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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2009

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)

1

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Copy of communications to:Bernard Pinsky, Esq. 
  Clark Wilson LLP 
  Barristers and Solicitors 
  Suite 800  885 West Georgia Street 
  Vancouver, 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.

66,545,052 Common Shares without par value issued and
outstanding as at June 28, 2010.

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.[   ]
YES      [X] 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

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]

2

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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 [ X]
|--------------- | ----------

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

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    [X] 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                                              |                                                          
|**Financial Information And Accounting Principles** | 6                                                        
|Item 1                                              | **Identity of Directors, Senior Management and Advisers**
|                                                    | A.                                                       
|                                                    | B.                                                       
|                                                    | C.                                                       
|Item 2                                              | **Offer Statistics and Expected Timetable**              
|Item 3                                              | **Key Information**                                      
|                                                    | A.                                                       
|                                                    | B.                                                       
|                                                    | C.                                                       
|                                                    | D.                                                       
|Item 4                                              | **Information on our Company**                           
|                                                    | A.                                                       
|                                                    | B.                                                       
|                                                    | C.                                                       
|                                                    | D.                                                       
|Item 5                                              | **Operating and Financial Review and Prospects**         
|                                                    | A.                                                       
|                                                    | B.                                                       
|                                                    | C.                                                       
|                                                    | D.                                                       
|                                                    | E.                                                       
|                                                    | F.                                                       
|Item 6                                              | **Directors, Senior Management and Employees**           
|                                                    | A.                                                       
|                                                    | B.                                                       
|                                                    | C.                                                       
|                                                    | D.                                                       
|                                                    | E.                                                       
|Item 7                                              | **Major Shareholders and Related Party Transactions**    
|                                                    | A.                                                       
|                                                    | B.                                                       
|                                                    | C.                                                       
|Item 8                                              | **Financial Information**                                
|                                                    | A.                                                       
|                                                    | B.                                                       
|Item 9                                              | **The Offer and Listing**                                
|                                                    | A.                                                       
|                                                    | B.                                                       
|                                                    | C.                                                       
|                                                    | D.                                                       
|                                                    | E.                                                       
|                                                    | F.                                                       
|Item 10                                             | **Additional Information**                               
|                                                    | A.                                                       
|                                                    | B.                                                       
|                                                    | C.                                                       
|                                                    | D.                                                       
|                                                    | E.                                                       

4

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|         | F.                                                                                 | Dividends and Paying Agents                                                   | 63
|-------- | ---------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | --
|         | G.                                                                                 | Statement by Experts                                                          | 63
|         | H.                                                                                 | Documents on Display                                                          | 64
|         | I.                                                                                 | Subsidiary Information                                                        | 64
|Item 11  | Quantitative and Qualitative Disclosures About Market
      Risk                   | 64                                                                           
|Item 12  | Description of Securities Other than Equity Securities                             | 65                                                                           
|PART II  |                                                                                    | 65                                                                           
|Item 13  | Defaults, Dividend Arrearages and Delinquencies                                    | 65                                                                           
|Item 14  | Material Modifications to the Rights of Security Holders
      and Use of Proceeds | 65                                                                           
|Item 15  | Controls and Procedures                                                            | 65                                                                           
|Item 16  | [Reserved]                                                                         | 66                                                                           
|         | A.                                                                                 | Audit Committee Financial Expert                                              | 66
|         | B.                                                                                 | Code of Ethics                                                                | 66
|         | C.                                                                                 | Principal Accountant Fees and Services                                        | 66
|         | D.                                                                                 | Exemptions from the Listing Standards for Audit Committees.                   | 66
|         | E.                                                                                 | Purchases of Equity Securities by the Issuer and Affiliated
      Purchasers. | 66
|         | F.                                                                                 | Change in Registrant's Certifying Accountant                                  | 66
|PART III |                                                                                    | 67                                                                           
|Item 17  | Financial Statements                                                               | 67                                                                           
|Item 18  | Financial Statements                                                               | 67                                                                           
|Item 19  | Exhibits                                                                           | 68                                                                           
|         | SIGNATURE                                                                          | 69                                                                           

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 8. 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.

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 prospectus, the terms we, us, our and
Hard Creek mean Hard Creek Nickel Corporation, unless otherwise indicated.

5

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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. All such
financial statements have been prepared in accordance with Canadian generally
accepted accounting principles.

The financial statements of Hard Creek for the years ended December
  31, 2007, 2008 and 2009 have been reported on by Dale Matheson Carr-Hilton LaBonte
  LLP, Chartered Accountants, Suite 1500  1140 West Pender Street, Vancouver,
  British Columbia, V6E 4G1.

Item
1 **Identity
of Directors, Senior Management and Advisers

A.          
Directors and Senior Management

The Directors and the senior management of our company as of
June 28, 2010 are as follows:

|Name              | Business Address                                               | Function                                                                                                                                                                                                      
|----------------- | -------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Mark Jarvis       | 1060  1090 W. Georgia St. Vancouver, BC
      V6E 3V7 Canada  | As President, Chief Executive Officer and
      director, Mr. Jarvis is responsible for the development of our strategic
      direction and the management and supervision of our overall business.          
|George Sookochoff | #503-1771 Nelson Street Vancouver, BC V6M
      1M6 Canada     | As a non-executive director, Mr. Sookochoff is
      responsible for the corporate governance of our company.                                                                                                 
|Tom Milner        | PO Box 10 McLeese Lake, BC V0L 1P0
      Canada                | As a non-executive director, Mr. Milner is
      responsible for the corporate governance of our company.                                                                                                     
|Lyle Davis        | 2838 Carnation Street North Vancouver, BC
      V7H 1L8 Canada | As a non-executive director, Mr. Davis is
      responsible for the corporate governance of our company.                                                                                                      
|Brian Fiddler     | 408 Shiles Street New Westminster, BC V3L
      3K4 Canada     | 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         | 42621 Canyon Road Lindell Beach, BC V2R 5B8
      Canada       | As Executive Vice President, Mr. Froc is
      responsible for the management of engineering and technical studies
      including infrastructure and socio- economic project development.                    
|Leslie Young      | 5991 Gibbons Drive Richmond BC V7C 2C6
      Canada            | 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.

6

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B.          
Advisers

Our legal advisers are Clark Wilson LLP, Barristers &
Solicitors, with a business address at Suite 800, 885 West Georgia Street,
Vancouver, British Columbia, Canada V6C 3H1. Our principal banker is the Bank of
Montreal with a business address at 595 Burrard Street, Vancouver, British
Columbia, Canada V7X 1L7.

C.          
Auditors

Our auditors are Dale Matheson Carr-Hilton LaBonte LLP,
Chartered Accountants (DMCL LLP) with a business address at Suite 1500 1140
West Pender Street, Vancouver, British Columbia, V6E 4G1. DMCL LLP is a member
of the Canadian Institute of Chartered Accountants and the Institute of
Chartered Accountants of British Columbia. DMCL LLP is also registered with the
Canadian Public Accounting Board and the Public Company Accounting Oversight
Board (United States). DMCL LLP became our auditors during the fiscal year ended
2003.

Item
2 **Offer
Statistics and Expected Timetable

Not Applicable.

Item
3 **Key
Information

A.          
Selected Financial Data

The following table summarizes selected financial data for our
company for the years ended December 31, 2009, 2008, 2007, 2006, and 2005
respectively. The information in the table was extracted from the detailed
financial statements and related notes included in this annual report and should
be read in conjunction with such financial statements and with the information
appearing under the heading, Item 5  Operating and Financial Review and
Prospects.

Selected Financial Data (Stated in Canadian Dollars)

Fiscal Years Ended December 31

|CDN GAAP                                                                          | 2009 Audited | 2008 Audited | 2007 Audited | 2006 Audited | 2005 Audited
|--------------------------------------------------------------------------------- | ------------ | ------------ | ------------ | ------------ | ------------
|Net Sales or Operating Revenue                                                    | NIL          | NIL          | NIL          | NIL          | NIL         
|Net Loss                                                                          | $1,477,538   | $1,958,267   | $1,778,211   | $228,931     | $1,106,868  
|Net Loss from Operations (January 17, 1983 (inception to
      December 31, 2008) | $14,316,189  | $12,838,651  | $10,880,384  | $9,102,173   | $8,873,242  
|Depreciation                                                                      | $24,389      | $20,860      | $14,528      | $7,493       | $6,780      
|General and Administrative Expenses                                               | $1,238,438   | $2,524,141   | $2,852,726   | $1,534,578   | $890,690    
|Mineral Property Exploration Costs                                                | $3,549,534   | $2,872,429   | $7,110,558   | $5,509,087   | $2,679,212  

7

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|Other Income                                          | ($239,100 )              | $565,874                 | $1,074,515               | $1,305,647               | ($216,178 )             
|----------------------------------------------------- | ------------------------ | ------------------------ | ------------------------ | ------------------------ | ------------------------
|Basic and Diluted Net Loss per Share                  | $0.02                    | $0.03                    | $0.03                    | $0.01                    | $0.04                   
|Assets                                                | $30,920,228              | $31,637,006              | $33,846,521              | $17,530,128              | $11,157,371             
|Current Assets                                        | $2,176,886               | $6,429,027               | $11,529,201              | $1,834,442               | $846,465                
|Capital Stock                                         | $39,562,338              | $39,562,338              | $39,434,113              | $24,276,925              | $18,148,499             
|Common Stock (adjusted to reflect changes in capital) | 60,370,592 common shares | 60,370,592 common shares | 60,220,592 common shares | 49,322,614 common shares | 37,675,494 common shares
|Basic and Diluted Net Loss per Common Share           | $0.02                    | $0.03                    | $0.03                    | $0.01                    | $0.03                   
|Cash Dividends per Common Share                       | NIL                      | NIL                      | NIL                      | NIL                      | NIL                     

|US GAAP                                                                           | 2009 Audited | 2008 Audited | 2007 Audited | 2006 Audited | 2005 Audited
|--------------------------------------------------------------------------------- | ------------ | ------------ | ------------ | ------------ | ------------
|Net Sales or Operating Revenue                                                    | NIL          | NIL          | NIL          | NIL          | NIL         
|Net Loss                                                                          | $5,027,072   | $4,830,696   | $10,974,654  | $5,738,018   | $3,332,394  
|Net Loss from Operations (January 17, 1983 (inception to
      December 31, 2008) | $45,358,442  | $40,331,370  | $35,500,674  | $24,526,020  | $18,788,002 
|Depreciation                                                                      | $24,389      | $20,860      | $14,528      | $7,493       | $6,780      
|General and Administrative Expenses                                               | $1,238,438   | $2,524,141   | $2,852,726   | $1,534,578   | $890,690    
|Mineral Property Exploration Costs                                                | $3,549,534   | $2,872,430   | $7,182,030   | $5,509,087   | $2,679,212  
|Other Income                                                                      | ($239,100 )  | $565,874     | ($939,898)   | $1,305,647   | $237,508    
|Basic and Diluted Net Loss per Share                                              | $0.08        | $0.08        | $0.18        | $0.12        | $0.09       
|Assets                                                                            | $2,419,200   | $6,685,512   | $11,767,456  | $2,220,698   | $1,697,951  

8

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|Current Assets                                        | $2,176,886               | $6,429,027               | $11,529,201              | $1,834,442               | $846,465                
|----------------------------------------------------- | ------------------------ | ------------------------ | ------------------------ | ------------------------ | ------------------------
|Capital Stock                                         | $39,562,338              | $39,562,338              | $41,448,526              | $23,800,546              | $18,632,327             
|Common Stock (adjusted to reflect changes in capital) | 60,370,592 common shares | 60,370,592 common shares | 60,220,592 common shares | 49,322,614 common shares | 37,675,494 common shares
|Basic and Diluted Net Loss per Common Share           | $0.08                    | $0.08                    | $0.18                    | $0.12                    | $0.09                   
|Cash Dividends per Common Share                       | NIL                      | NIL                      | NIL                      | NIL                      | NIL                     

B.          
Capitalization and Indebtedness

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. As of June 28, 2010, we had 66,545,052 Common Shares
and no Class A Preference Shares issued and outstanding.

The table below sets forth our total indebtedness in Canadian
dollars and capitalization as of December 31, 2009. You should read this table
in conjunction with the audited financial statements and accompanying notes
included in this annual report.

As at December 31, 2009 (Stated in Canadian Dollars)

|Liabilities                           |   |             |  
|------------------------------------- | - | ----------- | -
|Current, unsecured and unguaranteed   | $ | 285,527     |  
|Current, secured and
      guaranteed |   | -           |  
|                                      | $ | 285,527     |  
|                                      |   |             |  
|Shareholders Equity                  |   |             |  
|Common stock                          | $ | 39,562,338  |  
|Contributed Surplus                   |   | 4,569,349   |  
|Deficit                               |   | (14,316,189 | )
|                                      | $ | 29,815,498  |  

C.          
Reasons for the Offer and Use of Proceeds

Not applicable.

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.

9

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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 prospectus 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
43-101 "Technical Report on Preliminary Assessment of Turnagain Property" dated
April 7, 2010 located on our website www.hardcreek.com under the heading
"Projects".

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
as a company and investors would lose their entire investment in our
company.

10

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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 have for
our exploration program and potentially causing us to cease operations. If this
happens, investors may lose their entire investment in our company.

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.

11

---

We are not aware of any existing environmental liability
associated with any of our exploration properties but if such liability should
arise, we may have to pay a lot of money to fix it or pay compensation, which
would reduce the amount of money we have to spend on exploration and could
possibly cause us to go out of business. Our potential exposure to liability for
environmental damage is very 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 will likely have to cease operations. If that happens, investors
would likely lose all of their investment in our company.

Please see the section entitled Governmental Regulations on
page 19 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
$813,736, recoverable taxes of $21,282 and mining tax credits of $1,301,506 as
of December 31, 2009. We estimate our average monthly operating expenses to be
approximately $92,000. 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 reserves exist on the 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 2010, 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.

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 have sufficient funds for the 12 month period
ending December 31, 2010, but we will need to raise further capital very soon
thereafter in the approximate amount of $20,000,000 to $30,000,000. 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 would likely
result in a delay or indefinite postponement of further exploration and
development of our projects with the possible loss of such properties, our
company would never increase in value and investors would never see a return on
their investment.

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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
shall happen 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 financing, your interests in our company will be diluted and you
may suffer dilution in your net book value per share depending on the price at
which such securities are sold. As at June 28, 2010, 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 8,235,500 of our
common shares which, if exercised, would represent approximately 11 % 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.

We do not expect to declare or pay any dividends, so
investors will realize a return on their investment only if the price of shares
of our stock goes up. There are no guarantees that 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 goes up.
There are no guarantees that that will ever happen and investors may never
realize a return on their investment in our company.

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All of our directors, officers and control persons live
outside of the U.S. U.S. 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 or may be unsuccessful even if
they do try. 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, it 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.

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.

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

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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

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.

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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 for CAN$1,000,000 for each 1% of
the royalty. So, to pay out all 4% of the royalty, we would be required to pay
CAN$4,000,000.

On April 25, 2001, we entered into an agreement with Northwest
Petroleum Inc. of Bakersfield, California to acquire rights to two separate oil
and gas projects located in the state of California, consisting of the
Buttonwillow Oil and Gas Leases in Kern County, California and the Moffat Ranch
Gas Field in Madera County, California. We subsequently determined in March of
2002 that the Buttonwillow oil and gas leases and the Moffat Ranch Gas Field gas
project were not feasible. Accordingly, the agreement with Northwest Petroleum
Inc. was terminated on March 21, 2002 and our investment of $143,717 was written
off.

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.

In April, 2004, we staked three claim blocks in northern
British Columbia. The staked properties varied in size from 1,500 to 5,500
hectares and totaled 9,000 hectares and were located in northern British
Columbia, between 20km west and 100km northwest of the Turnagain property. After
preliminary site investigations it was decided that all of these properties did
not warrant further work and subsequently these claims were allowed to lapse.
They are no longer owned by the company.

In January and February, 2005 we acquired, by staking on-line,
four additional claim blocks in central and northern British Columbia for a
total area of approximately 27,140 hectares. Some reconnaissance prospecting was
completed on the claims with no further work warranted. All of the claims were
allowed to lapse and are no longer owned by the company.

In September, 2005 we acquired by staking on-line, one
additional claim block of approximately 1,906 hectares located approximately
50km north of the Turnagain property. Some reconnaissance prospecting was
completed on the claim with no further work warranted. The claim block was
allowed to lapse and is no longer owned by the company.

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In March, 2006 we acquired by staking on-line, one additional
claim block of approximately 4,489 hectares located approximately 130km
southeast of the Turnagain property. Some reconnaissance prospecting was
completed in the summer of 2006. It was determined that no further work was
warranted and the claims were allowed to lapse in 2008. They are no longer owned
by the company.

In May, 2006 we acquired by staking on-line, two additional
claim blocks which are known as the Lime 1 and Lime 2 properties. They consist
of approximately 1,133 hectares and are located approximately 15km and 35km west
of the Turnagain property. Some reconnaissance prospecting was completed in the
summer of 2006 with additional follow up work completed in 2008. Work was filed
on the properties with the expiry date of the properties extended until
September 30, 2010.

In July, 2006 we acquired by staking on-line, one additional
claim block consisting of approximately 18,050 hectares located on the west side
of Vancouver Island approximately 130km west of Campbell River, B.C. Some
reconnaissance prospecting was completed in late 2006. It was determined that no
further work was warranted and the claims were allowed to lapse in 2008. They
are no longer owned by the company.

On October 11, 2006 we acquired by legal action, one additional
claim block which is known as the Bobner property. It consists of approximately
150 hectares and is located approximately 8km west of the Turnagain property.
Some reconnaissance prospecting was completed in the summer of 2008. An
additional area of 305 hectares contiguous to the existing claim area was added
by map staking in August 2008. Work was filed on the property with the expiry
date of the properties extended until July 5, 2012.

On April 16, 2007 we acquired by staking on-line, one
additional claim block consisting of approximately 1,971hectares located on the
west side of Vancouver Island approximately 45km southwest of Gold River, B.C.
Some reconnaissance prospecting was completed on the claim in 2008 with no
further work warranted. The claim block was allowed to lapse and is no longer
owned by the company.

On August 25, 2008 we acquired by staking on-line, a claim
block known as the Dease Lime property located approximately 48km west of the
Turnagain property. Additional on-line staking on July 13, 2009 was completed to
increase the claim size to approximately 1069 hectares. Some reconnaissance
prospecting was completed in the summer of 2009. Work was filed on the property
with the expiry date of a portion of the property to March 1, 2012.

On November 20, 2009 we acquired by staking on-line, an
additional claim block known as the Wheaton Lime property. It is located
approximately 20km southwest of the Turnagain property and covers approximately
1360 hectares. Some reconnaissance prospecting is planned for the summer of
2010.

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, 2008,
we have drilled 273 core holes for a total depth of 76,367m (250,548 feet).
Approximate total exploration expenditure during this period was
CAN$28,300,000.

As of December 31, 2009, we had approximately $1,900,000 in
working capital, which is not sufficient to cover our operating costs for the
next twelve months at $92,000 per month plus our anticipated 2010 exploration
program of approximately $1,800,000. The anticipated shortfall of $1,000,000 was
covered by the private placement announced in March 2010 which saw the Company
issue 4,000,000 units at $0.25 per unit for gross proceeds of $1,000,000 as well
as the May 2010 exercise of 2,109,461 share purchase warrants for proceeds of
$632,838.

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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 four 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. We intend to conduct prospecting and sampling on the
Wheaton Lime property in 2010.

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 9 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 should
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

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. Exploration in British Columbia has experienced a dramatic revival in
the past two years and increased activity is forecast for the future. 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.

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.

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.

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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 $187,900 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.

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
$187,900 in total reclamation bonds with the Ministry of Energy, Mines and
Petroleum Resources.

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We are not aware of any existing environmental liability
associated with any of our exploration properties but if such liability should
arise, we may have to pay a lot of money to fix it or pay compensation, which
would reduce the amount of money we have to spend on exploration and could
possibly cause us to go out of business. Our potential exposure to liability for
environmental damage is very 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 will likely 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.
The Company is currently looking at other property acquisitions in Canada but
outside the Province of British Columbia. Hard Creek Nickel Corporation is
incorporated in the Province of British Columbia only and is not registered to
do business outside this province. Canadian Metals Exploration Ltd. is
incorporated nationally across Canada and is registered to do business in each
province. If the Company were to acquire exploration properties outside British
Columbia but still in Canada, these properties would be registered in the
subsidiary Canadian Metals Exploration Ltd.

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, of which the Turnagain is
presently considered the most significant and is described below. The Bobner,
Dease Lime, Lime, Lime 2 and Wheaton Lime are believed to contain favorable
geology. We intend to conduct some prospecting and sampling on the Turnagain and
the Wheaton Lime properties in 2010.

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 $48,880 per year and the lease expires on
September 30, 2011. 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 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.
This facility rents 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 $139,000 located at our Vancouver Office and the Turnagain camp.
We lease a photocopier at the rate of $700 per three months. Satellite internet
and telephone service at our Turnagain camp costs $150 per month.

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

21

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22

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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 four
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) Preliminary Assessment on the Turnagain Property dated
September 25, 2007 prepared by Tony Lipiec, P.Eng., Gerrit Vos, P. Eng. and Greg
Kulla, P. Geo. of AMEC Americas Limited in conjunction with Ronald Simpson,
P.Geo, in compliance with the requirements of National Instrument 43-101 and
Form 43-101F1 as adopted by the British Columbia Securities Commission.

3) 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.

4) Preliminary Assessment on the Turnagain Property dated April
7, 2010 prepared by Karla Mills, P.Eng., Andre de Ruijter, P.Eng., Peter Wells,
SAIMM, Guy Impey, P.Eng.,of Wardrop, a Tetra tech Company in conjunction with
Alan Lathwood, Pr.Eng., Robert Fong, P.Eng., Ronald Simpson, P.Geo., Daniel
Friedman, P.Eng., Neil Brazier, P.Eng., John Reid, AusIMM, and David Dreisinger,
Ph.D., P.Eng. in compliance with the requirements of National Instrument 43-101
and Form 43-101F1 as adopted by the British Columbia Securities

23

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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,
Tony Lipiec, Gerrit Vos, Greg Kulla, Ronald Simpson, Karla Mills, Andre de
Ruijter, Peter Wells, Guy Impey, Alan Lathwood, Robert Fong, Daniel Friedman,
Neil Brazier, John Reid, and Dr. Dreisinger are qualified persons as the term
is defined under National Instrument 43-101.

Exploration data collected during the 2003 to 2009 exploration
programs was done under the supervision of Neil Froc, P. Eng., and Tony
Hitchins, M.Sc., all employees of Hard Creek Nickel Corporation.

Location and Accessibility

The Turnagain Property consists of 65 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. Please see the
above map to see 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 65 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 date for the
65 claims in the Turnagain property as of June 28, 2010.

24

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

|Tenure Number                                                                          | Claim Name      | Area (ha) | Issue Date  | Expiry Date
|-------------------------------------------------------------------------------------- | --------------- | --------- | ----------- | -----------
|Legacy Mineral Claim                                                                  
|407627                                                                                 | PUP 4           | 500.0     | 2004/jan/01 | 2019/jan/01
|On-Line Cell Mineral Claims                                                           
|501131                                                                                 | Drift 1         | 422.0     | 2005/jan/12 | 2019/jan/12
|501168                                                                                 | Drift 2         | 421.8     | 2005/jan/12 | 2019/jan/12
|501234                                                                                 | Drift 3         | 421.7     | 2005/jan/12 | 2019/jan/12
|501298                                                                                 | Drift 4         | 421.8     | 2005/jan/12 | 2019/jan/12
|508218                                                                                 | Dinah 1         | 407.2     | 2005/mar/03 | 2019/mar/03
|508219                                                                                 | Dinah 2         | 407.1     | 2005/mar/03 | 2019/mar/03
|508221                                                                                 | Dinah 3         | 406.9     | 2005/mar/03 | 2019/mar/03
|508222                                                                                 | Dinah 4         | 406.7     | 2005/mar/03 | 2019/mar/03
|508223                                                                                 | Dinah 5         | 407.1     | 2005/mar/03 | 2019/mar/03
|508225                                                                                 | Dinah 6         | 407.1     | 2005/mar/03 | 2019/mar/03
|508226                                                                                 | Dinah 7         | 254.6     | 2005/mar/03 | 2019/mar/03
|508227                                                                                 | Dinah 8         | 407.3     | 2005/mar/03 | 2019/mar/03
|508228                                                                                 | Dinah 9         | 135.5     | 2005/mar/03 | 2019/mar/03
|508229                                                                                 | Dinah 10        | 203.4     | 2005/mar/03 | 2019/mar/03
|528780                                                                                 | T1              | 67.7      | 2006/feb/23 | 2019/feb/23
|528781                                                                                 | T2              | 203.3     | 2006/feb/23 | 2019/feb/23
|528782                                                                                 | T3              | 152.6     | 2006/feb/23 | 2019/feb/23
|528784                                                                                 | T4              | 288.3     | 2006/feb/23 | 2019/feb/23
|528787                                                                                 | T5              | 169.6     | 2006/feb/23 | 2019/feb/23
|528788                                                                                 | T6              | 270.2     | 2006/feb/23 | 2019/feb/23
|528789                                                                                 | T7              | 422.5     | 2006/feb/23 | 2019/feb/23
|528790                                                                                 | T8              | 253.6     | 2006/feb/23 | 2019/feb/23
|Converted Legacy to On-Line
        Cell Mineral Claims (April 2005 and November 2007)
|503365                                                                                 | Hard 2          | 793.3     | 2005/jan/14 | 2019/feb/18
|510889                                                                                 | Flat 10, 13, 15 | 1627.9    | 2005/apr/18 | 2019/apr/07
|510892                                                                                 | Flat 2, 6       | 1219.3    | 2005/apr/18 | 2019/apr/07
|510910                                                                                 | Flat 9, 12, 14  | 1424.3    | 2005/apr/18 | 2019/apr/07
|510911                                                                                 | Flat 1, 5       | 1066.9    | 2005/apr/18 | 2019/apr/07
|510912                                                                                 | Flat 8, 11      | 779.9     | 2005/apr/18 | 2019/apr/07
|511214                                                                                 | Hard 4, 6       | 979.9     | 2005/apr/20 | 2019/feb/18
|511226                                                                                 | Hill 1, 2       | 1216.1    | 2005/apr/20 | 2019/feb/18
|511227                                                                                 | Hill 3          | 506.7     | 2005/apr/20 | 2019/feb/17
|511230                                                                                 | Hill 4, 5       | 760.5     | 2005/apr/20 | 2019/feb/17
|511234                                                                                 | Hill 6          | 185.9     | 2005/apr/20 | 2019/feb/16
|511244                                                                                 | Hard 5, 7       | 489.9     | 2005/apr/20 | 2019/feb/18
|511251                                                                                 | Hard 8          | 473.4     | 2005/apr/20 | 2019/feb/17
|511257                                                                                 | Hill 9, 10      | 1014.4    | 2005/apr/20 | 2019/feb/17
|511279                                                                                 | Hard 9, 10      | 896.7     | 2005/apr/20 | 2019/feb/17
|511304                                                                                 | Hill 7, 8       | 1149.7    | 2005/apr/21 | 2019/feb/17
|511305                                                                                 | Hound 3         | 271.0     | 2005/apr/21 | 2019/sep/27
|511306                                                                                 | Turn 2, Flat 7  | 881.2     | 2005/apr/21 | 2019/feb/19
|511329                                                                                 | Hound 1, 2      | 1015.4    | 2005/apr/21 | 2019/sep/27

25

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|511330 | Cub                    | 592.6  | 2005/apr/21 | 2018/dec/01
|------ | ---------------------- | ------ | ----------- | -----------
|511337 | Cub 10, 18, Pup 1      | 1065.8 | 2005/apr/21 | 2018/dec/01
|511340 | Cub 17                 | 253.9  | 2005/apr/21 | 2018/dec/01
|511344 | Turn 1, Bear 2         | 271.0  | 2005/apr/21 | 2019/feb/19
|511347 | Flat 3, 4              | 474.3  | 2005/apr/21 | 2019/apr/07
|511348 | Cub 2                  | 389.4  | 2005/apr/21 | 2018/dec/01
|511586 | Pup 2                  | 236.9  | 2005/apr/25 | 2019/jan/01
|511593 | Pup 3                  | 101.5  | 2005/apr/25 | 2019/jan/01
|511627 | Cub 11                 | 592.1  | 2005/apr/25 | 2018/dec/01
|511628 | Hard 1                 | 709.0  | 2005/apr/25 | 2019/feb/18
|511629 | Hard 3                 | 472.9  | 2005/apr/25 | 2019/feb/18
|570454 | Bear 1                 | 456.8  | 2007/nov/22 | 2019/may/26
|570455 | Bear 19, Bear 21 to 28 | 237.0  | 2007/nov/22 | 2019/may/26
|570456 | Bear 3 to 18           | 220.2  | 2007/nov/22 | 2019/may/26
|570457 | Bear 20                | 16.9   | 2007/nov/22 | 2019/may/26
|609390 | FLAT 7                 | 254.6  | 2009/jul/21 | 2011/sep/20
|609394 | FLAT 6                 | 407.4  | 2009/jul/21 | 2011/sep/20
|609396 | FLAT 8                 | 203.8  | 2009/jul/21 | 2011/sep/20
|609397 | FLAT 5                 | 407.4  | 2009/jul/21 | 2011/sep/20
|609398 | FLAT 4                 | 407.4  | 2009/jul/21 | 2011/sep/20
|609403 | FLAT 3                 | 407.3  | 2009/jul/21 | 2011/sep/20
|609423 | FLAT 2                 | 407.3  | 2009/jul/21 | 2011/sep/20
|609424 | FLAT 1                 | 424.2  | 2009/jul/21 | 2011/sep/20

The four cell claims from Tenure 570454 to 570457 in the list
with an issue date of November 22, 2007 indicates a group of claims once held in
trust by the Supreme Court of British Columbia. In February 2004, we filed an
action in the Supreme Court of British Columbia against Mr. Wolf Wiese, a former
consultant to our company. The action sought the transfer to our company of
claims neighboring the Turnagain property, which were staked in the name of Mr.
Wiese. We believed that these claims should have been staked in the name of the
Company. On July 10, 2006 the Supreme Court of British Columbia ordered that the
claims be transferred to our company. The transfer of ownership was completed on
October 11, 2006. Mr. Wiese has subsequently filed a Notice of Appeal of the
Order. The appeal was heard and dismissed on April 30, 2007 in the British
Columbia Court of Appeals with costs payable to the Company.

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

26

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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 2895 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.

27

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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.

28

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Present Condition of the Property

No mining operations have taken place on the property. Diamond
drill casings have been left in place and the locations of the bore holes marked
with labeled fence posts. There are approximately 32 km of unpaved roads and
trails on the property, constructed from the late 1960s to the present.
Reclamation work has been and will be performed on disused roads.

A camp, consisting of 17 wall tents, 3 trailers and drill core
storage facilities, capable of accommodating approximately 30 people, has been
constructed. A 930 meter unpaved air strip is adjacent to the camp. Power is
provided by an on-site diesel generator.

The property is without known reserves and our proposed work
program is exploratory in nature.

Mineralization

A number of mineral showings, located during early exploration
on the Turnagain property, consist of scattered to semi-massive (15-30%)
magmatic pyrrhotite (a common iron sulphide mineral) with minor pentlandite (an
iron and nickel sulphide mineral) in altered ultramafic rock, which is rock rich
in iron and magnesium, low in silica and modified by hot, water-rich fluids.
Extensive drilling in the Horsetrail Zone on the Turnagain property during the
2002-2008 period has outlined broad zones of disseminated to intercumulus
(between silicate grains) sulphide mineralization near the gradual transition
from dunite to wehrlite. Textures observed in surface exposures and drill core
samples suggest that both the sulphide and silicate minerals settled, under the
influence of gravity, from a hot, liquid magma, originally located several miles
beneath the earths surface.

Within the broad zone of disseminated intercumulus
mineralization, which cmprises sulphide grains located between silicate minerals
in the Horsetrail area, the sulphide grains range in size from 0.5mm to 5mm with
curved contacts against oval olivine grains. Pyrrhotite is the most abundant
sulphide, but usually encloses conspicuous pentlandite crystals
(nickel-iron-sulphur mineral), especially in the higher grade intervals.
Chalcopyrite (copper-iron sulphide), when present, is often along the margins of
the pyrrhotite and has on been found during our exploration of the property] as
minute streaks extending away from the sulphide grain. We have also identified
trace to minor quantities of bornite (another copper-iron sulphide), native
copper, valleriite, mackinawite, smythite (complex iron-nickel-cobalt-copper
sulphide minerals), and several unnamed Ni-Fe-Cu-Co sulphides in metallurgical
concentrates in our exploration of the property.

The Horsetrail Zone is the most significant zone of nickel
sulphide mineralization on the property. The exploration drilling that we
conducted between 2002 and the end of 2008 has expanded the area of
mineralization from the original surface showing of weathering sulphides, to
encompass an area 1.8km long by 0.8km wide. The mineralization in the Horsetrail
Zone is made up of several northwest to west-northwest striking zones averaging
greater than 0.25% sulphide nickel separated by intervals of lower grade nickel
sulphide mineralization. Because of the results of our exploration on the
property, we believe that mineralization in the Horsetrail Zone dips steeply to
the north. We have intersected the mineralization 300m below the surface.

Our exploration drilling has intersected nickel sulphide
mineralization in several other areas, located within a kilometre of the
Horsetrail Zone. Additional drilling is necessary to determine extent and
significance of these mineralized areas. However, since the mineralization and
host rocks in the Horsetrail and at least one of the other areas are very
similar in appearance and composition, we believe that additional drilling will
establish that the Horsetrail nickel sulphide mineralization is connected to the
nickel sulphide mineralization in at least one of the other areas (the Hatzl
Zone).

In the Horsetrail Zone, we have found evidence of low-grade
nickel near the surface, which could likely be mined using open-pit mining.
Also, a number of our drilling samples indicate the possibility that there are
higher grade zones farther down (0.4% to 1.0% nickel).

29

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Platinum and palladium mineralization has been intersected in
several drill holes in the D.J. Zone, located on the Turnagain property
approximately three km northwest of the Horsetrail Zone. This mineralization is
usually found in a light to medium green colored rock composed dominantly of
pyroxene (calcium-magnesium silicate) crystals with variable amounts of
magnetite and minor sulphide grains.

Textural and analytical data suggest an interpreted location
near the roof of the original ultramafic intrusion. Platinum and palladium
values in drill holes include 2407 parts per billion over 2 meters in hole
04-59, 1645 parts per billion over 2.15 meters in hole 04-44, 1530 parts per
billion over 13 meters in hole 05-88 and 2320 parts per billion over 2 meters in
hole 05-101. Preliminary analysis has identified minor arsenic and antimony in
association with platinum and palladium, respectively, but it is not clear
whether the mineralization is dominantly derived directly from magma or the
result of a post-crystallization hydrothermal (involving water rich fluid)
event.

Environmental Surveys

Since the timely collection of long lead-time baseline data on
the Turnagain property, such as meteorological, hydrological, water quality, and
wildlife, is important to the environmental permitting process, we initiated
collection of water quality data and wildlife observations in 2003. The program
was expanded in 2004 to 2009 period to include hydrological measurements on Hard
Creek, Faulkner Creek, Flat Creek and Turnagain River, ground water quality in
the Horsetrail Zone and meteorological data (temperature, precipitation,
evaporation, wind speed and direction). A preliminary study to determine the
presence and species of fish in the Turnagain River and tributaries of Hard
Creek was conducted in 2004 and expanded in 2006. A detailed fish habitat study
of Hard Creek and Hard Lake was completed in 2007.

Although the primary purpose of a geochemical soil survey that
we conducted in 2003 was to locate mineralization, it also provided information
on background levels of 38 elements in the soil, over the ultramafic complex,
prior to any significant future surface disturbance. Our collection of water
quality, hydrological, meteorological, and wildlife data on the Turnagain
property will continue throughout the exploration phase, including the next
twelve months.

Metallurgical Test Work

Metallurgical test work has been an integral part of our
Turnagain property exploration programs; primarily to address the feasibility of
producing an acceptable nickel sulphide concentrate from low grade
mineralization where much of the nickel was thought to be locked in the olivine
crystals and thus unavailable for economic recovery. Between 1998 and 2005
approximately 33 drill core composite samples and subjected them to a series of
preliminary metallurgical studies to establish the process response of the
nickel and cobalt, mineralization. Mineral process testing included conventional
froth flotation and some scoping work for gravity and magnetic separation
techniques. The metallurgical studies were conducted by recognized, independent
testing laboratories, including Lakefield Research, of Lakefield, Ontario;
Process Research Associates Ltd., of Vancouver, British Columbia; Billiton
Process Research, in South Africa; and Cominco Engineering Services Ltd. (CESL),
in Vancouver. All test work by Hard Creek Nickel Corp. and predecessor companies
was supervised by consulting metallurgist and former Company Director, Frank
Wright, P. Eng up until October 2007.

Since October 2007 to the present John Hoffert, P.Eng. a
consulting metallurgical engineer with Hoffert Processing Services (HPS) has
been contracted as the Turnagain Project Manager and is supervising all
metallurgical and mill process design work. Completed testwork includes;

| | - | Pressure oxidation, crushing, grinding and abrasion
      testwork at SGS, Lakefield, Ontario                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | - | Quantitative mineralogy, mineral processing flotation
      testing including QEMSCAN and Microprobe analyses at Xstrata Process
      Services, Sudbury, Ontario
| | - | Mineralogy, grinding, flotation scoping, locked cycle
      flotation and pilot plant test work at G&T Laboratories, Kamloops,
      British Columbia            

30

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| | - | Ultra fine gravity concentration testing at Met-Solve
      Laboratories Inc, Vancouver British Columbia                                                                             
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | - | Mineralogy, flotation scoping, locked cycle flotation and
      pressure oxidation testing of the Activox® Process by Western Minerals
      Technology Pty. Ltd. in Perth Australia.
| | - | Pressure oxidation testing of the Nickel Chloride Leach
      Process at Outotec Research Facility in Pori, Finland.                                                                 

Jim Gulyas, P.Eng. of AMEC Americas Limited of Vancouver, B.C.
was contracted in November 2008 to provide an overview of the hydrometallurgical
plant options available to the Company to extract nickel and cobalt from the
Turnagain concentrate. As a result of the overview the Company entered into an
agreement in January 2009 with Norilsk Processing Technology Pty. Ltd. to
determine the viability of the Activox® Process on Turnagain concentrate. This
work was completed by Western Minerals Technology Pty. Ltd. in Perth Australia
in 2009.

A second hydrometallurgical plant option utilizing the Outotec
Nickel Chloride Leach process was also identified and tested at Pori, Finland in
2009.

Metallurgical testwork continues towards refining the
parameters necessary for projecting actual mill performance suitable for
producing a marketable concentrate or a concentrate for hydrometallurgical plant
feed. This work is being managed and supervised under the direction of Mr. John
Hoffert, P.Eng. (HPS).

Recommendations and Cost Estimate

The following program for the complete 2010 year for the
Turnagain Property was recommended to our company by Neil Froc, P. Eng. in April
of 2010. On-site field work will initiate on July 5, 2010 and should be
completed within a couple months. Additional short (less than a week) site
visits maybe required within 2010.

|Project Management (Camp Watchman, Geologists, Professional
      Advisors, etc.)                      | $422,000  
|------------------------------------------------------------------------------------------------------ | ----------
|On-Site Work (transportation, camp costs, etc.)                                                        | $87,000   
|Software maintenance and upgrades                                                                      | $8,000    
|Permitting Studies (Further environmental, First Nations
      agreements and traditional use studies) | $181,000  
|Metallurgical test work and services                                                                   | $1,000,000
|Contingencies                                                                                          | $102,000  
|Total                                                                                                  | $1,800,000

The program is directed primarily on refining the process
parameters necessary for projecting actual mill performance, determining the
viability of producing a marketable concentrate, and establishing solid First
Nations relationships.

Item
5           Operating and
Financial Review and Prospects

The following discussion and analysis of our financial
condition and results of operations for the fiscal years ended December 31, 2009
and 2008 should be read in conjunction with our financial statements and related
notes included in this annual report in accordance with Item 8  Financial
Information. Our financial statements included in this annual report were
prepared in accordance with Canadian generally accepted accounting principles
(GAAP). Please refer to Note 13 Differences Between Canadian and United
States Generally Accepted Accounting Principles and Practices. The primary
difference between the two generally accepted accounting principles on the
Balance Sheet is under United States GAAP the costs of acquiring mineral
properties and mineral rights are capitalized then subject to impairment
testing. If these acquiring costs do not pass the impairment test, then they are
expensed through the Consolidated Statement of Operations. Under United States GAAP, exploration
costs are always expensed as incurred on the Consolidated Statement of
Operations which reconciles to the difference in Shareholders Equity and the
Consolidated Statement of Operations between United States and Canadian GAAP.

31

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*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, 2007 Compared to Year Ended December
31, 2006

For the years ended December 31, 2007 and 2006, we did not
receive any revenue from our interest in any of our properties.

During fiscal 2007, the Company incurred a net loss of
$1,778,211 ($0.03 per share) compared to a net loss of $228,931 ($0.01 per
share) in fiscal 2006. Our General and administrative expenses for 2007 were
$2,852,726, up from $1,534,578 in the prior year. The increase of $1,318,148 can
be attributed to the following. There was a $273,201 increase in investor
relations stock-based compensation and the $399,872 increase in investor
relations expenses. Consulting fees in 2007 were $979,706 while in 2006,
consulting fees were $281,023, the increase of $698,683 is due primarily from
the $683,707 increase in consulting stock based compensation. Professional fees
of $147,111 in 2007 were down $57,000 from $204,250 the previous year.

During the year ended December 31, 2007, the Company incurred
exploration expenses of $7,178,716 on the Turnagain property (2006: $5,509,087).
Drilling expenses for 2007 were 54% of the total exploration expense up slightly
from the 52% in 2006. Field activity resumed in May 2007, and prior thereto,
efforts were focused on compiling and analyzing data from the 2006 program. The
drill program, which began in early June and ended in mid November, comprised of
75 holes and approximately 24,600 metres of drilling. The focus of the 2007
drill program was to (i) determine the spatial limits of the Horsetrail deposit
with step-out drill holes; (ii) upgrade the confidence in the inferred portion
of the Horsetrail deposit; (iii) collect large diameter drill core samples for
further detailed metallurgical testwork; (iv) further explore the extent of the
PGE mineralization in the DJ and DB areas; and (v) drill test three exploration
target areas; the Mandible, Central and the Cliff Areas.

In December 2007, AMEC Americas Limited completed a Preliminary
Assessment. The Assessment is based on a measured, indicated and inferred
mineral resource estimate completed by AMEC. This estimate incorporates a
revised and expanded geological interpretation of the Horsetrail zone and
peripheral area which includes 19 drill holes from the 2007 drilling
program.

The next phase of metallurgical testwork will be primarily
directed towards refining the parameters necessary for projecting actual mill
performance. This testwork will be carried out by Xstrata Process Support (XPS)
in Falconbridge, Ontario, G&T Laboratories in Kamloops, B.C., and at SGS in
Lakefield Ontario. The XPS testwork consists of quantitative mineralogy, mineral
processing flotation testing including QEMSCAN and Microprobe analyses, one
rougher and one cleaner test for mineralogy and metallurgical alignment.
Additional hydrometallurgical testwork is also being completed at SGS for
completion in early 2008. The G&T testwork includes locked cycle, open cycle
testing. The SGS testwork will also be focused on completing a variety of
crushing, grinding and abrasion testwork.

32

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Year Ended December 31, 2008 Compared to Year Ended December
31, 2007

During fiscal 2008, the Company incurred a net loss of
$1,958,267 ($0.03 per share) compared to a net loss of $1,778,211 ($0.03 per
share) in fiscal 2007. Our General and administrative expenses for 2008 were
$2,524,141,down from $2,852,726 in the prior year. The decrease of $328,585 can
be attributed to the following; There was $426,700 of financing costs associated
with the re-pricing of share purchase warrants. Consulting fees in 2008 were
$150,180 while in 2007, consulting fees were $979,706, the decrease of $829,526
is due primarily from the $812,452 decrease in consulting stock based
compensation. Professional fees of $280,935 in 2008 were up $133,824 from
$147,111 the previous year primarily from the Cornerstone Agreement with the
Kaska Dena and the TSX application.

During the year ended December 31, 2008, the Company incurred
exploration expenses of $3,522,375 on the Turnagain property (2007: $7,178,716).
Drilling expenses for 2008 were 23% of the total exploration expense down
significantly from the 54% in 2007.

Field activity resumed in June 2008, and prior thereto, efforts
were focused on compiling and analyzing data from the 2007 program. The program
was significantly smaller than the 2007 program with a total of 4,105 metres of
diamond drilling in 15 holes. Four of these holes were drilled in the Cliff Zone
area. One hole was abandoned in the Cliff Zone near the Turnagain River due to
difficult overburden conditions.

One of the Horsetrail holes was drilled horizontal to test an
area which has been selected as a potential adit site. An adit maybe required in
2009 to provide a bulk sample for future pilot plant testing. It also provided
confirmation testing of the deposit geological model as well as valuable
geotechnical information which will aid in developing future pit design
parameters.

Another of the Horsetrail holes was drilled between the present
proposed pit and the Turnagain River to provide hydrogeological and acid base
accounting information which will be required as part of future environmental
and pit design work. In addition, a similar shallow (30 metres) drill hole has
been drilled at the southern end of the airstrip.

Field work was completed in early September 2008.

On June 17, 2008 a new resource estimate was completed by AMEC
Americas Limited of Vancouver, B.C. The updated resource is a 45% increase in
Measured resources and 14% increase in Indicated resources using all the new
drill information from the 2007 exploration program. A total of 66,393 metres
(217,825 feet) of diamond drilling in 257 drill holes were used in interpolating
grade in the resource area. This total includes 16,533 metres of diamond
drilling in 53 holes drilled in late 2007 which were not available for use in
the 2007 resource estimate and results of a re-assay program on 4,317 samples
completed in 2008.

Metallurgical testwork continued towards refining the
parameters necessary for projecting actual mill performance. The testwork being
carried out by Xstrata Process Support (XPS) in Falconbridge, Ontario was
completed and a report on the results was received dated June 17, 2008. The XPS
testwork consisted of quantitative mineralogy, mineral processing flotation
testing including QEMSCAN and Microprobe analyses, one rougher and one cleaner
test for mineralogy and metallurgical alignment.

SGS in Lakefield Ontario continued work on crushing, grinding,
and abrasion testwork. A simulation summary on the suggested overall grinding
circuit was provided by SGS on July 3, 2008. Additional work is being considered
for finalizing the design parameters.

Additional hydrometallurgical testwork has also been completed
at SGS under the direction of Dr. David Dreisinger with a draft summary letter
report completed on June 22, 2008. The report outlines the simplified process
design flow sheet which involves pressure leaching of the concentrate to
dissolve copper, nickel and cobalt. It concludes that the hydrometallurgical
testing on the two Hard Creek concentrates as provided has been highly
successful. Dr. Dreisinger provided recommendations for the next steps in moving
forward to develop the hydrometallurgical process.

33

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Jim Gulyas, P.Eng. of AMEC Americas Limited of Vancouver, B.C.
was contracted in November 2008 to provide an overview of the hydrometallurgical
plant options available to the Company to extract nickel and cobalt from the
Turnagain concentrate. As a result of the overview the Company entered into an
agreement in January 2009 with Norilsk Processing Technology Pty. Ltd. to
determine the viability of the Activox® Process on Turnagain concentrate. This
work will proceed in the 2nd quarter of 2009.

Locked cycle and open cycle testwork of the Phase I Test
Program at G&T Laboratories in Kamloops, B.C. has been completed. The
optimum scoping test conditions have been determined. The locked cycle testing
utilizing these conditions on the two major composites (A and B) and the open
circuit testing on the first 16 variability composites has also been completed.
An additional five low sulphur composites were collected and tested (Samples 17
to 21). A final report from G&T on the Phase I Testwork was received in
October 2008.

The objective of the present Phase II testwork at G&T
Laboratories is to develop a plant design using conventional grinding and
flotation technology with reduction of nickel recovery losses in the cleaner
circuit aimed at producing a concentrate for feed into the future
hydrometallurgical plant. This work will also define the reagent scheme and
nickel flotation kinetics for future pilot plant testing and plant design. This
work should be completed in the 2nd quarter of 2009.

Discussions initiated in 2004 with First Nations resulted in
the signing of the October 15, 2008 Cornerstone Agreement. This agreement lays
the foundation of a respectful, cooperation and progressive relationship to
facilitate the development of the Turnagain Project between the Kaska Dena and
the Company. The details of a Socio-Economic Participation Agreement (SEPA) are
presently being negotiated with the Kaska Dena. Discussions are also on-going
with the Tahltan to develop similar type agreements.

Year Ended December 31, 2009 Compared to Year Ended December
31, 2008

During fiscal 2009, the Company incurred a net loss of
$1,477,538 ($0.02 per share) compared to a net loss of $1,958,267 ($0.03 per
share) in fiscal 2008. The administrative expenses for 2009 were $1,238,438,
down from $2,524,141 in the prior year. Total administrative expenses include a
non-cash expense to recognize the fair value of stock options granted and
vested; these amounts were $149,060 and $317,436 in 2009 and 2008, respectively.
Excluding these items, the 2009 administrative expenses were $1,089,378, down
from $2,206,705 in 2008. Investor relations expenses in 2009 were $127,593
(2008: $597,397), a decrease of $469,804 or 79% due primarily from the decrease
in participation in resource and investment shows and investor relations
contracts with firms in the United States, Canada and Europe. Travel and
promotion expenses in 2009 were $33,773 (2008: $114,745), a decrease of $80,972
or 71% primarily from the reduction in travel to participate in resource and
investment shows. The Company incurred costs of $6,527 (2008: $44,662) from the
write-down of abandoned properties during 2009. Financing costs in 2009 were
$Nil (2008: $426,700) since there were no equity transactions or re-pricing of
warrants or stock options. Office and general expenses in 2009 were $314,950
(2008: $380,328) down $65,378 or 17% primarily from the TSX listing fee the
Company incurred during the previous year. Consulting expenses for 2009 were
$6,800 (2008: $150,180) down $143,380 or 95% primarily from the cost cutting of
non essential administrative services. The Company incurred $268,000 in
management fees in 2009 compared to $154,000 in 2008, an increase of $114,000 or
74% primarily from the addition of one senior executive. In general, there were
no other areas with significant increases or decreases compared to the previous
year. Excluding amortization, financing costs and stock based compensation, the
total general and administrative expenses for the year were approximately
$89,000 per month compared to $147,000 per month in 2008. During 2009 the
Company earned $22,688 from short term investments in GICs (2008: $463,052), a
decrease of $440,364 or 95% primarily from the reduction in the companys cash
position from operations and the exploration program over the previous twelve
months. Future income taxes for 2009 was $261,788 (2008: ($102,822)), an
increase of $364,610 primarily from the change in tax and resource pools as a
result of an audit by the Canada Revenue Agency, refer to Note 8 of the
Company's 2010 annual audited financial statements.

34

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During the year ended December 31, 2009, the Company incurred
exploration expenses of $2,454,835 on the Turnagain property (2009: $4,505,695).
This $2,050,860 reduction of exploration expenses was primarily the result of
the Company not conducting any exploration drilling during 2009 and changing its
efforts primarily on the Turnagain relational drill hole database, geological
and mineralization model refinement, metallurgical testwork and continued
discussions with the Kaska Dena and Tahltan.

Discussions initiated in 2004 with the Kaska Dena and Tahltan
have resulted in the signing of the October 15, 2008 Cornerstone Agreement and
the July 13, 2009 Traditional Knowledge Protocolwith the Kaska Dena and the
September 15, 2009 Memorandum of Understanding with the Tahltan Central Council.
A draft of a Kaska Dena Traditional Knowledge Report on the Turnagain Project
has been completed with the final document anticipated in 2010. These agreements
and reports will lay the foundation of a respectful, cooperative and progressive
relationship to facilitate the development of the Turnagain Project between the
Tahltan, Kaska Dena, and the Company. The details of a Socio-Economic
Participation Agreement (SEPA) are being negotiated with the Kaska Dena.
Discussions are also on-going with the Tahltan to develop similar type
agreements.

During 2009 the Company has developed an extensive relational
drill hole database and contracted Ron Simpson, P.Geo., of GeoSim Services Inc.
to provide an update of the Turnagain resource which includes all of the
drilling results to date. The update was released on May 25, 2009. The table
below presents the estimate of the resource of the Turnagain Nickel deposit
using a 0.10% AC-Ni cut-off, of 695 million tonnes of Measured and Indicated
resources at 0.174% AC-Ni and an additional 510 million tonnes of Inferred
resources at 0.173% AC-Ni. Blocks with estimated sulphur content below 0.35%
were excluded from the mineral resource. A total of 72715 metres of diamond
drilling in 273 drill holes were used to develop the resource model.

Mineral Resource Estimate

|Cut-off Grade of 0.10% AC-Ni * | Tonnage     | % AC - Ni | % total Ni | % total Co
|------------------------------ | ----------- | --------- | ---------- | ----------
|Measured                       | 213,270,000 | 0.182     | 0.230      | 0.014     
|Indicated                      | 481,742,000 | 0.170     | 0.210      | 0.014     
|Measured + Indicated           | 695,012,000 | 0.174     | 0.216      | 0.014     
|Inferred                       | 510,818,000 | 0.173     | 0.199      | 0.014     

*Note: % AC- Ni refers to nickel
in sulphide minerals.

The updated resource utilizes all the recent drill hole
information to date, including holes from the 2008 exploration program. Historic
drill holes and analytical results prior to 2002 (1967  1998 inclusive) were
not used in the estimate.

The bulk of the metallurgical testwork completed in 2009 was
designed towards developing improved mill performance characteristics. This
testwork was carried out by G&T Metallurgical Services Ltd. (G&T) in
Kamloops, BC, and Western Minerals Technology Pty Ltd (WMT) a division of
Norilsk Processing Pty Ltd (NPT) in Perth, Australia. This work was managed and
supervised under the direction of Mr. John Hoffert, P.Eng. of Hoffert Processing
Solutions Inc. (HPS). Gary Johnson, WMTs Managing Director also provided
metallurgical consulting services to the Company.

The laboratory portions of the Phase II metallurgical testwork
program focused on developing a plant design using conventional grinding and
flotation technology with reduced nickel recovery losses, lower reagent
consumption and higher nickel grade in the flotation circuit has been completed.
G&T conducted the program with supporting test work carried out by WMT at
their Perth facilities. Final reports related to the Phase II program has been
completed and were received on November 17, 2009.

The reagent scheme and nickel flotation kinetics developed
during the Phase II program were utilized in a pilot plant facility at G&T
Laboratories in Kamloops to create a range of concentrates under the direct
supervision of HPS and WMT during the month of August 2009.

Some of the pilot plant concentrates were used in batch
laboratory testing to develop potential hydrometallurgical refining processes.
All of the concentrates were shipped to Perth for amenability testing of the Activox® process in early September 2009. Initial
Activox® hydrometallurgical tests have been completed with the final results and
report received December 7, 2009. A concentrate sample was also shipped from
Perth to the Outotec Research Center in Pori, Finland to conduct Nickel
Chloride Leach amenability testing as an alternative to the Activox® process.
This work was completed with the final report received Feb 8, 2010.

35

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Wardrop was contracted on August 11, 2009 to update the
existing January 2008 PA. Results on the update were released on March 5, 2010.
The report was filed on SEDAR on April 9, 2010.

The PA recommends open pit mining, milling at a rate of 87,000
tonnes per day, conventional flotation, and Outotecs chloride leach process
followed by on-site nickel solvent extraction  electrowinning (SX-EW) metal
refining. With a base case long term price of $8.50 per lb nickel and $17.50 per
lb cobalt (all financial data are $U.S.), the study shows the project has a
pre-tax Net Present Value of $715 million using an 8% discount rate. The mine
would recover 1.88 billion pounds of payable nickel at an average life of mine
strip ratio of 0.74 to 1 with an overall refined nickel recovery of 52.8% over
24.4 years.

Capital costs for the mine, process plant, refinery and
infrastructure development are estimated to be $2.92 billion.

The highlights from the PA were as follows:

Base Case Assumptions (without escalation):

Nickel Price: $8.50 per lb. Cobalt Price: $17.50 per lb.
Exchange Rate: $0.90 U.S. $ / Can $

Resources:

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

| | Measured + Indicated: | 695,012,000 tonnes @ 0.216% Ni
      and 0.014% Co
| | --------------------- | --------------------------------------------------
| | Inferred:             | 510,818,000 tonnes @ 0.199% Ni
      and 0.014% Co

Mining and Production:

| | Strip Ratio (LOM)     | - - - - - | 0.74 to 1                                                 
| | --------------------- | --------- | ----------------------------------------------------------
| | Annual Throughput     | - - - - - | 31,138 million tonnes                                     
| | Daily Milling Rate    | - - - - - | 87,000 tonnes                                             
| | Total Ore Milled      | - - - - - | 761.2 million tonnes @ 0.212% Ni
      and 0.014% Co      
| | Mill Recoveries       | - - - - - | 55.3% of Ni and 49.8% of Co                               
| | Refinery Recoveries   | - - - - - | 95.6% of Ni and 95.0% of Co                               
| | Annual Payable Metal: | - - - - - | 35,006 tonnes (77.0 million
      pounds) Ni as metal     
| |                       | - - - - - | 2,003 tonnes ( 4.4 million
      pounds) Co as precipitate

|Capital Cost:            | - - - - - | $2,925 million                                               
|------------------------ | --------- | -------------------------------------------------------------
|                         |           |                                                              
|Operating Costs:         | - - - -   | $10.65 per tonne milled                                      
|                         | - - - - - | $ 3.30 per pound of Ni, net of
      cobalt byproduct credits
|                         |           |                                                              
|Life of Mine:            | - - - - - | 24.4 years                                                   
|                         |           |                                                              
|Payback:                 | - - - - - | 8.1 years                                                    
|                         |           |                                                              
|Internal Rate of Return: | - - - - - | 10.7%                                                        

|Net Present Value (NPV) at 8% discount rate: | $715 million
|-------------------------------------------- | ------------

36

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On average, the Turnagain project will produce 35,000 tonnes
(77 million pounds) of payable nickel metal per year with a C1 cost of $3.30 per
pound. The C1 operating cost is defined as the cash cost incurred at each
processing stage, from mining through to recoverable nickel metal delivered to
market, net of byproduct credits (cobalt).

Based on the findings of the PA, Wardrop concluded that the
project is potentially mineable and recommendations have been made for the
Company to proceed to pre-feasibility level. The Company will proceed with the
recommendations presented in the final PA document which was filed on SEDAR
April 9, 2010.

Plan of Operation

As of June 28, 2010, we had approximately $2,000,000 in cash
and $142,000 in mining tax credit receivables, which is sufficient to cover our
operating costs for fiscal year 2010 at an estimated $92,000 per month plus the
remaining $1,000,000 of our $1,800,000 budgeted 2010 exploration program.

We will hire contractors, consultants and additional employees
over the next twelve months and intend to purchase additional office equipment
for these new employees.

*B.*         
*Liquidity and Capital Resources*

At December 31, 2009, we had working capital of $1,891,359.
Accounts payable and accrued liabilities at December 31, 2009 were $285,527.

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 of June 28, 2010, we had approximately $2,000,000 in cash
and $142,000 in mining tax credit receivables, which is sufficient to cover our
operating costs for fiscal year 2010 at an estimated $92,000 per month plus the
remaining $1,000,000 of our $1,800,000 budgeted 2010 exploration program.

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.

Application of Critical Accounting Policies

The preparation of financial statements in conformity with
applicable generally accepted accounting principles requires our management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting periods.

Our management routinely makes judgments and estimates about
the effects of matters that are inherently uncertain. As the number of variables
and assumptions affecting the probable future resolution of the uncertainties
increase, these judgments become even more subjective and complex. We have
identified certain accounting policies, described below, that are the most
important to the portrayal of our current financial condition and results of
operations. Our significant accounting policies are disclosed in Note 3 to our
financial statements included in this annual report.

37

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Going concern

Our financial statements are prepared on the basis that we will
continue as a going concern. The going concern basis of presentation assumes we
will continue in operation for the foreseeable future, which is a minimum of one
year from the balance sheet date, and will be able to realize our assets and
settle our liabilities and commitments in the normal course of business. Our
ability to continue as a going concern and to realize our assets and discharge
our liabilities when due in the normal course of business is dependent upon the
existence of economically recoverable mineral reserves and our ability to raise
adequate financing from lenders, shareholders and other investors to support
such business activities. During the year ended December 31, 2009, the Company
did not have any equity transactions and ended the fiscal year with $1,891,359
in working capital. Management believes that the working capital on hand will
not be sufficient for the planned operating and exploration activities during
the next twelve months and additional financing of $1 million will be needed to
fund the shortfall. If expenditures in the next twelve months exceed planned
levels and we are not able to obtain financing, we will be required to curtail
operations and exploration activities. The financial statements do not reflect
adjustments, which could be material, to the carrying values of assets and
liabilities which may be required should we be unable to continue as a going
concern.

Stock based compensation

The Company may grant, from time to time, stock options to
executive officers, directors and consultants. The Company records all stock
based awards at fair value as determined using the Black-Scholes option pricing
model. All stock based awards to employees and non-employees are measured at the
time of grant, or revision, and the fair value attributed is charged to
operations, allocated to specific asset accounts, and recognized over the
vesting period. Upon exercise, the fair value of share purchase options or
specified warrants is allocated from the contributed surplus account to share
capital.

Use of estimates

The preparation of financial statements in conformity with
Canadian generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Significant areas requiring the use of management
estimates relate to the determination of impairment of assets, mineral property
interest carrying values, useful lives of equipment for amortization,
determination of fair value for stock based transactions, fair value of
financial instruments, qualifying expenditures for refundable and non-refundable
tax credits, timing of receipt of refundable tax credits, and future income
taxes. Financial results as determined by actual events could differ from those
estimates.

Mining Tax Credits

Mining tax credits are recorded as either a reduction of the
cost of applicable assets or credited in the statement of loss and comprehensive
loss depending on the nature of the expenditures giving rise to the credits.
Claims for tax credits are accrued upon the Company attaining reasonable
assurance of acceptance and payment entitlement from the appropriate government
agency. Changes in interpretation of the relevant legislation and rules
governing these tax credits may result in adjustments to the credits recorded in
the statements.

Foreign Currency

Substantially all of our transactions are conducted in Canadian
dollars.

38

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Financial Instruments

The Company follows CICA Handbook Section 3855, Financial
Instruments. This section prescribes when a financial instrument is to be
recognized on the balance sheet and at what amount. Under Section 3855,
financial instruments must be classified into one of five categories:
held-for-trading, held-to-maturity, loans and receivables, available-for-sale
financial assets, or other financial liabilities. All financial instruments,
including derivatives, are measured at the balance sheet date at fair value
except for loans and receivables, held-to-maturity investments, and other
financial liabilities which are measured at amortized cost.

The Companys financial instruments consist of cash and cash
equivalents, recoverable taxes, mining tax credits, miscellaneous receivables,
and accounts payable. Cash and cash equivalents, which is measured at its face
value, representing fair value, is classified as held-for-trading. Recoverable
taxes, mining tax credits, and miscellaneous receivables are classified as loans
and receivables and are measured at amortized cost. Accounts payable, which is
measured at amortized cost, is classified as other financial liabilities. Unless
otherwise noted, it is managements opinion that the Company is not exposed to
significant interest, currency or credit risks arising from these financial
instruments. The fair value of these financial instruments approximates their
carrying values, unless otherwise noted.

For the years ended December 31, 2009 and 2008, the Company has
no derivatives or embedded derivatives.

Inflation

We do not believe that inflation has had a material impact on
our revenues or income over the past two fiscal years. However, increases in
inflation could result in increases in our expenses. To the extent that
inflation results in rising interest rates and has other adverse effects on
capital markets and the economy, it could adversely affect our financial
position and profitability.

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

We do not currently, and did not previously, have research and
development policies in place. Over the past three fiscal years, we have not
expended any material amounts on research or development.

*D.*         
*Trend Information*

Our business is the exploration for and development of nickel
mineral deposit, so the commodity price of nickel has a direct impact on our
revenue prospects and our ability to raise capital. Although we do not know when
this trend will stop, management is optimistic that the current price level will
continue for the foreseeable future.

*E.*         
*Off-Balance Sheet Arrangements*

We do not have any off-balance sheet arrangements that have, or
are reasonably likely to have, a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resource that is material
to investors.

*F.*         
*Tabular Disclosure of Contractual Obligations*

We do not have any contractual obligations and commitments as
of December 31, 2009 that will require significant cash outlays in the
future.

39

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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 Company                                                                                                                                                                                                                                                                                                                                                                                                  
|------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Mark Jarvis Director and Chief Executive Officer
      Age: 55     | 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: 58                                 | 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: 64                                        | 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.                                                                                                                                                                                                                                                                  
|Lyle Davis Director Age: 54                                        | 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.                                                                                                                                                                 
|Brian Fiddler Controller and Chief Financial Officer
      Age: 48 | 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: 48                         | 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: 51                           | 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.

40

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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.

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.

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.

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.

41

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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*

During the fiscal year ended December 31, 2008 the aggregate
remuneration paid to directors in their capacity as directors of our company was
$Nil. Management fees totaling $154,000 were paid to our directors and officers.
Geological and consulting fees totaling $292,400, together with $203,056 worth
of our securities were paid to directors and officers.

During the fiscal year ended December 31, 2009 the aggregate
remuneration paid to directors in their capacity as directors of our company was
$24,000. Management fees totaling $268,000 were paid to our directors and
officers. Geological and consulting fees totaling $160,000, together with
$157,239 worth of our securities were paid to directors and officers.

Executive Compensation

The following table provides a summary of compensation paid by
us during the fiscal year ended December 31, 2009 and 2008 to our chief
executive officer and to our next four most highly paid executive officers who
received a combined salary and bonus during such period in excess of $100,000
(collectively, with the chief executive officer, the Named Executive):

|**Name and** **principal** **position**                              | Year
        Ending                            | **Salary(10)**
        
        (**$)** | **Share-** **based**
        **awards** **($)** | **Option-** **based**
        **awards
        ($)** | Non-equity incentive
        plan compensation **($)** | Pension value
        ($) | All other compen-
        sation ($) | Total **compen-**sation ($)
|-------------------------------------------------------------------- | ---------------------------------------------- | --------------------------------------- | ----------------------------------------------- | ---------------------------------------------------- | ------------------------------------------------------ | ------------------------- | ------------------------------------ | ---------------------------
|Annual **incentive**
        plans                                   | Long-
        term
        **incentive** plans
|Mark Jarvis 
        President 
        and CEO(1)(9)                | 12/31/09 
        12/31/08                     | 102,000 
        25,500                 | Nil 
        Nil                                | 52,929 
        97,084                               | Nil 
        Nil                                       | Nil 
        Nil          | Nil 
        Nil                     | Nil 
        Nil           
|Brian 
        Fiddler 
        CFO(2)(3)                            | 12/31/09 
        12/31/08                     | 90,000 
        60,000                  | Nil 
        Nil                                | 18,088 
        9,967                                | Nil 
        Nil                                       | Nil 
        Nil          | Nil 
        Nil                     | 2,000 
        Nil         
|Neil Froc 
        Executive 
        Vice- 
        President(4)(5) | 12/31/09 
        12/31/08                     | 150,000 
        150,000                | Nil 
        Nil                                | 11,457 
        19,934                               | Nil 
        Nil                                       | Nil 
        Nil          | Nil 
        Nil                     | 10,000 
        Nil        

42

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|Name
        and principalposition              | Year
        Ending                | Salary(10)
        ($) | Share- based awards ($) | Option-
        based awards ($) | Non-equity
        incentive plan compensation ($) | Pension
        value ($) | All other
        compen- sation ($) | Total compen- sation ($)
|----------------------------------------------- | ---------------------------------- | ---------------------- | ----------------------- | -------------------------------- | -------------------------------------------------- | ------------------------- | ------------------------------------ | ------------------------
|Annual
        incentive plans                  | Long-
        term incentive plans
|Leslie Young 
        Corporate Secretary(6)(7) | 12/31/09 
        12/31/08         | 72,000 
        68,500 | Nil 
        Nil        | 14,336 
        Nil              | Nil 
        Nil                                   | Nil 
        Nil          | Nil 
        Nil                     | 2,000 
        Nil      

|(1) | Mark Jarvis was appointed Chief Executive Officer and
      President of the Company on January 9, 2004.                                                                                                                                                                                                                   
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                            
|(2) | Brian Fiddler was appointed as Chief Financial Officer of
      the Company on January 9, 2003.                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                            
|(3) | Effective March 20, 2009, the Company entered into a one
      year consulting agreement with Brian Fiddler pursuant to which Mr. Fiddler
      serves as the Chief Financial Officer and is paid a monthly salary of
      $7,500.                                                                                        
|    |                                                                                                                                                                                                                                                                                                                            
|(4) | Neil Froc was appointed as Executive Vice President of
      the Company on June 5, 2006.                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                            
|(5) | Effective June 5, 2009, the Company entered into a one
      year employment agreement with Neil Froc pursuant to which Mr. Froc serves
      as the Executive Vice President and is paid a monthly salary of
      $12,500.00.                                                                                            
|    |                                                                                                                                                                                                                                                                                                                            
|(6) | Leslie Young was appointed as Corporate Secretary of the
      Company on February 26, 2004.                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                            
|(7) | Effective January 2009, the Company entered into a one
      year employment agreement with Leslie Young pursuant to which Ms. Young
      serves as the Corporate Secretary and is paid a monthly salary of
      $6,000.00.                                                                                              
|    |                                                                                                                                                                                                                                                                                                                            
|(8) | The value of perquisites including property or other
      personal benefits provided to an NEO that are generally available to all
      employees, and that in the aggregate are worth less than $50,000, or are
      worth less than 10% of an NEOs total salary for the financial year are
      not reported herein.
|    |                                                                                                                                                                                                                                                                                                                            
|(9) | Effective October 1, 2009 the Company entered into a one
      year employment agreement with Mark Jarvis pursuant to which Mr. Jarvis
      serves as President and Chief Executive Officer and is paid a monthly
      salary of $8,500.00.                                                                              

*C.*         
*Board Practices*

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, Tom Milner, George Sookochoff 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.

43

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We currently do not have a remuneration or compensation
committee.

*D.*         
*Employees*

As of June 28, 2010, we have seven full-time employees,
including two of our officers. We do not have any relationship with any labor
unions.

*E.*         
*Share Ownership*

There were 66,545,052 Common Shares issued and outstanding as
of June 28, 2010. Of the shares issued and outstanding, warrants held and stock
options granted, our directors and officers owned the following Common Shares as
of June 28, 2010:

|Name              | Number of Common Shares Beneficially Owned as of June 22, 2010 | Percentage(1)
|----------------- | -------------------------------------------------------------- | -------------
|Mark Jarvis       | 6,007,756 (2)                                                  | 8.57%        
|George Sookochoff | 350,000(3)                                                     | 0.50%        
|Tom Milner        | 410,000(4)                                                     | 0.58%        
|Lyle Davis        | 470,000(5)                                                     | 0.67%        
|Brian Fiddler     | 344,768(6)                                                     | 0.49%        
|Leslie Young      | 235,000(7)                                                     | 0.40%        
|Neil Froc         | 639,000(8)                                                     | 0.91%        

|(1) | Based on 66,545,052 Common Shares issued and outstanding
      as at June 28, 2010, and the number of shares issuable upon the exercise
      of issued and outstanding stock options and warrants which are exercisable
      within 60 days of June 28, 2010.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes stock options to purchase up to 1,350,000 of our
      Common Shares at exercise prices ranging from $.30 - $1.00 per share
      expiring up to October 15, 2014.                                                                                    
|(3) | Includes stock options to purchase up to 350,000 of our
      Common Shares at exercise prices ranging from $.30 - $0.75 per share
      expiring up to October 15, 2014.                                                                                      
|(4) | Includes stock options to purchase up to 300,000 of our
      Common Shares at exercise prices ranging from $.30 - $1.00 per share
      expiring up to February 17, 2014.                                                                                     
|(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 October 15, 2014.                                                                                      
|(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 October 15, 2014.                                                                                            
|(7) | Includes stock options to purchase up to 225,000 of our
      Common Shares at exercise prices ranging from $0.30 - $1.00 per share
      expiring October 15, 2014.                                                                                           
|(8) | Includes stock options to purchase up to 600,000 of our
      Common Shares at exercise prices ranging from $0.30 - $1.00 per share
      expiring October 15, 2014.                                                                                           

44

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The voting rights attached to the Common Shares owned by our
officers and directors do not differ from those voting rights attached to shares
owned by people who are not officers or directors of our company.

Stock Option Plan

We have an incentive stock option plan that provides for the
grant of incentive stock options to purchase our common shares to our directors,
officers and key employees and other persons providing ongoing services to us.
Our stock option plan is administered by our board of directors. The maximum
number of our common shares which may be reserved and set aside for issuance
under our stock option plan is equal to 10% of the number of common shares
outstanding from time to time on a non-diluted basis. Each option upon its
exercise entitles the grantee to one Common Share. The exercise price of Common
Shares subject to an option will be determined by the board of directors at the
time of grant and will be not less than the discounted market price of the
Common Shares at the date of grant, as determined under the policies of the TSX
Venture Exchange. Options may be granted under our stock option plan for an
exercise period of up to five years from the date of grant of the option or such
lesser periods as may be determined by our board of directors.

During the fiscal year ended December 31, 2009 we had the
following stock options outstanding to our directors and officers:

|Name              | Number of Options | Exercise Price | Expiry Date      
|----------------- | ----------------- | -------------- | -----------------
|Mark Jarvis       | 1,550,000         | $0.30  1.00   | October 15, 2014 
|Tom Milner        | 550,000           | $0.30  2.20   | February 17, 2014
|George Sookochoff | 350,000           | $0.30  0.75   | October 15, 2014 
|Lyle Davis        | 450,000           | $0.30  1.00   | October 15, 2014 
|Brian Fiddler     | 300,000           | $0.30  1.00   | October 15, 2014 
|Leslie Young      | 250,000           | $0.30  1.00   | October 15, 2014 
|Neil Froc         | 650,000           | $0.30  1.00   | October 15, 2014 

Item 7Major Shareholders and Related Party Transactions

*A.*         
*Major Shareholders*

The following table sets forth, as of June 28, 2010, the only
person known to us to be the beneficial owner of more than five (5%) of our
Common Shares:

|Name of
      Shareholder | No. of Common
      Shares Owned | Percentage of
      Outstanding Common Shares(1)
|------------------------- | -------------------------------- | ------------------------------------------------
|Mark Jarvis               | 6,007,756(2)                     | 8.57%                                           

|(1) | Based on 66,545,052 Common Shares issued and outstanding
      as at June 28, 2010, and the number of shares issuable upon the exercise
      of issued and outstanding stock options and warrants which are exercisable
      within 60 days of June 28, 2010.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                
|(2) | Includes stock options to purchase up to 1,350,000 of our
      Common Shares at exercise prices ranging from $0.30  1.00 per share
      expiring October 15, 2014.                                                                                          

Over the last three years, there has been only one significant
change in the percentage held by a major shareholder, Mark Jarvis acquired more
than 5% of the Company during the fiscal year 2004, details of his holdings are
listed in the above table.

45

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The voting rights of our major shareholders do not differ from
the voting rights of holders of our common shares who are not major
shareholders.

As at June 28, 2010, the registrar and transfer agent for our
  company reported that there were 66,545,052 common shares of our company issued
  and outstanding. Of these, 64,171,018 were registered to Canadian residents
  (59 shareholders), 2,240,841 were registered to residents of the United States
  (9 shareholders) and 133,193 were registered to residents of other foreign countries
  (23 shareholders).

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*

Other than as disclosed below, to the best of our knowledge,
there have been no material transactions since formation of our company to which
we were or are a party and in which any of our directors or officers, any
relative or spouse of any director or officer, or any individual owning,
directly or indirectly, an interest in our voting power that gives it
significant influence over us, has or will have a direct or indirect material
interest nor were any of our directors or officers, any relatives or spouses of
such directors or officers, or any individuals owning, directly or indirectly,
an interest in our voting power that gives them significant influence over us,
indebted to us during this period. The services provided by the related parties
were billed to the Company at standard industry rates.

|                                                         | Year Ended December 31,
|-------------------------------------------------------- | -----------------------
|2009                                                     | 2008                   
|Mark Jarvis (Director) 
        President and CEO       | $102,000               
|Tom Milner (Director) 
        Exploration Expenditures | $Nil                   
|Tom Milner (Director) 
        Director fees            | $8,000                 
|George Sookochoff (Director) Exploration Expenditures   | $Nil                   
|George Sookochoff 
        (Director) Director fees     | $8,000                 
|Lyle Davis (Director) 
        Director Fees            | $8,000                 
|Neil Froc (VP) 
        Exploration Expenditures        | $160,000               
|Brian Fiddler (CFO) 
        Management fees            | $92,000                
|Leslie Young (Secretary) 
        Management fees       | $74,000                

46

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The terms of these transactions were determined through
negotiations between our company and the related party. In determining the terms
of these transactions, the company looked at rates of other mining consultants,
both past and present, contracted by the company as well as reviewing
remuneration statistics published by various human resource firms specializing
in the mining industry. We believe that each of these transactions was on terms
at least as favorable as we could have obtained from unaffiliated third
parties.

Mr. Jarvis (Former Director), an employee, is a professional
executive who oversees the company on behalf of the shareholders; his fees are
expensed as management fees. Mr. Milner (Director), a consultant, is a
professional engineer who oversees the metallurgical testing of the Turnagain
Nickel Project for the company; his fees are expensed as director fees. Mr.
Sookochoff (Director), a consultant, is a computer professional who oversees the
exploration data management of the Turnagain Nickel Project for the company, his
fees are expensed as director fees. Mr. Froc (VP), an employee, is a
professional engineer who oversees the engineering and technical studies of the
Turnagain Nickel Project for the company; his salary is expensed as mineral
property exploration costs. Mr. Davis (Director), a consultant, is a
professional executive who oversees the corporate governance of the company, his
fees are expensed as director fees. Mr. Fiddler (CFO), a consultant, is a
professional accountant who oversees the financial, corporate management and
supervision of the affairs and business of the company, his fees are expensed as
management fees. Ms. Young (Corporate Secretary), an employee, is responsible
for the internal accounting and record keeping, general administration and
treasury functions of the company, her salary is expensed as management
fees.

*C.*         
*Interests of Experts and Counsel*

None of the named experts or counselors employed on a
contingent basis owns shares in our company or our subsidiary or has a material,
direct or indirect economic interest in our company or that depends on the
offering.

Item 8Financial Information

*A.*ConsolidatedFinancial Statements and Other Financial
Information

Our financial statements are stated in Canadian dollars and are
prepared in accordance with accounting principles generally accepted in Canada
with a note and account reconciliation to accounting principles generally
accepted in the United States of America.

Financial Statements filed as part of this annual report
:

Financial Statements of Hard Creek Nickel Corporation for
the years ended December 31, 2009 and 2008 reported on by Dale Matheson
Carr-Hilton LaBonte, Chartered Accountants.

| | Report of Independent Registered Public Accounting Firm
      Dale Matheson Carr-Hilton LaBonte, Chartered Accountants dated March 17,
      2010
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                  
| | Consolidated Balance Sheets as at December 31, 2009 and
      2008                                                                               
| |                                                                                                                                                  
| | Consolidated Statements of Loss and Comprehensive Loss
      for the years ended December 31, 2009, 2008 and 2007                                
| |                                                                                                                                                  
| | Consolidated Statements of Deficit for the years ended
      December 31, 2009, 2008 and 2007                                                    
| |                                                                                                                                                  
| | Consolidated Statements of Cash Flows for the years ended
      December 31, 2009, 2008 and 2007                                                 
| |                                                                                                                                                  
| | Notes to Consolidated Financial Statements                                                                                                       

47

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Legal Proceedings

As of June 28, 2010, there are no legal proceedings to which
our company is a party and, to our knowledge, no such proceedings are pending.

Dividend Distributions

Our company has not paid our shareholders any dividends since
our inception to date. Any future payment of dividends or distributions will be
determined by the board of directors of our company on the basis of our
companys earnings, financial requirements and other relevant factors.
Successful operation of our business is subject to a number of risks and
uncertainties, including those described under the heading Risk Factors.

*B.*         
*Significant Changes*

The management of our company is not aware of any significant
changes since the date of our most recent interim financial statements.

Item 9The 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, 2005 through to December 31,
2009) 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:

|Year/PeriodEnded | High  | Low  
|---------------- | ----- | -----
|31-Dec-05        | $0.58 | $0.36
|31-Dec-06        | $1.04 | $0.55
|31-Dec-07        | $3.26 | $0.76
|31-Dec-08        | $1.06 | $0.08
|31-Dec-09        | $0.35 | $0.09

Full Financial Quarters (two most recent financial years)

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

|QuarterEnded | High  | Low  
|------------ | ----- | -----
|31-Mar-08    | $1.06 | $0.60
|30-Jun-08    | $0.84 | $0.51
|30-Sep-08    | $0.58 | $0.27
|31-Dec-08    | $0.30 | $0.08

48

---

|31-Mar-09 | $0.20 | $0.09
|--------- | ----- | -----
|30-Jun-09 | $0.21 | $0.17
|30-Sep-09 | $0.35 | $0.16
|31-Dec-09 | $0.28 | $0.16

The high and low market prices for 2009, for each financial
quarter on the TSX Exchange is as follows:

|Quarter Ended | High  | Low  
|------------- | ----- | -----
|31-Mar-09     | $0.20 | $0.09
|30-Jun-09     | $0.21 | $0.17
|30-Sep-09     | $0.35 | $0.16
|31-Dec-09     | $0.28 | $0.16

We have no principle trading market outside of our host market,
the TSX Exchange. We have not had any trading suspensions in the last three
years.

The securities being offered herein are equity shares in our
common stock. These shares are registered shares not bearer shares. Each
shareholder is entitled, without charge, to one certificate representing the
share or shares of each class or series of shares held by the shareholder.

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. As of June 28, 2010, we had 66,545,052 Common Shares
and no Class A Preference Shares issued and outstanding.

Our directors may, subject to the rights of the holders of the
issued shares of the Company, issue, allot, sell, grant options on or otherwise
dispose of the unissued shares, and issued shares held by the Company, at the
times, to the persons, including directors, in the manner, on the terms and
conditions and for the issue prices that the directors, in their absolute
discretion, may determine.

A transfer of a share of the Company must not be recorded or
registered:

(a) unless a duly signed instrument of transfer in respect of
the share has been received by the Company and the certificate representing the
share to be transferred has been surrendered and cancelled, or

(b) if no certificate has been issued by the Company in respect
of the share, unless a duly signed instrument of transfer in respect of the
share has been received by the Company.

Subject to the rights, if any, of shareholders holding shares
with special rights as to dividends, the directors may from time to time declare
and authorize payment of any dividends the directors consider appropriate.

Subject to the rights, if any, of shareholders holding shares
with special rights as to dividends, the directors may from time to time declare
and authorize payment of any dividends the directors consider appropriate.

The Class A Preference shares may include 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 the Company, as the case may be, to do
one or more of the following:

49

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(i) determine the maximum number of shares of that series that
the Company is authorized to issue, (ii) determine that there is no such maximum
number, or (iii) alter any such determination.

By resolution, the directors may also, 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 the Company, as the case
may be, to do one or more of the following:

(i) create an identifying name for the shares of that series,
or alter any such identifying name; and

(ii) attach special rights or restrictions to the shares of
that series, or alter any such special rights or restrictions.

*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.

Item 10Additional Information

*A.*         
*Share Capital*

As at June 28, 2010 we are authorized to issue an unlimited
number of Common Shares without par value and an unlimited number of Class A
Preference Shares without par value. As at June 28, 2010 we had 66,545,052
common shares issued and outstanding and no Class A Preference Shares issued and
outstanding.

On January 1, 2009 we had 60,370,592 common shares issued and
outstanding. During the year ended December 31, 2009 there were no equity
transactions so that we had 60,370,592 common shares issued and outstanding as
at December 31, 2009.

We do not own any shares of our company.

As at December 31, 2009 we had 2,719,802 warrants outstanding
as follows:

50

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|Type     | Amount    | Exercise Price | Expiration Date
|-------- | --------- | -------------- | ---------------
|Warrants | 2,709,802 | $0.30          | May 22, 2010   
|Warrants | 10,000    | $0.30          | May 29, 2010   

As at December 31, 2009 we had 5,982,500 options, each for the
purchase of one share of our common stock, outstanding as follows:

|Type    | Amount    | Exercise Price | Expiration Date   
|------- | --------- | -------------- | ------------------
|Options | 160,000   | $1.00          | January 7, 2010   
|Options | 10,000    | $0.60          | May 10, 2010      
|Options | 150,000   | $0.75          | May 19, 2010      
|Options | 795,000   | $0.75          | January 16, 2011  
|Options | 150,000   | $0.80          | June 16, 2011     
|Options | 10,000    | $0.80          | September 21, 2011
|Options | 450,000   | $2.15          | March 27, 2012    
|Options | 15,000    | $2.70          | April 23, 2012    
|Options | 22,500    | $2.80          | May 29, 2012      
|Options | 20,000    | $2.30          | July 23, 2012     
|Options | 50,000    | $2.20          | October 1, 2012   
|Options | 50,000    | $2.20          | October 10, 2012  
|Options | 50,000    | $2.20          | October 30, 2012  
|Options | 230,000   | $1.00          | April 1, 2013     
|Options | 650,000   | $1.00          | June 27, 2013     
|Options | 310,000   | $1.00          | July 22, 2013     
|Options | 1,930,000 | $0.30          | February 17, 2014 
|Options | 930,000   | $0.35          | October 15, 2014  

As at June 28, 2010 we had 2,719,802 warrants outstanding as
follows:

|Type     | Amount    | Exercise Price | Expiration Date
|-------- | --------- | -------------- | ---------------
|Warrants | 2,709,802 | $0.30          | May 22, 2010   
|Warrants | 10,000    | $0.30          | May 29, 2010   

As at June 28, 2010, we had 6,007,500 options, each for the
purchase of one share of our common stock, outstanding as follows:

|Type    | Amount  | Exercise Price | Expiration Date   
|------- | ------- | -------------- | ------------------
|Options | 775,000 | $0.75          | January 16, 2011  
|Options | 150,000 | $0.80          | June 16, 2011     
|Options | 10,000  | $0.80          | September 21, 2011
|Options | 50,000  | $2.15          | March 27, 2012    

51

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|Options | 150,000   | $0.45 | April 5, 2012    
|------- | --------- | ----- | -----------------
|Options | 15,000    | $2.70 | April 23, 2012   
|Options | 7,500     | $2.80 | May 29, 2012     
|Options | 50,000    | $2.20 | October 1, 2012  
|Options | 190,000   | $1.00 | April 1, 2013    
|Options | 500,000   | $0.41 | May 1, 2013      
|Options | 450,000   | $1.00 | June 27, 2013    
|Options | 285,000   | $1.00 | July 22, 2013    
|Options | 1,860,000 | $0.30 | February 17, 2014
|Options | 915,000   | $0.35 | October 15, 2014 
|Options | 100,000   | $0.35 | January 8, 2015  
|Options | 500,000   | $0.40 | June 10, 2015    

The following table sets forth the history of share issuances
during the past three financial years.

|Balance as at December 31, 2006            | 49,322,614
|------------------------------------------ | ----------
|Common Shares issued for cash proceeds (i) | 6,844,571 
|Warrants converted to Common Shares (ii)   | 3,760,907 
|Options converted to Common Shares (ii)    | 292,500   
|Balance as at December 31, 2007            | 60,220,592
|Options converted to Common Shares (iii)   | 150,000   
|Balance as at December 31, 2008            | 60,370,592
|No equity transactions                     | 0         
|Balance as at December 31, 2009            | 60,370,592

|(i)   | During the year ended December 31, 2007, we issued by
      private placement, 6,844,571 Common Shares for cash proceeds of
      $14,566,147.                                                           
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                          
|(ii)  | During the year ended December 31, 2007, we issued
      4,053,407 Common Shares for the exercise of 3,760,907 share purchase
      warrants and 292,500 stock options for cash proceeds of
  $3,269,876.
|      |                                                                                                                                                                                                          
|(iii) | During the year ended December 31, 2008, we issued
      150,000 stock options for cash proceeds of
$70,000.                                                                                             

*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.

52

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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,                   
| |     |                                                                                                                                                                                     
| | (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.

53

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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.

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.

54

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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.

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.

55

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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%.

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.

56

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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:

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.

57

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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 to which we are
a party. 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.

*E.*         
*Taxation*

Canadian Federal Income Taxation

We consider that the following summary fairly describes the principal Canadian federal income tax consequences applicable to a holder of our common shares who at all material times deals at arms length with our company, who holds all common shares as capital property, who is resident in the United States, who is not a resident of Canada and who does not use or hold, and is not deemed to use or hold, his common shares of our company in connection with carrying on a business in Canada (a non-resident holder).  The summary does not apply to an amount of income, profit or gain paid to or derived by a United States holder of common shares of our company who either hold their shares (i) through an entity that is not resident in the United States but by reason of the entity not being treated as fiscally transparent under the laws of Canada, the US tax treatment of the amount to the United States Holder is not the same as it would be if that amount had been derived directly by that person, or (ii) the United States holder is considered under the taxation laws of the US to have derived the amount from an entity resident of Canada but by reason of the entity being treated as fiscally transparent under the laws of the US, the US tax treatment of the amount to the United State Holder is not the same as it would be if that entity were not treated as fiscally transparent under the laws of the US.

It is assumed that the common shares will at all material times be listed on a designated stock exchange for purposes of the Income Tax Act (Canada) (the ITA) and regulations thereunder. Investors should be aware that the Canadian federal income tax consequences applicable to holders of our common shares will change if, for any reason, we cease to be listed on a designated stock exchange. Accordingly, holders and prospective holders of our common shares should consult with their own tax advisors with respect to the income tax consequences of them purchasing, owing and disposing of our common shares should we cease to be listed on a designated  stock exchange.

58

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This summary is based upon the current provisions of the ITA, the regulations thereunder, the Canada-United States Tax Convention as amended by the Protocols thereto (the Treaty) as at the date of the annual report and the currently publicly announced administrative and assessing policies of the Canada Revenue Agency (the CRA).  For purposes of the Treaty, an amount of income, profit or gain in respect of common shares of our company shall be considered to be derived by a United States resident where the person is considered under US tax law to have derived the amount through an entity (other than an entity resident in Canada) and by reason of the entity being treated as fiscally transparent under the laws of the US, the US tax treatment of the amount to the person  is the same as it would be if that amount had been derived directly by that person.

This summary does not take into account Canadian provincial income tax consequences. This description is not exhaustive of all possible Canadian federal income tax consequences and does not take into account or anticipate any changes in law, whether by legislative, governmental or judicial action. This summary does, however, take into account all specific proposals to amend the ITA and regulations thereunder, publicly announced by the Government of Canada to the date hereof.

This summary does not address potential tax effects
relevant to our company or those tax considerations that depend upon
circumstances specific to each investor. Accordingly, holders and prospective
holders of our common shares should consult with their own tax advisors with
respect to the income tax consequences to them of purchasing, owning and
disposing of common shares in our company.

Dividends

The ITA provides that dividends and other distributions deemed
to be dividends paid or deemed to be paid by a Canadian resident corporation
(such as our company) to a non-resident of Canada shall be subject to a
non-resident withholding tax equal to 25% of the gross amount of the dividend or
deemed dividend. Provisions in the ITA relating to dividend and deemed dividend
payments to and gains realized by nonresidents of Canada, who are residents of
the United States, are subject to the Treaty. The Treaty may reduce the
withholding tax rate on dividends as discussed below.

Article X of the Treaty as amended by the US-Canada Protocol ratified on November 9, 1995 provides a 5% withholding tax on gross dividends or deemed dividends paid to a United States corporation which beneficially owns at least 10% of the voting stock of the company paying the dividend and that is entitled to apply the benefits of the Treaty.  In cases where dividends or deemed dividends are paid to a United States resident (other than a corporation) or a United States corporation which beneficially owns less than 10% of the voting stock of a company, a 15% withholding tax  is imposed on the gross amount of the dividend or deemed dividend paid where the United States resident or United States corporation is entitled to apply the benefits of the Treaty. We would be required to withhold any such tax from the dividend and remit the tax directly to CRA for the account of the investor.

The reduction in withholding tax from 25%, pursuant to the
Treaty, will not be available:

| | (a) | if the shares in respect of which the dividends are paid
      formed part of the business property or were otherwise effectively
      connected with a permanent establishment or fixed base that the holder has
      or had in Canada within the 12 months preceding the disposition,
  or
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                               
| | (b) | the holder is not entitled to apply the benefits of the Treaty under the Limitation of Benefits clause in the Treaty.                                                                                                                                                                       

The Treaty generally exempts from Canadian income tax dividends
paid to a religious, scientific, literary, educational or charitable
organization or to an organization exclusively administering a pension,
retirement or employee benefit fund or plan, if the organization is resident in
the U.S. and is exempt from income tax under the laws of the U.S.

59

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Capital Gains

A non-resident holder is not subject to tax under the ITA in
respect of a capital gain realized upon the disposition of one of our shares
unless the share represents taxable Canadian property to the holder thereof.
Our common shares will be considered taxable Canadian property to a non-resident
holder only if:

| | (a) | the non-resident holder;                                                              
| | --- | --------------------------------------------------------------------------------------
| |     |                                                                                       
| | (b) | persons with whom the non-resident holder did not deal at
  arms length; or          
| |     |                                                                                       
| | (c) | the non-resident holder and persons with whom the holder did not deal at arms length,

owned not less than 25% of the issued shares of any class or series of our company at any time during the five year period preceding the disposition. In the case of a non-resident holder to whom shares of our company represent taxable Canadian property and who is resident in the United States and that is entitled to apply the benefits of the Treaty, no Canadian taxes will generally be payable on a capital gain realized on such shares by reason of the Treaty unless:

| | (a) | the value of such shares is derived principally from real
      property (including resource property) situated in Canada,                                                                                                                                                 
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                            
| | (b) | the holder was resident in Canada for 120 months during any period of 20 consecutive years preceding, and at any time during the 10 years immediately preceding, the disposition and the shares were owned by the holder when the holder ceased to be a resident of Canada,
| |     |                                                                                                                                                                                                                                                                            
| | (c) | they formed part of the business property or were otherwise effectively connected with a permanent establishment that the holder has or bad in Canada within the 12 months preceding the disposition, or                                                                   
| |     |                                                                                                                                                                                                                                                                            
| | (d) | the holder is not entitled to apply the benefits of the Treaty under the Limitation of Benefits clause in the Treaty.                                                                                                                                                    

If subject to Canadian tax on such a disposition, the
taxpayers capital gain (or capital loss) from a disposition is the amount by
which the taxpayers proceeds of disposition exceed (or are exceeded by) the
aggregate of the taxpayers adjusted cost base of the shares and reasonable
expenses of disposition. For Canadian income tax purposes, the taxable capital
gain is equal to one-half of the capital gain.

United States Federal Income Taxation

The following is a discussion of the material United States
Federal income tax consequences, under current law, applicable to a U.S. Holder
(as defined below) of our common shares who holds such shares as capital assets.
This discussion does not address all potentially relevant Federal income tax
matters and it does not address consequences peculiar to persons subject to
special provisions of Federal income tax law, such as those described below as
excluded from the definition of a U.S. Holder. In addition, this discussion does
not cover any state, local, or foreign tax consequences. (See Canadian Federal
Income Tax Consequences above.)

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

The discussion below does not address potential tax effects
relevant to our company or those tax considerations that depend upon
circumstances specific to each investor. In addition, this discussion does not
address the tax consequences that may be relevant to particular investors
subject to special treatment under certain U.S. Federal income tax laws, such
as, dealers in securities, tax-exempt entities, banks, insurance companies and
non-U.S. Holders. We encourage purchasers of the commonstock to satisfy themselves as to the overall tax
consequences of their ownership of the common stock, including the State, local
and foreign tax consequences thereof (which are not reviewed herein), and to
consult their own tax advisors with respect to their particular circumstances.

60

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U.S. Holders

As used herein, a U.S. Holder includes a beneficial holder of
common shares of our company who is a citizen or resident of the United States,
a corporation or partnership created or organized in or under the laws of the
United States or of any political subdivision thereof, any trust if a US court
is able to exercise primary supervision over the administration of the trust and
one or more US persons have the authority to control all substantial decisions
of the trust, any entity created or organized in the United States which is
taxable as a corporation for U.S. tax purposes and any other person or entity
whose ownership of common shares of our company is effectively connected with
the conduct of a trade or business in the United States. A U.S. Holder does not
include persons subject to special provisions of Federal income tax law, such as
tax-exempt organizations, qualified retirement plans, financial institutions,
insurance companies, real estate investment trusts, regulated investment
companies, broker-dealers, non-resident alien individuals or foreign
corporations whose ownership of our common shares is not effectively connected
with the conduct of a trade or business in the United States and shareholders
who acquired their shares through the exercise of employee stock options or
otherwise as compensation.

Dividend Distribution on Shares of our Company

U.S. Holders receiving dividend distributions (including constructive dividends) with respect to the common shares of our company are required to include in gross income for United States Federal income tax purposes the gross amount of such distributions to the extent that we have current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be deducted against the U.S. Holders United States Federal taxable income or may be credited against actual United States Federal tax payable, subject to certain limitations and other complex rules. See Foreign Tax Credit below. To the extent that distributions exceed our current or accumulated earnings and profits, they will be treated first as a return of capital to the extent of the shareholders basis in the common shares of our company and thereafter as gain from the sale or exchange of the common shares of our company. Preferential tax rates for net long term capital gains may be applicable to a U.S. Holder which is an individual, estate or trust.

Dividends received by individuals, estates or trusts  from qualifying foreign corporations are considered qualifying dividend income and taxed at the preferential tax rates for net long term capital gains.   This preferential treatment is set to expire at the end of 2011.  The corporation should be considered a qualifying foreign corporation for this purpose.  In addition in order for the dividend to be qualified, the share must be held for a requisite period of time.

In general, dividends paid on our common shares will not be
eligible for the dividends received deduction provided to corporations receiving
dividends from certain United States corporations.

Foreign Tax Credit

A U.S. Holder who pays (or who has had withheld from distributions) Canadian income tax with respect to the ownership of our common shares may be entitled, at the election of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. This election is made on a year-by-year basis and generally applies to all foreign income taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holders United States income tax liability that the U.S. Holders foreign source income bears to the holders world-wide taxable income. In determining the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern income such as passive income,  financial services income,  and certain other classifications of income. A U.S. Holder who is treated as a domestic U.S. corporation owning 10% or more of our voting stock is also entitled to a deemed paid foreign tax credit in certain circumstances for the underlying foreign tax of our company related to dividends received or Subpart F income received from us. (See the discussion below of Controlled Foreign Corporations). The availability of the foreign tax credit and the application of the limitations on the foreign tax credit are fact specific and holders and prospective holders of our common shares should consult their own tax advisors regarding their individual circumstances.

61

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Disposition of Common Shares

If a U.S. Holder is holding shares as a capital asset, a gain or loss realized on a sale of our common shares will generally be a capital gain or loss, and will be long-term if the shareholder has a holding period of more than one year. However, gains realized upon sale of our common shares may, under certain circumstances, be treated as ordinary income, if we were determined to be a collapsible corporation within the meaning of Code Section 341 based on the facts in existence on the date of the sale (See below for definition of collapsible corporation). The amount of gain or loss recognized by a selling U.S. Holder will be measured by the difference between (i) the amount realized on the sale and (ii) the holders tax basis in our common shares. Capital losses are deductible only to the extent of capital gains. However, in the case of taxpayers other than corporations (U.S.)$3,000 ($1,500 for married individuals filing separately) of capital losses are deductible against ordinary income annually. In the case of individuals and other non-corporate taxpayers, capital losses that are not currently deductible may be carried forward to other years. In the case of corporations, capital losses that are not currently deductible are carried back to each of the three years preceding the loss year and forward to each of the five years succeeding the loss year.

A collapsible corporation is a corporation that is formed or availed principally to manufacture, construct, produce, or purchase prescribed types of property that the corporation holds for less than three years and that generally would produce ordinary income on its disposition, with a view to the shareholders selling or exchanging their stock and thus realizing gain before the corporation realizes two thirds of the taxable income to be derived from prescribed property. Prescribed property includes: stock in trade and inventory; property held primarily for sale to customers in the ordinary course of business; unrealized receivables or fees, consisting of rights to payment for noncapital assets delivered or to be delivered, or services rendered or to be rendered to the extent not previously included in income, but excluding receivables from selling property that is not prescribed; and property gain on the sale of which is subject to the capital gain/ordinary loss rule. Generally, a shareholder who owns directly or indirectly 5 percent or less of the outstanding stock of the corporation may treat gain on the sale of the holders shares as capital gain.

Other Considerations for U.S. Holders

In the following circumstances, the above sections of this discussion may not describe the United States Federal income tax consequences resulting from the holding and disposition of common shares of the Registrant. Our management is of the opinion that there is little, if not, any likelihood that we will be deemed a  Passive Foreign Investment Company or a Controlled Foreign Corporation (each as defined below) under current and anticipated conditions.

62

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Passive Foreign Investment Company

One of the conditions for the company to be considered to be a
passive foreign investment company is that the average percentage, by value of
its assets that produce or are held for the production of passive income (such
as interest, dividends and certain rents and royalties) is 50% or more. In our
view, the average percentage by value of the companys assets that produce or
are held for the production of passive income (i.e. such as the companys cash
and short-term investments) is significantly less than 50% of the value of all
of its assets. In fact, the majority of the value of the companys assets is
comprised of the companys interest in its mineral claims and mineral property
interests in Canada, the income from which would be considered to be from an
active trade or business.

Controlled Foreign Corporation Status

In our view, the corporation will not be considered to be a
controlled foreign corporation given that not more than 50% of the total voting
power of all classes of stock or the total value of the stock of the company is
owned directly or indirectly by US holders who each hold 10% or more of the
total combined voting power of all classes of stock of the company.

ALL PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF PURCHASING THE COMMON SHARES OF OUR COMPANY.

*F.*         
*Dividends and Paying Agents*

There is no dividend restriction or any special procedure for
non-resident holders to claim dividends. However, we have not declared dividends
to our shareholders since our inception.

*G.*         
*Statements by Experts*

The financial statements of our company as of December 31, 2009
and 2008 included in this annual report have been audited by Dale Matheson
Carr-Hilton LaBonte, Chartered Accountants, of Suite 1500  1140 West Pender
Street, Vancouver, British Columbia, V6E 4G1, Canada, as stated in their reports
appearing in this annual report and have been so included in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.

63

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The technical information regarding the Turnagain Property
included in this annual report is based on the Technical Report prepared by N.C.
Carter, Ph.D., P. Eng., dated April 21, 2004, and a later technical report
prepared by R.G. Simpson, P. Eng. Both reports were prepared in compliance with
the requirements of National Instrument 43-101 and Form 43-101F1 as adopted by
the British Columbia Securities Commission. These Technical Reports were used as
supporting documentation and were filed with the British Columbia Securities
Commission and the Toronto Stock Exchange. Dr. N.C. Carter and R.G. Simpson are
qualified persons as the term is defined under National Instrument 43-101. The
information of the Technical Report appearing in this annual report has been
included in reliance upon Dr. N.C. Carter and R.G. Simpsons authority as
experts in geology. Their consent forms are attached to this document.

The 2009 exploration program on the Turnagain Property was
recommended and managed by Neil Froc, P. Eng and Tony Hitchins, M.Sc. Neil Froc
is a qualified person as the term is defined under National Instrument 43-101.
Messrs. Froc and Hitchins have been involved with exploration of the Turnagain
Property for the past six to seven years and are employees of Hard Creek Nickel
Corporation. Their consent forms are attached to this document.

*H.*         
*Documents on Display*

Upon the effectiveness of this filing, we will be subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended, and we will thereafter file reports and other information with the SEC.
You may read and copy any of our reports and other information at, and obtain
copies upon payment of prescribed fees from, the Public Reference Room
maintained by the SEC at 100 F Street, N.E. Washington, D.C. 20549. In addition,
the SEC maintains a web site that contains reports and other information
regarding registrants that file electronically with the SEC at
HTTP://www.sec.gov. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330.

We will provide without charge to each person, including any
beneficial owner, on the written or oral request of such person, a copy of any
or all documents referred to above which have been or may be incorporated by
reference in this report (not including exhibits to such incorporated
information that are not specifically incorporated by reference into such
information). Requests for such copies should be directed to us at the following
address: 1060  1090 West Georgia Street, Vancouver, British Columbia, V6E 3V7,
Canada.

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.

Item
11**Quantitative and Qualitative Disclosures About Market Risk

Our Turnagain Property is currently at the exploration stage
and our operations are limited to exploring the Turnagain Property. Therefore,
our market risks are minimal. We may, however, have future property exploration
requirements due in currencies other than the Canadian dollars. As a Canadian
company, our cash balances are kept in Canadian funds. Therefore, we may become
exposed to some interest rate risks. We consider the amount of risk to be
manageable and do not currently, nor will we likely in the foreseeable future,
conduct hedging to reduce our market risks.

64

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Item 12Description
  of Securities Other than Equity Securities

None

PART II

Item 13Defaults,
  Dividend Arrearages and Delinquencies.

None

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

Not Applicable

Item 15Controls
  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 Corporation 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 Corporation.

Our Chief Executive Officer and our Chief Financial Officer
have evaluated the effectiveness of our disclosure controls and procedures as of
December 31, 2009, 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 Corporations Chief Executive Officer and Chief Financial
Officer have concluded that our companys disclosure controls and procedures
were effective as of December 31, 2009.

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, 2009. 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 the Corporation conducted an assessment of the
effectiveness of the Corporations internal controls over financial reporting as
of December 31, 2009. Based on its assessment as per the standards of the Public
Company Accounting Oversight Board, , we concluded that the Corporations
internal controls over financial reporting were effective as of December 31,
2009.

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.

Attestation Report of the Registered Public Accounting Firm

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

65

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Changes in Internal Control over Financial Reporting

There were no changes during the period covered by this Annual
Report in the Corporations internal controls over financial reporting that have
materially affected, or are reasonably likely to materially affect the
Corporations internal control over financial reporting. For the fiscal year
ending December 31, 2010, the Company will continue to provide ongoing training
to employees to improve or enhance the segregation of duties.

Item 16[Reserved]

A.          
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.

B.          
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.

C.         
 Principal Accountant Fees and Services

Audit Fees

| | Fiscal Year 2009: $32,500 | Fiscal Year 2008: $45,872
| | ------------------------- | -------------------------

Audit-Related Fees

| | Fiscal Year 2009: $2,000 | Fiscal Year 2008: $2,000
| | ------------------------ | ------------------------

Tax Fees

| | Fiscal Year 2009: $Nil | Fiscal Year 2008: $Nil
| | ---------------------- | ----------------------

All Other Fees

| | Fiscal Year 2009: $Nil | Fiscal Year 2008: $Nil
| | ---------------------- | ----------------------

D.          
Exemptions from the Listing Standards for Audit Committees

Not Applicable

E.         
 Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not Applicable

F.         
 Change in Registrant's Certifying Accountant

Not Applicable

66

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PART III

Item 17Financial
  StatementsRefer to Item 18 - Financial Statements.

Item
18**Financial Statements

Financial Statements filed as part of the annual report:

Financial Statements of Hard Creek
Nickel Corporation for the years ended December 31, 2009, 2008 and 2007 reported
on by Dale Matheson Carr-Hilton LaBonte, Chartered Accountants.

| | Report of Independent Registered Public Accounting Firm
      Dale Matheson Carr-Hilton LaBonte, Chartered Accountants dated March 17,
      2010.
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                   
| | Consolidated Balance Sheets as at December 31, 2009 and
      2008                                                                                
| |                                                                                                                                                   
| | Consolidated Statements of Loss and Comprehensive Loss
      for the years ended December 31, 2009, 2008 and 2007                                 
| |                                                                                                                                                   
| | Consolidated Statements of Deficit for the years ended
      December 31, 2009, 2008 and 2007                                                     
| |                                                                                                                                                   
| | Consolidated Statements of Cash Flows for the years ended
      December 31, 2009, 2008 and 2007                                                  
| |                                                                                                                                                   
| | Notes to Consolidated Financial Statements                                                                                                        

67

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|Hard Creek Nickel Corporation    
|---------------------------------
|Consolidated Financial Statements
|December 31,
      2009          

|Auditors report                                             |            
|------------------------------------------------------------ | -----------
|                                                             |            
|Consolidated Balance Sheets                                  | Statement 1
|                                                             |            
|Consolidated Statements of Loss and
      Comprehensive Loss | Statement 2
|                                                             |            
|Consolidated Statements of Deficit                           | Statement 3
|                                                             |            
|Consolidated Statements of Cash Flows                        | Statement 4
|                                                             |            
|Notes to Consolidated Financial Statements                   |            
|                                                             |            
|Consolidated Schedule of Deferred
      Exploration Costs    | Schedule 1 

---



AUDITORS' REPORT

To the Shareholders of Hard Creek Nickel Corporation:

We have audited the consolidated balance sheets of Hard Creek
  Nickel Corporation (an exploration stage company) as at December 31, 2009 and
  2008 and the consolidated statements of loss and comprehensive loss, deficit and
  cash flows for the years ended December 31, 2009, 2008 and 2007. These financial
  statements are the responsibility of the company's management. Our
  responsibility is to express an opinion on these financial statements based on
  our audits.

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

In our opinion, these consolidated financial statements present
  fairly, in all material respects, the financial position of the Company as at
  December 31, 2009 and 2008 and the results of its operations and its cash flows
  for the years ended December 31, 2009, 2008 and 2007 in accordance with Canadian
  generally accepted accounting principles.

/s/ DMCL

DALE MATHESON CARR-HILTON LABONTE LLP
  DMCL CHARTERED
  ACCOUNTANTS

Vancouver, Canada 
  March 17, 2010 except for note 13 which
  is as of June 13, 2010

|COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA
|-----------------------------------------------
|-UNITED
      STATES REPORTING DIFFERENCES     

In the United States, reporting standards for auditors require
  the addition of an explanatory paragraph (following the opinion paragraph) when
  the financial statements are affected by conditions and events that cast
  substantial doubt on the Companys ability to continue as a going concern, such
  as those described in Note 1 to the financial statements. Our report to the
  shareholders dated March 17, 2010, is expressed in accordance with Canadian
  reporting standards which do not permit a reference to such events and
  conditions in the auditors report when these are adequately disclosed in the
  financial statements.

/s/ DMCL

DALE MATHESON CARR-HILTON LABONTE LLP
  CHARTERED
  ACCOUNTANTS

Vancouver, Canada 
  March 17, 2010 except for note 13 which
  is as of June 13, 2010



---

|Statement 1                     
|--------------------------------
|Hard Creek Nickel Corporation   
|Consolidated Balance Sheets     
|December 31,
      2009 and 2008

|ASSETS                                                                      |   |             |   |   |             |  
|--------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                            |   | 2009        |   |   | 2008        |  
|CURRENT                                                                     |   |             |   |   |             |  
|Cash and
      cash equivalents                                             | $ | 813,736     |   | $ | 4,125,235   |  
|Recoverable taxes                                                           |   | 21,282      |   |   | 28,286      |  
|Mining
      tax credits (Notes 3, 8)                                       |   | 1,301,506   |   |   | 2,222,020   |  
|Miscellaneous receivable                                                    |   | 1,518       |   |   | -           |  
|Prepaid
      expenses                                                      |   | 38,844      |   |   | 53,486      |  
|                                                                            |   | 2,176,886   |   |   | 6,429,027   |  
|                                                                            |   |             |   |   |             |  
|RECLAMATION BONDS                                                           |   | 187,900     |   |   | 187,900     |  
|EQUIPMENT, net of accumulated amortization
      of $83,447 (2008: $59,058) |   | 54,414      |   |   | 68,585      |  
|MINERAL PROPERTY INTERESTS (Note 4)                                         |   | 179,500     |   |   | 179,500     |  
|DEFERRED EXPLORATION COSTS (Schedule 1)                                     |   | 28,321,528  |   |   | 24,771,994  |  
|                                                                            | $ | 30,920,228  |   | $ | 31,637,006  |  
|                                                                            |   |             |   |   |             |  
|LIABILITIES                                                                 |   |             |   |   |             |  
|CURRENT                                                                     |   |             |   |   |             |  
|Accounts payable and
      accrued liabilities                              | $ | 285,527     |   | $ | 172,741     |  
|FUTURE INCOME TAXES (Note 8)                                                |   | 819,203     |   |   | 376,703     |  
|                                                                            |   | 1,104,730   |   |   | 549,444     |  
|CONTINGENCIES AND COMMITMENTS (Notes 1
      and 7)                         |   |             |   |   |             |  
|                                                                            |   |             |   |   |             |  
|SHAREHOLDERS' EQUITY                                                        |   |             |   |   |             |  
|SHARE CAPITAL (Note 5)                                                      |   | 39,562,338  |   |   | 39,562,338  |  
|CONTRIBUTED SURPLUS (Note 5)                                                |   | 4,569,349   |   |   | 4,363,875   |  
|DEFICIT                                                                     |   | (14,316,189 | ) |   | (12,838,651 | )
|                                                                            |   | 29,815,498  |   |   | 31,087,562  |  
|                                                                            | $ | 30,920,228  |   | $ | 31,637,006  |  

APPROVED BY:

|DIRECTOR | MARK JARVIS |  | DIRECTOR | LYLE DAVIS | 
|-------- | ------------- |  | -------- | ------------ | 

(See accompanying notes)

---

|Statement
        2                                   
|------------------------------------------------------
|Hard Creek Nickel Corporation                         
|Consolidated Statements of Loss and Comprehensive Loss
|Years Ended
      December 31, 2009, 2008 and 2007    

|                                                                       |   | 2009       |   |   | 2008       |   |   | 2007       |  
|---------------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                                       |   |            |   |   |            |   |   |            |  
|ADMINISTRATIVE EXPENSES                                                |   |            |   |   |            |   |   |            |  
|Amortization                                                           | $ | 24,389     |   | $ | 20,860     |   | $ | 14,528     |  
|Consulting                                                             |   | 6,800      |   |   | 150,180    |   |   | 167,254    |  
|Consulting 
      stock-based (Note 5)                                |   | -          |   |   | -          |   |   | 812,452    |  
|Director fees (Note 6)                                                 |   | 24,000     |   |   | -          |   |   | -          |  
|Financing costs (Note 5)                                               |   | -          |   |   | 426,700    |   |   | -          |  
|Office and general                                                     |   | 314,950    |   |   | 380,328    |   |   | 294,033    |  
|Investor
      relations                                               |   | 127,593    |   |   | 597,397    |   |   | 732,165    |  
|Investor relations  stock-based (Note 5)                              |   | 6,045      |   |   | 184,121    |   |   | 273,201    |  
|Legal and audit                                                        |   | 258,051    |   |   | 280,935    |   |   | 147,111    |  
|Management fees (Note 6)                                               |   | 268,000    |   |   | 154,000    |   |   | 124,000    |  
|Management fees
       stock-based (Note 5)                           |   | 142,700    |   |   | 131,322    |   |   | -          |  
|Property evaluation                                                    |   | 3,675      |   |   | 8,018      |   |   | 3,314      |  
|Property
      impairment                                              |   | 6,527      |   |   | 44,662     |   |   | 68,158     |  
|Salaries and benefits                                                  |   | 21,620     |   |   | 28,880     |   |   | 21,460     |  
|Salaries and
      benefits  stock-based (Note 5)                     |   | 315        |   |   | 1,993      |   |   | -          |  
|Travel and promotion                                                   |   | 33,773     |   |   | 114,745    |   |   | 195,050    |  
|                                                                       |   |            |   |   |            |   |   |            |  
|LOSS BEFORE OTHER INCOME AND INCOME TAXES                              |   | 1,238,438  |   |   | 2,524,141  |   |   | 2,852,726  |  
|                                                                       |   |            |   |   |            |   |   |            |  
|OTHER INCOME                                                           |   |            |   |   |            |   |   |            |  
|Interest                                                               |   | (22,688    | ) |   | (463,052   | ) |   | (134,592   | )
|                                                                       |   |            |   |   |            |   |   |            |  
|LOSS BEFORE INCOME TAXES                                               |   | 1,215,750  |   |   | 2,061,089  |   |   | 2,718,134  |  
|                                                                       |   |            |   |   |            |   |   |            |  
|FUTURE INCOME TAXES (RECOVERY) (Note 8)                                |   | 261,788    |   |   | (102,822   | ) |   | (939,923   | )
|                                                                       |   |            |   |   |            |   |   |            |  
|                                                                       |   |            |   |   |            |   |   |            |  
|NET AND COMPREHENSIVE LOSS                                             |   | 1,477,538  |   |   | 1,958,267  |   |   | 1,778,211  |  
|                                                                       |   |            |   |   |            |   |   |            |  
|                                                                       |   |            |   |   |            |   |   |            |  
|BASIC AND DILUTED LOSS PER SHARE                                       | $ | (0.02      | ) | $ | (0.03      | ) | $ | (0.03      | )
|                                                                       |   |            |   |   |            |   |   |            |  
|WEIGHTED NUMBER OF COMMON SHARES
      OUTSTANDING - BASIC AND DILUTED |   | 60,370,592 |   |   | 60,317,860 |   |   | 55,031,402 |  

(See accompanying notes)

---

|Statement 3                                       
|--------------------------------------------------
|Hard Creek Nickel Corporation                     
|Consolidated Statements of Deficit                
|Years Ended
      December 31, 2009, 2008 and 2007

|                   |   | 2009       |  |   | 2008       |  |   | 2007       | 
|------------------ | - | ---------- |  | - | ---------- |  | - | ---------- | 
|DEFICIT, BEGINNING | $ | 12,838,651 |  | $ | 10,880,384 |  | $ | 9,102,173  | 
|NET LOSS           |   | 1,477,538  |  |   | 1,958,267  |  |   | 1,778,211  | 
|DEFICIT, ENDING    | $ | 14,316,189 |  | $ | 12,838,651 |  | $ | 10,880,384 | 

(See accompanying notes)

---

|Statement 4                                               
|----------------------------------------------------------
|Hard Creek Nickel Corporation                             
|Consolidated Statements of Cash Flows                     
|For The Years
      Ended December 31, 2009, 2008 and 2007

|                                                        |   | 2009       |   |   | 2008       |   |   | 2007       |  
|------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                        |   |            |   |   |            |   |   |            |  
|OPERATING ACTIVITIES                                    |   |            |   |   |            |   |   |            |  
|Net loss                                                | $ | (1,477,538 | ) | $ | (1,958,267 | ) | $ | (1,778,211 | )
|Non cash items                                          |   |            |   |   |            |   |   |            |  
|Amortization                                            |   | 24,389     |   |   | 20,860     |   |   | 14,528     |  
|Property impairment                                     |   | 6,527      |   |   | 44,662     |   |   | 68,158     |  
|Stock-based
      compensation                          |   | 149,060    |   |   | 317,436    |   |   | 1,085,653  |  
|Financing costs                                         |   | -          |   |   | 426,700    |   |   | -          |  
|Future
      income taxes                               |   | 261,788    |   |   | (102,822   | ) |   | (939,923   | )
|                                                        |   |            |   |   |            |   |   |            |  
|Changes in operating assets and
      liabilities:      |   |            |   |   |            |   |   |            |  
|Recoverable taxes                                       |   | 7,004      |   |   | 458,435    |   |   | (258,372   | )
|Mining
      tax credits                                |   | -          |   |   | -          |   |   | (1,238,700 | )
|Miscellaneous receivable                                |   | (1,518     | ) |   | -          |   |   | -          |  
|Prepaid
      expenses                                  |   | 14,642     |   |   | 42,380     |   |   | (48,764    | )
|Accounts payable and
      accrued liabilities          |   | 112,786    |   |   | (568,091   | ) |   | 1,037,300  |  
|Due to
      related party                              |   | -          |   |   | (1,484     | ) |   | 1,484      |  
|                                                        |   |            |   |   |            |   |   |            |  
|                                                        |   | (902,860   | ) |   | (1,320,191 | ) |   | (2,056,847 | )
|                                                        |   |            |   |   |            |   |   |            |  
|INVESTING ACTIVITIES                                    |   |            |   |   |            |   |   |            |  
|Purchase of equipment                                   |   | (10,218    | ) |   | (39,090    | ) |   | (29,585    | )
|Exploration and
      development costs                 |   | (2,398,421 | ) |   | (4,293,398 | ) |   | (7,763,726 | )
|                                                        |   |            |   |   |            |   |   |            |  
|                                                        |   | (2,408,639 | ) |   | (4,332,488 | ) |   | (7,793,311 | )
|                                                        |   |            |   |   |            |   |   |            |  
|FINANCING ACTIVITIES                                    |   |            |   |   |            |   |   |            |  
|Proceeds from share issuances,
      net of issue costs |   | -          |   |   | 70,000     |   |   | 17,836,023 |  
|Net decrease in
      restricted cash                   |   | -          |   |   | -          |   |   | 163,058    |  
|                                                        |   |            |   |   |            |   |   |            |  
|                                                        |   | -          |   |   | 70,000     |   |   | 17,999,081 |  
|                                                        |   |            |   |   |            |   |   |            |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS    |   | (3,311,499 | ) |   | (5,582,679 | ) |   | 8,148,923  |  
|                                                        |   |            |   |   |            |   |   |            |  
|CASH AND CASH EQUIVALENTS, BEGINNING                    |   | 4,125,235  |   |   | 9,707,914  |   |   | 1,558,991  |  
|                                                        |   |            |   |   |            |   |   |            |  
|CASH AND CASH EQUIVALENTS, ENDING                       | $ | 813,736    |   | $ | 4,125,235  |   | $ | 9,707,914  |  
|                                                        |   |            |   |   |            |   |   |            |  
|Supplementary Information                               |   |            |   |   |            |   |   |            |  
|Cash paid for
      income tax                          | $ | -          |   | $ | -          |   | $ | -          |  
|Cash paid for interest                                  | $ | -          |   | $ | -          |   | $ | -          |  
|                                                        |   |            |   |   |            |   |   |            |  
|Cash and cash equivalents is comprised of:              |   |            |   |   |            |   |   |            |  
|Cash                                                    | $ | 65,709     |   | $ | 25,098     |   | $ | 161,914    |  
|Guaranteed Investment
      certificates                |   | 748,027    |   |   | 4,100,137  |   |   | 9,546,000  |  
|                                                        | $ | 813,736    |   | $ | 4,125,235  |   | $ | 9,707,914  |  

Non-cash transactions: 
  2007Warrants with an estimated fair value of $482,700 were issued
  to brokers as fees relating to brokered private placements. (Note 5).

2008Warrants were re-priced with an estimated fair value of
  $426,700, these warrants were previously related to brokered private placements
  in 2007 (Note 5).

(See accompanying notes)

---

|Hard Creek Nickel Corporation             
|------------------------------------------
|Notes to Consolidated Financial Statements
|December 31,
      2009                   

|1. | NATURE OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Hard Creek Nickel Corporation (the Company) is engaged
      in the acquisition and exploration of mineral properties. The Companys
      common shares are listed for trading on the Toronto Stock Exchange (TSX)
      under the symbol HNC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | These financial statements have been prepared on a going
      concern basis, which assumes the Company will realize its assets and
      discharge its liabilities in the normal course of operations. Should the
      Company be unable to continue as a going concern significant adjustment to
      asset values may be necessary. The ability of the Company to continue as a
      going concern is dependent upon the company raising sufficient financing
      to complete exploration and development activities, the discovery of
      economically recoverable reserves, and upon future profitable operations
      or proceeds from disposition of resource property interests. The Company
      presently, has not yet determined whether its mineral property contains
      economically recoverable resources. Management anticipates that the
      Company has sufficient current cash reserves to continue operations for
      the ensuing twelve months. Management is also aware that significant
      material uncertainties exist, related to current economic conditions that
      could cast significant doubt upon the entitys ability to continue to
      finance its exploration activities. As a result, management plans on
      reducing spending in order to preserve cash and maintain liquidity until
      overall market conditions improve. Management is not able to assess the
      likelihood or timing of improvements in the equity markets for raising
      capital for future acquisitions or expenditures. This uncertainty
      represents a liquidity risk and may impact the Companys ability to
      continue as a going concern in the future.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2. | CHANGES IN ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | As of January 1, 2009, the Company was required to adopt
      the Canadian Institute of Chartered Accountants (CICA) Handbook Section
      3064 Goodwill and Intangible Assets, which will replace the existing
      Goodwill and Intangible Assets standard. The new standard revises the
      requirement for recognition, measurement, presentation and disclosure of
      intangible assets. The adoption of this standard did not have any impact
      on the Companys financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | RECENT ACCOUNTING PRONOUNCEMENTS, NOT YET
      ADOPTED                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | International Financial Reporting Standards
      (IFRS)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In 2006, the Accounting Standards Board of Canada
      (AcSB) ratified a strategic plan that will result in the convergence of
      Canadian GAAP, as used by publicly accountable entities, with IFRS over a
      transitional period. The AcSB has developed and published a detailed
      implementation plan, with changeover required for fiscal years beginning
      on or after January 1, 2011. The Company has completed a scoping study and
      is in the process of reviewing the impact of this initiative on its
      financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Other pronouncements issued by the CICA or other
      authoritative accounting standards groups with future effective dates are
      either not applicable or are not expected to be significant to the
      financial statements of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|3. | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company prepares its consolidated financial
      statements in accordance with Canadian generally accepted accounting
      principles (GAAP), the more significant of which are as
      follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

---

|Hard Creek Nickel Corporation             
|------------------------------------------
|Notes to Consolidated Financial Statements
|December 31,
      2009                   

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | -------------------------------------------------
|   |                                                  
|   | b)                                               
|   |                                                  
|   |                                                  

|Computer equipment | 30% declining balance
|------------------ | ---------------------
|Vehicles           | 30% declining balance
|Equipment          | 20% declining balance

| | c) | Mineral property interests                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | The Company records its interests in mineral properties
      at the lower of cost or estimated recoverable value. Where specific
      exploration programs are planned and budgeted by management, mineral
      exploration costs are capitalized and carried at cost until the properties
      to which they relate are placed into commercial production, sold,
      abandoned or determined by management to be impaired in value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Costs incurred for acquisition, including where
      applicable, option payments under acquisition agreements, and exploration
      are capitalized until such time as the related interest is placed into
      production, sold, abandoned or management has determined impairment in
      value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Mineral property interests, where future cash flows are
      not reasonably determinable, are evaluated for impairment on a reporting
      period basis or as events and changes in circumstances warrant based on
      managements intentions and determination of the extent to which future
      exploration programs are warranted and likely to be funded.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Capitalized costs for acquisition and deferred
      exploration as reported on the balance sheet represent costs incurred to
      date or estimated recoverable value if lower than cost. Recovery of
      carrying value is dependent upon future commercial success or proceeds
      from disposition of the mineral property interests. Upon the establishment
      of commercial production, carrying values of deferred acquisition and
      exploration costs will be amortized over the estimated life of the
      resource on the units of production method.                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | d) | Stock-based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | The Company may grant, from time to time, stock options
      to executive officers, directors and consultants. The Company records all
      stock based awards at fair value as determined using the Black- Scholes
      option pricing model. All stock based awards to employees and
      non-employees are measured at the time of grant, or revision, and the fair
      value attributed is charged to operations, allocated to specific asset
      accounts, and recognized over the vesting period. Upon exercise, the fair
      value of share purchase options or specified warrants is allocated from
      the contributed surplus account to share capital.                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | e) | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | The preparation of financial statements in conformity
      with Canadian generally accepted accounting principles requires management
      to make estimates and assumptions that affect the reported amounts of
      assets and liabilities, disclosure of contingent assets and liabilities at
      the date of the financial statements and the reported amounts of revenues
      and expenses during the reporting period. Significant areas requiring the
      use of management estimates relate to the determination of impairment of
      assets, mineral property interest carrying values, useful lives of
      equipment for amortization, determination of fair value for stock based
      transactions, fair value of financial instruments, qualifying expenditures
      for refundable and non-refundable tax credits, timing of receipt of
      refundable tax credits, and future income taxes. Financial results as
      determined by actual events could differ from those
      estimates.

---

|Hard Creek Nickel Corporation             
|------------------------------------------
|Notes to Consolidated Financial Statements
|December 31,
      2009                   

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | -------------------------------------------------
|   |                                                  
|   | f)                                               
|   |                                                  
|   |                                                  
|   |                                                  
|   | g)                                               
|   |                                                  
|   |                                                  
|   |                                                  
|   | h)                                               
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  

---

|Hard Creek Nickel Corporation             
|------------------------------------------
|Notes to Consolidated Financial Statements
|December 31,
      2009                   

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | -------------------------------------------------
|   |                                                  
|   | i)                                               
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   | j)                                               
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   | k)                                               
|   |                                                  
|   |                                                  
|   |                                                  
|   | l)                                               
|   |                                                  
|   |                                                  

---

|Hard Creek Nickel Corporation             
|------------------------------------------
|Notes to Consolidated Financial Statements
|December 31,
      2009                   

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | -------------------------------------------------
|   |                                                  
|   | m)                                               
|   |                                                  
|   |                                                  
|   |                                                  
|   | n)                                               
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   | p)                                               
|   |                                                  
|   |                                                  

---

|Hard Creek Nickel Corporation             
|------------------------------------------
|Notes to Consolidated Financial Statements
|December 31,
      2009                   

|4. | MINERAL PROPERTY INTERESTS                                         
|-- | -------------------------------------------------------------------
|   |                                                                    
|   | Turnagain property acquisition costs and terms are as
      follow:

| |                   |  |   | December 31, 2009 |  |   | December 31, 2008 | 
| | ----------------- |  | - | ----------------- |  | - | ----------------- | 
| | Acquisition costs |  | $ | 179,500           |  | $ | 179,500           | 

The Company has a 100% interest in 81
  mineral claims, located along the Turnagain River in Northern British Columbia,
  Canada. One of the claims is subject to a 4% net smelter return (NSR). The
  Company has the option to purchase all or part of the NSR at any time within
  four years of commencement of commercial production for a price of $1,000,000
  per 1% NSR.

During the year ended December 31,
  2009, excluding property write-down and tax credits, the Company incurred costs
  totalling $2,454,835 (2008 - $4,505,695) (Refer to Schedule 1).

The Company also has a 100% interest in
  three other mineral properties in the vicinity of the Turnagain property
  including the Lunar, Lime, Dease Lime and Wheaton Lime claims.

In March 2006, the Company acquired by
  staking the Lunar property located Southeast of the Turnagain property. These
  claims were allowed to lapse during the first quarter of 2009, as a result, the
  Company wrote down $6,527 of costs incurred to $Nil. (Refer to Schedule 1).

In May 2006, the Company acquired by
  staking, two additional claim blocks which are known as the Lime property which
  includes non-contiguous Lime 1 and Lime 2 claim blocks. The property is located
  West of the Turnagain property. During the year ended December 31, 2009, the
  Company incurred costs totalling $810 (2008 - $7,441).

In July 2009, the Company acquired, by
  staking, the Dease Lime claims located 15 km east of the town of Dease Lake.
  During the year ending December 31, 2009, the Company incurred costs totalling
  $4,365 (2008 - $Nil).

In November 2009, the Company acquired,
  by map staking, the Wheaton Lime claims located 22 km southwest of the Turnagain
  property. During the year ending December 31, 2009, the Company incurred costs
  totalling $551 (2008 - $Nil).

|5. | SHARE CAPITAL                                  
|-- | -----------------------------------------------
|   |                                                
|   | Authorized:                                    
|   |                                                
|   | Unlimited common shares without par
      value

| |                            |  | December 31, 2009 |  |   | December 31, 2008 | 
| | -------------------------- |  | ----------------- |  | - | ----------------- | 
| |                            |  | Number of         |  |   |                   | 
| |                            |  | Shares            |  | $ |                   | 
| | Issued and outstanding:    |  |                   |  |   |                   | 
| | Balance, beginning of year |  | 60,370,592        |  |   | 39,562,338        | 
| | Exercise of options        |  | -                 |  |   | -                 | 
| | Balance, end of year       |  | 60,370,592        |  |   | 39,562,338        | 

---

|Hard Creek Nickel Corporation             
|------------------------------------------
|Notes to Consolidated Financial Statements
|December 31,
      2009                   

|5. | SHARE CAPITAL (CONTINUED)
|-- | -------------------------

2009 share transactions:

There were no share transactions for
  the year ending December 31, 2009.

2008 share transactions:

During the year ended December 31,
  2008, 150,000 share purchase options were exercised for total cash proceeds of
  $70,000. In conjunction, a fair value of $58,255 was reallocated from
  contributed surplus to share capital.

Stock Options:

The Company has a formal rolling stock
  option plan whereby options may be granted to directors, employees and/or
  consultants by the board of directors. The number of options that may be granted
  is limited to 10% of the total shares issued and outstanding. The exercise price
  of the options granted will be no less than the discounted market price of the
  Companys shares and the maximum term of the options will be 5 years or such
  longer term as permitted by the TSX. A summary of the Companys stock option
  activity is as follows:

| |                             |  | December 31, 2009 |   |   | December 31, 2008 | 
| | --------------------------- |  | ----------------- | - | - | ----------------- | 
| |                             |  |                   |   |   | Weighted          | 
| |                             |  |                   |   |   | Average           | 
| |                             |  |                   |   |   | Exercise          | 
| |                             |  | Options           |   |   | Price             | 
| | Balance, beginning of year  |  | 5,200,000         |   | $ | 0.96              | 
| | Granted                     |  | 2,870,000         |   |   | 0.32              | 
| | Exercised                   |  | -                 |   |   | -                 | 
| | Cancelled/Expired           |  | (2,087,500        | ) |   | 0.85              | 
| | Balance, end of year        |  | 5,982,500         |   | $ | 0.76              | 
| | Exercisable, at end of year |  | 5,782,500         |   | $ | 0.76              | 

During the year ended December 31,
  2009, the Company granted a total of 2,870,000 stock options to consultants and
  employees. The stock options were estimated to have a fair value of $199,358 or
  $0.07 per option. Management estimated the fair value using the Black-Scholes
  option pricing model with the assumptions as noted below. During the year ended
  December 31, 2009, $56,414 was capitalized to mineral property interests. As of
  December 31, 2009, 5,782,500 stock options have vested and 200,000 stock options
  remain unvested with total fair value of $71,200. The weighted average remaining
  lives of the vested and unvested stock options are 3.29 years and 1.18 years,
  respectively.

During the year ended December 31,
  2008, the Company granted a total of 1,795,000 stock options to consultants and
  employees. The stock options were estimated to have a fair value of $488,454 or
  $0.27 per option. Management estimated the fair value using the Black-Scholes
  option pricing model with the assumptions as noted below. The fair values of the
  option grants are expected to be recognized over the vesting periods of the
  options. As of December 31, 2008, the non-vesting portion of the 1,795,000 stock
  options fair value was $43,469. The fair value is to be recognized in the
  statement of loss and comprehensive loss at $270,079 and $6,116 for the years
  ended December 31, 2008 and 2009. During the year ended December 31, 2008,
  $212,297 was capitalized to mineral property interests.

---

|Hard Creek Nickel Corporation             
|------------------------------------------
|Notes to Consolidated Financial Statements
|December 31,
      2009                   

|5. | SHARE CAPITAL (CONTINUED)
|-- | -------------------------

During the year ended December 31,
  2007, the Company granted a total of 1,142,500 stock options to consultants and
  employees. The stock options were determined to have a fair value of $1,121,953
  or $0.98 per option. Management determined the fair value using the
  Black-Scholes option pricing model with the assumptions as noted below. The fair
  values of the option grants are expected to be recognized over the vesting
  periods of the options. The fair value is to be recognized in the statement of
  loss and comprehensive loss at $1,074,596 and $47,357 for the 2007 and 2008
  fiscal periods, respectively. During the year ended December 31, 2007, $Nil was
  capitalized to mineral property interests.

Management determined the fair value of
  the stock options using the Black-Scholes option pricing model with the
  following assumptions:

| |                         |  | 2009       |  |  | 2008     |  |  | 2007     | 
| | ----------------------- |  | ---------- |  |  | -------- |  |  | -------- | 
| | Risk-free interest rate |  | 1.98-2.58% |  |  | 2.80     |  |  | 2.80     | 
| | Dividend yield          |  | 0%         |  |  | 0%       |  |  | 0%       | 
| | Volatility factor       |  | 70-82%     |  |  | 64-88%   |  |  | 63-67%   | 
| | Expected option life    |  | 5 Yrs.     |  |  | 2-5 Yrs. |  |  | 2-5 Yrs. | 

The following stock options were
  outstanding at December 31, 2009:

| | Number of Shares |   | Exercise Price |  |  | Expiry Date        | 
| | ---------------- | - | -------------- |  |  | ------------------ | 
| |                  |   |                |  |  |                    | 
| | 160,000          | $ | 1.00           |  |  | January 7, 2010    | 
| | 10,000           |   | 0.60           |  |  | May 10, 2010       | 
| | 150,000          |   | 0.75           |  |  | May 19, 2010       | 
| | 795,000          |   | 0.75           |  |  | January 16, 2011   | 
| | 150,000          |   | 0.80           |  |  | June 16, 2011      | 
| | 10,000           |   | 0.80           |  |  | September 21, 2011 | 
| | 200,000          |   | 2.15           |  |  | March 27, 2012     | 
| | 50,000           |   | 2.15           |  |  | March 27, 2012     | 
| | 200,000          |   | 2.15           |  |  | March 27, 2012     | 
| | 15,000           |   | 2.70           |  |  | April 23, 2012     | 
| | 22,500           |   | 2.80           |  |  | May 29, 2012       | 
| | 20,000           |   | 2.30           |  |  | July 23, 2012      | 
| | 50,000           |   | 2.20           |  |  | October 1, 2012    | 
| | 50,000           |   | 2.20           |  |  | October 10, 2012   | 
| | 50,000           |   | 2.20           |  |  | October 30, 2012   | 
| | 230,000          |   | 1.00           |  |  | April 1, 2013      | 
| | 650,000          |   | 1.00           |  |  | June 27, 2013      | 
| | 310,000          |   | 1.00           |  |  | July 22, 2013      | 
| | 1,930,000        |   | 0.30           |  |  | February 17, 2014  | 
| | 930,000          |   | 0.35           |  |  | October 15, 2014   | 
| |                  |   |                |  |  |                    | 
| | 5,982,500        |   |                |  |  |                    | 

---

|Hard Creek Nickel Corporation             
|------------------------------------------
|Notes to Consolidated Financial Statements
|December 31,
      2009                   

|5. | SHARE CAPITAL (CONTINUED)                                                                                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                 
|   | Share Purchase Warrants:                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                 
|   | The Company issues share purchase warrants, half share
      purchase warrants and / or agents warrants in connection with its ongoing
      brokered and non-brokered private placements. A summary of the Companys
      share purchase warrant activity is as
      follows:

| |                            |  | December 31, 2009 |  |   | December 31, 2008 | 
| | -------------------------- |  | ----------------- |  | - | ----------------- | 
| |                            |  |                   |  |   | Weighted          | 
| |                            |  |                   |  |   | Average           | 
| |                            |  |                   |  |   | Exercise          | 
| |                            |  | Shares            |  |   | Price             | 
| |                            |  |                   |  |   |                   | 
| | Balance, beginning of year |  | 2,719,802         |  | $ | 0.30              | 
| | Expired/Cancelled          |  | -                 |  |   | -                 | 
| |                            |  |                   |  |   |                   | 
| | Balance, end of year       |  | 2,719,802         |  | $ | 0.30              | 

The following share purchase warrants
  are outstanding at December 31, 2009:

| | Number of Shares |  |   | Exercise Price |  |  | Expiry Date  | 
| | ---------------- |  | - | -------------- |  |  | ------------ | 
| | 2,709,802        |  | $ | 0.30           |  |  | May 22, 2010 | 
| | 10,000           |  |   | 0.30           |  |  | May 29, 2010 | 
| | 2,719,802        |  |   |                |  |  |              | 

The weighted average remaining life of
  all outstanding share purchase warrants at December 31, 2009 is 0.39 years.

During the year ended December 31,
  2008, the Company re-priced the 2,719,802 warrants to $0.30 and extended the
  warrant exercise periods to May 22 and May 29, 2010 respectively. Management
  estimated the incremental fair value of the re-priced warrants was $426,700.

Contributed Surplus:

Changes to the Companys contributed
  surplus are summarized as follows:

| |                                                    |   | December 31, 2009 |  |   | December 31, 2008 |  
| | -------------------------------------------------- | - | ----------------- |  | - | ----------------- | -
| |                                                    |   |                   |  |   |                   |  
| | Balance, beginning of year                         | $ | 4,363,875         |  | $ | 3,465,667         |  
| | Stock-based compensation                           |   | 205,474           |  |   | 529,733           |  
| | Increase in fair value of re-priced
      warrants |   | -                 |  |   | 426,700           |  
| | Stock options exercised                            |   | -                 |  |   | (58,225           | )
| |                                                    |   |                   |  |   |                   |  
| | Balance, end of year                               | $ | 4,569,349         |  | $ | 4,363,875         |  

---

|Hard Creek Nickel Corporation             
|------------------------------------------
|Notes to Consolidated Financial Statements
|December 31,
      2009                   

|6. | RELATED PARTY TRANSACTIONS
|-- | --------------------------

During the year, the Company incurred
  the following expenditures with directors and officers and/or companies
  controlled by directors and/or officers:

| |                                            |   | December 31, 2009 |  |   | December 31, 2008 |  |   | December 31, 2007 | 
| | ------------------------------------------ | - | ----------------- |  | - | ----------------- |  | - | ----------------- | 
| | Geological and project management services | $ | 160,000           |  | $ | 292,400           |  | $ | -                 | 
| | Director fees                              |   | 24,000            |  |   | -                 |  |   | -                 | 
| | Management fees                            |   | 268,000           |  |   | 154,000           |  |   | 124,000           | 
| | Stock-based compensation                   |   | 157,239           |  |   | 203,056           |  |   | -                 | 
| |                                            | $ | 609,239           |  | $ | 649,456           |  | $ | 124,000           | 

Related party transactions other
  than stock based compensation have been recorded at their exchange amount, which
  is the amount agreed to by the related parties.

|7. | COMMITMENTS                                                              
|-- | -------------------------------------------------------------------------
|   |                                                                          
|   | i) The Company has future minimum
      lease on its premises as follows:

|2010 | $ | 48,880 | 
|---- | - | ------ | 
|2011 |   | 40,733 | 
|     |   |        | 
|     | $ | 89,613 | 

|8. | 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 of these differences are as follows for the years
      ended December 31, 2009, 2008 and 2007.

| |                                                         |   | December 31, |   |   | December 31, |   |   | December 31, |  
| | ------------------------------------------------------- | - | ------------ | - | - | ------------ | - | - | ------------ | -
| |                                                         |   | 2009         |   |   | 2008         |   |   | 2007         |  
| |                                                         |   |              |   |   |              |   |   |              |  
| | Loss before income taxes                                | $ | (1,215,750   | ) | $ | (2,061,089   | ) | $ | (2,718,134   | )
| | Statutory income tax rate                               |   | 30.0%        |   |   | 31.0%        |   |   | 34.1%        |  
| |                                                         |   |              |   |   |              |   |   |              |  
| | Expected tax recovery                                   |   | (364,725     | ) |   | (638,938     | ) |   | (926,884     | )
| | Increase (decrease) resulting from:                     |   |              |   |   |              |   |   |              |  
| | Expired non-capital operating losses                    |   | 145,268      |   |   | 76,094       |   |   | 128,571      |  
| | Stock-based
      compensation                          |   | 44,718       |   |   | 94,173       |   |   | 144,761      |  
| | Warrant extension                                       |   | -            |   |   | 126,588      |   |   | -            |  
| | Share issuance expenses                                 |   | -            |   |   | -            |   |   | (71,890      | )
| | Changes in tax rates                                    |   | (34,973      | ) |   | 6,478        |   |   | 6,597        |  
| | Realization of
      previously unrecognized tax assets |   | -            |   |   | -            |   |   | (968,189     | )
| | Increase in valuation allowance                         |   | -            |   |   | 204,787      |   |   | -            |  
| | Changes in tax and
      resource pools                 |   | 433,246      |   |   | -            |   |   | -            |  
| | Other adjustments                                       |   | 38,244       |   |   | 27,995       |   |   | -            |  
| | Future income taxes (recovery)                          | $ | 261,788      |   | $ | (102,822     | ) | $ | (939,923     | )

---

|Hard Creek Nickel Corporation             
|------------------------------------------
|Notes to Consolidated Financial Statements
|December 31,
      2009                   

|8. | INCOME TAXES AND MINING TAX CREDITS
      (CONTINUED)                                                                                                                          
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                
|   | The significant components of the Companys future income
      tax assets and liabilities, at substantially enacted tax rates of 27.50 %
      (2008 - 28.33), are as follows:

| |                                                                                 |   | December 31, |   |   | December 31, |  
| | ------------------------------------------------------------------------------- | - | ------------ | - | - | ------------ | -
| |                                                                                 |   | 2009         |   |   | 2008         |  
| | Components:                                                                     |   |              |   |   |              |  
| | Mineral properties                                                              | $ | (4,963,306   | ) | $ | (3,217,853   | )
| | Non-capital and net-capital losses available                                    |   | 3,487,956    |   |   | 2,171,233    |  
| | Share issuance costs and other tax
      deductions                             |   | 226,250      |   |   | 269,421      |  
| | Federal non-refundable investment tax credits, net of
      future income taxes |   | 429,897      |   |   | 605,284      |  
| | Net future tax asset (liability) before
      valuation allowance               |   | (819,203     | ) |   | (171,915     | )
| | Valuation Allowance                                                             |   | -            |   |   | (204,787     | )
| |                                                                                 |   |              |   |   |              |  
| | Net future income tax liability                                                 | $ | (819,203     | ) | $ | (376,703     | )

The Company has approximately
  $12,675,000 of non-capital tax losses available to reduce taxable income in
  future periods which expire between 2010 to 2029. The Company has approximately
  $10,421,000 in resource tax pools that may be carried forward indefinitely to
  reduce taxable income of future periods and approximately $593,000 of federal
  non-refundable tax credits which may be applied to reduce federal tax otherwise
  payable and which expire in 2029.

The Company has applied or will apply
  for both provincial refundable tax credits and federal non-refundable 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.

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 from $2,222,020 to
  $1,159,383 and a reduction of $180,712 in federal non-refundable tax credits
  from $605,284 to $424,572. The Company plans on filing a Notice of Objection
  within 90 days of receiving a Notice of Assessment from CRA to dispute CRAs
  interpretation of certain 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.

At December 31, 2009, there were
  $1,301,506 (2008 - $2,222,020) of provincial refundable 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 were $424,572 (2008 - $605,284) of federal non-refundable tax credits (net
  of future taxes thereon) which have been recorded as a reduction of the
  Companys future tax liability and credited to deferred exploration
  costs.

---

|Hard Creek Nickel Corporation             
|------------------------------------------
|Notes to Consolidated Financial Statements
|December 31,
      2009                   

|9. | FINANCIAL INSTRUMENTS
|-- | ---------------------

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.

Currency Risk 
  The Company mainly operates in Canada
  and is therefore not exposed to significant foreign exchange risk arising from
  transactions denominated in a foreign currency.

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.

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 net earnings or the 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. The Company had no forward
  exchange rate contracts or commodity price contracts in place as at or during
  the years ended December 31, 2009 and 2008.

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, 2009 and 2008, the Company did not have any
  significant interest rate risk.

The Company had no interest rate swap
  or financial contracts in place as at December 31, 2009 and 2008.

|10. | 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.

---

|Hard Creek Nickel Corporation             
|------------------------------------------
|Notes to Consolidated Financial Statements
|December 31,
      2009                   

|10. | CAPITAL MANAGEMENT (CONTINUED)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | 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 are no externally imposed capital restrictions and
      no changes in approach.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|11. | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | On January 7, 2010, 160,000 stock options with an
      exercise price of $1.00 expired unexercised.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Company granted 100,000 stock options to certain
      consultants, directors, officers, and employees, exercisable at $0.35 per
      share, expiring January 15, 2015.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Company announced a non-brokered private placement
      consisting of 4,000,000 units at a price of $0.25 per unit for gross
      proceeds of up to $1,000,000. Each unit consists of one share and one-half
      share purchase warrant. Each warrant is exercisable at $0.40 for one year
      from the date of closing of the transaction.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|12. | RESTATEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | On the Consolidated Statement of Cashflows for fiscal
      year 2007, the Company reclassified $1,238,700 in BC refundable mining tax
      credits from Operating Activities; Mining tax credits to Operating
      Activities; Accounts payable and accrued liabilities to be consistent with
      the current year's presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|13. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
      GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND PRACTICES
      (RESTATED)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The consolidated financial statements have been prepared
      in accordance with accounting principles generally accepted in Canada
      (CDN GAAP) which differ in certain material respects from those
      principles and practices that the Company would have followed had its
      consolidated financial statements been prepared in accordance with United
      States generally accepted accounting principles (US GAAP). Had the
      Company followed US GAAP, certain items on the consolidated statements of
      net loss and comprehensive loss and cash flow and consolidated balance
      sheets would have been reported as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Mineral interests acquisition costs are accounted for in
      accordance with CDN GAAP as disclosed in Note 3c). For US GAAP, mineral
      interest acquisition costs are capitalized in accordance with EITF 04-2.
      Mineral property acquisition costs are reviewed for impairment on a
      reporting period basis. For US GAAP, mineral property exploration costs
      are expensed as incurred. When it has been determined that a mineral
      interest can be economically developed as a result of establishing proven
      and probable reserves and pre feasibility, the costs incurred to develop
      such property are capitalized. As of the date of these financial
      statements, the Company has incurred only acquisition and exploration
      costs. For US GAAP, these acquisition and exploration costs have been
      impaired and expensed.                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Under US. GAAP, the proceeds from the issuance of
      flow-through shares should be allocated between the offering of shares and
      the sale of tax benefits. The allocation is based on the difference
      between the issue price of flow-through shares and the fair
      value of the shares at the date of issuance. A liability is recorded for this
      difference and is reversed when tax benefits are renounced. To the extent that
      the Company has available tax pools for which a full valuation allowance has
      been provided, the premium is recognized in earnings as a reduction in the
      valuation allowance at the time of renunciation of the tax pools. Under Canadian
      GAAP, share capital is reduced and future income tax liabilities are increased
      by the estimated income tax benefits renounced by the Company to the
      subscribers, except to the extent that the Company has unrecorded loss
      carryforwards and tax pools in excess of book value available for deduction
      against which a valuation allowance has been provided.

---

|Hard Creek Nickel Corporation             
|------------------------------------------
|Notes to Consolidated Financial Statements
|December 31,
      2009                   

Under US GAAP the Company needs to
  complete an analysis which involves determining whether it is more likely than
  not that a tax position would be sustained on audit based solely on its
  technical merits. The amount of benefit recognized in the financial statements
  is the maximum amount which is more likely than not to be realized based on a
  cumulative probability approach.

(i)Assets

| |                                   |   | December 31, |   |   | December 31, |  
| | --------------------------------- | - | ------------ | - | - | ------------ | -
| |                                   |   | 2009         |   |   | 2008         |  
| |                                   |   |              |   |   |              |  
| | Total assets, under Canadian GAAP | $ | 30,920,228   |   | $ | 31,637,006   |  
| | Less: Mineral property interests  |   | (179,500     | ) |   | (179,500     | )
| | Less: Deferred exploration cost   |   | (28,321,228  | ) |   | (24,771,994  | )
| |                                   |   |              |   |   |              |  
| | Total assets, under US GAAP       | $ | 2,419,200    |   | $ | 6,685,512    |  

(ii)Liabilities

| |                                        |   | December 31, |  |   | December 31, | 
| | -------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                        |   | 2009         |  |   | 2008         | 
| | Total liabilities, under Canadian GAAP | $ | 1,104,730    |  | $ | 549,444      | 
| | Total liabilities,
      under US GAAP | $ | 1,104,730    |  | $ | 549,444      | 

(iii)Share Capital

| |                                          |   | December 31, |  |   | December 31, | 
| | ---------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                          |   | 2009         |  |   | 2008         | 
| | Total share capital, under Canadian GAAP | $ | 39,562,338   |  | $ | 39,562,338   | 
| | Total share
      capital, under US GAAP | $ | 39,562,338   |  | $ | 39,562,338   | 

(iv)Deficit

| |                                         |   | December 31, |   |   | December 31, |  
| | --------------------------------------- | - | ------------ | - | - | ------------ | -
| |                                         |   | 2009         |   |   | 2008         |  
| |                                         |   |              |   |   |              |  
| | Deficit, under Canadian GAAP            | $ | (14,316,189  | ) | $ | (12,838,651  | )
| | Less: Prior years adjustment to deficit |   | (2,720,725   | ) |   | (2,720,725   | )
| | Less: Mineral interests                 |   | (28,321,528  | ) |   | (24,771,994  | )
| | Deficit, under US
      GAAP            | $ | (45,358,442  | ) | $ | (40,331,370  | )

---

|Hard Creek Nickel Corporation             
|------------------------------------------
|Notes to Consolidated Financial Statements
|December 31,
      2009                   

(v)Net loss for the
  year

| |                                              |   | December 31, |   |   | December 31, |   |   | December 31, |  
| | -------------------------------------------- | - | ------------ | - | - | ------------ | - | - | ------------ | -
| |                                              |   | 2009         |   |   | 2008         |   |   | 2007         |  
| |                                              |   |              |   |   |              |   |   |              |  
| | Net loss for the year, Canadian GAAP         | $ | (1,477,538   | ) | $ | (1,958,266   | ) | $ | (1,778,211   | )
| | Less: mineral interests                      |   | (3,549,534   | ) |   | (2,872,430   | ) |   | (7,182,030   | )
| | Less: flow through tax recovery-CDN GAAP     |   | -            |   |   | -            |   |   | (2,365,655   | )
| | Add: flow through
      tax recovery-US GAAP |   | -            |   |   | -            |   |   | 351,242      |  
| |                                              |   |              |   |   |              |   |   |              |  
| | Net loss for the
      year, under US GAAP   | $ | (5,027,072   | ) | $ | (4,830,696   | ) | $ | (10,974,654  | )

(vi)Consolidated
  Statements of cash flow

| | CONSOLIDATED STATEMENTS OF                                                 |   | December 31, |   |   | December 31, |   |   | December 31, |  
| | -------------------------------------------------------------------------- | - | ------------ | - | - | ------------ | - | - | ------------ | -
| | CASH FLOW                                                                  |   | 2009         |   |   | 2008         |   |   | 2007         |  
| |                                                                            |   |              |   |   |              |   |   |              |  
| | Net cash flows from operating activities,
      under Canadian GAAP        | $ | (902,860     | ) | $ | (1,320,191   | ) | $ | (2,056,847   | )
| | Mineral Interest Expenditures                                              |   | (2,398,421   | ) |   | (4,293,398   | ) |   | (7,763,726   |  
| | Net cash used in operating activities, under
      US GAAP                 |   | (3,301,281   | ) |   | (5,613,589   | ) |   | (9,820,573   | )
| | Net
      cash flows from financing activities, under CDN GAAP and US GAAP |   | -            |   |   | 70,000       |   |   | 17,999,081   |  
| |                                                                            |   |              |   |   |              |   |   |              |  
| | Net cash flows used in investing activities,    under CDN GAAP             |   | (2,408,639   | ) |   | (4,332,488   | ) |   | (7,793,311   | )
| | Mineral Interest Expenditures                                              |   | 2,398,421    |   |   | 4,293,398    |   |   | 7,763,726    |  
| | Net cash used in investing activities, under
      US GAAP                 |   | (10,218      | ) |   | (39,090      | ) |   | (29,585      | )
| | Net change in cash and cash equivalents                                    |   | (3,311,499   | ) |   | (5,582,679   | ) |   | 8,148,923    |  
| | Cash and cash equivalents, beginning                                       |   | 4,125,235    |   |   | 9,707,914    |   |   | 1,558,991    |  
| | Cash
      and cash equivalents, ending                                    | $ | 813,736      |   | $ | 4,125,235    |   | $ | 9,707,914    |  

---

|Hard Creek Nickel Corporation             
|------------------------------------------
|Notes to Consolidated Financial Statements
|December 31,
      2009                   

Recently Adopted Accounting Guidance

On January 1, 2009, the Company adopted
  authoritative guidance issued by the Financial Accounting Standards Board
  (FASB) on business combinations. The guidance retains the fundamental
  requirements that the acquisition method of accounting (previously referred to
  as the purchase method of accounting) be used for all business combinations, but
  requires a number of changes, including changes in the way assets and
  liabilities are recognized and measured as a result of business combinations. It
  also requires the capitalization of in-process research and development at fair
  value and requires the expensing of acquisition-related costs as incurred. The
  Company has completed no business combinations so the adoption of the new
  guidance did not affect its financial statements.

On January 1, 2009, the company adopted
  the authoritative guidance issued by the FASB that changes the accounting and
  reporting for non-controlling interests. Non-controlling interests are to be
  reported as a component of equity separate from the parent's equity, and
  purchases or sales of equity interests that do not result in a change in control
  are to be accounted for as equity transactions. In addition, net income
  attributable to a non-controlling interest is to be included in net income and,
  upon a loss of control, the interest sold, as well as any interest retained, is
  to be recorded at fair value with any gain or loss recognized in net income. The
  adoption of the new guidance did not affect the Companys financial statements.

During the year ended December 31,
  2009, the FASB issued new codification standards which represent the source of
  authoritative U.S. GAAP recognized by the FASB to be applied by non-governmental
  entities. Rules and interpretive releases of the Securities and Exchange
  Commission (SEC) under authority of federal securities laws are also sources
  of authoritative GAAP for SEC registrants. The codification supersedes all
  non-SEC accounting and reporting standards that existed before the codification.
  All other non-grandfathered, non-SEC accounting literature not included in the
  codification is non-authoritative. The new codification standards were effective
  for the Companys third quarter ended September 30, 2009. The adoption of the
  new guidance did not affect the Companys financial statements.

Recent Accounting Guidance Not Yet
  Adopted

The Company has reviewed recently
  issued accounting pronouncements and plans to adopt those that are applicable to
  it. It does not expect the adoption of these pronouncements to have a material
  impact on its financial position, results of operations or cash flows.

---

|Schedule 1                                                   
|-------------------------------------------------------------
|Hard Creek Nickel Corporation                                
|Consolidated Schedule of Deferred Exploration and
      Costs
|For The Years
      Ended December 31, 2009 and 2008         

|                                          |   | Balance,     |   |   |              |   |   | Balance,     |   |   |              |   |   | Balance,     |  
|----------------------------------------- | - | ------------ | - | - | ------------ | - | - | ------------ | - | - | ------------ | - | - | ------------ | -
|                                          |   | December 31, |   |   | Expenditures |   |   | December 31, |   |   | Expenditures |   |   | December 31, |  
|                                          |   | 2007         |   |   | 2008         |   |   | 2008         |   |   | 2009         |   |   | 2009         |  
|                                          |   |              |   |   |              |   |   |              |   |   |              |   |   |              |  
|Assays and testing                        | $ | 1,826,879    |   | $ | 159,009      |   | $ | 1,985,888    |   | $ | 23,918       |   | $ | 2,009,806    |  
|Claims renewal /Staking                   |   | 390,542      |   |   | 25,660       |   |   | 416,202      |   |   | 5,318        |   |   | 421,520      |  
|Drilling                                  |   | 11,608,381   |   |   | 800,333      |   |   | 12,408,714   |   |   | 18,393       |   |   | 12,427,107   |  
|Environmental studies                     |   | 476,712      |   |   | 534,141      |   |   | 1,010,853    |   |   | 130,404      |   |   | 1,141,257    |  
|Exploration data management               |   | 714,964      |   |   | 89,121       |   |   | 804,085      |   |   | 82,724       |   |   | 886,809      |  
|First Nations                             |   | -            |   |   | 21,835       |   |   | 21,835       |   |   | 73,109       |   |   | 94,944       |  
|Geochemistry                              |   | 80,971       |   |   | 19,985       |   |   | 100,956      |   |   | 24           |   |   | 100,980      |  
|Geological services                       |   | 4,063,269    |   |   | 1,460,399    |   |   | 5,523,668    |   |   | 1,013,182    |   |   | 6,536,850    |  
|Geophysical services                      |   | 610,315      |   |   | 76,468       |   |   | 686,783      |   |   | 15,300       |   |   | 702,083      |  
|Metallurgy                                |   | 1,048,976    |   |   | 583,696      |   |   | 1,632,672    |   |   | 816,035      |   |   | 2,448,707    |  
|Petrographic work                         |   | 36,319       |   |   | 7,638        |   |   | 43,957       |   |   | -            |   |   | 43,957       |  
|Project management                        |   | 106,015      |   |   | -            |   |   | 106,015      |   |   | -            |   |   | 106,015      |  
|Survey, mapping and camp                  |   | 895,555      |   |   | 240,581      |   |   | 1,136,136    |   |   | 107,116      |   |   | 1,243,252    |  
|Transportation                            |   | 1,675,129    |   |   | 486,829      |   |   | 2,161,958    |   |   | 169,312      |   |   | 2,331,270    |  
|Write down property                       |   | (68,158      | ) |   | (44,662      | ) |   | (112,820     | ) |   | (6,527       | ) |   | (119,347     | )
|BC refundable mining tax credits          |   | (1,566,304   | ) |   | (983,320     | ) |   | (2,549,624   | ) |   | 920,514      |   |   | (1,629,110   | )
|Federal non-refundable mining tax credits |   | -            |   |   | (605,284     | ) |   | (605,284     | ) |   | 180,712      |   |   | (424,572     | )
|                                          |   |              |   |   |              |   |   |              |   |   |              |   |   |              |  
|                                          | $ | 21,899,565   |   | $ | 2,872,429    |   | $ | 24,771,994   |   | $ | 3,549,534    |   | $ | 28,321,528   |  

---

Item 19Exhibits

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)
|        |                                                                                                                                     
|12.     | Section 302 Certifications                                                                                                          
|        |                                                                                                                                     
|12.1    | Section 302 Certification under Sarbanes-Oxley Act of 2002 for Mark Jarvis*                                                         
|        |                                                                                                                                     
|12.2    | Section 302 Certification under Sarbanes-Oxley Act of 2002 for Brian Fiddler*                                                       
|        |                                                                                                                                     
|13.     | Section 906 Certifications                                                                                                          
|        |                                                                                                                                     
|13.1    | Section 906 Certification under Sarbanes-Oxley Act of 2002 for Mark Jarvis*                                                         
|        |                                                                                                                                     
|13.2    | Section 906 Certification under Sarbanes-Oxley Act of 2002 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*                                                                                                       
|        |                                                                                                                                     
|15.4    | Consent
        of Tony Hitchins*                                                                                                   
|        |                                                                                                                                     
|15.5    | Code
      of Ethics*                                                                                                               

*Filed herewith.

(1)Previously submitted with our Registration
Statement on Form 20-F filed on November 17, 2006.

(Signature page follows)

68

---

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: June 30, 2010

69

---