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UNITED STATESSECURITIES AND EXCHANGE COMMISSION
  Washington, D.C.
20549

FORM 20-F

[   ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

OR

[   ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report
_____________

Commission file number 000-52326

HARD CREEK NICKEL
CORPORATION(Exact name of Registrant as specified in
its charter)

Not Applicable(Translation of Registrants
name into English)

British Columbia, Canada(Jurisdiction of
incorporation or organization)

1060  1090 West Georgia Street Vancouver, British
Columbia V6E 3V7 Canada(Address of principal executive offices)

Copy of communications to:Bernard Pinsky, Esq.

1

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Clark Wilson LLPBarristers and SolicitorsSuite 800  885
West Georgia StreetVancouver, British Columbia, Canada V6C 3H1
  Telephone: 604-687-5700 Facsimile: 604-687-6314

Securities registered or to be registered pursuant to Section
12(b) of the Act.

|Title of Class | Name of each exchange on which registered
|-------------- | -----------------------------------------
|Not Applicable | Not Applicable                           

Securities registered or to be registered pursuant to Section
12(g) of the Act.

Common Shares Without Par Value(Title of
Class)

Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act.

Not Applicable(Title of Class)

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

77,330,160 Common Shares without par value issued and
outstanding as at December 31, 2011.

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. YES [ 
 ]     NO [X]

If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934. [   ]
YES     [X] NO

Note  Checking the box above will not relieve any registrant
required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 from their obligations under those Sections.

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 reports), and (2) has been subject to such
filing requirements for the past 90 days.[X] YES   
 [   ] NO

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).
[   ] YES     [   ] NO

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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act. (Check one): 
Large accelerated filer [ 
 ]     Accelerated filer [   ]     Non-accelerated filer [X]

Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:

U.S. GAAP [ 
 ]                                                                         
Other [   ]

International Financial Reporting Standards as issued by the
International Accounting Standards Board [ X]

If Other has been checked in response to the previous
question, indicate by check mark which financial statement item the registrant
has elected to follow.[   ] ITEM 17   
 [   ] ITEM 18

If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[   ] YES     [X] NO

3

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TABLE OF CONTENTS

|                                                    |                                                             |                                                            | **Page**
|--------------------------------------------------- | ----------------------------------------------------------- | ---------------------------------------------------------- | --------
|**Forward-Looking Statements**                      | 5                                                          
|PART I                                              |                                                             |                                                            | 6       
|**Financial Information And Accounting Principles** | 6                                                          
|Item 1                                              | Identity of
      Directors, Senior Management and Advisers | 7                                                         
|                                                    | A.                                                          | Directors and Senior Management                            |         
|                                                    | B.                                                          | Advisers                                                   |         
|                                                    | C.                                                          | Auditors                                                   |         
|Item 2                                              | Offer Statistics
      and Expected Timetable               | 7                                                         
|Item 3                                              | Key Information                                             | 7                                                         
|                                                    | A.                                                          | Selected Financial Data                                    | 7       
|                                                    | B.                                                          | Capitalization and Indebtedness                            | 10      
|                                                    | C.                                                          | Reasons for the Offer and
      Use of Proceeds            | 10      
|                                                    | D.                                                          | Risk Factors                                               | 10      
|Item 4                                              | Information on our Company                                  | 15                                                        
|                                                    | A.                                                          | History and Development
      of our Company               | 16      
|                                                    | B.                                                          | Business Overview                                          | 17      
|                                                    | C.                                                          | Organizational Structure                                   | 20      
|                                                    | D.                                                          | Property, Plant and Equipment                              | 20      
|Item 5                                              | Operating
      and Financial Review and Prospects          | 32                                                        
|                                                    | A.                                                          | Operating Results                                          | 32      
|                                                    | B.                                                          | Liquidity and Capital Resources                            | 33      
|                                                    | C.                                                          | Research and Development,
      Patents and Licenses, etc. | 33      
|                                                    | D.                                                          | Trend Information                                          | 33      
|                                                    | E.                                                          | Off-Balance Sheet Arrangements                             | 34      
|                                                    | F.                                                          | Tabular Disclosure of Contractual
      Obligations        | 34      
|Item 6                                              | Directors, Senior Management and Employees                  | 37                                                        
|                                                    | A.                                                          | Directors and Senior Management                            | 37      
|                                                    | B.                                                          | Compensation                                               | 40      
|                                                    | C.                                                          | Board Practices                                            | 41      
|                                                    | D.                                                          | Employees                                                  | 41      
|                                                    | E.                                                          | Share Ownership                                            | 41      
|Item 7                                              | Major Shareholders
      and Related Party Transactions     | 42                                                        
|                                                    | A.                                                          | Major Shareholders                                         | 42      
|                                                    | B.                                                          | Related Party Transactions                                 | 42      

4

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|          | C.                                                                                 | Interests of Experts and Counsel                                              | 44
|--------- | ---------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | --
|Item 8    | Financial Information                                                              | 44                                                                           
|          | A.                                                                                 | Consolidated Financial Statements and Other Financial Information             | 44
|          | B.                                                                                 | Significant Changes                                                           | 44
|Item 9    | The Offer and Listing                                                              | 44                                                                           
|          | A.                                                                                 | Common Share Trading Information                                              | 44
|          | B.                                                                                 | Plan of Distribution                                                          | 44
|Item 10   | Additional Information                                                             | 46                                                                           
|          | A.                                                                                 | Share Capital                                                                 | 46
|          | B.                                                                                 | Articles of Incorporation and By-laws                                         | 46
|          | C.                                                                                 | Material Contracts                                                            | 51
|          | D.                                                                                 | Exchange Controls                                                             | 51
|          | E.                                                                                 | Taxation                                                                      | 53
|          | F.                                                                                 | Dividends and Paying Agents                                                   | 54
|          | G.                                                                                 | Statement by Experts                                                          | 54
|          | H.                                                                                 | Documents on Display                                                          | 54
|          | I.                                                                                 | Subsidiary Information                                                        | 54
|Item 11   | Quantitative and Qualitative Disclosures About Market
      Risk                   | 55                                                                           
|Item 12   | Description of Securities Other than Equity Securities                             | 55                                                                           
|PART II   |                                                                                    |                                                                               | 55
|Item 13   | Defaults, Dividend Arrearages and Delinquencies                                    | 55                                                                           
|Item 14   | Material Modifications to the Rights of Security Holders
      and Use of Proceeds | 55                                                                           
|Item 15   | Controls and Procedures                                                            | 55                                                                           
|Item 16   | [Reserved]                                                                         | 56                                                                           
|          | A.                                                                                 | Audit Committee Financial Expert                                              | 56
|          | B.                                                                                 | Code of Ethics                                                                | 56
|          | C.                                                                                 | Principal Accountant Fees and Services                                        | 56
|          | D.                                                                                 | Exemptions from the Listing Standards for Audit Committees.                   | 56
|          | E.                                                                                 | Purchases of Equity Securities by the Issuer and Affiliated
      Purchasers. | 56
|PART III  |                                                                                    |                                                                               | 57
|Item 17   | Financial Statements                                                               | 57                                                                           
|Item 18   | Financial Statements                                                               | 57                                                                           
|Item 19   | Exhibits                                                                           | 57                                                                           
|SIGNATURE | 58                                                                                

FORWARD-LOOKING STATEMENTS

Except for the statements of historical fact contained herein,
some information presented in this annual report constitutes forward-looking
statements. When used in this annual report, the words estimate, project,
believe, anticipate, intend, expect, predict, may, should, the
negative thereof or other variations thereon or comparable terminology are
intended to identify forward-looking statements. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of our company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among others,
changes in project parameters as plans continue to be refined, future prices of
nickel, as well as those factors discussed in the section entitled Risk
Factors on page 10. Although our company has attempted to identify important factors
that could cause actual results to differ materially, there may be other factors
that cause actual results not to be as anticipated, estimated or intended. There
can be no assurance that such statements will prove to be accurate as actual
results and future events could differ materially from those anticipated in such
statements. Accordingly, prospective investors should not place undue reliance
on forward-looking statements. The forward-looking statements in this annual
report speak only as to the date hereof. Our company does not undertake any
obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.

5

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Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.

As used in this annual report, the terms we, us, our and
Hard Creek mean Hard Creek Nickel Corporation, unless otherwise indicated.

CAUTIONARY NOTE TO UNITED STATES INVESTORS

Unless otherwise indicated, all mineral resource estimates
included in this Annual Report on Form 20-F have been prepared in accordance
with Canadian National Instrument 43-101  Standards of Disclosure for
Mineral Projects (NI 43-101), and the Canadian Institute of Mining,
Metallurgy and Petroleum Definition Standards for Mineral Resources and Mineral
Reserves (CIM Definition Standards). NI 43-101 is a rule developed by the
Canadian Securities Administrators which establishes standards for public
disclosure an issuer makes of scientific and technical information concerning
mineral projects. NI 43-101 permits the disclosure of a historical estimate made
prior to the adoption of NI 43-101 that does not comply with NI 43-101 using the
historical terminology if the disclosure: (a) identifies the source and date of
the historical estimate; (b) comments on the relevance and reliability of the
historical estimate; (c) states whether the historical estimate uses categories
other than those prescribed by NI 43-101 and, if so, includes an explanation of
the differences; and (d) includes any more recent estimates or data available.

Canadian standards, including NI 43-101, differ significantly
from the requirements of the Securities and Exchange Commission (the SEC), and
reserve and resource information contained in this Annual Report on Form 20-F
may not be comparable to similar information disclosed by U.S. companies. In
particular, and without limiting the generality of the foregoing, the term
resource does not equate to the term reserves. Under U.S. standards,
mineralization may not be classified as a reserve unless the determination has
been made that the mineralization could be economically and legally produced or
extracted at the time the reserve determination is made. The SECs disclosure
standards normally do not permit the inclusion of information concerning
measured mineral resources, indicated mineral resources or inferred mineral
resources or other descriptions of the amount of mineralization in mineral
deposits that do not constitute reserves by U.S. standards in documents filed
with the SEC. U.S. investors should also understand that inferred mineral
resources have a great amount of uncertainty as to their existence and great
uncertainty as to their economic and legal feasibility. It cannot be assumed
that all or any part of an inferred mineral resource will ever be upgraded to
a higher category. Under Canadian rules, estimated inferred mineral resources
may not form the basis of feasibility or pre-feasibility studies except in rare
cases. Investors are cautioned not to assume that all or any part of an
inferred mineral resource exists or is economically or legally mineable.
Disclosure of contained ounces in a resource is permitted disclosure under
Canadian regulations; however, the SEC normally only permits issuers to report
mineralization that does not constitute reserves by SEC standards as in-place
tonnage and grade without reference to unit measures. The requirements of NI
43-101 for identification of reserves are also not the same as those of the
SEC, and reserves reported by our company in compliance with NI 43-101 may not
qualify as reserves under SEC standards. Accordingly, information concerning
mineral deposits set forth herein may not be comparable with information made
public by companies that report in accordance with U.S. standards.

PART I

FINANCIAL INFORMATION AND ACCOUNTING PRINCIPLES

The financial statements and summaries of financial information
contained in this document are reported in Canadian dollars ($) unless
otherwise stated. A tonne is one metric ton or 2204.6 pounds.

6

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FIRST TIME APPLICATION OF INTERNATIONAL FINANCIAL REPORTING
STANDARDS

Effective from January 1, 2010, the Company adopted
International Financial Reporting Standards (IFRS), as issued by the
International Accounting Standards Board. Unless otherwise stated, all
information presented herein has been prepared in accordance with IFRS and all
prior period amounts have been reclassified to conform with IFRS. These are the
Companys first consolidated financial statements prepared in accordance with
IFRSs and IFRS 1 First-time Adoption of International Financial Reporting
Standards has been applied. Please note that our prior annual financial
statements were prepared in accordance with Canadian generally accepted
accounting principles, which may not be comparable to IFRS. Please refer to Note
13 of our annual financial statements included herein for a discussion on the
impact of our transition from Canadian generally accepted accounting principles
to IFRS.

Item
1           Identity of
Directors, Senior Management and Advisers

Not required.

Item
2           Offer Statistics
and Expected Timetable

Not required.

Item
3           Key Information

*A.*         
*Selected Financial Data*

The following financial data summarizes selected financial data
for our company prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards
Board (IASB) for the two fiscal years ended December 31, 2011 and 2010. The
information presented below for the two year period ended December 31, 2011 and
2010 is derived from our financial statements which were examined by our
independent auditors. The information set forth below should be read in
conjunction with our audited annual financial statements and related notes
thereto included in this annual report, and with the information appearing under
the heading Item 5  Operating and Financial Review and Prospects.

Hard Creek Nickel Corporation Selected Financial Data in
accordance with IFRS for the years 2011 and 2010 (Expressed in Canadian
Dollars)

|                                                             |   | 2011       |   |  | 2010       |  
|------------------------------------------------------------ | - | ---------- | - |  | ---------- | -
|Net operating revenues                                       | $ | 0          |   |  | 0          |  
|                                                             |   |            |   |  |            |  
|Loss from continued
      operations                         | $ | 0          |   |  | 0          |  
|Income from discontinued operations                          | $ | N/a        |   |  | N/a        |  
|Net loss                                                     | $ | (1,630,653 | ) |  | (1,220,100 | )
|Comprehensive loss                                           | $ | (1,630,653 | ) |  | (1,220,100 | )
|                                                             |   |            |   |  |            |  
|Loss per share from continued operations                     | $ | (0.02      | ) |  | (0.02      | )
|Income per share from
      discontinued operations          | $ | N/a        |   |  | N/a        |  
|Income per share after discontinued
      operations         | $ | N/a        |   |  | N/a        |  
|                                                             |   |            |   |  |            |  
|Share capital                                                | $ | 47,749,579 |   |  | 47,422,414 |  
|Common shares issued                                         |   | 77,330,160 |   |  | 76,545,052 |  
|Weighted average shares outstanding                          |   | 77,161,144 |   |  | 64,947,151 |  
|                                                             |   |            |   |  |            |  
|Total assets                                                 | $ | 33,254,766 |   |  | 34,042,450 |  
|Net assets (liabilities)                                     | $ | 32,618,138 |   |  | 33,313,543 |  
|                                                             |   |            |   |  |            |  
|Convertible debentures(current and long
      term portions) | $ | N/a        |   |  | N/a        |  
|                                                             |   |            |   |  |            |  
|Cash dividends declared per common share                     | $ | 0          |   |  | 0          |  
|                                                             |   |            |   |  |            |  
|Exchange rates (Cdn$ to U.S.$) period
      average          | $ | 1.0110     |   |  | 0.9709     |  

7

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|Exchange rates (CDN$ to U.S.$) for most recent six |   |             |  |  |            | 
|-------------------------------------------------- | - | ----------- |  |  | ---------- | 
|months                                             |   | Period High |  |  | Period Low | 
|November 2011                                      | $ | 0.9785      |  |  | 0.9711     | 
|December 2011                                      | $ | 0.9807      |  |  | 0.9733     | 
|January 2012                                       | $ | 0.9902      |  |  | 0.9841     | 
|February 2012                                      | $ | 1.0050      |  |  | 1.0003     | 
|March 2012                                         | $ | 1.0085      |  |  | 1.0037     | 
|April 2012                                         | $ | 1.0197      |  |  | 0.9961     | 
|Exchange rate (CDN$ to U.S.$) May 17, 2012         | $ | 0.9839      |  |  |            | 

Hard Creek Nickel Corporation Selected Financial Data in
accordance with CDN GAAP for the years 2010 - 2007 
  (Expressed in Canadian Dollars)

CDN GAAP
      2010 Audited
      2009 Audited
      2008 Audited
      2007 AuditedNet Sales or Operating Revenue
    NIL
    NIL
    NIL
    NILNet Loss
    $1,219,520
    $1,477,538
    $1,958,267
    $1,778,211Net Loss from Operations (January 17, 1983 (inception to
      December 31, 2008)
    $15,535,709
    $14,316,189
    $12,838,651
    $10,880,384Depreciation
    $13,725
    $24,389
    $20,860
    $14,528General and Administrative Expenses
    $1,464,046
    $1,238,438
    $2,524,141
    $2,852,726Mineral Property Exploration Costs
    $1,800,538
    $3,549,534
    $2,872,429
    $7,110,558Other Income
    $244,526
    ($239,100 )
    $565,874
    $1,074,515Basic and Diluted Net Loss per Share
    $0.02
    $0.02
    $0.03
    $0.03Assets
    $33,941,040
    $30,920,228
    $31,637,006
    $33,846,521Current Assets
    $3,411,615
    $2,176,886
    $6,429,027
    $11,529,201Capital Stock
    $43,399,177
    $39,562,338
    $39,562,338
    $39,434,113Common Stock (adjusted to reflect changes 
      in capital)
    76,545,052 common shares
    60,370,592 common shares
    60,370,592 common shares
    60,220,592 common sharesBasic and Diluted Net Loss per Common Share
    $0.02
    $0.02
    $0.03
    $0.03Cash Dividends per Common Share
    NIL
    NIL
    NIL
  NIL


8

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US GAAP
      2010 Audited
      2009 Audited
      2008 Audited
      2007 AuditedNet Sales or Operating Revenue
    NIL
    NIL
    NIL
    NILNet Loss
    $3,020,058
    $5,027,072
    $4,830,696
    $10,974,654Net Loss from Operations (January 17, 1983 (inception to
      December 31, 2008)
    $48,378,500
    $45,358,442
    $40,331,370
    $35,500,674Depreciation
    $13,725
    $24,389
    $20,860
    $14,528General and Administrative Expenses
    $1,464,046
    $1,238,438
    $2,524,141
    $2,852,726Mineral Property Exploration Costs
    $1,800,538
    $3,549,534
    $2,872,430
    $7,182,030Other Income
    $244,526
    ($239,100 )
    $565,874
    ($939,898)Basic and Diluted Net Loss per Share
    $0.05
    $0.08
    $0.08
    $0.18Assets
    $3,639,474
    $2,419,200
    $6,685,512
    $11,767,456Current Assets
    $3,411,615
    $2,176,886
    $6,429,027
    $11,529,201Capital Stock
    $43,399,177
    $39,562,338
    $39,562,338
    $41,448,526Common Stock (adjusted to reflect changes in
      capital)
    76,545,052 common shares
    60,370,592 common shares
    60,370,592 common shares
    60,220,592 common sharesBasic and Diluted Net Loss per Common Share
    $0.05
    $0.08
    $0.08
    $0.18Cash Dividends per Common Share
    NIL
    NIL
    NIL
    NIL


9

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*B.*          *Capitalization and Indebtedness*

Not required.

*C.*         
*Reasons for the Offer and Use of Proceeds*

Not required.

*D.*         
*Risk Factors*

This Annual Report contains forward-looking statements which
relate to future events or our future performance, including our future
financial performance. In some cases, you can identify forward-looking
statements by terminology such as may, should, expects, plans,
anticipates, believes, estimates, predicts, or potential or the
negative of these terms or other comparable terminology. These statements are
only predictions and involve known and unknown risks, uncertainties and other
factors, including the risks in enumerated in this section entitled Risk
Factors, that may cause our companys or our industrys actual results, levels
of activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements.

While these forward-looking statements, and any assumptions
upon which they are based, are made in good faith and reflect our current
judgment regarding the direction of our business, actual results will almost
always vary, sometimes materially, from any estimates, predictions, projections,
assumptions or other future performance suggested in this Annual Report. Except
as required by applicable law, including the securities laws of the United
States, we do not intend to update any of the forward-looking statements to
conform these statements to actual results.

An investment in our common stock involves a number of very
significant risks. You should carefully consider the following risks and
uncertainties in addition to other information in this annual report in
evaluating our company and our business before purchasing shares of our
companys common stock. Our business, operating results and financial condition
could be seriously harmed due to any of the following risks. You could lose all
or part of your investment due to any of these risks.

Risks Associated with Mining

The Company is engaged in the business of acquiring and
exploring mineral properties in the expectation of locating mineral reserves.
The Companys property interests are in the exploration stage only and are
without a known body of commercial ore. Accordingly, there is little likelihood
that the Company will realize any profits in the short to medium term. Any
profitability in the future from the Companys business will be dependent upon
locating mineral reserves, which itself is subject to numerous risk factors. If
we do not discover any mineral resource in a commercially exploitable quantity,
our business will fail and investors may lose all of their investment in our
company.

The business of exploring for minerals and mining involves a
high degree of risk. Few properties that are explored are ultimately developed
into producing, profitable mines. In developing its mineral deposits, the
Company will be subjected to an array of complex economic factors and
accordingly there is no assurance that a positive feasibility study or any
projected results contained in a feasibility study of a mineral deposit will be
attained. Additional potential problems that may prevent us from discovering any
reserves of minerals on our property include, but are not limited to,
unanticipated problems relating to exploration and additional costs and expenses
that may exceed current estimates. Most of these factors are beyond our control,
and any of them could increase costs and make extraction of any identified
mineral resource unprofitable. For further information please refer to our
report in compliance with National Instrument 43-101 entitled "Turnagain Project
Preliminary Economic Assessment" dated December 2, 2011 located on our website
www.hardcreek.com under the heading "Projects".

10

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If we are unable to establish the presence of commercially
exploitable reserves of minerals on our property, our ability to fund future
exploration activities will be impeded, we will not be able to operate
profitably and investors may lose all of their investment in our company.

We face intense competition in the mineral exploration
and exploitation industry and we compete with our competitors for financing, for
new mineral resource properties and for qualified managerial and technical
employees. If we are unable to obtain the financing, new mineral properties or
qualified personnel that we require, then we will likely have to cease
operations and investors will lose all of their investment in our company.

Our competition includes large established mining companies
with substantial capabilities and with greater financial and technical resources
than we have. As a result of this competition, we may have to compete for
financing and we may be unable to acquire financing on terms we consider
acceptable. Our competition could adversely affect our ability to acquire
suitable prospects for exploration in the future. We may also have to compete
with the other mining companies in the recruitment and retention of qualified
managerial and technical employees. If we are unable to successfully compete for
financing, mineral properties or qualified employees, we will likely have to
cease operations. If we are unable to successfully compete for the acquisition
of suitable prospects or interest for exploration in the future, we will not
acquire any interest in additional mineral resource properties and have no
further chance of discovering minerals. The occurrence of any of these things
would likely cause us to cease operations and investors would lose their entire
investment in our company.

Because of the inherent dangers involved in mineral
exploration and exploitation, there is a risk that we may incur liability or
damages as we conduct our business. If we are liable to pay for any damages
resulting from the conduct of our business, our financial position could be
adversely affected and we may have to slow down or cease operations and
investors could lose their investment in our company.

The search for valuable minerals involves numerous hazards. As
a result, we may become subject to liability for such hazards, including
pollution, cave-ins and other hazards against which we cannot insure against or
which we may elect not to insure. At the present time we have no coverage to
insure against these hazards. The payment of such liabilities may have a
material adverse effect on our financial position. If so, we may have to slow
down or cease operations and investors could lose their investment in our
company.

Mineral operations are subject to government regulations
which could have the effect of preventing us from exploiting any possible
mineral reserves on our properties. If this occurs, we may have to cease
operations and investors could lose their investment in our company.

Exploration activities are subject to national and local laws
and regulations governing prospects, taxes, labor standards, occupational
health, land use, environmental protection, mine safety and others which may in
the future have a substantial adverse impact on our companys prospects. In
order to comply with applicable laws, we may be required to make capital
expenditures until a particular problem is remedied. Existing and possible
future environmental legislation, regulation and action could cause additional
expense, capital expenditure, restriction and delay in the activities of our
company, the extent of which cannot be reasonably predicted. If we violate any
applicable law or regulation, we could be forced to stop work and we could be
fined. If we are forced to suspend our activities or if we are required to pay a
large fine for a violation of these applicable laws and regulations, our
business could be adversely affected and investors could lose their investment
in our company.

Our operations are subject to environmental regulations,
which require us to obtain permits and pay bonds and may result in the
imposition of fines and penalties. If we are unable to obtain the permits or pay
the bonds that we require in the future, we will have to cease the exploration
activity in question. Ceasing such exploration activities could reduce our
chances of ever discovering mineral resources on our properties. Environmental
fines or liability could cause expenses for us, reducing the funds we havefor our exploration program and potentially causing us to
cease operations. If this happens, investors may lose their entire investment in
our company.

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Our operations are subject to environmental regulations
promulgated by government agencies. Environmental legislation provides for
restrictions and prohibitions on spills, releases or emissions of various
substances produced in association with certain mining industry operations, such
as seepage from tailings disposal areas, which would result in environmental
pollution. A breach of such legislation may result in the imposition of fines
and penalties. Environmental legislation is evolving in a manner which means
stricter standards, and enforcement; fines and penalties for non-compliance may
become more stringent. Environmental assessments of proposed projects carry a
heightened degree of responsibility for companies and directors, officers and
employees. Prior to conducting exploration involving surface disturbance in
British Columbia, we are required to obtain a Work Permit from the Ministry of
Energy, Mines and Petroleum Resources. Where significant surface disturbance
through road building and drill site preparation is planned, the Ministry
requires a Reclamation Bond to cover the estimated reclamation costs if we fail
to complete the reclamation. The cost of compliance with governmental
regulations, permits and bond requirements has the potential to reduce the
profitability of operations by curtailing our exploration activities.

We are not aware of any existing environmental liability
associated with any of our exploration properties but if such liability should
arise, we may incur costs, which would reduce the amount of money we have
available to spend on exploration and could cause our company to suspend
operations. Our potential exposure to liability for environmental damage is high
and we have no reserves established to pay for such liability. If we are found
to be liable for a large amount of environmental damage, we are likely to cease
operations. If that happens, investors are likely to lose all of their
investment in our company.

Please see the section entitled Governmental Regulations on
page 18 of this annual report for more information.

Risks Related To Our Company

We have a limited operating history and have not
generated any operating revenues since our incorporation. This raises
substantial doubt about our ability to continue as a going concern and
does not provide a meaningful basis for an evaluation of our prospects. If
we are unable to generate revenue from our business, we may be forced to delay,
scale back, or cease our exploration activities. If any of these actions were to
become necessary, we may not be able to continue to explore our properties or
operate our business and there is a substantial risk our business would fail,
causing investors to lose all of their investment in our company.

We have not generated any operating revenues since our
incorporation and we will, in all likelihood, continue to incur operating
expenses without revenues until our mining properties are fully developed and in
commercial production, which may never happen. We had cash in the amount of
$236,530, current recoverable taxes of $47,134 and non- current recoverable
taxes of $237,220 as of December 31, 2011. We estimate our average monthly
operating expenses to be approximately $100,000. As a result, we need to
generate significant revenues from our operations or obtain financing. We cannot
provide assurances that we will be able to successfully explore and develop our
mining properties or assure that viable mineral reserves exist on our properties
for extraction. It is unlikely that we will generate any funds internally unless
we discover commercially viable quantities of ore. If we are unable to generate
revenue from our business during the fiscal year 2012, we may be forced to
delay, scale back, or eliminate our exploration activities. If any of these
actions were to become necessary, we may not be able to continue to explore our
properties or operate our business and if either of those events happen, then
there is a substantial risk our business would fail and investors would lose
their investment in our company.

We have not generated any revenue from our business and
we will need to raise additional funds in the near future. If we are not able to
obtain future financing when required, we might be forced to discontinue our
business.

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Because we have not generated any revenue from our business and
we cannot anticipate when we will be able to generate revenue from our business,
we will need to raise additional funds for the further exploration and future
development of our mining claims and to respond to unanticipated requirements or
expenses. We anticipate that we do not have sufficient funds for the 12 month
period ending December 31, 2012, and need to raise further capital very soon in
the approximate amount of $2,000,000 to $10,000,000. We do not currently have
any arrangements for financing and we may not be able to find such financing if
required. We cannot be sure that additional funding will be available to us for
further exploration and development of our projects or to fulfill our
obligations under any applicable agreements. Although we have been successful in
the past in obtaining financing through the sale of equity securities, it is
possible that we will not be able to obtain adequate financing in the future or
that the terms of such financing will be unfavorable and unacceptable to us.
Failure to obtain such additional financing is likely to result in a delay or
indefinite postponement of further exploration and development of our projects
and possible loss of our properties, in which case our companys securities
would never increase in value and investors would lose their entire
investment.

Our Articles of Incorporation indemnify our officers and
directors against all costs, charges and expenses incurred by them , which may
discourage suits against directors or officers for breaches of fiduciary duties
even though such suits, if successful, could benefit our company and our
shareholders.

Our Articles of Incorporation contain provisions limiting the
liability of our officers and directors for their acts, receipts, neglects or
defaults and for any other loss, damage or expense incurred by our company which
occurs in the execution of the duties of such officers or directors, unless the
officers or directors did not act honestly and in good faith with a view to the
best interests of our company. Such limitations on liability may reduce the
likelihood of derivative litigation against our officers and directors and may
discourage or deter our shareholders from suing our officers and directors based
upon breaches of their duties to our company, though such an action, if
successful, might otherwise benefit our company and our shareholders.

Risks Relating to our Securities

Trading in our common shares on the Toronto Stock
Exchange is limited and sporadic, making it difficult for our shareholders to
sell their shares or liquidate their investments.

Our common shares are currently listed on the TSX Exchange
under the symbol HNC. The trading price of our common shares has been
and may continue to be subject to wide fluctuations. Trading prices of our
common shares may fluctuate in response to a number of factors, many of which
are beyond our control. In addition, the stock market in general, and the market
for base metal exploration companies, including companies exploring for nickel
in particular, has experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of such
companies. These broad market and industry factors may adversely affect the
market price of our shares, regardless of our operating performance. If you
invest in our common shares, you could lose some or all of your investment.

In the past, following periods of volatility in the market
price of a companys securities, securities class-action litigation has often
been instituted. Such litigation, if instituted, could result in substantial
costs and a diversion of managements attention and resources.

Investors will suffer dilution in their net book value
per share if we issue additional shares, raise funds through the sale of equity
securities or issue employee/director or consultant options.

We are currently without a source of revenue and will most
likely be required to issue additional shares to finance our operations and,
depending on the outcome of our exploration programs, may issue additional
shares to finance additional exploration programs of any or all of our projects
or to acquire additional properties or through the exercise of options by our
employees, directors and consultants. If we are required to issue additional
shares to raise funds, our current shareholders interests in our company will
be diluted and our current shareholders may suffer dilution in their net book
value per share depending on the price at which such securities are sold. As at May 17, 2012, there were
outstanding an aggregate number of common share purchase warrants and share
purchase options as, upon exercise, would result in the issue of an additional
15,340,833 of our common shares which, if exercised, would represent
approximately 16 % of our issued and outstanding common shares. If all of these
share purchase warrants and share purchase options are exercised and these
common shares are issued, such issuance also will cause a reduction in the
proportionate ownership and voting power of all other shareholders. The dilution
may result in a decline in the market price of our common shares.

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We do not expect to declare or pay any dividends for the
foreseeable future, so investors will realize a return on their investment only
if the price of shares of our stock increases. There are no guarantees that this
will ever happen and investors may lose their entire investment in our
company.

We have not declared or paid any dividends on our Common Shares
since our inception, and we do not anticipate paying any such dividends for the
foreseeable future. Therefore, investors will only realize a return on their
investment if the price of our stock increases. There are no guarantees that
will ever happen and investors may never realize a return on their investment in
our company and may lose their entire investment.

All of our directors, officers and control persons live
outside of the U.S. and. investors may not be able to enforce their civil
liabilities against us, our directors officers or control persons. Therefore,
investors may be discouraged from bringing suits against our directors and
officers or may be unsuccessful even if they bring such suits. Suits against
directors or officers for breaches of fiduciary duties may be discouraged, even
though such suits, if successful, could benefit our company and our
shareholders.

It may be difficult to bring and enforce suits against us or
our directors, officers and control persons. We were incorporated under the
Company Act (British Columbia) and transitioned under the Business
Corporations Act (British Columbia) in June of 2004. All of our directors
and officers are residents of countries other than the United States and all of
our assets are located outside of the United States. Consequently, there is a
risk that Canadian courts may not enforce the judgments of U.S. courts or
enforce, in an original action, liabilities predicated on the U.S. federal laws
directly.Therefore, investors may be discouraged from bringing
suits or may be unsuccessful even if they do try.

Some of our directors and officers are employed elsewhere
and their time and efforts will not be devoted to our company full-time.

Some of our directors and officers are employed in other
positions with other companies. They will manage our company on a part-time
basis. Because of this fact, the management of our company may suffer and our
company could under-perform or fail. Brian Fiddler, our Controller and Chief
Financial Officer, will devote approximately 32 hours per week, which is
approximately 80% of his working hours, to the management of our company. George
Sookochoff, a director of our company, will devote approximately 4 hours per
week, which is approximately 10% of his working hours, to the management of our
company. Lyle Davis, a director of our company, will devote approximately 4
hours per week, which is approximately 10% of his working hours, to the
management of our company. Tom Milner a director of our company, will devote
approximately 4 hours per week, which is approximately 10% of his working hours,
to the management of our company. Gary Johnson a director of our company, will
devote approximately 4 hours per week, which is approximately 10% of his working
hours, to the management of our company. Cliff Carson a director of our company,
will devote approximately 4 hours per week, which is approximately 10% of his
working hours, to the management of our company.

Trading of our stock may be restricted by the SEC's penny
stock regulations, which may limit a shareholder's ability to buy and sell our
stock.

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The Securities and Exchange Commission has adopted regulations
which generally define "penny stock" to be any equity security that has a market
price (as defined) less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exceptions. Our securities are covered by
the penny stock rules, which impose additional sales practice requirements on brokers
or dealers who sell to persons other than established customers and "accredited
investors". The term "accredited investor" refers generally to institutions with
assets in excess of $5,000,000 or individuals with a net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their
spouse. The penny stock rules require a broker or dealer, prior to a transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document in a form prepared by the SEC, which provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker or dealer also must provide the customer with current
bid and offer quotations for the penny stock, the compensation of the broker or
dealer and its salesperson in the transaction and monthly account statements
showing the market value of each penny stock held in the customer's account. The
bid and offer quotations, and the broker or dealer and salesperson compensation
information, must be given to the customer orally or in writing prior to
effecting the transaction and must be given to the customer in writing before or
with the customer's confirmation. In addition, the penny stock rules require
that prior to a transaction in a penny stock not otherwise exempt from these
rules, the broker or dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of brokers or dealers to trade
our securities. We believe that the penny stock rules discourage investor
interest in and limit the marketability of our common stock. This may limit your
ability to buy and sell our stock and cause the price of the shares to decline

NASD sales practice requirements may also limit a
shareholder's ability to buy and sell our stock.

In addition to the "penny stock" rules described above, the
National Association of Securities Dealers (NASD) has adopted rules that require
that in recommending an investment to a customer, a broker or dealer must have
reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low priced securities to their
non-institutional customers, brokers or dealers must make reasonable efforts to
obtain information about the customer's financial status, tax status, investment
objectives and other information. Under interpretations of these rules, the NASD
believes that there is a high probability that speculative low priced securities
will not be suitable for at least some customers. The NASD requirements make it
more difficult for brokers or dealers to recommend that their customers buy our
common stock, which may prevent you from reselling your shares and may cause the
price of the shares to decline.

U.S. investors could suffer adverse tax consequences if
we are characterized as a passive foreign investment company.

We may be treated as a passive foreign investment company, or
PFIC, for United States federal income tax purposes during the 2003 tax year or
in subsequent years. We may be deemed a PFIC because previous financings
combined with proceeds of future financings may produce, or be deemed to be held
to produce, passive income. Additionally, U.S. citizens should review the
section entitled Taxation-U.S. Federal Income Taxation - Passive Foreign
Investment Companies contained in this Annual Report for a more detailed
description of the PFIC rules and how those rules may affect their ownership of
our capital shares.

If we are or become a PFIC, our U.S. shareholders may be
subject to the following adverse tax consequences:

- they will be taxed at the highest ordinary income tax rates in effect
  during their holding period on certain distributions on our capital shares,
  and gains from the sale or other disposition of our capital shares;
- they will be required to pay interest on taxes allocable to prior periods;
  and
- the tax basis of our capital shares will not be increased to fair market
  value at the date of their date.

Item
4           Information on our
Company

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*A.*          *History and Development of our Company*

We were originally incorporated in British Columbia Canada
under the Company Act (British Columbia) on January 17, 1983, under the
name Bren-Mar Resources Limited, with an authorized capital of 50,000,000
Common Shares without par value. On March 15, 2000, we changed our name to
Bren-Mar Minerals Ltd. to reflect our change in business to strictly
exploration mining and consolidated our then issued and outstanding common
shares on the basis of 1 post-consolidation common share for 5 pre-consolidation
common shares, and we increased our post-consolidation authorized capital to
50,000,000 common shares. There were no changes in our directors or management.
On November 22, 2000, we changed our name to Canadian Metals Exploration Ltd.
to reflect the Companys focus on mineral exploration in Canada, there were no
changes in directors or management.

The Business Corporations Act (British Columbia) came
into force on March 29, 2004, repealing the Company Act(British
Columbia.) Our company now operates under the Business Corporations Act
(British Columbia). On June 25, 2004, we changed our name to Hard Creek Nickel
Corporation to reflect the primary type of mineral exploration the Company is
engaged in, altered our authorized capital to comprise an unlimited number of
common shares and an unlimited number of Class A preferred shares, and adopted
our current Articles of Incorporation, which are attached as an exhibit to this
form. The previous directors and management were replaced by Mark Jarvis as
President and Director , Brian Fiddler as CFO, Leslie Young as Corporate
Secretary, George Sookochoff as Director, Tom Milner as Director and Lyle Davis
as Director.

We have our head office and principal place of business at
Suite 1060  1090 West Georgia Street, Vancouver, British Columbia V6E 3V7
Canada (Telephone: 604.681.2300) . We do not have an agent in the United
States.

Our common shares are listed on the TSX Exchange under the
symbol HNC.

Since inception, we have been engaged in natural resource
exploration and development primarily in British Columbia and, since 1996, have
focused on the Turnagain Property in the Liard Mining Division of northern
British Columbia. We first acquired the mineral claims on the Turnagain Property
in 1996 under an option agreement with John Schussler and Ernie Hatzl. The
original option agreement gave us the right to earn a 100% interest in the
mineral claims on the Turnagain Property in exchange for the issuance of 200,000
of our common shares and the expenditure of CAN$1,000,000 on exploration of the
property within 5 years of acquisition. We have now earned the 100% interest and
it is subject to a 4% net smelter royalty on possible future production. We have
the right to pay out the net smelter royalty by paying CAN$1,000,000 for each 1%
of the royalty. To pay out the entire 4% royalty, we would be required to pay
CAN$4,000,000.

On November 28, 2002, we entered into an agreement with John
Schussler and Ernie Hatzl to acquire an additional 34 mineral claims, adjacent
to the Turnagain Property, Laird Mining Division, British Columbia, in exchange
for an aggregate total of 100,000 common shares.

Between November, 2003 and March, 2005 we staked additional
claims, enlarging the Turnagain property from 3,700 hectares to approximately
27,500 hectares. With claim conversions in April 2005 and November 2007, and
additional staking in 2009, the Turnagain property now covers 33,220 hectares.

Present Operations of Our Company

Turnagain Property Project

Our current mineral exploration activities on the Turnagain
Property include core drilling, geological mapping, geochemical surveying,
downhole geophysical surveying, baseline environmental and
engineering studies, and metallurgical testing. From 2001 to December 31, 2011,
we have drilled 273 core holes for a total depth of 76,367m (250,548 feet). Approximate
total exploration expenditure from January 1, 2009 to December 31, 2011 was
CDN$7,300,000.

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As of December 31, 2011, we had approximately $57,000 in
working capital, which is not sufficient to cover our operating costs for the
next twelve months at $100,000 per month plus our anticipated 2012 exploration
program of approximately $1,000,000.

B.Business Overview

Nature of Operations and Principal Activities

We are in the mineral resource business. This business
generally consists of three stages: exploration, development and production. We
are a mineral resource company in the exploration stage because we have not yet
found mineral resources in commercially exploitable quantities, and are engaged
in exploring land in an effort to discover them. Mineral resource companies that
have located a mineral resource in commercially exploitable quantities and are
preparing to extract that resource are in the development stage, while those
engaged in the extraction of a known mineral resource are in the production
stage.

Mineral resource exploration can consist of several stages. The
earliest stage usually consists of the identification of a potential prospect
through either the discovery of a mineralized showing on that property or as the
result of a property being in proximity to another property on which exploitable
resources have been identified, whether or not they are or have in the past been
extracted.

After the identification of a property as a potential prospect,
the next stage would usually be the acquisition of a right to explore the area
for mineral resources. This can consist of the outright acquisition of the land
or the acquisition of specific, but limited, rights to the land (e.g., a
license, lease or concession). After acquisition, exploration would probably
begin with a surface examination by a prospector or professional geologist with
the aim of identifying areas of potential mineralization, followed by detailed
geological sampling and mapping of this showing with possible geophysical and
geochemical grid surveys to establish whether a known trend of mineralization
continues underground, possibly trenching in these covered areas to allow
sampling of the underlying rock. Exploration also commonly includes systematic
regularly spaced drilling in order to determine the extent and grade of the
mineralized system at depth and over a given area, as well as gaining
underground access by ramping or shafting in order to obtain bulk samples that
would allow one to determine the ability to recover various commodities from the
rock. If minerals are found, exploration might culminate in a feasibility study
to ascertain if the mining of the minerals would be economic. A feasibility
study is a study that reaches a conclusion with respect to the economics of
bringing a mineral resource to the production stage.

Our primary natural resource property is the Turnagain
Property, located in the Liard Mining Division of northern British Columbia. We
also own six very early stage, mineral properties in British Columbia. We have
not identified the existence of any commercially viable mineral deposits at any
of our mineral properties.

It is unlikely that a commercially viable mineral deposit
exists on any of our properties, and further exploration is required before we
can evaluate whether any exist and, if so, whether it would be economically and
legally feasible to develop or exploit those resources. Even if we complete our
current exploration program and we are successful in identifying a mineral
deposit, we would be required to spend substantial funds on further drilling and
engineering studies before we could know whether that mineral deposit will
constitute a reserve (a reserve is a commercially viable mineral deposit).
Please refer to the section entitled Risk Factors, beginning on page 10 of
this annual report, for
additional information about the risks of mineral exploration.

Revenues

To date we have not generated any revenues from any of our
properties.

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Principal Market

We do not currently have any market, as we have not yet
identified any mineral resource on any of our properties that is of a
commercially exploitable quantity. If we succeed in identifying a mineral
resource in commercially exploitable quantities, our principal markets would
consist of metals refineries and base metal traders and dealers.

Seasonality of our Business

Our mineral exploration activities are subject to seasonal
variation due to the winter season in northern British Columbia. Field work is
best carried out between mid-May and late-November when day time temperatures
average 10 to 15 degrees Celsius. Our other operations, such as metallurgical
review and analysis of geochemical survey results, can be carried out all year
round.

Sources and Availability of Raw Materials

Other than a paved highway and the small community of Dease
Lake, located 70km west of the Turnagain property, there is no infrastructure
close to the Turnagain property. A small amount of hydroelectric power is
generated near Dease Lake, to supply the town, but there is little excess
capacity. The closest suitable source of hydroelectric power for mine
development is the transmission line at Meziadin Junction, 300km south along the
highway. If a mineral resource is found on our Turnagain property, power
generation would be required.

Patents and Licenses; Industrial, Commercial and
Financial Contracts; and New Manufacturing Processes

In conducting our business operations, we are not dependent on
any patented or license processes, technology, industrial, commercial or
financial contract or new manufacturing processes.

Competitive Conditions

The mineral exploration industry is highly competitive. We
compete with other mining companies, some of which have greater financial
resources and technical facilities, for the acquisition of mineral interests, as
well as for the recruitment and retention of qualified employees. We compete for
qualified employees with Vancouver based companies, including Hunter Dickenson
Inc., Equity Engineering and Ivanhoe Mines, and international mining companies,
including Billiton-BHP, Rio Tinto and Anglo American, among others.

Governmental Regulations

Mining operations are subject to a wide range of national and
provincial government regulations such as restrictions on production, price
controls, tax increases, expropriation of property, environmental protection,
and protection of agricultural territory or changes in conditions under which
minerals may be marketed. Mining operations may also be affected by claims of
native peoples, any of which could have the effect of reducing or preventing us
from exploiting any of our properties.

Mineral claims in British Columbia are of two types. Cell
mineral claims are established by electronically selecting the desired land on
government claim maps, where the available land is displayed as a grid pattern
of open cells, each of approximately 450-500 hectares. Payment of the required
recording fees is also conducted electronically. This process for claim staking
has been in effect since January, 2005, and is now the only way to stake claims
in British Columbia. Prior to January, 2005, legacy claims were staked by walking the perimeter of the desired ground and erecting and
marking posts at prescribed intervals. Legacy claims, staked before January,
2005, remain valid and may be converted into cell claims.

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Cell mineral claims may be kept in good standing by incurring
assessment work or by paying cash-in-lieu of assessment work in the amount of
CAN$4.00 per hectare per year during the first 3 years following the location of
the mineral claims. This amount is increased to CAN$8.00 per hectare in the
fourth and succeeding years.

Legacy mineral claims in British Columbia may be kept in good
standing by incurring assessment work or by paying cash-in-lieu of assessment
work in the amount of $100 per mineral claim unit per year during the first
three years following the location of the mineral claim. This amount increases
to $200 per mineral claim unit in the fourth and succeeding years.

We will be required to comply with all regulations, rules and
directives of governmental authorities and agencies applicable to the
exploration of minerals in the Province of British Columbia and in Canada
generally. Under these laws, prior to production, we have the right to explore
the property. We are required to file a Notice of Work and Reclamation with
the British Columbia Ministry of Energy and Mines to conduct exploration works
on mineral properties in British Columbia. To obtain a work permit, a company
may be required to post a bond. In addition, the production of minerals in the
Province of British Columbia requires prior regulatory approval.

Our mineral claims entitle our company to continue exploration
activities on our properties, subject to our compliance with various Canadian
federal and provincial laws governing land use, the protection of the
environment and related matters.

If we locate a commercially viable mineral resource on any of
our properties, we would be required to conduct extensive community
consultations in northern British Columbia with both Aboriginal and non-
Aboriginal groups, environmental surveys both on the property and along
transportation corridors. We also would be required to develop a mining plan and
a mine closure plan. These surveys and plans would be combined into a
comprehensive Environmental Impact Statement and submitted to the British
Columbia government for review and approval. Any development or exploitation of
such a mineral resource would be subject to Canadian federal and provincial laws
governing land use, protection of the environment, occupational health, waste
disposal, toxic substances, mine safety and other matters. We had no material
costs related to compliance and/or permits in recent years, and anticipate no
material costs in the next year.

We will have to sustain the cost of reclamation and
environmental mediation for all exploration work undertaken. The amount of these
costs is not known at this time as we do not know the extent of the exploration
program that will be undertaken beyond completion of the recommended work
programs. The Company has posted $337,900 in total reclamation bonds towards the
reclamation of existing exploration drill sites and access roads on the
Turnagain property. Permits and regulations will control all aspects of any
production program if the project continues to that stage because of the
potential impact on the environment.

Our operations are subject to environmental regulations
promulgated by various levels of governments and their agencies. Existing
environmental legislation provides for restrictions and prohibitions on spills,
releases or emissions of various substances produced in association with certain
mining industry operations, such as from disposal areas, which would result in
environmental pollution. A breach of such legislation may result in the
imposition of fines and penalties. Prior to conducting exploration involving
surface disturbance in British Columbia, we are required to obtain a Work Permit
from the Ministry of Energy, Mines and Petroleum Resources. So far, we have
obtained the permits we needed to conduct our exploration program but if we are
unable to obtain the permits that we require in the future, we will have to
cease the exploration activity in question. Ceasing such exploration activities
could reduce our chances of ever discovering mineral resources on our
properties.

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Where significant surface disturbance through road building and
drill site preparation is planned, the Ministry of Energy, Mines and Petroleum
Resources require a Reclamation Bond to cover the estimated reclamation costs if
we fail to complete the reclamation. From 1996 to present, we have posted
$337,900 in total reclamation bonds with the Ministry of Energy, Mines and
Petroleum Resources.

We are not aware of any existing environmental liability
associated with any of our exploration properties but if such liability should
arise, we may incur substantial costs, which would reduce the amount of money we
have to spend on exploration and could cause us to cease operations. Our
potential exposure to liability for environmental damage is high and we have no
reserves established to pay for such liability. If we are found to be liable for
a large amount of environmental damage, we are likely to have to cease
operations.

*C.*         
*Organizational Structure*

We have one wholly-owned subsidiary, Canadian Metals
Exploration Ltd., incorporated under the Canada Business Corporation Act
(Canada) on July 14, 2004. This wholly-owned subsidiary is currently
inactive.

*D.*         
*Property, Plant and Equipment*

This section summarizes the assets of the company including its
executive office in Vancouver, B.C., sample storage warehouse near Vancouver and
its most important assets, mineral exploration properties.

The company has 100% interest in a number of mineral
exploration properties located in British Columbia, the Turnagain is presently
the only material exploration property and is described below.

Our executive office is located at 1060  1090 West Georgia
Street, Vancouver, British Columbia V6E 3V7, Canada. The Company leases the
2,500 square feet of space for $120,000 per year and the lease expires on
September 30, 2016. This space accommodates all of our executive and
administrative offices. We believe that this existing space is adequate for our
current needs. Should we require additional space, we believe that such space
can be secured on commercially reasonable terms.

The company has recently rented a warehouse near Vancouver,
British Columbia in which to store drill core samples and to prepare composite
samples for metallurgical testwork. We have also installed a walk-in freezer in
this space and are storing samples presently within the freezer to limit the
possible oxidation of select samples which may be used in future metallurgical
testwork. We rent this facility for $1,800 per month on a six-month renewable
lease. The cost to run the freezer is $95 per month. Additional warehouse space
was added to the original rented space in 2007 and more space is still available
if required. We own office, vehicle, and exploration equipment with a cost of
approximately $105,000 located at our Vancouver Office and our camp at the
Turnagain property. We lease a photocopier at the rate of $700 per three months.
Satellite internet and telephone service at our camp at the Turnagain property
costs $150 per month.

Our main mineral property the Turnagain is described more fully
below:

20

---



21

---



The Turnagain Property

This section provides a summary of the geology and exploration
activities on the Turnagain Property. The technical information regarding the
Turnagain Property included in this section is based, in large part, on three
technical reports:

1) Report on the 2003 Exploration Program, Turnagain Nickel
Property, dated April 21, 2004, prepared by N. C. Carter Ph.D., P.Eng, in
compliance with the requirements of National Instrument 43-101 and Form
43-101F1.

2) Technical Report and Mineral Resource Estimate prepared by
Ronald G. Simpson, P.Geo, dated March 29, 2007, and prepared in compliance with
the requirements of National Instrument 43-101 and Form 43-101F1 as adopted by
the British Columbia Securities Commission.

3) Turnagain Project, Hard Creek Nickel Corporation,
Preliminary Economic Assessment dated December 2, 2011 and prepared by A. Riles,
MAIG and M. Molavi, P.Eng. both of AMC Mining Consultants (Canada) Ltd., Ronald
G. Simpson, P.Geo. of Geosim Services Inc., Daniel Friedman, P.Eng. of Knight
Piesold Ltd., Robert Fong, P.Eng. of Moose Mountain Technical Services, John G.
Reid of Reid Resource Consulting Pty. Ltd. and Graham McTavish, P.Eng. of Valard
Construction in compliance with the requirements of National Instrument 43-101
and Form 43-101F1 as adopted by the British Columbia Securities Commission.

The Technical Reports were used as supporting documentation and
were filed with the British Columbia Securities Commission, the United States
Securities and Exchange Commission and the TSX Venture Exchange. Dr. Carter, A.
Riles, M. Molavi, Ronald G. Simpson, Daniel Friedman, Robert Fong, John G. Reid and Graham McTavish are qualified persons as the term is
defined under National Instrument 43-101.

22

---

Exploration data collected during the 2003 to 2011 exploration
programs was completed under the supervision of Neil Froc, P. Eng., and Tony
Hitchins, M.Sc., both employees of Hard Creek Nickel Corporation.

Location and Accessibility

The Turnagain Property consists of 57 neighboring mineral
claims situated in the Liard Mining Division of northern British Columbia, 70 km
east of Dease Lake and 1350 km north-northwest of Vancouver. The maps above
indicate where the property is located in the province of British Columbia,
Canada. The mineral claims collectively cover an area of 33,220 hectares. The
Turnagain Property is situated in the Stikine Ranges of the Cassiar Mountains.
Elevations range from about 1,000 meters above sea level along the Turnagain
River, in the central claim area, to 2,200 meters at an unnamed summit in the
north central property area.

The Turnagain Property straddles the Turnagain River near where
it joins Hard Creek. The community of Dease Lake, on Highway #37 some 400 km
north of the port of Stewart, is 70 km west of the property. Helicopter access
from Dease Lake involves a 20 minute flight. A secondary road extending easterly
from Dease Lake has been used by large, articulated 4-wheel drive vehicles to
convey large jade boulders from the Kutcho Creek area and to supply placer gold
operations at Wheaton Creek over the past number of years. A branch of this road
network extends into the Turnagain Property with road distance to Dease Lake of
about 100 km.

A dirt airstrip, measuring approximately 930 meters long,
constructed in the 1960s, and upgraded in early 2007, is situated within the
claims on the northwest side of the Turnagain River and can accommodate small
fixed wing aircraft. This airstrip is immediately adjacent to our current camp
facility and core storage. Previous exploration programs have made use of camp
facilities at Wheaton Creek (Boulder), which is about 15 km by road west of the
Turnagain Property.

Three times a week, Dease Lake has scheduled airline service
and offers some supplies and services. The communities of Terrace and Smithers,
both several hundred km south, offer a range of services and supplies which can
be trucked to Dease Lake via Highway #37.

The area between Dease Lake and the Turnagain Property features
maturely dissected mountains rising to elevations of between 2,000 and 2,425
meters above sea level and separated by wide, drift-filled valleys in which
elevations average 1,000 meters. Forest cover, present in valley areas, is
replaced by typical alpine flora above 1500 meters. Bedrock is reasonably well
exposed in the areas above tree line and along drainages.

Description of Claims

Our Turnagain Property consists of 57 neighboring mineral
claims. Hard Creek Nickel Corporation owns a 100% interest in all of these
mineral claims subject to a 4% net smelter royalty on possible future production
on one mineral claim (Tenure No. 511330 formerly the Cub claim). We retain the
right to purchase all or part of the net smelter royalty for CAN $1,000,000 per
1%. The following table summarizes the claim name, size, and expiry dates for
the 57 claims in the Turnagain property as of May 17, 2012.

The following table shows details relating to Hard Creek
Nickel Corporations Turnagain claims and the expiry dates of those claims:

23

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Tenure Number
      Claim Name
      Area (ha)
      Issue Date
      Expiry DateLegacy Mineral Claim407627
      PUP 4
      500.0
      2004/jan/01
      2019/jan/01On-Line Cell Mineral Claims501131
      Drift 1
      422.0
      2005/jan/12
      2019/jan/12501168
      Drift 2
      421.8
      2005/jan/12
      2019/jan/12501234
      Drift 3
      421.7
      2005/jan/12
      2019/jan/12501298
      Drift 4
      421.8
      2005/jan/12
      2019/jan/12508218
      Dinah 1
      407.2
      2005/mar/03
      2019/mar/03508219
      Dinah 2
      407.1
      2005/mar/03
      2019/mar/03508221
      Dinah 3
      406.9
      2005/mar/03
      2019/mar/03508222
      Dinah 4
      406.7
      2005/mar/03
      2019/mar/03508223
      Dinah 5
      407.1
      2005/mar/03
      2019/mar/03508225
      Dinah 6
      407.1
      2005/mar/03
      2019/mar/03508226
      Dinah 7
      254.6
      2005/mar/03
      2019/mar/03508227
      Dinah 8
      407.3
      2005/mar/03
      2019/mar/03508228
      Dinah 9
      135.5
      2005/mar/03
      2019/mar/03508229
      Dinah 10
      203.4
      2005/mar/03
      2019/mar/03528780
      T1
      67.7
      2006/feb/23
      2019/feb/23528781
      T2
      203.3
      2006/feb/23
      2019/feb/23528782
      T3
      152.6
      2006/feb/23
      2019/feb/23528784
      T4
      288.3
      2006/feb/23
      2019/feb/23528787
      T5
      169.6
      2006/feb/23
      2019/feb/23528788
      T6
      270.2
      2006/feb/23
      2019/feb/23528789
      T7
      422.5
      2006/feb/23
      2019/feb/23528790
      T8
      253.6
      2006/feb/23
      2019/feb/23Converted Legacy to On-Line Cell Mineral Claims
        (April 2005 and November 2007)503365
      Hard 2
      793.3
      2005/jan/14
      2019/feb/18510889
      Flat 10, 13, 15
      1627.9
      2005/apr/18
      2019/apr/07510892
      Flat 2, 6
      1219.3
      2005/apr/18
      2019/apr/07510910
      Flat 9, 12, 14
      1424.3
      2005/apr/18
      2019/apr/07510911
      Flat 1, 5
      1066.9
      2005/apr/18
      2019/apr/07510912
      Flat 8, 11
      779.9
      2005/apr/18
      2019/apr/07511214
      Hard 4, 6
      979.9
      2005/apr/20
      2019/feb/18511226
      Hill 1, 2
      1216.1
      2005/apr/20
      2019/feb/18511227
      Hill 3
      506.7
      2005/apr/20
      2019/feb/17511230
      Hill 4, 5
      760.5
      2005/apr/20
      2019/feb/17511234
      Hill 6
      185.9
      2005/apr/20
      2019/feb/16511244
      Hard 5, 7
      489.9
      2005/apr/20
      2019/feb/18511251
      Hard 8
      473.4
      2005/apr/20
      2019/feb/17511257
      Hill 9, 10
      1014.4
      2005/apr/20
      2019/feb/17511279
      Hard 9, 10
      896.7
      2005/apr/20
      2019/feb/17511304
      Hill 7, 8
      1149.7
      2005/apr/21
      2019/feb/17511305
      Hound 3
      271.0
      2005/apr/21
      2019/sep/27511306
      Turn 2, Flat 7
      881.2
      2005/apr/21
      2019/feb/19511329
      Hound 1, 2
      1015.4
      2005/apr/21
      2019/sep/27511330
      Cub
      592.6
      2005/apr/21
      2018/dec/01511337
      Cub 10, 18, Pup 1
      1065.8
      2005/apr/21
      2018/dec/01


24

---

511340
    Cub 17
    253.9
    2005/apr/21
    2018/dec/01511344
    Turn 1, Bear 2
    271.0
    2005/apr/21
    2019/feb/19511347
    Flat 3, 4
    474.3
    2005/apr/21
    2019/apr/07511348
    Cub 2
    389.4
    2005/apr/21
    2018/dec/01511586
    Pup 2
    236.9
    2005/apr/25
    2019/jan/01511593
    Pup 3
    101.5
    2005/apr/25
    2019/jan/01511627
    Cub 11
    592.1
    2005/apr/25
    2018/dec/01511628
    Hard 1
    709.0
    2005/apr/25
    2019/feb/18511629
    Hard 3
    472.9
    2005/apr/25
    2019/feb/18570454
    Bear 1
    456.8
    2007/nov/22
    2019/may/26570455
    Bear 19, Bear 21 to 28
    237.0
    2007/nov/22
    2019/may/26570456
    Bear 3 to 18
    220.2
    2007/nov/22
    2019/may/26570457
    Bear 20
    16.9
    2007/nov/22
    2019/may/26


25

---

The following figure shows the claims for the Turnagain
property listed above.



Exploration History

Nickel and copper sulphides were discovered within the current
Turnagain property area in a bedrock exposure along the Turnagain River in 1956.
Mineral claims covering the area where these sulphides were found as well as
other traces of sulphides were acquired by Falconbridge Nickel Mines Limited in
1966.

Falconbridge Nickel Mines Limited also completed work over the
following seven years, including surface and airborne geophysical surveys,
geological mapping, geochemical surveys and 2,895 meters of conventional and
packsack diamond drilling in 40 widely spaced drill holes.

Our Turnagain Property represents a unique style of sulphide
mineralization associated with a zoned, ultramafic complex (a suite of rocks
high in iron and magnesium but low in silica.) Iron and nickel sulphides are widespread in dunite (ultramafic rock comprising
more than 90% olivine) and wehrlite (ultramafic rock comprising less than 90%
olivine and >10% pyroxene) near dunite-wehrlite contacts. Exploration on the
Turnagain Property between 1967 and 2002 was sporadic and was concentrated in
the Horsetrail area or near other small exposures of net-textured sulphides. We
acquired the property in 1996.

26

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Work Completed by the Registrant

We acquired the Turnagain River property in 1996 and our
exploration work that year included 400 line km of airborne magnetic surveys and
795.5 meters of diamond drilling in 5 holes. Additional diamond drilling
completed by our company in 1997 and 1998 amounted to 3,123 meters in 14 holes.
Related work included 18 line km of surface magnetic surveys covering two areas
of the property, bore hole pulse-electromagnetic surveys in four of the
1997-1998 drill holes and preliminary metallurgical test work on drill core
composites.

In 2002, we performed ground magnetic and Induced Polarization
geophysical surveys over part of the claim area and completed 1,687 meters of
diamond drilling in 7 holes. Exploratory work in 2003 included geological
mapping and prospecting with bedrock, stream sediment and limited soil sampling
and 8,669 meters of diamond drilling in 22 holes, including the deepening of one
hole started in 2002. Preliminary metallurgical test work was conducted on
composite 2002-2003 core samples.

In 2004, we conducted a comprehensive exploration program that
included a helicopter borne magnetic and electromagnetic survey covering 1,866
line km, 14 km of ground magnetic and electromagnetic surveys, 1:20,000 scale
aerial photography of the entire property, the collection of more than 3,000
geochemical soil samples, geological mapping, and 7522 meters of diamond
drilling in 49 holes. We analyzed the approximately 4,000 core samples for 30
elements including nickel, copper, cobalt, sulphur and often platinum and
palladium. Extensive metallurgical test work has been completed on 2003-2004
composite core samples and is in progress on 2005-2006 composite core samples.

Our 2005 exploration program consisted of geological mapping,
bedrock and soil sampling, and 7,143 meters of diamond drilling in 37 holes. We
also undertook various mineralogical, environmental baseline surveys,
engineering, metallurgical and analytical studies on the property.

Our 2006 exploration program was completed by early November
and included 19,111 meters of diamond drilling in 68 holes, surface mapping and
sampling in several areas and continuation of fish habitat surveys and water
sampling. Metallurgical testwork on composite samples from our 2005 and 2006
drill core was also completed during 2007.

Our 2007 exploration program was completed by early November
and included 24,325 meters of diamond drilling in 72 holes, surface mapping and
sampling in several areas and continuation of fish habitat surveys and water
sampling. Metallurgical testwork was directed towards further definition of the
reagent scheme and nickel flotation kinetics for future pilot plant testing.

Our 2008 exploration program was completed by early September
and included 4,105 meters of diamond drilling in 15 holes, surface mapping and
sampling in several areas and continuation of fish habitat surveys and water
sampling. Metallurgical testwork continued towards further definition of the
reagent scheme and nickel flotation kinetics for future pilot plant testing.

In 2009 we developed an extensive electronic relational drill
hole database, initiated metal leaching tests on site, and continued with
baseline water sampling. Metallurgical testwork continued towards further
definition of the reagent scheme and nickel flotation kinetics for future pilot
plant testing. A small pilot plant test was conducted and a range of
concentrates collected to develop potential hydrometallurgical refining
processes. These concentrates were used for completion of amenability testing of
the Activox® process in Perth Australia and the Outotec Nickel Chloride Leach in
Pori Finland.

27

---

In 2010 the focus was primarily on the geological and
mineralization model refinement and metallurgical testwork rather than the
traditional field work exploration programs.

In December 2011, the Company received the Turnagain Project
Preliminary Economic Assessment (PEA) prepared by AMC Mining Consultants
(Canada) Ltd. The complete PEA was filed on SEDAR on December 5, 2011, this
technical report is also available on the Company's website www.hardcreek.com
under the heading "Projects".

The study, authored by AMC Mining Consultants (Canada) Ltd.,
recommends the project be built as an open pit mine and mill processing 43,200
tonnes per day (tpd) for the first five years producing 52.72 million pounds of
nickel and 2.82 million pounds of cobalt in concentrate annually. This is
followed by an expansion to 86,000 tpd for the next sixteen years producing
97.87 million pounds of nickel and 5.36 million pounds of cobalt in concentrate
annually.

A focused metallurgical program, initiated by our company in
2010, improved the metallurgy of the project resulting in the ability to produce
a saleable 18% nickel concentrate using a simple flow sheet and readily
available reagents. Our company believes, this will allow the project to move
forward without the higher technical risk and larger capital previously required
for the construction of a refinery at site. We believe the recent approval of
the construction of the Northwest Transmission Line from Terrace to Bob Quinn
has facilitated the supply of reliable and competitively priced electrical power
within 245 kms of the Turnagain Project. Imperial Metals anticipates being able
to connect their Red Chris Project to the Northwest Transmission Line at the Bob
Quinn hydro station by early 2014. This is the same time as the completion of
the line to Bob Quinn is expected. We expect the completion of the Red Chris
section will bring electrical power with 150kms of the Turnagain Project.
Provincial and Federal environmental approvals for the Red Chris project have
been received and Mine Act permitting through the Northwest Mine Development
Review Committee is underway.

KEY DATA

|Initial Capital Investment   | US $1,357 million
|---------------------------- | -----------------
|Expansion Capital in Year 5  | US $492 million  
|Payback period*              |                  
|Mill operation               |                  
|                             |                  
|IRR pre-tax* (100% equity)   | 15.9%            
|IRR after-tax* (100% equity) | 13.5%            
|                             |                  
|NPV pre-tax* (8% discount)   | US $1,295 million
|NPV after-tax* (8% discount) | US $724 million  
|                             |                  
|Mill throughput              | Year 1-5         
|                             | Year 6-21        
|                             |                  
|Mill feed grade              | Year 1-5         
|                             | Year 6-21        
|                             |                  
|Pit Resource                 | Measured         
|                             | Indicated        
|                             | Inferred         

|*Based on: | Nickel Price: US $8.50 per lb. 
|---------- | -------------------------------
|           | Cobalt Price: US $14.00 per lb.
|           | Exchange Rate: 0.95 US$/CAN$   

This PEA includes the use of inferred mineral resources that
are considered too speculative geologically to have economic considerations
applied to them that would enable them to be categorized as mineral reserves. The study is preliminary in nature and there is no
assurance the mining, metal production, or cash flow scenarios outlined in this
report would ever be realized. Mineral resources are not mineral reserves and do
not have demonstrated economic viability.

28

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FINANCIAL VALUATION

The PEA indicates the economic returns from the project justify
further development of the Turnagain project and recommendations have been made
to our company to proceed to pre-feasibility level.

The financial results of the assessment (Base Case) were
developed using commodity prices of US $8.50/lb. of nickel and US $14.00/lb. of
cobalt, an exchange rate of 0.95 US$/CAN$ and a discount rate of 8.0% . The
nickel price was considered reasonable given the spot price of nickel on October
14, 2011 was US $8.63/lb. , the LME three-year historical rolling average prices
as of the end of September 2011 is US $8.70/lb. , and our metal market analyst
projects a long term price of US $9.50/lb.

The Base Case with +/- nickel price scenario is presented as
follows:

|                                  |  | -     |  |  | Base Case |  |  | +      | 
|--------------------------------- |  | ----- |  |  | --------- |  |  | ------ | 
|                                  |  |       |  |  |           |  |  |        | 
|Nickel (US$/lb)                   |  | 7.50  |  |  | 8.50      |  |  | 9.50   | 
|Exchange Rate (US$/CAN$)          |  | 0.90  |  |  | 0.95      |  |  | 1.00   | 
|                                  |  |       |  |  |           |  |  |        | 
|Pre-Tax                           |  |       |  |  |           |  |  |        | 
|IRR (100% equity)                 |  | 13.2% |  |  | 15.9%     |  |  | 18.34% | 
|NPV ( 5% discount, US$ million)   |  | 1,628 |  |  | 2,383     |  |  | 3,138  | 
|( 8% discount, US$ million)       |  | 777   |  |  | 1,295     |  |  | 1,807  | 
|(10%
      discount, US$ million) |  | 405   |  |  | 813       |  |  | 1,220  | 
|                                  |  |       |  |  |           |  |  |        | 
|After-Tax                         |  |       |  |  |           |  |  |        | 
|IRR (100% equity)                 |  | 11.2% |  |  | 13.5%     |  |  | 15.6%  | 
|NPV ( 5% discount, US$ million)   |  | 1,001 |  |  | 1,490     |  |  | 1,978  | 
|( 8% discount, US$ million)       |  | 388   |  |  | 724       |  |  | 1,059  | 
|(10%
      discount, US$ million) |  | 122   |  |  | 390       |  |  | 654    | 
|                                  |  |       |  |  |           |  |  |        | 
|Payback Period(years)             |  | 8.3   |  |  | 7.34      |  |  | 6.8    | 
|                                  |  |       |  |  |           |  |  |        | 
|Smelter Netback(%)                |  | 70.3  |  |  | 72.4      |  |  | 74.1   | 
|                                  |  |       |  |  |           |  |  |        | 
|Net Smelter Return(US$/t milled)  |  |       |  |  |           |  |  |        | 
|Years 1-5                         |  | 18.59 |  |  | 21.59     |  |  | 24.59  | 
|Years 6-21                        |  | 17.36 |  |  | 20.18     |  |  | 22.99  | 
|LOM                               |  | 15.89 |  |  | 18.46     |  |  | 21.03  | 
|                                  |  |       |  |  |           |  |  |        | 
|Nickel C1* Cash Cost(US$/lb)      |  |       |  |  |           |  |  |        | 
|Years 1-5                         |  | 4.09  |  |  | 4.23      |  |  | 4.38   | 
|Years 6-21                        |  | 4.05  |  |  | 4.20      |  |  | 4.35   | 
|LOM                               |  | 4.11  |  |  | 4.26      |  |  | 4.41   | 

* The C1 operating cost is defined as the cash cost incurred at
each processing stage, from mining through to payable nickel metal delivered to
market, net of by-product credits (cobalt).

CAPITAL AND OPERATING COSTS

The total initial capital investment in the project is
estimated to be US $1.32 billion, which represents the total direct and indirect
costs, including associated infrastructure, power transmission line, and contingencies. The Base Case presented in the PEA is designed
for increased production in year six which requires expansion in year five. The
following table shows the initial and expansion capital distributed between the
various project components.

29

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(US $millions)
    
    Initial
    
    
    Expansion
    
    
    Total LOM(Year 5)Mine
    
    244
    
    
    68
    
    
    406Processing
    
    986
    
    
    406
    
    
    1,392Other & Sustaining
    
    95
    
    
    18
    
    
    478Working Capital
    
    32
    
    
    0
    
    
    32Total Capital
    $
    1,357
    
    $
    492
    
    $
    2,308


The mine site operating costs are presented below for the
initial five years, after expansion (from Year 6 to 21) and the life of mine
(LOM) as US$/tonne ore.

(US$/tonne ore)Year 1-5
    
    
    Year 6-21
    
    
    LOMMining
    
    3.11
    
    
    3.11
    
    
    2.52Processing (incl. Tailings)
    
    4.69
    
    
    4.38
    
    
    4.44General and Administration
    
    0.57
    
    
    0.29
    
    
    0.33Total Operating Cost
    $
    8.37
    
    $
    7.78
    
    $
    7.29


MINERAL RESOURCES

The total estimated resource for the Turnagain Project, at a
0.1% Ni cut-off, is as follows:

| | Measured :  | 227,379,000 tonnes @ 0.22% Ni
      and 0.014% Co
| | ----------- | -------------------------------------------------
| | Indicated : | 638,103,000 tonnes @ 0.21% Ni and 0.013% Co      
| | Inferred :  | 976,295,000 tonnes @ 0.20% Ni
      and 0.013% Co

The plan provided in the PEA limits the pit mining to 21 years
with milling of the stockpiles for several additional years for a total mine
life of 27.2 years. The PEA base case in-pit mined resource consist of 206
million tonnes of measured resource at 0.231% Ni, 0.014% Co, 356 million tonnes
of indicated resource at 0.226% Ni, 0.013% Co,and 201 million tonnes of inferred
resource at 0.235% Ni, 0.013% Co.

Additional in-pit resource potential exists beyond the PEA base
case limits consisting of 21 million tonnes of measured resource at 0.196% Ni
and 0.012% Co, 117 million tonnes of indicated resource at 0.195% Ni and 0.012%
Co and 361 million tonnes of inferred resource at 0.214% Ni and 0.012% Co.

DEVELOPMENT PLAN

The PEA evaluates the development of the Turnagain deposit by
  conventional open-pit methods with trucks and shovels. The PEA recommends that
  the deposit be mined in phases. An elevated cut-off Net Smelter Return (NSR)
  will be employed in the initial production years to enhance the economics of
  the project. Low NSR grade material below the initial cut-off will be sent to
  low grade stockpiles and later blended with run of mine feed or
  processed near the end of mine life. Ore will be processed using a conventional
  concentrator to produce nickel-cobalt concentrate.

30

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Key metrics for mining and processing are shown below:

|                                                |  | Year 1-5 |  |  | Year 6-21 |  |  | Total LOM | 
|----------------------------------------------- |  | -------- |  |  | --------- |  |  | --------- | 
|                                                |  |          |  |  |           |  |  |           | 
|Strip Ratio                                     |  | 0.74     |  |  | 0.83      |  |  | 0.82      | 
|                                                |  |          |  |  |           |  |  |           | 
|Annual Throughput (Mtonnes)                     |  | 15.8     |  |  | 31.3      |  |  | 28.1      | 
|                                                |  |          |  |  |           |  |  |           | 
|Annual Mill Feed Grade                          |  |          |  |  |           |  |  |           | 
|Nickel (%)                                      |  | 0.261    |  |  | 0.246     |  |  | 0.230     | 
|Cobalt (%)                                      |  | 0.014    |  |  | 0.013     |  |  | 0.013     | 
|                                                |  |          |  |  |           |  |  |           | 
|Annual Recoveries                               |  |          |  |  |           |  |  |           | 
|Nickel (%)                                      |  | 58.0     |  |  | 57.7      |  |  | 56.4      | 
|Cobalt (%)                                      |  | 58.0     |  |  | 57.7      |  |  | 56.4      | 
|                                                |  |          |  |  |           |  |  |           | 
|Annual Metal Production                         |  |          |  |  |           |  |  |           | 
|Nickel (lbs x 1000)                             |  | 52,717   |  |  | 97,871    |  |  |           | 
|Cobalt (lbs x 1000)                             |  | 2,822    |  |  | 5,363     |  |  |           | 
|                                                |  |          |  |  |           |  |  |           | 
|Concentrate Production                          |  |          |  |  |           |  |  |           | 
|Ni (%)                                          |  | 18.0     |  |  | 18.0      |  |  |           | 
|Co (%)                                          |  | 0.96     |  |  | 0.99      |  |  |           | 
|Dry (tonnes)                                    |  | 132,846  |  |  | 246,663   |  |  |           | 
|                                                |  |          |  |  |           |  |  |           | 
|Metal Production (lbs x 1000)                   |  |          |  |  |           |  |  |           | 
|Nickel (lbs x 1000)                             |  |          |  |  |           |  |  | 2,181,552 | 
|Cobalt (lbs x 1000)                             |  |          |  |  |           |  |  | 123,181   | 
|                                                |  |          |  |  |           |  |  |           | 
|Total Concentrate Production
      (Dry tonnes) |  |          |  |  |           |  |  | 5,497,474 | 

OPPORTUNITIES

The economics of the PEA do not take into account opportunities
for future improvement based on:

- Varying the mill throughput. Two scenarios were reviewed in addition to
  the Base Case presented. They include Scenario 1 with no increased throughput
  in Year 6 and Scenario 2 starting with increased throughput in Year 1. The
  comparisons of the scenarios with the Base Case is shown in the table below

FINANCIAL COMPARISON OF SCENARIOS

Initial capital
    Pretax PV8
    
    Pretax
    Payback
    LOM(Billion $US)
    (Billion $US)
    IRR
    (yr)
    (yr)Base Case
    1.36
    1.29
    
    15.9%
    7.34
    27.2Scenario 1
    1.20
    0.73
    
    13.5%
    6.9
    49.5Scenario 2
    1.84
    1.57
    
    17.7%
    5.1
    24.7


Base Case includes US $492 million additional capital in Year 5
for expansion in Year 6

31

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Scenario 1 at constant 15.9 Mtpa
Scenario 2 at constant 31.3 Mtpa 
  Scenarios 1 and 2 are estimates (not developed to same level of accuracy as
  the Base Case)

Other opportunities include:

- Potential for payable platinum and palladium in the concentrate
- Improved metallurgical performance
- Increased mine life with existing defined resource and Hatzl area resource
- Optimization of tailings storage facility construction
- Additional resource potential for both nickel/cobalt and
  platinum/palladium within the Turnagain ultramafic complex
- Third party ownership/operation of the transmission line
- Financing of the proposed interconnection fee tariffs over five years
- Shared access development cost

Recommendations

Based on the findings of the PEA, it has been concluded in the
PEA that the project is potentially mineable and recommendations are made in the
PEA for our company to proceed to pre-feasibility level.

Item
5 **Operating
and Financial Review and Prospects

The following discussion and analysis should be read in
conjunction with the consolidated financial statements and notes thereto
included herein (see also "Selected Financial Data"). The consolidated financial
statements have been prepared in accordance with International Financial
Reporting Standards (IFRS).

A.          
Operating Results

Our results of operations have been, and may continue to be,
affected by many factors of a global nature, including economic and market
conditions, the availability of capital, the level and volatility of prices and
interest rates, currency values, commodities prices and other market indices,
technological changes, the availability of credit, inflation and legislative and
regulatory developments. Factors of a local nature, which include the political,
social, financial and economic stability, the availability of capital,
technology, workers, engineers and management, geological factors and weather
conditions, also affect our results of operations. See Key Information  Risk
Factors. As a result of the economic and competitive factors discussed above,
our results of operations may vary significantly from period to period.

Year Ended December 31, 2011 Compared to Year Ended December
31, 2010

General and Administrative - During fiscal 2011, our company
incurred a net loss of $1,630,653 ($0.02 per share) compared to a net loss of
$1,220,100 ($0.02 per share) in fiscal 2010. Administrative expenses for 2011
were $1,648,655, up from $1,464,046 in the prior year. Total administrative
expenses includes two non-cash expenses. The first non-cash expense is
amortization which charges the cost of equipment against earnings over its
useful life. These amounts were $12,521 and $13,725 in 2011 and 2010,
respectively. The second non-cash expense is stock-based remuneration to
recognize the fair value of stock options granted and vested. These amounts were
$531,004 and $365,144 in 2011 and 2010, respectively. Excluding these items,
total 2011 administrative expenses were $1,105,130, up from $1,085,177 in 2010.
Consulting expenses in 2011 were $16,500 (2010: $750), an increase of $15,750
primarily from corporate and translation services provided in Germany. Investor
relations expenses in 2011 were $265,147 (2010: $230,011), an increase of
$35,136 or 15% due primarily from the participation in a one year contract with
a business television program designed to provide exposure of the Companys
Turnagain project. Legal and audit expenses in 2011 were $61,404 (2010:
$86,598), a decrease of $25,194 or 29% primarily from the reduction in legal
costs incurred for the Notice of Objection appeal filed against the Canada
Revenue Agency regarding the provincial refundable mining tax credit dispute as
well as the reduction in costs incurred for First Nations affairs. Salaries and benefits in
2011 were $9,410 (2010: $17,250), a decrease of $7,840 or 45% as a result of
reduced administrative support. In general, there were no other areas with
significant increases or decreases compared to the previous year. Office and
general expenses were up 5%, travel and promotion expenses were down 5% and
management fees were down 2%. Excluding amortization and stock based
compensation, the total general and administrative expenses for the year were
approximately $92,000 per month compared to $91,000 per month in 2010. During
2011, the Company earned $18,024 from interest income (2010: $51,175), a
decrease of $33,151 or 65% primarily from interest received in 2010 from the
Canada Revenue Agency for the British Columbia Mining Exploration Tax Credit
refund of $1,159,383 for taxation years 2002 - 2008. The Company had deferred
income tax expense of $22 for 2011 compared to deferred income tax recovery of
$197,502 in 2010, a difference of $197,524 primarily from the expected recovery
of income taxes from the 2011 net loss before income taxes of $1,630,631 and
expired non capital losses.

32

---

Exploration - During the year ended December 31, 2011, the
Company incurred deferred exploration costs of $2,025,652 on the Turnagain
property (2010: $1,952,837). This $72,815 increase in deferred exploration costs
was primarily the result of the Company's focus on the geological and
mineralization model refinement and metallurgical test work and updating the AMC
Mining Consultants (Canada) Ltd PEA which was released in October 2011 and filed
on SEDAR on December 5, 2011.

B.          
Liquidity and Capital Resources

Since the Company is organized in Canada, the Companys
December 31, 2011 consolidated financial statements have been prepared in
accordance with IFRS.

As at December 31, 2011, our company had accumulated losses
totaling $20,923,418 and a working capital of $57,007. The Company does not have
any source of external liquidity such as bank loans or lines of credit to draw
upon and relies on private placement funding and the exercise of share purchase
warrants to fund ongoing operations and exploration programs.

As noted, these conditions raise substantial doubt about the
Companys ability to continue as a going concern. The financial statements do
not include any adjustment that might arise from uncertainty. The auditors
report includes an explanatory paragraph disclosing the Company's ability to
continue as a going concern.

As at December 31, 2011 the Company had cash of $236,530 and
working capital of $57,007.

As of May 17, 2012, we had approximately $124,000 in cash and
$26,000 in current recoverable taxes, which is not sufficient to cover our
operating costs for fiscal year 2012 at an estimated $100,000 per month plus
$1,000,000 budgeted for the 2012 exploration program. Our company will need to
raise additional funds through further equity issuances or loans.

The Companys treasury policies are to receive cash in advance
of any issuance of commons shares through private placements or the exercise of
share purchase warrants or stock options, issue the common shares in a timely
manner and invest any excess cash in an interest bearing redeemable term
deposit. These treasury policies are controlled by the board of directors and
reviewed by the audit committee on an annual basis.

All cash and cash equivalents are held in Canadian dollars.

C.          
Research and Development, Patents and Licenses, etc.

Not applicable.

D.          
Trend Information

Since the company is a mineral exploration company, we do not
  currently know of any trends, uncertainties, demands, commitments or events
  that are reasonably likely to have a material effect on our net sales or revenue,
  income from continuing operations, profitability, liquidity or capital resources,
  or that would cause reported financial information not necessarily to be indicative
of future operating results or financial condition.

33

---

E.          
Off-Balance Sheet Arrangements

Not applicable.

F.          
Tabular Disclosure of Contractual Obligations

Not applicable.

Critical Accounting Policies and Estimates

Basis of preparation and accounting policies

Our company has prepared its consolidated financial statements
in accordance with IFRS as issued by the International Accounting Standards
Board (IASB). IFRS represents standards and interpretations approved by the
IASB and are comprised of IFRS, International Accounting Standards (IASs),
and interpretations issued by the IFRS Interpretations Committee (IFRICs) and
the former Standing Interpretations Committee (SICs). Our company adopted
IFRS in accordance with IFRS 1  First-time Adoption of International Financial
Reporting Standards (IFRS 1) with a transition date of January 1, 2010. The
consolidated financial statements have been prepared in accordance with IFRS
standards and interpretations effective as of December 31, 2011. Note 2 to the
consolidated financial statements for the year ended December 31, 2011 provides
details of significant accounting policies and accounting policy decisions as a
result of IFRS 1 optional exemptions, for significant or potentially significant
areas that have had an impact on our companys financial statements on
transition to IFRS or may have an impact in future periods.

There were no changes to the accounting policies applied by our
company to each of the 2011 quarterly unaudited interim consolidated financial
statements, to those applied to the consolidated financial statements for the
year ended December 31, 2011.

Critical Accounting Estimates

The preparation of financial statements requires management to
make certain judgments and estimates. Changes in these judgments and estimates
could have a material impact on our reported financial result and financial
condition.

Our company makes estimates and assumptions about the future
that affect the reported amounts of assets and liabilities. Estimates and
judgments are continually evaluated based on historical experience and other
factors, including expectations of future events that are believed to be
reasonable under the circumstances. In the future, actual experience may differ
from these estimates and assumptions.

Determination of exploration and evaluation assets
reserves and exploration and evaluation assetsestimates

The required process of estimating reserves of exploration and
evaluation assets is critical to several accounting estimates that appear in our
financial disclosures. It requires significant judgments based on available
geological, geophysical, engineering and economic data. These estimates may
change substantially as data from ongoing development and production activities
becomes available, and as economic conditions impacting oil and natural gas
prices, operating costs, and royalty burdens change. Reserve estimates impact
net income through depletion and the application of an impairment test. Revisions or changes in the reserve estimates can have
either a positive or negative impact on net income.

34

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Deferred tax assets and liabilities

Significant judgment is required in determining the provision
for income taxes. There are many transactions and calculations undertaken during
the ordinary course of business for which the ultimate tax determination is
uncertain. We recognize liabilities and contingencies for anticipated tax audit
issues based on our current understanding of the tax law. For matters where it
is probable that an adjustment will be made, we record our best estimate of the
tax liability including the related interest and penalties in the current tax
provision. We believe we have adequately provided for the probable outcome of
these matters; however, the final outcome may result in a materially different
outcome than the amount included in the tax liabilities.

Determination of the fair value of share-based
compensation

We measure the cost of equity-settled transactions with
employees by reference to the fair value of the equity instruments at the date
at which they are granted. Estimating fair value for share-based payment
transactions requires determining the most appropriate valuation model, which is
dependent on the terms and conditions of the grant. This estimate also requires
determining the most appropriate inputs to the valuation model including the
expected life of the share option, volatility and dividend yield and making
assumptions about them.

Transition to International Financial Reporting
Standards

On January 1, 2011 the Canadian Accounting Standards Board
replaced Canadian GAAP with IFRS for publically accountable enterprises, with a
transition date of January 1, 2010, due to requirement to present comparative
financial information. IFRS represents standards and interpretations approved by
the IASB and are comprised of IFRSs, IASs, IFRICs and the former SICs.

Note 13 to the financial statements for the year ended December
31, 2011 provides details of key Canadian GAAP to IFRS differences, accounting
policy decisions and IFRS 1, optional exemptions for significant or potentially
significant areas that have had an impact on our companys financial statements
on transition to IFRS or may have an impact in future periods.

Our company completed its conversion from Canadian GAAP to IFRS
through a transition plan that involved scoping and planning, an assessment of
differences, implementation and post-implementation. The post-implementation
phase involves the maintenance of IFRS-compliant financial data and processes
for 2011 and the future.

The conversion from Canadian GAAP to IFRS has resulted in
changes to our companys accounting policies, financial reporting processes,
incremental controls relating to the conversion process and additional training
requirements. The conversion did not have any impact on our companys key
internal performance ratios or compensation plans.

Post-Implementation

The post-implementation phase will involve continuous
monitoring of changes in IFRS in future periods. It has been noted that the
standard-setting bodies that determine IFRS have significant ongoing projects
that could impact the IFRS accounting policies that our company has selected. In
particular, there may be additional new or revised IFRSs or IFRICs in relation
to consolidation, financial instruments, leases, revenue recognition and
stripping costs in the production phase of a surface mine. The IASB is also
currently working on an extractive industries project, which could significantly
impact the financial statements of our company primarily in the areas of
capitalization of exploration costs and disclosures. Processes are in place to
ensure that potential changes are monitored and evaluated. The impact of any new
IFRSs and IFRIC Interpretations will be evaluated as they are drafted and
published.

35

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Future Accounting Changes

IFRS 9, Financial Instruments (IFRS 9) was issued in
November 2009 and contained requirements for financial assets. This standard
addresses classification and measurement of financial assets and replaces
mulitiple category and measurement models in IAS 39 for debt instruments with a
new mixed measurement model having only two categories: amortized cost and
FVTPL. IFRS 9 also replaces the models for measuring equity instruments, and
such investments are either recognised at FVTPL or at fair value through other
comprehensive income. Where such equity instruments are measured at fair value
through other comprehensive income, dividends are recognised in profit or loss
to the extent not clearly representing a return of investment; however, other
gains and losses (including impairments) associated with such instruments remain
in accumulated comprehensive income indefinitely.

Requirements for financial liabilities were added in October
2010 and they largely carried forward existing requirements in IAS 39, Financial
Instruments  Recognition and Measurement, except that fair value changes due to
credit risk for liabilities designated at fair value through profit and loss
would generally be recorded in other comprehensive income.

This standard is required to be applied for accounting periods
beginning on or after January 1, 2013, with earlier adoption permitted. Our
company has not yet assessed the impact of the standard or determined whether it
will adopt the standard early.

On May 12, 2011 the IASB issued the following statements, which
may be applicable to our company:

| | i.   | IFRS 10, Consolidation(IFRS 10) (see further
      details below)                         
| | ---- | --------------------------------------------------------------------------------------------
| | ii.  | IFRS 11, Joint Arrangements(IFRS 11) ( see
      further details below)                   
| | iii. | IFRS 12, Disclosures of Interests with Other Entities(IFRS 12) (see further details below)
| | iv.  | IFRS 13, Fair value Measurement(IFRS
  13)                                                
| | v.   | IAS 1, Presentation of Financial Statements(IAS
      1)                                  

Each of these standards has an effective date for annual
periods beginning on or after January 1, 2013, early adoption of any of these
standards is permitted only if the other standards are also adopted early.

| | i.   | IFRS 10 establishes control as the single basis for
      consolidation of entities, regardless of the nature of the investee. An
      entity has control over an investee when it has power over it; it is
      exposed, or has the rights, to variable returns from its involvement with
      the investee; and has the ability to use its power over the investee to
      affect those returns. IFRS 10 replaces IAS 27s guidance that addresses
      when and how an investor should prepare consolidated financial statements
      and replaces all of SIC-12. Our company has not yet assessed the impact of
      the standard or determined whether it will adopt the standard
  early.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ii.  | IFRS 11 requires a venturer to classify its interest in a
      joint arrangement as a joint venture or joint operation. A joint operation
      is a joint arrangement whereby the parties that have joint control have
      rights to the assets and the obligations for the liabilities. A joint
      venture is a joint arrangement whereby the parties that have joint control
      of the arrangement have rights to the net assets of the arrangement. The
      determination whether a joint arrangement constitutes a joint operation or
      a joint venture is based on the parties rights and responsibilities under
      the arrangement and thus the existence of a separate legal vehicle is no
      longer the main factor in making such determination. Joint ventures will
      be accounted for using the equity method of accounting thereby eliminating
      the option available under existing IFRS to use either the proportionate
      consolidation method or the equity method. Joint operations are accounted
      for by a venturer by recognizing its share of the assets, liabilities,
      revenues and expenses of the joint operation. Our company has not yet
      assessed the impact of the standard or determined whether it will adopt
      the standard early.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | iii. | IFRS 12 sets out the required disclosures relating to an
      entitys interest in subsidiaries, joint arrangements, associates and
      unconsolidated structured entities. An entity is required to disclose
      information that enable users of its financial statements to assess the
      nature of, and risks associated with, its interests in other entities and the effects of
      those interests on its financial statements. Our company has not yet
      assessed the impact of the standard or determined whether it will adopt
  the standard early.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

36

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| | iv. | IFRS 13 Fair Value Measurement(IFRS 13) was
      issued on May 12, 2011 and establishes a single framework for measuring
      fair value where it is required by other standards. IFRS 13 applies to all
      transactions (whether financial or non-financial) for which IFRS requires
      or permits fair value measurements, with the exception of share-based
      payment transactions accounted for under IFRS 2 Share-based Paymentand leasing transactions within the scope of IAS 12 Leases, and
      measurements that have some similarities to fair value but are not fair
      value such as net realisable value under IAS 2 Inventoriesor value
      in use under IAS 36 Impairment of assets. Fair value is defined as
      the price that would be received to sell an asset or paid to transfer a
      liability in an orderly transaction between market participants at the
      measurement date (i.e. an exit price). This standard is required to be
      applied for accounting periods beginning on or after January 1, 2013, with
      earlier adoption permitted. Our company has not yet assessed the impact of
  the standard or determined whether it will adopt the standard early
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | v.  | IAS 1 (IAS 1) Presentation of Financial Statementsrequires an entity to group items presented in the statement of other
      comprehensive income on the basis of whether they may be reclassified to
      profit or loss subsequent to initial recognition, as of January 1, 2012.
      For those items presented before tax, the amendments to IAS 1 also require
      that the tax related to the two separate groups be presented separately.
      Our company does not expect a material impact as a result of the
      amendment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

On June 16, 2011 the IASB issued Presentation of Items of
Other Comprehensive Income (amendments to IAS 1, Presentation of Financial
statements). The amendments require the grouping of items presented in other
comprehensive income into items that might be reclassified to profit or loss in
subsequent periods and items that will not be reclassified to profit or loss in
subsequent periods. The amendments are effective for annual periods beginning on
or after July 1, 2012, with full retrospective application. Our company has not
yet assessed the impact of the standard or determined whether it will adopt the
standard early.

Item
6 **Directors, Senior Management and Employees

A.          
Directors and Senior Management

The following table sets forth the names, business experience
and function/areas of expertise of each of our directors and officers:

Name Office Held Age
      Area of Experience
      and Functions in Our CompanyMark Jarvis Director and Chief Executive Officer
      Age: 57
    Mr. Jarvis has been a director of our company and our
      Chief Executive Officer since January of 2004. As director, Mr. Jarvis is
      responsible for the management and supervision of our board of directors
      and of the affairs and business of our company. As Chief Executive
      Officer, Mr. Jarvis is responsible for the development of our strategic
      direction and the management and supervision of our overall business.George Sookochoff Director Age: 60
    Mr. Sookochoff has been a director of our company since
      November of 2003. As a non- executive director, Mr. Sookochoff is
      responsible for the corporate governance of our company.Tom Milner Director Age: 66
    Mr. Milner has been a director of our company since
      October of 2007. As a non- executive director, Mr. Milner is responsible
      for the corporate governance of our company.


37

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Lyle Davis Director Age: 56
    Mr. Davis was a director of our company in November of
      2003 for a short period of time. He was later elected again as a director
      of our company in June of 2004. As a non- executive director, Mr. Davis is
      responsible for the corporate governance of our company.Gary Johnson Director Age: 55
    Mr. Johnson has been a director of our company since June
      2010. As a non- executive director, Mr. Johnson is responsible for the
      corporate governance of our company.Cliff Carson Director Age: 63
    Mr. Carson has been a director of our company since May
      2011. As a non- executive director, Mr. Carson is responsible for the
      corporate governance of our company.Brian Fiddler Controller and Chief Financial
      Officer Age: 50
    Mr. Fiddler has served as our controller and Chief
      Financial Officer since January of 2003. As Controller and Chief Financial
      Officer, Mr. Fiddler is responsible for the financial and corporate
      management and supervision of the affairs and business of our company.Neil Froc Executive Vice President Age: 50
    Mr. Froc was appointed as our executive vice president in
      June 2006. As Executive Vice President, Mr. Froc is responsible for
      responsible for the management of engineering and technical studies
      including infrastructure and socio-economic project development.Leslie Young Corporate Secretary Age: 53
    Ms. Young was appointed as our corporate secretary in
      June of 2004. As Corporate Secretary, Ms. Young is responsible for the
      internal accounting and record keeping, general administration, and making
      all necessary filings and financial reporting for our company.


Mark Jarvis  Director and Chief Executive
Officer

Mr. Jarvis has considerable experience in the financing and
operations of public companies, primarily in exploration and production of
mining and oil and gas projects. After a career in financing exploration
projects as a stockbroker, Mr. Jarvis moved to the corporate side of the
business by joining the Board of Ultra Petroleum, at the time a small oil and
gas exploration and development company, in 1996. As Director responsible for
Corporate Finance, he raised the equity capital necessary for proof of concept
and to establish enough production to leverage further growth through debt
financing. Ultra Petroleum has grown through the drill bit from a market
capitalization of U.S. $10 million to its current capitalization of more than
U.S. $3 billion. From November 1996 to November 2003, Mr. Jarvis was the
President of Gemini Energy Corp., another successful oil and gas company. Mr.
Jarvis has held the position of CEO and President of Hard Creek Nickel
Corporation since January 7th 2004. During his tenure he has taken control of
management, reorganized the Board and significantly advanced our Turnagain
project by focusing our company on best practice in exploration techniques. Mr.
Jarvis is committed 100% to the business of Hard Creek Nickel Corporation.

George Sookochoff  Director

Mr. Sookochoff has been a director of our company since
November of 2003. Mr. Sookochoff is a graduate of the University of British
Columbia. He is responsible for computer systems management providing Graphical
Information Systems (GIS). Mr. Sookochoff has been providing GIS and exploration
data management services to mining companies since 1983. Mr. Sookochoff serves
as President and CEO of PBX Ventures Ltd. (TSX  PBX) which explores for
Copper, Gold and Molybdenum in Chile and is committed 10% to the business of
Hard Creek Nickel Corporation.

38

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Tom Milner  Director

Mr. Milner has been a director of our company since October of
  2007. Mr. Milner is a consulting professional engineer with experience in mine
  planning and development. Mr. Milner has held various senior mine operational
  and mine development positions with large scale open pit mining operations. He
  was responsible for the Gibraltar Mine restart, including securing contracts for
  copper and molybdenum concentrate sales. Mr. Milner successfully built up the
  operations to put the Gibraltar Mine on a sound financial footing and is
  committed 10% to the business of Hard Creek Nickel Corporation.

Lyle Davis - Director

Mr. Davis was a director of our company in November of 2003 for
a short period of time. He was later elected again as a director of our company
in June of 2004. Mr. Davis has an M.B.A. from the University of British Columbia
with a major in finance. He previously worked in the corporate finance practices
of Ernst & Young, an accountancy firm, and in a similar capacity at C.M.
Oliver, a brokerage firm. Before that, Mr. Davis was with the Vancouver Stock
Exchange where he was responsible for trading operations during the transition
from floor based to screen based trading, prior to which he was a senior member
of the VSEs corporate finance division. Since 1999, Mr. Davis has been the
President of Ellardee Group Capital Inc. a firm specializing in consulting for
public companies. Mr. Davis is a director of Condor Resources Inc.(TSX  CN)
which explores for Copper and Gold in Latin America and is committed 10% to the
business of Hard Creek Nickel Corporation.

Gary Johnson  Director

Mr. Johnson is a metallurgist with over 30 years experience in
all aspects of the mining industry. In his early career he gained broad
operational and project experience in a range of operations in Africa and
Australia. Mr. Johnson spent ten years as Chief Metallurgist for a large gold
producer before forming his own specialized hydrometallurgical consulting
company in 1998. During this period he worked closely with LionOre Mining
International to develop the Activox process for treating sulphide concentrates.
In 2006, LionOre acquired Mr. Johnsons company and he then joined LionOre as a
senior executive. In 2007, LionOre was successfully taken over by MMC Norilsk
Nickel. Mr. Johnson became a Managing Director of Norilsks Australian
operations in operations in 2009. Mr. Johnson currently owns his own consulting
company specializing in high level metallurgical and strategic advice and is
committed 10% to the business of Hard Creek Nickel Corporation.

Cliff Carson  Director

Mr. Carson was President and Director of Diamond Fields
Resources Inc. from May 1995 until July 1996, during which time Diamond Fields
was acquired by Inco in a $4.6 billion transaction. Prior to that time Mr.
Carson was Senior Vice President, Marketing and Sales at Falconbridge Ltd. He
has also served as a member of the Advisory Board for Nikkelverk Nickel Refinery
at Kristiansand, Norway and is the past Chairman of the Nickel Development
Institute and is committed 10% to the business of Hard Creek Nickel
Corporation.

Mr. Carson holds a B.A. with Honors in Economics from Simon
Fraser University.

Brian Fiddler  Chief Financial Officer

Mr. Fiddler has served as our controller and Chief Financial
Officer since January of 2003. Before joining our company, Mr. Fiddler had been
involved in providing financial consulting services to private and public
companies in Canada, U.S.A., Hong Kong and China since 1992. His business
experience includes mining, oil and gas, technology, health/nutrition and
environmental products as well as assisting public companies in raising
investment capital. He has been a member of the Certified General Accountants
Association of British Columbia and the Certified General Accountants
Association of Canada since 1992. Mr. Fiddler is the proprietor of Brian
Fiddler, CGA, a public accounting firm since 1992 specializing in financial
consulting, Mr. Fiddler is committed 80% to the business of Hard Creek Nickel
Corporation.

39

---

Neil Froc  Executive Vice President

Mr. Froc has been an officer of our company since June 2006 and
has provided engineering services to the company for two years prior to this
time. He is an engineering graduate from the University of Saskatchewan. Mr.
Froc has been involved in various aspects of geological engineering and resource
development in British Columbia since 1979. Mr. Froc has been the President of
Mountain Geoscience Inc. since 2000. Mr. Froc is committed 100% to the business
of Hard Creek Nickel Corporation.

Leslie Young  Corporate Secretary

Ms. Young was appointed as our corporate secretary in June of
2004. Ms. Young has previous experience working in brokerage firms, beginning
with C.M. Oliver and most recently with Raymond James from 1999 to 2004. She has
had experience in operations and executive administration. Ms. Young is
committed 100% to the business of Hard Creek Nickel Corporation.

There are no family relationships between any of our executive
officers or directors of our company. 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 executive
officer.

B.          
Compensation

The following table sets out the compensation provided to our
directors and senior management for performance of their duties during the
fiscal year ended December 31, 2011:

SUMMARY COMPENSATION
        TABLEName and principal
        position
      Year
      Salary ($)
      Share-
        based awards ($)
      Option-
        based awards ($)
      Non-equity incentive
        compensation plan compensation ($)
      P**ension** **value** **($)**
      **All** **other**
        **Compen** **-satio****n
        ($)**
      **Total** **Compen**
        **-sation** **($)****Annual**
        incentive plans
      **Long-**
        **term** **incent****ive**
        plansMark Jarvis 
        Director and 
        Chief Executive 
        Officer
      2011
      $102,000
      Nil
      115,905
      Nil
      Nil
      Nil
      Nil
      $217,905George Sookochoff 
        Director
      2011
      $8,000
      Nil
      14,489
      Nil
      Nil
      Nil
      Nil
      $22,489Tom Milner 
        Director
      2011
      $36,000
      Nil
      Nil
      Nil
      Nil
      Nil
      Nil
      $36,000Lyle Davis 
        Director
      2011
      $8,000
      Nil
      14,489
      Nil
      Nil
      Nil
      Nil
      $22,489Gary Johnson 
        Director
      2011
      $67,050
      Nil
      88,343
      Nil
      Nil
      Nil
      Nil
      $155,393Cliff Carson 
        Director
      2011
      $6,000
      Nil
      216,074
      Nil
      Nil
      Nil
      Nil
      $222,074Brian Fiddler 
        Controller and 
        Chief Financial 
        Officer
      2011
      $90,000
      Nil
      14,489
      Nil
      Nil
      Nil
      Nil
      $104,489


40

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Neil Froc Executive Vice President
    2011
    $150,000
    Nil
    49,806
    Nil
    Nil
    Nil
    25,000
    $224,806Leslie Young Corporate Secretary
    2011
    $72,000
    Nil
    14,489
    Nil
    Nil
    Nil
    Nil
    $86,489


Our company does not have any pension or retirement plans, nor
does our company compensate its directors and officers by way of any material
bonus or profit sharing plans. Directors, officers, employees and other key
personnel of our company may be compensated by way of stock options.

C.          
Board Practice

The election and retirement of directors are provided for in
our Articles. An election of directors shall take place at each annual meeting
of shareholders and all the directors then in office shall retire but, if
qualified, shall be eligible for re-election. A director shall retain office
only until the election of his successor. The number of directors to be elected
at such meeting shall be the number of directors then in office unless the
directors or the shareholders otherwise determine. The election shall be by
ordinary resolution of shareholders. If an election of directors is not held at
the proper time, the incumbent directors shall continue in office until their
successors are elected.

Our Articles also permit the directors to add additional
directors to the board between annual general meetings so long as the number
appointed does not exceed more than one-third of the number of directors elected
at the last annual general meeting. Individuals appointed as directors to fill
casual vacancies created on the board or added as additional directors hold
office like any other director until the next annual general meeting at which
time they may be re-elected or replaced.

The members of our companys audit committee include Lyle
Davis, George Sookochoff, Cliff Carson and Brian Fiddler. The audit committee
reviews and approves the scope of the audit procedures employed by our
independent auditors, reviews the results of the auditors examination, the
scope of audits, the auditors opinion on the adequacy of internal controls and
quality of financial reporting, if applicable, and our accounting and reporting
principles, policies and practices, as well as our accounting, financial and
operating controls. The audit committee also reports to the board of directors
with respect to such matters and recommends the selection of independent
auditors. Before financial statements that are to be submitted to the
shareholders at an annual general meeting are considered by the board of
directors, such financial statements are submitted to the audit committee for
review with the independent auditors, following which the report of the audit
committee on the financial statements is submitted to the board of
directors.

We currently do not have a remuneration or compensation
committee.

D.          
Employees

As of December 31, 2011, we had six full-time employees,
including two of our officers. We do not have any relationship with any labor
unions.

E.          
Share Ownership

There were 80,373,493 Common Shares issued and outstanding as
of May 17, 2012. Of the shares issued and outstanding, warrants held and stock
options granted, our directors and officers owned the following Common Shares as
of May 17, 2012:

41

---

Name
      Number of Common Shares Beneficially Owned as of May 17, 2012
      Percentage(1)Mark Jarvis
    6,618,756 (2)
    8.23%George Sookochoff
    350,000(3)
    0.44%Tom Milner
    670,000(4)
    0.83%Lyle Davis
    470,000(5)
    0.58%Brian Fiddler
    354,368(6)
    0.44%Leslie Young
    336,800(7)
    0.42%Neil Froc
    739,000(8)
    0.92%Gary Johnson
    850,000(9)
    1.06%Cliff Carson
    1,360,000(10)
    1.69%


|(1)  | Based on 80,373,493 Common Shares issued and outstanding
      as at May 17, 2012, and the number of shares issuable upon the exercise of
      issued and outstanding stock options and warrants which are exercisable
      within 60 days of May 17, 2012.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)  | Includes stock options to purchase up to 1,275,000 of our
      Common Shares at exercise prices ranging from $.30 - $0.50 per share
      expiring up to January 27, 2016.                                                                                  
|(3)  | Includes stock options to purchase up to 350,000 of our
      Common Shares at exercise prices ranging from $.30 - $0.50 per share
      expiring up to January 27, 2016.                                                                                    
|(4)  | Includes stock options to purchase up to 450,000 of our
      Common Shares at exercise prices ranging from $.30 - $1.00 per share
      expiring up to November 29, 2015.                                                                                   
|(5)  | Includes stock options to purchase up to 450,000 of our
      Common Shares at exercise prices ranging from $.30 - $1.00 per share
      expiring up to January 27, 2016.                                                                                    
|(6)  | Includes stock options to purchase up to 300,000 of our
      Common Shares at exercise prices ranging from $.30 - $1.00 per share
      expiring January 27, 2016.                                                                                          
|(7)  | Includes stock options to purchase up to 275,000 of our
      Common Shares at exercise prices ranging from $0.30 - $0.50 per share
      expiring January 27, 2016.                                                                                         
|(8)  | Includes stock options to purchase up to 700,000 of our
      Common Shares at exercise prices ranging from $0.30 - $1.00 per share
      expiring January 27, 2016.                                                                                         
|(9)  | Includes stock options to purchase up to 700,000 of our
      Common Shares at exercise prices ranging from $0.40 - $0.50 per share
      expiring January 27, 2016.                                                                                         
|(10) | Includes stock options to purchase up to 800,000 of our
      Common Shares at an exercise price of $0.42 per share expiring May 11,
      2016.                                                                                                             

A total of ten percent (10%) of the common shares of our
company, outstanding from time to time, are reserved for the issuance of stock
options pursuant to our companys Incentive Stock Option Plan. During the year
2,172,000 stock options were granted to directors, consultants and
employees.

Item 7**Major Shareholders and Related Party Transactions

A.          
Major Shareholders

The following table sets forth, as of May 17, 2012, the only
person known to us to be the beneficial owner of more than five (5%) of our
Common Shares:

42

---

Name of
      Shareholder
    No. of Common
      Shares Owned
    Percentage of
      Outstanding Common Shares(1)Mark Jarvis
    6,618,756 (2)
    8.23%


|(1) | Based on 80,373,493 Common Shares issued and outstanding
      as at May 17, 2012, and the number of shares issuable upon the exercise of
      issued and outstanding stock options and warrants which are exercisable
      within 60 days of May 17, 2012.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes stock options to purchase up to 1,275,000 of our
      Common Shares at exercise prices ranging from $0.30  0.50 per share
      expiring January 27, 2016.                                                                                        

To the best of our knowledge, our company is not directly or
indirectly owned or controlled by another corporation, by any foreign government
or by any other natural or legal person.

There are no arrangements known to us, the operation of which
may at a subsequent date result in a change in the control of our company.

B.          
Related Party Transactions

The following sets forth all material transactions and loans
  from January 1, 2011 to the current date between our company and: (a) enterprises
  that directly or indirectly through one or more intermediaries, control or are
  controlled by, or are under common control with, our company; (b) associates;
  (c) individuals owning, directly or indirectly, an interest in the voting power
  of our company that gives them significant influence over our company and close
  members of any such individuals families; (d) key management personnel
  of our company, including directors and senior management of our 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) or over which such a person is able to
  exercise significant influence. For the purposes of this section, shareholders
  beneficially owning a 10% interest in the voting power of our company are presumed
  to have a significant influence:

Related party balances

The following amounts due to related parties are included in
trade payables and accrued liabilities:

|                                                 |   | December 31, |  |   | December 31, | 
|------------------------------------------------ | - | ------------ |  | - | ------------ | 
|                                                 |   | 2011         |  |   | 2010         | 
|Companies controlled by directors of our company | $ | 4,500        |  | $ | -            | 

These amounts are unsecured, non-interest bearing and have no
fixed terms of repayment.

Related party transactions

The Company incurred the following transactions with directors,
officers and companies that are controlled by directors of the Company.

|                                                            |   | Year
      ended | 
|----------------------------------------------------------- | - | ---------------- | 
|                                                            |   | December 31,     | 
|                                                            |   | 2011             | 
|Deferred exploration costs to non-management
      director | $ | 101,050          | 
|Fees to non-management directors                            |   | 24,000           | 
|Stock-based compensation to non-management directors        |   | 333,395          | 
|                                                            | $ | 458,445          | 

Key management personnel compensation

43

---

|                           |   | Year
      ended | 
|-------------------------- | - | ---------------- | 
|                           |   | December 31,     | 
|                           |   | 2011             | 
|Deferred exploration costs | $ | 175,000          | 
|Management fees            |   | 264,000          | 
|Stock-based compensation   |   | 194,689          | 
|                           | $ | 633,689          | 

C.          
Interests of Experts and Counsel

Not required.

Item 8 **Financial Information

A.Consolidatedand Other Financial Information

See Item 17 and our consolidated financial statements and
accompanying notes.

B.          
Significant Changes

Our company is not aware of any significant change since
December 31, 2011 that is not otherwise reported in this filing.

Item 9 **The Offer and Listing

A.******Common Share Trading Information

Price History

Full Financial Years (five most recent financial years)

The annual high and low market prices for the five most recent
full financial years (years ended December 31, 2007 through to December 31,
2011) on the TSX Venture Exchange (formerly the Canadian Venture Exchange) prior
to September 19, 2008, and the TSX Exchange September 19, 2008 and afterwords
were as follows:

YearEnded
      High
      Low31-Dec-07
    $3.26
    $0.7631-Dec-08
    $1.06
    $0.0831-Dec-09
    $0.35
    $0.0931-Dec-10
    $0.65
    $0.1931-Dec-11
    $0.52
    $0.16


Full Financial Quarters (two most recent financial years)

The high and low market prices for each full financial quarters
for the two most recent full fiscal years on the TSX Exchange were as
follows:

44

---

Quarter Ended
      High
      Low31-Mar-10
    $0.36
    $0.1930-Jun-10
    $0.65
    $0.2730-Sep-10
    $0.32
    $0.1931-Dec-10
    $0.51
    $0.2231-Mar-11
    $0.52
    $0.4130-Jun-11
    $0.43
    $0.2830-Sep-11
    $0.30
    $0.2231-Dec-11
    $0.28
    $0.16


The high and low market prices for the most recent six months
on the TSX Exchange is as follows:

Quarter Ended
      High
      Low30-Nov-12
    $0.25
    $0.2131-Dec-12
    $0.21
    $0.1631-Jan-12
    $0.20
    $0.1729-Feb-12
    $0.17
    $0.1531-Mar-12
    $0.19
    $0.1430-Apr-12
    $0.14
    $0.12


We have no principle trading market outside of our host market,
the TSX Exchange.

B.          
Plan of Distribution

Not Applicable.

C.          
Markets

Our common shares trade on the Toronto Stock Exchange. Our
symbol is HNC and our CUSIP number is 411637.

D.          
Selling Shareholders

Not Applicable.

E.          
Dilution

Not Applicable.

F.          
Expenses of the Issues

Not Applicable.

45

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Item 10 **Additional Information

A.          
Share Capital

Not required.

B.          
Articles of Incorporation and By-laws

Incorporation

We were incorporated under the Company Act(British
Columbia) on January 17, 1983. The Company Act(British Columbia) was
repealed on March 29, 2004 when the Business Corporations Act (British
Columbia) came into force. Accordingly, on June 15, we filed a transition
application under the Business Corporations Act (British Columbia) and
received the incorporation number 259067. We filed our Notice of Articles, which
replaced our Memorandum of Incorporation, with the Registrar of Companies of
British Columbia together with our transition application. A copy of our Notice
of Articles may be obtained from the Registrar of Companies of British Columbia
or from our corporate solicitors, Clark Wilson LLP, Suite 800  885 West Georgia
Street, Vancouver, B.C. V6C 3H1. On June 25, 2004, we adopted our current
Articles of Incorporation and a copy of which may be obtained from our corporate
solicitors, Clark Wilson LLP, Suite 800  885 West Georgia Street, Vancouver,
B.C. V6C 3H1.

Objects and Purposes of the Company

Our Notice of Articles and Articles of Incorporation place no
restrictions upon our objects and purposes.

Directors Powers

Our Articles of Incorporation do not contain any special
provision with respect to a directors power to vote on a proposal, arrangement
or contract in which the director is materially interested. Such power of
directors will be exercised by our directors in accordance with Sections 147 to
153 of the Business Corporations Act (British Columbia), which provides
in part that a director who is a party to, or who is also a director or officer
of or has a material interest in any person who is a party to, a material
contract or proposed material contract with us shall disclose the nature and
extent of his interest at the time and in the manner provided by the Business
Corporations Act (British Columbia). The Business Corporations Act
(British Columbia) also provides that any such contract or proposed contract
shall be referred to the board or shareholders for approval and a director whose
interest in a contract is so referred to the board shall not vote on any
resolution to approve the same.

Section 10.6 of our Articles of Incorporation provides that the
directors shall be paid such remuneration for their services as the board may
from time to time determine. The directors shall also be entitled to be
reimbursed for traveling and other expenses properly incurred by them in
attending meetings of the board or any committee thereof. No independent quorum
is required when the board is making decisions on directors remuneration.

Section 6.1 of our Articles of Incorporation provides that our
directors may from time to time on behalf of the Company:

| | (a) | borrow money in the manner and amount, on the security,
      from the sources and on the terms and conditions that they consider
      appropriate,             
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                  
| | (b) | issue bonds, debentures and other debt obligations either
      outright or as security for any liability or obligation of the Company or
      any other person,

46

---

| | (c) | guarantee the repayment of money by any other person or
      the performance of any obligation of any other person, and                                                            
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                     
| | (d) | mortgage or charge, whether by way of specific or
      floating charge, or give other security on the whole or any part of the
      present and future undertaking of the Company.

Qualifications of Directors

Section 10.4 of our Articles of Incorporation provides that a
director is not required to hold a share in the capital of our Company as
qualification for his or her office but must be qualified as required by the
Business Corporations Act(British Columbia)to become, act or
continue to act as a director.

There is no provision in our Notice of Articles or Articles of
Incorporation imposing a requirement for retirement or non-retirement of
directors under an age limit requirement.

Share Rights

Our authorized capital consists of an unlimited number of
Common Shares without par value and an unlimited number of Class A Preference
Shares without par value. Each of our Common Shares entitles the holder thereof
to notice and to attend and to cast 1 vote for each matter to be decided at a
general meeting of our company. Except for such rights relating to the election
of directors on a default in payment of dividends as may be attached to any
series of the Class A Preference Shares by the directors, holders of Class A
Preference Shares shall not be entitled, as such, to receive notice of, or to
attend or vote at, any general meeting of shareholders of our company. Subject
to any special rights as may be attached to any series of the Class A

Preference Shares by the directors, holders of our Common
Shares are entitled to dividends as the directors may from time to time declare
and authorize when the directors consider appropriate.

Our Class A Preference Shares may be issued in one or more
series and, subject to the Business Corporations Act (British Columbia),
the directors may, by resolution, if none of the shares of any particular series
are issued, alter the Articles of the Company and authorize the alteration of
the Notice of Articles of our Company, as the case may be, to do one or more of
the following:

| | (a) | determine the maximum number of shares of that series
      that the Company is authorized to issue, determine that there is no such
      maximum number, or alter any such determination;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                            
| | (b) | create an identifying name for the shares of that series,
      or alter any such identifying name; and                                                                                    
| |     |                                                                                                                                                                                            
| | (c) | attach special rights or restrictions to the shares of
      that series, or alter any such special rights or
  restrictions.                                                              

The holders of our Class A Preference Shares will be entitled,
on the liquidation or dissolution of our company, whether voluntary or
involuntary, or on any other distribution of our assets among our shareholders
for the purpose of winding up our affairs, to receive, before any distribution
is made to the holders of Common Shares or any other shares ranking junior to
the Class A Preference Shares with respect to the repayment of capital on the
liquidation or dissolution of our company, whether voluntary or involuntary, or
on any other distribution of our assets among our shareholders for the purpose
of winding up our affairs, the amount paid up with respect to each Class A
Preference Share held by them, together with the fixed premium (if any) thereon,
all accrued and unpaid cumulative dividends (if any and if preferential)
thereon, whether or not earned or declared, and all declared and unpaid
non-cumulative dividends (if any and if preferential) thereon. After payment to
the holders of the Class A Preference Shares of the amounts so payable to them,
they will not, as such, be entitled to share in any further distribution of the
property or assets of our company, except as specifically provided in the
special rights and restrictions attached to any particular series.

47

---

Our issued shares are not subject to call or assessment rights.
There are no provisions for redemption, purchase for cancellation, surrender or
purchase funds.

Procedures to Change the Rights of Shareholders

Our Articles of Incorporation do not contain any special
provision with respect to actions necessary to change the rights of our
shareholders. The rights of our shareholders may be changed by altering our
Notice of Articles and Articles of Incorporation in accordance with procedures
set out in Sections 256 to 265 of the Business Corporations Act (British
Columbia).

Summary of Sections 256 to 265 of the Business Corporations
Act (British Columbia).

In British Columbia, the statute that used to apply to the
creation, amendment, maintenance and operations of corporations and their
corporate documents has been repealed and replaced by the Business
Corporations Act. Under the former act, a company could be created through
the signature of a memorandum or articles of incorporation. We were incorporated
under the former act, using articles of incorporation.

Section 256 sets out the sections of the Act that are available
to a company for a change in its memorandum or articles of incorporation.

Section 257 sets out the sections of the act that describe the
circumstances under which a company may alter its notice of articles and the
sections of the act that provide for the process.

Section 258 informs companies how and when they may withdraw
their notice of alteration of notice of articles before the alteration takes
effect.

Section 259 explains that a company may resolve to alter its
articles of incorporation by the type of resolution specified in the Act or, if
not specified, by the resolution described in the articles or, if not in the
articles, by a special resolution.

A special resolution is a resolution passed by being consented
to in writing by all of the shareholders holding shares that carry the right to
vote at general meetings or a resolution passed at a general meeting under the
following circumstances:

(i) notice of the meeting specifying
the intention to propose the resolution as a special resolution is sent to all
shareholders holding shares that carry the right to vote at general meetings at
least the prescribed number of days before the meeting;

(ii) the majority of the votes cast by
shareholders voting shares that carry the right to vote at general meetings is
cast in favor of the resolution; and

(iii) ) the majority of votes cast in
favor of the resolution constitutes at least a special majority.

According to our articles of incorporation, the majority of
votes required to pass a special resolution at a meeting of our shareholders is
two-thirds of the votes cast on the resolution.

Also under section 259, a company may alter its articles to
specify or change the majority of votes that is required to pass a special
resolution, which majority must be at least 2/3 and not more than 3/4 of the
votes cast on the resolution, if the shareholders resolve, by a special
resolution, to make the alteration. A company may also alter its articles to
specify or change the majority of votes that is required for shareholders
holding shares of a class or series of shares to pass a special separate
resolution, which majority must be at least 2/3 and not more than 3/4 of the
votes cast on the resolution, if the shareholders resolve, by a special resolution, to make the alteration, and
shareholders holding shares of that class or series of shares consent by a
special separate resolution of those shareholders.

48

---

Section 259 also covers the transition period for changes to
the articles and how to create and file a resolution to ensure that any
information in the notice of articles or special rights or restrictions attached
to shares are not rendered false or altered by the change in articles. Section
259 also covers the effective dates of changes to the articles and that a court
order may be used by the Court to effect a change in the articles of
incorporation of a company.

Section 260 states that any shareholder of a company may send a
notice of dissent to the company in respect of any resolution to change the
articles of incorporation to alter any restrictions on the powers of the company
or on the business it is permitted to carry on.

Section 261 describes how changes may be made by amendment to a
regulation to a pre-written form of articles, known as Table 1 articles, that
companies may adopt. We do not have these Table 1 articles.

Section 262 states that after an alteration to the articles of
a company takes effect, the company must not issue a copy of the articles unless
the copy of the articles reflects the alteration, or there is attached, to the
copy of the articles, a copy of each resolution, court order or other record by
which the articles being issued were altered.

Section 263 provides the process for changing a companys name,
which

Section 264 covers exceptional resolutions and resolutions
respecting unalterable provisions. It states that a company may specify, by a
provision in its articles, that a provision of its notice of articles may not be
altered unless:

1. the resolution to authorize the alteration to the notice of
articles is passed as an exceptional resolution;

2, a provision of its articles may not be altered unless the
resolution to alter the company's articles is passed as an exceptional
resolution, or,

3. an action may not be taken by the company or the directors
unless the resolution to authorize or effect the taking of the action is passed
as an exceptional resolution.

Furthermore, this section states that a company may not vary or
delete an exceptional resolution provision unless the variation or deletion is
authorized by an exceptional resolution.

If a company existed before the Business Corporations
Act (British Columbia) but it has made the transition to become a
Business Corporations Act (British Columbia) as described in the Act
and its articles include a provision that was not capable of alteration under
the old act that governed the company, that company must not alter that
provision unless the alteration is ordered by the court, or authorized by a
unanimous resolution by vote of every shareholder.

Under section 265, where under our articles or the Business
Corporations Act (British Columbia), we are allowed or required to pass a
shareholders resolution or a directors resolution, and there is a conflict
between our articles of incorporation and the Business Corporations Act
(British Columbia) regarding the majority of votes that is required to pass the
resolution, we must, in order to pass the resolution, obtain the greater of the
majority of votes required by our articles and the majority of votes required by
the Business Corporations Act (British Columbia).

Meetings

Section 7.1 of our Articles of Incorporation provides that,
unless an annual general meeting is deferred or waived in accordance with
section 182(2)(a) or (c) of the Business Corporations Act, we must hold
an annual general meeting at least once in each calendar year and not more than
15 months after the last annual general meeting. The percentage vote required to
pass an ordinary resolution at a shareholder meeting is a simple majority, which
is any amount greater than 50%.

49

---

According to Section 7.4 of our Articles of Incorporation,
notice of the time and place of each meeting of shareholders shall be given not
less than 21 days before the date of the meeting to each director, to the
auditor and to each shareholder who at the close of business on the record date
for notice is entered in the securities register as the holder of one or more
shares carrying the right to vote at the meeting. Notice of a meeting of the
shareholders called for any purpose other than consideration of the financial
statements and auditors report, election of directors and re-appointment of
incumbent auditor shall state the nature of such business in sufficient detail
to permit the shareholder to form a reasoned judgment thereon and shall attach
to it a copy of the document to be considered, approved, ratified, adopted or
authorized at the meeting or state that a copy of the document will be available
for inspection by the shareholders at the companys records office or such other
reasonably accessible location in British Columbia. A shareholder may in any
manner waive notice of or otherwise consent to a meeting of shareholders.

The number of shareholders that must be present at a meeting to
constitute a quorum is 2 persons who are, or who represent by proxy,
shareholders who, in the aggregate, hold at least 1/20 of the issued shares
entitled to be voted at the meeting. If there is only one shareholder entitled
to vote at a meeting of shareholders, then the quorum is one person.

Limitations on Ownership of Securities

There are no limitations on the right to own securities of our
company by non-resident or foreign shareholders imposed either by the
Business Corporations Act (British Columbia), our Notice of Articles or
Articles of Incorporation.

There are no limitations on the rights of non-resident or
foreign shareholders to hold or exercise voting rights.

Except as provided in the Investment Canada Act
(Canada), there are no limitations under the applicable laws of Canada or by our
charter or our other constituent documents on the right of foreigners to hold or
vote common shares or other securities of our company.

The Investment Canada Act (Canada) will prohibit
implementation, or if necessary, require divestiture of an investment deemed
reviewable under the Investment Canada Act (Canada) by an investor that
is not a Canadian as defined in the Investment Canada Act (Canada) (a
non-Canadian), unless after review the Minister responsible for the
Investment Canada Act (Canada) (the Minister) is satisfied that the
reviewable investment is likely to be of net benefit to Canada. An investment
in our Common Shares by a non-Canadian, who is not a resident of a World Trade
Organization member, would be reviewable under the Investment Canada Act
(Canada) if it was an investment to acquire control of our company and the value
of the assets of our company was CAN$5 million or more. An investment in our
common shares by WTO Investors would be reviewable only if it was an investment
to acquire control of our company and the value of the assets of our company was
equal to or greater than a specified amount (the Review Threshold), which is
published by the Minister after its determination for any particular year. The
Review Threshold is currently CAN$237 million for the year 2004. It is expected
that in January of 2005, the Minister will determine the amount of the threshold
for review for WTO Investors to be CAN$250 million for the year 2005.

A non-Canadian would be deemed to acquire control of our
company for the purposes of the Investment Canada Act (Canada) if the
non-Canadian acquired a majority of our outstanding common shares (or less than
a majority but controlled our company in fact through the ownership of one-third
or more of our outstanding common shares) unless it could be established that,
on the acquisition, we were not controlled in fact by the acquirer through the ownership of such common
shares. Certain transactions in relation to our common shares would be exempt
from review under the Investment Canada Act (Canada), including, among
others, the following:

50

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1. acquisition of common shares by a
person in the ordinary course of that persons business as a trader or dealer in
securities;

2. acquisition of control of our
company in connection with the realization of security granted for a loan or
other financial assistance and not for any purpose related to the provisions of
the Investment Canada Act (Canada); and

3. acquisition of control of our
company by reason of an amalgamation, merger, consolidation or corporate
reorganization following which the ultimate direct or indirect control of our
company, through the ownership of voting interests, remains unchanged.

Change in Control

There are no provisions in our articles or our bylaws that
would have the effect of delaying, deferring or preventing a change in control
of our company, and that would operate only with respect to a merger,
acquisition or corporate restructuring involving our company.

The Business Corporations Act (British Columbia) does
not contain any provisions that would have the effect of delaying, deferring or
preventing a change of control of our company. Generally, there are no
significant differences between Canadian and United States law in this regard,
as many state corporation statutes also do not contain such provisions and only
empower our board of directors to adopt such provisions.

Ownership Threshold

There are no provisions in our articles or our bylaws or in the
Business Corporations Act(British Columbia) governing the threshold
above which shareholder ownership must be disclosed. The Securities Act
(British Columbia) requires us to disclose, in our annual general meeting proxy
statement, holders who beneficially own more than 10% of our issued and
outstanding shares. Most state corporation statutes do not contain provisions
governing the threshold above which shareholder ownership must be disclosed.

United States federal securities laws require us to disclose,
in our Annual Report on Form 20-F, holders who own more than 5% of our issued
and outstanding shares.

Changes in the Capital of the Company

There are no conditions imposed by our articles or our bylaws
which are more stringent than those required by the Business Corporations Act(British Columbia).

C.          
Material Contracts

We have not entered into any material contracts outside the
normal course of business to which we are a party during the fiscal year ending
December 31, 2011, the two fiscal years proceeding and the current fiscal year
up to and including the date of this annual report. Each contract is between
Hard Creek Nickel and the Contractor, there is no provision to pass any of these
contracts to Hard Creek Nickels wholly-owned subsidiary, Canadian Metals
Exploration Ltd.

D.          
Exchange Controls

There are no government laws, decrees or regulations in Canada
which restrict the export or import of capital or which affect the remittance of
dividends, interest or other payments to non-resident holders of our common
shares. Any remittances of dividends to United States residents and to other
non-residents are, however, subject to withholding tax. See Taxation
below.

51

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There are no limitations imposed by the laws of Canada, the
laws of Alberta or by the charter or other governing documents of the Company on
the right of a non-resident to hold or vote common shares of the Company, other
than as provided in the Investment Canada Act (the Investment Act) and the
potential requirement for a Competition Act Review.

The following summarizes the principal features of the
Investment Act and the Competition Act Review for a non-resident who proposes to
acquire common shares. This summary is of a general nature only and is not
intended to be, nor is it, a substitute for independent advice from an
investors own advisor. This summary does not anticipate statutory or regulatory
amendments.

The Canadian Investment Act

The Canadian Investment Act generally prohibits implementation
of a reviewable investment by an individual, government or agency thereof,
corporation, partnership, trust or joint venture that is not a Canadian as
defined in the Investment Act (a non-Canadian), unless, after review, the
minister responsible for the Investment Act (the Minister) is satisfied that
the investment is likely to be of a net benefit to Canada. Under the Investment
Act, a United States citizen qualifies as a World Trade Organization Investor.
Subject to the restrictions noted below, an investment in a Canadian business by
a World Trade Organization Investor would be reviewable under the Investment Act
only if it is an investment to acquire control of such Canadian business and the
value of the assets of the Canadian business as shown on its financial
statements is not less than a specified amount, which for 1999 was $184 million.
An investment in the shares of a Canadian business by a non-Canadian other than
a World Trade Organization Investor when the Company is not controlled by a
World Trade Organization Investor, would be reviewable under the Investment Act
if it is an investment to acquire control of the Canadian business and the value
of the assets of the Canadian business as shown on its financial statements is
$5 million or more, or if an order for review is made by the federal cabinet on
the grounds that the investment relates to Canadas cultural heritage or
national identity.

The acquisition by a World Trade Organization Investor of
control of a Canadian business in any of the following sectors is also subject
to review if the value of the assets of the Canadian business exceeds $5 million
(as shown on its financial statements): uranium, financial services (except
insurance), transportation services and cultural businesses, which include
broadcast media (publication, distribution or sale of books, magazines,
periodicals, newspapers, music, film and video products and the exhibition of
film and video products), television and radio services. As the Companys
business does not fall under any of the aforementioned categories, the
acquisition of control of the Company, in excess of the $5 million threshold, by
a World Trade Organization Investor would not be subject to such review.

A non-Canadian would acquire control of the Company for
purposes of the Investment Act if the non-Canadian acquired a majority of the
common shares.

The acquisition of less than a majority but one-third or more
of the common shares would be presumed to be an acquisition of control of the
Company unless it could be established that, on acquisition, the Company was not
controlled in fact by the acquirer through the ownership of common shares.
Notwithstanding the review provisions, any transaction involving the acquisition
of control of a Canadian business or the establishment of a new business in
Canada by a non-Canadian is a notifiable transaction and must be reported to
Industry Canada by the non-Canadian making the investment either before or
within thirty days after the investment.

Certain transactions relating to common shares are exempt from
the Investment Act, including:

52

---

- an acquisition of common shares by a person in the ordinary course of that
  persons business as a trader or dealer in securities;
- an acquisition of control of the Company in connection with the
  realization of security granted for a loan or other financial assistance and
  not for a purpose related to the provisions of the Investment Act; and
- an 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 common shares, remained unchanged.

Canadian Competition Act Review Investments giving
rise to the acquisition or establishment, directly or indirectly, by one or more
persons of control over, or a significant interest in the whole or part of a
business of a competitor, supplier, customer or other person are subject to
substantive review by Canadas Competition Law Authority, the Director of
Investigation and Research (the Director). If or when the Director concludes
that a merger, whether by purchase or lease of shares or assets, by amalgamation
or by combination, or otherwise, prevents or lessens, or is likely to prevent or
lessen competition substantially, he may apply as may be necessary to eliminate
the substantial lessening or prevention of competition. Such substantive merger
review power applies to all mergers, whether or not they meet limits for
pre-notification under the Competition Act.

In addition to substantive merger review, the Competition Act
provides for a pre-notification regime respecting mergers of a certain size. The
regime applies in respect of share acquisitions, asset acquisitions,
amalgamations and combinations. For ease of reference, this filing refers
specifically to share acquisition, although the pre-notification regime applies,
with the appropriate modification, to other types of acquisition of control as
well.

In order for a share acquisition transaction to be
pre-notifiable, the parties to the transaction (being the person or persons who
proposed to acquire shares, and the corporation the shares of which are to be
acquired), together with their affiliates (being all firms with a 50% or more
voting shares linkage up and down the chain) must have:

| | (i)   | aggregate gross assets in Canada that exceed $400,000,000
      in value, as shown on their audited financial statements for the most
      recently completed fiscal year (which must be within the last fifteen (15)
      months); or                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (ii)  | aggregate gross revenue from sales in, from or into
      Canada that exceed $400,000,000 for the most recently completed fiscal
      year shown on the said financial statements; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (iii) | the party being acquired or corporations controlled by
      that party must have gross assets in Canada, or gross revenues from sales
      in or from Canada, exceeding $35,000,000 as shown on the said financial
      statements. Acquisition of shares carrying up to 20% of the votes of a
      publicly-traded corporation, or 35% of the votes in a private corporation,
      will not be subject to pre-notification, regardless of the above
      thresholds. However, exceeding the 20% or the 35% threshold, and again
      exceeding the 50% threshold, gives rise to an obligation of notification
      if the size threshold is met.

If a transaction is pre-notifiable, a filing must be made with
the Director containing the prescribed information with respect to the parties,
and a waiting period (either seven or twenty-one days, depending on whether a
long or short form filing is chosen) must expire prior to closing.

As an alternative to pre-notification, the Director may grant
an Advance Ruling Certificate, which exempts the transaction from
pre-notification. Advance Ruling Certificates are granted where the Director
concludes, based on the information provided to him, that he would not have
sufficient grounds on which to apply to the Competition Tribunal to challenge
the Merger.

E.          
Taxation

This summary is of a general nature only and is not intended
to be, and should not be interpreted as, legal or tax advice to any prospective
purchaser or holder of the Companys shares and norepresentation with respect to the Canadian federal income
tax consequences to any such prospective purchaser is made. Accordingly,
prospective purchasers of the Companys shares should consult with their own tax
advisors with respect to their individual circumstances.

53

---

The following summary describes the principal Canadian federal
income tax considerations generally applicable to a holder of the Companys
shares who, for purposes of the Income Tax Act (Canada) (the Canadian Tax Act)
and the Canada-United States Income Tax Convention, 1980 (the Convention) and
at all relevant times is resident in the United States and not resident in
Canada, deals at arms length with the Company, holds the Companys shares as
capital property, and does not use or hold and is not deemed to use or hold the
Companys shares in or in the course of carrying on business in Canada (a
United States Holder).

This following summary is based upon the current provisions of
the Canadian Income Tax Act, the regulations thereunder, all specific proposals
to amend the Canadian Tax Act and the regulations announced by the Minister of
Finance (Canada) prior to the date hereof and the Companys understanding of the
published administrative practices of the Canada Customs and Revenue Agency
(formerly Revenue Canada, Customs, Excise and Taxation). This summary does not
take into account or anticipate any other changes in the governing law, whether
by judicial, governmental or legislative decision or action, nor does it take
into account the tax legislation or considerations of any province, territory or
non-Canadian jurisdiction (including the United States), which legislation or
considerations may differ significantly from those described herein.

Disposition of the Companys Shares

In general, a United States shareholder will not be subject to
Canadian income tax on capital gains arising on the disposition of the Companys
shares, unless such shares are taxable Canadian property within the meaning of
the Canadian Income Tax Act and no relief is afforded under any applicable tax
treaty. The shares of the Company would be taxable Canadian property of a
non-resident if at any time during the five-year period immediately preceding a
disposition by the non-resident of such shares, not less than 25% of the issued
shares of any class or series of all classes of shares of the Company belonged
to the non-resident, to persons with whom the non-resident did not deal at arms
length, or to the non-resident and persons with whom the non-resident did not
deal at arms length for purposes of the Canadian Income Tax Act. For this
purpose, issued shares include options to acquire such shares (including
conversion rights) held by such persons. Under the Convention, a capital gain
realized by a resident of the United States will not be subject to Canadian tax
unless the value of the shares of the Company is derived principally from real
estate (as defined in the Convention) situated in Canada.

F.          
Dividends and Paying Agents

Not applicable.

G.          
Statements by Experts

Not required.

H.          
Documents on Display

The documents concerning our company may be viewed at the
offices of our corporate solicitor, Clark Wilson LLP, Suite 800 - 885 West
Georgia Street, Vancouver, British Columbia, V6C 3H1, during normal business
hours.

I.          
Subsidiary Information

As at the date of this annual report, we have one wholly-owned
subsidiary, Canadian Metals Exploration Limited.

54

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Item
11Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 12 **Description of Securities Other than Equity Securities

Not required.

PART II

Item 13 **Defaults, Dividend Arrearages and Delinquencies.

Not applicable.

Item 14**Material Modifications to the Rights of Security Holders and Use of Proceeds.

Not Applicable

Item 15**Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to be disclosed
by our company is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the Securities and Exchange
Commission. Our Chief Executive Officer and our Chief Financial Officer are
responsible for establishing and maintaining disclosure controls and procedures
for our company.

Our Chief Executive Officer and our Chief Financial Officer
have evaluated the effectiveness of our disclosure controls and procedures as of
December 31, 2011, pursuant to Rule 13a-15(b) promulgated under the Securities
Exchange Act of 1934, as amended. As part of such evaluation, our Chief
Executive Officer and our Chief Financial Officer considered the matters
discussed below relating to internal control over financial reporting. Based on
this evaluation, our companys Chief Executive Officer and Chief Financial
Officer have concluded that our companys disclosure controls and procedures
were effective as of December 31, 2011.

Management Report on Internal Control over Financial
Reporting

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as such term is defined in
Rule 13a-15(f) Securities Exchange Act of 1934, as amended. Management (under
the supervision and with the participation of the Chief Executive Officer and
the Chief Financial Officer) assessed the effectiveness of our internal control
over financial reporting as of December 31, 2011. In making this assessment,
management used the framework set forth in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Management of our company conducted an assessment of the
effectiveness of our companys internal controls over financial reporting as of
December 31, 2011. Based on its assessment as per the standards of the Public
Company Accounting Oversight Board, , we concluded that our companys internal
controls over financial reporting were effective as of December 31, 2011.

We will continue to monitor and evaluate the effectiveness of
our internal controls and procedures and our internal controls over financial
reporting on an ongoing basis and are committed to taking further action and
implementing additional enhancements or improvements, as necessary and as funds
allow.

55

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Attestation Report of the Registered Public Accounting Firm

This annual report does not include an attestation report of
our companys registered public accounting firm regarding internal control over
financial reporting. Our management's report was not subject to attestation by
our companys independent registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit our
company to provide only the managements report in this annual report.

Changes in Internal Control over Financial Reporting

There were no changes during the period covered by this Annual
Report in our companys internal controls over financial reporting that have
materially affected, or are reasonably likely to materially affect our companys
internal control over financial reporting.

Item 16**[Reserved]

Audit Committee Financial Expert

The Board of Directors has determined that the Company has at
least one independent audit committee financial expert serving on its audit
committee, this person being Lyle Davis, our Chairman and who also serves as
Chair of the Audit Committee. Please refer to Item 6.A for Mr. Davis' relevant
experience.

Code of Ethics

The Board has adopted a Code of Ethics and Insider Trading
Policy which has been distributed to its directors, officers, employees and
consultants. A copy of the Code is available from the Company on written request
or may be viewed on the Companys website at www.hardcreek.com.

Principal Accountant Fees and Services

Audit-Related Fees

|Fiscal Year 2011: $34,500 | Fiscal Year 2010: $38,000
|------------------------- | -------------------------

Tax Fees

|Fiscal Year 2011: $1,000 | Fiscal Year 2010: $6,000
|------------------------ | ------------------------

All Other Fees

|Fiscal Year 2011: $Nil | Fiscal Year 2010: $2,500
|---------------------- | ------------------------

Exemptions from the Listing Standards for Audit Committees

Not Applicable

Purchases of Equity Securities by the Issuer and Affiliated
Purchasers

Not Applicable

Change in Registrant's Certifying Accountant

Not Applicable

56

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PART III

Item 17 **Financial Statements

The financial statements and notes thereto as required by Item
17 are attached hereto and found immediately after the text of this Registration
Statement. The auditors report of Dale Matheson Carr-Hilton LaBonte LLP,
independent registered public accountants, on the audited consolidated financial
statements and notes thereto is included immediately preceding the audited
consolidated financial statements.

|Independent Auditors Report.                                                              
|-------------------------------------------------------------------------------------------
|Consolidated Statements of financial position as at
      December 31, 2011 and 2010.      
|Consolidated Statements of Comprehensive Loss as at
      December 31, 2011 and 2010.      
|Consolidated Statements of cash flows for the years ended
      December 31, 2011 and 2010.

Item
18****Financial Statements

Not applicable. See Item 17. Financial Statements above.

Item 19**Exhibits

Exhibits Required by Form 20-F

|Exhibit |                                                                                                                                     
|------- | ------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description                                                                                                                         
|        |                                                                                                                                     
|1.      | Articles
        of Incorporation and By-laws:                                                                                      
|        |                                                                                                                                     
|1.1     | Certificate
        of Incorporation under The Business Companies Act(British Columbia)
        (1)                                 
|        |                                                                                                                                     
|1.2     | Articles of
        Canadian Metals Exploration Limited (the name has now been changed to
        Hard Creek Nickel Corporation) (1)
|        |                                                                                                                                     
|8.      | List of Subsidiaries                                                                                                                
|        |                                                                                                                                     
|8.1     | Canadian Metals
        Exploration Ltd., incorporated under the Canada Business Corporation
        Act (Canada) on July 14, 2004. 
|        |                                                                                                                                     
|12.     | Section 302
        Certifications                                                                                                  
|        |                                                                                                                                     
|12.1    | Section
        302 Certification under Sarbanes-Oxley Act for Mark Jarvis*                                                         
|        |                                                                                                                                     
|12.2    | Section
        302 Certification under Sarbanes-Oxley Act for Brian Fiddler*                                                       
|        |                                                                                                                                     
|13      | Section 906
        Certifications                                                                                                  
|        |                                                                                                                                     
|13.1    | Section
        906 Certifications under Sarbanes-Oxley Act for Mark Jarvis*                                                        
|        |                                                                                                                                     
|13.2    | Section
        906 Certifications under Sarbanes-Oxley Act for Brian Fiddler*                                                      
|        |                                                                                                                                     
|15.     | Additional
        Exhibits                                                                                                         
|        |                                                                                                                                     
|15.1    | Consent
        of Ronald G. Simpson*                                                                                               
|        |                                                                                                                                     
|15.2    | Consent
        of N.C. Carter*                                                                                                     
|        |                                                                                                                                     
|15.3    | Consent
        of Neil Froc*                                                                                                       

57

---

|15.4 | Consent of
        Tony Hitchins*
|---- | ---------------------------------
|     |                                  
|15.5 | Code of Ethics(2)                

*Filed herewith. (1)Previously
submitted with our Registration Statement on Form 20-F filed on November 17,
2006. (2)Previously submitted with our Annual Report Form 20-F filed on
  July 1, 2010.

SIGNATURE

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

HARD CREEK NICKEL CORPORATION

|/s/ Brian Fiddler       | 
|----------------------- | 
|Brian Fiddler           | 
|Chief Financial Officer | 
|Date: May 24, 2012      | 

58

---





Hard Creek Nickel Corp.

Consolidated Financial Statements

Year Ended December 31, 2011



Expressed in Canadian Dollars

****

****

---



INDEPENDENT AUDITORS REPORT

To the Shareholders of Hard Creek Nickel Corp.

We have audited the accompanying consolidated financial
statements of Hard Creek Nickel Corp., which comprise the consolidated
statements of financial position as at December 31, 2011, and 2010 and January
1, 2010, and the consolidated statements of comprehensive loss, changes in
shareholders equity and cash flows for the years then ended, and a summary of
significant accounting policies and other explanatory information.

Management's Responsibility for the Consolidated Financial
Statements

Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal control as
management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to
fraud or error.

Auditors Responsibility

Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors judgment, including
the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
entity's internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the
consolidated financial statements.

We believe that the audit evidence that we have obtained in our
audits is sufficient and appropriate to provide a basis for our audit
opinion.

Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Hard Creek Nickel
Corp. as at December 31, 2011, and 2010 and January 1, 2010, and its financial
performance and its cash flows for the years then ended in accordance with
International Financial Reporting Standards.

Emphasis of Matter

Without modifying our opinion, we draw attention to Note 1 to
the consolidated financial statements which describes matters and conditions
that indicate the existence of a material uncertainty that may cast significant
doubt about Hard Creek Nickel Corp.s ability to continue as a going
concern.

DMCL

DALE MATHESON CARR-HILTON LABONTE LLPCHARTERED
ACCOUNTANTS

Vancouver, Canada March 28, 2012



---

|Hard Creek Nickel Corporation                
|---------------------------------------------
|Consolidated statements of financial position
|(Expressed in
      Canadian dollars)        

|                                           |  |       |  |   | December 31, |   |   | December 31,  |   |   | January 1,    |  
|------------------------------------------ |  | ----- |  | - | ------------ | - | - | ------------- | - | - | ------------- | -
|                                           |  | Notes |  |   |              |   |   | 2010          |   |   | 2010          |  
|                                           |  |       |  |   |              |   |   | **(Note 13)** |   |   | **(Note 13)** |  
|                                           |  |       |  |   |              |   |   |               |   |   |               |  
|ASSETS                                     |  |       |  |   |              |   |   |               |   |   |               |  
|Current assets                             |  |       |  |   |              |   |   |               |   |   |               |  
|Cash and cash equivalents                  |  | 3     |  | $ | 236,530      |   | $ | 3,137,745     |   | $ | 813,736       |  
|Recoverable taxes                          |  | 4     |  |   | 47,134       |   |   | 55,421        |   |   | 21,282        |  
|Other receivable                           |  |       |  |   | -            |   |   | -             |   |   | 1,518         |  
|Prepaid expenses                           |  |       |  |   | 27,625       |   |   | 110,287       |   |   | 38,844        |  
|                                           |  |       |  |   | 311,289      |   |   | 3,303,453     |   |   | 875,380       |  
|Non-current assets                         |  |       |  |   |              |   |   |               |   |   |               |  
|Reclamation deposits                       |  |       |  |   | 337,900      |   |   | 187,900       |   |   | 187,900       |  
|Recoverable taxes                          |  | 4     |  |   | 237,220      |   |   | 108,162       |   |   | 1,301,506     |  
|Property, plant and equipment              |  | 5     |  |   | 44,683       |   |   | 39,959        |   |   | 54,414        |  
|Mineral Property Interests                 |  | 6     |  |   | 179,500      |   |   | 179,500       |   |   | 179,500       |  
|Exploration and evaluation assets          |  | 6     |  |   | 32,144,174   |   |   | 30,223,476    |   |   | 28,321,528    |  
|                                           |  |       |  |   | 32,943,477   |   |   | 30,738,997    |   |   | 30,044,848    |  
|TOTAL ASSETS                               |  |       |  | $ | 33,254,766   |   | $ | 34,042,450    |   | $ | 30,920,228    |  
|                                           |  |       |  |   |              |   |   |               |   |   |               |  
|LIABILITIES                                |  |       |  |   |              |   |   |               |   |   |               |  
|Current liabilities                        |  |       |  |   |              |   |   |               |   |   |               |  
|Trade payables and accrued liabilities     |  | 7     |  | $ | 254,282      |   | $ | 369,013       |   | $ | 285,527       |  
|                                           |  |       |  |   |              |   |   |               |   |   |               |  
|Non-current liabilities                    |  |       |  |   |              |   |   |               |   |   |               |  
|Deferred income
      taxes                |  | 9     |  |   | 382,346      |   |   | 359,894       |   |   | 552,442       |  
|                                           |  |       |  |   |              |   |   |               |   |   |               |  
|TOTAL
      LIABILIITES                    |  |       |  |   | 636,628      |   |   | 728,907       |   |   | 837,969       |  
|                                           |  |       |  |   |              |   |   |               |   |   |               |  
|SHAREHOLDERS EQUITY                       |  |       |  |   |              |   |   |               |   |   |               |  
|Share capital                              |  | 8     |  |   | 47,749,579   |   |   | 47,422,414    |   |   | 43,585,575    |  
|Option reserve                             |  | 8     |  |   | 5,791,977    |   |   | 5,183,894     |   |   | 4,569,349     |  
|Deficit                                    |  |       |  |   | (20,923,418  | ) |   | (19,292,765   | ) |   | (18,072,665   | )
|TOTAL
      SHAREHOLDERS EQUITY           |  |       |  |   | 32,618,138   |   |   | 33,313,543    |   |   | 30,082,259    |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |  |       |  | $ | 33,254,766   |   | $ | 34,042,450    |   | $ | 30,920,228    |  



APPROVED BY:DIRECTOR
    MARK JARVIS
    DIRECTOR
    LYLE DAVIS


|See accompanying notes to the consolidated financial
      statements | 3
|--------------------------------------------------------------------- | -

---

|Hard Creek Nickel Corporation                
|---------------------------------------------
|Consolidated statements of comprehensive loss
|(Expressed in
      Canadian dollars)        

|                                         |  |      |  |   | Years ended  |  
|---------------------------------------- |  | ---- |  | - | ------------ | -
|                                         |  |      |  |   | December 31, |  
|                                         |  | Note |  |   | 2011         |  
|                                         |  |      |  |   |              |  
|                                         |  |      |  |   |              |  
|Expenses                                 |  |      |  |   |              |  
|Amortization                             |  | 5    |  | $ | 12,521       |  
|Consulting                               |  |      |  |   | 16,500       |  
|Director fees                            |  | 10   |  |   | 24,000       |  
|Investor relations                       |  |      |  |   | 265,147      |  
|Legal and audit                          |  |      |  |   | 61,404       |  
|Management fees                          |  | 10   |  |   | 264,000      |  
|Office and general                       |  |      |  |   | 331,953      |  
|Salaries and benefits                    |  |      |  |   | 9,410        |  
|Stock-based compensation                 |  | 8,10 |  |   | 531,004      |  
|Travel and promotion                     |  |      |  |   | 132,716      |  
|                                         |  |      |  |   | 1,648,655    |  
|Other items                              |  |      |  |   |              |  
|Write-down of equipment                  |  | 5    |  |   | -            |  
|Interest income                          |  |      |  |   | (18,024      | )
|                                         |  |      |  |   | (18,024      | )
|                                         |  |      |  |   |              |  
|Loss before income taxes                 |  |      |  |   | 1,630,631    |  
|Deferred income tax expense (recovery)   |  | 9    |  |   | 22           |  
|                                         |  |      |  |   |              |  
|Loss and comprehensive loss for the year |  |      |  | $ | 1,630,653    |  
|                                         |  |      |  |   |              |  
|Loss per share  basic and diluted       |  | 8    |  | $ | (0.02        | )

|See accompanying notes to the consolidated financial
      statements | 4
|--------------------------------------------------------------------- | -

---

|Hard Creek Nickel Corporation                            
|---------------------------------------------------------
|Consolidated statement of changes in shareholders equity
|(Expressed in
      Canadian dollars)                    

|                                                                                             |  |      |  |  | Share capital    |  |   |            |   |   |           |   |   |             |  
|-------------------------------------------------------------------------------------------- |  | ---- |  |  | ---------------- |  | - | ---------- | - | - | --------- | - | - | ----------- | -
|                                                                                             |  |      |  |  |                  |  |   |            |   |   |           |   |   |             |  
|                                                                                             |  |      |  |  |                  |  |   |            |   |   | Option    |   |   |             |  
|                                                                                             |  | Note |  |  | Number of shares |  |   | Amount     |   |   | reserve   |   |   | Deficit     |  
|Balance at January 1, 2010                                                                   |  | 13   |  |  | 60,370,592       |  | $ | 43,585,575 |   | $ | 4,569,349 |   | $ | (18,072,665 | )
|Comprehensive loss:                                                                          |  |      |  |  |                  |  |   |            |   |   |           |   |   |             |  
|Loss for the period                                                                          |  |      |  |  | -                |  |   | -          |   |   | -         |   |   | (1,220,100  | )
|Transactions with owners, in their capacity as owners,
      
     
    and other transfers: |  |      |  |  |                  |  |   |            |   |   |           |   |   |             |  
|Shares issued for cash 
      private placement                                             |  |      |  |  | 14,000,000       |  |   | 3,500,000  |   |   | -         |   |   | -           |  
|Share issue costs, net of tax effect of
      $52,319                                        |  |      |  |  | -                |  |   | (320,041   | ) |   | -         |   |   | -           |  
|Shares issued for cash 
      option exercise                                               |  |      |  |  | 65,000           |  |   | 20,250     |   |   | -         |   |   | -           |  
|Shares issued for cash  warrant exercise                                                    |  |      |  |  | 2,109,460        |  |   | 632,838    |   |   | -         |   |   | -           |  
|Fair value of share options
      allocated to                                               |  |      |  |  |                  |  |   |            |   |   |           |   |   |             |  
|shares issued on exercise                                                                    |  |      |  |  | -                |  |   | 3,792      |   |   | (3,792    | ) |   | -           |  
|Fair value of broker warrants                                                                |  |      |  |  | -                |  |   | -          |   |   | 171,133   |   |   | -           |  
|Stock
      based compensation                                                               |  |      |  |  | -                |  |   | -          |   |   | 447,204   |   |   | -           |  
|Total transactions with owners and other transfers                                           |  |      |  |  | 16,174,460       |  |   | 3,836,839  |   |   | 614,545   |   |   | -           |  
|Balance at
      December 31, 2010                                                           |  |      |  |  | 76,545,052       |  | $ | 47,422,414 |   | $ | 5,183,894 |   | $ | (19,292,765 | )
|                                                                                             |  |      |  |  |                  |  |   |            |   |   |           |   |   |             |  
|Balance at January 1, 2011                                                                   |  | 13   |  |  | 76,545,052       |  | $ | 47,422,414 |   | $ | 5,183,894 |   | $ | (19,292,765 | )
|Comprehensive loss:                                                                          |  |      |  |  |                  |  |   |            |   |   |           |   |   |             |  
|Loss
      for the period                                                                    |  |      |  |  | -                |  |   | -          |   |   | -         |   |   | (1,630,653  | )
|Transactions with owners, in their capacity
      as owners, 
     
    and other transfers: |  |      |  |  |                  |  |   |            |   |   |           |   |   |             |  
|Shares issued for cash  warrant exercise                                                    |  |      |  |  | 785,108          |  |   | 310,333    |   |   | -         |   |   | -           |  
|Fair value of broker warrants
      allocated to      shares issued on exercise              |  |      |  |  | -                |  |   | 16,832     |   |   | (16,832   | ) |   | -           |  
|Stock-based compensation                                                                     |  |      |  |  | -                |  |   | -          |   |   | 624,915   |   |   | -           |  
|Total transactions with owners and other transfers                                           |  |      |  |  | 785,108          |  |   | 327,165    |   |   | 608,083   |   |   | -           |  
|Balance at
      December 31, 2011                                                           |  |      |  |  | 77,330,160       |  | $ | 47,749,579 |   | $ | 5,791,977 |   | $ | (20,923,418 | )

|See accompanying notes to the consolidated financial
      statements | 5
|--------------------------------------------------------------------- | -

---

|Hard Creek Nickel Corporation        
|-------------------------------------
|Consolidated statements of cash flows
|(Expressed in
      Canadian dollars)

|                                                                       |   | Years ended  |  
|---------------------------------------------------------------------- | - | ------------ | -
|                                                                       |   |              |  
|                                                                       |   | December 31, |  
|                                                                       |   | 2011         |  
|                                                                       |   |              |  
|Operating activities                                                   |   |              |  
|Comprehensive loss for the year                                        | $ | (1,630,653   | )
|Adjustments for non-cash items:                                        |   |              |  
|Amortization                                                           |   | 12,521       |  
|Stock-based compensation                                               |   | 531,004      |  
|Deferred income taxes                                                  |   | 22           |  
|Deduct interest income relating to
      investing activities          |   | (18,024      | )
|Changes in non-cash working capital items:                             |   |              |  
|Recoverable taxes                                                      |   | 8,287        |  
|Miscellaneous receivable                                               |   | -            |  
|Prepaid expenses                                                       |   | 82,662       |  
|Trade
      payables and accrued liabilities                           |   | (146,290     | )
|Net cash flows used in operating activities                            |   | (1,160,471   | )
|                                                                       |   |              |  
|Investing activities                                                   |   |              |  
|Expenditures on deferred exploration costs                             |   | (1,772,798   | )
|Mining tax credits                                                     |   | (129,058     | )
|Reclamation deposits                                                   |   | (150,000     | )
|Expenditures on property, plant and
      equipment                    |   | (17,245      | )
|Interest income                                                        |   | 18,024       |  
|Net cash flows used in investing activities                            |   | (2,051,077   | )
|                                                                       |   |              |  
|Financing activities                                                   |   |              |  
|Proceeds on
      issuance of common shares - net of share issue costs |   | 310,333      |  
|Net cash flows from financing activities                               |   | 310,333      |  
|Increase (decrease) in cash and cash equivalents                       |   | (2,901,215   | )
|Cash and cash equivalents, beginning                                   |   | 3,137,745    |  
|                                                                       |   |              |  
|Cash and cash equivalents, ending                                      | $ | 236,530      |  

|See accompanying notes to the consolidated financial
      statements | 6
|--------------------------------------------------------------------- | -

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|1. | Nature and continuance of operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Hard Creek Nickel Corporation (the Company) was
      incorporated on January 17, 1983, under the laws of the province of
      British Columbia, Canada, and its principal activity is the acquisition
      and exploration of mineral properties in Canada. The Companys common
      shares are listed for trading on the Toronto Stock Exchange (TSX) under
      the symbol HNC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The head office, principal address and records office of
      the Company are located at 1090 West Georgia Street, Suite 1060,
      Vancouver, British Columbia, Canada, V6E 3V7. The Companys registered
      address is 885 West Georgia Street, Suite 800, Vancouver, British
      Columbia, Canada, V6C 3H1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | These consolidated financial statements have been
      prepared on the assumption that the Company and its subsidiary will
      continue as a going concern, meaning it will continue in operation for the
      foreseeable future and will be able to realize assets and discharge
      liabilities in the ordinary course of operations. As at December 31, 2011
      the Company had not advanced its mineral properties to commercial
      production and is not able to finance day to day activities through
      operations. The Companys continuation as a going concern is dependent
      upon the successful results from its mineral property exploration
      activities and its ability to attain profitable operations and generate
      funds there from and/or raise equity capital or borrowings sufficient to
      meet current and future obligations. Management intends to finance
      operating costs over the next twelve months using existing cash, exercise
      of share purchase warrants and or private placement of common
    shares.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|2. | Significant accounting policies and basis of
      preparation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The financial statements were authorized for issue on
      March 28, 2012 by the directors of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Statement of compliance and conversion to
      International Financial Reporting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The consolidated financial statements of the Company
      comply with International Financial Reporting Standards (IFRS) as issued
      by the International Accounting Standards Board (IASB) and
      interpretations of the International Financial Reporting Interpretations
      Committee (IFRIC).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | These are the Companys first set of annual financial
      statements prepared in accordance with IFRS. The disclosures concerning
      the transition from pre-changeover Canadian Generally Accepted Accounting
      Principles (Canadian GAAP) to IFRS are provided in Note 13.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Basis of preparation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The consolidated financial statements of the Company have
      been prepared on an accrual basis and are based on historical costs,
      modified where applicable. The consolidated financial statements are
      presented in Canadian dollars unless otherwise noted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The consolidated financial statements include the
      accounts of the Company and and its wholly owned subsidiary, Canadian
      Metals Exploration Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Inter-company balances and transactions, including
      unrealized income and expenses arising from inter- company transactions,
      are eliminated on consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

7

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|2. | Significant accounting policies and basis of
      preparation(contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Significant accounting judgments, estimates and
      assumptions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The preparation of the Companys consolidated financial
      statements in conformity with IFRS requires management to make judgments,
      estimates and assumptions that affect the reported amounts of assets,
      liabilities and contingent liabilities at the date of the consolidated
      financial statements and reported amounts of revenues and expenses during
      the reporting period. Estimates and assumptions are continuously evaluated
      and are based on managements experience and other factors, including
      expectations of future events that are believed to be reasonable under the
      circumstances. However, actual outcomes can differ from these
      estimates.                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Areas requiring a significant degree of estimation and
      judgment relate to the determination of the useful lives of property,
      plant and equipment, the recoverability of the carrying value of
      exploration and evaluation assets, fair value measurements for financial
      instruments and stock-based compensation and other equity-based payments,
      the recognition and valuation of provisions for restoration and
      environmental liabilities, qualifying expenditures for refundable and
      non-refundable tax credits, timing of receipt of refundable tax credits,
      and the recoverability and measurement of deferred tax assets and
      liabilities. Actual results may differ from those estimates and
      judgments.                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Exploration and evaluation
    expenditures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Exploration and evaluation expenditures include the costs
      of acquiring licenses, costs associated with exploration and evaluation
      activity, and the fair value (at acquisition date) of exploration and
      evaluation assets acquired in a business combination. Exploration and
      evaluation expenditures are capitalized. Costs incurred before the Company
      has obtained the legal rights to explore an area are recognized in profit
      or loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Government tax credits received are recorded as a
      reduction to the cumulative costs incurred and capitalized on the related
      property.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Exploration and evaluation assets are assessed for
      impairment if (i) sufficient data exists to determine technical
      feasibility and commercial viability, and (ii) facts and circumstances
      suggest that the carrying amount exceeds the recoverable amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Once the technical feasibility and commercial viability
      of the extraction of mineral resources in an area of interest are
      demonstrable, exploration and evaluation assets attributable to that area
      of interest are first tested for impairment and then reclassified to
      mining property and development assets within property, plant and
      equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Recoverability of the carrying amount of any exploration
      and evaluation assets is dependent on successful development and
      commercial exploitation, or alternatively, sale of the respective areas of
      interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Share-based payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Company operates an employee and a non-employee stock
      option plan. Share-based payments to employees are measured at the fair
      value of the instruments issued and amortized over the vesting periods.
      Share-based payments to non-employees are measured at the fair value of
      goods or services received or the fair value of the equity instruments
      issued, if it is determined the fair value of the goods or services cannot
      be reliably measured, and are recorded at the date the goods or services
      are received. The corresponding amount is recorded to the option reserve.
      The fair value of options is determined using a BlackScholes pricing
      model which incorporates all market vesting conditions. The number of
      shares and options expected to vest is reviewed and adjusted at the end of
      each reporting period such that the amount recognized for services
      received as consideration for the equity instruments granted shall be
      based on the number of equity instruments that eventually
  vest.

8

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|2. | Significant accounting policies and basis of
      preparation(contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Company classifies its financial instruments in the
      following categories: fair value through profit or loss, loans and
      receivables, held-to-maturity investments, available-for-sale and
      financial liabilities. The classification depends on the purpose for which
      the financial instruments were acquired. Management determines the
      classification of its financial instruments at initial
  recognition.                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Financial assets are classified as fair value through
      profit or loss when they are either held for trading for the purpose of
      short-term profit taking, derivatives not held for hedging purposes, or
      when they are designated as such to avoid an accounting mismatch or to
      enable performance evaluation where a group of financial assets is managed
      by key management personnel on a fair value basis in accordance with a
      documented risk management or investment strategy. Such assets are
      subsequently measured at fair value with changes in carrying value being
      included in profit or loss.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Loans and receivables are non-derivative financial assets
      with fixed or determinable payments that are not quoted in an active
      market and are subsequently measured at amortized cost. They are included
      in current assets, except for maturities greater than 12 months after the
      end of the reporting period. These are classified as non-current
      assets.                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Held-to-maturity investments are non-derivative financial
      assets that have fixed maturities and fixed or determinable payments, and
      it is the Companys intention to hold these investments to maturity. They
      are subsequently measured at amortized cost. Held-to-maturity investments
      are included in non-current assets, except for those which are expected to
      mature within 12 months after the end of the reporting period.                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Available-for-sale financial assets are non-derivative
      financial assets that are designated as available-for-sale or are not
      suitable to be classified as financial assets at fair value through profit
      or loss, loans and receivables or held-to-maturity investments and are
      subsequently measured at fair value. These are included in current assets.
      Unrealized gains and losses are recognized in other comprehensive income,
      except for impairment losses and foreign exchange gains and
  losses.                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Non-derivative financial liabilities (excluding financial
      guarantees) are subsequently measured at amortized cost.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Regular purchases and sales of financial assets are
      recognized on the trade-date  the date on which the Company commits to
      purchase the asset.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Financial assets are derecognized when the rights to
      receive cash flows from the investments have expired or have been
      transferred and the Company has transferred substantially all risks and
      rewards of ownership.                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | At each reporting date, the Company assesses whether
      there is objective evidence that a financial instrument has been impaired.
      In the case of available-for-sale financial instruments, a significant and
      prolonged decline in the value of the instrument is considered to
      determine whether an impairment has arisen.                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Company does not have any derivative financial assets
      and liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

9

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|2. | Significant accounting policies and basis of
      preparation(contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Impairment of assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The carrying amount of the Companys long-lived assets
      (which include property, plant and equipment and exploration and
      evaluation assets) is reviewed at each reporting date to determine whether
      there is any indication of impairment. If such indication exists, the
      recoverable amount of the asset is estimated in order to determine the
      extent of the impairment loss. An impairment loss is recognized whenever
      the carrying amount of an asset or its cash generating unit exceeds its
      recoverable amount. Impairment losses are included in the determination of
      net loss.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The recoverable amount of assets is the greater of an
      assets fair value less cost to sell and value in use. In assessing value
      in use, the estimated future cash flows are discounted to their present
      value using a pre-tax discount rate that reflects the current market
      assessments of the time value of money and the risks specific to the
      asset. For an asset that does not generate cash inflows largely
      independent of those from other assets, the recoverable amount is
      determined for the cash-generating unit to which the asset
  belongs.                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | An impairment loss is only reversed if there is an
      indication that the impairment loss may no longer exist and there has been
      a change in the estimates used to determine the recoverable amount,
      however, not to an amount higher than the carrying amount that would have
      been determined had no impairment loss been recognized in previous
      years.                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Assets that have an indefinite useful life are not
      subject to amortization and are tested annually for impairment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Cash and cash equivalents include cash on hand, deposits
      held at call with banks and other short-term highly liquid investments
      with original maturities of three months or less.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Current income tax:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Current income tax assets and liabilities for the current
      period are measured at the amount expected to be recovered from or paid to
      the Canadian taxation authorities. The tax rates and tax laws used to
      compute the amount are those that are enacted or substantively enacted, at
      the reporting date.                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Current income tax relating to items recognized directly
      in other comprehensive income or equity is recognized in other
      comprehensive income or equity and not in profit or loss. Management
      periodically evaluates positions taken in the tax returns with respect to
      situations in which applicable tax regulations are subject to
      interpretation and establishes provisions where appropriate.                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Deferred income tax:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Deferred income tax is provided using the balance sheet
      method on temporary differences at the reporting date between the tax
      bases of assets and liabilities and their carrying amounts for financial
      reporting purposes.                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The carrying amount of deferred income tax assets is
      reviewed at the end of each reporting period and recognized only to the
      extent that it is probable that sufficient taxable profit will be
      available to allow all or part of the deferred income tax asset to be
      utilized.                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Deferred income tax assets and liabilities are measured
      at the tax rates that are expected to apply to the year when the asset is
      realized or the liability is settled, based on tax rates (and tax laws)
      that have been enacted or substantively enacted by the end of the
      reporting period.                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Deferred income tax assets and deferred income tax
      liabilities are offset, if a legally enforceable right exists to set off
      current tax assets against current income tax liabilities and the deferred
      income taxes relate to the same taxable entity and the same taxation
      authority.                                                                                                                                                                                                                                                                                                                       

10

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|2. | Significant accounting policies and basis of
      preparation(contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Flow-through shares:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Any premium received by the Company on the issuance of
      flow-through shares is initially recorded as a liability (flow-through
      tax liability) and included in trade payables and accrued liabilities.
      Upon renouncement by the Company of the tax benefits associated with the
      related expenditures, a deferred tax liability is recognized and the
      flow-through tax liability will be reversed. To the extent that suitable
      deferred tax assets are available, the Company will reduce the deferred
      tax liability and record a deferred tax recovery.                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Restoration and environmental
      obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The Company recognizes liabilities for statutory,
      contractual, constructive or legal obligations associated with the
      retirement of long-term assets, when those obligations result from the
      acquisition, construction, development or normal operation of the assets.
      The net present value of future restoration cost estimates arising from
      the decommissioning of plant and other site preparation work is
      capitalized to exploration and evaluation assets along with a
      corresponding increase in the restoration provision in the period
      incurred. Discount rates using a pre-tax rate that reflect the time value
      of money are used to calculate the net present value. The restoration
      asset will be depreciated on the same basis as other mining
  assets.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The Companys estimates of restoration costs could change
      as a result of changes in regulatory requirements, discount rates and
      assumptions regarding the amount and timing of the future expenditures.
      These changes are recorded directly to mining assets with a corresponding
      entry to the restoration provision. The Companys estimates are reviewed
      annually for changes in regulatory requirements, discount rates, effects
      of inflation and changes in estimates.                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Changes in the net present value, excluding changes in
      the Companys estimates of reclamation costs, are charged to profit and
      loss for the period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The net present value of restoration costs arising from
      subsequent site damage that is incurred on an ongoing basis during
      production are charged to profit or loss in the period incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The costs of restoration projects that were included in
      the provision are recorded against the provision as incurred. The costs to
      prevent and control environmental impacts at specific properties are
      capitalized in accordance with the Companys accounting policy for
      exploration and evaluation assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The net present value of restoration costs arising from
      subsequent site damage that is incurred on an ongoing basis during
      production are charged to profit or loss in the period incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The costs of restoration projects that were included in
      the provision are recorded against the provision as incurred. The costs to
      prevent and control environmental impacts at specific properties are
      capitalized in accordance with the Companys accounting policy for
      exploration and evaluation assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | At December 31, 2011 and December 31, 2010, the Company
      had no material restoration and environmental obligations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Property, plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Property, plant and equipment are stated at historical
      cost less accumulated depreciation and accumulated impairment
    losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Subsequent costs are included in the assets carrying
      amount or recognized as a separate asset, as appropriate, only when it is
      probable that future economic benefits associated with the item will flow
      to the Company and the cost of the item can be measured reliably. The
      carrying amount of the replaced part is derecognized. All other repairs
      and maintenance are charged to the statement of income and comprehensive
      income during the financial period in which they are incurred.                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Gains and losses on disposals are determined by comparing
      the proceeds with the carrying amount and are recognized in profit or
      loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

11

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|2. | Significant accounting policies and basis of
      preparation(contd)                                                                                                                                                                                                                                             
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                    
|   | Property, plant and equipment(contd)                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                    
|   | Depreciation and amortization are calculated on a
      straight-line method to write off the cost of the assets to their residual
      values over their estimated useful lives. The depreciation and
      amortization rates applicable to each category of property, plant and
      equipment are as follows:

| | Class of property, plant and equipment | Depreciation rate    
| | -------------------------------------- | ---------------------
| | Motor vehicles                         | 30% declining balance
| | Computer equipment                     | 30% declining balance
| | Exploration and office equipment       | 20% declining balance

|   | Accounting standards issued but not yet
      effective:                                                                                                                                                                                                                                                                              
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                       
|   | Amendments to IFRS 7 Financial Instruments:
      Disclosures                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                       
|   | This amendment increases the disclosure required
      regarding the transfer of financial assets, especially if there is a
      disproportionate amount of transfer transactions that take place around
      the end of a reporting period. This amendment is effective for annual
      periods beginning on or after July 1, 2011
|   |                                                                                                                                                                                                                                                                                                                                       
|   | New standard IFRS 9 Financial
      Instruments                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                       
|   | This new standard is a partial replacement of IAS 39
      Financial Instruments: Recognition and Measurement. This new standard is
      effective for annual periods beginning on or after January 1,
  2013.                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                       
|   | New standard IFRS 10 Consolidated Financial
      Statements and IFRS 12 Disclosure of Interests in Other
      Entities                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                       
|   | These new standards are replacements of IAS 27
      Consolidated and Separate Financial Statements and SIC -12
      Consolidation  Special Purpose Entities. These new standards are
      effective for annual periods beginning on or after January 1,
  2013.                                                               
|   |                                                                                                                                                                                                                                                                                                                                       
|   | The Company has not early adopted these revised standards
      and is currently assessing the impact that these standards will have on
      the consolidated financial statements.                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                       
|3. | Cash and cash equivalents                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                       
|   | The components of cash and cash equivalents are as
      follows:                                                                                                                                                                                                                                                                     

| |                                          |   |              |  |   |              | 
| | ---------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                          |   | December 31, |  |   | December 31, | 
| |                                          |   | 2011         |  |   | 2010         | 
| | Cash at bank                             | $ | 236,530      |  | $ | 536,959      | 
| | Guaranteed
      investment certificates |   | -            |  |   | 2,600,786    | 
| |                                          | $ | 236,530      |  | $ | 3,137,745    | 

|4. | Recoverable taxes
|-- | -----------------

| |                    |   |              |  |   |              | 
| | ------------------ | - | ------------ |  | - | ------------ | 
| |                    |   | December 31, |  |   | December 31, | 
| |                    |   | 2011         |  |   | 2010         | 
| | Recoverable taxes  | $ | 47,134       |  | $ | 55,421       | 
| | Mining tax credits |   | 237,220      |  |   | 108,162      | 
| |                    | $ | 284,354      |  | $ | 163,583      | 

12

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|5. | Property, plant and
equipment
|-- | -----------------------------

| |                            |   |          |  |   |           |  |   |             |  |   |         | 
| | -------------------------- | - | -------- |  | - | --------- |  | - | ----------- |  | - | ------- | 
| |                            |   |          |  |   |           |  |   | Exploration |  |   |         | 
| |                            |   | Motor    |  |   | Computer  |  |   | and office  |  |   |         | 
| |                            |   | vehicles |  |   | equipment |  |   | equipment   |  |   | Total   | 
| | Cost:                      |   |          |  |   |           |  |   |             |  |   |         | 
| | At December 31, 2010       | $ | 30,230   |  | $ | 19,359    |  | $ | 54,189      |  | $ | 103,778 | 
| | Additions                  |   | -        |  |   | 9,450     |  |   | 7,795       |  |   | 17,245  | 
| | Disposals                  |   | -        |  |   | -         |  |   | -           |  |   | -       | 
| | At
      December 31, 2011 |   | 30,230   |  |   | 28,809    |  |   | 61,984      |  |   | 121,023 | 
| | Depreciation:              |   |          |  |   |           |  |   |             |  |   |         | 
| | At December 31, 2010       |   | 21,066   |  |   | 11,696    |  |   | 31,057      |  |   | 63,819  | 
| | Charge for the period      |   | 2,749    |  |   | 3,961     |  |   | 5,811       |  |   | 12,521  | 
| | Eliminated on disposal     |   | -        |  |   | -         |  |   | -           |  |   | -       | 
| | At December 31,
      2011 |   | 23,815   |  |   | 15,657    |  |   | 36,868      |  |   | 76,340  | 
| | Net book value:            |   |          |  |   |           |  |   |             |  |   |         | 
| | At December
      31, 2011 | $ | 6,415    |  | $ | 13,152    |  | $ | 25,116      |  | $ | 44,683  | 
| |                            |   |          |  |   |           |  |   |             |  |   |         | 
| |                            |   |          |  |   |           |  |   | Exploration |  |   |         | 
| |                            |   | Motor    |  |   | Computer  |  |   | and office  |  |   |         | 
| |                            |   | vehicles |  |   | equipment |  |   | equipment   |  |   | Total   | 
| | Cost:                      |   |          |  |   |           |  |   |             |  |   |         | 
| | At January 1, 2010         | $ | 30,230   |  | $ | 16,583    |  | $ | 52,964      |  | $ | 99,777  | 
| | Additions                  |   | -        |  |   | 2,776     |  |   | 1,225       |  |   | 4,001   | 
| | At
      December 31, 2010 |   | 30,230   |  |   | 19,359    |  |   | 54,189      |  |   | 103,778 | 
| | Depreciation:              |   |          |  |   |           |  |   |             |  |   |         | 
| | At January 1, 2010         |   | 17,139   |  |   | 6,695     |  |   | 21,529      |  |   | 45,363  | 
| | Charge for the period      |   | 3,927    |  |   | 3,216     |  |   | 6,582       |  |   | 13,725  | 
| | Eliminated on disposal     |   | -        |  |   | 1,785     |  |   | 2,946       |  |   | 4,731   | 
| | At December 31,
      2010 |   | 21,066   |  |   | 11,696    |  |   | 31,057      |  |   | 63,819  | 
| | Net book value:            |   |          |  |   |           |  |   |             |  |   |         | 
| | At December
      31, 2010 | $ | 9,164    |  | $ | 7,663     |  | $ | 23,132      |  | $ | 39,959  | 

13

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|6. | Exploration and evaluation assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Company has a 100% interest in certain mineral
      claims, located along the Turnagain River in British Columbia, Canada. One
      claim is subject to a 4% net smelter return royalty (NSR). The Company
      has the option to purchase all or part of the NSR within four years of
      commercial production for a price of $1,000,000 per 1% NSR.                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | During the year ended December 31, 2011, the Company
      incurred costs totalling $2,025,652 (2010 - $1,952,837) on the Turnagain
      mineral claims.                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Company also has a 100% interest in other mineral
      properties in British Columbia including the Dease Lime, Wheaton Lime,
      Eagle Lime, Sawtooth, Sabu, and Lenore properties.                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | In July 2009, the Company acquired, by staking, the Dease
      Lime property located east of the town of Dease Lake. There was no work
      completed on this property during 2011 (2010 - $Nil). Subsequent to
      December 31, 2011, the claims were lapsed without renewal.                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | In November 2009, the Company acquired, by staking, the
      Wheaton Lime property located southwest of the Turnagain property. There
      was no work completed on this property during 2011 (2010 -
$Nil).                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | In October 2010, the Company acquired by staking, the
      Eagle Lime property. The property is located west of the Turnagain
      property and covers part of the older Lime 2 claim previously owned by the
      Company. There was no work completed on this property during 2011 (2010 -
      $Nil).                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | In October 2010, the Company acquired, by staking, the
      Sawtooth and Sabu properties located northeast of Smithers, British
      Columbia. During the year ended December 31, 2011, the Company spent
      $1,503 (2010 - $Nil).
      In May 2011, the Company acquired, by staking, the
        Lenore property located 30 km south of the town of Dease Lake. Preliminary
        reconnaissance prospecting was carried out in July on this property,
        during the year ended December 31, 2011 the Company spent $171 (2010 -
    $Nil).

14

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|6. | Exploration and evaluation assets(cont'd)                     
|-- | --------------------------------------------------------------
|   |                                                               
|   | The Companys deferred exploration costs are as
      follows:

Balance, December 31,
    
    
    
    
    
    Balance, December 31,
    
    
    
    
    
    Balance, December 31,Expenditures
    
    
    
    
    
    Expenditures2009
    
    
    2010
    
    
    2010
    
    
    2011
    
    
    2011Assays and testing
    $
    2,009,806
    
    $
    9,949
    
    $
    2,019,755
    
    $
    27,439
    
    $
    2,047,194Claims renewal /Staking
    
    421,520
    
    
    12,187
    
    
    433,707
    
    
    7,255
    
    
    440,962Drilling
    
    12,427,107
    
    
    61,860
    
    
    12,488,967
    
    
    -
    
    
    12,488,967Environmental studies
    
    1,141,257
    
    
    40,536
    
    
    1,181,793
    
    
    74,658
    
    
    1,256,451Exploration data management
    
    886,809
    
    
    11,725
    
    
    898,534
    
    
    14,000
    
    
    912,534First Nations
    
    94,944
    
    
    71,500
    
    
    166,444
    
    
    -
    
    
    166,444Geochemistry
    
    100,980
    
    
    -
    
    
    100,980
    
    
    9,225
    
    
    110,205Geological services
    
    6,536,850
    
    
    859,396
    
    
    7,396,246
    
    
    1,003,073
    
    
    8,399,319Geophysical services
    
    702,083
    
    
    -
    
    
    702,083
    
    
    38,303
    
    
    740,386Metallurgy
    
    2,448,707
    
    
    683,910
    
    
    3,132,617
    
    
    540,829
    
    
    3,673,446Petrographic work
    
    43,957
    
    
    -
    
    
    43,957
    
    
    -
    
    
    43,957Project management
    
    106,015
    
    
    -
    
    
    106,015
    
    
    -
    
    
    106,015Survey, mapping and camp
    
    1,243,252
    
    
    79,150
    
    
    1,322,402
    
    
    186,724
    
    
    1,509,126Transportation
    
    2,331,270
    
    
    122,624
    
    
    2,453,894
    
    
    125,820
    
    
    2,579,714Property impairment
    
    (119,347
    )
    
    -
    
    
    (119,347
    )
    
    -
    
    
    (119,347
    )BC refundable mining tax credits
    
    (1,629,110
    )
    
    (108,162
    )
    
    (1,737,272
    )
    
    (129,058
    )
    
    (1,866,330
  )Federal non-refundable mining tax credits, net of valuation
      allowance
    
    (424,572
    )
    
    57,273
    
    
    (367,299
    )
    
    22,430
    
    
    (344,869
  )$
    28,321,528
    
    $
    1,901,948
    
    $
    30,223,476
    
    $
    1,920,698
    
    $
    32,144,174


15

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|7. | Trade payables and accrued
  liabilities
|-- | ----------------------------------------

| |                                          |   |              |  |   |              | 
| | ---------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                          |   | December 31, |  |   | December 31, | 
| |                                          |   | 2011         |  |   | 2010         | 
| | Trade payables                           | $ | 151,784      |  | $ | 333,790      | 
| | Amounts due to related parties (Note 10) |   | 4,500        |  |   | -            | 
| | Accrued liabilities                      |   | 97,998       |  |   | 35,223       | 
| |                                          | $ | 254,282      |  | $ | 369,013      | 

|8. | Share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Authorized share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Unlimited number of common shares without par
    value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Issued share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | At December 31, 2011 there were 77,330,160 issued and
      fully paid common shares (December 31, 2010  76,545,052).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Share issuances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | During the year ended December 31, 2010, the Company
      completed a private placement for 4,000,000 units at a price of $0.25 per
      unit for gross proceeds of $1,000,000. As part of this private placement,
      the Company incurred other share issue costs of $5,196 for filing fees.
      Each unit consists of one common share and one half of a share purchase
      warrant. One full warrant is exercisable into one common share at $0.40
      per share for a period of one year. The Company did not separately value
      the warrants issued as part of this private placement. As consideration
      for their services under the private placement, the agents received a cash
      commission of $57,000 and 228,000 share purchase warrants valued at
      $59,406. These costs were offset against the gross proceeds. The agents
      warrants are exercisable into one common share at $0.40 for one
    year.      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | During the year ended December 31, 2010, the Company
      completed a private placement for 10,000,000 units at a price of $0.25 per
      unit for gross proceeds of $2,500,000. As part of this private placement,
      the Company incurred other share issue costs of $10,031 for filing fees.
      Each unit consists of one common share and one half of a share purchase
      warrant. One full warrant is exercisable into one common share at $0.33
      per share for a period of two years. The Company did not separately value
      the warrants issued as part of this private placement. As consideration
      for their services under the private placement, the agents received a cash
      commission of $129,000 and 516,000 share purchase warrants valued at
      $111,727. These costs were offset against the gross proceeds. The agents
      warrants are exercisable into one common share at $0.33 for two
    years.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Basic and diluted loss per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The calculation of basic and diluted loss per share for
      the year ended December 31, 2011 was based on the loss attributable to
      common shareholders of $1,630,653 (December 31, 2010 - $1,220,100) and the
      weighted average number of common shares outstanding of 77,161,144
      (December 31, 2010  64,947,151).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Diluted loss per share did not include the effect of
      7,499,500 stock options and 5,463,000 share purchase warrants as the
      effect would be anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

16

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|8. | Share capital(cont'd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Company has adopted an incentive stock option plan,
      which provides that the Board of Directors of the Company may from time to
      time, in its discretion, and in accordance with the Exchange requirements,
      grant to directors, officers, employees and technical consultants to the
      Company, non-transferable stock options to purchase common shares,
      provided that the number of common shares reserved for issuance will not
      exceed 10% of the Companys issued and outstanding common shares. Such
      options will be exercisable for a period of up to 5 years from the date of
      grant. In connection with the foregoing, the number of common shares
      reserved for issuance to any one optionee will not exceed five percent
      (5%) of the issued and outstanding common shares and the number of common
      shares reserved for issuance to all investor relations and technical
      consultants will not exceed two percent (2%) of the issued and outstanding
      common shares. Options may be exercised no later than 90 days following
      cessation of the optionees position with the Company or 30 days following
      cessation of an optionee conducting investor relations activities
      position.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | If no vesting schedule is specified at the time of grant,
      the options will vest 25% each anniversary of the date of grant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The changes in options during the year ended December 31,
      2011 and the year ended December 31, 2010 are as
follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| |                                        |  |                   |   |   |                   | 
| | -------------------------------------- |  | ----------------- | - | - | ----------------- | 
| |                                        |  | December 31, 2011 |   |   | December 31, 2010 | 
| |                                        |  |                   |   |   | Weighted          | 
| |                                        |  |                   |   |   | average           | 
| |                                        |  | Number of         |   |   | exercise          | 
| |                                        |  | options           |   |   | price             | 
| | Options outstanding, beginning of year |  | 6,617,500         |   | $ | 0.53              | 
| | Options granted                        |  | 2,172,000         |   |   | 0.47              | 
| | Options exercised                      |  | -                 |   |   | -                 | 
| | Options expired                        |  | (935,000          | ) |   | 0.73              | 
| | Options forfeited                      |  | (355,000          | ) |   | 1.00              | 
| | Options
      outstanding, end of year |  | 7,499,500         |   | $ | 0.47              | 
| |                                        |  |                   |   |   |                   | 
| | Options
      exercisable, end of year |  | 7,449,500         |   | $ | 0.47              | 

Details of options outstanding as at
December 31, 2011 are as follows:

| |   |                  |  |                  |  |  |                   | 
| | - | ---------------- |  | ---------------- |  |  | ----------------- | 
| |   | Weighted average |  | Weighted average |  |  | Number of options | 
| |   | exercise price   |  | contractual life |  |  | outstanding       | 
| | $ | 0.30 - $0.50     |  | 2.77 years       |  |  | 6,757,000         | 
| | $ | 0.51 - $1.00     |  | 0.13 years       |  |  | 675,000           | 
| | $ | 1.01 - $3.00     |  | 0.01 years       |  |  | 67,500            | 
| |   | $0.47            |  | 2.91
      years |  |  | 7,499,500         | 

17

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|8. | Share capital(cont'd)                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Stock options(contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The weighted average grant date fair value of options
      granted during the year ended December 31, 2011 was $0.31 (year ended
      December 31, 2010 - $0.22). During the year ended December 31, 2011, the
      Company capitalized $93,911 (year ended December 31, 2010 - $82,059) to
      exploration and evaluation assets. The fair value was determined using the
      Black-Scholes option pricing model using the following weighted average
      assumptions:

| |                          |  |               |  |  |               | 
| | ------------------------ |  | ------------- |  |  | ------------- | 
| |                          |  | Year ended    |  |  | Year ended    | 
| |                          |  | December 31,  |  |  | December 31,  | 
| |                          |  | 2011          |  |  | 2010          | 
| | Expected life of options |  | 3 - 5 years   |  |  | 2 - 5 years   | 
| | Annualized volatility    |  | 117% - 122%   |  |  | 101% - 126%   | 
| | Risk-free interest rate  |  | 1.64% - 2.28% |  |  | 1.89% - 2.82% | 
| | Dividend yield           |  | 0%            |  |  | 0%            | 

Share purchase
warrants

The changes in share purchase warrants
during the year ended December 31, 2011 and the year ended December 31, 2010 are
as follows:

| |                                |  |                   |   |   |                   | 
| | ------------------------------ |  | ----------------- | - | - | ----------------- | 
| |                                |  | December 31, 2011 |   |   | December 31, 2010 | 
| |                                |  |                   |   |   | Weighted          | 
| |                                |  |                   |   |   | average           | 
| |                                |  | Number of         |   |   | exercise          | 
| |                                |  | warrants          |   |   | price             | 
| | Outstanding, beginning of year |  | 7,744,000         |   | $ | 0.35              | 
| | Issued                         |  | -                 |   |   | -                 | 
| | Exercised                      |  | (785,108          | ) |   | 0.40              | 
| | Expired                        |  | (1,495,892        | ) |   | 0.40              | 
| | Outstanding, end of year       |  | 5,463,000         |   | $ | 0.33              | 

Details of share purchase warrants
outstanding as at December 31, 2011 are as follows:

| |   |                  |  |  |                   |  |  |                    | 
| | - | ---------------- |  |  | ----------------- |  |  | ------------------ | 
| |   | Weighted average |  |  |                   |  |  | Number of warrants | 
| |   | exercise price   |  |  | Expiry Date       |  |  | outstanding        | 
| | $ | 0.33             |  |  | December 20, 2012 |  |  | 5,463,000          | 
| | $ | 0.33             |  |  |                   |  |  | 5,463,000          | 

In the event the common shares of the
Company close for 20 consecutive trading days at an average price of $0.60 cents
or above, the Company shall have the right to require the conversion of
5,463,000 warrants at the exercise price of $0.33. Conversion will be required
within 10 working days of issuance of the notice of forced conversion. Any
warrants that remain unexercised will expire 10 days after issuance of notice by
the Company.

Option reserve

The option reserve records items
recognized as stock-based compensation expense and the fair value recorded for
broker warrants issued until such time that the stock options or warrants are
exercised, at which time the corresponding amount will be transferred to share
capital.

18

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|9. | Income taxes and mining tax credits                                                                                                                                                                                                                                                                                        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                            
|   | The actual income tax provision differs from the expected
      amounts calculated by applying the Canadian combined statutory federal and
      provincial corporate income tax rates to the Companys loss before income
      taxes. The components are as follows for the years ended December 31, 2011
      and 2010.

| |                                                     |   |                   |   |       |                   |      
| | --------------------------------------------------- | - | ----------------- | - | ----- | ----------------- | -----
| |                                                     |   | Year ended        |   |       | Year ended        |      
| |                                                     |   | December 31, 2011 |   |       | December 31, 2010 |      
| |                                                     |   |                   |   |       |                   |      
| | Loss before income taxes                            | $ | (1,630,631        | ) | $     | (1,417,602        | )    
| | Statutory
      income tax rate                     |   | 26.5%             |   |       | 28.5%             |      
| |                                                     |   |                   |   |       |                   |      
| | Expected tax recovery at the statutory tax rate     |   | (432,117          | ) |       | (404,017          | )    
| | Increase (decrease) resulting from:                 |   |                   |   |       |                   |      
| | Expired non-capital operating
      losses          |   | 177,920           |   |       | 191,348           |      
| | Stock-based
      compensation                      |   | 140,716           |   |       | 104,066           |      
| | Changes in tax rates                                |   | 9,054             |   |       | 9,417             |      
| | Other adjustments                                   |   | 104,449           |   |       | (98,316           | )    
| | Income
      tax expense (recovery)                 | $ | 22                |   | **$** | **(197,502**      | **)**
| |                                                     |   |                   |   |       |                   |      
| | Income taxes recognized directly in equity:         |   |                   |   |       |                   |      
| |                                                     |   |                   |   |       |                   |      
| |                                                     |   | Year ended        |   |       | Year ended        |      
| |                                                     |   | December 31,      |   |       | December 31,      |      
| |                                                     |   | 2011              |   |       | 2010              |      
| | Deferred
      tax relating to share issue costs    | $ | **-**             |   | $     | (52,319           | )    
| |                                                     |   |                   |   |       |                   |      
| | Income taxes recognized directly in assets:         |   |                   |   |       |                   |      
| |                                                     |   |                   |   |       |                   |      
| |                                                     |   | Year ended        |   |       | Year ended        |      
| |                                                     |   | December 31,      |   |       | December 31,      |      
| |                                                     |   | 2011              |   |       | 2010              |      
| | Federal
      non-refundable investment tax credits | $ | 22,430            |   | $     | 57,273            |      

19

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|9. | Income taxes and mining tax credits(cont'd)                                      
|-- | ---------------------------------------------------------------------------------
|   |                                                                                  
|   | Details of movements of deferred tax assets and
      liabilities are as follows:

| |                                                                                  |   |                          |   |   |                        |   |   |             |   |   |                   |  |   |                    |  |   |                            |  
| | -------------------------------------------------------------------------------- | - | ------------------------ | - | - | ---------------------- | - | - | ----------- | - | - | ----------------- |  | - | ------------------ |  | - | -------------------------- | -
| |                                                                                  |   |                          |   |   |                        |   |   |             |   |   | (Charged)         |  |   |                    |  |   |                            |  
| |                                                                                  |   |                          |   |   |                        |   |   | (Charged)   |   |   | credited to other |  |   |                    |  |   |                            |  
| |                                                                                  |   |                          |   |   | (Charged) credited     |   |   | credited to |   |   | comprehensive     |  |   | (Charged) credited |  |   |                            |  
| |                                                                                  |   | At
      January 1, 2011 |   |   | to
      income (loss) |   |   | assets      |   |   | income (loss)     |  |   | to
      equity    |  |   | At
      December 31, 2011 |  
| |                                                                                  |   |                          |   |   |                        |   |   |             |   |   |                   |  |   |                    |  |   |                            |  
| | Exploration and evaluation assets                                                | $ | (4,515,585               | ) | $ | (439,864               | ) | $ | (22,430     | ) | $ | -                 |  | $ | -                  |  | $ | (4,977,879                 | )
| | Non-capital and net-capital loss carry-forward                                   |   | 3,599,837                |   |   | 527,009                |   |   | -           |   |   | -                 |  |   | -                  |  |   | 4,126,846                  |  
| | Share issuance costs                                                             |   | 170,184                  |   |   | (66,694                | ) |   | -           |   |   | -                 |  |   | -                  |  |   | 103,490                    |  
| | Federal non-refundable investment tax credits, 
      net of
      future taxes  |   | 385,670                  |   |   | (20,474                | ) |   | -           |   |   | -                 |  |   | -                  |  |   | 365,196                    |  
| |                                                                                  |   |                          |   |   |                        |   |   |             |   |   |                   |  |   |                    |  |   |                            |  
| |                                                                                  | $ | (359,894                 | ) | $ | (22                    | ) | $ | (22,430     | ) | $ | -                 |  | $ | -                  |  | $ | (382,346                   | )
| | Presented as:                                                                    |   |                          |   |   |                        |   |   |             |   |   |                   |  |   |                    |  |   |                            |  
| |                                                                                  |   |                          |   |   |                        |   |   |             |   |   |                   |  |   |                    |  |   |                            |  
| |                                                                                  |   |                          |   |   |                        |   |   |             |   |   |                   |  |   |                    |  |   |                            |  
| | Deferred
      tax assets                                                        | $ | -                        |   | $ | -                      |   | $ | -           |   | $ | -                 |  | $ | -                  |  | $ | -                          |  
| |                                                                                  |   |                          |   |   |                        |   |   |             |   |   |                   |  |   |                    |  |   |                            |  
| | Deferred
      tax liabilities                                                   | $ | (359,894                 | ) | $ | (22                    | ) | $ | (22,430     | ) | $ | -                 |  | $ | -                  |  | $ | (382,346                   | )
| |                                                                                  |   |                          |   |   |                        |   |   |             |   |   |                   |  |   |                    |  |   |                            |  
| |                                                                                  |   |                          |   |   |                        |   |   |             |   |   |                   |  |   |                    |  |   |                            |  
| |                                                                                  |   |                          |   |   |                        |   |   |             |   |   | (Charged)         |  |   |                    |  |   |                            |  
| |                                                                                  |   |                          |   |   |                        |   |   | (Charged)   |   |   | credited to other |  |   |                    |  |   |                            |  
| |                                                                                  |   |                          |   |   | (Charged) credited     |   |   | credited to |   |   | comprehensive     |  |   | (Charged) credited |  |   |                            |  
| |                                                                                  |   | At January 1, 2010       |   |   | to income (loss)       |   |   | assets      |   |   | income (loss)     |  |   | to equity          |  |   | At December 31, 2010       |  
| |                                                                                  |   |                          |   |   |                        |   |   |             |   |   |                   |  |   |                    |  |   |                            |  
| | Exploration and evaluation assets                                                | $ | (4,696,545               | ) | $ | 238,233                |   | $ | (57,273     | ) | $ | -                 |  | $ | -                  |  | $ | (4,515,585                 | )
| | Non-capital and net-capital loss carry-forward                                   |   | 3,487,956                |   |   | 111 881                |   |   | -           |   |   | -                 |  |   | -                  |  |   | 3,599,837                  |  
| | Share issuance costs                                                             |   | 226,250                  |   |   | (108,385               | ) |   | -           |   |   | -                 |  |   | 52,319             |  |   | 170,184                    |  
| | Federal non-refundable investment tax credits, 
      net of
      future  taxes |   | 429,897                  |   |   | (44,227                | ) |   | -           |   |   | -                 |  |   | -                  |  |   | 385,670                    |  
| |                                                                                  |   |                          |   |   |                        |   |   |             |   |   |                   |  |   |                    |  |   |                            |  
| |                                                                                  | $ | (552,442                 | ) | $ | 197,502                |   | $ | (57,273     | ) | $ | -                 |  | $ | 52,319             |  | $ | (359,894                   | )
| | Presented as:                                                                    |   |                          |   |   |                        |   |   |             |   |   |                   |  |   |                    |  |   |                            |  
| |                                                                                  |   |                          |   |   |                        |   |   |             |   |   |                   |  |   |                    |  |   |                            |  
| |                                                                                  |   |                          |   |   |                        |   |   |             |   |   |                   |  |   |                    |  |   |                            |  
| | Deferred
      tax assets                                                        | $ | -                        |   | $ | -                      |   | $ | -           |   | $ | -                 |  | $ | -                  |  | $ | -                          |  
| |                                                                                  |   |                          |   |   |                        |   |   |             |   |   |                   |  |   |                    |  |   |                            |  
| | Deferred
      tax liabilities                                                   | $ | (552,442                 | ) | $ | 197,502                |   | $ | (57,273     | ) | $ | -                 |  | $ | -                  |  | $ | (359,894                   | )

20

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|9. | Income taxes and mining tax credits(cont'd)                                                                                
|-- | ---------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                            
|   | The Company has the following deductible temporary
      differences for which no deferred tax asset has been
  recognized:

| |                                |   |                   |  |   |                   |  |   |                 | 
| | ------------------------------ | - | ----------------- |  | - | ----------------- |  | - | --------------- | 
| |                                |   | December 31, 2011 |  |   | December 31, 2010 |  |   | January 1, 2010 | 
| | Federal investment tax credits | $ | 175,931           |  | $ | 101,410           |  | $ | -               | 
| |                                | $ | 175,931           |  | $ | 101,410           |  | $ | -               | 

The tax pools relating to these deductible temporary
differences expire as follows:

Canadian Federalinvestment tax creditlosses2025
    $
    25,1872026
    
    92,2772027
    
    58,4672028
    
    -2029
    
    -2030
    
    -2031
    
    -No expiry
    
    -$
    175,931


21

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|9.  | Income taxes and mining tax credits(cont'd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The Company has approximately $16,500,000 of non-capital
      tax losses available to reduce taxable income in future periods which
      expire between 2014 and 2031. The Company has approximately $11,260,000 in
      resource tax pools that may be carried forward indefinitely to reduce
      taxable income of future periods and approximately $721,000 of federal
      non-refundable tax credits which may be applied to reduce federal tax
      otherwise payable and which expire between 2015 and 2031.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The Company has applied for both provincial refundable
      tax and federal non-refundable mining tax credits relating to certain
      qualifying resource expenditures incurred. These amounts are recorded when
      a reasonable expectation of collection or utilization exists and will
      reduce the carrying value of the deferred exploration costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | At December 31, 2011, there were $237,220 (2010 -
      $108,162) of provincial refundable mining tax credits for which reasonable
      expectation of collection exists and which have been recorded as
      recoverable and credited to deferred exploration and development costs. As
      well, there was an increase of $52,000 to the Companys federal
      non-refundable tax credits (net of future taxes thereon) realized during
      the year ended December 31, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | During the fiscal year ended December 31, 2009, the
      Canada Revenue Agency (CRA) conducted an audit of the Company's tax
      filings for the fiscal years 2002 to 2008 to substantiate a $2,222,020
      claim in provincial refundable mining tax credits as of December 31, 2008.
      The results of the audit subsequent to December 31, 2009, resulted in a
      reduction of $1,062,637 in provincial refundable mining tax credits and a
      reduction of $180,712 in federal non-refundable tax credits. The Company
      filed a Notice of Objection during the year ended December 31, 2010 to
      dispute CRAs interpretation of $983,516 of the costs incurred by the
      Company, but interpreted by CRA as not qualifying as Canadian Exploration
      Expenses, which is the basis for the provincial refundable mining tax
      credit. To date, the CRA has not provided the Company with a date to
      review the disputed amounts but has acknowledged receipt of the Notice of
      Objection. The disputed amounts are not recorded as a receivable as at
      December 31, 2011 and 2010.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10. | Related party balances and transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Related party balances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The following amounts due to related parties are included
      in trade payables and accrued liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| |                                                  |   |              |  |   |              | 
| | ------------------------------------------------ | - | ------------ |  | - | ------------ | 
| |                                                  |   | December 31, |  |   | December 31, | 
| |                                                  |   | 2011         |  |   | 2010         | 
| | Companies controlled by directors of the Company | $ | 4,500        |  | $ | -            | 

These amounts are unsecured,
non-interest bearing and have no fixed terms of repayment.

22

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|10. | Related party balances and transactions(cont'd)                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                    
|    | Related party transactions                                                                                                                         
|    |                                                                                                                                                    
|    | The Company incurred the following transactions with
      directors, officers and companies that are controlled by directors of the
      Company.

| |                                                             |   |              | 
| | ----------------------------------------------------------- | - | ------------ | 
| |                                                             |   | Year ended   | 
| |                                                             |   | December 31, | 
| |                                                             |   | 2011         | 
| | Deferred exploration costs to
      non-management director | $ | 101,050      | 
| | Fees to non-management directors                            |   | 24,000       | 
| | Stock-based compensation to non-management directors        |   | 333,395      | 
| |                                                             | $ | 458,445      | 
| |                                                             |   |              | 
| | Key
      management personnel compensation                 |   |              | 
| |                                                             |   |              | 
| |                                                             |   | Year ended   | 
| |                                                             |   | December 31, | 
| |                                                             |   | 2011         | 
| | Deferred exploration costs                                  | $ | 175,000      | 
| | Management fees                                             |   | 264,000      | 
| | Stock-based compensation                                    |   | 194,689      | 
| |                                                             | $ | 633,689      | 

|11. | Financial risk and capital management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Company is exposed in varying degrees to a variety of
      financial instrument related risks as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Credit risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Credit risk is the risk that one party to a financial
      instrument will fail to discharge an obligation and cause the other party
      to incur a financial loss. The Companys primary exposure to credit risk
      is on its bank accounts. The Companys bank accounts are held with a major
      bank in Canada. As all of the Companys cash and cash equivalents are held
      by one bank in Canada, there is a concentration of credit risk. This risk
      is managed by using a major bank that is a high credit quality financial
      institution as determined by rating agencies. The Company is not exposed
      to credit risk on mineral tax credit receivable, as these are due from the
      Government of Canada.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Liquidity risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Liquidity risk arises through the excess of financial
      obligations over available financial assets due at any point in time. The
      Companys objective in managing liquidity risk is to maintain sufficient
      readily available reserves in order to meet its liquidity requirements at
      any point in time. The Company achieves this by maintaining sufficient
      cash and banking facilities.                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The following is an analysis of the contractual
      maturities of the Companys non-derivative financial liabilities as at
      December 31, 2011:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

| |               |   |                 |  |   |                |  |   |            | 
| | ------------- | - | --------------- |  | - | -------------- |  | - | ---------- | 
| |               |   | Within one year |  |   | Between one    |  |   | More than  | 
| |               |   |                 |  |   | and five years |  |   | five years | 
| | Trade payable | $ | 254,282         |  | $ | -              |  | $ | -          | 

23

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|11. | Financial risk management(cont'd)                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Market risk                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Market risk is the risk that changes in market prices,
      such as foreign exchange rates, commodity prices, and interest rates will
      affect the Companys value of financial instruments. The objective of
      market risk management is to manage and control market risk exposures
      within acceptable limits, while maximizing returns.                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Foreign currency exchange rate risk and commodity
      price risk                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Foreign exchange risk is the risk that the fair value of
      future cash flows of a financial instrument will fluctuate because of
      changes in foreign exchange rates. Commodity price risk is the risk that
      market values and future incomes will fluctuate because of changes in
      commodity prices. The Company does not have any direct exposure to foreign
      currency exchange rate risk or commodity price risk in 2011 or
  2010.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Interest rate risk                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Interest rate risk is the risk that future cash flows
      will fluctuate as a result of changes in market interest rates. As at
      December 31, 2011 and December 31, 2010, the Company did not have any
      significant interest rate risk.                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Classification of financial
    instruments                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Financial assets included in the statement of financial
      position are as follows:                                                                                                                                                                                                                                                                                                                                                                       

| |                                                                                             |   |              |  |   |              | 
| | ------------------------------------------------------------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                                                                             |   | December 31, |  |   | December 31, | 
| |                                                                                             |   | 2011         |  |   | 2010         | 
| | Cash and cash equivalents                                                                   | $ | 236,530      |  | $ | 3,137,745    | 
| | Loans and receivables:                                                                      |   |              |  |   |              | 
| | Recoverable taxes                                                                           |   | 47,134       |  |   | 55,421       | 
| | Mining tax credits                                                                          |   | 237,220      |  |   | 108,162      | 
| | Reclamation deposits                                                                        |   | 337,900      |  |   | 187,900      | 
| |                                                                                             | $ | 858,784      |  | $ | 3,489,228    | 
| |                                                                                             |   |              |  |   |              | 
| | Financial liabilities included in the statement of financial
      position are as follows: |   |              |  |  
| |                                                                                             |   |              |  |   |              | 
| |                                                                                             |   | December 31, |  |   | December 31, | 
| |                                                                                             |   | 2011         |  |   | 2010         | 
| | Non-derivative financial liabilities:                                                       |   |              |  |   |              | 
| | Trade payables                                                                              | $ | 254,282      |  | $ | 369,013      | 
| |                                                                                             | $ | 254,282      |  | $ | 369,013      | 

Fair value

The fair value of the Companys
financial assets and liabilities approximates the carrying amount.

Financial instruments measured at fair
value are classified into one of three levels in the fair value hierarchy
according to the relative reliability of the inputs used to estimate the fair
values. The three levels of the fair value hierarchy are:

| |  | Level 1  Unadjusted quoted prices in active
      markets for identical assets or liabilities;                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | Level 2  Inputs other than quoted prices that
      are observable for the asset or liability either directly or indirectly;
      and
| |  | Level 3  Inputs that are not based on
      observable market data.                                                                   

24

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|11. | Financial risk management(cont'd)                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                 
|    | Fair value(cont'd)                                                                                                                              
|    |                                                                                                                                                 
|    | The following is an analysis of the Companys financial
      assets measured at fair value as at December 31, 2011 and December 31,
      2010:

| |                           |   |                         |  |   |         | 
| | ------------------------- | - | ----------------------- |  | - | ------- | 
| |                           |   | As at December 31, 2011 | 
| |                           |   | Level 1                 |  |   | Level 2 | 
| | Cash and cash equivalents | $ | 236,530                 |  | $ | -       | 
| |                           |   |                         |  |   |         | 
| |                           |   | As at December 31, 2010 | 
| |                           |   | Level 1                 |  |   | Level 2 | 
| | Cash and cash equivalents | $ | 3,137,745               |  | $ | -       | 

|    | Capital Management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Company identifies capital as share capital, cash and
      cash equivalents and receivables that are expected to be realized in cash.
      The Company raises capital through private and public share offerings and
      related party loans and advances. Capital is managed in a manner
      consistent with the risk criteria and policies provided by the board of
      directors and followed by management. All sources of financing and major
      expenditures are analyzed by management and approved by the board of
      directors.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Companys primary objectives when managing capital is
      to safeguard and maintain the Companys financial resources for continued
      operations and to fund expenditure programs to further advance mineral
      property interests.                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Company is meeting its objective of managing capital
      through detailed review and due diligence on all potential acquisitions,
      preparing short-term and long-term cash flow analysis to maintain
      sufficient resources.                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Company is able to scale its expenditure programs and
      the use of capital to address market conditions by reducing expenditure
      and the scope of operations during periods of commodity pricing decline
      and economic downturn.                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | There were no changes in the Company's approach to
      capital management during the year ended December 31, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Company is not subject to any externally imposed
      capital requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|12. | Segmented information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Operating segments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Company operates in a single reportable operating
      segment  the acquisition, exploration and development of mineral
      properties.                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Geographic segments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | All of the Companys assets are located in
  Canada.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

25

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|13. | Transition to IFRS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | As result of the Accounting Standards Board of Canadas
      decision to adopt IFRS for publicly accountable entities for financial
      reporting periods beginning on or after January 1, 2011, the Company has
      adopted IFRS in these financial statements, making them the first annual
      financial statements of the Company under IFRS. The Company previously
      applied the available standards under previous Canadian GAAP that were
      issued by the Accounting Standards Board of Canada.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | As required by IFRS 1 First-time Adoption of
      International Financial Reporting Standards, January 1, 2010 has been
      considered to be the date of transition to IFRS by the Company. Therefore,
      the comparative figures that were previously reported under previous
      Canadian GAAP have been restated in accordance with IFRS.                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Exemptions applied                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Company has applied the following optional transition
      exemptions to full retrospective application of
IFRS:                                                                                                                                                                                                                                                                                                                                                                                                 

| | - | IFRS 3 Business Combinations has not been
      applied to acquisitions of subsidiaries or of interests in associates and
      joint ventures that occurred before January 1, 2010.                                                                                                                                                                                                                                                                                            
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | IFRS 2 Share-based Payment has not been
      applied to equity instruments that were granted on or before November 7,
      2002, or equity instruments that were granted subsequent to November 7,
      2002 and vested before the later of the date of transition to IFRS and
      January 1, 2005. The Company has elected not to apply IFRS 2 to awards
      that vested prior to January 1, 2010, which have been accounted for in
      accordance with Canadian GAAP.

Mandatory exemptions under
IFRS

The IFRS 1 mandatory exception applied
by the Company in the conversion from Canadian GAAP to IFRS is as follows:

| | - | In accordance with IFRS 1, an entity's
      estimates under IFRS at the date of transition to IFRS must be consistent
      with estimates made for the same date under previous GAAP unless those
      estimates were in error. The Company's IFRS estimates as at the Transition
      Date are consistent with its Canadian GAAP estimates as at that date.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

26

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|13. | Transition to IFRS(contd)
|--- | --------------------------

Reconciliation of assetsAs at December 31, 2010
    
    
    As at January 1, 2010Canadian
    
    
    Effect of
    
    
    
    
    
    Canadian
    
    
    Effect ofNote
    
    
    GAAP
    
    
    Transition
    
    
    IFRS
    
    
    GAAP
    
    
    Transition
    
    
    IFRSASSETSCurrent assetsCash and cash equivalents
    
    
    
    $
    3,137,745
    
    $
    -
    
    $
    3,137,745
    
    $
    813,736
    
    $
    -
    
    $
    813,736Recoverable taxes
    
    
    
    
    55,421
    
    
    -
    
    
    55,421
    
    
    21,282
    
    
    -
    
    
    21,282Other receivable
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    1,518
    
    
    -
    
    
    1,518Prepaid expenses
    
    
    
    
    110,287
    
    
    -
    
    
    110,287
    
    
    38,844
    
    
    -
    
    
    38,8443,303,453
    
    
    -
    
    
    3,303,453
    
    
    875,380
    
    
    -
    
    
    875,380Non-current assetsRecoverable taxes
    
    
    
    
    108,162
    
    
    -
    
    
    108,162
    
    
    1,301,506
    
    
    -
    
    
    1,301,506Reclamation deposits
    
    
    
    
    187,900
    
    
    -
    
    
    187,900
    
    
    187,900
    
    
    -
    
    
    187,900Property, plant and
      equipment
    
    
    
    
    39,959
    
    
    -
    
    
    39,959
    
    
    54,414
    
    
    -
    
    
    54,414Mineral Property Interests
    
    
    
    
    179,500
    
    
    -
    
    
    179,500
    
    
    179,500
    
    
    -
    
    
    179,500Deferred exploration costs
    
    6
    
    
    30,122,066
    
    
    101,410
    
    
    30,223,476
    
    
    28,321,528
    
    
    -
    
    
    28,321,52830,637,587
    
    
    101,410
    
    
    30,738,997
    
    
    30,044,848
    
    
    -
    
    
    30,044,848TOTAL ASSETS
    
    
    
    $
    33,941,040
    
    $
    101,410
    
    $
    34,042,450
    
    $
    30,920,228
    
    $
    -
    
    $
    30,920,228


27

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars)                     
|For the Years
      ended December 31, 2011 and 2010

|13. | Transition to IFRS(contd)
    Reconciliation of liabilities and shareholders'
    equity
|--- | -----------------------------------------------------------------------------------------

As at December 31, 2010
    
    
    As at January 1, 2010Canadian
    
    
    Effect of
    
    
    
    
    
    Canadian
    
    
    Effect ofNote
    
    
    GAAP
    
    
    Transition
    
    
    IFRS
    
    
    GAAP
    
    
    Transition
    
    
    IFRSLIABILITIESCurrent liabilitiesTrade payables and accrued liabilities
    
    
    
    $
    369,013
    
    $
    -
    
    $
    369,013
    
    $
    285,527
    
    $
    -
    
    $
    285,527369,013
    
    
    -
    
    
    369,013
    
    
    285,527
    
    
    -
    
    
    285,527Non-current liabilitiesDeferred
      Income Taxes
    
    13 (c)
    
    
    524,665
    
    
    (164,771
    )
    
    359,894
    
    
    819,203
    
    
    (266,761
    )
    
    552,442524,665
    
    
    (164,771
    )
    
    359,894
    
    
    819,203
    
    
    (266,761
    )
    
    552,442TOTAL
      LIABILITIES
    
    
    
    
    893,678
    
    
    (164,771
    )
    
    728,907
    
    
    1,104,730
    
    
    (266,761
    )
    
    837,969SHAREHOLDERS EQUITYShare capital
    
    13 (b)
    
    
    43,399,177
    
    
    4,023,237
    
    
    47,422,414
    
    
    39,562,338
    
    
    4,023,237
    
    
    43,585,575Contributed surplus
    
    13 (d)
    
    
    5,183,894
    
    
    (5,183,894
    )
    
    -
    
    
    4,569,349
    
    
    (4,569,349
    )
    
    -Option reserves
    
    13 (d)
    
    
    -
    
    
    5,183,894
    
    
    5,183,894
    
    
    -
    
    
    4,569,349
    
    
    4,569,349Deficit
    
    13 (b)(c)
    
    
    (15,535,709
    )
    
    (3,757,056
    )
    
    (19,292,765
    )
    
    (14,316,189
    )
    
    (3,756,476
    )
    
    (18,072,665
    )TOTAL EQUITY
    
    
    
    
    33,047,362
    
    
    266,181
    
    
    33,313,543
    
    
    29,815,498
    
    
    266,761
    
    
    30,082,259TOTAL
      LIABILITIES AND SHARESHOLDERS EQUITY
    
    
    
    $
    33,941,040
    
    $
    101,410
    
    $
    34,042,450
    
    $
    30,920,228
    
    $
    -
    
    $
    30,920,228


28

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars - unaudited)         
|For the Years
      ended December 31, 2011 and 2010

|13. | Transition to IFRS(contd)
|--- | --------------------------

Reconciliation of loss and comprehensive loss for the
      year ended December 31, 2010Canadian
    
    
    Effect ofNote
    
    
    GAAP
    
    
    Transition
    
    
    IFRSExpensesAmortization
    
    
    
    $
    13,725
    
    $
    -
    
    $
    13,725Consulting
    
    
    
    
    750
    
    
    -
    
    
    750Director fees
    
    
    
    
    24,000
    
    
    -
    
    
    24,000Investor
      relations
    
    
    
    
    230,011
    
    
    -
    
    
    230,011Legal and audit
    
    
    
    
    86,598
    
    
    -
    
    
    86,598Management fees
    
    
    
    
    270,000
    
    
    -
    
    
    270,000Office and general
    
    
    
    
    317,488
    
    
    -
    
    
    317,488Salaries and
      benefits
    
    
    
    
    17,250
    
    
    -
    
    
    17,250Stock-based compensation
    
    
    
    
    365,144
    
    
    -
    
    
    365,144Travel and promotion
    
    
    
    
    139,080
    
    
    -
    
    
    139,0801,464,046
    
    
    -
    
    
    1,464,046Other itemsWrite-down of
      equipment
    
    
    
    
    4,731
    
    
    -
    
    
    4,731Interest income
    
    
    
    
    (51,175
    )
    
    -
    
    
    (51,175
    )(46,444
    )
    
    -
    
    
    (46,444
    )Deferred income tax recovery
    
    13 (c)
    
    
    (198,082
    )
    
    580
    
    
    (197,502
    )Net loss and comprehensive loss for the period
    
    
    
    **$**
    **1,219,520**
    
    $
    580
    
    $
    1,220,100Loss per share  basic and diluted
    
    
    
    **$**
    **(0.02**
    **)**
    $
    -
    
    $
    (0.02
    )


29

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars - unaudited)         
|For the Years
      ended December 31, 2011 and 2010

|13. | Transition to IFRS(contd)
|--- | --------------------------

Reconciliation of cash flows for the year
      ended December 31, 2010Canadian
    
    
    Effect ofNote
    
    
    GAAP
    
    
    Transition
    
    
    IFRSOperating activitiesLoss before income taxes
    
    13 (c)
    
    $
    (1,219,520
    )
    $
    (580
    )
    $
    (1,220,100
    )Adjustments for non-cash items:Amortization
    
    
    
    
    18,456
    
    
    -
    
    
    18,456Stock-based
      compensation
    
    
    
    
    365,144
    
    
    -
    
    
    365,144Deferred income taxes
    
    
    
    
    (198,082
    )
    
    580
    
    
    (197,502
    )Deduct interest income relating to
      investing activity
    
    13(e)
    
    
    -
    
    
    (51,175
    )
    
    (51,175
    )Changes in non-cash working capital items:Recoverable
      taxes
    
    
    
    
    (34,139
    )
    
    -
    
    
    (34,139
    )Miscellaneous receivable
    
    
    
    
    1,518
    
    
    -
    
    
    1,518Prepaid expenses
    
    
    
    
    (71,443
    )
    
    -
    
    
    (71,443
    )Trade payables and accrued liabilities
    
    
    
    
    (43,430
    )
    
    -
    
    
    (43,430
  )Net cash flows used in operating activities
    
    
    
    
    (1,181,496
    )
    
    (51,175
    )
    
    (1,232,671
  )Investing activitiesExpenditures on deferred exploration costs
    
    
    
    
    (1,635,699
    )
    
    -
    
    
    (1,635,699
    )Mining tax credits
    
    
    
    
    1,193,344
    
    
    -
    
    
    1,193,344Expenditures on property, plant and equipment
    
    
    
    
    (4,001
    )
    
    -
    
    
    (4,001
    )Interest income
    
    13(e)
    
    
    -
    
    
    51,175
    
    
    51,175Net cash
      flows used in investing activities
    
    
    
    
    (446,356
    )
    
    51,175
    
    
    (395,181
    )Financing activitiesProceeds on issuance of common shares
      - net of share  issue costs
    
    
    
    
    3,951,861
    
    
    -
    
    
    3,951,861Net cash flows from financing activities
    
    
    
    
    3,951,861
    
    
    -
    
    
    3,951,861Increase (decrease) in cash and cash
      equivalents
    
    
    
    
    2,324,009
    
    
    -
    
    
    2,324,009Cash and
      cash equivalents, beginning
    
    
    
    
    813,736
    
    
    -
    
    
    813,736Cash and
      cash equivalents, ending
    
    
    
    $
    3,137,745
    
    $
    -
    
    $
    3,137,745


30

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars - unaudited)         
|For the Years
      ended December 31, 2011 and 2010

|13. | Transition to IFRS(contd)
|--- | --------------------------

Notes to reconciliations

| | (a) | Functional and presentation currency                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | IFRS requires that the functional currency of each entity
      in the consolidated Company be determined separately in accordance with
      the indicators as per IAS 21 The Effects of Changes in Foreign Exchange
      Rates and should be measured using the currency of the primary economic
      environment in which the entity operates (the functional currency). The
      consolidated financial statements are presented in Canadian dollars which
      is the Companys presentation and functional currency.                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (b) | Flow-through shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Flow-through shares are a unique Canadian tax incentive
      which is the subject of specific guidance under Canadian GAAP. Under
      Canadian GAAP the Company accounted for the issue of flow-through shares
      in accordance with provisions of the CICA Emerging Issues Committee
      Abstract 146 "Flow-through Shares". At the time of issue, the funds
      received are recorded as share capital. At the time of the filing of the
      renunciation of the qualifying flow-through expenditures to investors, the
      Company recorded a future income tax liability with a charge directly to
      shareholders' equity. Also under Canadian GAAP the Company recorded any
      deferred tax recovery eligible to be recognized to offset the deferred tax
      charge to equity as a tax recovery in the statement of
  operations.                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | IFRS does not contain explicit guidance pertaining to
      flow through shares. Therefore, the Company has adopted a policy whereby
      the premium paid for flow-through shares in excess of the market value of
      the shares without the flow-through features at the time of issue is
      initially recorded as a flow-through tax liability. Upon renouncement by
      the Company of the tax benefits associated with the related expenditures,
      a deferred tax liability is recognized and the flow-through tax liability
      is reversed. To the extent that suitable deferred tax assets are
      available, the Company will reduce the deferred tax liability and record a
      deferred tax recovery. The Company has retroactively chosen to reverse the
      changes previously recorded in share capital under Canadian GAAP. This
      resulted in an increase of $4,023,237 in share capital and
  deficit.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (c) | Stock-based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Under Canadian GAAP, stock based compensation capitalized
      to exploration and evaluation assets created a taxable temporary
      difference that gave rise to a deferred income tax liability. IFRS
      prohibits the recognition of a deferred tax assets or liability on the
      initial recognition of asset or liability acquired other than in a
      business combination provided the transaction affects neither accounting
      profit nor taxable profit. Therefore, the deferred tax liability and
      corresponding gross-up recorded when stock-based compensation was
      capitalized have been reversed. This resulted in a decrease of $266,761 in
      deferred income tax liability and deficit at January 1, 2010.                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (d) | Reserves                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Under Canadian GAAP, amounts recorded in relation to the
      fair value of stock options granted and broker warrants issued were
      recorded to contributed surplus. Under IFRS, these amounts have been
      reclassified as option reserves.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (e) | Interest income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Under Canadian GAAP, the Company classified interest
      income as operating activities. Under IFRS, interest income has been
      reclassified as an investing activity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

31

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|(Expressed in Canadian dollars - unaudited)         
|For the Years
      ended December 31, 2011 and 2010

|14. | Subsequent events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | In January 2012, the Company announced a non brokered
      private placement of up to 8.4 million units at a price of $0.18 per unit.
      Each unit will consist of one common share and one full share purchase
      warrant. Each warrant is exercisable into one common share at an exercise
      price of $0.25 within two years after closing of the transaction.
      Subsequent to December 31, 2011, the Company has received gross cash
      proceeds of $547,800 and issued 3,043,333 units.

32

---