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

FORM 20-F/A
Amendment No. 1



|                                 | [ ] | 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 1934For the fiscal year ended December 31, 2004              | 
|                                 |     | OR                                                                                                                                                | 
|                                 | [ ] | TRANSITION REPORT
    PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from                
    to | 
|Commission file number 000-31645 |    

BIRCH MOUNTAIN RESOURCES LTD.

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

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

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.

66,306,799 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
[ ]



|TABLE OF CONTENTS                                
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|                                                 
|GLOSSARY & ABBREVIATIONS                         
|EXPLANATORY NOTE                                 
|SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
|REPORTING CURRENCY AND FINANCIAL INFORMATION     
|ITEM 1                                           
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2



|ITEM 11  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                        | 48
|-------- | --------------------------------------------------------------------------------- | --
|ITEM 12  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                            | 48
|ITEM 13  | DEFAULTS, DIVIDEND
      ARREARAGES AND DELINQUENCIES                             | 48
|ITEM 14  | MATERIAL MODIFICATIONS TO
      THE RIGHTS OF SECURITYHOLDERS AND USE OF PROCEEDS | 48
|ITEM 15  | CONTROLS AND PROCEDURES                                                           | 48
|ITEM 16  | RESERVED BY THE SEC                                                               | 49
|ITEM 16A | AUDIT COMMITTEE
      FINANCIAL EXPERT                                            | 49
|ITEM 16B | CODE OF ETHICS                                                                    | 49
|ITEM 16C | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                            | 49
|ITEM 16D | EXEMPTIONS FROM THE
      LISTING STANDARDS FOR AUDIT COMMITTEE                   | 50
|ITEM 16E | PURCHASES OF EQUITY
      SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      | 50
|ITEM 17  | FINANCIAL STATEMENTS                                                              | 50
|ITEM 18  | FINANCIAL STATEMENTS                                                              | 50
|ITEM 19  | EXHIBITS                                                                          | 51





3



GLOSSARY & ABBREVIATIONS

Certain terms and their usage used throughout this Form 20-F
are defined below.



ABCA
    The Business Corporations Act (Alberta).Aggregate
    A granular material composed of gravel or crushed rock
    and containing less than 50% sand.Asphalt
    A mixture of crushed rock, gravel or sand and bitumen
    residues from oil and gas refining that is used in paving and roofing
    applications.Assay or fire assay
    A high-temperature process involving the melting of a
    rock to determine its precious metal content.AMEX
    The American Stock Exchange.Basement
    The part of the Earth's crust that occurs beneath a cover
    of sedimentary rocks.Birch or Company
    Birch Mountain Resources Ltd., its predecessors and
    subsidiaries.Carbonate
    A sedimentary rock composed of minerals containing carbon
    and oxygen in the form of carbonate (CO3); for example,
    limestone.CERI
    Canadian Energy Research Institute.Coke
    A solid residue of impure carbon obtained as a residual
    product of hydrocarbon upgrading or refining.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.Evaporite
    A sedimentary rock containing minerals formed from the
    evaporation of marine and/or 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.Flue Gas Desulphurization or
    FGD
    A process by which gaseous sulphur compounds, including
    sulphur (SO2)and sulphur trioxide(SO3)
    are removed from flue gases produced by burning sulphur-bearing fossil
    fuels.Formation or Geological
    Formation
    A body of rock having easily recognizable boundaries and
    properties that allows 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 t of rock or percent of copper.Glacial Gravels
    Surface gravels deposited by glaciers.Hammerstone Project
    An expansion of the initial quarry (the MVQ) and the
    start-up of a limestone processing plant.Igneous
    A rock that has cooled and solidified from a melt.Industrial Mineral
    A non-metallic mineral or rock that is used for
    industrial purposes.Kiln
    A large fire-brick lined furnace for making quicklime.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.






4





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 parts of a mineral deposit that 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 implications.Mineralized 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.MVQ
    The initial limestone aggregate quarry called the Muskeg
    Valley Quarry.Nanocluster, Nanoparticulate or Nanoparticle
    Composed of particles on the order of 0.1 to 100
    nanometres in size.NI 43-101
    National Instrument 43-101 prepared by the Canadian
    Securities Regulators and which governs the public disclosure of mining information in
    Canada.NRCB
    Natural Resources Conservation Board.Oil Sands Deposit
    A porous body of sand 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.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, amongst
    others.Quicklime
    Calcium oxide or CaO produced by heating limestone at
    white heat in a kiln.RWMB
    Regional Municipality of Wood Buffalo.Sedimentary Rock
    A rock originating from the weathering of pre-existing
    rocks that 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, minerals or in the case of oil sands,
    bitumen.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.US
    Refers to the United States of America.








|CONVERSION FACTORS: | 1 tonne      | = | 1 t, 1.1023 short tons, 1,000 kilograms or 2,204.6
    pounds
|------------------- | ------------ | - | -------------------------------------------------------------
|                    | 1 Hectare    | = | 2.4711 Acres                                                 
|                    | 1 Kilometre  | = | 0.6214 Miles                                                 
|                    | 1 Micrometre | = | 0.000001 metre                                               
|                    | 1 Nanometre  | = | 0.000000001 metre                                            
|                    |              |   |                                                              
|SYMBOLS:            | $ or Cdn$    | = | Canadian dollar                                              
|                    | t            | = | Metric tonne                                                 
|                    | Kt           | = | Kilotonnes (thousands of metric tonnes)                      
|                    | Km           | = | Kilometre                                                    





5



EXPLANATORY NOTE

This Amendment No. 1 on Form 20-F/A ("Form 20-F/A") to the
Company's Annual Report on Form 20-F for the year ended December 31, 2004,
initially filed with the Securities and Exchange Commission on June 28, 2005
(the "Original Form 20-F "), is being filed primarily to amend and revise the
following items:

• Item 3A. Key Information -- Selected Financial
Information

• Item 5. Operating and Financial Review and Prospects

• Item 17. Financial Statements

The Company has estimated and accrued a potential liability
that was not previously recorded in the financial statements filed with the
Original Form 20-F. This adjustment was identified as a result of our ongoing
review of our accounting practices and procedures and resulted in the
restatement of our financial statements. Accordingly, we have amended and
restated in its entirety the Items set forth above to reflect the adjustments
made to the financial statements and other additional disclosure relating to the
accounting treatment for the restatement and other related disclosure. Except as
otherwise expressly noted herein, this Form 20-F/A does not reflect events
occurring after the filing of the Original 20-F or modify or update the
disclosure set forth in the Original 20-F in any way, except as required to
reflect the effects of the restatement of our financial statements or deemed
necessary in connection with the completion of restated financial statements.
The remaining Items of the Original 20-F are not amended hereby, but are
included for the convenience of the reader.

Further, and pursuant to Rule 12b-15 of the Securities and
Exchange Act of 1934, as amended, we are filing herewith certain currently dated
certifications. No other information contained in the Original Filing is being
amended hereby.

In this Form 20-F, 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 Form 20-F, which may relate to the disclosure in
question.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

The information presented in or incorporated by reference in
this Form 20-F 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 (including projections and business
trends), which involve risks and uncertainties.

Numerous factors could cause actual results to differ
materially from those in the forward-looking statements, including without
limitation, continuing production by oil sands companies in the Company's market
area, development of new competing or replacement technology, lack of market
acceptance or insufficient demand, declining commodity prices, specifically the
price of oil, inability of the Company to execute the business plan, failure to
protect intellectual property, unsuccessful exploration of mineral properties
and related activities, unfavourable changes in the regulatory environment
including environmental, tax, land tenure or other regulatory regimes, the
inability to finance future development and the dependence upon the abilities
and continued participation of certain key employees or consultants 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.

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 Form 20-F is expressed in
Canadian dollars; therefore, unless otherwise noted, references to "Cdn$" or "$"
are to Canadian dollars. The following tables sets forth the period-end exchange
rate, the average of the period, and the high and low exchange rates in the
period, for 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, 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 $0.8310 (US
$1.00 = CDN $1.2034). As of June 15, 2005, 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 $0.8066 (US $1.00 = CDN $1.2397).



|                           | Three Months 
    Ended
    March 31, | Twelve Months Ended December 31,
|-------------------------- | ------------------------------------- | --------------------------------
|                           | 2005                                  | 2004                            
|Rate at End of Period      | $0.8269                               | $0.8310                         
|Average Rate During Period | 0.8156                                | 0.7696                          
|High Rate During Period    | 0.8346                                | 0.8493                          
|Low Rate During Period     | 0.7961                                | 0.7158                          





6



The following table sets forth the period-end exchange rate,
the average of the period, and the high and low exchange rates in the period 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.



|2005                       | May     | April   | March   | February | January | December
|-------------------------- | ------- | ------- | ------- | -------- | ------- | --------
|Rate at End of Period      | $0.7992 | $0.7957 | $0.8269 | $0.8133  | $0.8067 | $0.8310 
|Average Rate During Period | 0.7965  | 0.8092  | 0.8224  | 0.8064   | 0.8165  | 0.8205  
|High Rate During Period    | 0.8082  | 0.8233  | 0.8322  | 0.8134   | 0.8346  | 0.8435  
|Low Rate During Period     | 0.7872  | 0.7957  | 0.8024  | 0.7961   | 0.8050  | 0.8064  





ITEM 1         IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISORS

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, 2004, 2003, 2002, 2001 and 2000 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, 2005 and 2004 are derived from Birch unaudited quarterly reports to
shareholders and should be read in conjunction therewith.



|Three
    Months Ended
 March 31 (unaudited) |                                                                                                              | Twelve Months Ended 
    December 31 (audited)
|-------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | ----------------------------------------------
|                                             | 2005                                                                                                         | 2004                                          
|                                             | (in thousands of Canadian dollars, except loss per share
    in dollars and shares outstanding in thousands)
|Canadian GAAP (1)                            |                                                                                                              |                                               
|Revenues                                     | 26                                                                                                           | 8                                             
|Expenses                                     | 1,442                                                                                                        | 537                                           
|Loss before income taxes                     | (1,416)                                                                                                      | (530)                                         
|Net loss for the year                        | (1,416)                                                                                                      | (530)                                         
|Loss per share(2)                            | (0.02)                                                                                                       | (0.01)                                        
|Total Assets                                 | 9,436                                                                                                        | 2,636                                         
|Liabilities                                  | 3,078                                                                                                        | 593                                           
|Shareholders' Equity                         | 6,358                                                                                                        | 2,043                                         
|Total Common Shares outstanding(3)           | 67,297                                                                                                       | 51,342                                        
|                                             |                                                                                                              |                                               

|US GAAP (4)                           
|--------------------------------------
|Revenues                              
|Expenses                              
|Loss before income taxes              
|Net loss for the year                 
|Loss per share(2)                     
|Total Assets                          
|Liabilities                           
|Shareholders' Equity                  
|Total Common
    Shares outstanding(3)



7



|Notes:
|------
|(1)   
|(2)   
|(3)   
|(4)   



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

Birch is Currently in the Development Stage

Birch is currently in the development stage. There is a risk
that operations may have delays, interruptions or increased costs or that
operations may not commence at all, due to many factors, including, without
limitation:

|• | breakdown or failure of equipment or processes;                                  
|- | ---------------------------------------------------------------------------------
|• | production performance falling below
    expected levels of output or efficiency;
|• | design errors;                                                                   
|• | contractor or operator errors;                                                   
|• | non-performance by third-party contractors;                                      
|• | labour disputes, disruptions or declines in productivity;                        
|• | increases in materials or labour costs;                                          
|• | inability to attract sufficient numbers of qualified
    workers;                
|• | delays in obtaining, or conditions imposed by, regulatory
    approvals;         
|• | changes in the scope of the development or operations;                           
|• | violation of permit requirements;                                                
|• | disruption of energy supply; and                                                 
|• | catastrophic events such as fires, earthquakes, storms or
    explosions.        



The current construction and operations schedules may not
proceed as planned, there may be delays and the development of the MVQ and the
Hammerstone Project may not be completed on budget. Any such delays will likely
increase the costs and may require additional financing, which financing may not
be available. Actual costs to construct and develop the MVQ and the Hammerstone
Project will vary from the estimates set forth in this Form 20-F and such
variances may be significant.



Given the stage of development Birch's initial limestone
quarry, called the Muskeg Valley quarry ("MVQ") and the expansion of the quarry
and start-up of limestone plant operations, called the Hammerstone Project,
various changes may be made prior to completing construction. Based upon current
scheduling, the MVQ is not expected to commence operations until mid 2005 and
the Hammerstone Project is not expected to start commercial quicklime operations
until 2008. The information contained herein, including, without limitation,

8



reserve and economic evaluations, is conditional upon receipt of all regulatory
approvals and no material changes being made to the MVQ and the Hammerstone
Project.



Reserves and Resource Quantities and Quality are Based on
Estimates

There are numerous uncertainties inherent in estimating
quantities of reserves and resources, including many factors beyond Birch's
control, and no assurance can be given the indicated level of reserves or
recovery thereof will be realized. In general, estimates of economically
recoverable limestone reserves and the future net cash flow there from are based
upon a number of factors and assumptions made as of the date on which the
reserve and resource estimates were determined, such as geological and
engineering estimates which have inherent uncertainties, the assumed effects of
regulation by governmental agencies and estimates of future commodity prices and
operating costs, all of which may vary considerably from actual results. All
such estimates are, to some degree, uncertain and classifications of reserves
are only attempts to define the degree of uncertainty involved. For these
reasons, estimates of the economically recoverable limestone, the classification
of such reserves based on risk of recovery and estimates of future net revenue
expected there from, prepared by different engineers or by the same engineers at
different times, may vary substantially.



Estimates with respect to reserves and resources that may be
developed and produced in the future are often based upon volumetric
calculations and upon analogy to similar types of reserves and/or estimates of
future sales, rather than upon actual production history. Estimates based on
these methods generally are less reliable than those based on actual production
history. Subsequent evaluation of the same reserves based upon production
history will result in variations, which may be material, in the estimated
reserves.



Reserve and resource estimates may require revision based on
actual production experience. Reserve and resource have been determined based
upon assumed aggregate and quicklime prices and operating costs. Market price
fluctuations of aggregate and quicklime prices may render uneconomic the
recovery of certain grades of limestone. Moreover, short-term factors relating
to oil sands resources and world oil prices may impair profitability in any
particular period.



No assurance can be provided as to the quantity or quality of
the limestone to be produced from the quarry.



Birch Has a Lack of Cash Flows and Financing May Not be
Available to the Company

Birch is a developing company with insufficient revenue to
meet its yearly operating and capital requirements. The Company has historically
raised funds necessary to conduct its business primarily through issuance of
equity. There is no guarantee the Company will be able to continue to raise
funds through additional equity issuances, project debt financing, joint
ventures and/or partnering arrangements. Although these are alternatives the
Company will investigate, there is no assurance that the Company will receive
significant revenues from operations at any time in the near future or that it
will have the cash required to become successful or economically viable.

The Company holds large land blocks under metallic and
industrial mineral permits, permits in the process of conversion to leases and
mineral leases issued by the Government of Alberta. The terms and conditions of
mineral permits require a mandated level of exploration expenditures for each
two-year period in order to continue to hold the rights to explore the land over
the ten-year term of a mineral permit. Mineral leases require an annual rental
payment in order to hold the leases in good standing. 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. There is no assurance that the Government of Alberta will
approve the conversion of permits to leases. The Government of Alberta has
recently indicated it may extend the term of permits beyond the current ten-year
term; it is unknown whether or not the term extension will apply retroactively
to current permit-to-lease conversions.

9

Competitive Risk May Reduce the Company's Ability to Operate

Birch must develop the mineral deposits and there is no
assurance the type or amount of the deposit will produce the economic results
expected. Additionally, Birch must negotiate sales arrangements with its
customers and prove its products are reliable and suitable for use in the oil
sands industry. Although Birch believes that competing aggregates in the Fort
McMurray region are limited in both size and quality and, as a result, high
market share assumptions have been made, Birch may have to compete 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.
Birch and the economic viability of the MVQ and the Hammerstone Project may be
negatively impacted if a new source of aggregates is located and developed.

Graymont Western Canada Inc. ("Graymont"), a private
quicklime and limestone producing company and competitor to Birch, owns a small
number of mineral permits and leases in the vicinity of Birch's Athabasca
mineral property. Birch believes these permits and leases are either in an area
that is not surface accessible or are in an area that is designated as
a recreational and environmental preserve. To Birch's knowledge Graymont has not
filed a public disclosure document with Alberta Environment.

Alternate Technologies May Reduce the Demand for the
Company's Products

The use of limestone for aggregates and the use of quicklime
and limestone as products for the treatment of air emissions and water treatment
could be replaced by alternate technologies if the oil sands industry develops
or locates more cost effective and efficient methods. The rate of development of
new technologies or the impact on the Company's business cannot be determined.

Price Risks May Effect the Marketability of Products Produced
and the Company's Financial Results

The mining industry in general is intensely competitive and
even if commercial quantities of mineral resources are developed, a profitable
market may not exist for the sale of such reserves. Factors beyond the control
of the Company may affect the marketability of any product produced. Significant
price movements over short periods of time may be affected by numerous factors,
including international economic and political trends, expectations of
inflation, currency exchange fluctuations (specifically, the Canadian dollar
relative to other currencies), interest rates and global or regional consumption
patterns, speculative activities and increased production due to improved mining
and production methods. The price of industrial minerals and precious metals (if
the Company were able to identify an economic precious mineral deposit on its
mineral permits or leases) have a significant influence on the market price of
the Company's shares and the Company's business activities. The effect of these
factors on the price of the Company's products cannot accurately be predicted.



Aggregate pricing in the Fort McMurray region is typically
done on a spot or job basis and long-term contracts are uncommon. Future prices
and forecasting of revenues is difficult and unknown and future prices are
outside the control of the Company. If prices decline the financial results of
the Company will be adversely affected.



Customer Dependency May Reduce the Flexibility of the Company
to Operate

Birch's Industrial Minerals Division will be reliant on the
oil sands industry in the Fort McMurray area for the majority of its revenue.
Costs of transportation of aggregate are high relative to its cost of production
and will limit the Company's ability to ship the product over longer distances.
Risks affecting oil sands companies, including fluctuating oil prices,
fluctuations between the US and Canadian dollar, energy costs, labour shortages
and capital cost overruns, could have a negative impact on Birch. Should the
price of oil decline, there is no guarantee oil sands companies will require the
predicted volume of the Company's products.

10

Personnel Risks May Impact the Company's Ability to Carry Out
its Operational Plans

At March 31, 2005, Birch had eleven full time employees and
one part time employee working for the Company. The Company relies on various
other part time workers, contractors and consultants to assist in executing
operations and providing technical guidance. From time to time, Birch also
utilizes the services of independent consultants and contractors to perform
various specific professional services, particularly in the

Birch may also rely on joint ventures or other business
relations with companies its operations and business strategy. The MVQ will
initially require an experienced contract operator. There can be no assurance
that a contract operator with the required expertise will be available or will
be engaged on terms acceptable to Birch.

Birch will be dependent on maintaining its key staff to
explore and develop the mineral deposits on the Company's mineral properties. As
the Company moves into operations it will be necessary to rely on workers,
contractors and consultants in the local area. In northern Alberta, skilled
labour shortages are common. There is uncertainty regarding the ability to
retain and attract personnel to the project and should the Company not have
adequate personnel, the project may not become operational or may not be
economically viable.

Finally, 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 May Require Additional Government Operating Permits

In the ordinary course of business, mining companies are
required to seek governmental operating permits for expansion of existing
operations or for the commencement of new operations.  Obtaining the
necessary governmental permits is a complex and time-consuming process involving
numerous agencies and often involving public hearings and costly undertakings on
the part of the Company.  The duration and success of permitting efforts
are contingent upon many variables outside the Company's control. 
Environmental protection permitting, including the approval of reclamation
plans, may increase costs and cause delays depending on the nature of the
activity to be permitted and the interpretation of applicable requirements
implemented by the permitting authority.  There can be no assurance that
all necessary permits will be obtained and, if obtained, that the costs involved
will not exceed those previously estimated by the Company.  It is possible
that the costs and delays associated with the compliance with such standards and
regulations could become such that the Company could not proceed with the
development or operation of the MVQ and the Hammerstone Project.

Title Risks May Result in Title Claims or Disputes

Birch is satisfied that it has good and proper right, title
and interest in and to the mineral properties that it intends to develop.
However, Birch has not obtained title opinions in respect of the permits,
permits in the process of conversion to lease and leases on these mineral
properties.



Aboriginal peoples have claimed aboriginal title and rights
to a substantial portion of western Canada. Certain aboriginal peoples have
filed a claim against the Government of Canada, the Province of Alberta, certain
governmental entities and the Regional Municipality of Wood Buffalo ("RMWB")
(which includes the City of Fort McMurray, Alberta) claiming, among other
things, aboriginal title to large areas of lands surrounding Fort McMurray,
including the lands on which the MVQ and the Hammerstone Project and most of the
oil sands operations in Alberta are located. Such claims, if successful, could
have a significant adverse effect on the oil sands bitumen producers and on
Birch, the MVQ and/or the Hammerstone Project.



11

Regulatory and Environmental Requirements May Impact the
Company's Ability to Operate

The Company operates in areas that are subject to
governmental provisions regulating exploration and development of mineral
resources. Birch may be constrained or forbidden to develop a project in areas
of economic mineral deposits or mandated operating guidelines may adversely
impact the
economic viability of Birch. Additionally, the Company holds metallic and
industrial mineral permits, permit-to-lease conversions and leases issued by
the Government of Alberta and there are no guarantees the Government will
continue to extend

Birch is required by regulation to operate under certain
environmental guidelines that are mandated by federal and provincial governments
in Canada. Additionally, public expectation of the industry's environmental
performance remains high and this continues to translate into new and generally
more rigorous environmental policies, legislation and regulations. The
interventions of environmental groups or local persons in the area of the MVQ
and the Hammerstone Project could impact the Company's ability to operate. The
approval of new development in Canada has, for the past two decades, been the
subject of detailed review through a clearly established public hearing process.

Abandonment and Reclamation Costs and Regulations May Change

Birch will be responsible for compliance with terms and
conditions of environmental and regulatory approvals and all laws and
regulations regarding the abandonment of the site and reclamation of its lands
at the end of its economic life, which abandonment and reclamation costs may be
substantial. A breach of such legislation and/or regulations may result in the
imposition of fines and penalties, including an order for cessation of
operations at the site until satisfactory remedies are made. Abandonment and
reclamation costs are estimates and since they will be a function of regulatory
requirements at the time, costs of goods and services at the time and the value
of the salvaged equipment may be more or less than the abandonment and
reclamation costs. In addition, in the future Birch may determine it prudent or
be required by applicable laws or regulations to establish and fund one or more
reclamation funds to provide for payment of future abandonment and reclamations
costs.



Birch is Subject to Certain Mining Hazards

The business of mining is subject to certain types of risks
and hazards, including environmental hazards, and industrial accidents. 
Such occurrences could result in damage to, or destruction of, mineral
properties or production facilities, personal injury or death, environmental
damages, delays in mining, monetary losses and possible legal liability. 
Any payments made with regards to such liabilities may have a material adverse
effect on Birch's financial position.  The Company carries insurance to
protect itself against certain risks of mining and processing to the extent that
it is economically feasible but which may not provide adequate.



Independent Reviews Provide No Assurance of Future Results

Although third parties have prepared reviews, reports and
projections relating to the viability and expected performance of the MVQ and
the Hammerstone Project, it cannot be assured that these reports, reviews and
projections and the assumptions on which they are based will, over time, provide
to be accurate.



There is a Possibility of Dilution to Present and Prospective
Shareholders

Any transaction involving the issuance of additional shares
of securities may result in dilution, possibly substantial, to present and
prospective holders of common shares.



12

Stock Exchange Rules May Reduce the Liquidity of the
Company's Shares



Based on the past experience of the Company with respect to
the TSXV, 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 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."

Shareholders Rights Plan May Discourage Change in Control
Transactions

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".

Enforcement of Civil Liabilities by Present and Prospective
Shareholders May be Adversely Affected

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 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.

Exploration Risk May Impact the Financial and Operational
Results of the Company

The Company will continue to explore for mineral
opportunities on its mineral properties. Mineral exploration activities are
subject to numerous risks, many of which are beyond Birch's control. Factors
such as 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 cannot be accurately predicted.

As it relates to precious metals, there is no conclusive
evidence supportive of the occurrence of precious metals in economic
concentrations or quantities on Birch's mineral properties or that Birch has
developed or has access to the technology and methods to extract precious
metals. 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.

Intellectual Property May Become Unprotected or Outdated

The Company developed new mineral technology for which it
received a US patent number 6,494,392 entitled, "Recovery of Natural
Nanoclusters and the Nanoclusters Isolated Thereby". The Company may continue to

13

develop new mineral technology, but there is no assurance that it will be
economically viable, that patent protection will be available or that there will
be a market for the new technology.
There can be no assurance that the Company will successfully
deter and prevent misappropriation, development of, copying by or unauthorized
use of the Company's technology. In addition, policing 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. 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.

ITEM 4         INFORMATION ON BIRCH

A.     History and
    Development of Birch

Birch was formed under the provisions of the ABCA, by
amalgamation of one of Birch's predecessors, also named Birch Mountain Resources
Ltd., and its wholly owned subsidiary, Birch Mountain Minerals Ltd on December
31, 1995.

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) 232-9500, respectively.

The Company is currently focused on industrial minerals and
the development of a limestone quarry and quicklime plant on its land leases in
northern Alberta, near the City of Fort McMurray and in the center of the
Canadian oil sands industry.

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, the Yukon and Kalimantan, Indonesia. Since
2000, the Company has expanded beyond conventional mineral exploration to
include industrial minerals as well as research and development on naturally
occurring precious and non-precious metal microparticles and nanoparticles.
Currently, Birch is only active in Alberta, Canada.

From early 2000 into 2002, the Company's work has lead to the
development of methods to isolate 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 these findings has not been determined.
A reliable method for measuring precious metal concentration has not yet been
independently verified and methods of extraction have not been developed. In
December 2002, Birch was awarded US 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 June 2002, the Industrial Minerals Division was
established to pursue opportunities arising from growing demand for industrial
minerals in the Athabasca region of northeastern Alberta. The mineral rights
held by the Company offer an immediate business opportunity due to their
location close to current and planned oil sands facilities and the forecast
increase in demand for aggregate and quicklime products from the oil sands
industry and local infrastructure requirements. Consequently, management has
focused on this business opportunity over the past two and a half years and has
used only limited resources in exploration or development of precious metals.

14

B.     Business Overview



The Company is working to open a limestone quarry and
aggregate plant, as well as a plant for manufacturing quicklime, to supply
various products required for use by the growing oil sands industry. The MVQ and
the Hammerstone Project will be located on mineral leases where the limestone is
accessible at surface, allowing for open pit extraction. As a result of this
large opportunity, significant investment in precious metal exploration and
technology development has been deferred.

Birch holds metallic and industrial mineral rights over an
extensive portion of the Athabasca region north of Fort McMurray, Alberta, in
the heart of the Canadian oil sands. These mineral rights include both
industrial and metallic minerals. In most areas, these mineral rights lie
geologically beneath the oil sands that currently are being produced or are
under development by oil sands companies. The Company operates separate
divisions for industrial minerals, mineral exploration and mineral technology
and the consolidated financial statements provide segmented information to
identify expenditures in each. See "Item 17 - Financial Statements."



Industrial Minerals

Birch formed its Industrial Minerals Division in June 2002,
to pursue market opportunities for the development of limestone on its Athabasca
mineral properties and for the sale of limestone products to the oil sands
industry.

In 2003 and 2002, Birch entered into sale agreements to sell
limestone and/or the rights thereto to oil sands producers for their own use, in
the amount of $100,000 and $250,000 respectively. These agreements allowed oil
sands producers to extract limestone exposed at the bottom of their oil sands
mines for their own use. Table 4-1 lists annual limestone production from these
agreements, as reported in royalty reports to the Government of Alberta.

Table 4-1. Annual limestone production by oil sands companies
from mineral leases owned by Birch.



Year Ended December 315 Yr. Average
    2004
    2003
    2002
    2001
    2000Limestone (t)
    1,672,564
    2,344,476
    2,324,976
    2,356,736
    1,226,736
    109,898






One oil sands company also makes lease rental payments
directly to the Government of Alberta, on behalf of Birch, to cover rent for
eight mineral leases owned by Birch and to which, by agreement, the oil sands
company was granted access to quarryable materials, including limestone for its
own use. The payments amounted to approximately $39,000 in each of 2002 and 2003
and increased to $53,185 in 2004 due to the addition of new leases in the area
covered by this agreement.

Muskeg Valley Quarry Project
In 2004, Birch formally applied to license a limestone quarry called the MVQ. This original application was to
develop a quarry to supply crushed limestone aggregate to the local market.



In February 2004, Birch released an independent technical
report on the MVQ 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.govand www.sedar.com.
The 2004 Technical Report was authored by AMEC Americas Limited("AMEC")
with a contribution on limestone aggregates by Russ Gerrish Consulting. Russ
Gerrish Consulting was hired to provide subject matter expertise on the
aggregate business and its principal, Russ Gerrish, subsequently joined the
Company as the Vice President, Engineering and Operations in January of 2005.
The 2004 Technical Report is a preliminary assessment of the aggregate and
calcinable limestone potential of the proposed MVQ. It includes a mineral
resource estimate for calcinable and aggregate grade limestone, and a
preliminary financial model, as



15

permitted under Canadian Securities Administrators National Instrument 43-101
("NI 43-101").  The 2004 Technical Report concluded that additional studies
directed towards the construction and operation of a combined aggregate and
quicklime facility were justified.In March 2004, Birch filed an Environmental Impact Assessment
("EIA") and application ("MVQ Application") to the NRCB to develop, operate and reclaim a quarry and
aggregate plant on its mineral leases in the Muskeg Valley. This proposed quarry
and aggregate plant cover approximately 255 hectares and is situated where
limestone is close to the surface and the overlying oil sands are mostly absent,
having been removed by erosion. The MVQ Application was declared complete in
December 2004 and the NRCB issued a second public notice inviting comments to be
submitted by January 17, 2005. With no interventions received opposing the MVQ
Application, the NRCB advised the Company that a public hearing was not
required. The NRCB issued a positive decision report on June 14, 2005. With
regulatory approval in hand, Birch anticipates receiving all necessary permits
to open a contractor-operated aggregate quarry and aggregate plant in the third
quarter of 2005.

Hammerstone Project

As geological evaluation of the proposed MVQ progressed,
testing of core samples 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, mercury and other contaminants from atmospheric emissions from bitumen
upgrading, and treating water used in processing bitumen and in-situ projects.
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 catalyst for developing the larger Hammerstone Project
was the recognition of the potential for  increases in future demand
for aggregate and quicklime from the  growing oil sands industry in
northeastern Alberta. Surveys conducted in 2003 and 2004 by the Athabasca
Regional Issues Working Group ("RIWG") showed that aggregate supplies in the
region were in short supply, particularly high quality aggregates used for
making concrete. Because quicklime is an important chemical reagent used in the
oil sands industry and is not produced locally, developing a local supply of
quicklime is another potential opportunity for Birch.

In December 2004, the Company filed a Public Disclosure
Document for the Hammerstone Project, a new project that includes a southward
expansion of the MVQ and construction and operation of a quicklime plant. AMEC
was retained to prepare a prefeasibility report that was completed in January
2005, with market information provided by CERI, Russ Gerrish Consulting and
Birch. Subsequently in March 2005, Birch released a report conforming to NI
43-101 prepared by AMEC entitled Hammerstone Project Alberta: Independent
Qualified Person's Review and Technical Report(the "2005 Technical
Report"). Digital copies of the 2005 Technical Report may be obtained through
the Company's filings at www.sec.gov and www.sedar.com. The 2005 Technical
Report is based on AMEC's prefeasibility study of the Hammerstone Project.

Location and Mineral Interests
The MVQ and the Hammerstone Project is located within Birch's
Athabasca mineral property, approximately 60 km north of the City of Fort
McMurray near the hamlet of Fort McKay, Alberta. Birch has assembled a strategic
land position centered on the area of surface mineable oil sands in the
Athabasca region of northeast Alberta. The Athabasca mineral property is
described in greater detail in Section 4(D). As of March 31, 2005, the Company's
mineral interests covered 402,965 hectares (995,744 acres). The Company's
mineral leases convey the rights to develop and produce metallic and industrial
minerals, including limestone, while the permits allow the Company to explore
for these same minerals. The locations of Birch's mineral holdings in the
Athabasca region are illustrated in Figure 4-1.

16



|Figure 4-1. | Location of the Hammerstone Project and
          the Company's Athabasca mineral property relative to oil sands leases
          in the Fort McMurray region, northeast Alberta.
|----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The MVQ and the Hammerstone Project are located at a
favourable site for development, where limestone occurs at surface or is
overlain by only thin occurrences of overburden. The development boundaries have
been determined from geological, environmental, and economic considerations
(Figure 4-2). The western boundary is set back 200 metres from the Muskeg River,
consistent with setbacks for wildlife habitat in adjacent oil sands leases. The
southern boundary is an area where limestone is known from the Company's
geological mapping to be at or near surface. The eastern boundary has been
placed where the overlying Cretaceous and Quaternary sediments are more than 20
metres thick, making commercial development less attractive due to the
requirement to remove increasing amounts of materials overlying the limestone.
Currently, the northern boundary is the south end of the MVQ, however the
Hammerstone Project development application expected to be filed later in 2005
will extend the MVQ. Future expansion of the Hammerstone Project is only
possible to the south because in this area limestone lies at or near surface.
The Quarry of the Ancestors, the site of an ancient stone quarry, was uncovered
by Birch during its fieldwork. This northeast corner of the project area has
been set aside as an archaeological exclusion zone and due to it historical
significance is under protective notation by the Government of Alberta.





Figure 4-2.
                Location of the Hammerstone Project
          relative to the MVQ and the Quarry of the Ancestors archaeological
          exclusion area.




In some areas, Birch's mineral leases overlap with oil sands
leases of Shell Canada Ltd. (leases 90 and 13) and Syncrude Canada Ltd. (leases
22 and 30). These companies own the mineral rights to the oil sands but not the
underlying Devonian limestone. Birch has co-development agreements with Syncrude
Canada Ltd. and a cooperation and information sharing agreement with Albian
Sands Energy Inc. (a joint venture between Shell Canada Ltd., Chevron Canada,
and Western Oil Sands Inc.) that provide for cooperative exploration,
environmental planning, development, extraction, and production activities in
areas of the overlapping leases.



Industry Overview
Birch's Hammerstone Project is centrally located among
numerous existing and planned oil sands mining and in-situ projects. Crude
bitumen production from Alberta's oil sands reached one million barrels per day
in 2004 and is anticipated to increase five-fold to five million barrels per day
by 2030 (Alberta Chamber of Resources, Oil Sands Technology Roadmap, 2004). Two
principal methods are used to extract bitumen from the host sands: open pit
mining for near-surface deposits, and in-situ projects from more deeply buried
deposits. Where the oil sands are mined, the overburden is stripped and oil
sands are excavated by truck and shovel. The oil sands is mixed with water and
transported in a slurry pipeline to the extraction plant where froth floatation
is the primary method for separating the bitumen from the sand. Under in-situ
extraction, steam is pumped into the formation to heat the bitumen, causing it
to flow and enabling it to be pumped to surface. The preferred in-situ
extraction method is steam-assisted gravity drainage ("SAGD"), which has largely
displaced older cyclic steam stimulation technology.

17





Both mining and in-situ recovery of crude bitumen require
large inputs of energy and materials. Limestone aggregates from the MVQ and the
Hammerstone Project will initially be used for both the construction and
operating phases of current and planned oil sands projects while concrete rock
will be used predominantly in the construction phase. Quicklime is primarily
used in the operating phase for water treatment and removal of sulphur from air
emissions - so called flue gas desulphurization, or "FGD". Quicklime may also be
required in the construction phase for soil stabilization. Through time, as the
number and scale of projects increases, the use of limestone products will be
proportionally greater for ongoing operations rather than construction.

Uses for Aggregate
In the Fort McMurray region, aggregates are used to construct
oil sands mines and plants, but are also utilized in operations for in-pit haul
road construction. Lower grade aggregates, such as Birch's B-grade aggregate, is typically
used in non-critical applications such as road base construction, while higher
quality aggregates, such as Birch's A-grade aggregate, may be used to surface
gravel roads. The highest quality aggregates such as Birch's concrete rock, is
used for concrete and asphalt production. High-calcium limestone can be used as a
reagent for wet FGD limestone.



Uses for Quicklime
Quicklime has two principal uses in the production of bitumen
from oil sands: scrubbing sulphur dioxide, sulphur trioxide, and mercury from
off-gases in FGD, and treatment of recycled process waters in bitumen processing
and SAGD plants. Quicklime is the main reagent for warm and hot lime softening
systems used to treat process-affected waters in the in-situ extraction process
and bitumen upgrading. In SAGD, where a large proportion of the recovered water
originates as high-temperature steam injected into the formation, lime and
magnesium oxide are used together in warm and hot lime softening systems, with
the principal goal of removing silica to prevent scaling in steam generation
boilers.



Supply and Demand - Aggregate
Demand for aggregate in the Fort McMurray region is driven primarily by
construction and operating requirements of the oil sands industry. Current
supplies of gravel in the Fort McMurray region are limited in both size and
quality. One of the two main gravel pits, Poplar Creek, is rapidly nearing total
depletion. The other, Susan Lake, is believed to have less than a ten-year
supply at current consumption rates.

Based on information reported in the 2003 and 2004 RIWG
aggregate surveys, the average demand for road quality aggregate over the period
2003 to 2008 is estimated to be 7.7 million t and for concrete aggregate, 1.5
million t. However, concrete aggregate comprises both rock and sand, of which
Birch currently plans to produce only concrete rock. Typically, concrete rock
makes up about 55% of a concrete aggregate; therefore, the average demand for
concrete rock is estimated from the survey to be 0.8 million t per year

The RIWG aggregate surveys deal only with glacial gravels,
specifically excluding Birch's limestone currently being used for aggregate
purposes by two current oil sands producers. Average annual limestone use for
aggregate by oil sands companies for 2000 to 2004 is 1.6 million t. Therefore,
based on historical limestone aggregate use and RIWG reported data, the current
average road quality aggregate demand is estimated to be 9.3 million t
annually, of which 7.7 million t per year currently comes from of glacial
gravel deposits.

Supply and Demand - Quicklime
Quicklime is not produced in the region and must be trucked
in from plants located elsewhere. Graymont Western Canada Inc. and Graymont
Western US Inc. own the four quicklime plants closest to Fort McMurray; the
Summit plant at Coleman, Alberta, is not currently in operation. Competing
sources of quicklime, their respective capacities, and approximate road
distances from the location of the proposed quicklime plant are listed in Table
4-2.

18



Table 4-2. Competing Quicklime Plants, Canadian Prairies and Northern US
Plains.1



|Plant                                                                                                                                        | Location | Province 
    or
    State | Production Capacity (1) | Units    | Distance
    
    (km)
|-------------------------------------------------------------------------------------------------------------------------------------------- | -------- | -------------------------- | ----------------------- | -------- | ----------------------
|Exshaw                                                                                                                                       | Exshaw   | Alberta                    | 197,000                 | t/year   | 900                   
|Summit                                                                                                                                       | Coleman  | Alberta                    | 82,000                  | t/year   | 1,050                 
|Faulkner                                                                                                                                     | Faulkner | Manitoba                   | 115,000                 | t/year   | 1,500                 
|Indian Creek                                                                                                                                 | Townsend | Montana                    | 329,000                 | ton/year | 2,000                 
|(1)Graymont Western US Inc. website - Capacities and
    Products, Jan 24, 2005, plus an assumed 10% downtime for scheduled
    maintenance.



Long-Term Demand and Sales Forecast
The long-term demand for limestone products in the Fort
McMurray region is dominated by the requirements of the oil sands industry.
Therefore, to best gauge the future market for limestone products, a forecast of
future production of crude bitumen from the oil sands industry is needed. In
mid-2004, Birch commissioned the Canadian Energy Research Institute ("CERI"), of
Calgary, Alberta, to undertake an independent study on long-term oil sands
bitumen supply and, consequently, the demand for limestone products in northeast
Alberta. The basis for the study was the 2004 CERI Study No. 108, Oil Sands
Supply Outlook, Potential Supply and Costs of Crude Bitumen and Synthetic Crude
Oil in Canada, 2003 -2017.



CERI examined bitumen supply from 2005 to 2070 using four
scenarios to address the primary constraints on long-term growth - oil price and
surface mineable reserves. Oil prices used were US$25.00 and US$32.00 per barrel
for WTI at Cushing, OK. CERI also considered the limitation of reserves on
mining in two scenarios where mineable reserves were estimated at 32.5 billion
barrels and 60 billion barrels respectively. A fifth long-term case examined the
unconstrained scenario where it was assumed that (a) all currently announced oil
sands projects proceed, (b) the ensuing development rate is maintained and (c)
total mineable reserves are 60 billion barrels. CERI used parameters linking the
demand for limestone products for constructing and operating the oil sands
plants to bitumen supply, and was thereby able to generate demand forecasts for
aggregate products and quicklime for the period 2005 to 2070. For each year, the
minimum, maximum and average demand levels for each product were tabulated as
the low-, high- and base-case demand forecasts, respectively. Municipal and
regional infrastructure applications were estimated to be 10% of forecast oil
sands demand.



Forecast sales were estimated by multiplying CERI's forecast
base-case demand by Birch's estimates of future market share. For aggregate,
market share estimates were adjusted to reflect competition from other known
gravel deposits. For quicklime, market share estimates were made by distance
weighting market share based on the closest alternative supplier at Exshaw,
Alberta. Sales estimates for all products considered in the prefeasibility study
may be found in the 2005 Technical Report.



Competitive Landscape
Studies by RIWG and the Alberta provincial government
indicate that currently known sources of glacial gravels are insufficient to
meet the long-term growth requirements of the oil sands industry. Although
additional deposits have been found recently, Birch believes they are small and
inadequate to assure a long-lived supply for the construction and operation of
oil sands mining and in-situ projects. Birch believes most aggregate deposits
remaining in the region are sand-rich and contain abundant ironstone, rendering
them inappropriate for use in making concrete and asphalt.



Based on all available information, Birch believes there will
be little competition in the region for high value aggregates suitable for
making concrete and asphalt. There is however more competition for lower grades
of aggregate. The prefeasibility study shows that competing sources of concrete
rock are in limited supply and may be exhausted by 2011 and competing sources of
lower quality A-grade and B-grade aggregates may not be totally exhausted until
about 2025 to 2030. However, Birch believes that as these competing deposits are
depleted, their operating costs will rise and, in the face of a long-term stable
supply of aggregate from the MVQ and the Hammerstone Project, these deposits are
likely to shut-in before becoming totally exhausted.

19





Precious Metals

Since mid-2002, the Company's focus has shifted from precious
metals to industrial minerals. 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 mineral property. In May 2003, Birch filed an
independent technical report by APEX Geoscience Ltd. ("APEX") 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 mineral property. The
2003 Technical Report concluded that anomalous to potentially economic
concentrations of precious metals, including gold, platinum and palladium, exist
on the Athabasca mineral property and recommended additional precious metals
exploration be conducted.

Birch did not conduct any work related to precious metals in
2004. In the future, Birch will assess its research and development work to date
and determine an approach for realizing the value of the data accumulated and
the patented processes. Measurement of, extraction of and technologies related
to the precious metal including independent verification would be an important
part of the work.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, oil sands tailings and
other materials that may contain precious metals in nanoparticulate or
microparticulate form. There is no assurance that there are commercial
concentrations of nanoparticulate precious or base metals, or that a
commercially viable process will be developed to extract these metals from rocks
or oil sands tailings.

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 ABCA 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: Industrial Minerals, Mineral Exploration and Mineral Technology.

D. Property, Plants and
    Equipment

Office Space

Birch maintains its head office in Calgary, Alberta.
Executive, administrative and support staff work in the 7,972 square foot office
space. The rental commitment is $202,000 per year.

Core and Metallurgical
Laboratories

The Company maintains secure lab and storage facilities in
Calgary in an industrial area, for storage, logging and testing of drill core
samples and for testing in relation to the mineral exploration and technology
research work. The rental commitment of these facilities is $36,000 per year.

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 at the storage facility. 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.

20

Plant and Equipment
Birch owns office and computer equipment and small laboratory
equipment in its offices and laboratories. 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 mineral property.

Intellectual Property

In December 2002, Birch was granted US 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 has been filed with the US
Patent and Trademark Office.

Mineral Properties

Birch's mineral properties are exclusively located in the
Province of Alberta where Birch holds metallic and industrial mineral permits,
metallic industrial mineral leases and permit-to-lease conversions. Birch's
mineral properties are all located in northeastern Alberta and are collectively
called the Athabasca mineral property. The Athabasca mineral property was
originally acquired for precious metals exploration. In 1997 and  1998, Birch
explored for diamonds in a joint venture with Tahera Corporation. Since 2002,
Birch's Industrial Minerals Division has explored the Athabasca mineral property
for limestone and the Company is focused on commencing the operations of a
limestone quarry and quicklime plant.

Mineral Tenure in Alberta

Metallic and Industrial Mineral Permits
Metallic and industrial mineral permits, or "mineral
permits", are issued by the Department of Energy, Government of Alberta. Mineral
permits have a ten-year term and convey the right to explore for metallic and
industrial minerals. Mineral exploration or assessment costs must be filed with
the government 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 all of its
mineral permits held in Alberta. Some mineral permits are subject to a
production 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. Mineral permits held in good standing may
be converted to mineral leases any time prior to the expiry of their ten-year
term.

Metallic and Industrial Mineral Leases 
Birch also holds metallic and industrial mineral leases, or
"mineral leases". Mineral leases are also granted by the Department of Energy,
Government of Alberta and convey the right to develop and produce metallic and
industrial minerals, subject to meeting development approvals. Mineral leases
have a renewable fifteen-year term, subject to payment of an annual rent of
$3.50 per hectare ($1.42 per acre). Mineral leases under production are
automatically renewed at the end of their 15-year term.

Metallic and Industrial Mineral Permit-to-Lease Conversions
Birch has applied to have parts of certain permits that have
reached the end of their respective ten-year terms converted to mineral leases.
As the Company awaits the issuance of leases from the Government of Alberta, these applications
are formally recognized as "permit-to-lease
conversions".

Overlapping Mineral Rights
Ownership of minerals within the area of the Athabasca Oil Sands Mining Area, as
defined by the Government

21



Athabasca Mineral Property

As of March 31, 2005, Birch's Athabasca mineral property
covered 402,965 hectares (995,744 acres). Annual rental payments on mineral
leases of the Athabasca mineral property are $472,692 in 2005. If current
permit-to-lease conversions are received in 2005, net annual mineral lease
rental payments will increase to $602,050 for 2005 and thereafter. Lease rental
permits will increase if the Company elects to acquire new mineral leases or
decrease if existing low priority leases are allowed to expire. 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.

Rock Formations and Mineralization
Limestone and precious metals are the principal exploration
targets on the Athabasca mineral property. The geology of the Athabasca mineral
property is relatively simple, and is characterized by Precambrian basement
overlain by about 300 meters 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 meters of both sedimentary and basement rocks along
numerous structures in the north-central part of the Athabasca mineral property.

Location and Access
The Athabasca mineral property is located in the RMWB in
northeast Alberta, Canada. The City of Fort McMurray is the urban and economic
center of RMWB. While the region covers 61,566 square km (23,771 square miles),
most of itsresidents live in Fort McMurray, which has a population of
56,111 (2004 census). The hamlet of Fort McKay is located in the central area of
Birch's Athabasca mineral property.

Fort McMurray is located 435 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 Calgary and Edmonton.
Fort McMurray is situated at the confluence of the Athabasca and Clearwater
rivers. The larger oil sands mining plants are located approximately 45 to 100
km north of Fort McMurray. Infrastructure north of Fort McMurray, in the
vicinity of Fort McKay, is very good due to the presence of the large oil sands
mining operations. 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 and heavy equipment servicing
and expediting can be obtained in Fort McMurray. Infrastructure development is
ongoing in Fort McMurray and the Athabasca Oil Sands Mining Area.

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 mineral property is accessible by road or
all terrain vehicles. A high voltage power distribution line and high-pressure
natural gas pipeline cross the Athabasca mineral property. 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 for exploration activities at this time.

22



Mineral Title
Birch's currently active Athabasca mineral permits,
permit-to-lease conversions and leases were either originally acquired from the
Province of Alberta, or were acquired by purchase or option from other companies
or individuals. At March 31, 2005 the Athabasca mineral property covers 402,965
hectares (995,744 acres) as outlined in the tables below:

Table 4-3. Athabasca mineral property: mineral permits,
permit-to-lease conversions and leases.

|Year Issued                       | Term Expiry | Number  | Area (hectares) | Area (acres)
|--------------------------------- | ----------- | ------- | --------------- | ------------
|Mineral
    Permits by Issue Date
|1996                              | 2006        | 5       | 32,256          | 79,706      
|1998                              | 2008        | 2       | 8,448           | 20,875      
|2003                              | 2013        | 1       | 5,776           | 14,273      
|2004                              | 2014        | 15      | 101,500         | 250,811     
|2005                              | 2015        | 9       | 67,775          | 167,475     
|Total                             |             | 32      | 215,755         | 533,140     
|Mineral
    Leases by Issue Date 
|1991                              | 2006        | 1       | 112             | 277         
|1994                              | 2009        | 2       | 1,991           | 4,920       
|1999                              | 2014        | 2       | 1,216           | 3,005       
|2000                              | 2015        | 23      | 45,658          | 112,823     
|2003                              | 2018        | 4       | 4,742           | 11,719      
|2004                              | 2019        | 35      | 79,249          | 195,826     
|Total                             |             | 67      | 132,968         | 328,570     
|Permit-to-Lease Conversions      
|                                  |             | 24      | 54,242          | 134,034     
|Total                             |             | 24      | 54,242          | 134,034     
|GRAND
    TOTAL                   | 402,965     | 995,744





Previous Exploration
Birch and others have previously explored the Athabasca
mineral property for precious metals, diamonds and limestone. Comprehensive
details of all known prior exploration are included in the 2003 Technical
Report. The 2003 Technical Report, filed in May 2003 in Canada and on June 3,
2003 as an exhibit to a Form 6-K filed with the SEC and is available in the
Company's public documents at www.sedar.com and www.sec.gov.

In the period from 1993 to 1995, Birch and 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.

In 1997-98, Birch explored with a joint venture partner for
diamonds on its Athabasca mineral property. No potentially diamond-bearing rocks
were found during this exploration program.

Current Status - Industrial Minerals



Mineral Reserves
Canadian and US regulations on disclosure of mineral reserves
are significantly different, particularly for industrial minerals, and lead to
different classifications for Birch's recoverable limestone. In Canada, reserves
disclosure must conform to NI 43-101 of the Canadian Securities Regulators. In
the US, Industry Guide 7 ("IG7") of the US Securities and Exchange Commission
(the "SEC") governs the disclosure of mineral reserves.



Disclosure of Mineral Resources and Reserves in Canada

23



Under NI 43-101, the first report of mineral resources and/or
mineral reserves must be disclosed in an independent qualified person's
technical report. An independent technical report prepared to the level of a
scoping study is the minimum requirement for reporting a mineral resource
whereas for a mineral reserve an independent technical report at the level of a prefeasibility study is the minimum requirement. Under Canadian regulations, a
mineral resource need only have "reasonable prospects for economic extraction,"
while a mineral reserve must demonstrate "that economic extraction can be
justified."



The limestone resource of the MVQ was defined in the
independent 2004 Technical Report. Limestone mineral resources and reserves for
the expanded Hammerstone Project were defined in AMEC's independent 2005
Technical Report, which included a financial estimate of
project valuation, as required under NI 43-101 (See footnote 9 to Table 4-4).
Based on the conclusions of the 2004 Technical Report and the 2005 Technical
Report, Birch believes that a market exists for limestone aggregate and
quicklime produced at the MVQ or the Hammerstone Project.



Limestone resource and reserve estimates conforming to
Canadian NI 43-101 from the 2005 Technical Report are summarized in Table 4-4.
The proven reserves listed in Table 4-4 are the part of the measured resource
that falls within the economic pit design selected by AMEC. The probable
reserves are the part of the indicated resource that falls within the economic
pit design selected by AMEC. The limestone resources and reserves shown in Table
4-4 are mutually exclusive; that is, none of the mineral resources are included
in mineral reserves, and vice versa. The reserves listed exceed the sales
forecast feed requirements for all products over the estimated 66-year life of
the quarry. AMEC's independent financial valuation estimate shows (Table 4-7),
there is a reasonable expectation of profit from the limestone quarried within
the pit given the processes described and the estimated prices for saleable
products.



Disclosure of Mineral Reserves in the US
The SEC does not recognize the term "mineral resource" used
in Canada, and has more stringent requirements for defining a mineral reserve.
However the SEC permits use of term "mineralized material." Under IG7,
mineralized material may not be classified as a reserve unless it, "....could be
economically and legally extracted or produced at the time of the reserve
determination." In practise, the SEC requires economic feasibility to be
demonstrated by a bankable feasibility study and legal feasibility to be
demonstrated by having all regulatory permits and approvals in place or expected
imminently. For industrial minerals, the SEC further requires that sales
contracts be in place and production be imminent.



Reconciliation of Canadian and US Mineral Reserve Estimates
In Canada, use of the terms "indicated resource" and
"measured resource" is permissible. However, in the United States these terms
are not recognized. Instead, the term "mineralized material" is permissible if
there is sufficient information to justify its use. On this basis, limestone
reported as indicated and measured resources in Canada may only be reported as
mineralized material in the U.S (Table 4-4).



In Canada, mineral reserves may be disclosed based on
economic feasibility being demonstrated by a prefeasibility study whereas in the
US a bankable feasibility study is required. Current mining practise defines a
prefeasibility study as having an accuracy level of ± 25% while a bankable
feasibility study is understood to have an accuracy level in the range of
± 10-15%. Further, in the US demonstration of legal feasibility and, for
industrial minerals, having contracts in place is required prior to defining a
proven or probable reserve. Because Birch has not conducted a bankable
feasibility study and has only recently initiated the regulatory process for the Hammerstone Project, mineral reserves defined under Canadian NI 43-101 may only
be classified as mineralized material in the US (Table 4-4).







24

Table 4-4. Hammerstone Project recoverable limestone
      reconciliation table from N1 43-101 (figures rounded).

|                          | CANADA                | UNITED STATES     
|------------------------- | --------------------- | ------------------
|                          | Mineral Resource1,2,3 | Mineral Reserve1,6
|Product in million tonnes | Indicated4            | Measured5         
|Concrete Rock             | 39.5                  | 1.0               
|A-Grade Aggregate         | 91.0                  | 62.5              
|B-Grade Aggregate         | 113.5                 | 45.0              
|Calcinable Limestone      | 22.0                  | 15.0              
|Total                     | 389.5                 | 1,191.5           

Footnotes: 1Mineral resources and mineral reserves for
  Canada listed in this table conform to definitions of the Canadian Institute
  of Mining, Metallurgy and Petroleum ("CIM"), in Standards on Mineral
  Resources and Reserves Definitions and Guidelines adopted by the CIM
  Council on August 20, 2000, and incorporated into NI 43-101 of the Canadian
  Securities Regulators.

2



CANADIAN MINING DEFINITIONS3A Mineral Resource is a concentration or
  occurrence of natural, solid, inorganic or fossilized organic material in or
  on the Earth's crust in such form and quantity and of such a grade or quality
  that it has reasonable prospects for economic extraction. The location,
  quantity, grade, geological characteristics and continuity of a Mineral
  Resource are known, estimated or interpreted from specific geological
  evidence and knowledge.4An Indicated Mineral Resource is that part of
  a Mineral Resource for which quantity, grade or quality, densities,
  shape and physical characteristics, can be estimated with a level of
  confidence sufficient to allow the appropriate application of technical and
  economic parameters, to support mine planning and evaluation of the economic
  viability of the deposit. The estimate is based on detailed and reliable
  exploration and testing information gathered through appropriate techniques
  from locations such as outcrops, trenches, pits, workings and drill holes that
  are spaced closely enough for geological and grade continuity to be reasonably
  assumed.5A Measured Mineral Resource is that part of a
  Mineral Resource for which quantity, grade or quality, densities,
  shape, physical characteristics are so well established that they can be
  estimated with confidence sufficient to allow the appropriate application of
  technical and economic parameters, to support production planning and
  evaluation of the economic viability of the deposit. The estimate is based on
  detailed and reliable exploration, sampling and testing information gathered
  through appropriate techniques from locations such as outcrops, trenches,
  pits, workings and drill holes that are spaced closely enough to confirm both
  geological and grade continuity.6A Mineral Reserve is the economically
  mineable part of a Measured or Indicated Mineral Resource
  demonstrated by at least a Preliminary Feasibility Study9.
  This Study must include adequate information on mining, processing,
  metallurgical, economic and other relevant factors that demonstrate, at the
  time of reporting, that economic extraction can be justified. A Mineral
  Reserve includes diluting materials and allowances for losses that may occur
  when the material is mined.7A Probable Mineral Reserve is the
  economically mineable part of an Indicated, and in some circumstances a
  Measured Mineral Resource demonstrated by at least a Preliminary
  Feasibility Study. This study must include adequate information on mining,
  processing, metallurgical, economic, and other relevant factors that
  demonstrate, at the time of reporting, that economic extraction can be
  justified.8A Proven Mineral Reserve is the economically
  mineable part of a Measured Mineral Resource demonstrated by at least a
  Preliminary Feasibility Study. This study must include adequate
  information on mining, processing, metallurgical, economic, and other relevant
  factors that demonstrate, at the time of reporting, that economic extraction
  is justified.9A Preliminary Feasibility Study or Prefeasibility Study is a comprehensive study of the viability of a
  mineral project that has advanced to a stage where the mining method, in the
  case of underground mining, or the pit configuration, in the case of an open
  pit, has been established, and where an effective method of mineral processing
  has been determined. This study must include a financial analysis based on
  reasonable assumptions of technical, engineering, operating, and economic
  factors and evaluation of other relevant factors that are sufficient for a
  Qualified Person acting reasonably, to determine if all or part of the Mineral Resource may be classified as a Mineral Reserve.
  US MINING DEFINITIONS10Mineralized 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 metals. Such a
  deposit does not qualify as a reserve until a comprehensive evaluation based
  upon unit cost, grade, recoveries, and other material factors conclude legal
  and economic feasibility.11The SEC IG7 defines a Mineral Reserve as,
  "That part of a mineral deposit which could be economically and legally
  extracted or produced at the time of the reserve determination." According to
  interpretations by SEC staff of mining industry disclosure standards, such
  terms may not be used by SEC registrants unless the registrant has completed a
  bankable feasibility study and all applicable permits are in place or expected
  imminently. Birch has not conducted a bankable feasibility study and therefore
  the mineral resources and mineral reserves defined under Canadian NI 43-101
  may only be classified as Mineralized Material in the US.

25





Quarry and Aggregate Plant Development
Quarrying and aggregate processing will begin with the
opening of the MVQ expected in 2005. Opening of the MVQ will require clearing of
trees and stripping and stockpiling of organic soils and overburden,
construction of access roads, water diversion structures and wash ponds, and
installation of a weigh scale and office at an estimated cost of $2 million. The
quarry is planned as a conventional drill-blast-crush operation, as illustrated
in the top part of the simplified process flow diagram in Figure 4-3. Primary
crushing plants will be located near the rock face and fed by excavators or
wheel loaders. In-pit conveyors will move rock from the primary crushers to
secondary crushing plants. A contractor will initially operate the quarry. As
production volumes grow, Birch intends to purchase additional equipment and
operate the quarry itself. Birch expects to commence production with its own
equipment in 2006 or 2007.



Quicklime Plant Development
Kiln sizing was based on an initial quicklime capacity of
225,000 t per year beginning in 2008. Based on future projected sales, the
prefeasibility study included installation of additional quicklime producing
capacity of 225,000 t per year and 350,000 t per year being added in 2012 and
2021, respectively. The quicklime process design for this study is based on the
preliminary bench-scale test work carried out to date, which Birch believes has
shown that two different limestone units produce quicklime of acceptable quality
and indicates a horizontal kiln is most suitable for quicklime production. The prefeasibility design calls for the quicklime plant to be equipped with a FGD
system to remove sulphur produced by coke combustion and a regenerative thermal
oxidizer to reduce emissions of volatiles.





Figure 4-3. Simplified process flow diagram for Birch
      quarry, aggregate and quicklime operations



Capital Cost
The estimated cost to construct, install and commission the initial phase of
the Hammerstone Project is $130 million, which includes the capital cost of
blasting, crushing and stockpiling equipment for operating the MVQ. This
estimate is categorized as prefeasibility level with an expected accuracy of
± 25%. This amount covers the direct field costs of executing the MVQ and the
Hammerstone Project, plus indirect costs associated with design, construction
and commissioning. The base pricing is fourth quarter 2004 Canadian dollars with
no allowance for escalation beyond that time. Interest or financing costs during
construction are excluded. The total capital cost estimate over the life of the
project is $291 million. The capital cost estimates for the Hammerstone Project
are summarized in Table 4-5.

26





Table 4-5. Summary of capital costs, Hammerstone Project from
the 2005 Technical Report.



|Timing             | Description               | Total        
|------------------ | ------------------------- | -------------
|2005-2008          | Initial quarry and kiln 1 | $ 130,000,000
|2011               | Kiln 2 - Year 7           | 70,000,000   
|2021               | Kiln 3 - Year 17          | 91,250,000   
|Total Capital Cost | $ 291,250,000            





Operating Costs
The operating cost estimate is based on an owner-operated quarry, aggregate
plant, and quicklime plant. Costs have been calculated for the four main areas
of mining, aggregate processing, quicklime processing, and site administration.
Costs have been developed from data considered applicable to the Fort McMurray
area. Table 4-6 shows the overall average operating cost anticipated for the Hammerstone Project over its planned 66-year life.

Table 4-6. Summary of average life-of-quarry operating costs, Hammerstone Project from the 2005 Technical Report.

|Cost Area                 | Operating Costs ($/t)
|------------------------- | ---------------------
|Quarrying and
    haulage | 1.89                 
|Aggregate
    processing  | 1.45                 
|Site operating            | 0.01                 
|Administration            | 0.23                 
|Quicklime processing      | 47.50                



Financial Analysis in Respect of Canadian Mineral Reserves
Canadian securities regulations require that a financial
analysis be done at the prefeasibility level in order to demonstrate economic
viability. In the 2005 Technical Report, AMEC performed an independent financial
analysis on the Hammerstone Project using a discounted cash flow approach that
assumed 50% equity using fourth quarter 2004 Canadian dollars. Projections for
annual revenues and costs are based on data developed for the limestone quarry,
aggregate and lime plants, capital expenditures and operating costs. Estimated
project cash flows were used to determine the pre-tax net present value ("NPV")
and internal rate of return ("IRR") for the base-case.



Results of the AMEC's base-case financial analysis indicate
that the project has a potential pre-tax internal rate of return of 30.0% and a
pre-tax NPV of $697,843,000 at a discount rate of 7.5% (See Table 4-7). The
payback period is estimated at 8.8 years from first production. The base-case
quarry life used by AMEC was 66 years.



Table 4-7. Hammerstone financial valuations at various
      discount rates and IRR from the 2005 Technical Report.



|Discount Rate (pretax) | 0%         | 7.5%     | 10%      | 15%      | 25%    
|---------------------- | ---------- | -------- | -------- | -------- | -------
|NPV (000)              | $7,171,884 | $697,843 | $396,131 | $147,291 | $18,493
|IRR                    | 30.0 %     |          |          |          |        



Sensitivity analysis shows the cash flow model in the 2005
Technical Report is most sensitive to changes in product price, significantly
less to processing cost, and least sensitive to changes in quarrying cost and
capital expenditures. Specifically, the model is most sensitive to changes in
the price of lime, then of B-grade aggregate followed by A-grade aggregate, and
finally concrete rock.



Regulatory Status
On June 14, 2005, Birch received a decision report from the
NRCB recommending approval of the Muskeg

27

Valley quarry. Birch expects all final operating permits for
the MVQ to be in place for start-up of aggregate
production in the third quarter of 2005.



Current Status- Precious Metals



Since 1993, Birch has conducted extensive precious metals
exploration on the Athabasca mineral property, including field mapping and
prospecting, land and airborne geochemical and geophysical surveys, drilling,
core logging, sampling and analysis, as well as a wide variety of analytical
testing and mineralogical research. Precious metal microparticles and
nanoparticles have been identified and independently confirmed in both
sedimentary and basement rocks from the Athabasca mineral property and are the
target of Birch's precious metal exploration. There are no known potentially
economic occurrences of precious metals on the Athabasca mineral property. A
comprehensive discussion of the geology and mineral potential of the Athabasca
mineral property is included in the 2003 Technical Report.

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 the Athabasca mineral property. Although work in exploration and
technology has been deferred since 2003, Birch will assess its research and
development work to date and determine an approach for realizing the value of
the data accumulated and the patented processes.



Birch Mountains Mineral Property

Diamond exploration of the Birch Mountains mineral property
was not successful. The mineral permits making up the Birch Mountains mineral
property expired in 2004. Birch no longer owns any mineral property in this
area.



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 US GAAP.
For a discussion of these differences, see the notes to Birch's consolidated
financial statements in "Item 17 - Financial Statements."

28

Restatement of Financial Statements

The Company has estimated and accrued a potential liability
that was not previously recorded in the financial statements filed with the
Original Filing. The Company raised capital through flow through share issuances
in 2002, 2003 and 2004, which provide for an indemnity to the subscriber for the
additional taxes payable by such subscriber if Birch was unable to or failed to
renounce the qualifying expenditures as agreed without limiting the recourse of
the subscriber. The Company has applied for and filed all the necessary forms to
qualify for and renounce flow through expenditures in 2002, 2003 and 2004. The
accounting for and related tax balances as reported by the Company are subject
to estimation based on the Company's tax filing position and any change in the
tax filing position could expose the Company to additional taxes payable or
indemnification of the subscribers. The Company has estimated and accrued a
potential liability in the amount of $2,200,000.
This restatement has been applied retroactively. For the year
ended December 31, 2004, $1,750,000 was recorded as in increase in current
liabilities, $1,450,000 as an offsetting reduction in share capital for amounts
related to flow through shares and $300,000 as an increase to office expenses
for an estimated interest expense. For the year ended December 31, 2003,
$750,000 was recorded as an accrued liability with an offsetting reduction in
share capital for amounts related to flow through shares. In addition, the
future income tax recovery recorded on the income statement was reclassified as
an increase in share capital.
The cumulative effect of these changes on previously reported
results for the year ended December 31, 2004 is an increase in current
liabilities of $2,500,000 (from $580,787 to $3,080,787), a increase in share
capital of $260,300 (from $8,501,576 to $8,761,876), an increase in the net loss
of $1,663,000 (from $1,224,057 to $2,887,057) and a resulting decrease in
retained earnings of $2,760,300 (from retained earnings of $111,491 to an
accumulated deficit of $2,648,809). The cumulative effect of these changes on
previously reported results for the year ended December 31, 2003 is an increase
in current liabilities of $750,000 (from $148,786 to $898,786), an increase
share capital of $347,300 (from $28,598,874 to $28,946,174), an increase in the
net loss of $1,011,000 (from $557,435 to $1,568,435) and a resulting increase in
accumulated deficit of $1,097,300 (from $26,413,384 to $27,510,684). The
cumulative effect of these changes on previously reported results for the year
ended December 31, 2002 is an increase in the net loss of $86,300 (from
$1,809,950 to $1,896,250), an increase in share capital of $86,300, and a
resulting increase in accumulated deficit of $86,300.

Based upon the restatement of the Company's December 31, 2004
financial statements, the balances of current liabilities, retained earnings and
share capital as previously reported for the period ended March 31, 2005 have
been revised. The revisions have increased current liabilities by $2,500,000
(from $578,006 to $3,078,006), decreased share capital by $2,200,000 (from
$11,599,454 to $9,399,454) and increased accumulated deficit by $300,000 (from
$3,765,412 to $4,065,412). See "Item 17 - Financial Statements."

The revised financial statements also reflect additional
disclosure on the accounting treatment for the restatement and an updated
description of the Company's stock option plan in the Share Capital note. See
"Item 17- Financial Statements."

A. Operating Results

Years Ended December 31, 2004, 2003 and 2002

Prior to 2002, the Company focused on precious metals, base
metals and diamond exploration and minerals technology development. In 2002, the
Company 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 the Company has focused on advancing this
limestone business opportunity and deferred funding for precious metal
exploration and further technology development. Birch intends to continue
research and development of precious metals in the future.

The Company incurred a net loss of $2,887,057 in the year
ended December 31, 2004, compared to a net loss of $1,568,435 in 2003 and a net
loss of $1,896,250 in 2002. As at December 31, 2004, the Company had an
accumulated deficit, as restated, of $2,648,809.

Corporate Expenses

Total corporate expenses in 2004 were $2,172,876 (excluding $762,371 of
mineral properties expensed), and in 2003 were $1,136,023 (excluding $744,385 of
mineral properties expensed), and in 2002 were $1,170,931 (excluding $976,305 of
mineral properties expensed).

The Company adopted the stock-based compensation and other
stock-based payment accounting standard of the Canadian Institute of Chartered
Accountants Handbook Section 3870 in 2003. The impact of the adoption of this
standard for the year ended December 31, 2004 was additional compensation
expense of $246,127 and additional professional fees of $35,922. For the year
ended December 31, 2003, the impact was an additional compensation expense of
$66,681, additional mineral exploration costs of $1,231 and additional amounts
charged to share capital as share issue costs in the amount of $22,045.

Corporate expenses, excluding
non-cash stock-based expenses, increased in 2004 to $1,890,827 compared with
$1,068,111 in 2003 and $1,170,931 in 2002. The increase in 2004 reflects the
increased focus on the industrial mineral potential of the Athabasca mineral
property and professional fees and office expenses for the work required in the regulatory
applications for the MVQ and the Hammerstone
Project.  Additionally, the increase was caused by additional promotional
costs reported in shareholder services and promotion expenses and consulting
expenses related to additional printing and distribution of company brochures,
investors awareness, executive travel and an investor relations consultant.

Mineral Exploration Costs



|Total Mineral
    Exploration Costs       | 2004        | 2003      | 2002     
|----------------------------------------- | ----------- | --------- | ---------
|Industrial
    Minerals                   | $ 3,153,233 | $ 807,327 | $ 112,460
|Mineral
    Exploration                   | 762,371     | 262,044   | 821,331  
|Mineral
    Technology                    | -           | 11,150    | 42,514   
|Total Mineral
    Exploration Costs       | 3,915,604   | 1,080,521 | 976,305  
|Mineral
    Exploration Costs Capitalized | 3,153,233   | 336,136   | -        
|Mineral
    Exploration Expenses          | $ 762,371   | $ 744,385 | $ 976,305





Industrial Minerals Costs 
The Company continues to focus on its Industrial Minerals
Division, which was established in 2002. In 2004,

29



Birch focused most of its
financial resources on a further geological evaluation of the MVQ and
environmental approvals. In 2004, $3,153,233 was spent with this entire amount
being capitalized, compared to 2003 where $807,327 was spent with $336,136 of
this amount being capitalized. In 2002, this division spent $112,460, with no
amounts capitalized. Birch will continue to invest in its limestone quarry
project.

Mineral Exploration Costs 
Mineral exploration costs relate to industrial minerals and
precious metals. Costs increased to $762,371 in 2004 from $262,044 in 2003 and
$821,331 in 2002. This work was focused on the Company's Athabasca mineral
property.

Mineral Technology Costs 
With the Company's focus on industrial minerals in
2004, spending on scientific research directed to developing proprietary
extraction and analytical techniques for precious metals decreased to zero from
$11,150 in 2003 and $42,514 in 2002. The results of Birch's previous research
led to the filing of a US and international patent application in the spring of
2000. Birch was granted a US patent in December 2002.



Corporate Income

Income in 2004 is from interest. The Company generated
revenue by granting certain rights to extract limestone to Syncrude Canada Ltd.
in 2003 for $100,000 and to Suncor Energy Ltd. in 2002 for $250,000. Birch has
limited income from production because the Industrial Minerals Division is in
development, all other properties remain at the exploration stage, and its
technology is in the research phase. The Company's ability to generate income
requires the opening of the MVQ and successful sale of aggregates and this is
the Company's focus in 2005.



Three Months Ended March 31, 2005 and 2004

The Company incurred a net loss of $1,416,603 in the period
ended March 31, 2005.

During the first quarter of 2005, total
expenses were $1,442,391 as compared to $537,356 during the first quarter of
2004. However, including mineral expenditures that were capitalized of $746,336
(2004-$815,186) and excluding non-cash stock-based expenses of $687,913
(2004-$48,191), normalized total expenditures were $1,500,814 compared to
$1,304,351 for 2004, an increase of 196,463. Expenditures on mineral
exploration and development have been fairly consistent period over period, with
the 15% increase in total expenditures resulting from additional administrative
expenses.

Corporate  Expenses

Corporate expenses, excluding non-cash stock-based
expenses, increased by $214,943 in the first quarter of 2005, totalling $533,786
as compared to $318,843 for 2004.

|• | Professional fees, excluding non-cash stock-based
    expenses of $63,543, contributed to the increase by $19,881 due to the fees
    associated with a US based investor relations firm;                                                                                                                      
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                
|• | Shareholder services and promotion expenses accounted for
    $111,124 of the total increase, which resulted from additional costs
    associated with printing shareholder documents of approximately $75,000 and
    additional travel costs associated with investor relations of approximately
    $29,000;
|  |                                                                                                                                                                                                                                                                                                                
|• | Salaries and benefits contributed to the increase by
    $29,431 due to the hiring of an additional executive; and                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                
|• | Office expenses contributed to the increase by $53,432
    related to increased office rent.                                                                                                                                                                                                                   

30

Non-cash stock-based expenses including stock-based
compensation expense and professional fees are related to stock options issued
to employees, directors, and advisors. The recorded expense was $639,722 higher
for the first quarter of 2005 compared to the first quarter of 2004, due to
options issued in early 2005.
Mineral Exploration Costs



|For the quarter
    ended     | March 31, 2005 | March 31, 2004
|----------------------------- | -------------- | --------------
|Industrial
    Minerals       | $ 220,692      | $ 151,396     
|Mineral
    Exploration       | -              | 18,926        
|Mineral
    Technology        | -              | -             
|                              | 220,692        | 170,322       
|Amounts
    Capitalized       | 746,336        | 815,187       
|Mineral
    Exploration Costs | $ 967,028      | $ 988,509     





Industrial Minerals Costs: Total mineral exploration
costs including expenditures capitalized were $967,028 in the first quarter of
2005 compared to $985,509 in the first quarter of 2004. These costs related to
the industrial minerals division. Activity in each quarter was consistent as
engineering, geological, regulatory and environmental work, including the CERI
and AMEC independent technical reports, was undertaken to advance the
development of the MVQ.

Precious Metals Exploration Costs: 
With the Company's  focus on industrial minerals, exploration costs
related to precious metals decreased from $18,926 in the first quarter of 2004,
to $0 in the same period in 2005.

Mineral Technology Costs:
There was no activity in this division during the first quarter of 2005.

Corporate Income

The Company's main source of income
from year-to-year has been interest earned on its term deposits. For the quarter
ended March 31, 2005, the interest earned was $25,788 compared to $7,749 for the
quarter ended March 31, 2004. Interest income varies with the amount of money in
term deposits.

B. Liquidity and Capital Resources

Years Ended December 31, 2004, 2003 and 2002

The Company's primary source of cash has been private
placements of equity securities. Working capital at December 31, 2004 was
$2,781,050, compared to $1,030,029 at December 31, 2003 and a working capital
deficit of $832,191 at December 31, 2002.

During 2004, Birch raised gross proceeds of $6.6 million
through private placements, compared to $4.5 million in 2003 and $926,705 in
2002. These proceeds were offset by an accrued liability for possible future
indemnification of taxes payable to subscribers, estimated at $750,000 for 2003
and $1,450,000 for 2004, should the Company not renounce or qualify expenditures
for the flow-through shares. Birch received $228,580 from the exercise of stock options in 2004,
$65,500 in 2003 and during 2002 no options were exercised. Birch also received
$2.7 million from the exercise of warrants in 2004, and no warrants were
exercised in 2003 or 2002. The funds raised in 2004 provided working capital to
sustain basic operations into 2005.

At cash expenditure rates consistent with the fourth quarter
of 2004, the Company has existing capital to continue operations into the fourth
quarter of 2005. Total cash expenditures in 2004 increased to approximately
$196,000 per month from approximately $151,000 in 2003 and $179,000 in 2002.
This is largely due to general and administrative costs as the corporate
infrastructure was built to move the Company into operations with quarry
production expected by third quarter 2005.

31



On-going commitments
for capital resources relate largely to the maintenance of the mineral permits
and leases granted to the Company by the Government of Alberta plus some general
operating leases. The total landholdings of the Company decreased by 34,513
hectares in 2004 to a total of 335,190 hectares (828,269 acres). Lease and
permit payments, along with associated fees in 2004 were $659,177, while lease
and permit payments and commitments beyond 2004 will be approximately $655,235
if Birch continues to hold all of its mineral leases and permits into the
future.  At December 31, 2004, the Company has a requirement to spend $2.5
million of qualifying expenditures for flow through purposes prior to December 31,
2005.

Three Months Ended March 31, 2005 and 2004

The Company's primary source of cash has been private
placements. Working capital at March 31, 2005 is $1,936,325, a decrease of
approximately $845,000 from December 31, 2004. The decrease is a result of lower
cash balances resulting from cash expenditures in first quarter 2005.

During the quarter, Birch received $409,000 from the exercise
of stock options and warrants. At gross expenditure rates consistent with the
first quarter of 2005, the Company has existing capital to continue operations
into the fourth quarter of 2005.

At March 31, 2005, the Company holds mineral leases, permits
and permits-to-lease conversions, in the Athabasca region, covering an area of
402,965 hectares (995,744 acres), which is an increase of 67,775 hectares over
the land position at December 31, 2004. The increase relates to additional
permits secured in first quarter 2005. Lease and permit payments, along with
associated fees in 2005 and years beyond will be approximately $670,000
annually, if Birch continues to hold all of its mineral permits and leases into
the future.



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 US and international patent applications. It is the Company's
policy that costs associated with such research are expensed in the period in
which they are incurred. During the fiscal year ended December 31, 2004, the
Company did not spend any monies on research as compared to $11,150 in 2003 and
$42,514 in 2002.

Late in 2002, Birch was granted US patent number 6,494,932
entitled "Recovery of Natural Nanoclusters and the Nanoclusters Isolated
Thereby". Birch has also filed a parallel 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 applied to licence a limestone
quarry and will apply to license a quicklime plant. The expansion, construction
and operation of oil sands projects requires large volumes of aggregate, in
addition to aggregate required for constructing the regional infrastructure to
support this development, and aggregate products.

32

The proposed MVQ 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 to treat water used for bitumen production
and to remove sulphur, mercury
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. Birch plans to file an application for an expended
quarry and quicklime plant, the Hammerstone Project,
in 2005.


    E. Off-balance Sheet
    Arrangements



The Company has no off-balance sheet arrangements.
F. Tabular Disclosure of
    Contractual Obligations



As of December 31, 2004, the Company's known contractual
obligations are as follows.



|                                                                                                                                                   | Payments due in each period
|-------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------
|Contractual Obligations                                                                                                                            | Total                      
|Long-term Debt Obligations                                                                                                                         | -                          
|Capital (Finance) Lease
    Obligations                                                                                                            | -                          
|Operating Lease Obligations                                                                                                                        | $ 707,000                  
|Purchase Obligations                                                                                                                               | -                          
|Other Long-Term Liabilities
    Reflected on the Company's Balance Sheet under the GAAP of the primary
    financial statements - Land Lease Costs | 6,199,000                  
|Total                                                                                                                                              | $ 6,906,000                







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, as of June 21, 2005:

|Name            | Function                                                          |  | Principal Business Activities, Business Experience and
    Principal Directorships                                                                                                                                                                                                                                                                                                                                                              | Number of Common Shares and Percentage of Class, Number of
    Warrants and Stock Options Held
    June 21, 2005                                                                                          
|--------------- | ----------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Kerry E. Sully  | Chairman of the
    Board and Director since 1995                 |  | Since 1999, Mr. Sully has been President and CEO of CGX
    Energy Inc., a company exploring for hydrocarbons in Guyana and was
    President, Chief Executive Officer and a Director of Ranchmen's Resources
    Ltd. from 1989 to 1995.                                                                                                                                                                                                       | 299,000 common shares
    (0.4%)
    
    150,000 stock options(4)
    
    125,000 stock options(5)
    
    150,000 stock options(6)
    
    125,000 stock options(8)
    
    75,000 stock options(11)
|Douglas J. Rowe | President and Chief
    Executive Officer and Director 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. Mr. Rowe is a director
    of Energy Exploration Technologies Inc., a company developing remote sensing
    technology to assist in the exploration of hydrocarbons. | 677,983 common shares
    (1.0%)
    
    390,000 stock options(4)
    
    90,000 stock options(5)
    
    300,000 stock options(6)
    
    250,000 stock options(8)
    
    175,000 stock options(11)

33



|Name                     | Function                                                                                                   |  | Principal Business Activities, Business Experience and
    Principal Directorships                                                                                                                                                                                                                                                                                                                                                                                                                                    | Number of Common Shares and Percentage of Class, Number of
    Warrants and Stock Options Held
    June 21, 2005                                                                                                                                                           
|------------------------ | ---------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Donald L. Dabbs          | Senior Vice
    President and Director since 1994, formerly Vice-President and Chief
    Financial Officer |  | Mr. Dabbs was the President and Chief Executive Officer
    of Niaski Environmental Inc. from 1998-1999. He was Regional Manager, Bovar
    Environmental, and had served as a Vice-President of Concord Environmental
    Corporation from 1988 to 1994 where he was responsible for resource
    development planning and regulatory approvals for clients, particularly in
    the Athabasca oil sands.                                                                                                            | 448,972 common shares
    (0.7%)
    
    200,000 stock options(4)
    
    100,000 stock options(5)
    
    250,000 stock options(6)
    
    200,000 stock options(8)
    
    75,000 stock options(11)                                                                 
|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, an
    oilfield services company.                                                                                                                                                                                                                                                                            | 171,666 common shares
    (0.3%)
    
    13,333 warrants(1)
    
    100,000 stock options(4)
    
    150,000 stock options(5)
    
    150,000 stock options(6)
    
    100,000 stock options(8)
    
    50,000 stock options(11)                                     
|Dr. Hugh
    Abercrombie | Vice-President,
    Exploration
    since 1998                                                             |  | Dr. Abercrombie joined Birch 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.                                                                                        | 387,699 common shares
    (0.6%)
    100,000 stock options(4)
    
    65,000 stock options(5)
    
    200,000 stock options(6)
    
    150,000 stock options(8)
    
    75,000 stock options(11)                                                                       
|Dr. Jack Clark O.C.      | Director since 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.                                                                                            | 225,000 common shares
    (0.3%)
    
    100,000 stock options(4)
    
    25,000 stock options(5)
    
    150,000 stock options(6)
    
    100,000 stock options(8)
    
    50,000 stock options(11)                                                                  
|Charles Hopper           | Director since 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.                                                                                                                                                                                                                                       | 77,500 common shares
    (0.1%)
    
    100,000 stock options(2)
    
    25,000 stock options(3)
    
    25,000 stock options(4)
    
    125,000 stock options(5)
    
    150,000 stock options(6)
    
    100,000 stock options(8)
    
    50,000 stock options(11)
|Derrick Kershaw          | Director since 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 Oil sands Discovery Centre. | No common shares
    
    125,000 stock options(7)
    
    125,000 stock options(8)
    
    50,000 stock options(11)                                                                                                                                                     
|Larry Shelley            | Director since 2005                                                                                        |  | From 2000 to 2003 Mr. Shelley was the Executive
    Vice-President of Advisory Services at Meyers Norris Penny LLP, a public
    accounting firm, and President of the Tamarack Group Ltd., a corporate
    finance company. Since 2004 Mr. Shelley has been the President of SRG
    Capital Ltd. , a private investment firm.                                                                                                                                                                                       | 50,000 common shares
    
    350,000 stock options(12)                                                                                                                                                                                                                    

34



|Name            | Function                                                           |  | Principal Business Activities, Business Experience and
    Principal Directorships                                                                                                                                                                                                                                                                                                                                                                | Number of Common Shares and Percentage of Class, Number of
    Warrants and Stock Options Held
    June 21, 2005           
|--------------- | ------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------
|Hansine Ullberg | Vice-President,
    Finance and Chief Financial Officer since 2005 |  | Ms. Ullberg has held the positions of Director of Finance
    for The Calgary Flames, Vice President of Finance and Administration for
    Alterna Technologies Group Inc., Divisional Controller for Barton Instrument
    Systems, and Manager of Accounting and Auditing for Ernst and Young. Ms.
    Ullberg has a Bachelor of Commerce (Honours) and Masters of Accountancy from
    the University of Manitoba and obtained her CA in 1996. | No common shares
    
    200,000 stock options(10)
    
    150,000 stock options(11)                                     
|Russell Gerrish | Vice-President, Operations and
    Engineering since 2005          |  | Mr. Gerrish has 27 years of experience in engineering
    management and consulting, aggregate exploration, and mine
    planning/implementation related to aggregates, asphalt and ready-mix
    concrete.                                                                                                                                                                                                                                       | 70,000 common shares
    
    30,000 stock options(9)
    
    200,000 stock options(10)
    
    150,000 stock options(11)

Notes:

(1) Each warrant entitles the holder to purchase one
common share at a price of $0.75 per share until December 31, 2005.

(2) Each stock option entitles the holder to purchase
one common share at a price of $0.60 per share until January 27, 2006.

(3) Each stock option entitles the holder to purchase
one common share at a price of $0.65 per share until April 24, 2006.

(4) Each stock option entitles the holder to purchase
one common share at a price of $0.26 per share March 18, 2007.

(5) Each stock option entitles the holder to purchase
one common share at a price of $0.34 per share until April 3, 2007.

(6) Each stock option entitles the holder to purchase
one common share at a price of $0.30 per share until October 2, 2008.

(7) Each stock option entitles the holder to purchase
one common share at a price of $0.53 per share until May 31, 2009.

(8) Each stock option entitles the holder to purchase
one common share at a price of $0.55 per share until August 31, 2009.

(9) Each stock option entitles the holder to purchase
one common share at a price of $0.74 per share until November 23, 2009.

(10) Each stock option entitles the holder to purchase
one common share at a price of $2.35 per share until January 11, 2010.

(11) Each stock option entitles the holder to purchase
one common share at a price of $2.48 per share until March 7, 2010.

(12) Each stock option entitles the holder to purchase
one common share at a price of $2.09 per share until April 15, 2010.



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, Mr. Friedland has made
no such nomination for the forthcoming year.

B. Compensation

The following table sets forth the amount of compensation
that was paid and benefits that were granted in the financial year ended
December 31, 2004 to each of the individuals listed in Item 6(A) above.



|Name                 | Compensation | Benefits
|-------------------- | ------------ | --------
|Douglas J. Rowe      | $165,923     | $1,123  
|Kerry E. Sully       | 0            | 0       
|Donald L. Dabbs      | $132,389     | $3,124  
|Lanny K. McDonald    | 0            | 0       
|Dr. Hugh Abercrombie | $123,491     | $4,526  
|Dr. Jack Clark       | 0            | 0       
|Charles Hopper       | 0            | 0       
|Derrick Kershaw      | 0            | 0       
|Larry Shelley        | 0            | 0       
|Hansine Ullberg      | 0            | 0       
|Russell Gerrish      | $101,281     | 0       





35



See "Item 6 - Directors, Senior Management and Employees
-
Directors and Senior Management" regarding the number of options to purchase
common shares of Birch, the exercise price and the expiration date of options
granted to each of the individuals listed in Item 6(A) above.



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 Larry
Shelley, CA (chair), Charles Hopper and Kerry E. Sully. The general function of
the Audit Committee is to review the overall audit plan, results of the external
audit, the annual financial statements and management discussion and analysis
("MD&A"), the review of quarterly financial statements and MD&A, the Company's
system of internal controls, the Company's accounting and disclosure policies
and to resolve any potential disputes with Birch's auditors.

Compensation Committee

The Compensation Committee of Birch currently consists of
Lanny K. McDonald (chair), Jack Clark and Derrick Kershaw. The general function
of the Compensation Committee is to review the overall compensation policy and
amounts, including benefits, and other personnel issues.

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 undertakes a review of the compensation paid by similar
companies in setting guidelines for the compensation of all Company's employees.
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 for executive salaries. . 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. The Board of Directors of the Company has subsequently
approved increases in Mr. Rowe's annual salary to $140,000 per annum, effective
June 15, 2000, $164,800 effective January 1, 2004 and $180,000 effective March
1, 2005.

Governance and Risk Committee

The Governance and Risk Committee of Birch currently consists
of Charles Hopper (chair), Lanny K. McDonald and Larry Shelley. The general
function of the Governance and Risk Committee is to assess corporate governance
practices of the Company and frequently assess business risks.

Health, Safety and Environment Committee

The Health, Safety and EnvironmentCommittee of Birch
currently consists of Derrick Kershaw (chair), Jack

36



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. All of Birch's employees are employed in Alberta, Canada.



|                                                                                       | As at December 31
|-------------------------------------------------------------------------------------- | -----------------
|                                                                                       | 2004             
|Operations(1)                                                                          | 6                
|Accounting                                                                             | 1                
|Administration                                                                         | 4                
|Total                                                                                  | 11               
|(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", above, for disclosure regarding share
ownership and options of Birch directors and senior management.

The Board of Directors of the Company adopted the stock
option plan of the Company on May 7, 2004, which was ratified by shareholders on
July 8, 2004 (the "Plan"). The purpose of the Plan is to advance the interests
of the Company by encouraging the directors, officers, employees and consultants
of the Company, and of its subsidiaries, if any, to acquire shares in the
Company, thereby increasing their proprietary interest in the Company,
encouraging them to remain associated with the Company and furnishing them with
additional incentive in their efforts on behalf of the Company in the conduct of
its affairs. The Plan is administered by the Board of Directors of the Company
or by a special committee of the Board of Directors, if appointed, from time to
time (the "Board"). Pursuant to the Plan, the Board may grant non-transferable
options to purchase Common Shares of the Company to directors, officers,
employees and consultants of the Company and its subsidiaries and employees of a
person or company which provides management services (excluding investor
relations services) to the Company or its subsidiaries ("Management Company
Employees") (such persons hereinafter collectively referred to as
"Participants"). Under the 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 issuance to any
one Participant shall not exceed the maximum number of shares permitted by any
stock exchange or exchanges on which the Common Shares of the Company are then
listed and any other regulatory body having jurisdiction (the "Exchange"). The
aggregate number of Common Shares issuable upon the exercise of all options
granted under the Plan may not exceed 10,269,047 shares. Options issued pursuant
to the Plan will have an exercise price determined by the Board provided that
such 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 Company 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 Company). 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.

37

ITEM 7     MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS


    
    A. Major Shareholders



To the knowledge of Birch, as of May 9, 2005, 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.
As of May 9, 2005, 102 holders having an address of record
within the US owned 12,159,267 common shares, representing 18.0% of Birch's
67,500,732 (as of May 9, 2005) 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 Form 20-F, 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 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.
The Company has not made any loans for the benefit of any of
the persons listed in the previous paragraph.


    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, 2004, 2003 and 2002 and the
unaudited consolidated interim financial statements for the periods ended
March 31, 2005 and 2004 which are set forth in "Item 17 - Financial Statements."
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.
38
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



On May 13, 2005, Ernst and Young LLP was appointed
independent auditor for Birch, replacing Meyers Norris Penny LLP. No other
significant changes have occurred since March 31, 2005.
ITEM 9     THE OFFER AND LISTING


    
    A. Offer and Listing Details



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



|Year or Month     | Period         | High (Cdn$) | Low (Cdn$)
|----------------- | -------------- | ----------- | ----------
|December 31, 2000 | Year           | 3.05        | 0.40      
|December 31, 2001 | Year           | 1.10        | 0.50      
|December 31, 2002 | Year           | 0.73        | 0.10      
|December 31, 2003 | Year           | 0.56        | 0.19      
|December 31, 2004 | Year           | 2.50        | 0.45      
|                  |                |             |           
|2003              | First Quarter  | 0.40        | 0.19      
|                  | Second Quarter | 0.55        | 0.23      
|                  | Third Quarter  | 0.47        | 0.24      
|                  | Fourth Quarter | 0.56        | 0.25      
|2004              | First Quarter  | 1.08        | 0.46      
|                  | Second Quarter | 0.71        | 0.45      
|                  | Third Quarter  | 0.67        | 0.49      
|                  | Fourth Quarter | 2.50        | 0.53      
|2005              | First Quarter  | 3.53        | 1.90      
|                  |                |             |           
|December 31, 2004 | Month          | 2.50        | 0.99      
|January 31, 2005  | Month          | 3.00        | 1.90      
|February 29, 2005 | Month          | 3.53        | 2.52      
|March 31, 2005    | Month          | 3.11        | 2.02      
|April 30, 2005    | Month          | 2.55        | 1.94      
|May 31, 2005      | Month          | 2.77        | 1.91      





The following table sets forth the high and low market prices
of the common shares on the OTC-BB; except for prices listed after March 21,
2005, when the Company's stock began trading on the American Stock Exchange
("AMEX"). All financial figures in this table are expressed in US dollars.



|Year or Month     | Period         | High (US$) | Low (US$)
|----------------- | -------------- | ---------- | ---------
|December 31, 2002 | Year           | 0.29       | 0.07     
|December 31, 2003 | Year           | 0.45       | 0.30     
|December 31, 2004 | Year           | 2.05       | 0.34     
|                  |                |            |          
|2003              | First Quarter  | 0.25       | 0.13     
|                  | Second Quarter | 0.43       | 0.15     
|                  | Third Quarter  | 0.41       | 0.18     
|                  | Fourth Quarter | 0.45       | 0.18     

39



|Year or Month     | Period         | High (US$) | Low (US$)
|----------------- | -------------- | ---------- | ---------
|2004              | First Quarter  | 0.90       | 0.37     
|                  | Second Quarter | 0.56       | 0.34     
|                  | Third Quarter  | 0.52       | 0.34     
|                  | Fourth Quarter | 2.05       | 0.37     
|2005              | First Quarter  | 2.84       | 1.55     
|                  |                |            |          
|December 31, 2004 | Month          | 2.05       | 0.82     
|January 31, 2005  | Month          | 2.37       | 1.55     
|February 29, 2005 | Month          | 2.84       | 2.04     
|March 31, 2005    | Month          | 2.49       | 1.71     
|April 30, 2005    | Month          | 2.04       | 1.55     
|May 31, 2005      | Month          | 2.17       | 1.40     





B. Plan of Distribution

This item is not applicable.

C. Markets

Trading in Canada

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

Trading in the US

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

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

The information under "Item 14 - Description of Securities to
be Registered" contained in the Form 20-F/A4 Registration Statement dated April
25, 2001 is hereby incorporated by reference.

On March 28, 2005 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

40



"Rights Plan Agreement") of the same date between the Company and Computershare Trust
Company of Canada, as rights agent. The shareholders of the Company approved the
Rights Plan on May 12, 2005. 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 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 Form 20-F, except the Rights Plan. (See "Item 10 -Additional Information
-
Memorandum and Articles of Association").

D.     Exchange Controls

Canadian Investment 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 US residents, however, are subject to a 15% withholding tax or
a 5% withholding tax for dividends if the 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 US (See "Item 10 -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.

The ICA requires a person who is not a Canadian resident (a
"non-Canadian") making an investment, which would result establish a new
Canadian business or 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 to be filed by the investor within 30 days following
implementation of the investment. Specific investments are subject to review
under the ICA. It is intention of the IRD that investments requiring only
notification will proceed without government intervention.

41

The following investments by non-Canadians 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)                                                                                                                                                                                                  

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | however for an indirect acquisition if the asset value of the Canadian
    business being acquired exceeds 50% of the asset value of the global
    transaction;                                                                                                                                                                      
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Except as specified in paragraph (c) below, a
        threshold is calculated annually for reviewable direct acquisitions by
        or from WTO investors. The threshold for 2005 is $250 million. Pursuant
        to Canada's international commitments, indirect acquisitions by or from
        WTO investors are not reviewable;
|   | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | The limits set out in paragraph (a) apply to all investors for
        acquisitions of a Canadian business that:                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | (i)                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | (ii)                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | (iii)                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | (iv)                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                       
|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.

With reference to 1 (a) above, 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 an
  investor acquires less than one-third of the voting control of a Canadian
  corporation.

With reference to 1(a) above, 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 notification and
review, including, among others,

|1. | 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;                                                                                                                                          
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | 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;                                                                   
|3. | 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



42



|4. | 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

In the opinion of Birch, the following is a summary of the
principal Canadian federal income tax considerations generally applicable in
respect of the holding and disposition of common shares. The income tax
consequences to any particular holder of common shares will vary according to
the particular circumstances of each holder, including without limitation, 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 and
the place where that holder is resident.

This summary is based upon the Company's understanding of
current provisions of the Income Tax Act (Canada) and the regulations there
under (collectively, the "Tax Act", or "ITA") and the Canada-United States Tax
Convention (1980) (the "Tax Convention") as at the date of this Form 20-F, of
all specific proposals to amend the Tax Act publicly announced prior to the date
hereof and of the current published administrative and assessing practices of
the Canada Revenue Agency (formerly the Canada Customs and Revenue Agency).
Other than such proposed amendments, this summary does not take into account or
anticipate changes in the law, whether by way of judicial decision or
legislative action, nor any changes in the administrative or assessing practices
of the CRA. This summary does not take into account, or anticipate any
provincial, territorial or foreign tax legislation or other considerations,
which may differ from those consideration described herein.

This summary is applicable only to holders who for the
purposes of the Tax Act and the Tax Convention, are resident in the US, have
never been resident in or deemed to be resident in Canada at any time while they
have held common shares; deal at arm's length with and are not affiliated with,
the Company, hold their common shares as capital property, do not carry on and
are not deemed to carry on an insurance business in Canada, and will not use or
hold the common shares in the course of carrying on business in Canada. Special
rules, which are not discussed in this summary, may apply to a US holder that is
a corporation that carries on business in Canada and elsewhere.

This summary is of a general nature only and is not intended
to be, nor should it be construed to be, legal or tax advice to any holder of
common shares. No opinion was requested by the Company or provided by its
auditors or lawyers. 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

A non-resident of Canada will not be subject to tax under the
Tax Act in respect of a capital gain realized upon the disposition or deemed
disposition of a common share of the Company unless it constitutes "taxable
Canadian property" under the Tax Act and the holder is not entitled to relief
under the Tax Convention. A common share being listed on a prescribed stock
exchange 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 such persons, owned (or had the
right to acquire) 25% of more of the issued shares of any class or series of the
Company (or any predecessor) or such shares were acquired in a tax-deferred
exchange for property that was itself taxable Canadian property.

In the case of a non-resident holder to whom shares of the
Company represent taxable Canadian property and who is resident in the US, no
Canadian tax will generally 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

43

in Canada or the non-resident holder previously held the shares while resident
in Canada. Mineral exploration rights are generally
considered to be real property for this purpose. Shareholders should consult
with their advisors as to whether they will be afforded relief under the Tax
Convention.
If common shares of the Company constitute taxable Canadian
property and a holder is not afforded relief under the Tax Convention, a capital
gain (or capital loss) will generally be realized to the extent that the
proceeds of disposition received exceed (or are less than) the aggregate
adjusted cost base of such shares, net of any reasonable costs of disposition.
One-half of any such capital gain ("taxable capital gain") will be required to
be included in income in the year of the disposition. One half of the amount of
any capital loss ("allowable capital loss") may be deductible against certain
taxable capital gains realized in the year, and may otherwise be available for
deduction in other taxation years in accordance with the provisions of the Tax
Act.
However, special rules apply if a non-resident or certain
designated partnerships dispose of common shares of the Company to another
corporation resident in Canada with which the non-resident does not deal or is
deemed not to deal at arm's length and, immediately after the disposition, the
Company is "connected" with the purchaser corporation within the meaning of the
Tax Act. Generally speaking, such circumstance may occur
where the Company is controlled by the purchaser corporation
or where the purchaser corporation holds shares representing more than 10% of
the issued share capital of the Company having full voting rights under all
circumstances and shares having a fair market value of more than 10% of the fair
market value of all issued shares of the Company. In such case, amongst other
results, 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 a
dividend paid by the purchasing corporation, and subject to withholding taxes as
described below.
Dividends

In the case of any dividends paid or credited or deemed to be
paid or credited to non-residents, the non-resident will be subject to tax on
the gross amount of such dividends. In the absence of protection under the Tax
Convention, the Company will be required to withhold there from on account of
tax, 25% of the amount of such dividend, and remit same to the Receiver General
of Canada, and the net amount of the dividend will be paid to the non-resident
holder. In certain cases Article X of the Tax Convention reduces the rate of tax
on dividends paid to residents of the US 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). Stock dividends received by non-residents from the Company are
taxable in Canada as ordinary dividends.
Dispositions 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), 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 would be subject to withholding tax as described above.
US Federal Income Tax Consequences


The following is a discussion of possible US Federal income
tax consequences, under US law, generally applicable to a US Holder (as defined
below) of common shares of the Company. This discussion does not address
consequences peculiar to persons subject to special provisions of US Federal
income tax law, such as those described below as excluded from the definition of
a US Holder. In addition, this discussion does not cover any alternative
minimum, US state and local or foreign tax consequences.
The following discussion is based upon the Internal Revenue
Code of 1986, as amended (the "Code"),

44

Treasury Regulations, published Internal Revenue Service
("IRS") rulings, published administrative positions of the IRS, and court
decisions that are currently applicable, any 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.
This summary is for general information only and it is not
intended to be, nor should it be construed to be, legal or tax advice to any
holder or prospective holder of common shares and no opinion or representation
with respect to the US Federal income tax consequences to any such holder or
prospective holder is made. Holders and prospective holders of common shares of
the Company should consult their own tax advisors about the US Federal, US state
and local, and foreign tax consequences of purchasing, owning and disposing of
common shares of the Company.
As used herein, a US Holder includes a holder of common
shares who is a citizen or individual resident (as defined under US tax laws) of
the United States; a corporation created or organized in or under the laws of
the US or of any political subdivision thereof; an estate the income of which is
taxable in the US irrespective of source; or a trust if (a) a court within the
US is able to exercise primary supervision over the trust's administration and
one or more US persons have the authority to control all of its substantial
decisions or (b) the trust was in existence on August 20, 1996 and has properly
elected to continue to be treated as a US person. This summary does not address
the US tax consequences to, and US Holders do not include, persons subject to
specific provisions of federal income tax law, including, but
not limited to, tax-exempt organizations, qualified retirement plans, individual
retirement accounts and other tax-deferred accounts, financial institutions,
insurance companies, real estate investment trusts, regulated investment
companies, broker-dealers, non-resident alien individuals, persons or entities
that have a "functional currency" other than the US dollar, persons who hold
common shares as part of a straddle, hedging or a conversion transaction, and
persons who acquire their common shares as compensation for services. This
summary is limited to US Holders who own common shares as capital assets and who
hold the common shares directly and not through an intermediary entity.

Distributions on Common Shares of the Company

Subject to the discussion below regarding "passive foreign
investment companies" ("PFICs"), US Holders receiving dividend distributions
(including constructive dividends) with respect to common shares of the Company
are required to include in gross income (for US Federal income tax purposes) the
gross amount of such distributions, to the extent that the Company has current
or accumulated earnings and profits, as determined under US Federal tax
principals. 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 US Holder's US 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 US Holder's adjusted
basis in the common shares and thereafter as a gain from the sale or exchange of
the common shares. Dividends received by non-corporate US Holders may be subject
to US federal income tax at lower rates (generally 15%) than other types of
ordinary income in taxable years beginning before 2009 if certain conditions are
met. These conditions include the Company not being classified as a PFIC, it
being a qualified foreign corporation, the US Holder's satisfaction of a holding
period requirement, and the US Holder not treating the distribution as
"investment income" for purposes of the investment interest deduction rules. In
the case of US Holders that are corporations, such dividends generally will not
be eligible for the dividends received deduction.

45

Foreign Tax Credit

A US Holder who pays (or has withheld from distributions)
Canadian income tax with respect to the common shares of the Company may be
entitled, at the option of the US Holder, to either a deduction or a tax credit
for such foreign tax paid or withheld, at the option of the US Holder.
Generally, it will be more advantageous to claim a credit because a credit
reduces US 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 US 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 US Holder's US
income tax liability that the US Holder's foreign source income bears to his/her
or its worldwide taxable income.
In the determination of the application of this limitation,
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. Foreign
taxes assigned to a particular class of income generally cannot offset United
States tax on income assigned to another class. Under the American Jobs Creation
Act of 2004 (the "Act"), the basket limitation will be modified significantly
for tax years beginning after 2006.
Under the Act, unused foreign tax credits can generally be
carried back one year and carried forward ten years. US Holders should consult
their own tax advisors concerning the ability to utilize foreign tax credits,
especially in light of the changes made by the Act.

Currency Fluctuations

For United States federal income tax purposes, the amount
received by a US Holder as payment with respect to a distribution on, or
disposition of, Common Shares, if paid in Canadian dollars, will be the US
dollar value of the payment, regardless of whether the payment is later
converted into US dollars. In such case, the US Holders may recognize additional
ordinary income or loss as a result of currency fluctuations between the date on
which the payment is made and the date the payment is converted into US dollars.

Disposition of Common Shares of the Company

Subject to the PFIC discussion below, a US Holder will
recognize gain or loss upon the sale of commons 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 US Holder's tax basis in the common shares of
Company.

This gain or loss will be capital gain or loss if the common
shares are a capital asset in the hands of the US Holder, which will be a
short-term or long-term capital gain or loss depending upon the holding period
of the US Holder. Under present law, a non-corporate US Holder generally is
eligible for a maximum 15% US Federal income tax rate for net long-term (held
more than one year) capital gains. 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.

US Anti-Deferral Regimes - Passive Foreign Investment Company
("PFIC") Regime

The PFIC rules may apply to US Holders if the Company, or an
entity directly or indirectly owned by the Company ("Related Entity"), derives
75% or more of its gross income from certain types of "passive

46

income" (generally, interest, dividends, rents, royalties and
the like), or if the average value during a taxable year of the Company or the
Related Entity's "passive assets" (generally, assets that generate passive
income) is 50% or more of the average value of all assets held by the Company or
the Related Entity. If the Company or a Related Entity is classified as a PFIC, a US Holder will be
subject to increased tax liability in respect of gain recognized on the
disposition of Common Shares or upon the receipt of certain distributions,
unless the US Holder makes an election to be taxed currently on his, her or its
pro rata portion of the Company's income and gain, whether or not such income or
gain is distributed in the form of dividends or otherwise, and the Company
provides certain annual statements which include the information necessary to
determine inclusions and assure compliance with the PFIC rules. As another
alternative to the foregoing rules, a US Holder may make a mark-to-market
election to include in income each year as ordinary income an amount equal to
the increase in value of the Common Shares for that year or to claim a deduction
for any decrease in value (but only to the extent of previous mark-to-market
gains).
Neither the Company nor any Related Entity can give any
assurance as to its status as a PFIC for the current or any future year, and
offers no opinion or representation of any kind with respect to the PFIC status
of the Company or any Related Entity. US Holders should consult their own tax
advisors with respect to the PFIC issue and its applicability to their
particular tax situation.


    
    F. Dividends and Paying Agents



This item is not applicable.


    G. Statement by Experts



This item is not applicable.


    H. Documents on Display



Documents concerning Birch which are referred to in this Form
20-F may be inspected upon written request to the Corporate Administrator of
Birch as follows:

Jane Quinn

Shareholder Services

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 SEC. All such reports and information may be read and
copied at the public reference facilities listed below. The Company intends to
give its shareholders reports containing audited year-end 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 Form 20-F 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 Form 20-F.

47

The Company's SEC 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 installment or any other material default
related to indebtedness. There are no dividend arrearages or any other
delinquencies with respect to any class of preferred stock.

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

There has been no modification of the instruments defining
the rights of holders of any class of the Company's registered securities. There
has been no modification or qualification of the rights evidenced by any class
of the Company's registered securities by issuing or modifying any other class
of securities. There are no assets securing any class of the Company's
registered securities. There has been no change in the last financial year to
the trustee of the Company's registered securities.

ITEM 15     CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Chief Executive Officer, Douglas J. Rowe, and Chief
Financial Officer, Hansine M. Ullberg, evaluated the effectiveness of Birch's
disclosure controls and procedures as of December 31, 2004 (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 SEC under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SEC's rules and forms,

48

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 in Internal Control Over Financial Reporting

There were no significant changes in Birch's internal
controls during the year ended December 31, 2004 that could materially affect,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.

ITEM 16     RESERVED BY THE SEC
ITEM 16A     AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Directors of Birch has determined that Larry
Shelley, CA is an "audit committee financial expert", as defined in Item 16A of
Form 20-F and is independent, as defined by rules of the AMEX.
ITEM 16B     CODE OF ETHICS

On May 7, 2004, the Company's Board of Directors adopted the
Birch Mountain Resources Ltd. Code of Business Conduct and Ethics ("Code of
Ethics"). The Code of Ethics outlines the Company's business principles, and the
ethical and legal standards which each of its directors, officers and employees,
including its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions must adhere to when acting on behalf of the Company.
Through its 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;•
                the prompt internal reporting of violations
        of the Code of Ethics to an appropriate person or persons identified in
        the Code of Ethics; and

|• | accountability by all of the Company's
            directors, officers and employees for adherence to its Code of
            Ethics.
|- | -------------------------------------------------------------------------------------------------------------------------------------



A copy of the Code of Ethics was filed as an exhibit to the
Company's Form 20-F dated June 29, 2004 and is available on the Company's
website at: www.birchmountain.com.

ITEM 16C     PRINCIPAL
ACCOUNTANT FEES AND SERVICES

49

The following table sets forth, for each of the years
indicated, the fees billed by Birch's independent public accountants, Meyers
Norris Penny LLP, Chartered Accountants, and the percentage of the services that
were approved by the audit committee.

|                                                                                                                                                                                                                                                  |  | Year Ended December 31 |       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------
|                                                                                                                                                                                                                                                  |  | 2003                   |       
|Audit Fees                                                                                                                                                                                                                                        |  | $                      | 37,267
|Audit-related Fees - attendance at Audit Committee
    meeting, review of quarterly financial statements, review of Management
    Discussion and Analysis and 20-F filing documents(2)                                                           |  | $                      | 10,934
|Tax Fees - completion of annual tax return for the
    Company (1)                                                                                                                                                                                |  | $                      | 2,846 
|All Other Fees - review of corporate structure for
    operating divisions, assistance with American Stock Exchange listing
    requirements, review of private placement disclosure and new regulatory
    continuous disclosure requirements(2) |  | $                      | 12,642
|Total                                                                                                                                                                                                                                             |  | $                      | 63,689
|(1)Fees pre-approved by Audit Committee.(2)Fees incurred on an as-needed basis.                                                                                                                                                                   |  |                        |       



Pre-Approval Policies and Procedures

The Board of Directors has delegated certain responsibilities
to the Audit Committee. The Audit Committee adopted an Audit Committee Charter
that outlines its responsibilities including the pre-approval of audit and
non-audit services rendered by the Company's independent public accountants. No
issue regarding these services has arisen in the last two fiscal years.

ITEM 16D     EXEMPTIONS FROM THE
LISTING STANDARDS FOR AUDIT COMMITTEE

This item is not applicable.

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

Neither the Company, nor any affiliated purchaser of the
Company, has purchased any of the Company's securities during 2004.

50





PART III

ITEM 17     FINANCIAL STATEMENTS

|                                                                                                                         | Page No.
|------------------------------------------------------------------------------------------------------------------------ | --------
|Report of Independent Registered Public Accounting Firm                                                                  |         
|Consolidated Balance Sheets for the years ended
    December 31, 2004 and 2003                                           | F-1     
|Consolidated Statements of Loss and Retained Earnings
    (Deficit) for the years ended December 31, 2004, 2003 and 2002 | F-2     
|Consolidated Statements of Cash Flows for the years ended
    December 31, 2004, 2003 and 2002                           | F-3     
|Notes to the Consolidated Financial Statements for the
    years ended December 31, 2004, 2003 and 2002                  | F-4     



|Consolidated Balance Sheets for the three months ended
    March 31, 2005 and December 31, 2004                     | F-19
|------------------------------------------------------------------------------------------------------------------- | ----
|Consolidated Statements of Loss and Deficit for the three
    months ended March 31, 2005 and 2004                  | F-20
|Consolidated Statements of Cash Flows for the three
    months ended March 31, 2005 and 2004                        | F-21
|Notes to the Interim Unaudited Consolidated Financial
    Statements for the quarters ended March 31, 2005 and 2004 | F-22

ITEM 18     FINANCIAL STATEMENTS

This item is not applicable.

51























BIRCH MOUNTAIN RESOURCES LTD.

Consolidated Financial Statements

December 31, 2004 and 2003























|
|



|Birch Mountain Resources
    Ltd.                          
|-----------------------------------------------------------
|Report of Independent Registered
    Public Accounting Firm

To the Shareholders ofBirch Mountain Resources Ltd.

We have audited the consolidated balance sheets
ofBirch Mountain Resources Ltd.as at December 31, 2004 and 2003 and the consolidated statements of loss and
retained earnings (deficit) and cash flows for each of the years in the
three-year period ended December 31, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with
Canadian generally accepted auditing standards and the standards of the Public
Company Accounting Oversight Board (United States). 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 at December 31, 2004 and 2003 and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
2004, in accordance with Canadian generally accepted accounting principles.

Our previous audit report dated February 25, 2005
has been withdrawn and the consolidated financial statements have been revised
as described in note 3 to the consolidated financial statements.

Signed Meyers Norris Penny LLPChartered Accountants

Calgary, Canada 
Feb 25, 2005 (except for notes 3 and 8, which are as of July 25, 2005).























|Suite 600, 808 - 4thAve. S.W., Calgary, Alberta T2P 3E8
    (403)263-3385 | 
|------------------------------------------------------------------------- | 





|Birch Mountain Resources Ltd.
    Consolidated Balance SheetsAs of December 31 |         
|------------------------------------------------------------------------------ | --------
|                                                                               |         
|                                                                               |         
|                                                                               |         
|Assets                                                                         |         
|Current                                                                        |         
|Cash and cash
    equivalents                                                  |         
|GST and other
    receivables                                                  |         
|Prepaids
    and deposits                                                      |         
|                                                                               |         
|Property,
    plant and equipment (Note 4)                                     |         
|Mineral
    properties (Note 5)                                                |         
|Total
    Assets                                                               |         
|Liabilities                                                                    |         
|Current                                                                        |         
|Accounts
    payable and accrued liabilities(Note
    6)                       |         
|Advances on
    share subscriptions                                            |         
|Deferred
    credit (Note 7)                                                   |         
|Other
    current liabilities (Note 8)                                         |         
|                                                                               |         
|                                                                               |         
|Shareholders' equity                                                           |         
|Share capital(Note 9)                                                          |         
|Contributed
    surplus(Note 11)                                               |         
|Retained
    deficit(Note 12)                                                  |         
|                                                                               |         
|Total
    Liabilities and Shareholders' Equity                                 |         
|                                                                               |         
|Nature of
    operations (Note 1)                                              |         
|Commitments
    (Note 13)                                                      |         
|                                                                               |         
|                                                                               |         
|                                                                               |         
|Approved on
    behalf of the Board:                                           |         
|                                                                               |         
|s/Douglas J. Rowe                                                              | Director
|Douglas
    J. Rowe                                                            |         
|                                                                               |         
|                                                                               |         
|Signed
    Kerry E. Sully                                                      | Director
|Kerry
    E. Sully                                                             |         
|                                                                               |         
|The accompanying
    notes are an integral part of these financial statements. |         

F-1



|                                          | Birch Mountain Resources
    Ltd.                                   | 
|----------------------------------------- | ------------------------------------------------------------------- | 
|                                          | Consolidated Statements of Loss and
    Retained Earnings (Deficit) | 
|                                          |                                                                     | 
|                                          |                                                                     | 
|                                          | 2004                                                                | 
|                                          | Restated                                                            | 
|                                          |                                                                     | 
|Expenses                                  |                                                                     | 
|Mineral properties expensed (Note 5)      | 762,371                                                             | 
|Salaries and benefits                     | 386,579                                                             | 
|Office                                    | 683,316                                                             | 
|Professional fees                         | 396,552                                                             | 
|Shareholder services and promotion        | 329,993                                                             | 
|Stock-based compensation (Note 10)        | 246,127                                                             | 
|Consulting                                | 79,973                                                              | 
|Amortization                              | 50,336                                                              | 
|Research
    costs                        | -                                                                   | 
|Loss before the following                 | 2,935,247                                                           | 
|Interest and other income                 | (48,190)                                                            | 
|Gain on disposal of investment            | -                                                                   | 
|Limestone sale                            | -                                                                   | 
|Gain
    on cancellation of debt (Note 6) | -                                                                   | 
|                                          | (48,190)                                                            | 
|Net loss for year                         | 2,887,057                                                           | 
|Deficit, beginning of year                | (27,510,684)                                                        | 
|Elimination of deficit(Note 12)           | 27,748,932                                                          | 
|Retained deficit, end of year             | (2,648,809)                                                         | 
|                                          |                                                                     | 
|                                          |                                                                     | 
|                                          |                                                                     | 
|Loss per share                            |                                                                     | 
|Basic
    and diluted (Note 16)           | (0.05)                                                              | 



|The
    accompanying notes are an integral part of these financial statements. | 
|------------------------------------------------------------------------------ | 

F-2



|                                           | Birch Mountain Resources
    Ltd.     | 
|------------------------------------------ | ------------------------------------- | 
|                                           | Consolidated Statements of Cash Flows | 
|                                           | For the years ended December 31       | 
|                                           |                                       | 
|                                           | 2004                                  | 
|                                           |                                       | 
|Cash flows from operating
    activities   |                                       | 
|Cash paid to suppliers                     | (1,321,259)                           | 
|Cash paid to employees                     | (878,063)                             | 
|Interest paid                              | (3,900)                               | 
|Interest income received                   | 47,549                                | 
|Cash
    received from customers           | -                                     | 
|                                           | (2,155,673)                           | 
|Cash flows from financing
    activities   |                                       | 
|Issuance of common shares for
    cash     | 9,381,086                             | 
|Advances on share
    subscriptions        | 173,252                               | 
|Share
    issuance costs                   | (546,383)                             | 
|                                           | 9,007,955                             | 
|Cash flows from investing
    activities   |                                       | 
|Mineral exploration costs                  | (3,153,233)                           | 
|Purchase of capital assets                 | (73,071)                              | 
|Proceeds on disposal of
    investment     | -                                     | 
|Proceeds
    on disposal of capital assets | -                                     | 
|                                           | (3,226,304)                           | 
|Increase (decrease) in cash                | 3,625,978                             | 
|Cash at beginning of year                  | 1,818,292                             | 
|Cash at end of year                        | 5,444,270                             | 













|The
    accompanying notes are an integral part of these financial statements. | 
|------------------------------------------------------------------------------ | 

F-3





|Birch Mountain
    Resources Ltd.                       
|--------------------------------------------------------
|Notes to the Consolidated Financial
    Statements      
|For the years ended December
    31, 2004, 2003 and 2002

1. Nature of operations

Birch Mountain Resources Ltd. (the "Company"),
incorporated under the jurisdiction of the Business Corporations Act of Alberta,
is exploring and preparing to develop its mineral leases and permits in Northern
Alberta. The recoverability of the amounts shown for mineral properties is
dependant upon the existence of economically recoverable reserves, securing and
maintaining title and beneficial interest in the properties, and the ability of
the Company to obtain the necessary financing or cash flow to continue the
exploration and future development of its mineral properties. On February 25,
2005, the Company released an independent technical report, which indicates the
potential for a limestone quarry in the Fort McMurray area and reports an
estimated value for the mineral reserves in excess of the current carrying value
of the mineral properties.

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 is obligated to incur certain levels
of expenditures to maintain its rights to continue exploration of certain
mineral leases and permits. The Company's success is dependent on obtaining
sufficient funds to carry out development activities on its mineral leases,
preserving its interest in the underlying minerals, achieving future profitable
production or, alternatively, on the Company's ability to dispose of its
interests on an advantageous basis.

|2. | Significant
    accounting policies
|-- | -----------------------------------
|   | (a)                                
|   |                                    
|   | (b)                                
|   |                                    
|   | (c)                                
|   |                                    
|   | (d)                                

| |                        |                   |            
| | ---------------------- | ----------------- | -----------
| |                        | Method            | Annual Rate
| | Equipment              | Declining balance | 20% - 30%  
| | Computer               | Declining balance | 30% - 100% 
| | Leasehold improvements | Straight line     | 5 years    

|F-4
|---





|Birch Mountain
    Resources Ltd.                       
|--------------------------------------------------------
|Notes to the Consolidated Financial
    Statements      
|For the years ended December
    31, 2004, 2003 and 2002

|2. | Significant accounting policies (continued)
|-- | -------------------------------------------
|   | (e)                                        
|   |                                            
|   |                                            
|   |                                            
|   | (f)                                        

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (g) | Asset retirement
    obligationThe Company has adopted the new recommendations
    of the CICA relating to accounting for asset retirement obligations. This
    recommendation replaces the previous method of accounting for site
    restoration costs on an accrual basis. The Company has adopted the new
    standard on a retroactive basis in accordance with the CICA recommendations
    on Accounting Changes. Under the new standard, a liability for the fair
    value of environmental and site restoration obligations are recorded when
    the obligations are incurred and the fair value can be reasonably estimated.
    The obligations are normally incurred at the time the related assets are
    brought into production. The fair value of the obligations is based on the
    estimated cash flow required to settle the obligations discounted using the
    Government of Canada Bond Rate for the applicable term adjusted for the
    Company's credit rating. The fair value of the obligation is recorded as a
    liability with the same amount recorded as an increase in capitalized costs.
    The amounts included in capitalized costs are depleted using the
    unit-of-production method. The liability is adjusted for accretion expense
    representing the increase in the fair value of the obligations due to the
    passage of time. The accretion expense is recorded as an operating expense.
    There is no impact on the current year's financial statements, as production
    has not yet occurred.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (h) | Flow-through sharesUnder 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (i) | Research costsThe Company was 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-5
|---





|Birch Mountain
    Resources Ltd.                       
|--------------------------------------------------------
|Notes to the Consolidated Financial
    Statements      
|For the years ended December
    31, 2004, 2003 and 2002

|2. | Significant accounting policies (continued)
|-- | -------------------------------------------
|   | (j)                                        
|   |                                            
|   | (k)                                        
|   |                                            
|   |                                            
|   |                                            
|   |                                            
|   |                                            
|   |                                            
|   |                                            

| | (l) | Loss per
    share amountsLoss 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 for the period.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (m) | Foreign
    currency translationTransaction 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.                      

|F-6
|---





|Birch Mountain
    Resources Ltd.                       
|--------------------------------------------------------
|Notes to the Consolidated Financial
    Statements      
|For the years ended December
    31, 2004, 2003 and 2002

|3. | RestatementThe Company has estimated and accrued a
    potential liability as outlined in note 8, which was not previously recorded
    in the financial statements. This correction of an error has been applied
    retroactively. For the year ended December 31, 2004, $1,750,000 was recorded
    as in increase in current liabilities, $1,450,000 as an offsetting reduction
    in share capital for amounts related to flow through shares and $300,000 as
    an increase to office expenses for an estimated interest expense. For the
    year ended December 31, 2003, $750,000 was recorded as an accrued liability
    with an offsetting decrease in share capital. In addition, the future income
    tax recoveries recorded on the income statement were reclassified as an
    increase in share capital for amounts related to flow through shares.                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The cumulative effect of these
    changes on previously reported results for the year ended December 31, 2004
    is an increase in current liabilities of $2,500,000 (from $580,787 to
    $3,080,787), a increase in share capital of $260,300 (from $8,501,576 to
    $8,761,876), an increase in the net loss of $1,663,000 (from $1,224,057 to
    $2,887,057) and a resulting decrease in retained earnings of $2,760,300
    (from retained earnings of $111,491 to an accumulated deficit of
    $2,648,809). The cumulative effect of these changes on previously reported
    results for the year ended December 31, 2003 is an increase in current
    liabilities of $750,000 (from $148,786 to $898,786), an increase share
    capital of $347,300 (from $28,598,874 to $28,946,174), an increase in the
    net loss of $1,011,000 (from $557,435 to $1,568,435) and a resulting
    increase in accumulated deficit of $1,097,300 (from $26,413,384 to
    $27,510,684). The cumulative effect of these changes on previously reported
    results for the year ended December 31, 2002 is an increase in the net loss
    of $86,300 (from $1,809,950 to $1,896,250), an increase in share capital of
    $86,300, and a resulting increase in accumulated deficit of $86,300.

|   |                                  
|-- | ---------------------------------
|4. | Property, plant
    and equipment

|                       |         |  | 2004         |  |          |  |         |  | 2003         |  |          | 
|---------------------- | ------- |  | ------------ |  | -------- |  | ------- |  | ------------ |  | -------- | 
|                       |         |  | Accumulated  |  | Net Book |  |         |  | Accumulated  |  | Net Book | 
|                       | Cost    |  | Amortization |  | Value    |  | Cost    |  | Amortization |  | Value    | 
|Equipment              | 312,522 |  | 205,485      |  | 107,037  |  | 270,454 |  | 185,179      |  | 85,275   | 
|Computer               | 279,553 |  | 220,233      |  | 59,320   |  | 256,390 |  | 200,491      |  | 55,899   | 
|Leasehold improvements | 38,382  |  | 23,522       |  | 14,860   |  | 30,543  |  | 13,235       |  | 17,308   | 
|                       | 630,457 |  | 449,240      |  | 181,217  |  | 557,387 |  | 398,905      |  | 158,482  | 



|5. | Mineral
    propertiesThe Company holds a
    significant number of permits and leases on mineral rights in the Athabasca
    and Birch Mountains regions of Northern Alberta.Athabasca RegionAt December 31, 2004, the Company's mineral
    property in the Athabasca region consisted of 38 (2003 - 40) permits, which
    includes 15 permits in the process of being converted by the Company to
    leases and 65 (2003 - 30) leases for a total area of 335,190 (2003 -
    279,351) hectares. 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 a
    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.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 Aurora mine.Birch Mountains RegionAt December 31, 2003, the Company's mineral
    property in the Birch Mountains region comprised 10 permits covering 92,160
    hectares. These permits expired in 2004 and the Company no longer has any
    interests in this area.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-7
|---





|Birch Mountain
    Resources Ltd.                       
|--------------------------------------------------------
|Notes to the Consolidated Financial
    Statements      
|For the years ended December
    31, 2004, 2003 and 2002

|5. | Mineral
    properties (continued)Amounts capitalized and expensed related to
    mineral properties over the past two years are as follows:
|-- | --------------------------------------------------------------------------------------------------------------------------------------------

| |                                  | 2004              |  | 2004        |  | 2003        |  | 2004     |  | 2003     | 
| | -------------------------------- | ----------------- |  | ----------- |  | ----------- |  | -------- |  | -------- | 
| |                                  | Total Capitalized |  | Capitalized |  | Capitalized |  | Expensed |  | Expensed | 
| | Administration                   | 79,383            |  | 73,910      |  | 5,473       |  | 34,276   |  | 65,797   | 
| | Assay and geological             | 77,740            |  | 77,740      |  | -           |  | 654      |  | 20,429   | 
| | Land lease and permit            | 50,530            |  | 47,320      |  | 3,210       |  | 611,857  |  | 146,327  | 
| | Materials, services and drilling | 2,606,237         |  | 2,393,912   |  | 212,325     |  | 45,737   |  | 179,060  | 
| | Salaries                         | 584,255           |  | 479,089     |  | 105,166     |  | 66,708   |  | 315,925  | 
| | Travel and accommodations        | 91,224            |  | 81,262      |  | 9,962       |  | 3,139    |  | 16,847   | 
| |                                  | 3,489,369         |  | 3,153,233   |  | 336,136     |  | 762,371  |  | 744,385  | 

|6. | Accounts payable
    and accrued liabilitiesIncluded in accounts payable are trade payables
    and accrued liabilities related to regular business operations. During 2003,
    the Company cancelled an accrued payable in the amount of $194,000 relating
    to the estimated costs of discontinuing the Indonesian operations in 1998.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|7. | Deferred creditThe deferred credit is an amount related to a
    customer prepayment for future product deliveries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|8. | Other current
    liabilitiesThe Company has raised capital through flow
    through share issuances in 2002, 2003 and 2004, that provide for an
    indemnity to the subscriber for the additional taxes payable by such
    subscriber if Birch was unable to or failed to renounce the qualifying
    expenditures as agreed without limiting the recourse of the subscriber. The
    Company has applied for and filed the necessary forms to qualify for and
    renounce expenditures in 2002, 2003 and 2004. The accounting for and related
    tax balances as reported by the Company are subject to estimation based on
    the Company's tax filing position and any change in the tax filing position
    could expose the Company to additional taxes payable or indemnification of
    the subscribers. The Company has estimated and accrued a potential liability
    in the amount of $2,500,000.

|F-8
|---





|Birch Mountain
    Resources Ltd                        
|--------------------------------------------------------
|Notes to the Consolidated Financial
    Statements      
|For the years ended December
    31, 2004, 2003 and 2002

|9. | Share capital
|-- | -------------
|   | (a)          
|   |              
|   | (b)          

|                                 | Number     |  | Amount       | 
|-------------------------------- | ---------- |  | ------------ | 
|Balance December 31, 2002        | 36,886,399 |  | 25,273,210   | 
|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  |  | 1,779,500    | 
|                                 |            |  |              | 
|Share issuance costs             | -          |  | (185,636)    | 
|Balance December 31, 2003        | 50,449,085 |  | 28,946,174   | 
|Issued for cash                  |            |  |              | 
|Issued on exercise of warrants   | 5,395,292  |  | 2,723,054    | 
|Issued on exercise of options    | 545,180    |  | 228,580      | 
|Private placements               | 3,891,013  |  | 2,865,038    | 
|Flow-through shares              | 6,026,229  |  | 2,294,344    | 
|                                 |            |  |              | 
|Share issuance costs             | -          |  | (546,382)    | 
|Elimination of deficit (note 10) |            |  | (27,748,932) | 
|Balance December 31, 2004        | 66,306,799 |  | 8,761,876    | 

In December 2004, the Company completed a private
placement of 732,263 units at $1.50 per unit. Of these units 142,896 units were
flow-through and the remaining 589,367 consisted of one common share and one
common share warrant, entitling the holder to purchase one additional common
share at a price of $2.00 before December 31, 2005.

In July, August and December 2004, the Company
completed a private placement in three tranches. A total of 9,184,979 units at
$0.60 per unit were issued. Of these units 5,883,333 units were flow-through and
the remaining 3,301,646 consisted of one common share and one-half of one common
share warrant, each whole share warrant entitling the purchase of one common
share at a price of $0.75 before December 31, 2005. The agent received 666,667
warrants, each warrant entitling the purchase of one common share at a price of
$0.75 before December 31, 2005.

At December 31, 2004, the Company had renounced
all of its flow-through commitments remaining on shares issued in 2003 and
renounced $3,7,44,000 of expenditures for shares issued in 2004. The balance of
$2,525,000of qualifying expenditures is to be incurred prior to December 31,
2005.

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

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 common
share warrant entitling the holder to purchase an additional common share for
$0.50 for a period of 12 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 common share warrant
entitling the holder to purchase an additional common share for $0.50 for a
period of 16 months after closing.

|F-9
|---





|Birch Mountain
    Resources Ltd.                       
|--------------------------------------------------------
|Notes to the Consolidated Financial
    Statements      
|For the years ended December
    31, 2004, 2003 and 2002



|9. | Share capital (continued)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 common share
    warrant entitling the holder to purchase an additional common share for
    $0.50 for a period of 18 months after closing.At December 31, 2003, the Company had renounced
    all of its flow-through commitment and incurred $578,407 of expenditures.
    The balance of $1,951,093 of qualifying expenditures were incurred prior to
    December 31, 2004.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 and no compensation has been paid and no shares have been
    issued.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|F-10
|----





|Birch Mountain
    Resources Ltd.                       
|--------------------------------------------------------
|Notes to the Consolidated Financial
    Statements      
|For the years ended December
    31, 2004, 2003 and 2002

|9. | Share capital
    (continued)The Company has granted options on common shares
    as follows:
|-- | ---------------------------------------------------------------------------------------------

|                               | Number of |  | Price Range     | Weighted Average |  | Expiry          | 
|------------------------------ | --------- |  | --------------- | ---------------- |  | --------------- | 
|                               | Options   |  | ($)             | Price ($)        |  | Date            | 
|December 31, 2001, outstanding | 2,298,750 |  | 0.22
    - 1.36 | 0.77             |  | 2003
    - 2006 | 
|Granted                        | 2,555,000 |  | 0.26
    - 0.34 | 0.30             |  | 2007            | 
|Cancelled                      | (235,000) |  | 0.70 - 1.36     | 0.98             |  | 2003            | 
|December 31, 2002, outstanding | 4,618,750 |  | 0.22
    - 1.36 | 0.53             |  | 2004-
    2007  | 
|Granted                        | 2,487,500 |  | 0.30
    - 0.50 | 0.32             |  | 2004
    - 2008 | 
|Cancelled                      | (500,000) |  | 0.35
    - 0.90 | 0.52             |  | 2004            | 
|Exercised                      | (215,000) |  | 0.22 - 0.35     | 0.30             |  | 2004            | 
|December 31, 2003, outstanding | 6,391,250 |  | 0.22
    - 1.36 | 0.51             |  | 2004
    - 2008 | 
|Granted                        | 2,135,000 |  | 0.50
    - 0.74 | 0.55             |  | 2009            | 
|Cancelled                      | (665,000) |  | 1.36            | 1.36             |  | 2004            | 
|Exercised                      | (545,180) |  | 0.26 - 0.55     | 0.40             |  | 2007-2008       | 
|December 31, 2004, outstanding | 7,316,070 |  | 0.26 - 0.74     | 0.45             |  | 2005 - 2009     | 

The following summarizes information about stock
options outstanding and exercisable as at December 31, 2004:

|Number     |  | Expiry        | Exercisable
    and |  | Option    | 
|---------- |  | ------------- | ------------------- |  | --------- | 
|of Options |  | Date          | Outstanding         |  | Price ($) | 
|408,750    |  | January 2006  | 408,750             |  | 0.60      | 
|275,000    |  | April 2006    | 275,000             |  | 0.65      | 
|200,000    |  | May 2006      | 200,000             |  | 0.50      | 
|1,040,000  |  | March 2007    | 1,040,000           |  | 0.26      | 
|1,365,000  |  | April 2007    | 1,365,000           |  | 0.34      | 
|2,092,320  |  | October 2008  | 1,569,240           |  | 0.30      | 
|125,000    |  | May 2009      | 62,500              |  | 0.53      | 
|1,780,000  |  | August 2009   | 445,000             |  | 0.55      | 
|30,000     |  | November 2009 | 7,500               |  | 0.74      | 
|7,316,070  |  | 2006 - 2009   | 5,372,990           |  | 0.37      | 

|F-11
|----





|Birch Mountain
    Resources Ltd.                       
|--------------------------------------------------------
|Notes to the Consolidated Financial
    Statements      
|For the years ended December
    31, 2004, 2003 and 2002

|10. | Share capital (continued)WarrantsIn relation to private placements, the Company
    has the following warrants outstanding:
|--- | ---------------------------------------------------------------------------------------------------------------------------

| |                                                                                                                                                                                                                                                                      | Number of   |  | Price       |  | Weighted-Average |  | Expiry | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- |  | ----------- |  | ---------------- |  | ------ | 
| |                                                                                                                                                                                                                                                                      | Warrants    |  | Range ($)   |  | Price ($)        |  | Date   | 
| | December 31, 2002, outstanding
    (re-priced)                                                                                                                                                                                                                       | 3,239,277   |  | 0.50        |  | 0.50             |  | 2004   | 
| | Issued                                                                                                                                                                                                                                                               | 7,553,104   |  | 0.50        |  | 0.50             |  | 2004   | 
| | December 31, 2003,
    outstanding                                                                                                                                                                                                                                   | 10,792,381  |  | 0.50        |  | 0.50             |  | 2004   | 
| | Issued                                                                                                                                                                                                                                                               | 2,906,857   |  | 0.75 - 2.00 |  | 0.97             |  | 2005   | 
| | Expired                                                                                                                                                                                                                                                              | (5,418,758) |  | 0.50        |  | 0.50             |  | 2004   | 
| | Exercised                                                                                                                                                                                                                                                            | (5,395,292) |  | 0.50 - 0.75 |  | 0.50             |  | 2004   | 
| | December
    31, 2004, outstanding                                                                                                                                                                                                                                   | 2,885,188   |  | 0.75 - 2.00 |  | 0.97             |  | 2005   | 
| |                                                                                                                                                                                                                                                                      |             |  |             |  |                  |  |        | 
| | During 2004,
    5,395,292 warrants were exercised and a corresponding number of common
    shares were issued at a weighted average price of $0.50 each for a total
    consideration of $2,723,054.                                                                |            
| |                                                                                                                                                                                                                                                                      |            
| | During 2003, the
    Company extended the expiry date of warrants that were scheduled to expire
    in 2003 to 2004. 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. |            



|10. | Stock-based
    compensationThe Company uses the fair-value
    method using the Black-Scholes option-pricing model to provide a value for
    stock based compensation for employees, directors, officers and advisors.
    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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| |                       | 2004        |  | 2003        |  | 2002        | 
| | --------------------- | ----------- |  | ----------- |  | ----------- | 
| | Pro-forma loss        | (2,887,057) |  | (1,568,435) |  | (2,166,250) | 
| | Loss per share, basic | (0.05)      |  | (0.04)      |  | (0.06)      | 

|F-12
|----







|Birch Mountain
    Resources Ltd.                       
|--------------------------------------------------------
|Notes to the Consolidated Financial
    Statements      
|For the years ended December
    31, 2004, 2003 and 2002

|10. | Stock-based compensation
    (continued)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:
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                         | 2004         |  | 2003    |  | 2002    | 
| | ----------------------- | ------------ |  | ------- |  | ------- | 
| | Expected life           | 1 to 2 years |  | 3 years |  | 5 years | 
| | Risk-free interest rate | 3.8%         |  | 3.9%    |  | 4.5%    | 
| | Expected volatility     | 65%          |  | 65%     |  | 35%     | 
| | Annual dividends        | nil          |  | nil     |  | nil     | 

| | (b) | AdvisorsIn 2004, the Company issued 200,000 options at
    an exercise price of $0.50 to an investor relations advisory firm. The total
    stock-based compensation for these options was $32,231. The amount will be
    amortized over the period as the options vest. The amount recognized as
    compensation expense in the current year is $35,922, which has been
    reflected in professional fees and included the amortization of $3,691
    related to options issued in 2003, leaving an amortized balance of $nil.In 2003, the total stock-based compensation was
    $26,967. The amount was amortized over a 16-month period, which was the
    vesting period of the options. Of the total amount, $22,045 has been
    reflected as share issuance costs and $1,231 as mineral exploration costs,
    with the offsetting credits to contributed surplus and leaving an
    unamortized balance of $3,691.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:
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |                               | 2004   |  | 2003    | 
| | ----------------------------- | ------ |  | ------- | 
| | Expected life                 | 1 year |  | 2 years | 
| | Risk-free interest rate range | 3.8%   |  | 3.8%    | 
| | Expected volatility           | 65%    |  | 65%     | 
| | Annual dividends              | nil    |  | nil     | 

|    |                                                          |          | 
|--- | -------------------------------------------------------- | -------- | 
|11. | Contributed surplus                                      |          | 
|    |                                                          |          | 
|    | Changes in contributed surplus are as follows:           |          | 
|    |                                                          |          | 
|    | Balance, December 31, 2002                               | -        | 
|    | Options granted to
    employees, directors and officers | 66,681   | 
|    | Options granted to
    advisors                          | 23,276   | 
|    | Balance, December 31, 2003                               | 89,957   | 
|    | Options granted to
    employees, directors and officers | 246,127  | 
|    | Options granted to
    advisors                          | 35,922   | 
|    | Options converted to
    share capital                   | (33,437) | 
|    | Balance December 31, 2004                                | 338,569  | 



|12. | DeficitPursuant to Section 38 of the Business
    Corporations Act of Alberta, the shareholders approved a reduction in the
    stated capital by the amount of the accumulated deficit as of June 30, 2004.
    As a result, the deficit and share capital were reduced by $27,748,932.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-13
|----





|Birch Mountain
    Resources Ltd.                       
|--------------------------------------------------------
|Notes to the Consolidated Financial
    Statements      
|For the years ended December
    31, 2004, 2003 and 2002

|13. | CommitmentsThe Company has land lease agreements on
    exploration properties and rents premises and equipment under operating
    leases. Commitments under these agreements require the following payments
    over the next five years:
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     |  | Land Lease |  | Other   |  | Total     | 
|---- |  | ---------- |  | ------- |  | --------- | 
|2005 |  | 451,947    |  | 306,460 |  | 758,407   | 
|2006 |  | 451,947    |  | 267,135 |  | 719,082   | 
|2007 |  | 451,555    |  | 103,335 |  | 554,890   | 
|2008 |  | 451,555    |  | 29,943  |  | 481,498   | 
|2009 |  | 444,586    |  | -       |  | 444,586   | 
|     |  | 2,251,590  |  | 706,873 |  | 2,958,463 | 

Not included in the above amounts is a contingent
royalty commitment on one land lease to pay $.015 per tonne of limestone sold,
should limestone be produced from minerals on that specific lease.

|14. | Related-party
    transactions                                                                                                                                                                                                                          
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                         
|    | The Company incurs
    transactions with related parties, in the normal course of business. The
    transactions are measured at the exchange amount, which is the consideration
    established and agreed to by the related party and were as follows:
|    |                                                                                                                                                                                                                                                         
|    | •                                                                                                                                                                                                                                                       
|    | •                                                                                                                                                                                                                                                       
|    | •                                                                                                                                                                                                                                                       
|    | •                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                         
|15. | Income taxes                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                         
|    | The income tax
    recovery differs from the amount that is expected by applying the current
    tax rates for the following reasons:                                                                                                                   

|                                                                             |  | 2004        |  | 2003        |  | 2002        | 
|---------------------------------------------------------------------------- |  | ----------- |  | ----------- |  | ----------- | 
|Loss before taxes                                                            |  | 2,887,057   |  | 1,568,435   |  | 1,896,250   | 
|                                                                             |  | 1,124,509   |  |             |  |             | 
|Expected tax recovery at 38.95% (2003 -
    40.80%; 2002 - 41.00%)           |  |             |  | 639,921     |  | 777,462     | 
|Resource allowance                                                           |  | (138,585)   |  | (205,591)   |  | (55,971)    | 
|Share issue costs                                                            |  | 17,342      |  | 20,989      |  | 8,749       | 
|Non-deductible expenses for tax and other                                    |  | (120,779)   |  | (36,613)    |  | (3,587)     | 
|Other permanent differences                                                  |  | 163,469     |  | (788,224)   |  | -           | 
|Valuation allowance                                                          |  | (1,045,956) |  | 369,518     |  | (726,653)   | 
|Future income tax recovery                                                   |  | -           |  | -           |  | -           | 
|                                                                             |  |             |  |             |  |             | 
|Future income tax assets consist of the
    following temporary differences: |  |             |  |             |  |             | 
|                                                                             |  | 2004        |  | 2003        |  | 2002        | 
|Mineral exploration costs                                                    |  | 6,590,913   |  | 5,840,161   |  | 5,683,330   | 
|Capital assets                                                               |  | 69,911      |  | 90,770      |  | 101,291     | 
|Scientific Research and Experimental
    Development expenditures unclaimed  |  | 77,702      |  | 79,438      |  | 86,806      | 
|Non-capital loss carry forwards                                              |  | 654,525     |  | 436,552     |  | 987,185     | 
|Share issuance costs and other                                               |  | 154,518     |  | 54,692      |  | 12,519      | 
|Valuation allowance                                                          |  | (7,547,569) |  | (6,501,613) |  | (6,871,131) | 
|Future tax assets (net of valuation allowance)                               |  | -           |  | -           |  | -           | 

|F-14
|----





|Birch Mountain
    Resources Ltd.                       
|--------------------------------------------------------
|Notes to the Consolidated Financial
    Statements      
|For the years ended December
    31, 2004, 2003 and 2002

|15. | Income taxes (continued)                                                     
|--- | -----------------------------------------------------------------------------
|    |                                                                              
|    | At December 31,
    2004, the Company has the following deductions available:
|    |                                                                              
|    | •                                                                            
|    |                                                                              
|    | •                                                                            
|    | •                                                                            

| | 2005 |  | 132,000 | 
| | ---- |  | ------- | 
| | 2006 |  | 185,000 | 
| | 2007 |  | -       | 
| | 2008 |  | 719,000 | 
| | 2009 |  | 20,000  | 
| | 2010 |  | -       | 
| | 2011 |  | 603,000 | 

| | In addition to the
    above, the Company has the following tax deductions available, which have
    not been reflected in the statements:
| | ------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                           
| | •                                                                                                                                         
| |                                                                                                                                           
| | •                                                                                                                                         

|16. | Per share amountsBasic loss per share is calculated using the
    weighted-average number of shares outstanding for the year. For purposes of
    the calculations, the weighted-average number of shares outstanding was
    56,596,951 (2003 - 41,147,226, 2002 -34,323,673). Diluted loss per share
    amounts have not been calculated as the effect of common shares issuable
    upon exercise of share options and warrants is anti-dilutive.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|17. | Segmented informationThe 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 2003 established an
    Industrial Mineral Division to pursue the development of its limestone
    property. The Company's activities are focused in Western Canada.                                                                       

| |         | Mineral     |  | Mineral    |  | Industrial |  |              |  |             | 
| | ------- | ----------- |  | ---------- |  | ---------- |  | ------------ |  | ----------- | 
| |         | Exploration |  | Technology |  | Minerals   |  | Corporate    |  | Total       | 
| | 2004    |             |  |            |  |            |  |              |  |             | 
| | Revenue | -           |  | -          |  | -          |  | 48,190       |  | 48,190      | 
| | Expense | 762,371     |  | -          |  | -          |  | 2,172,876    |  | 2,935,247   | 
| | Loss    | (762,371)   |  | -          |  | -          |  | (2,124,686 ) |  | (2,887,057) | 
| | Assets  | 59,393      |  | -          |  | 3,585,938  |  | 5,887,092    |  | 9,532,423   | 
| | 2003    |             |  |            |  |            |  |              |  |             | 
| | Revenue | -           |  | -          |  | 100,000    |  | 211,973      |  | 311,973     | 
| | Expense | 262,044     |  | 11,150     |  | 471,191    |  | 1,136,023    |  | 1,880,408   | 
| | Loss    | (262,044)   |  | (11,150)   |  | (371,191)  |  | (924,050)    |  | (1,568,435) | 
| | Assets  | 39,510      |  | -          |  | 364,892    |  | 2,019,831    |  | 2,424,233   | 
| | 2002    |             |  |            |  |            |  |              |  |             | 
| | Revenue | -           |  | -          |  | 250,000    |  | 986          |  | 250,986     | 
| | Expense | 821,331     |  | 42,514     |  | 112,460    |  | 1,170,931    |  | 2,147,236   | 
| | Loss    | (821,331)   |  | (42,514)   |  | 137,540    |  | (1,169,945)  |  | (1,896,250) | 
| | Assets  | 81,600      |  | -          |  | -          |  | 183,492      |  | 265,092     | 

|F-15
|----





|Birch Mountain
    Resources Ltd.                       
|--------------------------------------------------------
|Notes to the Consolidated Financial
    Statements      
|For the years ended December
    31, 2004, 2003 and 2002



|18. | Financial instrumentsThe 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.Fair values
    The carrying amount of cash and cash
    equivalents, amounts receivable and amounts payable approximates their fair
    value because of the short-term maturities of these items.
    Foreign currency risk
    The Company maintains cash balances and
    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 year-end exchange rate.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                        | 2004    |  | 2003   | 
| | ---------------------- | ------- |  | ------ | 
| | Cash (CAD$)            | 387,182 |  | 29,966 | 
| | Accounts payable(CAD$) | 20,376  |  | 1,382  | 

|19. | Material
    differences between Canadian and United States generally accepted accounting
    principlesThe 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)                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                    

|F-16
|----





|Birch Mountain
    Resources Ltd.                       
|--------------------------------------------------------
|Notes to the Consolidated Financial
    Statements      
|For the years ended December
    31, 2004, 2003 and 2002

|19. | Material differences between
    Canadian and United States generally accepted accounting
    principles(continued)If these
    consolidated financial statements were prepared in accordance with U.S. GAAP,
    the impact on shareholder's equity would be as follows:
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                        |           |           |             | 2004    |           | 2003   | 
|--------------------------------------------------------------------------------------- | --------- | --------- | ----------- | ------- | --------- | ------ | 
|Shareholders' equity
    under Canadian GAAP                                            |           |           | 6,451,636   |         | 1,525,447 |       
|Exploration expenditures capitalized (b)                                                |           |           | (1,525,699) |         | (336,136) |       
|Shareholders' equity under U.S. GAAP                                                    |           |           | 4,925,937   |         | 1,189,311 |       
|                                                                                        |           |           |             |         |           |        | 
|In addition, the impact on the
    consolidated statements of loss would be as follows: |           |           |             |         |           |        | 
|                                                                                        |           | 2004      |             | 2003    |           | 2002   | 
|Net loss for the
    year under Canadian GAAP                                           | 2,887,057 |           | 1,568,435   |         | 1,896,250 |       
|Exploration expenditures
    capitalized (b)                                            |           | 1,189,563 |             | 336,136 |           | -      | 
|                                                                                        |           |           |             |         |           |        | 
|Net loss for the year under U.S. GAAP                                                   | 4,076,620 |           | 1,904,571   |         | 1,896,250 |       
|                                                                                        |           |           |             |         |           |        | 
|Loss per share under U.S. GAAP                                                          |           |           |             |         |           |        | 
|Basic
    and fully diluted                                                             |           | (0.07)    |             | (0.05)  |           | (0.06) | 

Commencing Jan 1, 2003, the Company adopted the
fair value method of accounting for stock options for both Canadian and U.S.
GAAP purposes. The effect of this change was that stock-based compensation is
recorded as an expense instead of disclosing the effect of granting options as proforma information in the notes to the financial statements.

For the years ended December 31, 2004 and 2003,
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 3.8%
to 3.9%, an expected volatility of 65% and an expected life of one to three
years. For 2004, the fair value of the options, calculated as $278,357 (2003
-$66,681), is included in the net loss. Prior to Jan 1, 2003, the Company
accounted for stock options in accordance with APB Opinion No.25,Accounting for Stock Issued to Employees
(APB 25). Under APB 25, stock-based compensation to
employees and directors is calculated using the intrinsic-value method whereby
compensation cost is recorded for the excess, if any, of the quoted market price
versus the exercise price at the date granted.

Had the Company adopted the fair value method for
its U.S. GAAP disclosure prior to Jan 1, 2003, the following net losses would
have been reported.

|                                            | 2004      |  | 2003      |  | 2002      | 
|------------------------------------------- | --------- |  | --------- |  | --------- | 
|Net loss for the year under U.S. GAAP       | 4,076,620 |  | 1,904,571 |  | 1,896,250 | 
|Pro-forma stock compensation                | -         |  | -         |  | 270,000   | 
|Pro-forma loss for the year under U.S. GAAP | 4,076,620 |  | 1,904,571 |  | 2,166,250 | 
|                                            |           |  |           |  |           | 
|Loss per share under U.S. GAAP              |           |  |           |  |           | 
|Basic
    and diluted                       | (0.07)    |  | (0.05)    |  | (0.06)    | 

|F-17
|----





|Birch Mountain
    Resources Ltd.                       
|--------------------------------------------------------
|Notes to the Consolidated Financial
    Statements      
|For the years ended December
    31, 2004, 2003 and 2002

|20. | Subsequent eventsSubsequent to December 31, 2004, the
    Company issued a total of 600,000 stock options to an employee and a
    consultant at an exercise price of $2.35, as well as 1,290,000 options with
    1,100,000 options to directors and officers with an exercise price of $2.48.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|21. | Comparative figuresCertain comparative figures have been
    reclassified to confirm with presentation adopted in the current year.                                                                                                                                                            
|   

|F-18
|----

The accompanying unaudited
interim consolidated financial statements ("financial statements") of the
Company have been prepared by the management of Birch Mountain Resources Ltd.
The Company's independent auditor has not performed a review of the accompanying
financial statements in accordance with standards established by the Canadian
Institute of Chartered Accountants for a review of interim financial statements.



|Birch Mountain Resources Ltd.                                              |                     
|-------------------------------------------------------------------------- | --------------------
|Consolidated
    Balance Sheets                                            |                     
|UNAUDITED                                                                  |                     
|                                                                           |                     
|                                                                           | As at March 31, 2005
|Assets                                                                     |                     
|Current                                                                    |                     
|Cash and cash equivalents                                                  | $                   
|Accounts receivable                                                        |                     
|Prepaids
    and deposits                                                  |                     
|                                                                           |                     
|                                                                           |                     
|Property,
    plant and equipment(Note 3)                                  |                     
|Mineral
    properties(Note 4)                                             |                     
|                                                                           |                     
|Total
    Assets                                                           | $                   
|                                                                           |                     
|Liabilities and Shareholders'
    Equity                                   |                     
|Liabilities                                                                |                     
|Current                                                                    |                     
|Accounts payable and
    accrued liabilities (Note 11)                     |                     
|Advances on share
    subscriptions                                        |                     
|Deferred credit                                                            |                     
|Other
    current liabilities (Note 5)                                     |                     
|                                                                           |                     
|                                                                           |                     
|Shareholders' equity                                                       |                     
|Share capital (Note 6)                                                     |                     
|Contributed surplus (Note 7)                                               |                     
|Accumulated deficit (Note 8)                                               |                     
|                                                                           |                     
|Total Liabilities and Shareholders' Equity                                 | $                   
|                                                                           |                     
|                                                                           |                     
|See accompanying notes to the
    unaudited interim consolidated financial |                     
|statements                                                                

Approved on behalf of the Board:

Signed Douglas J. Rowe
________________________________Director
Douglas J. Rowe

Signed Kerry E. Sully________________________________Director
Kerry E. Sully

F-19



|Birch Mountain Resources Ltd.                                              |  
|-------------------------------------------------------------------------- | -
|Consolidated
    Statements of Loss and Deficit                            |  
|For
    the three months ended March 31                                    |  
|UNAUDITED                                                                  |  
|                                                                           |  
|                                                                           |  
|Expenses                                                                   |  
|Mineral exploration costs                                                  | $
|Professional fees
    (Notes 10
    and 12)                                |  
|Shareholder services and
    promotion (Note 11)                           |  
|Salaries and benefits                                                      |  
|Office                                                                     |  
|Amortization                                                               |  
|Stock-based
    compensation (Note 10)                                     |  
|Loss
    before the following                                              |  
|                                                                           |  
|Interest
    income                                                        |  
|                                                                           |  
|Net loss for the quarter                                                   |  
|                                                                           |  
|Deficit, beginning of quarter                                              |  
|                                                                           |  
|Deficit, end of quarter                                                    | $
|                                                                           |  
|                                                                           |  
|                                                                           |  
|Loss per share                                                             |  
|Basic
    and diluted (Note 8)                                             |  
|                                                                           |  
|See accompanying notes to the
    unaudited interim consolidated financial |  
|statements                                                                

F-20



|Birch Mountain
    Resources Ltd.                                          |  
|-------------------------------------------------------------------------- | -
|Consolidated Statements
    of Cash Flows                                  |  
|For the three
    months ended March 31                                    |  
|UNAUDITED                                                                  |  
|                                                                           |  
|                                                                           |  
|                                                                           |  
|Cash flows from operating activities                                       |  
|Cash paid to suppliers                                                     | $
|Cash paid to employees                                                     |  
|Interest received                                                          |  
|Interest paid                                                              |  
|Net
    cash used in operating activities                                  |  
|                                                                           |  
|Cash flows from investing activities                                       |  
|Purchase of capital assets                                                 |  
|Mineral exploration costs                                                  |  
|Net
    cash used in investing activities                                  |  
|                                                                           |  
|Cash flows from financing activities                                       |  
|Issuance of common shares for cash                                         |  
|Net
    cash provided by financing activities                              |  
|                                                                           |  
|Decrease in cash and cash equivalents                                      |  
|Cash and cash equivalents at beginning of period                           |  
|Cash and cash equivalents at end of period                                 | $
|                                                                           |  
|                                                                           |  
|See accompanying notes to the unaudited
    interim consolidated financial |  
|statements                                                                 |  

F-21



|Birch Mountain
    Resources Ltd.                                   
|--------------------------------------------------------------------
|Notes to the Interim Unaudited
    Consolidated Financial Statements
|For the quarters ended March
    31, 2005 and 2004                  

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | Nature of operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Birch Mountain Resources Ltd. (the
    "Company"), incorporated under the jurisdiction of the Business Corporations
    Act of Alberta, is exploring and preparing to develop its mineral leases and
    permits in Northern Alberta. Since inception, the efforts of the Company
    have been focused on exploration of precious metals and research into
    precious metals technology and whilst over the past two and a half years on
    the development of its industrial minerals. To date, the Company has not
    earned significant revenues and is considered to be in the development
    stage. The recoverability of the amounts shown for mineral properties is
    dependant upon the existence of economically recoverable reserves, securing
    and maintaining title and beneficial interest in the properties, and the
    ability of the Company to obtain the necessary financing or cash flow to
    continue the development of its mineral properties. On February 25, 2005,
    the Company released an independent technical report, which indicates the
    potential for a limestone quarry in the Fort McMurray area and reports an
    estimated value for the mineral reserves in excess of the current carrying
    value of the mineral properties.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | 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 is obligated to incur certain levels of expenditures to maintain
    its rights to continue exploration of certain mineral leases and permits.
    The Company's success is dependent on obtaining sufficient funds to carry
    out development activities on its mineral leases, preserving its interest in
    the underlying minerals, achieving future profitable production or,
    alternatively, on the Company's ability to dispose of its interests on an
    advantageous basis.                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|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, 2004. 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, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | In the opinion of management all adjustments considered
    necessary for fair presentation have been included in these consolidated
    financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|3. | Property, plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                       |        |         | At March 31, 2005 |        | At December 31, 2004 | 
|---------------------- | ------ | ------- | ----------------- | ------ | -------------------- | 
|                       |        |         | Accumulated       |        | Net Book             | 
|                       | Cost   |         | Amortization      |        | Value                | 
|Equipment              | $      | 318,109 |                   | $      | 211,143              | 
|Computer               |        | 292,469 |                   |        | 226,386              | 
|Leasehold improvements | 38,382 |         |                   | 25,441 |                      | 
|                       | $      | 648,960 |                   | $      | 462,970              | 

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4. | Mineral properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Company holds a significant number of permits and
    leases on mineral rights in the Athabasca region of Northern Alberta.
    At March 31, 2005, the Company's mineral property in the
    Athabasca region consisted of 32 (Dec 31, 2004 - 23) permits, 14 (Dec 31,
    2004 - 15) permits in the process of being converted by the Company to
    leases and 67 (Dec 31, 2004 - 65) leases, for a total area of 402,965 (Dec
    31, 2004 - 335,190) hectares. 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 a 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.

F-22



|Birch Mountain
    Resources Ltd.                                   
|--------------------------------------------------------------------
|Notes to the Interim Unaudited
    Consolidated Financial Statements
|For the quarters ended March
    31, 2005 and 2004                  

|                                                                                                                                                                                
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Amounts capitalized are for the development
    of its industrial mineral properties over the past two and a half years and
    are associated with a proposed limestone quarry.

|                                 |                     |           | Capitalized                     |   |                     |  | Expensed for the        |          
|-------------------------------- | ------------------- | --------- | ------------------------------- | - | ------------------- |  | ----------------------- | ---------
|                                 |                     |           |                                 |   |                     |  | three months
    ending |          
|                                 | At
    Mar 31, 2005 |           | For
    the three months ending |   | At
    Dec 31, 2004 |  | Mar
    31, 2005        |          
|                                 |                     |           | Mar 31, 2005                    |   |                     |  |                         |          
|Administration                   | $                   | 136,334   |                                 | $ | 56,951              |  | $                       | 79,383   
|Assay and geological             |                     | 93,916    |                                 |   | 16,176              |  |                         | 77,740   
|Land lease and permit            |                     | 51,202    |                                 |   | 672                 |  |                         | 50,530   
|Materials, services and drilling |                     | 3,158,701 |                                 |   | 552,464             |  |                         | 2,606,237
|Salaries                         |                     | 689,996   |                                 |   | 105,741             |  |                         | 584,255  
|Travel and accommodations        |                     | 105,556   |                                 |   | 14,332              |  |                         | 91,224   
|                                 | $                   | 4,235,705 |                                 | $ | 746,336             |  | $                       | 3,489,369

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | Other current liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Company has raised capital through flow
    through share issuances in 2002, 2003 and 2004, that provide for an
    indemnity to the subscriber for the additional taxes payable by such
    subscriber if Birch was unable to or failed to renounce the qualifying
    expenditures as agreed without limiting the recourse of the subscriber. The
    Company has applied for and filed the necessary forms to qualify for and
    renounce expenditures in 2002, 2003 and 2004. The accounting for and related
    tax balances as reported by the Company are subject to estimation based on
    the Company's tax filing position and any change in the tax filing position
    could expose the Company to additional taxes payable or indemnification of
    the subscribers. The Company has estimated and accrued a potential liability
    in the amount of $2,500,000.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|6. | Share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| |                                    | Number     |  | Amount |          
| | ---------------------------------- | ---------- |  | ------ | ---------
| |                                    |            |  |        |          
| | Balance December 31, 2004          | 66,306,799 |  | $      | 8,761,876
| | Issued for cash                    |            |  |        |          
| | Issued on exercise of options      | 475,585    |  |        | 251,303  
| | Issued
    on exercise of warrants | 515,033    |  |        | 386,275  
| |                                    |            |  |        |          
| | Balance March 31, 2005             | 67,297,417 |  | $      | 9,399,454

| |     |                                                                                                                                                                                                                                                                                                                          
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | Preferred shares                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                          
| |     | 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. No preferred shares have been issued.

F-23



|Birch Mountain
    Resources Ltd.                                   
|--------------------------------------------------------------------
|Notes to the Interim Unaudited
    Consolidated Financial Statements
|For the quarters ended March
    31, 2005 and 2004                  

|6. | Share capital(continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company has a stock option plan that
    was established in 1994 and has been subsequently amended by the
    shareholders, including most recently in 2004. The purpose of the 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 plan 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 10,269,047
    shares. The plan is administered by the Compensation Committee of the Board
    of Directors who determines 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:

|
|
|
|
|
|
|
|
|
|

| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | The following summarizes information about
    stock options outstanding and exercisable as at March 31, 2005:

| |            |  |        |                 |           |           | 
| | ---------- |  | ------ | --------------- | --------- | --------- | 
| | Number     |  | Expiry | Exercisable and |           | Option    | 
| | of Options |  | Date   | Outstanding     |           | Price ($) | 
| | 307,415    |  |        | January 2006    | 307,415   |           | 
| | 150,000    |  |        | April 2006      | 150,000   |           | 
| | 200,000    |  |        | May 2006        | 200,000   |           | 
| | 1,040,000  |  |        | March 2007      | 1,040,000 |           | 
| | 1,215,000  |  |        | April 2007      | 1,215,000 |           | 
| | 2,010,625  |  |        | October 2008    | 2,010,625 |           | 
| | 125,000    |  |        | May 2009        | 62,500    |           | 
| | 1,762,445  |  |        | August 2009     | 881,223   |           | 
| | 30,000     |  |        | November 2009   | 7,500     |           | 
| | 600,000    |  |        | January 2010    | 150,000   |           | 
| | 1,290,000  |  |        | March 2010      | 322,500   |           | 
| | 8,730,485  |  |        | 2006 - 2009     | 6,346,763 |           | 

| |         
| | --------
| | Warrants
| |         

| |                                |           |  |             |  |                  |  |        | 
| | ------------------------------ | --------- |  | ----------- |  | ---------------- |  | ------ | 
| |                                | Number of |  | Price       |  | Weighted-Average |  | Expiry | 
| |                                | Warrants  |  | Range ($)   |  | Price ($)        |  | Date   | 
| |                                |           |  |             |  |                  |  |        | 
| | December 31, 2004, outstanding | 2,885,188 |  | 0.75 - 2.00 |  | 0.97             |  | 2005   | 
| | Exercised                      | 515,033   |  | 0.75        |  | 0.75             |  |        | 
| | March 31, 2005, outstanding    | 2,370,155 |  | 0.75 - 2.00 |  | 1.06             |  | 2005   | 

F-24



|Birch Mountain
    Resources Ltd.                                   
|--------------------------------------------------------------------
|Notes to the Interim Unaudited
    Consolidated Financial Statements
|For the quarters ended March
    31, 2005 and 2004                  

|   |                    
|-- | -------------------
|7. | Contributed surplus

|                                                         |          |           | 
|-------------------------------------------------------- | -------- | --------- | 
|Changes in contributed
    surplus are as follows:       |          |           | 
|                                                         |          |           | 
|Balance,
    December 31, 2004                           | 338,569  |          
|                                                         |          |          
|Options
    granted to employees, directors and officers | 645,954  |          
|Options
    granted to advisors                          | 63,543   |          
|Options
    converted to share capital                   | (24,088) |          
|Balance March 31, 2005                                   | $        | 1,023,978 | 

|   |                                                                                                                                                                                                                                                                                   | 
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|8. | Deficit                                                                                                                                                                                                                                                                           | 
|   |                                                                                                                                                                                                                                                                                   | 
|   | Pursuant to Section 38 of the Business
    Corporations Act of Alberta, the shareholders approved a reduction in the
    stated capital by the amount of the accumulated deficit as of June 30, 2004.
    As a result, the deficit and share capital were reduced by $27,748,932.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|9.  | Per share amounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Basic loss per share was calculated using
    66,552,361 shares (March 31, 2004 -50,895,660), the weighted-average number
    of shares outstanding for the period. Diluted loss per share amounts have
    not been calculated as the effect of common shares issuable upon exercise of
    share options and warrants is anti-dilutive.                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10. | Stock-based compensation and
    stock-based expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The Company uses the Black-Scholes
    option-pricing model to provide a fair-value for stock based compensation
    for employees, directors, officers and advisors. 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.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Had the fair-value method been used since
    January 1, 2001, the Company's net loss and net loss per share would have
    been as follows:                                                                                                                                                                                                                                                                                                                                                                                                   

| |                               | 2005 |             | 2004 |  
| | ----------------------------- | ---- | ----------- | ---- | -
| | Pro-forma loss for the period | $    | (1,416,603) |      | $
| | Loss per share, basic         |      | (0.02)      |      |  

| |                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the period ended March 31, 2005,
    options issued to employees, directors officers and advisors were valued at
    $2,492,642 (2004 - nil). In accordance with the vesting periods, the
    following expense and offsetting credit to contributed surplus were
    recorded. An unamortized balance of $2,131,978 (2004 - $155,542) will be
    expensed over the current and next fiscal year.

| |                                                                     |      |          |      |  
| | ------------------------------------------------------------------- | ---- | -------- | ---- | -
| |                                                                     | 2005 |          | 2004 |  
| | Stock-based compensation for
    stock issued in the current period | $    | 559,617  |      | $
| | Stock-based compensation for
    stock issued in prior periods      |      | 86,337   |      |  
| | Less stock-based compensation capitalized in
    mineral properties |      | (21,584) |      |  
| | Net stock-based compensation
    expense                            |      | 624,370  |      |  
| | Stock-based expenses included in professional
    fees              |      | 63,543   |      |  
| | Total stock-based expenses                                          | $    | 687,913  |      | $

F-25



|Birch Mountain
    Resources Ltd.                                   
|--------------------------------------------------------------------
|Notes to the Interim Unaudited
    Consolidated Financial Statements
|For the quarters ended March
    31, 2005 and 2004                  

|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10. | Stock-based compensation and
    stock-based expenses (continued)                                                                                                     
|    |                                                                                                                                                                       
|    | 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:

| |                         |              |  |              | 
| | ----------------------- | ------------ |  | ------------ | 
| |                         | 2005         |  | 2004         | 
| | Expected life           | 1 to 2 years |  | 1 to 2 years | 
| | Risk-free interest rate | 4.3%         |  | 3.8% - 4.3%  | 
| | Expected volatility     | 100%         |  | 110%         | 
| | Annual dividends        | nil          |  | nil          | 

|    |                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|11. | Income tax recovery                                                                                                                                                    
|    |                                                                                                                                                                        
|    | The income tax recovery for the
    period ended March 31 differs from the amount that is expected by applying
    the current tax rates for the following
    reasons:

| |                                                     | 2005 |           | 2004 |  
| | --------------------------------------------------- | ---- | --------- | ---- | -
| |                                                     |      |           |      |  
| | Loss before taxes                                   | $    | 1,416,603 |      | $
| | Expected tax recovery at 35.62%
    (2004 - 38.95%) |      | 504,594   |      |  
| | Resource allowance                                  |      | (50,927)  |      |  
| | Share issue costs                                   |      | 13,037    |      |  
| | Non-deductible expenses for tax                     |      | (133,371) |      |  
| | Other                                               |      | -         |      |  
| | Valuation allowance                                 |      | 333,333   |      |  
| | Future income tax recovery                          |      | -         |      |  

|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|12. | Related-party transactions                                                                                                         
|    |                                                                                                                                    
|    | The Company had the
    following transactions with related parties during the period ended March
    31, 2005:                    
|    |                                                                                                                                    
|    | •                                                                                                                                  
|    |                                                                                                                                    
|    | •                                                                                                                                  
|    |                                                                                                                                    
|    | •                                                                                                                                  
|    |                                                                                                                                    
|    | •                                                                                                                                  
|    |                                                                                                                                    
|    | 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-26



|Birch Mountain
    Resources Ltd.                                   
|--------------------------------------------------------------------
|Notes to the Interim Unaudited
    Consolidated Financial Statements
|For the quarters ended March
    31, 2005 and 2004                  

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|13. | Segmented information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Company's principal business activity
    is the acquisition, exploration and development of mineral leases and
    permits. The Company's activities are focused on Western Canada, in the Athabasca region, near Fort McMurray, Alberta. The business segments are
    defined by the nature of the project. The industrial minerals segment
    relates to the development of a limestone quarry that will produce aggregate
    products and quicklime for use by the oil sands. The development of the
    limestone opportunity requires environmental, geological and engineering
    work including preparing the necessary regulatory filings for Alberta
    Environment and the Natural Energy and Conservation Board. Two other
    projects that the Company has been involved with relate to precious metals.
    The mineral exploration project focuses on exploration of mineral permits
    and leases for the discovery of precious metals and the mineral technology
    project focuses on research to develop methods for producing economic
    recoverable amounts of precious metals from nanoparticles.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Segmented information for the
    three-month period ending March 31 is a follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| |                 | Industrial | Mineral     |   | Mineral    |           |     |             | 
| | --------------- | ---------- | ----------- | - | ---------- | --------- | --- | ----------- | 
| |                 | Minerals   | Exploration |   | Technology | Corporate |     | Total       | 
| | 2005            |            |             |   |            |           |     |             | 
| | Interest income | $          | -           | $ | -          |           | $ - | $           | 
| | Expense         |            |             |   | 220,692    |           | -   |             | 
| | Loss before tax |            |             |   | (220,692)  |           | -   | (1,195,911) | 
| | Assets          | $          | 4,276,456   | $ | 156,195    |           | $ - | $           | 
| |                 |            |             |   |            |           |     |             | 
| | 2004            |            |             |   |            |           |     |             | 
| | Interest income | $          | -           | $ | -          |           | $ - | $           | 
| | Expense         |            |             |   | 170,322    |           | -   |             | 
| | Loss before tax |            |             |   | (170,322)  |           | -   |             | 
| | Assets          | $          | 1,201,298   | $ | 143,812    |           | $ - | $           | 

|    |                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------
|14. | Comparative figures                                                                                             
|    |                                                                                                                 
|    | Certain comparative figures have
    been reclassified to confirm with presentation adopted in the current year.

F-27



ITEM 19     EXHIBITS

EXHIBIT NO.

1.1 Articles of Amalgamation (1)

1.2 By-Law No. 1 (1)

2.1 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)

4.5Stock Option Plan of the Company dated May 7,
2004 (3)

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)

4.8 Shareholders Rights Plan Agreement dated March
        28, 2005(4)

11.1 Code of Business Conduct and Ethics (3)

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





51

13.2 Certification of Principal Financial 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 Form 20-F
    filed on June 30, 2003 (SEC File No. 0-31645)(3)
    Previously filed by the Company as part of its Form 20-F
    filed on June 29, 2004 (SEC File No. 0-31645)(4)
    Previously filed by the Company
    as part of its Form 20-F filed on June 28, 2005 (SEC File No. 0-31645)

SIGNATURES

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



|                     | BIRCH MOUNTAIN RESOURCES LTD.
|-------------------- | -----------------------------
|                     |                              
|                     |                              
|                     |                              
|Date:August 10, 2005 |                              
|                     | By:                          
|                     |                              
|                     |