnishing
and content of proxy statements to shareholders and is also exempt from the
short-swing profit recovery and disclosure regime of section 16 of the Exchange
Act.

I. Subsidiary Information

This item is not applicable.

ITEM 11         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

This item is not applicable.

ITEM 12         DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES

This item is not applicable.

PART II

ITEM 13         DEFAULTS, DIVIDEND ARREARAGES AND
DELINQUENCIES

There have been no defaults in the payment of principal,
interest or a sinking or purchase fund instalment. There are no dividend
arrearages or any other delinquencies.

-41-

ITEM 14         MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITYHOLDERS AND USE OF PROCEEDS

There has been no modification or qualification of the
instruments defining the rights of holders of any class of registered
securities. There are no assets securing any class of registered securities.
There has been no change in the last financial year to the trustee of the
registered securities.

ITEM 15         CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Chief Executive Officer, Douglas J. Rowe, and Chief
Financial Officer, Donald L. Dabbs, evaluated the effectiveness of Birch's
disclosure controls and procedures as of a date within 90 days of the filing of
this report (the "Evaluation Date"), and concluded that, as of the Evaluation
Date, Birch's disclosure controls and procedures were effective to ensure that
information Birch is required to disclose in its filing with the Securities and
Exchange Commission under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the
Commission's rules and forms, and to ensure that information required to be
disclosed by Birch in the reports that it files under the Exchange Act is
accumulated and communicated to Birch's management, including its principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.

Changes to Internal Controls and Procedures for Financial
Reporting

There were no significant changes to Birch's internal
controls or in other factors that could significantly affect these controls
subsequent to the Evaluation Date.

ITEM 16         RESERVED BY THE SEC

ITEM 16A         AUDIT COMMITTEE FINANCIAL EXPERT

None of the members of our audit committee meets the
definition of an audit committee financial expert, as defined in Item 16A1 of
Form 20-F. This is due to our inability to attract a director with the requisite
financial knowledge and experience .

ITEM 16B         CODE OF ETHICS

On May 7, 2004, our Board of Directors adopted the Birch
Mountain Resources Ltd. Code of Business Conduct and Ethics ("Code of Ethics").
Our Code of Ethics outlines our business principles, and our ethical and legal
standards which each of our directors, officers and employees must adhere to
when acting on behalf of our Company.

Through our Code of Ethics, the Company prescribes the
following principles:

honest and ethical conduct, including the
            ethical handling of actual or apparent conflicts of interest between
            personal and professional relationships;

full, fair, accurate, timely and understandable
            disclosure in the Company's shareholder reports and in other public
            communications and filings of the Company;

compliance with applicable governmental laws, rules
        and regulations; and

accountability by all of the Company's
            directors, officers and employees for adherence to our Code of
            Ethics.

A copy of our Code of Ethics is filed as an exhibit to this
annual report and is available on our Company's website at:
www.birchmountain.com.

-42-

ITEM 16C         PRINCIPAL ACCOUNTANT
FEES AND SERVICES

Fees Paid to Independent Public Accountants

The following table sets forth, for each of the years
indicated, the fees paid to our independent public accountants, Meyers Norris
Penny LLP, Chartered Accountants, and the percentage of each of the fees out of
the total amount paid to the accountants.



|                  |  | Year Ended December 31, |                    
|----------------- |  | ----------------------- | -------------------
|                  |  |                         |                    
|                  |  | 2002                    |                    
|                  |  |                         |                    
|Services Rendered |  | Fees                    |                    
|                  |  |                         |                    
|                  |  |                         |                    
|Audit             |  | $                       | 29,710 
    (48.7%)
|Audit-related     |  | $                       | 6,450 
    (10.6%) 
|Tax               |  | $                       | 12,680 
    (20.8%)
|Other             |  | $                       | 12,175
    (20%)   
|Total             |  | $                       | 61,015             





Pre-Approval Policies and Procedures

Our board of directors has not adopted a policy and
procedures for the pre-approval of audit and non-audit services rendered by our
independent public accountants, Meyers Norris Penny, Chartered Accountants. No
issue regarding these services has arisen in the last two fiscal years. 
The board of directors will deliberate these matters as and when they arise, on
a case-by-case basis.

ITEM 16D         EXEMPTIONS FROM THE
LISTING REQUIREMENTS AND STANDARDS FOR AUDIT COMMITTEE

Not applicable.

ITEM 16E         PURCHASE OF EQUITY
SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Neither we, nor any affiliated purchaser of our Company, have
purchased any of our securities during 2003.

-43-



PART III

ITEM 17         FINANCIAL STATEMENTS

|                                                                                                          | Page No.
|--------------------------------------------------------------------------------------------------------- | --------
|                                                                                                          |         
|Report of Independent Auditors                                                                            | F-1     
|                                                                                                          |         
|Consolidated Balance Sheets for the years ended
    December 31, 2003 and 2002                            | F-2     
|                                                                                                          |         
|Consolidated Statements of Loss and Deficit for the years
    ended December 31, 2003, 
    2002 and 2001 | F-3     
|                                                                                                          |         
|Consolidated Statements of Cash Flow for the years ended
    December 31, 2003, 2002 and 2001             | F-4     
|                                                                                                          |         
|Notes to the Consolidated Financial Statements                                                            | F-5     
|                                                                                                          |         
|Consolidated Balance Sheet for the three months ended
    March 31, 2003                                  | F-20    
|                                                                                                          |         
|Consolidated Statements of Loss and Deficit for the three
    months ended March 31, 2004                 | F-21    
|                                                                                                          |         
|Consolidated Statements of Cash Flow for the three months
    ended March 31, 2004                        | F-22    
|                                                                                                          |         
|Notes to the Consolidated Financial Statements                                                            | F-23    

ITEM 18         FINANCIAL STATEMENTS

Not Applicable

-44-

AUDITORS REPORT

T O    T H E S H A R E H O L D E R S   O F    B I R C H    M O U N T A I N    R E S O U R C E S    L T D .

We have audited the consolidated balance sheets of Birch Mountain Resources Ltd. as at December 31, 2003 and 2002 and the consolidated statements of loss and deficit and cash flows for each of the years
in the three-year period ended December 31, 2003. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian and United States generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2003 and 2002 and the results of its operations
and its cash flows for each of the years in the three-year period ended December 31, 2003, in accordance with Canadian generally accepted accounting principles.

C O M M E N T S    F O R    U . S .    R E A D E R S

In the United States, reporting standards for auditors require the addition of an explanatory paragraph following the opinion paragraph when there are substantial uncertainties about the Companys
ability to continue as a going-concern, as referred to in Note 1 to these consolidated financial statements. Our report to the shareholders dated February 19, 2004, is expressed in accordance with Canadian reporting standards, which do not permit a
reference to such matters in the auditors report when the facts are adequately disclosed in the financial statements.

Signed by: Meyers Norris Penny LLP

Calgary, Alberta	Chartered Accountants
February 19, 2004

F-1



CONSOLIDATED BALANCE SHEETSA S    A T    D E C E M B E R   3 1



|                                                        |   | 2003         |  |   | 2002        
|------------------------------------------------------- | - | ------------ |  | - | ------------
|ASSETS                                                  |   |              |  |   |             
|Current                                                 |   |              |  |   |             
|Cash and cash equivalents                               | $ | 1,818,292    |  | $ | 47,782      
|Accounts receivable                                     |   | 52,221       |  |   | 14,236      
|Share subscription receivable                           |   |             |  |   | 15,000      
|Investments (Note 4)                                    |   |             |  |   | 20,000      
|Prepaids and deposits                                   |   | 59,102       |  |   | 4,922       
|                                                        |   | 1,929,615    |  |   | 101,940     
|Property, Plant and Equipment (Note 5)                  |   | 158,482      |  |   | 163,152     
|Mineral Exploration Costs (Note 6)                      |   | 336,136      |  |   |            
|                                                        | $ | 2,424,233    |  | $ | 265,092     
|LIABILITIES                                             |   |              |  |   |             
|Current                                                 |   |              |  |   |             
|Accounts payable (Note 7)                               | $ | 148,786      |  | $ | 934,131     
|SHAREHOLDERS' EQUITY (deficiency)                       |   |              |  |   |             
|Share Capital (Note 8)                                  |   | 28,598,874   |  |   | 25,186,910  
|Contributed Surplus                                     |   | 89,957       |  |   |            
|Deficit                                                 |   | (26,413,384) |  |   | (25,855,949)
|                                                        |   | 2,275,447    |  |   | (669,039)   
|                                                        | $ | 2,424,233    |  | $ | 265,092     
|Nature of operations (Note 1)                           |   |              |  |   |             
|Commitments and continuing obligations (Notes 6 and 10) |   |              |  |   |             
|Approved on behalf of the Board:                        |   |              |  |   |             

F-2





CONSOLIDATED STATEMENTS OF LOSS AND DEFICITF O R
T H E    Y E A R S    E N D E D    D E C E M B E R    3 1



|                                                    |   | 2003         |  |   | 2002         |  |   | 2001        
|--------------------------------------------------- | - | ------------ |  | - | ------------ |  | - | ------------
|Expenses                                            |   |              |  |   |              |  |   |             
|Amortization                                        | $ | 33,632       |  | $ | 47,558       |  | $ | 59,046      
|Consulting                                          |   | 800          |  |   | 2,400        |  |   | 67,271      
|Mineral exploration costs                           |   | 744,385      |  |   | 976,305      |  |   | 941,530     
|Office                                              |   | 263,247      |  |   | 233,043      |  |   | 284,698     
|Professional fees                                   |   | 125,175      |  |   | 264,584      |  |   | 450,538     
|Research costs                                      |   | 11,150       |  |   | 42,514       |  |   | 128,068     
|Salaries, management fees and benefits              |   | 422,135      |  |   | 437,786      |  |   | 428,171     
|Shareholder services and promotion                  |   | 213,203      |  |   | 143,046      |  |   | 267,921     
|Stock-based compensation (Note 9)                   |   | 66,681       |  |   |             |  |   |            
|Loss Before the Following                           |   | 1,880,408    |  |   | 2,147,236    |  |   | 2,627,243   
|Interest and other income                           |   | (11,205)     |  |   | (986)        |  |   | (72,560)    
|Gain on disposal of investment                      |   | (6,768)      |  |   |             |  |   | (15,463)    
|Limestone sale                                      |   | (100,000)    |  |   | (250,000)    |  |   |            
|Gain on cancellation of debt (Note 7)               |   | (194,000)    |  |   |             |  |   |            
|                                                    |   | (311,973)    |  |   | (250,986)    |  |   | (88,023)    
|Loss Before Income Taxes                            |   | 1,568,435    |  |   | 1,896,250    |  |   | 2,539,220   
|Future income tax recovery (Note 12)                |   | (1,011,000)  |  |   | (86,300)     |  |   | (359,825)   
|Net Loss for Year                                   |   | 557,435      |  |   | 1,809,950    |  |   | 2,179,395   
|Deficit, Beginning of Year, As Previously Stated    |   | (25,855,949) |  |   | (24,045,999) |  |   | (13,528,173)
|Adjustment for Change in Accounting Policy (Note 3) |   |             |  |   |             |  |   | (8,338,431) 
|Deficit, Beginning of Year, As Restated             |   | (25,855,949) |  |   | (24,045,999) |  |   | (21,866,604)
|Deficit, End of Year                                | $ | (26,413,384) |  | $ | (25,855,949) |  | $ | (24,045,999)
|Loss Per Share                                      |   |              |  |   |              |  |   |             
|Basic and diluted (Note 13)                         | $ | (0.01)       |  | $ | (0.05)       |  | $ | (0.06)      

F-3

CONSOLIDATED STATEMENTS OF CASH FLOWS

F O R    T H E    Y E A R S    E N D E D   D E C E M B E R   
3 1



|                                       |   | 2003        |  |   | 2002        |  |   | 2001       
|-------------------------------------- | - | ----------- |  | - | ----------- |  | - | -----------
|Cash Flows from Operating Activities   |   |             |  |   |             |  |   |            
|Cash received from customers           | $ |            |  | $ | 269,004     |  | $ |           
|Cash paid to suppliers                 |   | (1,491,817) |  |   | (637,952)   |  |   | (1,872,161)
|Cash paid to employees                 |   | (921,277)   |  |   | (782,086)   |  |   | (805,464)  
|Interest income received               |   | 2,358       |  |   | 714         |  |   | 90,265     
|Interest paid                          |   | (45,921)    |  |   | (22,218)    |  |   | (3,247)    
|                                       |   | (2,456,657) |  |   | (1,172,538) |  |   | (2,590,607)
|Cash Flows from Financing Activities   |   |             |  |   |             |  |   |            
|Issuance of common shares for cash     |   | 4,623,601   |  |   | 911,705     |  |   | 72,500     
|Share issuance costs                   |   | (163,590)   |  |   |            |  |   |           
|                                       |   | 4,460,011   |  |   | 911,705     |  |   | 72,500     
|Cash Flows from Investing Activities   |   |             |  |   |             |  |   |            
|Proceeds on disposal of investment     |   | 26,768      |  |   |            |  |   | 31,392     
|Proceeds on disposal of capital assets |   | 800         |  |   | 18,000      |  |   |           
|Purchase of capital assets             |   | (29,442)    |  |   | (99)        |  |   | (84,286)   
|Mineral exploration costs              |   | (230,970)   |  |   |            |  |   |           
|                                       |   | (232,844)   |  |   | 17,901      |  |   | (52,894)   
|Increase (Decrease) in Cash            |   | 1,770,510   |  |   | (242,932)   |  |   | (2,571,001)
|Cash at Beginning of Year              |   | 47,782      |  |   | 290,714     |  |   | 2,861,715  
|Cash at End of Year                    | $ | 1,818,292   |  | $ | 47,782      |  | $ | 290,714    

F-4



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

F O R    T H E    Y E A R S    E N D E D    D E C E M B E R    3 1 ,    2 0 0 3 ,    2 0 0 2    A N D    2 0 0 1

1. N AT U R E    O F    O P E R AT I O N S    A N D    G O I N G - C O N C E R N    C O N S I D E R AT I O N S

Birch Mountain Resources Ltd. (the Company) is in the process of exploring its mineral leases and permits and has not yet determined whether they contain economically recoverable reserves.
However, on February 2, 2004, the Company released an independent technical report which indicates the potential for a limestone quarry in the Fort McMurray area.

These financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles on a going-concern basis. This presumes funds will be available to
finance ongoing exploration, operations and capital expenditures and permit the realization of assets and the payment of liabilities in the normal course of operations for the foreseeable future. The Company has incurred a net loss of $557,435
during the year ended December 31, 2003 (2002$1,809,950; 2001$2,179,395) and as at December 31, 2003, has an accumulated deficit of $26,413,384.

The Company is obligated to incur certain levels of expenditures to maintain its rights to continue exploration of certain mineral leases and permits. The Companys ability to continue as a
going-concern is largely dependent on its success in obtaining sufficient funds to carry out exploration activities on its mineral claims, preserving its interest in the underlying minerals, establishing the existence of economically recoverable
mineral reserves, achieving successful results from its research efforts and obtaining the financing to complete the development and achieve future profitable production or, alternatively, on the Companys ability to dispose of its interests on
an advantageous basis.

In the past, the Company has been successful in raising funds in the equity market for exploration, research and operating activities, but there is no assurance that it will be able to do so in the
future. If future financing efforts do not meet with success, there is substantial doubt about the ability of the Company to continue as a going-concern as it would likely have to dispose of its assets on a less than advantageous basis.

These financial statements do not give effect to any adjustments which might be necessary if the Company is unable to continue its operations as a going-concern.

2. S I G N I F I C A N T A C C O U N T I N G P O L I C I E S


The consolidated financial statements are expressed in Canadian dollars and are prepared in accordance with accounting principles generally accepted in Canada. These financial statements include the
accounts of the Company and its wholly owned subsidiaries, Dawson Bay Minerals Inc., and Rockyview Development Limited and its subsidiaries. Rockyview Development Limited and its subsidiaries have been inactive since 1998. Dawson Bay Minerals Inc.
has been inactive throughout 2003.

a . C a s h a n d C a s h E q u i v a l e n t s

Cash and cash equivalents include balances with banks and short-term investments with maturities of three months or less.

F-5



b . I n v e s t m e n t s

c . P r o p e r t y, P l a n t a n d E q u i p m e n t


Capital assets are recorded at cost. Amortization is provided using methods and rates intended to amortize the cost of assets over their estimated useful lives.

|                       | Method            | Annual Rate
|---------------------- | ----------------- | -----------
|Equipment              | Declining balance | 20% -30%   
|Computer               | Declining balance | 30% -100%  
|Leasehold improvements | Straight line     | 20%        

d .M
i n e r a l    E x p l o r a t i o n    C o s t s

During the quarter ended March 31, 2001, the Company adopted the requirements of Accounting Guideline 11,Enterprises in the Development Stage.Pursuant to the adoption of this Guideline, beginning January 1, 2001, the Company expenses mineral exploration costs unless the deferral criteria are met and it is probable that they will be
recoverable from the future operations of the related project. During 2003, the Company began capitalizing expenditures related to the exploration and testing of a limestone property as management is of the opinion that it is probable these costs
will be recovered from future operations.

Prior to 2001, the Company capitalized all of the exploration costs incurred on its mineral properties if exploration was continuing on the property, on the basis that sufficient exploration had not
occurred to assess whether the deferred costs would be recovered from a geological resource or reserve.

Leases and permits acquired under option or joint venture agreements, whereby payments are made at the sole discretion of the Company, are recorded in the accounts at the time of payment.

e . F u t u r e    I n c o m e     Ta x e s


The Company follows the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are recorded based on temporary differences between the
carrying amount of balance sheet items and their corresponding tax bases. In addition, the future benefits of income tax assets, including unused tax losses, are recognized, subject to a valuation allowance, to the extent that it is more likely than
not that such future benefits will ultimately be realized. Future income tax assets and liabilities are measured using enacted tax rates and laws expected to apply when the tax liabilities or assets are to be either settled or realized. At the end
of each year, future tax assets and future tax liabilities are reassessed, and any changes in the settlement value are reflected in the current years income.

f . F l o w - T h r o u g h     S h a r e s


Under Canadian income tax legislation, corporations are permitted to issue shares whereby the Company agrees to incur qualifying expenditures, as defined under the Canadian Income Tax Act, and renounce
the related income tax deductions to the investors. The tax benefits renounced are reflected as a future tax liability and deducted from the proceeds of share capital.

g . R e s e a r c h     C o s t s


The Company is actively engaged in researching new mineral technology applications. Costs associated with such projects, including patent application costs, are expensed in the period they are
incurred.

F-6

h . S t o c k - B a s e d     C o m p e n s a t i o n

i . P e r     S h a r e    A m o u n t s


Loss per share amounts are computed using the weighted-average number of common shares outstanding during the year. Diluted loss per share is calculated based on the treasury stock method, which assumes
that any proceeds obtained on the exercise of options and warrants would be used to purchase common shares at the average trading price during the period.

j . F o r e i g n      C u r r e n c y     Tr a n s l a t i o n


Transaction amounts denominated in foreign currencies are translated into their Canadian dollar equivalents at exchange rates prevailing at the transaction dates. Carrying values of monetary assets and
liabilities reflect the exchange rates at the balance sheet date. Translation gains and losses are included in current earnings.

k . U s e     o f    E s t i m a t e s


The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management
estimates include estimates related to the determination of impairment of mineral exploration costs, reclamation obligations and determination of qualifying renouncements and the weighted-average assumptions used in calculating stock option
compensation expense. These estimates are reviewed periodically and, as adjustments become necessary, they are reported in earnings in the periods in which they become known.

3. C H A N G E     I N     A C C O U N T I N G     P O L I C I E S

a . S t o c k - B a s e d    C o m p e n s a t i o n


Effective January 1, 2002, the Company adopted CICA Handbook 3870, Stock-Based Compensation and Other Stock-Based Payment,
which established standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services. The standard permitted the
Company to continue its existing policy that no compensation cost is recorded on the grant of stock options to employees. Consideration paid by employees on the exercise of stock options was recorded as share capital. However, Handbook 3870 required
additional disclosures for options granted to employees, including disclosure of pro forma earnings and pro-forma earnings per share as if the fair-value-based accounting method had been used to account for employee stock options.

In 2003, the Company prospectively early-adopted the new recommendations of CICA Handbook 3870,Stock-Based Compensation and Other Stock-Based
Payments.The impact of the adoption of this standard for the year ended December 31, 2003, resulted in additional compensation expense of $66,681 and additional mineral exploration costs of
$1,231. For options issued prior to January 1, 2003, the Company had chosen to account for the employee stock-based compensation plans using the intrinsic-value method as allowed by the Canadian standard adopted on January 1, 2002. As required by
the transitional provisions for the standard, pro forma net income and earnings per share information has been provided as if the fair-value accounting method had been used since January 1, 2001, for options issued prior to January 1, 2003 (see Note
9).

F-7

b . M i n e r a l E x p l o r a t i o n C o s t s

These costs were to be amortized over the estimated useful lives of the leases and permits following the start-up of production, or written off if the leases and permits were sold, allowed to lapse or
abandoned. The Company assessed the carrying value of these mineral exploration costs annually and then, based on estimates, adjusted the carrying amount for any impairments in value or surrender of permits or leases. The net costs related to
abandonment or impairment were charged to earnings.

The Company was aware that there were differing views of how AcG-11 could affect mining companies with respect to deferred mineral exploration costs. Although the Company had, and still continues to
hold, sizeable land areas under mineral exploration leases and permits, it adopted AcG-11 and, in the absence of quantifiable evidence of a geological resource or reserve, wrote off its deferred mineral exploration costs. The Company has accounted
for this change in accounting policy on a retroactive basis as a cumulative adjustment to increase the opening deficit and reduce the carrying value of mineral exploration costs at January 1, 2001, by $8,338,431. Prior periods were not
restated.

In March 2002, subsequent to the adoption of the accounting policy, the CICA Emerging Issues Committee publishedAccounting by Mining Enterprises
for Exploration Costs (EIC-126)
as additional guidance on this matter. Among other things, EIC-126 concluded that a mining enterprise that has not established mineral reserves objectively
and, therefore, has no basis for preparing a projection of the estimated future net cash flow from the property, is not precluded from capitalizing exploration costs, nor is it obliged to conclude that the capitalized costs have been
impaired.

While the Company understands that EIC-126 provides additional clarification and guidance to support its previous policy for accounting for mineral exploration costs, the Company believes the change in
accounting policy is appropriate for its circumstances and is consistent with reporting practices followed in the United States. The Company considers its exploration properties to be prospective, and will continue its exploration activities in
search of an economic ore body.

4 . I N V E S T M E N T S

During 2001, the Company entered into an agreement with Shear Minerals Ltd. (Shear) and Marum Resources Inc. (Marum). Under the terms of the agreement, the Company received 50,000 common shares of Shear
and 100,000 common shares of Marum, having a total market value of $20,000 upon receipt. These shares were sold in the current year for net proceeds of $26,768.

F-8

|5 . P R O P E R T Y, P L A N T    A N D   
   E Q U I P M E N T
|---------------------------------------------------------------

|                       |   |         |  |   |              |  |   | 2003     |  |   |         |  |   |              |  |   | 2002    
|---------------------- | - | ------- |  | - | ------------ |  | - | -------- |  | - | ------- |  | - | ------------ |  | - | --------
|                       |   |         |  |   | Accumulated  |  |   | Net Book |  |   |         |  |   | Accumulated  |  |   | Net Book
|                       |   | Cost    |  |   | Amortization |  |   | Value    |  |   | Cost    |  |   | Amortization |  |   | Value   
|Equipment              | $ | 270,454 |  | $ | 185,179      |  | $ | 85,275   |  | $ | 271,568 |  | $ | 166,429      |  | $ | 105,139 
|Computer               |   | 256,390 |  |   | 200,491      |  |   | 55,899   |  |   | 227,482 |  |   | 190,437      |  |   | 37,045  
|Leasehold improvements |   | 30,543  |  |   | 13,235       |  |   | 17,308   |  |   | 30,009  |  |   | 9,041        |  |   | 20,968  
|                       | $ | 557,387 |  | $ | 398,905      |  | $ | 158,482  |  | $ | 529,059 |  | $ | 365,907      |  | $ | 163,152 



6. M I N E R A L    E X P L O R AT I O N    C O S T S 
a . A l b e r t a

A t h a b a s c a    R e g i o n
The Company holds a significant number of mineral rights in the Athabasca and Birch Mountain Regions of Northern Alberta.

The Company is party to Co-Development Agreements with Syncrude Canada Ltd., Suncor Energy Inc., Albian Sands Energy Inc. and Canadian Natural Resources Limited. The agreements provide for co-operative
planning in the development of the lands and data sharing by bringing together the holder of the oil sands rights and the holder of the metallic and industrial mineral rights.

At December 31, 2003, the Companys mineral property in the Athabasca region consisted of 40 permits and 30 leases with one permit-to-lease conversion in progress for a total area of 279,351
hectares.

During 2003, seven permits reached the end of their ten-year period. Of these, four were allowed to expire. Applications to convert portions of the remaining three permits were made. The Athabasca
property was reduced by approximately 52,727 hectares as a result of these activities.

Based on leased area, annual lease payments will be approximately $181,690 (2002$172,000), with another $6,300 when the conversion in progress is completed. Under a 2002 agreement, Suncor Energy
Inc. has agreed to pay $39,000 of these lease rentals, covering six mineral leases, until 2014.

In April 2002, the Company filed its assessment report for $5.15 million of expenditures comprising direct spending by the Company as well as significant costs incurred by other parties involved with
the Company as a result of Co-Development Agreements. Also during the year, certain permits were allowed to lapse, thereby reducing the Companys Athabasca mineral property by approximately 348,000 hectares, leaving the Companys land
position in this region at 326,000 hectares (806,000 acres) at December 31, 2002.

In 2002, the Company established an Industrial Minerals Division to take advantage of potential business opportunities arising from the Companys ownership of the rights to mine and market
limestone from its Athabasca mineral leases. In September 2002, the Company announced a sale of limestone to Suncor Energy Ltd. for $250,000. In September 2003, the Company signed an agreement to sell a minimum of $100,000 worth of limestone to
Syncrude Canada Ltd. within Syncrudes Auroral mine. Over the past year and a half, the Company has completed a drilling program and geological appraisal of a potential limestone quarry and issued an independent technical report in February
2004 conforming to National Instrument 43-101 on a preliminary assessment of the limestone project.

F-9

In December 2002, the Company acquired a 100% undivided interest in a mineral lease located near the proposed limestone quarry in exchange for a Limestone Royalty of $0.15 per tonne of limestone sold
from the proposed quarry.

B i r c h    M o u n t a i n s    R e g i o n
At December 31, 2003, the Companys mineral property in the Birch Mountains region was comprised of 10 permits covering
92,160 hectares (227,731 acres). Diamond-bearing kimberlite intrusive rocks are the principal exploration target on this property, but the Company has also conducted some preliminary precious metal exploration in this region as well.

The assessment filed in April 2002 was applied to the permits in the Birch Mountains region.

b . M a n i t o b a


Dawson Bay Minerals Inc., a wholly owned subsidiary of Birch Mountain Resources Ltd. conducted exploration activity in Manitoba in the Dawson Bay area.

During 2002, the Company let the remaining exploration permit covering 9,784 hectares (21,177 acres) lapse and has no mineral interest in Manitoba.

c . To t a l   M i n e r a l   E x p l o r a t i o n   C o s t s   o v e r   t h e   Y e a r s   C o n s i s t 
o f   t h e    F o l l o w i n g

|                                 |   |          |  |   | 2003        |  |   | 2002     |  |   | 2001    
|-------------------------------- | - | -------- |  | - | ----------- |  | - | -------- |  | - | --------
|                                 |   | Expensed |  |   | Capitalized |  |   | Expensed |  |   | Expensed
|Administration                   | $ | 65,797   |  | $ | 5,473       |  | $ | 66,941   |  | $ | 6414    
|Assay and geological             |   | 20,429   |  |   |            |  |   | 9,138    |  |   | 56,091  
|Consulting                       |   | 175,227  |  |   | 212,325     |  |   |         |  |   |        
|Land lease and permit            |   | 146,327  |  |   | 3,210       |  |   | 117,778  |  |   | 171,250 
|Materials, services and drilling |   | 2,835    |  |   |            |  |   | 300,381  |  |   | 177,744 
|Rental                           |   | 998      |  |   |            |  |   | 45,172   |  |   | 81,228  
|Salaries                         |   | 315,925  |  |   | 105,166     |  |   | 421,419  |  |   | 342,915 
|Travel and accommodations        |   | 16,847   |  |   | 9,962       |  |   | 15,476   |  |   | 105,888 
|                                 | $ | 744,385  |  | $ | 336,136     |  | $ | 976,305  |  | $ | 941,530 

7. A C C O U N T S    P AY A B L E

Included in accounts payable is $Nil (2002$67,083) of loans payable. These loans were unsecured, due on demand and bore interest at an average rate of 7%.

The Company has cancelled an accrued payable in the amount of $194,000 relating to the estimated cost of discontinuing the Indonesian operations in 1998.

F-10

8. S H A R E    C A P I TA L

T

a . A u t h o r i z e d C a p i t a l

Unlimited number of common voting shares

Unlimited number of preferred shares issuable in series

Unlimited number of non-voting shares



b . C o m m o n    S h a r e s

|                                              | Number     |  |   | Amount     
|--------------------------------------------- | ---------- |  | - | -----------
|Balance December 31, 2001                     | 33,647,122 |  | $ | 24,346,505 
|Issued for cash                               |            |  |   |            
|Private placement                             | 2,397,277  |  |   | 716,205    
|Flow-through shares                           | 842,000    |  |   | 210,500    
|Tax benefits renounced on flow-through shares |           |  |   | (86,300)   
|Balance December 31, 2002                     | 36,886,399 |  | $ | 25,186,910 
|Issued for cash                               |            |  |   |            
|Issued on exercise of options                 | 215,000    |  |   | 65,500     
|Private placements                            | 7,229,686  |  |   | 2,013,600  
|Flow-through shares                           | 6,118,000  |  |   | 2,529,500  
|Tax benefits renounced on flow-through shares |           |  |   | (1,011,000)
|Share issuance costs                          |           |  |   | (185,636)  
|Balance December 31, 2003                     | 50,449,085 |  | $ | 28,598,874 

In January 2003, the Company completed a private placement of 465,712 units at $0.25 per unit. Of these, 248,000 units were flow-through. All units consisted of one common share and one non-transferable
share purchase warrant entitling the holder to purchase an additional common share for $0.50 for a period of 18 months after closing.

In May 2003, the Company completed a private placement of 4,758,410 units at $0.25 per unit. Of these, 1,870,000 units were flow-through. All units consisted of one common share and one non-transferable
share purchase warrant entitling the holder to purchase an additional common share for $0.50 for a period of 16 months after closing.

In August, October and November 2003, the Company completed three additional private placements totalling 4,123,564 units at $0.30 per unit. Each unit consisted of one common share plus one-half of one
non-transferable common share purchase warrant entitling the holder to purchase an additional common share for $0.50 for a period of 12 months after closing.

In December 2003, the Company completed a private placement of 4,000,000 units issued on a flow-through basis at a price of $0.50 per unit.

At December 31, 2003, the Company had renounced all of its flow-through commitments and incurred $578,407 of expenditures. The balance of $1,951,093 of qualifying expenditures will be incurred
subsequent to the year-end.

F-11

In December 2002, the Company completed a private placement of 2,071,910 units at $0.25 per unit. Of these, 842,000 units were flow-through. All units consisted of one common share and one
non-transferable share purchase warrant entitling the holder to purchase an additional common share for $0.75 for a period of 16 months after closing. These warrants were subsequently re-priced to $0.50 per share and extended to June 21,
2004.

In June and July 2002, the Company completed two additional private placements of 1,167,367 units at $0.35 per unit. Each unit consisted of one common share plus one non-transferable share purchase
warrant entitling the holder to purchase an additional common share for $1.00 for a period of 12 months after closing. These warrants were subsequently re-priced to $0.50 per share and extended to July 19, 2004.

At December 31, 2002, the Company had renounced all of its flow-through commitments and incurred $75,634 of expenditures. The balance of $134,866 of qualifying expenditures were incurred in 2003.

During 2001, the Company entered into an agreement with AuRIC Precious Metals Inc. (AuRIC) to purchase rights to a customized fire assay protocol developed by AuRIC. The contract includes provisions for
independent third-party verification tests using a double-blind chain-of-custody test protocol, the costs of which are to be borne by the Company. When the Company is satisfied that AuRIC has met all of the conditions of the agreement, the Company
has agreed to purchase the assay protocol from AuRIC for consideration of US$400,000 plus 640,000 common shares of the Company, 400,000 that will be free trading, and the issuance of which must comply with the applicable laws in Canada and the
United States. Independent verification tests conducted to date are inconclusive.

c . P r e f e r r e d    S h a r e s

An unlimited number of preferred shares may be issued in one or more series, and the directors are authorized to fix the number of shares in each series and to determine the designation, rights,
privileges and conditions attached to the shares of each series.

d . R e s e r v e d    f o r    I s s u e

O p t i o n s The Company has two stock option plans. The original plan was established in 1994 to grant options to directors, officers, employees and consultants
of the Company. The plan is administered by the Compensation Committee of the Board of Directors and contains provisions stating that the option period may not exceed five years and that the number of common shares issuable on exercise of
outstanding stock options may not exceed 10% of the issued and outstanding common shares.

In March 2002, the Board of Directors approved a new stock option plan (2002 Plan) which was approved by the shareholders at the June 2002 annual general and special meeting. The purpose of
the 2002 Plan is to offer persons who provided services to the Company, whether directors, officers, consultants or employees, an opportunity to obtain a proprietary interest in the Company through the purchase of common shares and to aid in
attracting, retaining and encouraging the continued involvement of such persons with the Company. The number of common shares reserved for issuance pursuant to the exercise of all options under this plan may not exceed 3,735,211. The plan is
administered by the Board of Directors who determine to whom options shall be granted including the terms, pricing and vesting of the grants.

F-12

The Company has granted options on common shares as follows:

|                               |           |  |           |  | Weighted  |  |           
|------------------------------ | --------- |  | --------- |  | --------- |  | ----------
|                               | Number of |  | Price     |  | Average   |  | Expiry    
|                               | Options   |  | Range ($) |  | Price ($) |  | Date      
|December 31, 2001, outstanding | 2,298,750 |  | 0.22-1.36 |  | 0.77      |  | 2002-2006 
|Granted                        | 2,555,000 |  | 0.26-0.34 |  | 0.3       |  | 2007      
|Cancelled                      | (235,000) |  | 0.70-1.36 |  | 0.98      |  | 2002      
|December 31, 2002, outstanding | 4,618,750 |  | 0.22-1.36 |  | 0.53      |  | 2003-2007 
|Granted                        | 2,461,900 |  | 0.30-0.50 |  | 0.32      |  | 2004, 2008
|Cancelled                      | (500,000) |  | 0.35-0.90 |  | 0.52      |  | 2003      
|Exercised                      | (215,000) |  | 0.22-0.35 |  | 0.3       |  | 2003      
|December 31, 2003, outstanding | 6,365,650 |  | 0.22-1.36 |  | 0.51      |  | 2004-2008 

The following summarizes information about stock options outstanding as at December 31, 2003, under both plans:

|              | Number    |  | Expiry     | Exercisable at |  | Option   
|------------- | --------- |  | ---------- | -------------- |  | ---------
|              | of Shares |  | Date       | Dec. 31, 2003  |  | Price ($)
|Original Plan | 30,000    |  | July 2004  | 30,000         |  | 1.25     
|              | 54,400    |  | Sept. 2004 | 54,400         |  | 0.50     
|              | 635,000   |  | Nov. 2004  | 635,000        |  | 1.36     
|              | 200,000   |  | Dec. 2004  | 200,000        |  | 0.50     
|              | 408,750   |  | Jan. 2006  | 408,750        |  | 0.60     
|              | 275,000   |  | April 2006 | 275,000        |  | 0.65     
|              | 1,140,000 |  | March 2007 | 1,140,000      |  | 0.26     
|              | 2,743,150 |  |            | 2,743,150      |  | 0.64     
|2002 Plan     | 1,415,000 |  | April 2007 | 1,415,000      |  | 0.34     
|              | 2,207,500 |  | Oct. 2008  | 551,875        |  | 0.30     
|              | 3,622,500 |  |            | 1,966,875      |  | 0.33     
|Both Plans    | 6,365,650 |  |            | 4,710,025      |  | 0.51     

F-13

W a r r a n t sIn relation to private placements, the Company has the following warrants outstanding:

|                                           |            |  |           |  | Weighted  |  |          
|------------------------------------------ | ---------- |  | --------- |  | --------- |  | ---------
|                                           | Number of  |  | Price     |  | Average   |  | Expiry   
|                                           | Warrants   |  | Range ($) |  | Price ($) |  | Date     
|December 31, 2002, outstanding (re-priced) | 3,239,277  |  | 0.50      |  | 0.50      |  | 2003-2004
|Issued                                     | 7,540,304  |  | 0.50      |  | 0.50      |  | 2004     
|December 31, 2003, outstanding             | 10,779,581 |  | 0.50      |  | 0.50      |  | 2004     

The Company extended to 2004 the expiry date of warrants that were scheduled to expire in 2003. All of the outstanding warrants as at December 31, 2002, were re-priced from a range of $0.75$1.00
per warrant to $0.50 per warrant.

Subsequent to year-end, 659,400 warrants were exercised and a corresponding number of common shares were issued at $0.50 each for a total consideration of $329,700.

9. S T O C K - B A S E D    C O M P E N S AT I O N
a . E m p l o y e e s ,    D i r e c t o r s    a n d    O f f i c e r s

In 2003, the total stock-based compensation recognized under the fair value method was $266,723 using the Black-Scholes option-pricing model. The options will be amortized over an 18-month period which
is the vesting period of the options. The stock-based compensation expense for the year was $66,681, leaving an unamortized balance of $200,042.

Had the fair-value method been used since January 1, 2001, the Companys net earnings and net earnings per share would have been as follows:

|                          | 2003      |  | 2002        |  | 2001       
|------------------------- | --------- |  | ----------- |  | -----------
|Pro forma earnings (loss) | (557,435) |  | (2,079,950) |  | (2,274,456)
|Loss per share, basic     | (0.01)    |  | (0.06)      |  | (0.07)     

The fair value of each option was estimated on the date of grant using the Black-Scholes option pricing model  with the following weighted-average assumptions:

|                        | 2003    |  | 2002    |  | 2001   
|----------------------- | ------- |  | ------- |  | -------
|Expected life           | 3 years |  | 5 years |  | 5 years
|Risk-free interest rate | 3.90%   |  | 4.50%   |  | 5.00%  
|Expected volatility     | 65%     |  | 35%     |  | 12%    
|Annual dividends        | Nil     |  | Nil     |  | Nil    

F-14



b . A d v i s o r s

The total stock-based compensation recognized under the fair-value method was $26,967 using the Black-Scholes option-pricing model with the assumptions noted below. The options will be amortized over a
16-month period, which is the vesting period of the options. Of the amounts recognized, $22,045 has been reflected as share issuance costs and $1,231 as mineral exploration costs, with the offsetting credit to contributed surplus and leaving an
amortized balance of $3,691.

The weighted-average assumptions used to estimate the fair value of each of the options granted during the period were as follows:

|                              | 2003        
|----------------------------- | ------------
|Expected life                 | 1 to 3 years
|Risk-free interest rate range | 3.6%-3.9%   
|Expected volatility           | 65%         
|Annual dividends              | Nil         

Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Change in the subjective input assumptions can materially affect the fair-value
estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Companys stock options.

1 0 . C O N T I N U I N G    O B L I G AT I O N S

The Company rents premises and equipment under operating leases expiring during the next four years requiring annual payments as follows:

|     |  |        
|---- |  | -------
|2004 |  | 250,000
|2005 |  | 239,000
|2006 |  | 214,000
|2007 |  | 54,000 

11 . R E L AT E D - P A R T Y T R A N S A C T I O N S

The Company had the following transactions with related parties:

- Included in shareholder services and promotion are amounts of $1,469 (2002$9,888; 2001$8,288) paid to a company controlled by the spouse of a director.
- Included in professional fees is $26,327 (2002$46,614; 2001Nil) of consulting and legal fees paid to a company owned by an officer.
- Included in professional fees is $77,254 (2002$61,664; 2001$156,050) of legal fees paid to firms in which officers are partners.
- Included in accounts payable is $24,953 (2002$68,763; 2001$2,304) relating to these transactions.

These transactions were in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

F-15

12 . I N C O M E    T A X E S

Future income tax assets consist of the following temporary differences:

|                                                                        |   | 2003        |  |   | 2002        |  |   | 2001       
|----------------------------------------------------------------------- | - | ----------- |  | - | ----------- |  | - | -----------
|Mineral exploration costs                                               | $ | 4,984,788   |  | $ | 5,838,957   |  | $ | 5,355,105  
|Capital assets                                                          |   | 90,770      |  |   | 101,291     |  |   | 172,156    
|Scientific research and experimental development expenditures unclaimed |   | 79,438      |  |   | 86,806      |  |   | 89,157     
|Non-capital loss carry forwards                                         |   | 436,552     |  |   | 987,185     |  |   | 869,553    
|Share issuance costs and other                                          |   | 54,692      |  |   | 12,519      |  |   | 21,843     
|Valuation allowance                                                     |   | (5,646,240) |  |   | (7,026,758) |  |   | (6,507,814)
|Future tax assets (net of valuation allowance)                          |   |            |  |   |            |  |   |           

At December 31, 2003, the Company has the following deductions available:

- Canadian mining exploration costs and undepreciated capital cost allowance of $16,054,000 (2002$14,600,000; 2001$13,352,000), which may be carried forward indefinitely;
- Scientific research and experimental development costs of $211,000, which may be carried forward indefinitely; and
- Non-capital loss carry forwards of approximately $1,163,000 that, if unused, will expire as follows:

|     |   |        
|---- | - | -------
|2004 | $ | 107,000
|2005 |   | 132,000
|2006 |   | 185,000
|2007 |   |       
|2008 |   | 719,000
|2009 | $ | 20,000 

In addition to the above, the Company has the following deductions available, which have not been reflected in the financial statements:

- Capital losses of $3,500,000, which may be carried forward indefinitely; and
- Investment tax credits of $38,000 available for carry forward to 2005.

F-16

The income tax recovery differs from the amount that would be expected by applying the current tax rates for the following reasons:

|                                                    |   | 2003      |   |  |   | 2002      |   |  |   | 2001      |  
|--------------------------------------------------- | - | --------- | - |  | - | --------- | - |  | - | --------- | -
|Loss before taxes                                   | $ | 1,568,435 |   |  | $ | 1,896,250 |   |  | $ | 2,539,220 |  
|Expected tax recovery at 40.8% (2002㫁.0%; 2001㫂.1%) |   | 639,921   |   |  |   | 777,462   |   |  |   | 1,069,266 |  
|Resource allowance                                  |   | (205,591  | ) |  |   | (55,971   | ) |  |   | (64,780   | )
|Share issue costs                                   |   | 20,989    |   |  |   | 8,749     |   |  |   | 9,093     |  
|Non-deductible expenses for tax and other           |   | (36,613   | ) |  |   | (3,587    | ) |  |   | (25,007   | )
|Impact of changes to future income tax rates        |   | (788,224  | ) |  |   |          |   |  |   |          |  
|Valuation allowance                                 |   | 1,380,518 |   |  |   | (640,353  | ) |  |   | (628,747  | )
|Future income tax recovery                          | $ | 1,011,000 |   |  | $ | 86,300    |   |  | $ | 359,825   |  

1 3 . P E R    S H A R E    A M O U N T S

Basic loss per share is calculated using the weighted-average number of shares outstanding for the year. For the purposes of the calculations, the weighted-average number of shares outstanding was
41,147,226 (200234,323,673; 200134,193,622).

14 . S E G M E N T E D    I N F O R M AT I O N

The Companys principal business segment is the acquisition and exploration of mineral leases and permits. The Company also engages in research of mineral technology and in 2002 established an
Industrial Mineral Division to pursue the development of its limestone property. The Companys activities are focused on Western Canada.

|        |   | Mineral     |  |   | Mineral    |  |   | Industrial |  |   |             |  |   |            
|------- | - | ----------- |  | - | ---------- |  | - | ---------- |  | - | ----------- |  | - | -----------
|        |   | Exploration |  |   | Technology |  |   | Minerals   |  |   | Corporate   |  |   | Total      
|2003    |   |             |  |   |            |  |   |            |  |   |             |  |   |            
|Revenue | $ |            |  | $ |           |  | $ | 100,000    |  | $ | 211,973     |  | $ | 311,973    
|Expense |   | 273,194     |  |   | 11,150     |  |   | 471,191    |  |   | 1,124,873   |  |   | 1,880,408  
|Loss    |   | (273,194)   |  |   | (11,150)   |  |   | (371,191)  |  |   | (912,900)   |  |   | (1,568,435)
|Assets  | $ | 39,510      |  | $ |           |  | $ | 364,892    |  | $ | 2,019,831   |  | $ | 2,424,233  
|2002    |   |             |  |   |            |  |   |            |  |   |             |  |   |            
|Revenue | $ |            |  | $ |           |  | $ | 250,000    |  | $ | 986         |  | $ | 250,986    
|Expense |   | 863,845     |  |   | 42,514     |  |   | 112,460    |  |   | 1,128,417   |  |   | 2,147,236  
|Loss    |   | (863,845)   |  |   | (42,514)   |  |   | 137,540    |  |   | (1,127,431) |  |   | (1,896,250)
|Assets  | $ | 81,600      |  | $ |           |  | $ |           |  | $ | 183,492     |  | $ | 265,092    
|2001    |   |             |  |   |            |  |   |            |  |   |             |  |   |            
|Revenue | $ |            |  | $ |           |  | $ |           |  | $ | 88,023      |  | $ | 88,023     
|Expense |   | 941,530     |  |   | 128,068    |  |   |           |  |   | 1,557,645   |  |   | 2,627,243  
|Loss    |   | (941,530)   |  |   | (128,068)  |  |   |           |  |   | (1,469,622) |  |   | (2,539,220)
|Assets  | $ | 56,459      |  | $ | 82,872     |  | $ |           |  | $ | 470,276     |  | $ | 609,607    

F-17

15 . F I N A N C I A L I N S T R U M E N T S

The Company, as part of its operations, carries a number of financial instruments. It is managements opinion that the Company is not exposed to significant interest, currency or credit risks
arising from these financial instruments except as otherwise disclosed.

F a i r    V a l u e s
The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates their fair value because of the
short-term maturities of these items.

F o r e i g n    C u r r e n c y    R i s k
The Company enters into transactions to purchase goods and services denominated in United States currency for which the
related expenses and accounts payable balances are subject to exchange rate fluctuations. The transactions and balances have been stated in Canadian dollars in accordance with the Companys foreign currency translation policy (Note 2). As at
year-end, the following items were denominated in United States currency and have been converted into Canadian currency at the standard exchange rate in effect at year-end.

|                        |   | 2003   |  |   | 2002   
|----------------------- | - | ------ |  | - | -------
|Cash (CAD$)             | $ | 29,966 |  | $ | (1,071)
|Accounts payable (CAD$) | $ | 1,382  |  | $ | 89,561 

16 . M AT E R I A L    D I F F E R E N C E S    B E T W E E N    C A N A D I A N A N D    U N I T E D    S TAT E S    G E N E R A L LY    A C C E P T E D    A C C O U N T I N G    P R I N C I
P L E S

The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (GAAP) in Canada. Significant differences between GAAP in Canada and
the United States that would have an effect on these consolidated financial statements are as follows:

|a. | The balance of any unspent funds raised under a flow-through arrangement is considered restricted cash under U.S. GAAP and would require separate disclosure on the balance sheet. In
addition, such restricted amounts would not be considered cash and cash equivalents for cash flow reporting purposes. The amount of such restricted cash applicable to future flow-through expenditures included in the balance sheet was $1,951,093
(2002$134,866; 2001$75,000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|b. | Mineral exploration costs are accounted for in accordance with Canadian GAAP as discussed in Note 2. For U.S. GAAP purposes, the Company expenses exploration costs relating to
unproven mineral leases and permits as incurred as well as acquisition costs for leases and permits that do not provide for unrestricted exploration. Any writedown of capitalized exploration costs would be considered an operating expense and
included in the determination of operating loss for the period in which the writedown occurred. With the adoption of the policy for accounting for mineral exploration costs described in Note 3, the Companys treatment of mineral exploration
costs is similar to the treatment under U.S. GAAP, resulting in no material differences for 2002 and 2001. For 2003, the capitalization of expenditures under Canadian GAAP would be expensed as operating costs under U.S. GAAP.
For U.S. GAAP cash flow statement purposes, mineral exploration costs would be shown under operating activities rather than under investing activities.
|c. | Future income taxes, related to flow-through shares for renunciation of qualified resource expenditures, are treated as a cost of issuing those securities for Canadian GAAP. For U.S. GAAP, these
costs are included in the future tax provision.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

F-18

If these consolidated financial statements were prepared in accordance with U.S. GAAP, the impact on the balance sheets would be as follows:

|                                     |   | 2003       |  |   | 2002      
|------------------------------------ | - | ---------- |  | - | ----------
|Deficit under Canadian GAAP          | $ | 26,413,384 |  | $ | 25,855,949
|Exploration expenditures capitalized |   | 336,136    |  |   |          
|Future income taxes                  |   | 2,327,189  |  |   | 1,316,189 
|Deficit under U.S. GAAP              | $ | 29,076,709 |  | $ | 27,172,138

In addition, the impact on the consolidated statements of loss would be as follows:

|                                          |   | 2003      |  |   | 2002      |  |   | 2001     
|----------------------------------------- | - | --------- |  | - | --------- |  | - | ---------
|Net loss for the year under Canadian GAAP | $ | 557,435   |  | $ | 1,809,950 |  | $ | 2,179,395
|Exploration expenditures                  |   | 336,136   |  |   |          |  |   |         
|Future income taxes                       |   | 1,011,000 |  |   | 86,300    |  |   | 359,825  
|Net loss for the year under U.S. GAAP     | $ | 1,904,571 |  | $ | 1,896,250 |  | $ | 2,539,220
|Loss per share under U.S. GAAP            |   |           |  |   |           |  |   |          
|Basic                                     | $ | (0.05)    |  | $ | (0.05)    |  | $ | (0.08)   

For U.S. GAAP purposes, the Company has adopted APB Opinion No. 25,Accounting for Stock Issued to Employees
(APB 25), to account for stock-based compensation to employees and directors using the intrinsic-value method whereby compensation cost is recorded for the excess, if any, of the quoted market price, at the date granted. As
at December 31, 2003, no compensation cost has been required to be recorded for any period under this method, as the option price has been equal to the market price on the date of the grant.

The Statement of Financial Accounting Standards No. 123,Accounting for Stock-Based Compensation
(SFAS 123), issued in October 1995, requires the use of the fair-value method of accounting for stock options. Under this method, compensation cost is measured at the date of grant based on the fair value of options granted and is
recognized over the vesting period. For the years ended December 31, 2002 and 2001, these costs were calculated in accordance with the Black-Scholes option-pricing model assuming no dividends are paid, an annual risk-free interest rate of 4.5% to
5%, an expected volatility of 12% to 35% and an expected life of five years.

Had the Company adopted SFAS 123 for its U.S. GAAP disclosure, the following net losses would have been reported for 2001 and 2002. For 2003, the fair value of the options, calculated as $66,681, is
included in the net loss. The fair value was estimated at the date of grant using the Black-Scholes option-pricing model assuming a risk-free interest rate of 3.9%, an expected life of three years and an expected volatility of 65%.

|                                            |   | 2003      |  |   | 2002      |  |   | 2001     
|------------------------------------------- | - | --------- |  | - | --------- |  | - | ---------
|Net loss for the year under U.S. GAAP       | $ | 1,904,571 |  | $ | 1,896,250 |  | $ | 2,539,220
|Pro forma stock compensation                |   |          |  |   | 270,000   |  |   | 95,061   
|Pro forma loss for the year under U.S. GAAP | $ | 1,904,571 |  | $ | 2,166,250 |  | $ | 2,634,281
|Loss per share under U.S. GAAP              |   |           |  |   |           |  |   |          
|Basic                                       | $ | (0.05)    |  | $ | (0.06)    |  | $ | (0.08)   

F-19















|Birch Mountain
    Resources Ltd.    
|-------------------------------------
|Consolidated
    Balance Sheet       
|                                     
|Assets                               
|Current                              
|Cash and cash
    equivalents        
|Accounts
    receivable              
|Prepaids and
    deposits            
|                                     
|Property, plant
    and equipment    
|Mineral
    exploration costs(Note 3)
|                                     
|Liabilities                          
|Current                              
|Accounts payable                     
|Shareholders'
    equity (deficiency)
|Share capital
    (Note 4)           
|Contributed
    surplus (Note 5)     
|Deficit                              
|                                     
|                                     



F-20





|Birch Mountain Resources Ltd.              
|-------------------------------------------
|Consolidated Statements of Loss and Deficit
|For the three Months Ended March 31, 2004  
|                                           
|                                           
|                                           
|Expenses                                   
|Amortization                               
|Mineral
    exploration costs              
|Office                                     
|Professional fees                          
|Research costs                             
|Salaries,
    management fees and benefits 
|Shareholder
    services and promotion     
|Stock-based compensation                   
|Loss before the following                  
|Interest and other income                  
|                                           
|Loss before
    income taxes               
|Future income tax recovery                 
|Net loss for period                        
|Deficit, beginning of period               
|Deficit, end of period                     
|Loss per share                             
|Basic and diluted                          



F-21





|Birch Mountain
    Resources Ltd.            
|---------------------------------------------
|Consolidated
    Statements of Cash Flows    
|For the three
    Months Ended March 31, 2004
|                                             
|                                             
|Cash flows from operating
    activities     
|Cash paid to suppliers                       
|Cash paid to employees                       
|Interest income received                     
|Interest paid                                
|                                             
|Cash flows from financing
    activities     
|Issuance of common shares for
    cash       
|Short Term Loan                              
|                                             
|Cash flows from investing
    activities     
|Purchase of capital assets                   
|Mineral exploration costs                    
|                                             
|Increase (decrease) in cash                  
|Cash at beginning of year                    
|Cash at end of year                          



F-22

Birch Mountain Resources Ltd.Notes to the Consolidated Financial StatementsFor the period ended March 31, 2004








1.         Nature
    of operations and going concern considerations



Birch Mountain Resources Ltd. (the "Company") is in the
    process of exploring its mineral leases and permits and has not yet
    determined whether they contain economically recoverable reserves. However,
    on February 2, 2004, the Company released an independent technical report
    that indicates the potential for a limestone quarry in the Fort McMurray
    area.



These financial statements have been prepared by
    management in accordance with Canadian generally accepted accounting
    principles on a going concern basis. This presumes funds will be available
    to finance ongoing exploration, operations and capital expenditures and
    permit the realization of assets and the payment of liabilities in the
    normal course of operations for the foreseeable future. The Company has
    incurred a net loss of $659,599 for the first quarter and as March 31, 2004
    an accumulated deficit of $27 million.



The Company is obligated to incur certain levels of
    expenditures to maintain its rights to continue exploration of certain
    mineral leases and permits. The Company's ability to continue as a going
    concern is largely dependent on its success in obtaining sufficient funds to
    carry out exploration activities on its mineral claims, preserving its
    interest in the underlying minerals, establishing the existence of
    economically recoverable mineral reserves, achieving successful results from
    its research efforts and obtaining the financing to complete the development
    and achieve future profitable production or, alternatively, upon the
    Company's ability to dispose of its interests on an advantageous basis.



In the past, the Company has been successful in raising
    funds in the equity market for exploration, research and operating
    activities, but there is no assurance that it will be able to do so in the
    future. If future financing efforts do not meet with success, there is
    substantial doubt about the ability of the Company to continue as a going
    concern as it would likely have to dispose of its assets on a less than
    advantageous basis.



These financial statements do not give effect to any
    adjustments that might be necessary should the Company be unable to continue
    its operations as a going concern.





2.        
    Significant accounting policies



The consolidated financial statements are expressed in
    Canadian dollars and are prepared in accordance with accounting principles
    generally accepted in Canada. The accounting policies followed in preparing
    these financial statements are those used by the Company as set out in the
    audited financial statements for the year ended December 31,2003. Certain
    information and note disclosure normally included in consolidated financial
    statements prepared in accordance with generally accepted accounting
    principles are not included. These interim financials statements should be
    read together with the Company's audited consolidated financial statements
    for the year ended December 31, 2003.



In the opinion of management all adjustments considered
    necessary for fair presentation have been included in these consolidated
    financial statements.

F-23



Birch Mountain Resources Ltd.Notes to the Consolidated Financial StatementsFor the period ended March 31, 2004








3.        Mineral exploration costs





In the first quarter of 2004, the Company applied to
      convert all or portions of 17 exploration permits to 33 mineral leases.
      Application and lease costs were $282,956"



Total mineral exploration costs consist of the
      following:







|                                     | 31-Mar-04   | 31-Mar-04 | 31-Mar-03
|------------------------------------ | ----------- | --------- | ---------
|                                     | Capitalized | Expensed  | Expensed 
|Administration                       | 25,317      | 10,227    | 16,519   
|Assay and
    geological             | 5,038       |           | 20,429   
|Consulting                           |             |           |          
|Land lease and
    permit            | 1,568       | 281,388   | 2,228    
|Materials,
    services and drilling | 648,727     | 377       | 117,780  
|Rental                               | 120         |           | 394      
|Salaries                             | 112,449     | 8,322     | 99,858   
|Travel and
    accommodations        | 21,968      |           | 7,450    
|                                     | 815,186     | 300,314   | 264,661  
|Balance -
    beginning of period    | 336,136     |           |          
|Balance - end
    of period          | 1,151,332   |           |          





4.        Share capital



The Company is incorporated under the jurisdiction of the Business
      Corporations Act of Alberta.



Authorized capital

Unlimited number of common voting shares

Unlimited number of preferred shares issuable in series

Unlimited number of non-voting shares





|Common shares                      |            |           
|---------------------------------- | ---------- | ----------
|                                   | Number     | Amount    
|Balance
    December 31, 2003      | 50,449,085 | 28,598,874
|Issued for
    cash                |            |           
|Issued on
    exercise of options  | 233,750    | 69,925    
|Issued on
    exercise of warrants | 659,400    | 329,700   
|Share issuance costs               |            | (20,691)  
|Balance March
    31, 2004         | 51,342,235 | 28,977,808





F-24





Birch Mountain Resources Ltd.Notes to the Financial StatementsFor the period ended March 31, 2004








4.        Share capital



Reserved for issue





The Company has two stock option plans. The original plan was
      established in 1994 to grant options to directors, officers, employees and
      consultants of the Company. The plan is administered by the Compensation
      Committee of the Board of Directors and contains provisions stating that
      the option period may not exceed 5 years and that the number of common
      shares issuable on exercise of outstanding stock options may not exceed
      10% of the issued and outstanding common shares.

In March 2002, the Board of Directors approved a new stock option plan
      ("2002 Plan") which was approved by the shareholders at the June 2002
      annual general and special meeting. The purpose of the 2002 Plan is to
      afford persons who provided services to the Company, whether directors,
      officers, consultants or employees, an opportunity to obtain a proprietary
      interest in the Company through the purchase of common shares and to aid
      in attracting, retaining and encouraging the continued involvement of such
      persons with the Company. The number of common shares reserved for
      issuance pursuant to the exercise of all options under this plan may not
      exceed 3,735,211. The plan is administered by the Board of Directors who
      determine to whom options shall be granted including the terms, pricing
      and vesting of the grants.



The Company has granted options on common shares as follows:



Number of Options
    Price Range ($)
    Weighted Average Price ($)
    Expiry DateDecember 31,
    2003 outstanding
    6,365,650
    0.22 - 1.36
    0.51
    2004 - 2008Exercised
    233,750
    0.22 - 0.34
    0.30March 31, 2004
    outstanding
    6,131,900
    0.22 - 1.36
    0.46
    2004 - 2008




F-25



Birch Mountain Resources Ltd.Notes to the Financial StatementsFor the period ended March 31, 2004








4.     Share capital (continued)



The following summarizes information about stock options outstanding as
    at March 31, 2004 under both plans:



Number of Shares
    Expiry
      date
    Exercisable
    at March 31, 2004
    Option Price ($)Original Plan30,000
    July 2004
    30,000
    1.25635,000
    November 2004
    635,000
    1.36169,400
    December 2004
    200,000
    0.50408,750
    January 2006
    408,750
    0.60275,000
    April 2006
    275,000
    0.651,140,000
    March 2007
    1,140,000
    0.262,658,150
    
    2,743,150
    0.642002 Plan1,305,000
    April 2007
    1,305,000
    0.342,168,750
    October 2008
    551,875
    0.303,473,750
    
    1,966,875
    0.32Both Plans6,131,900
    
    4,710,025
    0.46






Warrants

In relation to private placements, the Company has
    the following warrants outstanding:





Number of Warrants
    Price Range ($)
    Weighted
    Average Price ($)
    Expiry DateDecember 31, 2003 outstanding
    10,779,581
    0.50
    0.50
    2004Exercised
    659,400
    0.50
    0.50
    2004March 31, 2004 outstanding
    10,120,181
    0.50
    0.50
    2004






The Company extended the expiry date of warrants that
    were scheduled to expire in 2003, until 2004.





5.        Stock-based compensation



During 2003, stock-based compensation recognized under
    the fair value method was $266,723 for options to employees directors and
    officers and $26,967 for options to advisors. These amounts are amortized
    over their vesting periods and at December 31, 2003, $200,042 and $3,691
    were unamortized.



During the quarter ended March 31, 2004, in accordance
    with the vesting periods, $44,500 and $3,691 respectively were recorded as
    stock-based compensation with a corresponding credit to contributed surplus.
    The remaining unamortized balance of $155,542 will be expensed during the
    year.



F-26





Birch Mountain Resources Ltd.Notes to the Financial StatementsFor the period ended March 31, 2004








6.        Related-party transactions

The Company had the following transactions with related parties at March
    31, 2004

Included in shareholder services and promotion are
        amounts of $5,031 (2003 - $1,469) net of third party expenses paid to a
        company controlled by the spouse of a director.

Included in professional fees is $13,271 (2003 -
        $103) of consulting and legal fees paid to a company owned by an
        officer.

Included in professional fees is $33,239 (2003 -
        $5,971) of legal fees paid to firms in which officers are partners.

Included in accounts payable is $ 26,094 (2003 -
        $76,777) relating to these transactions.

These transactions were in the normal course of
    operations and were measured at the exchange amount, which is the amount of
    consideration established and agreed to by the related parties.





7.        Segmented information



The Company's principal business segment is the
      acquisition and exploration of mineral leases and permits. The Company
      also engages in research of mineral technology and in 2002 established an
      industrial mineral division to pursue the development of its limestone
      property. The Company's activities are focused on Western Canada.





|           |                         |                        |                         |           |          
|---------- | ----------------------- | ---------------------- | ----------------------- | --------- | ---------
|           | Mineral
    Exploration | Mineral
    Technology | Industrial
    Minerals | Corporate | Total    
|March 2004 |                         |                        |                         |           |          
|Revenue    |                         |                        |                         | 7,749     | 7,749    
|Expense    | 300,314                 |                        |                         | 367,034   | 667,348  
|Loss       | (300,314)               | -                      | -                       | (359,285) | (659,599)
|Assets     | 13,820                  |                        | 1,201,298               | 1,420,531 | 2,635,649
|March 2003 |                         |                        |                         |           | -        
|Revenue    |                         |                        |                         | 2         | 2        
|Expense    | 45,155                  | 2,579                  | 219,509                 | 227,771   | 495,014  
|Loss       | (45,155)                | (2,579)                | (219,509)               | (227,769) | (495,012)
|Assets     | 67,769                  |                        |                         | 164,950   | 232,719  





F-27



Birch Mountain Resources Ltd.Notes to the Consolidated Financial StatementsFor the period ended March 31, 2004






8.        Material differences between Canadian and United States generally
    accepted accounting principles



The consolidated financial statements of the Company have
    been prepared in accordance with generally accepted accounting principals (GAAP)
    in Canada. Significant differences between GAAP in Canada and the United
    States that would have an effect on these consolidated financial statements
    are as follows:

|(a) | The balance of any unspent funds raised under a
      flow-through arrangement is considered restricted cash under U.S. GAAP and
      would require separate disclosure on the face of the balance sheet. In
      addition, such restricted amounts would not be considered cash and cash
      equivalents for cash flow reporting purposes. The amount of such
      restricted cash applicable to future flow-through expenditures included in
      the balance sheet was $1,135,907 (December 31, 2003 - $1,951,093).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(b) | Mineral exploration costs are accounted for in
      accordance with Canadian GAAP as discussed in Note 2 to the year-end
      audited financial statements. For U.S. GAAP purposes, the Company expenses
      exploration costs relating to unproven mineral leases and permits as
      incurred as well as acquisition costs for leases and permits that do not
      provide for unrestricted exploration. Any write-down of capitalized
      exploration costs would be considered an operating expense and included in
      the determination of operating loss for the period in which the write down
      occurred. With the adoption of the policy for accounting for mineral
      exploration costs described in Note 3 to the year end audited financial
      statements, the Company's treatment of mineral exploration costs was
      similar to the treatment under U.S. GAAP, resulting in no material
      differences for 2002 and 2001. For 2003 and onwards, the capitalization of
      expenditures under Canadian GAAP would be expensed as operating costs
      under U.S. GAAP.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | For U.S. GAAP cash flow statement purposes, mineral
      exploration costs would be shown under operating activities rather than
      under investing activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(c) | Future income taxes, related to flow-through shares for
      renunciation of qualified resource expenditures, are treated as a cost of
      issuing those securities for Canadian GAAP. For U.S. GAAP, these costs are
      included in the future tax provision.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F-28

Birch Mountain Resources Ltd.Notes to the Consolidated Financial StatementsFor the period ended March 31, 2004




9.        Material differences between Canadian and United States generally
    accepted accounting principles (continued)







March 31, 2004
    December 31, 2003Deficit under
    Canadian GAAP
    27,072,983
    26,413,384Exploration
    expenditures capitalized
    1,151,322
    336,136Future income
    taxes
    2,327,189
    2,327,189Deficit under U.S.
    GAAP
    30,551,494
    29,076,709










March31, 2004
    March 31, 2003Net loss for the
    period under Canadian GAAP
    659,599
    471,009Exploration
    expenditures
    815,186
    -Future income
    taxes
    -
    24,000Net loss for the
    period under U.S. GAAP
    1,474,785
    495,009Loss per share
    under U.S. GAAPBasic
    (0.03)
    (0.01)






For U.S. GAAP purposes, the Company has adopted APB
    Opinion No.25, Accounting for Stock Issued to Employees(APB 25), to
    account for stock based compensation to employees and directors using the
    intrinsic value-based method whereby compensation cost is recorded for the
    excess, if any, of the quoted market price, at the date granted. As at
    December 31, 2003, no compensation cost has been required to be recorded for
    any period under this method, as the option price has been equal to the
    market price on the date of the grant.



The Statement of Financial Accounting Standards No. 123,
    Accounting for Stock-Based Compensation (SFAS 123), issued in October
    1995, requires the use of the fair value-based method of accounting for
    stock options. Under this method, compensation cost is measured at the date
    of grant based on the fair value of options granted and is recognized over
    the vesting period. These costs were calculated in accordance with the
    Black-Scholes option pricing model assuming no dividends are paid, annual
    risk-free interest rate of 4.5% to 5%, and expected volatility of 12% to 35%
    and an expected life of five years.

Had the Company adopted SFAS 123 for its U.S. GAAP
    disclosure, the following net losses would have been reported. Beginning in
    2003, the fair value of the options granted is included in the net loss. The
    fair value was estimated at the date of grant using the Black-Scholes option
    pricing model assuming a risk-free interest rate of 3.9%, an expected life
    of three years and expected volatility of 65%. The stock-based compensation
    included in the net loss at March 31, 2004 was $48,191 (March 31, 2004 -
    NIL).



March 31, 2004
    March 31, 2003Net loss for the
    year under U.S. GAAP
    1,426,595
    495,009Pro-forma stock
    compensation
    
    -Pro-forma loss
    for the year under U.S. GAAP
    1,426,595
    495,009Loss per share
    under U.S. GAAPBasic
    (0.03)
    (0.01)




F-29

ITEM 19         EXHIBITS

EXHIBIT NO.

|1.1  | Articles of Amalgamation (1)                                                                                                                                         
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                      
|2.1  | By-Law No. 1 (1)                                                                                                                                                     
|     |                                                                                                                                                                      
|2.2  | Shareholders Rights Plan Agreement (1)                                                                                                                               
|     |                                                                                                                                                                      
|4.1  | Stock Option Plan of the Company dated November 2, 1994
(1)                                                                                                          
|     |                                                                                                                                                                      
|4.2  | Stock Option Plan of the Company dated March 27, 2002
(2)                                                                                                            
|     |                                                                                                                                                                      
|4.3  | Amended 1994 Stock Option Plan of the Company dated
May 8, 2003 (2)                                                                                                  
|     |                                                                                                                                                                      
|4.4  | Amended 2002 Stock Option Plan of the Company dated
May 8, 2003 (2)                                                                                                  
|     |                                                                                                                                                                      
|4.5  | Stock Option Plan of the Company dated May 7,
2004                                                                                                                   
|     |                                                                                                                                                                      
|4.6  | Employment Contract with Douglas J. Rowe (1)                                                                                                                         
|     |                                                                                                                                                                      
|4.7  | Finders Fee Agreement between the Company and
        American Precious Metals Inc. dated June 24, 1999 (1)                                                          
|     |                                                                                                                                                                      
|11.1 | Code of Business Conduct and Ethics                                                                                                                                  
|     |                                                                                                                                                                      
|12.1 | Certification of Principal Executive Officer Pursuant to Section
        302 of the Sarbanes-Oxley Act of 2002                                                       
|     |                                                                                                                                                                      
|12.2 | Certification of Principal Financial Officer Pursuant to Section
        302 of the Sarbanes-Oxley Act of 2002                                                       
|     |                                                                                                                                                                      
|13.1 | Certification of Principal Executive Officer
        Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906
        of the Sarbanes-Oxley Act of 2002
|     |                                                                                                                                                                      
|13.2 | Certification of Principal Executive Officer
        Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906
        of the Sarbanes-Oxley Act of 2002
|     |                                                                                                                                                                      
|99.1 | News Release of the Company dated September 27, 2000
(1)                                                                                                             





(1)
    Previously filed by the Company as part of its
    Registration Statement on Form 20-F filed on September 29, 2000 (SEC File
    No. 0-31645)(2)
    Previously filed by the Company as part of its Annual
    Report on Form 20-F filed on June 30, 2003 (SEC File No. 0-31645)






-46-

SIGNATURES

The registrant hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this annual report on its behalf.



|                    | BIRCH MOUNTAIN RESOURCES LTD.
|------------------- | -----------------------------
|Date: June 29, 2004 |                              
|                    | By:                          
|                    |                              
|                    |