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

FORM 20-F

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

OR

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

For the fiscal year ended December 31, 2012

OR

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

For the transition period from ____________ to ____________

OR

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

Date of event requiring this shell company report
_____________

Commission file number 000-52326

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

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

British Columbia, Canada(Jurisdiction of
incorporation or organization)

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

Copy of communications to:Bernard Pinsky, Esq.

---

Clark Wilson LLPBarristers and
SolicitorsSuite 800  885 West Georgia StreetVancouver,
British Columbia, Canada V6C 3H1Telephone: 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.

90,373,493 Common Shares without par value issued and
outstanding as at December 31, 2012.

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

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

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

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.[X] YES    
[   ] NO

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

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

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                                                | 6                                                          
|Financial
      Information And Accounting Principles | 6                                                          
|Item 1                                                | Identity of Directors, Senior
      Management and Advisers | 7                                                                      
|                                                      | A.                                                          | Directors and Senior Management                                         | 7   
|                                                      | B.                                                          | Advisers                                                                | 7   
|                                                      | C.                                                          | Auditors                                                                | 7   
|Item 2                                                | Offer Statistics and Expected
      Timetable               | 7                                                                      
|Item 3                                                | Key Information                                             | 7                                                                      
|                                                      | A.                                                          | Selected Financial Data                                                 | 7   
|                                                      | B.                                                          | Capitalization and Indebtedness                                         | 10  
|                                                      | C.                                                          | Reasons for the Offer and Use of Proceeds                               | 10  
|                                                      | D.                                                          | Risk Factors                                                            | 10  
|Item 4                                                | Information on our Company                                  | 16                                                                     
|                                                      | A.                                                          | History and Development
      of our Company                            | 16  
|                                                      | B.                                                          | Business Overview                                                       | 17  
|                                                      | C.                                                          | Organizational Structure                                                | 20  
|                                                      | D.                                                          | Property, Plant and Equipment                                           | 20  
|Item 5                                                | Operating
      and Financial Review and Prospects          | 32                                                                     
|                                                      | A.                                                          | Operating Results                                                       | 32  
|                                                      | B.                                                          | Liquidity and Capital Resources                                         | 33  
|                                                      | C.                                                          | Research and Development, Patents and Licenses,
      etc.              | 33  
|                                                      | D.                                                          | Trend Information                                                       | 34  
|                                                      | E.                                                          | Off-Balance Sheet Arrangements                                          | 34  
|                                                      | F.                                                          | Tabular Disclosure of Contractual
      Obligations                     | 34  
|Item 6                                                | Directors, Senior Management
      and Employees            | 36                                                                     
|                                                      | A.                                                          | Directors and Senior Management                                         | 36  
|                                                      | B.                                                          | Compensation                                                            | 39  
|                                                      | C.                                                          | Board Practices                                                         | 40  
|                                                      | D.                                                          | Employees                                                               | 41  
|                                                      | E.                                                          | Share Ownership                                                         | 41  
|Item 7                                                | Major Shareholders and Related
      Party Transactions     | 42                                                                     
|                                                      | A.                                                          | Major Shareholders                                                      | 42  
|                                                      | B.                                                          | Related Party Transactions                                              | 43  
|                                                      | C.                                                          | Interests of Experts and
      Counsel                                  | 43  
|Item 8                                                | Financial Information                                       | 43                                                                     
|                                                      | A.                                                          | Consolidated Financial Statements
      and Other Financial Information | 43  
|                                                      | B.                                                          | Significant Changes                                                     | 43  
|Item 9                                                | The Offer
      and Listing                                 | 44                                                                     
|                                                      | A.                                                          | Common Share Trading Information                                        | 44  
|                                                      | B.                                                          | Plan of Distribution                                                    | 45  
|Item 10                                               | Additional Information                                      | 45                                                                     

4

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|         | A.                                                                                 | Share Capital                                                                 | 45
|-------- | ---------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | --
|         | B.                                                                                 | Articles of Incorporation and By-laws                                         | 46
|         | C.                                                                                 | Material Contracts                                                            | 51
|         | D.                                                                                 | Exchange Controls                                                             | 52
|         | E.                                                                                 | Taxation                                                                      | 54
|         | F.                                                                                 | Dividends and Paying Agents                                                   | 54
|         | G.                                                                                 | Statement by Experts                                                          | 54
|         | H.                                                                                 | Documents on Display                                                          | 55
|         | I.                                                                                 | Subsidiary Information                                                        | 55
|Item 11  | Quantitative and Qualitative
      Disclosures About Market Risk                   | 55                                                                           
|Item 12  | Description of Securities Other than Equity Securities                             | 55                                                                           
|PART II  |                                                                                    | 55                                                                           
|Item 13  | Defaults,
      Dividend Arrearages and Delinquencies                              | 55                                                                           
|Item 14  | Material Modifications to
      the Rights of Security Holders and Use of Proceeds | 55                                                                           
|Item 15  | Controls
      and Procedures                                                      | 55                                                                           
|Item 16  | [Reserved]                                                                         | 56                                                                           
|         | A.                                                                                 | Audit Committee Financial
      Expert                                        | 56
|         | B.                                                                                 | Code of Ethics                                                                | 56
|         | C.                                                                                 | Principal Accountant Fees
      and Services                                  | 56
|         | D.                                                                                 | Exemptions from the Listing Standards for
      Audit Committees.             | 57
|         | E.                                                                                 | Purchases of Equity Securities
      by the Issuer and Affiliated Purchasers. | 57
|PART III |                                                                                    | 57                                                                           
|Item 17  | Financial
      Statements                                                         | 57                                                                           
|Item 18  | Financial Statements                                                               | 57                                                                           
|Item 19  | Exhibits                                                                           | 57                                                                           
|         | SIGNATURE                                                                          | 58                                                                           

FORWARD-LOOKING STATEMENTS

Except for the statements of historical fact contained herein,
some information presented in this annual report constitutes forward-looking
statements. When used in this annual report, the words estimate, project,
believe, anticipate, intend, expect, predict, may, should, the
negative thereof or other variations thereon or comparable terminology are
intended to identify forward-looking statements. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of our company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among others,
changes in project parameters as plans continue to be refined, future prices of
nickel, as well as those factors discussed in the section entitled Risk
Factors on page 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 annual report, the terms we, us, our and
Hard Creek mean Hard Creek Nickel Corporation, unless otherwise indicated.

5

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CAUTIONARY NOTE TO UNITED STATES INVESTORS

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

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

PART I

FINANCIAL INFORMATION AND ACCOUNTING PRINCIPLES

The financial statements and summaries of financial information
contained in this document are reported in Canadian dollars ($) unless
otherwise stated. A tonne is one metric ton or 2,204.6 pounds.

FIRST TIME APPLICATION OF INTERNATIONAL FINANCIAL REPORTING
STANDARDS

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

6

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Item
1            
Identity of Directors, Senior Management and Advisers

Not required.

Item
2             Offer
Statistics and Expected Timetable

Not required.

Item
3             Key
Information

*A.*           
*Selected Financial Data*

The following financial data summarizes selected financial data
for our company prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards
Board (IASB) for the two fiscal years ended December 31, 2012 and 2011. The
information presented below for the two year period ended December 31, 2012 and
2011 is derived from our financial statements which were examined by our
independent auditors. The information set forth below should be read in
conjunction with our audited annual financial statements and related notes
thereto included in this annual report, and with the information appearing under
the heading Item 5  Operating and Financial Review and Prospects.

Hard Creek Nickel Corporation Selected Financial Data in
accordance with IFRS for the years 2012 and 2011 
  (Expressed in Canadian Dollars)

|                                                       |   | 2012       |   |  | 2011       |  
|------------------------------------------------------ | - | ---------- | - |  | ---------- | -
|Net operating revenues                                 | $ | 0          |   |  | 0          |  
|                                                       |   |            |   |  |            |  
|Loss from continued operations                         | $ | 0          |   |  | 0          |  
|Income from discontinued operations                    | $ | N/a        |   |  | N/a        |  
|Net loss                                               | $ | (319,202   | ) |  | (1,630,653 | )
|Comprehensive loss                                     | $ | (319,202   | ) |  | (1,630,653 | )
|                                                       |   |            |   |  |            |  
|Loss per share from continued operations               | $ | (0.00      | ) |  | (0.02      | )
|Income per share from discontinued
      operations    | $ | N/a        |   |  | N/a        |  
|Income per share after discontinued operations         | $ | N/a        |   |  | N/a        |  
|                                                       |   |            |   |  |            |  
|Share capital                                          | $ | 48,642,413 |   |  | 47,749,579 |  
|Common shares issued                                   |   | 90,373,493 |   |  | 77,330,160 |  
|Weighted average shares outstanding                    |   | 81,032,321 |   |  | 77,161,144 |  
|                                                       |   |            |   |  |            |  
|Total assets                                           | $ | 33,849,384 |   |  | 33,254,766 |  
|                                                       |   |            |   |  |            |  
|Net assets (liabilities)                               | $ | 33,435,396 |   |  | 32,618,138 |  
|                                                       |   |            |   |  |            |  
|Convertible debentures(current and long term portions) | $ | N/a        |   |  | N/a        |  
|                                                       |   |            |   |  |            |  
|Cash dividends declared per common share               | $ | 0          |   |  | 0          |  
|Exchange rates (Cdn$ to U.S.$) period
      average    | $ | 1.0004     |   |  | 1.0110     |  

7

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|Exchange rates (CDN$ to U.S.$) for most
      recent six months |   | Period High |  |  | Period Low | 
|--------------------------------------------------------------- | - | ----------- |  |  | ---------- | 
|October 2012                                                    | $ | 1.0243      |  |  | 0.9996     | 
|November 2012                                                   | $ | 1.0074      |  |  | 0.9972     | 
|December 2012                                                   | $ | 1.0162      |  |  | 1.0048     | 
|January 2013                                                    | $ | 1.0164      |  |  | 0.9923     | 
|February 2013                                                   | $ | 1.0040      |  |  | 0.9723     | 
|March 2013                                                      | $ | 0.9846      |  |  | 0.9696     | 
|Exchange rate (CDN$ to U.S.$)
      April 16, 2013              | $ | 0.9894      |  |  | 0.9775     | 

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

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


8

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Cash Dividends per Common Share
    NIL
    NIL
    NIL
    NIL


Information based on US GAAP is not comparable to
information prepared in accordance with IFRS.

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


9

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*B.*           
*Capitalization and Indebtedness*

Not required.

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

Not required.

*D.*           
*Risk Factors*

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

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

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

Risks Associated with Mining

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

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

10

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

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

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

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

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

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

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

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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.

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

Please see the section entitled Governmental Regulations on
page 16 of this annual report for more information.

Risks Related To Our Company

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

We have not generated any operating revenues since our
incorporation and we will, in all likelihood, continue to incur operating
expenses without revenues until our mining properties are fully developed and in
commercial production, which may never happen. We had cash in the amount of
$518,489 and recoverable taxes of $42,357 as of December 31, 2012. We estimate
our average monthly operating expenses to be approximately $25,000. We cannot
provide assurances that we will be able to successfully explore and develop our
mining properties or assure that viable mineral reserves exist on our properties
for extraction. It is unlikely that we will generate any funds internally unless
we discover commercially viable quantities of ore. If we are unable to generate
revenue from our business during the fiscal year 2013, 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.

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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 do have sufficient funds to cover administrative
expenses for the 12 month period ending December 31, 2013 but not for continued
exploration. The Company is currently looking for a partner to take the
Turnagain project to the feasibility level. We have also identified a PGE
exploration program on the Turnagain property that will require the Company to
seek additional financing or a joint venture partnership. We do not currently
have any arrangements for financing or joint venture partnerships and may not be
able to find such if required. Although we have been successful in the past in
obtaining financing through the sale of equity securities, it is possible that
we will not be able to obtain adequate financing in the future or that the terms
of such financing will be unfavorable and unacceptable to us. Failure to obtain
such additional financing is likely to result in a delay or indefinite
postponement of further exploration and development of our projects and possible
loss of our properties, in which case our companys securities would never
increase in value and investors would lose their entire investment.

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

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

Risks Relating to our Securities

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

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

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

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

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We are currently without a source of revenue and will most
likely be required to issue additional shares to finance our operations and,
depending on the outcome of our exploration programs, may issue additional
shares to finance additional exploration programs of any or all of our projects
or to acquire additional properties or through the exercise of options by our
employees, directors and consultants. If we are required to issue additional
shares to raise funds, our current shareholders interests in our company will
be diluted and our current shareholders may suffer dilution in their net book
value per share depending on the price at which such securities are sold. As at
April 30, 2013, 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 21,235,333 of our common shares which, if exercised,
would represent approximately 19 % 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 for the
foreseeable future, so investors will realize a return on their investment only
if the price of shares of our stock increases. There are no guarantees that this
will ever happen and investors may lose their entire investment in our
company.

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

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

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

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

Some of our directors and officers are employed in other
positions with other companies. They will manage our company on a part-time
basis. Because of this fact, the management of our company may suffer and our
company could under-perform or fail. Brian Fiddler, our Controller and Chief
Financial Officer, will devote approximately 12 hours per week, which is
approximately 30% of his working hours, to the management of our company. George
Sookochoff, a director of our company, will devote approximately 4 hours per
week, which is approximately 10% of his working hours, to the management of our
company. Lyle Davis, a director of our company, will devote approximately 4
hours per week, which is approximately 10% of his working hours, to the
management of our company. Tom Milner a director of our company, will devote
approximately 4 hours per week, which is approximately 10% of his working hours,
to the management of our company. Gary Johnson a director of our company, will
devote approximately 4 hours per week, which is approximately 10% of his working
hours, to the management of our company. Cliff Carson a director of our company,
will devote approximately 4 hours per week, which is approximately 10% of his
working hours, to the management of our company.

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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

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.

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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.

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

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

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

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

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

Present Operations of Our Company

Turnagain Property Project

Our current mineral exploration activities on the Turnagain
Property include core drilling, geological mapping, geochemical surveying,
downhole geophysical surveying, baseline environmental and
engineering studies, and metallurgical testing. From 2001 to December 31, 2012,
we have drilled 273 core holes for a total depth of 76,367m (250,548 feet).
Approximate total exploration expenditure from January 1, 2010 to December 31,
2012 was CDN$4,400,000.

As of December 31, 2012, we had approximately $385,000 in
working capital, which is sufficient to cover our operating costs for the next
twelve months at $25,000 per month. If the Company is to carry out a 2013
exploration program, we will be required to obtain additional equity funding or
secure a joint venture partner to provide funding to cover 100% of the
anticipated costs.

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 two 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.

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

Revenues

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

Principal Market

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

Seasonality of our Business

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

Sources and Availability of Raw Materials

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

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

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

Competitive Conditions

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

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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$10.00 per hectare per year during the first 2 years following the location
of the mineral claims. This amount is increased to CAN$20.00 per hectare in the
third and fourth years and CAN$30 per hectare in the fifth and sixth years and
CAN$40.00 per hectare for all succeeding years.

Legacy mineral claims in British Columbia may be kept in good
standing by incurring assessment work or by paying cash-in-lieu of assessment
work in the amount of 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$10.00 per hectare for all 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.

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

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

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

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

*C.*           
*Organizational Structure*

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

*D.*           
*Property, Plant and Equipment*

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

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

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

20

---

The company has recently rented a warehouse near Vancouver,
British Columbia in which to store drill core samples and to prepare composite
samples for metallurgical test-work. 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
test-work. We rent this facility for $1,800 per month on a six-month renewable
lease. The cost to run the freezer is $95 per month. Additional warehouse space
was added to the original rented space in 2007 and more space is still available
if required. We own office, vehicle, and exploration equipment with a cost of
approximately $105,000 located at our Vancouver Office and our camp at the
Turnagain property. We lease a photocopier at the rate of $452 per month.
Satellite internet and telephone service at our camp at the Turnagain property
costs $150 per month.

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



21

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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 three
technical reports:

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

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

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

22

---

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

Exploration data collected during the 2003 to 2012 exploration
programs was completed under the supervision of Neil Froc, P. Eng., and Tony
Hitchins, M.Sc., both employees of Hard Creek Nickel Corporation. In July 2012,
Neil Froc left the Company.

Location and Accessibility

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

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

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

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

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

Description of Claims

Our Turnagain Property consists of 71 neighboring mineral
claims. Hard Creek Nickel Corporation owns a 100% interest in all of these
mineral claims subject to a 4% net smelter royalty on possible future production
on one mineral claim (Tenure No. 511330 formerly the Cub claim). We retain the
right to purchase all or part of the net smelter royalty for CAN $1,000,000 per
1%. The following table summarizes the claim name, size, and expiry dates for
the 71 claims in the Turnagain property as of April 30, 2013.

23

---

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

Tenure
    
    
    Good ToNumber
    Claim Name
    Issue Date
    Date
    Status
    Area (ha)402907
    BOBNER 1
    2003/may/29
    2013/sep/01
    GOOD
    25.0402908
    BOBNER 2
    2003/may/29
    2013/sep/01
    GOOD
    25.0402909
    BOBNER 3
    2003/may/29
    2013/sep/01
    GOOD
    25.0402910
    BOBNER 4
    2003/may/29
    2013/sep/01
    GOOD
    25.0402911
    BOBNER 5
    2003/may/29
    2013/sep/01
    GOOD
    25.0402912
    BOBNER 6
    2003/may/29
    2013/sep/01
    GOOD
    25.0407627
    PUP 4
    2004/jan/01
    2021/jan/01
    GOOD
    500.0501131
    Drift 1
    2005/jan/12
    2019/jan/12
    GOOD
    421.965501168
    Drift 2
    2005/jan/12
    2019/jan/12
    GOOD
    421.755501234
    Drift 3
    2005/jan/12
    2019/jan/12
    GOOD
    421.729501298
    Drift 4
    2005/jan/12
    2019/jan/12
    GOOD
    421.794503365
    
    2005/jan/14
    2019/feb/18
    GOOD
    793.347508218
    Dinah 1
    2005/mar/03
    2019/mar/03
    GOOD
    407.204508219
    Dinah 2
    2005/mar/03
    2019/mar/03
    GOOD
    407.052508221
    Dinah 3
    2005/mar/03
    2019/mar/03
    GOOD
    406.859508222
    Dinah 4
    2005/mar/03
    2019/mar/03
    GOOD
    406.701508223
    Dinah 5
    2005/mar/03
    2019/mar/03
    GOOD
    407.096508225
    Dinah 6
    2005/mar/03
    2019/mar/03
    GOOD
    407.096508226
    Dinah 7
    2005/mar/03
    2019/mar/03
    GOOD
    254.575508227
    Dinah 8
    2005/mar/03
    2019/mar/03
    GOOD
    407.298508228
    Dinah 9
    2005/mar/03
    2019/mar/03
    GOOD
    135.529508229
    Dinah 10
    2005/mar/03
    2019/mar/03
    GOOD
    203.4510889
    
    2005/apr/18
    2019/apr/07
    GOOD
    1627.862510892
    
    2005/apr/18
    2019/apr/07
    GOOD
    1219.257510910
    
    2005/apr/18
    2019/apr/07
    GOOD
    1424.279510911
    
    2005/apr/18
    2019/apr/07
    GOOD
    1066.865510912
    
    2005/apr/18
    2019/apr/07
    GOOD
    779.891511214
    
    2005/apr/20
    2019/feb/18
    GOOD
    979.883511226
    
    2005/apr/20
    2019/feb/18
    GOOD
    1216.076511227
    
    2005/apr/20
    2019/feb/17
    GOOD
    506.714511230
    
    2005/apr/20
    2019/feb/17
    GOOD
    760.466511234
    
    2005/apr/20
    2019/feb/16
    GOOD
    185.888511244
    
    2005/apr/20
    2019/feb/18
    GOOD
    489.918511251
    
    2005/apr/20
    2019/feb/17
    GOOD
    473.406511257
    
    2005/apr/20
    2019/feb/17
    GOOD
    1014.444511279
    
    2005/apr/20
    2019/feb/17
    GOOD
    896.687511304
    
    2005/apr/21
    2019/feb/17
    GOOD
    1149.679511305
    
    2005/apr/21
    2019/sep/27
    GOOD
    270.959511306
    
    2005/apr/21
    2019/feb/19
    GOOD
    881.166511329
    
    2005/apr/21
    2019/sep/27
    GOOD
    1015.364511330
    
    2005/apr/21
    2021/dec/01
    GOOD
    592.594511337
    
    2005/apr/21
    2018/dec/01
    GOOD
    1065.752511340
    
    2005/apr/21
    2018/dec/01
    GOOD
    253.92511344
    
    2005/apr/21
    2019/feb/19
    GOOD
    270.999511347
    
    2005/apr/21
    2019/apr/07
    GOOD
    474.339511348
    
    2005/apr/21
    2021/dec/01
    GOOD
    389.388511586
    
    2005/apr/25
    2019/jan/01
    GOOD
    236.94


24

---

511593
    
    2005/apr/25
    2021/jan/01
    GOOD
    101.549511627
    
    2005/apr/25
    2018/dec/01
    GOOD
    592.115511628
    
    2005/apr/25
    2019/feb/18
    GOOD
    708.952511629
    
    2005/apr/25
    2019/feb/18
    GOOD
    472.918528780
    T1
    2006/feb/23
    2019/feb/23
    GOOD
    67.745528781
    T2
    2006/feb/23
    2019/feb/23
    GOOD
    203.314528782
    T3
    2006/feb/23
    2019/feb/23
    GOOD
    152.557528784
    T4
    2006/feb/23
    2019/feb/23
    GOOD
    288.253528787
    T5
    2006/feb/23
    2019/feb/23
    GOOD
    169.649528788
    T6
    2006/feb/23
    2019/feb/23
    GOOD
    270.22528789
    T7
    2006/feb/23
    2019/feb/23
    GOOD
    422.475528790
    T8
    2006/feb/23
    2019/feb/23
    GOOD
    253.607570454
    
    2007/nov/22
    2019/may/26
    GOOD
    456.7897570455
    
    2007/nov/22
    2019/may/26
    GOOD
    236.9606570456
    
    2007/nov/22
    2019/may/26
    GOOD
    220.1722570457
    
    2007/nov/22
    2019/may/26
    GOOD
    16.9303609390
    FLAT 7
    2009/jul/21
    2018/sep/20
    GOOD
    254.5875609394
    FLAT 6
    2009/jul/21
    2018/sep/20
    GOOD
    407.4018609396
    FLAT 8
    2009/jul/21
    2018/sep/20
    GOOD
    203.7866609397
    FLAT 5
    2009/jul/21
    2018/sep/20
    GOOD
    407.3977609398
    FLAT 4
    2009/jul/21
    2018/sep/20
    GOOD
    407.3685609403
    FLAT 3
    2009/jul/21
    2018/sep/20
    GOOD
    407.3103609423
    FLAT 2
    2009/jul/21
    2018/sep/20
    GOOD
    407.2953609424
    FLAT 1
    2009/jul/21
    2018/sep/20
    GOOD
    424.2271


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

25

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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 2,895 meters of conventional and
packsack diamond drilling in 40 widely spaced drill holes.

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

26

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Work Completed by the Registrant

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

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

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

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

Our 2006 exploration program was completed by early November
and included 19,111 meters of diamond drilling in 68 holes, surface mapping and
sampling in several areas and continuation of fish habitat surveys and water
sampling. Metallurgical test-work 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 test-work 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 test-work 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.

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

27

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

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

KEY DATA

Initial Capital Investment
      
      US $1,357 millionExpansion Capital in Year 5
      
      US $492 millionPayback period*
      
      7.3 yearsMill operation
      
      27.2 yearsIRR pre-tax* (100% equity)
      
      15.9%IRR after-tax* (100% equity)
      
      13.5%NPV pre-tax* (8% discount)
      
      US $1,295 millionNPV after-tax* (8% discount)
      
      US $724 millionMill throughput
      Year 1-5
      43,400 tonnes per dayYear 6-21
      84,600 tonnes per dayMill feed grade
      Year 1-5
      0.261% Ni, 0.014% CoYear 6-21
      0.246% Ni, 0.013% CoPit Resource
      Measured
      206 million tonnes, 0.231% Ni, 0.014% CoIndicated
      356 million tonnes, 0.226% Ni,
        0.013% CoInferred
      201 million tonnes, 0.235% Ni, 0.013% Co


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

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

FINANCIAL VALUATION

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

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

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

28

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

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

CAPITAL AND OPERATING COSTS

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

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


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

29

---

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


MINERAL RESOURCES

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

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

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

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

DEVELOPMENT PLAN

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

30

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Key metrics for mining and processing are shown below:

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

OPPORTUNITIES

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

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

FINANCIAL COMPARISON OF SCENARIOS

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


Base Case includes US $492 million
additional capital in Year 5 for expansion in Year 6 Scenario 1 at constant
15.9 Mtpa Scenario 2 at constant 31.3 Mtpa 
  Scenarios 1 and 2 are estimates (not developed to same level of accuracy as
  the Base Case)

31

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Other opportunities include:

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

Recommendations

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

The engineering report referred to in this document uses the
terms measured indicated and inferred resources. We advise U.S. investors
that while those terms are recognized and required by Canadian regulations, the
U.S. Securities and Exchange Commission does not recognize them. U.S. investors
are cautioned not to assume that any part or all of mineral deposits in these
categories would ever be converted to reserves.

Subsequent to Year End

During the year ended December 31, 2012, the Company focused on
finding a partner to take the Turnagain Nickel project to the feasibility level,
reviewed possible opportunities for reducing the overall project capital costs,
identified a PGE exploration program on the Turnagain property and conducted an
initial field assessment of a newly staked property during the 2012 field
season. A detailed review of the metallurgical status of the project has been
completed, and provided recommendations which identify the work required to take
the metallurgy to a feasibility level.

Item
5            
Operating and Financial Review and Prospects

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

*A.*           
*Operating Results*

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

Year Ended December 31, 2012 Compared to Year Ended December
31, 2011

General and Administrative - During fiscal 2012 the Company
decided to down size staff, cut all non-essential administrative expenses and
limit the amount of exploration work in order to conserve cash. As a result the
Company incurred a net loss of $319,202 ($0.00 per share) compared to a net loss
of $1,630,653 ($0.02 per share) in fiscal 2011. The administrative expenses for
2012 were $686,572, down from $1,648,655 in the prior year. Total administrative expenses
includes two non-cash expenses, the first non-cash expense is amortization which
charges the cost of equipment against earnings over its useful life, these
amounts were $10,893 and $12,521 in 2012 and 2011, respectively. The second
non-cash expense is stock-based compensation which recognizes the fair value of
stock options granted and vested; these amounts were $Nil and $531,004 in 2012
and 2011, respectively. Excluding these items, the 2012 administrative expenses
were $675,679, down from $1,105,130 in 2011. Consulting expenses in 2012 were
$2,000 (2011: $16,500), a decrease of $14,500 or 88%. Director fees in 2012 were
$4,000 (2011: $24,000), a decrease of $20,000 or 83%. Investor relations
expenses in 2012 were $128,561 (2011: $265,147), a decrease of $136,586 or 52%.
Legal and audit expenses in 2012 were $45,874 (2011: $61,404), a decrease of
$15,530 or 25%. Management fees in 2012 were $198,000 (2011: $264,000), a
decrease of $66,000 or 25%. Office and general expenses in 2012 were $275,070
(2011: $331,953), a decrease of $56,883 or 17%. Excluding amortization and stock
based compensation, the total general and administrative expenses for the year
were approximately $56,000 per month compared to $92,000 per month in 2011.

32

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During 2012, the Company wrote off $11,740 in exploration
properties (2011: $Nil) and earned $5,856 from interest income (2011: $18,024),
a decrease of $12,168 or 68%. The Company paid $7,144 of interest expense (2011:
$Nil) to the CEO for providing an unsecured loan. The Company had deferred
income tax recovery of $380,398 for 2012 compared to deferred income tax expense
of $22 in 2012, a difference of $380,420 primarily from the expected recovery of
income taxes from the 2012 net loss before income taxes and increased resource
tax pools.

Exploration - During the year ended December 31, 2012, the
Company incurred exploration and evaluation costs of $362,920 (2011:
$2,027,326). This $1,664,406 decrease was part of the Companys overall decision
to conserve cash and focus on finding a partner to take the project to the
feasibility level.

*B.*           
*Liquidity and Capital Resources*

Since the Company is organized in Canada, the Companys
December 31, 2012 consolidated financial statements have been prepared in
accordance with IFRS.

As at December 31, 2012, our company had accumulated losses
totaling $21,242,620 and a working capital of $384,518. The Company does not
have any source of external liquidity such as bank loans or lines of credit to
draw upon and relies on private placement funding and the exercise of share
purchase warrants to fund ongoing operations and exploration programs.

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

As at December 31, 2012 the Company had cash of $518,489 and
working capital of $384,518.

As of April 30, 2013, we had approximately $329,000 in cash,
$38,000 in recoverable taxes, and $124,000 in accrued liabilities which is
sufficient to cover our operating costs for fiscal year 2013 at an estimated
$25,000 per month. If the Company is to conduct a 2013 exploration program, we
will need to raise additional funds through further equity issuances or loans.

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

All cash and cash equivalents are held in Canadian dollars.

33

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

Not applicable.

*D.*           
*Trend Information*

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

*E.*            *Off-Balance Sheet Arrangements*

Not applicable.

*F.*            *Tabular Disclosure of Contractual Obligations*

Not applicable.

Critical Accounting Policies and Estimates

Basis of preparation and accounting policies

The consolidated financial statements of the Company comply
with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB) and interpretations of the
International Financial Reporting Interpretations Committee (IFRIC).

There were no changes to the accounting policies applied by our
company to each of the 2012 quarterly unaudited interim consolidated financial
statements, to those applied to the consolidated financial statements for the
year ended December 31, 2012.

Critical Accounting Estimates

As at December 31, 2012, the Companys financial statements
reflect Exploration and evaluation assets with a balance of $32,719,366. The
recoverability of this amount is dependent upon the discovery of economically
recoverable reserves, and the ability to attain future profitable production
from those reserves, or from their successful disposition. The Company has not
determined if its properties contain ore reserves that are economically
recoverable.

Income taxes

Preparation of the consolidated financial statements involves
determining an estimate of, or provision for, income taxes. The process also
involves making an estimate of taxes currently payable and taxes expected to be
payable or recoverable in future periods, referred to as deferred taxes.
Deferred taxes result from the effects of temporary differences due to items
that are treated differently for tax and accounting purposes. The tax effects of
these differences are reflected in the consolidated balance sheet as deferred
tax assets and liabilities. An assessment must also be made to determine the
likelihood that the Companys future taxable income will be sufficient to permit
the recovery of deferred tax assets. To the extent that such recovery is not
probable, recognized deferred tax assets must be reduced to the recoverable
amount. Judgement is required in determining the provision for income taxes and
recognition of deferred tax assets and liabilities. Management must also
exercise judgement in its assessment of continually changing tax
interpretations, regulations and legislation, to ensure deferred tax assets and
liabilities are complete and fairly presented. The effects of differing
assessments and applications could be material.

34

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Future Accounting Changes

Accounting standards issued but not yet effective:

New standard IFRS 9 Financial
Instruments

This new standard is a partial
replacement of IAS 39 Financial Instruments: Recognition and Measurement. IFRS
9 uses a single approach to determine whether a financial asset is measured at
amortized cost or fair value, replacing the multiple rules in IAS 39. The
approach in IFRS 9 is based on how an entity manages its financial instruments
in the context of its business model and the contractual cash flow
characteristics of the financial assets.

The new standard also requires a single
impairment method to be used, replacing the multiple impairment methods in IAS
39. IFRS 9 is effective for annual periods beginning on or after January 1,
2015.

New standard IFRS 10
Consolidated Financial Statements

This new standard will replace IAS 27
Consolidated and Separate Financial Statements, and SIC-12 Consolidation 
Special Purpose Entities. Concurrent with IFRS 10, the IASB issued IFRS 11
Joint Ventures; IFRS 12 Disclosures of Involvement with Other Entities; IAS
27 Separate Financial Statements, which has been amended for the issuance of
IFRS 10 but retains the current guidance for separate financial statements; and
IAS 28 Investments in Associates and Joint Ventures, which has been amended
for conforming changes based on the issuance of IFRS 10 and IFRS 11.

IFRS 10 uses control as the single
basis for consolidation, irrespective of the nature of the investee, eliminating
the risks and rewards approach included in SIC-12, and requires continuous
assessment of control over an investee. The above consolidation standards are
effective for annual periods beginning on or after January 1, 2013.

New standard IFRS 11 Joint
Arrangements

This new standard requires a venturer
to classify its interest in a joint arrangement as a joint venture or joint
operation. Joint ventures will be accounted for using the equity method of
accounting whereas for a joint operation the venture will recognize its share of
the assets, liabilities, revenue and expenses of the joint operation. Under
existing IFRS, entities have the choice to proportionately consolidate or equity
account for interests in joint ventures. IFRS 11 supersedes lAS 31, Interests in
Joint Ventures, and SIC-13, Jointly Controlled Entities-Non-monetary
Contributions by Venturers. IFRS 11 is effective for annual periods beginning on
or after January 1, 2013.

New standard IFRS 12 Disclosure
of Interests in Other Entities

This new standard establishes
disclosure requirements for interests in other entities, such as joint
arrangements, associates, special purpose vehicles and off balance sheet
vehicles. The standard carries forward existing disclosures and also introduces
significant additional disclosure requirements that address the nature of, and
risks associated with, an entity's interests in other entities. IFRS 12 is
effective for annual periods beginning on or after January 1, 2013.

35

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New standard IFRS 13 Fair value
measurement

This new standard replaces the fair
value measurement guidance currently included in various other IFRS standards
with a single definition of fair value and extensive application guidance. IFRS
13 provides guidance on how to measure fair value and does not introduce new
requirements for when fair value is required or permitted. It also establishes
disclosure requirements to provide users of the financial statements with more
information about fair value measurements. IFRS 13 is effect for annual periods
beginning on or after January 1, 2013.

Amended Standard IAS 1
Presentation of Financial Statements

This standard provides extensive
guidance on determining fair value for measurement or disclosure purposes. The
Company will adopt the standard prospectively effective January 1, 2013.

IAS 27 - Separate Financial
Statements

IAS 27 contains accounting and
disclosure requirements for investments in subsidiaries, joint ventures and
associates when an entity prepares separate financial statements. IAS 27
requires an entity preparing separate financial statements to account for those
investments at cost or in accordance with IFRS 9. This new standard is effective
January 1, 2013 with earlier application permitted.

IAS 28 - Investments in
Associates and Joint Ventures

IAS 28 prescribes the accounting for
investments in associates and sets out the requirements for the application of
the equity method when accounting for investments in associates and joint
ventures. This amendment is effective January 1, 2013 with earlier application
permitted.

None of the above standards have been
early adopted or are expected to have significant impact on the Companys
consolidated financial statements.

Item
6            
Directors, Senior Management and Employees

*A.*           
*Directors and Senior Management*

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

Name Office Held Age
      Area of Experience
      and Functions in Our CompanyMark Jarvis Director and Chief Executive Officer
      Age: 58
    Mr. Jarvis has been a director of
      our company and our Chief Executive Officer since January of 2004. As
      Chief Executive Officer, Mr. Jarvis is responsible for the development of
      our strategic direction and the management and supervision of our overall
      business. As director, Mr. Jarvis is responsible for the corporate
      governance of our company.George Sookochoff Director Age: 61
    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: 67
    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.


36

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Lyle Davis Director Age: 57
    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. In July 2008, Mr. Davis became Chairman of
      the Board, responsible for the management and supervision of our board of
      directors. As director, Mr. Davis is responsible for the corporate
      governance of our company.Gary Johnson Director Age: 56
    Mr. Johnson has been a director of our company since June
      2010. As a non- executive director, Mr. Johnson is responsible for the
      corporate governance of our company.Cliff Carson Director Age: 64
    Mr. Carson has been a director of our company since May
      2011. As a non- executive director, Mr. Carson is responsible for the
      corporate governance of our company.Brian Fiddler Controller and Chief Financial Officer
      Age: 51
    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 Former Executive Vice President Age: 51
    Mr. Froc was our executive vice president from June 2006
      to July 2012. As Executive Vice President, Mr. Froc was responsible for
      the management of engineering and technical studies including
      infrastructure and socio-economic project development.Leslie Young Corporate Secretary Age: 54
    Ms. Young was appointed as our corporate secretary in
      June of 2004. As Corporate Secretary, Ms. Young is responsible for the
      internal accounting and record keeping, general administration, and making
  all necessary filings and financial reporting for our company.


Mark Jarvis  Director and Chief Executive
Officer

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

George Sookochoff  Director

Mr. Sookochoff has been a director of our company since
November of 2003. Mr. Sookochoff is a graduate of the University of British
Columbia. He is responsible for computer systems management providing Graphical
Information Systems (GIS). Mr. Sookochoff has been providing GIS and exploration
data management services to mining companies since 1983. Mr. Sookochoff served
as President and CEO of PBX Ventures Ltd. (TSX  PBX) until October 2012 and
is committed 10% to the business of Hard Creek Nickel Corporation.

37

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Tom Milner  Director

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

Lyle Davis - Director

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

Gary Johnson  Director

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

Cliff Carson  Director

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

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

38

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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 30% to the business of Hard Creek Nickel
Corporation.

Leslie Young  Corporate Secretary

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

There are no family relationships between any of our executive
officers or directors of our company. There are no arrangements or
understandings with major shareholders, customers, suppliers or others pursuant
to which any person referred to above was selected as a director or executive
officer.

*B.*            *Compensation*

The following table sets out the compensation provided to our
directors and senior management for performance of their duties during the
fiscal year ended December 31, 2012:

SUMMARY COMPENSATION
        TABLEName and principal
        position
      Year
      Salary ($)
      Share-
        based awards ($)
      Option-
        based awards ($)
      Non-equity incentive
        compensation plan compensation ($)
      Pension
        value ($)
      All other Compen -sation ($)
      Total
        Compen -sation ($)Annual**incentiv****e** plans
      **Long-** term **incent****ive** plansMark Jarvis 
        Director and Chief Executive 
        Officer
      2012
      $79,500
      Nil
      Nil
      Nil
      Nil
      Nil
      Nil
      $79,500George Sookochoff 
        Director
      2012
      $2,000
      Nil
      Nil
      Nil
      Nil
      Nil
      Nil
      $2,000Tom Milner 
        Director
      2012
      $Nil
      Nil
      Nil
      Nil
      Nil
      Nil
      Nil
      $NilLyle Davis 
        Director
      2012
      $2,000
      Nil
      Nil
      Nil
      Nil
      Nil
      Nil
      $2,000Gary Johnson 
        Director
      2012
      $Nil
      Nil
      Nil
      Nil
      Nil
      Nil
      Nil
      $Nil


39

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Cliff Carson Director
      2012
    $Nil
    Nil
    Nil
    Nil
    Nil
    Nil
    Nil
    $NilBrian Fiddler Controller and Chief
      Financial Officer
      2012
    $60,500
    Nil
    Nil
    Nil
    Nil
    Nil
    Nil
    $60,500Neil Froc Former Executive Vice President
      2012
    $89,500
    Nil
    Nil
    Nil
    Nil
    Nil
    25,000
    $89,500Leslie Young Corporate Secretary
      2012
    $58,000
    Nil
    Nil
    Nil
    Nil
    Nil
    Nil
    $58,000


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

*C.*           *Board Practice*

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

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

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

We currently do not have a remuneration or compensation
committee.

*D.*           *Employees*

As of December 31, 2012, we had three part-time employees,
including one of our officers. We do not have any relationship with any labor
unions.

40

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*E.*           *Share Ownership*

There were 90,373,493 Common Shares issued and outstanding as
of April 30, 2013. Of the shares issued and outstanding, warrants held and stock
options granted, our directors and officers owned the following Common Shares as
of April 30, 2013:

Name
      Number of Common Shares Beneficially Owned as of April 30, 2013
      Percentage(1)Mark Jarvis
    8,385,289 (2)
    8.63%George Sookochoff
    550,000(3)
    0.57%Tom Milner
    810,000(4)
    0.83%Lyle Davis
    770,000(5)
    0.79%Brian Fiddler
    554,368(6)
    0.57%Leslie Young
    538,800(7)
    0.55%Gary Johnson
    1,150,000(8)
    1.18%Cliff Carson
    1,860,000(9)
    1.92%


|(1) | Based on 90,373,493 Common Shares issued and outstanding
      as at April 30, 2013, and the number of shares issuable upon the exercise
      of issued and outstanding stock options and warrants which are exercisable
      within 60 days of April 30, 2013.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes stock options to purchase up to 1,475,000 of our
      Common Shares at exercise prices ranging from $.10 - $0.50 per share
      expiring up to January 4, 2018.                                                                                       
|(3) | Includes stock options to purchase up to 550,000 of our
      Common Shares at exercise prices ranging from $.10 - $0.30 per share
      expiring up to January 4, 2018.                                                                                         
|(4) | Includes stock options to purchase up to 700,000 of our
      Common Shares at exercise prices ranging from $.10 - $1.00 per share
      expiring up to January 4, 2018.                                                                                         
|(5) | Includes stock options to purchase up to 750,000 of our
      Common Shares at exercise prices ranging from $.10 - $1.00 per share
      expiring up to January 4, 2018.                                                                                         
|(6) | Includes stock options to purchase up to 500,000 of our
      Common Shares at exercise prices ranging from $.10 - $1.00 per share
      expiring January 4, 2018.                                                                                               
|(7) | Includes stock options to purchase up to 475,000 of our
      Common Shares at exercise prices ranging from $0.10 - $0.50 per share
      expiring January 4, 2018.                                                                                              
|(8) | Includes stock options to purchase up to 1,000,000 of our
      Common Shares at exercise prices ranging from $0.10 - $0.50 per share
      expiring January 4, 2018.                                                                                            
|(9) | Includes stock options to purchase up to 1,300,000 of our
      Common Shares at exercise prices ranging from $0.10 - $0.42 per share
      expiring January 4, 2018.                                                                                            

A total of ten percent (10%) of the common shares of our
company, outstanding from time to time, are reserved for the issuance of stock
options pursuant to our companys Incentive Stock Option Plan. There were no
stock options granted during the fiscal year ending December 31, 2012.

41

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Item 7            **Major Shareholders and Related Party Transactions

*A.*           *Major Shareholders*

The following table sets forth, as of April 30, 2013, 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
    8,385,289 (2)
    8.63%


|(1) | Based on 90,373,493 Common Shares issued and outstanding
      as at April 30, 2013, and the number of shares issuable upon the exercise
      of issued and outstanding stock options and warrants which are exercisable
      within 60 days of April 30, 2013.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes stock options to purchase up to 1,475,000 of our
      Common Shares at exercise prices ranging from $0.10  0.50 per share
      expiring January 4, 2018.                                                                                             

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

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

*B.*           *Related Party Transactions*

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

Related party balances

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

|                                                              |   | December 31, |  |   | December 31, | 
|------------------------------------------------------------- | - | ------------ |  | - | ------------ | 
|                                                              |   | 2012         |  |   | 2011         | 
|Directors or companies controlled by directors of our company | $ | 51,000       |  | $ | 4,500        | 

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

42

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Related party transactions

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

|                                                           |   | Year
      ended | 
|---------------------------------------------------------- | - | ---------------- | 
|                                                           |   | December 31,     | 
|                                                           |   | 2012             | 
|Exploration and evaluation expenditures (capitalized)      | $ | -                | 
|Fees to non-management directors                           |   | 4,000            | 
|Interest expense on unsecured loan                         |   | 7,144            | 
|Stock-based compensation
      to non-management directors |   | -                | 
|                                                           | $ | 11,144           | 

Key management personnel compensation

|                                                      |   | Year
      ended | 
|----------------------------------------------------- | - | ---------------- | 
|                                                      |   | December 31,     | 
|                                                      |   | 2012             | 
|Exploration and evaluation expenditures (capitalized) | $ | 89,500           | 
|Management fees                                       |   | 198,000          | 
|Stock-based compensation                              |   | -                | 
|                                                      | $ | 287,500          | 

*C.*           *Interests of Experts and Counsel*

Not required.

Item 8            **Financial Information

*A.*           **Consolidatedand Other Financial Information

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

*B.*           *Significant Changes*

Our company is not aware of any significant change since
December 31, 2012 that is not otherwise reported in this filing.

43

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Item 9           **The Offer and Listing

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

Price History

Full Financial Years (five most recent financial years)

The annual high and low market prices for the five most recent
full financial years (years ended December 31, 2008 through to December 31,
2012) on the TSX Venture Exchange (formerly the Canadian Venture Exchange) prior
to September 19, 2008, and the TSX Exchange September 19, 2008 and afterwards
were as follows:

YearEnded
      High
      Low31-Dec-08
    $1.06
    $0.0831-Dec-09
    $0.35
    $0.0931-Dec-10
    $0.65
    $0.1931-Dec-11
    $0.52
    $0.1631-Dec-12
    $0.20
    $0.04


Full Financial Quarters (two most recent financial years)

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

QuarterEnded
      High
      Low31-Mar-11
    $0.52
    $0.4130-Jun-11
    $0.43
    $0.2830-Sep-11
    $0.30
    $0.2231-Dec-11
    $0.28
    $0.1631-Mar-12
    $0.20
    $0.1430-Jun-12
    $0.14
    $0.0630-Sep-12
    $0.09
    $0.0431-Dec-12
    $0.08
    $0.04


44

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

Quarter Ended
      High
      Low31-Oct-12
    $0.08
    $0.0630-Nov-12
    $0.07
    $0.0431-Dec-12
    $0.08
    $0.0431-Jan-13
    $0.08
    $0.0529-Feb-13
    $0.07
    $0.0531-Mar-13
    $0.05
    $0.03


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

*B.*           *Plan of Distribution*

Not Applicable.

*C.*           *Markets*

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

*D.*           *Selling Shareholders*

Not Applicable.

*E.*           *Dilution*

Not Applicable.

*F.*           *Expenses of the Issues*

Not Applicable.

Item 10            **Additional Information

*A.*           *Share Capital*

Not required.

45

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*B.*           *Articles of Incorporation and By-laws*

Incorporation

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

Objects and Purposes of the Company

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

Directors Powers

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

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

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

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

46

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Qualifications of Directors

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

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

Share Rights

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

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

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

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

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

47

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

Procedures to Change the Rights of Shareholders

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

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

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

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

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

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

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

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

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

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

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

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

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

48

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

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

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

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

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

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

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

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

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

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

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

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

49

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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.

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.

50

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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.

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*

51

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We have not entered into any material contracts outside the
normal course of business to which we are a party during the fiscal year ending
December 31, 2012, the two fiscal years proceeding and the current fiscal year
up to and including the date of this annual report. Each contract is between
Hard Creek Nickel and the Contractor, there is no provision to pass any of these
contracts to Hard Creek Nickels wholly-owned subsidiary, Canadian Metals
Exploration Ltd.

*D.*           *Exchange Controls*

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

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

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

The Canadian Investment Act

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

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

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

The acquisition of less than a majority but one-third or more
of the common shares would be presumed to be an acquisition of control of the
Company unless it could be established that, on acquisition, the Company was not
controlled in fact by the acquirer through the ownership of common shares.

52

---

Notwithstanding the review provisions, any transaction
involving the acquisition of control of a Canadian business or the establishment
of a new business in Canada by a non-Canadian is a notifiable transaction and
must be reported to Industry Canada by the non-Canadian making the investment
either before or within thirty days after the investment.

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

| |  | an acquisition of common shares by a person in the
      ordinary course of that persons business as a trader or dealer in
      securities;                                                                                                                                          
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an acquisition of control of the Company in connection
      with the realization of security granted for a loan or other financial
      assistance and not for a purpose related to the provisions of the
      Investment Act; and                                                  
| |  | an acquisition of control of the Company by reason of an
      amalgamation, merger, consolidation or corporate reorganization, following
      which the ultimate direct or indirect control in fact of the Company,
      through the ownership of common shares, remained unchanged.

Canadian Competition Act Review

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

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

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

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

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

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

53

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*E.*           *Taxation*

This summary is of a general nature only and is not intended
to be, and should not be interpreted as, legal or tax advice to any prospective
purchaser or holder of the Companys shares and no representation with respect
to the Canadian federal income tax consequences to any such prospective
purchaser is made. Accordingly, prospective purchasers of the Companys shares
should consult with their own tax advisors with respect to their individual
circumstances.

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

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

Disposition of the Companys Shares

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

*F.*           *Dividends and Paying Agents*

Not applicable.

*G.*           *Statements by Experts*

Not required.

54

---

*H.*           *Documents on Display*

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

*I.*           *Subsidiary Information*

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

Item
11**           **Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 12            **Description of Securities Other than Equity Securities

Not required.

PART II

Item 13           **Defaults, Dividend Arrearages and Delinquencies.

Not applicable.

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

Not Applicable

Item 15           **Controls and Procedures

Disclosure Controls and Procedures

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

Our Chief Executive Officer and our Chief Financial Officer
have evaluated the effectiveness of our disclosure controls and procedures as of
December 31, 2012, pursuant to Rule 13a-15(b) promulgated under the Securities
Exchange Act of 1934, as amended. As part of such evaluation, our Chief
Executive Officer and our Chief Financial Officer considered the matters
discussed below relating to internal control over financial reporting. Based on
this evaluation, our companys Chief Executive Officer and Chief Financial
Officer have concluded that our companys disclosure controls and procedures
were effective as of December 31, 2012.

Management Report on Internal Control over Financial
Reporting

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as such term is defined in
Rule 13a-15(f) Securities Exchange Act of 1934, as amended. Management (under
the supervision and with the participation of the Chief Executive Officer and
the Chief Financial Officer) assessed the effectiveness of our internal control
over financial reporting as of December 31, 2011. In making this assessment, management used the
framework set forth in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Management of our company conducted an assessment of the effectiveness of our
companys internal controls over financial reporting as of December 31, 2012.
Based on its assessment as per the standards of the Public Company Accounting
Oversight Board, , we concluded that our companys internal controls over
financial reporting were effective as of December 31, 2012.

55

---

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

Changes in Internal Control over Financial Reporting

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

Item 16[Reserved]

Audit Committee Financial Expert

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

Code of Ethics

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

Principal Accountant Fees and Services

Audit-Related Fees

|Fiscal Year 2012: $26,500 | Fiscal Year 2011: $35,000
|------------------------- | -------------------------

Tax Fees

|Fiscal Year 2012: $Nil | Fiscal Year 2011: $Nil
|---------------------- | ----------------------

All Other Fees

|Fiscal Year 2012: $Nil | Fiscal Year 2011: $Nil
|---------------------- | ----------------------

56

---

Exemptions from the Listing Standards for Audit Committees

Not Applicable

Purchases of Equity Securities by the Issuer and Affiliated
Purchasers

Not Applicable

Change in Registrant's Certifying Accountant

Not Applicable

PART III

Item 17Financial Statements

Not applicable. See Item 18. Financial Statements below.

Item
18Financial Statements

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

Independent Auditors Report. Consolidated Statements of
financial position as at December 31, 2012 and 2011. Consolidated Statements
of Comprehensive Loss as at December 31, 2012 and 2011. Consolidated
Statements of cash flows for the years ended December 31, 2012 and 2011.

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)
|        |                                                                                                                                     
|8.      | List of Subsidiaries                                                                                                                
|        |                                                                                                                                     
|8.1     | Canadian Metals
        Exploration Ltd., incorporated under the Canada Business Corporation
        Act (Canada) on July 14, 2004. 
|        |                                                                                                                                     
|12.     | Section 302
        Certifications                                                                                                  
|        |                                                                                                                                     
|12.1    | Section
        302 Certification under Sarbanes-Oxley Act for Mark Jarvis*                                                         
|        |                                                                                                                                     
|12.2    | Section
        302 Certification under Sarbanes-Oxley Act for Brian Fiddler*                                                       
|        |                                                                                                                                     
|13      | Section 906
        Certifications                                                                                                  
|        |                                                                                                                                     
|13.1    | Section
        906 Certifications under Sarbanes-Oxley Act for Mark Jarvis*                                                        

57

---

|13.2 | Section
      906 Certifications under Sarbanes-Oxley Act for Brian Fiddler*
|---- | ----------------------------------------------------------------------------
|     |                                                                             
|15.  | Additional Exhibits                                                         
|     |                                                                             
|15.1 | Consent
      of Ronald G. Simpson*                                         
|     |                                                                             
|15.2 | Consent
      of N.C. Carter*                                               
|     |                                                                             
|15.3 | Consent
      of Tony Hitchins*                                             
|     |                                                                             
|15.4 | Consent
      of Alan Riles*                                                
|     |                                                                             
|15.5 | Code of Ethics (2)                                                          

*Filed herewith.

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

SIGNATURE

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

HARD CREEK NICKEL CORPORATION

|Brian Fiddler         | 
|----------------------- | 
|                        | 
|                        | 
|Brian Fiddler           | 
|Chief Financial Officer | 
|Date: April 30, 2013    | 

58

---





Hard Creek Nickel CorporationConsolidated
Financial StatementsYears Ended December 31, 2012 and 2011

Expressed in Canadian Dollars





---



INDEPENDENT AUDITORS REPORT

To the Shareholders of Hard Creek Nickel Corp.

We have audited the accompanying consolidated financial
statements of Hard Creek Nickel Corp., which comprise the consolidated
statements of financial position as at December 31, 2012 and 2011, and the
consolidated statements of comprehensive income and loss, changes in
shareholders equity and cash flows for the years ended December 31, 2012 and
2011, and a summary of significant accounting policies and other explanatory
information.

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

Auditors Responsibility Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted
auditing standards and the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material
misstatement.

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

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

OpinionIn our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of
Hard Creek Nickel Corp. as at December 31, 2012 and 2011, and its financial
performance and its cash flows for the years ended December 31, 2012 and 2011 in
accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board.

Emphasis of MatterWithout modifying our opinion, we
draw attention to Note 1 to the consolidated financial statements which
describes matters and conditions that indicate the existence of a material
uncertainty that cast significant doubt about Hard Creek Nickel Corp.s ability
to continue as a going concern.

DALE MATHESON CARR-HILTON LABONTE LLP CHARTERED
ACCOUNTANTS

Vancouver, Canada March 21, 2013

---

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

|                                        |       |   | December 31, |   |   | December 31, |  
|--------------------------------------- | ----- | - | ------------ | - | - | ------------ | -
|                                        | Notes |   | 2012         |   |   | 2011         |  
|                                        |       |   |              |   |   |              |  
|ASSETS                                  |       |   |              |   |   |              |  
|Current assets                          |       |   |              |   |   |              |  
|Cash                                    |       | $ | 518,489      |   | $ | 236,530      |  
|Receivables                             | 4     |   | 42,357       |   |   | 284,354      |  
|Prepaid expenses                        |       |   | 17,982       |   |   | 27,625       |  
|                                        |       |   | 578,828      |   |   | 548,509      |  
|Non-current assets                      |       |   |              |   |   |              |  
|Reclamation deposits                    | 14    |   | 337,900      |   |   | 337,900      |  
|Plant and equipment                     | 5     |   | 33,790       |   |   | 44,683       |  
|Mineral property interests              | 6     |   | 179,500      |   |   | 179,500      |  
|Exploration and
      evaluation assets | 6     |   | 32,719,366   |   |   | 32,144,174   |  
|                                        |       |   | 33,270,556   |   |   | 32,706,257   |  
|                                        |       |   |              |   |   |              |  
|TOTAL ASSETS                            |       | $ | 33,849,384   |   | $ | 33,254,766   |  
|                                        |       |   |              |   |   |              |  
|LIABILITIES                             |       |   |              |   |   |              |  
|Current liabilities                     |       |   |              |   |   |              |  
|Trade payables and accrued liabilities  | 7     | $ | 194,310      |   | $ | 254,282      |  
|                                        |       |   |              |   |   |              |  
|Non-current liabilities                 |       |   |              |   |   |              |  
|Deferred tax
      liabilities          | 9     |   | 219,678      |   |   | 382,346      |  
|                                        |       |   |              |   |   |              |  
|TOTAL
      LIABILITIES                 |       |   | 413,988      |   |   | 636,628      |  
|                                        |       |   |              |   |   |              |  
|EQUITY                                  |       |   |              |   |   |              |  
|Share capital                           | 10    |   | 48,642,413   |   |   | 47,749,579   |  
|Share-based payment reserve             | 10    |   | 6,035,603    |   |   | 5,791,977    |  
|Deficit                                 |       |   | (21,242,620  | ) |   | (20,923,418  | )
|                                        |       |   |              |   |   |              |  
|TOTAL EQUITY                            |       |   | 33,435,396   |   |   | 32,618,138   |  
|                                        |       |   |              |   |   |              |  
|TOTAL LIABILITIES AND EQUITY            |       | $ | 33,849,384   |   | $ | 33,254,766   |  
|                                        |       |   |              |   |   |              |  
|Lease obligations (Note 8)              |       |   |              |   |   |              |  

APPROVED BY:

DIRECTOR
    MARK JARVIS
    DIRECTOR
    LYLE DAVIS


|The accompanying notes are an integral part of these
      consolidated financial statements | 3
|-------------------------------------------------------------------------------------------- | -

---

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

|                                                                        |        |   | Years ended  |  
|----------------------------------------------------------------------- | ------ | - | ------------ | -
|                                                                        |        |   | December 31, |  
|                                                                        | Notes  |   | 2012         |  
|                                                                        |        |   |              |  
|Operating expenses                                                      |        |   |              |  
|Amortization                                                            | 5      | $ | 10,893       |  
|Consulting                                                              |        |   | 2,000        |  
|Director fees                                                           | 12     |   | 4,000        |  
|Investor relations                                                      |        |   | 128,561      |  
|Legal and audit                                                         |        |   | 45,874       |  
|Management fees                                                         | 12     |   | 198,000      |  
|Office and general                                                      |        |   | 275,070      |  
|Salaries and benefits                                                   |        |   | -            |  
|Stock-based compensation                                                | 10, 12 |   | -            |  
|Travel
      and promotion                                              |        |   | 22,174       |  
|                                                                        |        |   | 686,572      |  
|                                                                        |        |   |              |  
|Other items                                                             |        |   |              |  
|Exploration property write-off                                          | 6      |   | 11,740       |  
|Interest expense                                                        | 12     |   | 7,144        |  
|Interest
      income                                                   |        |   | (5,856       | )
|                                                                        |        |   | 13,028       |  
|Loss before income taxes                                                |        |   | 699,600      |  
|                                                                        |        |   |              |  
|Deferred income tax
      (recovery) expense                            | 9      |   | (380,398     | )
|                                                                        |        |   |              |  
|Loss and comprehensive
      loss for the year                          |        | $ | 319,202      |  
|                                                                        |        |   |              |  
|Loss per share
       basic and diluted                                | 10     | $ | (0.00        | )
|Weighted average number of shares outstanding  basic
      and diluted | 10     |   | 81,032,321   |  

---

|Hard Creek Nickel Corporation              
|-------------------------------------------
|Consolidated statement of changes in equity
|Expressed in
      Canadian dollars        

|                                                                           |       |  | Share capital |  |   |            |   |   |                 |   |   |             |  
|-------------------------------------------------------------------------- | ----- |  | ------------- |  | - | ---------- | - | - | --------------- | - | - | ----------- | -
|                                                                           |       |  |               |  |   |            |   |   |                 |   |   |             |  
|                                                                           |       |  |               |  |   |            |   |   |                 |   |   |             |  
|                                                                           |       |  |               |  |   |            |   |   |                 |   |   |             |  
|                                                                           |       |  | Number of     |  |   |            |   |   | Share-based     |   |   |             |  
|                                                                           | Notes |  | shares        |  |   | Amount     |   |   | payment reserve |   |   | Deficit     |  
|Balance at January 1, 2011                                                 |       |  | 76,545,052    |  | $ | 47,422,414 |   | $ | 5,183,894       |   | $ | (19,292,765 | )
|Comprehensive loss:                                                        |       |  |               |  |   |            |   |   |                 |   |   |             |  
|Comprehensive loss for the year                                            |       |  | -             |  |   | -          |   |   | -               |   |   | (1,630,653  | )
|                                                                           |       |  | 76,545,052    |  |   | 47,422,414 |   |   | 5,183,894       |   |   | (20,923,418 | )
|Shares issued for cash  warrant exercise                                  | 10    |  | 785,108       |  |   | 310,333    |   |   | -               |   |   | -           |  
|Fair value of broker warrants allocated to share capital on
      exercise | 10    |  | -             |  |   | 16,832     |   |   | (16,832         | ) |   | -           |  
|Share-based compensation                                                   | 10    |  | -             |  |   | -          |   |   | 624,915         |   |   | -           |  
|Balance at December 31, 2011                                               |       |  | 77,330,160    |  |   | 47,749,579 |   |   | 5,791,977       |   |   | (20,923,418 | )
|                                                                           |       |  |               |  |   |            |   |   |                 |   |   |             |  
|Comprehensive loss:                                                        |       |  |               |  |   |            |   |   |                 |   |   |             |  
|Comprehensive loss for the year                                            |       |  | -             |  |   | -          |   |   | -               |   |   | (319,202    | )
|                                                                           |       |  | 77,330,160    |  |   | 47,749,579 |   |   | 5,791,977       |   |   | (21,242,620 | )
|Shares issued for cash  private placement                                 | 10    |  | 13,043,333    |  |   | 1,147,800  |   |   | -               |   |   | -           |  
|Fair value of warrants issued  private placement                          | 10    |  |               |  |   | (239,989   | ) |   | 239,989         |   |   | -           |  
|Share issue costs, net of tax recovery                                     | 10    |  | -             |  |   | (11,340    | ) |   | -               |   |   | -           |  
|Fair value of broker
      warrants                                        | 10    |  | -             |  |   | (3,637     | ) |   | 3,637           |   |   | -           |  
|Balance at December 31, 2012                                               |       |  | 90,373,493    |  | $ | 48,642,413 |   | $ | 6,035,603       |   | $ | (21,242,620 | )

---

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

|                                                         |   | Year ended   |  
|-------------------------------------------------------- | - | ------------ | -
|                                                         |   | December 31, |  
|                                                         |   | 2012         |  
|                                                         |   |              |  
|Operating activities                                     |   |              |  
|Loss for the year                                        | $ | (319,202     | )
|Adjustments for:                                         |   |              |  
|Amortization                                             |   | 10,893       |  
|Exploration property write-off                           |   | 11,740       |  
|Income tax expense (recovery)                            |   | (380,398     | )
|Interest income                                          |   | (5,856       | )
|Stock-based compensation                                 |   | -            |  
|Changes in non-cash working capital items:               |   |              |  
|Receivables                                              |   | 241,997      |  
|Prepaid expense                                          |   | 9,643        |  
|Trade
      payables and accrued liabilities             |   | (12,783      | )
|Net cash flows from (used in) operating activities       |   | (443,966     | )
|                                                         |   |              |  
|Investing activities                                     |   |              |  
|Expenditures on exploration and evaluation assets        |   | (412,611     | )
|Expenditures on plant and equipment                      |   | -            |  
|Reclamation deposits                                     |   | -            |  
|Interest income                                          |   | 5,856        |  
|Net cash flows
      from (used in) investing activities |   | (406,755     | )
|                                                         |   |              |  
|Financing activities                                     |   |              |  
|Proceeds on issuance of common shares - net
      of     |   |              |  
|share issue costs                                        |   | 1,132,680    |  
|Net cash flows from (used in) financing activities       |   | 1,132,680    |  
|Increase (decrease) in cash                              |   | 281,959      |  
|Cash, beginning                                          |   | 236,530      |  
|                                                         |   |              |  
|Cash, ending                                             | $ | 518,489      |  
|                                                         |   |              |  
|Supplemental cash flow information (Note 13)             |   |              |  

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years
      ended December 31, 2012 and 2011

|1. | Nature and continuance of operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Hard Creek Nickel Corporation (the Company) was
      incorporated on January 17, 1983, under the laws of the province of
      British Columbia, Canada, and its principal activity is the acquisition
      and exploration of mineral properties in Canada. The Companys common
      shares are listed for trading on the Toronto Stock Exchange (TSX) under
      the symbol HNC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The head office, principal address and records office of
      the Company are located at 1090 West Georgia Street, Suite 1060,
      Vancouver, British Columbia, Canada, V6E 3V7. The Companys registered
      address is 885 West Georgia Street, Suite 800, Vancouver, British
      Columbia, Canada, V6C 3H1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | These consolidated financial statements have been
      prepared on the assumption that the Company and its subsidiary will
      continue as a going concern, meaning it will continue in operation for the
      foreseeable future and will be able to realize assets and discharge
      liabilities in the ordinary course of operations. As at December 31, 2012
      the Company had not advanced its mineral properties to commercial
      production and is not able to finance day to day activities through
      operations. The Companys continuation as a going concern is dependent
      upon the successful results from its mineral property exploration
      activities and its ability to attain profitable operations and generate
      funds there from and/or raise equity capital or borrowings sufficient to
      meet current and future obligations. These uncertainties cast a
      significant doubt on the ability of the Company to continue operations as
      a going concern. Management intends to finance operating costs over the
      next twelve months using existing cash, exercise of share purchase
      warrants and/ or private placement of common shares.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|2. | Significant accounting policies and basis of
      preparation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | These financial statements were authorized for issue on
      March 21, 2013 by the directors of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Statement of compliance with International
      Financial Reporting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The consolidated financial statements of the Company
      comply with International Financial Reporting Standards (IFRS) as issued
      by the International Accounting Standards Board (IASB) and
      interpretations of the International Financial Reporting Interpretations
      Committee (IFRIC).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Basis of preparation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The consolidated financial statements of the Company have
      been prepared on an accrual basis and are based on historical costs,
      modified where applicable. The consolidated financial statements are
      presented in Canadian dollars unless otherwise noted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Certain of the comparative figures have been reclassified
      to conform to current years presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The consolidated financial statements include the
      accounts of the Company and its wholly owned Canadian subsidiary, Canadian
      Metals Exploration Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Inter-company balances and transactions, including
      unrealized income and expenses arising from inter-company transactions,
      are eliminated on consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

7

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years ended
      December 31, 2012 and 2011

|2. | Significant accounting policies and basis of
      preparation(contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Significant estimates and
  assumptions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The preparation of financial statements in accordance
      with IFRS requires the Company to make estimates and assumptions
      concerning the future. The Companys management reviews these estimates
      and underlying assumptions on an ongoing basis, based on experience and
      other factors, including expectations of future events that are believed
      to be reasonable under the circumstances. Revisions to estimates are
      adjusted for prospectively in the period in which the estimates are
      revised.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Estimates and assumptions where there is significant risk
      of material adjustments to assets and liabilities in future accounting
      periods include the useful lives of plant and equipment, the
      recoverability of the carrying value of exploration and evaluation assets,
      fair value measurements for financial instruments, the recoverability and
      measurement of deferred tax assets, provisions for restoration and
      environmental obligations and contingent liabilities.                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Significant judgments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The preparation of financial statements in accordance
      with IFRS requires the Company to make judgments, apart from those
      involving estimates, in applying accounting policies. The most significant
      judgments in applying the Companys financial statements
  include:                                                                                                                                                                                                                                                  

| | - | The assessment of the Companys ability to continue as a
      going concern and whether there are events or conditions that may give
      rise to significant uncertainty;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | - | the classification / allocation of expenditures as
      exploration and evaluation expenditures or operating expenses; and                                                 
| | - | the classification of financial instruments.                                                                                                                                

Exploration and evaluation
expenditures

Costs incurred before the Company has
obtained the legal rights to explore an area are expensed as incurred.

Exploration and evaluation expenditures
include the costs of acquiring licenses and costs associated with exploration
and evaluation activity. Option payments are considered acquisition costs
provided that the Company has the intention of exercising the underlying
option.

Property option agreements are
exercisable entirely at the option of the optionee. Therefore, option payments
(or recoveries) are recorded when payment is made (or received) and are not
accrued.

Exploration and evaluation expenditures are capitalized. The Company
  capitalizes costs to specific blocks of claims or areas of geological interest.
  Government tax credits received are recorded as a reduction to the cumulative
  costs incurred and capitalized on the related property.

Exploration and evaluation assets are
tested for impairment if facts or circumstances indicate that impairment exists.
Examples of such facts and circumstances are as follows:

| | - | the period for which the Company has the right to explore
      in the specific area has expired during the period or will expire in the
      near future, and is not expected to be renewed;                                                                     
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                    
| | - | substantive expenditure on further exploration for and
      evaluation of mineral resources in the specific area is neither budgeted
      nor planned;                                                                                                           
| |   |                                                                                                                                                                                                                                                                    
| | - | exploration for and evaluation of mineral resources in
      the specific area have not led to the discovery of commercially viable
      quantities of mineral resources and the entity has decided to discontinue
      such activities in the specific area; and
| |   |                                                                                                                                                                                                                                                                    
| | - | sufficient data exist to indicate that, although a
      development in the specific area is likely to proceed, the carrying amount
      of the exploration and evaluation asset is unlikely to be recovered in
      full from successful development or by sale.

8

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years ended
      December 31, 2012 and 2011

|2. | Significant accounting policies and basis of
      preparation(contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Exploration and evaluation expenditures(contd)After technical feasibility and commercial
      viability of extracting a mineral resource are demonstrable, the Company
      stops capitalizing expenditures for the applicable block of claims or
      geological area of interest and tests the asset for impairment. The
      capitalized balance, net of any impairment recognized, is then
      reclassified to either tangible or intangible mine development assets
      according to the nature of the asset.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Share-based payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Company operates an employee stock option plan.
      Share-based payments to employees are measured at the fair value of the
      instruments issued and amortized over the vesting periods. Share-based
      payments to non-employees are measured at the fair value of goods or
      services received or the fair value of the equity instruments issued, if
      it is determined the fair value of the goods or services cannot be
      reliably measured, and are recorded at the date the goods or services are
      received. The corresponding amount is recorded to the share-based payment
      reserve. The fair value of options is determined using the BlackScholes
      option pricing model which incorporates all market vesting conditions. The
      number of shares and options expected to vest is reviewed and adjusted at
      the end of each reporting period such that the amount recognized for
      services received as consideration for the equity instruments granted
      shall be based on the number of equity instruments that eventually
      vest.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Loss per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Basic loss per share is calculated by dividing the loss
      attributable to common shareholders by the weighted average number of
      common shares outstanding in the period. For all periods presented, the
      loss attributable to common shareholders equals the reported loss
      attributable to owners of the Company. Diluted loss per share is
      calculated by the treasury stock method. Under the treasury stock method,
      the weighted average number of common shares outstanding for the
      calculation of diluted loss per share assumes that the proceeds to be
      received on the exercise of dilutive share options and warrants are used
      to repurchase common shares at the average market price during the
      period.                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Company classifies its financial instruments in the
      following categories: financial assets at fair value through profit or
      loss, loans and receivables, held-to-maturity investments,
      available-for-sale financial assets and financial liabilities. The
      classification depends on the purpose for which the financial instruments
      were acquired. Management determines the classification of its financial
      instruments at initial recognition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Financial assets are classified at fair value through
      profit or loss when they are either held for trading for the purpose of
      short-term profit taking, derivatives not held for hedging purposes, or
      when they are designated as such to avoid an accounting mismatch or to
      enable performance evaluation where a group of financial assets is managed
      by key management personnel on a fair value basis in accordance with a
      documented risk management or investment strategy. Such assets are
      subsequently measured at fair value with changes in carrying value being
      included in profit or loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Loans and receivables are non-derivative financial assets
      with fixed or determinable payments that are not quoted in an active
      market and are subsequently measured at amortized cost. They are included
      in current assets, except for maturities greater than 12 months after the
      end of the reporting period. These are classified as non-current
      assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

9

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years ended
      December 31, 2012 and 2011

|2. | Significant accounting policies and basis of
      preparation(contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Financial instruments(contd)
      Available-for-sale financial assets are non-derivative
      financial assets that are designated as available-for-sale or are not
      suitable to be classified as financial assets at fair value through profit
      or loss, loans and receivables or held-to-maturity investments and are
      subsequently measured at fair value. These are included in current assets
      to the extent they are expected to be realized within 12 months after the
      end of the reporting period. Unrealized gains and losses are recognized in
      other comprehensive income, except for impairment losses and foreign
      exchange gains and losses on monetary financial assets.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Non-derivative financial liabilities (excluding financial
      guarantees) are subsequently measured at amortized cost.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Regular purchases and sales of financial assets are
      recognized on the trade-date  the date on which the group commits to
      purchase the asset.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Financial assets are derecognized when the rights to
      receive cash flows from the investments have expired or have been
      transferred and the Company has transferred substantially all risks and
      rewards of ownership.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | At each reporting date, the Company assesses whether
      there is objective evidence that a financial instrument has been impaired.
      In the case of available-for-sale financial instruments, a significant and
      prolonged decline in the value of the instrument is considered to
      determine whether an impairment has arisen.                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company does not have any derivative financial assets
      and liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Impairment of assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The carrying amount of the Companys assets (which
      include plant and equipment and exploration and evaluation assets) is
      reviewed at each reporting date to determine whether there is any
      indication of impairment. If such indication exists, the recoverable
      amount of the asset is estimated in order to determine the extent of the
      impairment loss. An impairment loss is recognized whenever the carrying
      amount of an asset or its cash generating unit exceeds its recoverable
      amount. Impairment losses are recognized in the statement of comprehensive
      loss.                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The recoverable amount of assets is the greater of an
      assets fair value less cost to sell and value in use. In assessing value
      in use, the estimated future cash flows are discounted to their present
      value using a pre-tax discount rate that reflects the current market
      assessments of the time value of money and the risks specific to the
      asset. For an asset that does not generate cash inflows largely
      independent of those from other assets, the recoverable amount is
      determined for the cash- generating unit to which the asset
  belongs.                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | An impairment loss is only reversed if there is an
      indication that the impairment loss may no longer exist and there has been
      a change in the estimates used to determine the recoverable amount. Any
      reversal of impairment cannot increase the carrying value of the asset to
      an amount higher than the carrying amount that would have been determined
      had no impairment loss been recognized in previous years.                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Assets that have an indefinite useful life are not
      subject to amortization and are tested annually for
  impairment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

10

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years ended
      December 31, 2012 and 2011

|2. | Significant accounting policies and basis of
      preparation(contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Current income tax:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Current income tax assets and liabilities for the current
      period are measured at the amount expected to be recovered from or paid to
      the taxation authorities. The tax rates and tax laws used to compute the
      amount are those that are enacted or substantively enacted, at the
      reporting date, in the countries where the Company operates and generates
      taxable income.                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Current income tax relating to items recognized directly
      in other comprehensive income or equity is recognized in other
      comprehensive income or equity and not in profit or loss. Management
      periodically evaluates positions taken in the tax returns with respect to
      situations in which applicable tax regulations are subject to
      interpretation and establishes provisions where appropriate.                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Deferred income tax:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Deferred income tax is recognized, using the asset and
      liability method, on temporary differences at the reporting date arising
      between the tax bases of assets and liabilities and their carrying amounts
      for financial reporting purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The carrying amount of deferred income tax assets is
      reviewed at the end of each reporting period and recognized only to the
      extent that it is probable that sufficient taxable profit will be
      available to allow all or part of the deferred income tax asset to be
      utilized.                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Deferred income tax assets and liabilities are measured
      at the tax rates that are expected to apply to the year when the asset is
      realized or the liability is settled, based on tax rates (and tax laws)
      that have been enacted or substantively enacted by the end of the
      reporting period.                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Deferred income tax assets and deferred income tax
      liabilities are offset, if a legally enforceable right exists to set off
      current tax assets against current income tax liabilities and the deferred
      income taxes relate to the same taxable entity and the same taxation
      authority.                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Flow-through shares:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | On the issuance of flow-through shares, any premium
      received in excess of the market price of the Companys common shares is
      initially recorded as a liability (flow-through tax liability). Provided
      that the Company has renounced the related expenditures, or that there is
      a reasonable expectation that it will do so, the flow-through tax
      liability is reduced on a pro-rata basis as the expenditures are incurred.
      If such expenditures are capitalized, a deferred tax liability is
      recognized. To the extent that the Company has suitable unrecognized
      deductible temporary differences, an offsetting recovery of deferred
      income taxes would be recorded.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Restoration and environmental
      obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Company recognizes liabilities for statutory,
      contractual, constructive or legal obligations associated with the
      retirement of long-term assets, when those obligations result from the
      acquisition, construction, development or normal operation of the assets.
      The net present value of future restoration cost estimates arising from
      the decommissioning of plant and other site preparation work is
      capitalized to the related asset along with a corresponding increase in
      the restoration provision in the period incurred. Discount rates using a
      pre-tax rate that reflect the time value of money are used to calculate
      the net present value.             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Companys estimates of restoration costs could change
      as a result of changes in regulatory requirements, discount rates and
      assumptions regarding the amount and timing of the future expenditures.
      These changes are recorded directly to the related asset with a
      corresponding entry to the restoration provision. The Companys estimates
      are reviewed annually for changes in regulatory requirements, discount
      rates, effects of inflation and changes in
estimates.                                                                                                                                                                                                              

11

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years ended
      December 31, 2012 and 2011

|2. | Significant accounting policies and basis of
      preparation(contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Restoration and environmental obligations(contd)
      Changes in the net present value, excluding changes in
      the Companys estimates of restoration costs, are charged to the statement
      of comprehensive loss for the period.                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The net present value of restoration costs arising from
      subsequent site damage that is incurred on an ongoing basis during
      production are charged to the statement of comprehensive loss in the
      period incurred.                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The costs of restoration projects that were included in
      the provision are recorded against the provision as incurred. The costs to
      prevent and control environmental impacts at specific properties are
      capitalized in accordance with the Companys accounting policy for
      exploration and evaluation assets.                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | At December 31, 2012 and December 31, 2011, the Company
      had no material restoration and environmental obligations.                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Plant and equipment are stated at historical cost less
      accumulated depreciation and accumulated impairment losses.                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Subsequent costs are included in the assets carrying
      amount or recognized as a separate asset, as appropriate, only when it is
      probable that future economic benefits associated with the item will flow
      to the Company and the cost of the item can be measured reliably. The
      carrying amount of the replaced part is derecognized. All other repairs
      and maintenance are charged to the statement of comprehensive loss during
      the financial period in which they are incurred.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Gains and losses on disposals are determined by comparing
      the proceeds with the carrying amount and are recognized in the statement
      of comprehensive loss.                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Amortization is calculated on a straight-line method to
      write off the cost of the assets to their residual values over their
      estimated useful lives. The amortization rates applicable to each category
      of property, plant and equipment are as
follows:                                                                                                                                                                                                                                            

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

|3. | Accounting standards issued but not yet
      effective                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | New standard IFRS 9 Financial
      Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | This new standard is a partial replacement of IAS 39
      Financial Instruments: Recognition and Measurement. IFRS 9 uses a single
      approach to determine whether a financial asset is measured at amortized
      cost or fair value, replacing the multiple rules in IAS 39. The approach
      in IFRS 9 is based on how an entity manages its financial instruments in
      the context of its business model and the contractual cash flow
      characteristics of the financial assets.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The new standard also requires a single impairment method
      to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is
      effective for annual periods beginning on or after January 1,
  2015.                                                                                                                                                                                                                                                                                 

12

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years ended
      December 31, 2012 and 2011

|3. | Accounting standards issued but not yet effective(contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | New standard IFRS 10 Consolidated Financial
      Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | This new standard will replace IAS 27 Consolidated and
      Separate Financial Statements, and SIC- 12 Consolidation  Special
      Purpose Entities. Concurrent with IFRS 10, the IASB issued IFRS 11 Joint
      Ventures; IFRS 12 Disclosures of Involvement with Other Entities; IAS
      27 Separate Financial Statements, which has been amended for the
      issuance of IFRS 10 but retains the current guidance for separate
      financial statements; and IAS 28 Investments in Associates and Joint
      Ventures, which has been amended for conforming changes based on the
      issuance of IFRS 10 and IFRS 11.                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | IFRS 10 uses control as the single basis for
      consolidation, irrespective of the nature of the investee, eliminating the
      risks and rewards approach included in SIC-12, and requires continuous
      assessment of control over an investee. The above consolidation standards
      are effective for annual periods beginning on or after January 1,
    2013.                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | New standard IFRS 11 Joint
      Arrangements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | This new standard requires a venturer to classify its
      interest in a joint arrangement as a joint venture or joint operation.
      Joint ventures will be accounted for using the equity method of accounting
      whereas for a joint operation the venture will recognize its share of the
      assets, liabilities, revenue and expenses of the joint operation. Under
      existing IFRS, entities have the choice to proportionately consolidate or
      equity account for interests in joint ventures. IFRS 11 supersedes lAS 31,
      Interests in Joint Ventures, and SIC-13, Jointly Controlled
      Entities-Non-monetary Contributions by Venturers. IFRS 11 is effective for
      annual periods beginning on or after January 1, 2013.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | New standard IFRS 12 Disclosure of Interests in
      Other Entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | This new standard establishes disclosure requirements for
      interests in other entities, such as joint arrangements, associates,
      special purpose vehicles and off balance sheet vehicles. The standard
      carries forward existing disclosures and also introduces significant
      additional disclosure requirements that address the nature of, and risks
      associated with, an entity's interests in other entities. IFRS 12 is
      effective for annual periods beginning on or after January 1,
  2013.                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | New standard IFRS 13 Fair value
      measurement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | This new standard replaces the fair value measurement
      guidance currently included in various other IFRS standards with a single
      definition of fair value and extensive application guidance. IFRS 13
      provides guidance on how to measure fair value and does not introduce new
      requirements for when fair value is required or permitted. It also
      establishes disclosure requirements to provide users of the financial
      statements with more information about fair value measurements. IFRS 13 is
      effect for annual periods beginning on or after January 1, 2013.                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Amended Standard IAS 1 Presentation of Financial
      Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | This standard provides extensive guidance on determining
      fair value for measurement or disclosure purposes. The Company will adopt
      the standard prospectively effective January 1, 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | IAS 27 - Separate Financial
    Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | IAS 27 contains accounting and disclosure requirements
      for investments in subsidiaries, joint ventures and associates when an
      entity prepares separate financial statements. IAS 27 requires an entity
      preparing separate financial statements to account for those investments
      at cost or in accordance with IFRS 9. This new standard is effective
      January 1, 2013 with earlier application
permitted.                                                                                                                                                                                                                                                                                                                           

13

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years ended
      December 31, 2012 and 2011

|3. | Accounting standards issued but not yet effective(cont'd)                                                                                                                                                                                                                                                      
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                
|   | IAS 28 - Investments in Associates and Joint
      Ventures                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                
|   | IAS 28 prescribes the accounting for investments in
      associates and sets out the requirements for the application of the equity
      method when accounting for investments in associates and joint ventures.
      This amendment is effective January 1, 2013 with earlier application
      permitted.
|   |                                                                                                                                                                                                                                                                                                                
|   | None of the above standards have been early adopted or
      are expected to have significant impact on the Companys consolidated
      financial statements.                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                
|4. | Receivables                                                                                                                                                                                                                                                                                                    

| |                                     |   | December 31, |  |   | December 31, | 
| | ----------------------------------- | - | ------------ |  | - | ------------ | 
| |                                     |   | 2012         |  |   | 2011         | 
| | Harmonized sales tax                | $ | 10,254       |  | $ | 47,134       | 
| | British Columbia mining tax credits |   | 31,326       |  |   | 237,220      | 
| | Other receivable                    |   | 777          |  |   | -            | 
| |                                     | $ | 42,357       |  | $ | 284,354      | 

|5. | Plant and equipment
|-- | -------------------

| |                            |   |          |  |   |           |  |   | Exploration |  |   |         | 
| | -------------------------- | - | -------- |  | - | --------- |  | - | ----------- |  | - | ------- | 
| |                            |   | Motor    |  |   | Computer  |  |   | and office  |  |   |         | 
| |                            |   | vehicles |  |   | equipment |  |   | equipment   |  |   | Total   | 
| | Cost:                      |   |          |  |   |           |  |   |             |  |   |         | 
| | At January 1, 2011         | $ | 30,230   |  | $ | 19,359    |  | $ | 54,189      |  | $ | 103,778 | 
| | Additions                  |   | -        |  |   | 9,450     |  |   | 7,795       |  |   | 17,245  | 
| | At
      December 31, 2011 |   | 30,230   |  |   | 28,809    |  |   | 61,984      |  |   | 121,023 | 
| | At December 31,
      2012 |   | 30,230   |  |   | 28,809    |  |   | 61,984      |  |   | 121,023 | 
| | Amortization:              |   |          |  |   |           |  |   |             |  |   |         | 
| | At January 1, 2011         |   | 21,066   |  |   | 11,696    |  |   | 31,057      |  |   | 63,819  | 
| | Charge for the year        |   | 2,749    |  |   | 3,961     |  |   | 5,811       |  |   | 12,521  | 
| | At December 31, 2011       |   | 23,815   |  |   | 15,657    |  |   | 36,868      |  |   | 76,340  | 
| | Charge for the year        |   | 1,925    |  |   | 3,945     |  |   | 5,023       |  |   | 10,893  | 
| | At December 31,
      2012 |   | 25,740   |  |   | 19,602    |  |   | 41,891      |  |   | 87,233  | 
| | Net book value:            |   |          |  |   |           |  |   |             |  |   |         | 
| | At December 31,
      2011 | $ | 6,415    |  | $ | 13,152    |  | $ | 25,116      |  | $ | 44,683  | 
| | At
      December 31, 2012 | $ | 4,490    |  | $ | 9,207     |  | $ | 20,093      |  | $ | 33,790  | 

Amortization expense of $10,893 (2011 -
$12,521) was recorded in the consolidated statements of comprehensive loss.

14

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years ended
      December 31, 2012 and 2011

|6. | Exploration and evaluation assets                             
|-- | --------------------------------------------------------------
|   |                                                               
|   | The Companys deferred exploration costs are as
      follows:

Balance,
    
    
    
    
    
    Balance,
    
    
    
    
    
    Balance,December 31,
    
    
    Expenditures
    
    
    December 31,
    
    
    Expenditures
    
    
    December 31,2010
    
    
    2011
    
    
    2011
    
    
    2012
    
    
    2012Assays and testing
    $
    2,019,755
    
    $
    27,439
    
    $
    2,047,194
    
    $
    3,522
    
    $
    2,050,716Claims renewal /Staking
    
    433,707
    
    
    7,255
    
    
    440,962
    
    
    12,641
    
    
    453,603Drilling
    
    12,488,967
    
    
    -
    
    
    12,488,967
    
    
    -
    
    
    12,488,967Environmental studies
    
    1,181,793
    
    
    74,658
    
    
    1,256,451
    
    
    170
    
    
    1,256,621Exploration data management
    
    898,534
    
    
    14,000
    
    
    912,534
    
    
    788
    
    
    913,322First Nations
    
    166,444
    
    
    -
    
    
    166,444
    
    
    -
    
    
    166,444Geochemistry
    
    100,980
    
    
    9,225
    
    
    110,205
    
    
    -
    
    
    110,205Geological and engineering services
    
    7,396,246
    
    
    1,003,073
    
    
    8,399,319
    
    
    251,097
    
    
    8,650,416Geophysical services
    
    702,083
    
    
    38,303
    
    
    740,386
    
    
    -
    
    
    740,386Metallurgy
    
    3,132,617
    
    
    540,829
    
    
    3,673,446
    
    
    60,476
    
    
    3,733,922Petrographic work
    
    43,957
    
    
    -
    
    
    43,957
    
    
    -
    
    
    43,957Project management
    
    106,015
    
    
    -
    
    
    106,015
    
    
    -
    
    
    106,015Survey, mapping and camp
    
    1,322,402
    
    
    186,724
    
    
    1,509,126
    
    
    29,443
    
    
    1,538,569Transportation
    
    2,453,894
    
    
    125,820
    
    
    2,579,714
    
    
    16,523
    
    
    2,596,237Property impairment
    
    (119,347
    )
    
    -
    
    
    (119,347
    )
    
    (11,740
    )
    
    (131,087
    )BC refundable mining tax credits
    
    (1,737,272
    )
    
    (129,058
    )
    
    (1,866,330
    )
    
    (9,238
    )
    
    (1,875,568
    )Federal non-refundable mining tax credits, net of valuation
      allowance
    
    (367,299
    )
    
    22,430
    
    
    (344,869
    )
    
    221,510
    
    
    (123,359
    )$
    30,223,476
    
    $
    1,920,698
    
    $
    32,144,174
    
    $
    575,192
    
    $
    32,719,366


15

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years ended
      December 31, 2012 and 2011

|6. | Exploration and evaluation assets(contd)                                                                                                                                                                                                                                                                                                                                                                           
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The Company has a 100% interest in certain mineral
      claims, located along the Turnagain River in British Columbia, Canada. One
      claim is subject to a 4% net smelter return royalty (NSR). The Company
      has the option to purchase all or part of the NSR within four years of
      commercial production for a price of $1,000,000 per 1% NSR.                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | During the year ended December 31, 2012, the Company
      incurred costs totalling $353,624 (2011 - $2,025,652) on the Turnagain
      mineral claims.                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | In July 2009, the Company acquired, by staking, the Dease
      Lime property located east of the town of Dease Lake. There was no work
      completed on this property during 2012 (2011 - $Nil). During 2012 the
      claims were lapsed without renewal. As a result the Company wrote off
      $4,480 in explorations costs.                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | In November 2009, the Company acquired, by staking, the
      Wheaton Lime property located southwest of the Turnagain property. On
      October 2, 2012, the Company renewed two claims and let the two other
      claims expire, as a result, the Company wrote off $5,619 in exploration
      costs. There was no work completed on this property during the year ended
      December 31, 2012 (2011 - $Nil).
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | In October 2010, the Company acquired by staking, the
      Eagle Lime property. The property is located west of the Turnagain
      property. There was no work completed on this property during 2012 (2011 -
      $Nil). During 2012 the claims were lapsed without renewal. As a result the
      Company wrote off $138 in explorations costs.                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | In October 2010, the Company acquired, by staking, the
      Sawtooth and Sabu properties located northeast of Smithers, British
      Columbia. There was no work completed on these properties during the year
      ended December 31, 2012 (2011 - $1,503). During 2012 the claims were
      lapsed without renewal. As a result the Company wrote off $1,503 in
      explorations costs.                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | In May 2011, the Company acquired, by staking, the Lenore
      property located 30 km south of the town of Dease Lake. Preliminary
      reconnaissance prospecting was carried out in July 2011 on this property.
      During the year ended December 31, 2012 the Company spent $Nil (2011 -
      $171) on this property.                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | In February 2012, the Company acquired, by staking,
      several other properties in northern British Columbia including the
      Plateau, Victor, Hoo Doo and Ringo. During the year ended December 31,
      2012, the Company spent $5,495 in staking fees and $9,181 in camp and
      transportation costs.                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | In March 2012, the Company acquired, by staking, several
      other properties in northern British Columbia including the Opal Lake,
      West Tuya, Tuya North and Nickel Valley properties. During the year ended
      December 31, 2012, the Company spent $6,360 in staking fees.                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|7. | Trade payables and accrued
  liabilities                                                                                                                                                                                                                                                                                                                                                                            

| |                                          |   | December 31, |  |   | December 31, | 
| | ---------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                          |   | 2012         |  |   | 2011         | 
| | Trade payables                           | $ | 70,910       |  | $ | 151,784      | 
| | Amounts due to related parties (Note 12) |   | 51,000       |  |   | 4,500        | 
| | Accrued liabilities                      |   | 72,400       |  |   | 97,998       | 
| |                                          | $ | 194,310      |  | $ | 254,282      | 

16

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years ended
      December 31, 2012 and 2011

|8. | Lease obligations                                                                                                                                                                                    
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                      
|   | Lease obligations relate to the Companys rent of office
      space. The term of the lease expires on September 30, 2016 with the
      Company holding an option to renew for a further five years.
|   |                                                                                                                                                                                                      
|   | A schedule of the Companys minimum lease payments is as
      follows:                                                                                                                              

| |                                                                 |   | December 31, |  |   | December 31, | 
| | --------------------------------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                                                 |   | 2012         |  |   | 2011         | 
| | Payable not later than one year                                 | $ | 104,037      |  | $ | 104,037      | 
| | Payable later than
      one year and not later than five years |   | 286,102      |  |   | 390,139      | 
| | Present value of lease liabilities                              | $ | 390,139      |  | $ | 494,176      | 

|9. | Income taxes and mining tax credits                                                                                                                                                                                                                                                                                        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                            
|   | The actual income tax provision differs from the expected
      amounts calculated by applying the Canadian combined statutory federal and
      provincial corporate income tax rates to the Companys loss before income
      taxes. The components of the Companys income tax expense (recovery) are
      as follows:

| |                                                        |   | Year
      ended |   |   | Year
      ended |  
| | ------------------------------------------------------ | - | ---------------- | - | - | ---------------- | -
| |                                                        |   | December 31,     |   |   | December 31,     |  
| |                                                        |   | 2012             |   |   | 2011             |  
| | Loss before income taxes                               | $ | 699,600          |   | $ | 1,630,631        |  
| |                                                        |   |                  |   |   |                  |  
| | Statutory tax rate                                     |   | 25.0%            |   |   | 26.5%            |  
| | Expected income tax recovery at the statutory tax rate | $ | (174,900         | ) | $ | (432,117         | )
| | Permanent differences                                  |   | 55,509           |   |   | 148,772          |  
| | Tax rate changes                                       |   | -                |   |   | (11,444          | )
| | Other                                                  |   | (261,007         | ) |   | 294,811          |  
| | Income tax
      expense (recovery)                    | $ | (380,398         | ) | $ | 22               |  

Details of movements of deferred tax
assets and liabilities are as follows:

| |                                |   | Exploration |   |   |             |  |   |           |  |   |          |   |   | Federal non-   |   |   |          |  
| | ------------------------------ | - | ----------- | - | - | ----------- |  | - | --------- |  | - | -------- | - | - | -------------- | - | - | -------- | -
| |                                |   | and         |   |   |             |  |   |           |  |   | Share    |   |   | refundable     |   |   |          |  
| |                                |   | evaluation  |   |   | Loss carry- |  |   |           |  |   | issuance |   |   | investment tax |   |   |          |  
| |                                |   | assets      |   |   | forwards    |  |   | Equipment |  |   | costs    |   |   | credits        |   |   | Total    |  
| | At January 1, 2011             | $ | (4,515,585  | ) | $ | 3,599,837   |  | $ | 73,194    |  | $ | 96,990   |   | $ | 385,670        |   | $ | (359,894 | )
| | Charged (credited) to net loss |   | (462,294    | ) |   | 527,009     |  |   | 113       |  |   | (66,806  | ) |   | 1,956          |   |   | (22      | )
| | Credited to assets             |   | -           |   |   | -           |  |   | -         |  |   | -        |   |   | (22,430        | ) |   | (22,430  | )
| | At December 31, 2011           |   | (4,977,879  | ) |   | 4,126,846   |  |   | 73,307    |  |   | 30,184   |   |   | 365,196        |   |   | (382,346 | )
| | Charged (credited) to net loss |   | 185,763     |   |   | 202,730     |  |   | 2,722     |  |   | (10,817  | ) |   | -              |   |   | 380,398  |  
| | Credited to assets             |   | -           |   |   | -           |  |   | -         |  |   | -        |   |   | (221,510       | ) |   | (221,510 | )
| | Charged to equity              |   | -           |   |   | -           |  |   | -         |  |   | 3,780    |   |   | -              |   |   | 3,780    |  
| | At December 31,
      2012     | $ | (4,792,116  | ) | $ | 4,329,576   |  | $ | 76,029    |  | $ | 23,147   |   | $ | 143,686        |   | $ | (219,678 | )

During the fiscal year ended December
31, 2009, the Canada Revenue Agency (CRA) conducted an audit of the Company's
tax filings for the fiscal years 2002 to 2008 to substantiate a $2,222,020 claim
in provincial refundable mining tax credits as of December 31, 2008. The results
of the audit subsequent to December 31, 2009, resulted in a reduction of
$1,062,637 in provincial refundable mining tax credits and a reduction of
$180,712 in federal non-refundable tax credits. The Company filed a Notice of
Objection during the year ended December 31, 2010 to dispute CRAs
interpretation of $983,516 of the costs incurred by the Company, but interpreted
by CRA as not qualifying as Canadian Exploration Expenses, which is the basis
for the provincial refundable mining tax credit. Currently the Companys appeal
is before Natural Resources Canada for review.

17

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years ended
      December 31, 2012 and 2011

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

| |                                |   | December 31, |  |   | December 31, | 
| | ------------------------------ | - | ------------ |  | - | ------------ | 
| |                                |   | 2012         |  |   | 2011         | 
| | Federal investment tax credits | $ | 413,813      |  | $ | 175,931      | 

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

| | Canadian Federal Investment Tax Credit Losses |  
| | --------------------------------------------- | -
| | 2025                                          | $
| | 2026                                          |  
| | 2027                                          |  
| | 2028                                          |  
| |                                               | $

|10. | Share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Authorized share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Unlimited number of common shares without par
    value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Issued share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | At December 31, 2012 there were 90,373,493 issued and
      fully paid common shares (December 31, 2011  77,330,160).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Private placements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | On March 2, 2012, the Company completed a private
      placement for 3,043,333 units at a price of $0.18 per unit for gross
      proceeds of $547,800. Each unit consists of one common share and one share
      purchase warrant exercisable into one common share at $0.25 per share for
      a period of two years. The intrinsic value of the warrants issued as part
      of this private placement was $39,989, which was recorded in the
      share-based payment reserve. As consideration for their services under the
      private placement, the agents received a cash commission of $9,000 and
      50,000 share purchase warrants valued at $3,637. These costs were offset
      against the gross proceeds. The agents warrants are exercisable into one
      common share at $0.25 for two years.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | On November 27, 2012, the Company completed a private
      placement for 10,000,000 units at a price of $0.06 per unit for gross
      proceeds of $600,000. Each unit consists of one common share and one share
      purchase warrant exercisable into one common share at $0.08 per share for
      a period of three years. The intrinsic value of the warrants issued as
      part of this private placement was $200,000, which was recorded in the
      share-based payment reserve. As consideration for their services under the
      private placement, the agents received a cash commission of
  $6,120.                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Basic and diluted loss per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The calculation of basic and diluted loss per share for
      the year ended December 31, 2012 was based on the loss attributable to
      common shareholders of $319,202 (December 31, 2011 - $1,630,653) and the
      weighted average number of common shares outstanding of 81,032,321
      (December 31, 2011  77,161,144).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Diluted loss per share did not include the effect of
      5,492,000 stock options and 13,093,333 warrants as the effect would be
      anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

18

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years ended
      December 31, 2012 and 2011

|10. | Share capital(contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Company has adopted an incentive stock option plan,
      which provides that the Board of Directors of the Company may from time to
      time, in its discretion, and in accordance with the Exchange requirements,
      grant to directors, officers, employees and technical consultants to the
      Company, non-transferable stock options to purchase common shares,
      provided that the number of common shares reserved for issuance will not
      exceed 10% of the Companys issued and outstanding common shares. Such
      options will be exercisable for a period of up to 5 years from the date of
      grant. In connection with the foregoing, the number of common shares
      reserved for issuance to any one optionee will not exceed five percent
      (5%) of the issued and outstanding common shares and the number of common
      shares reserved for issuance to all investor relations and technical
      consultants will not exceed two percent (2%) of the issued and outstanding
      common shares. Options may be exercised no later than 90 days following
      cessation of the optionees position with the Company or 30 days following
      cessation of an optionee conducting investor relations activities
      position.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | If no vesting schedule is specified at the time of grant,
      the options will vest 25% each anniversary of the date of grant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | On exercise, each option allows the holder to purchase
      one common share of the Company. The changes in options during the years
      ended December 31, 2012 and 2011 are as
follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |                                |  | Year
      ended  |   |   | Year
      ended  | 
| | ------------------------------ |  | ----------------- | - | - | ----------------- | 
| |                                |  | December 31, 2012 |   |   | December 31, 2011 | 
| |                                |  |                   |   |   | Weighted          | 
| |                                |  |                   |   |   | average           | 
| |                                |  | Number of         |   |   | exercise          | 
| |                                |  | options           |   |   | price             | 
| | Options outstanding, beginning |  | 7,499,500         |   | $ | 0.47              | 
| | Options granted                |  | -                 |   |   | -                 | 
| | Options expired                |  | (217,500          | ) |   | 1.02              | 
| | Options forfeited              |  | (1,790,000        | ) |   | 0.46              | 
| | Options outstanding, ending    |  | 5,492,000         |   | $ | 0.45              | 
| |                                |  |                   |   |   |                   | 
| | Options exercisable, ending    |  | 5,442,000         |   | $ | 0.44              | 

Details of options outstanding as at
December 31, 2012 are as follows:

Weighted
      average
    Weighted average
    Number of optionsexercise
      price
    contractual life
    outstanding$0.30 - $0.50
    2.09 years
    5,007,000$0.51 - $1.00
    0.04
      years
    485,000$0.45
    2.13 years
    5,492,000


19

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years ended
      December 31, 2012 and 2011

|10. | Share capital(contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Stock options(contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | There were no options granted during the year ended
      December 31, 2012 (2011 - 2,172,000). During 2011 stock-based compensation
      in the amount of $531,004 was recorded in operating expenses and
      stock-based compensation in the amount of $93,911 was capitalized in
      exploration and evaluation assets (Note 13). The fair value for the
      previous year end was determined using the Black-Scholes option pricing
      model using the following weighted average
assumptions:

| |                          | Year
      ended | Year
      ended
| | ------------------------ | ---------------- | ----------------
| |                          | December 31,     | December 31,    
| |                          | 2012             | 2011            
| | Expected life of options | -                | 3 - 5 years     
| | Annualized volatility    | -                | 117% - 122%     
| | Risk-free interest rate  | -                | 1.64% - 2.28%   
| | Dividend rate            | -                | 0%              

Warrants

On exercise, each warrant allows the
holder to purchase one common share of the Company. The changes in warrants
outstanding during the years ended December 31, 2012 and 2011 are as follows:

| |                                 |  | Year
      ended  |   |   | Year
      ended  | 
| | ------------------------------- |  | ----------------- | - | - | ----------------- | 
| |                                 |  | December 31, 2012 |   |   | December 31, 2011 | 
| |                                 |  |                   |   |   | Weighted          | 
| |                                 |  |                   |   |   | average           | 
| |                                 |  | Number of         |   |   | exercise          | 
| |                                 |  | warrants          |   |   | price             | 
| | Warrants outstanding, beginning |  | 5,463,000         |   | $ | 0.33              | 
| | Warrants issued                 |  | 13,093,333        |   |   | 0.12              | 
| | Warrants exercised              |  | -                 |   |   | -                 | 
| | Warrants expired                |  | (5,463,000        | ) |   | 0.33              | 
| | Warrants outstanding, ending    |  | 13,093,333        |   | $ | 0.12              | 

At December 31, 2012 and 2011, all
warrants outstanding were exercisable. Details of warrants outstanding as at
December 31, 2012 are as follows:

| | Weighted
      average | Weighted average | Number of warrants
| | ---------------------- | ---------------- | ------------------
| | exercise
      price   | contractual life | outstanding       
| | $0.25                  | 0.26 years       | 3,093,333         
| | $0.08                  | 2.22
      years | 10,000,000        
| | $0.12                  | 2.48 years       | 13,093,333        

|11. | Share-based payment reserve                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                 
|    | The share-based payment reserve records items recognized
      as stock-based compensation expense, the intrinsic value of warrants
      associated with private placements and the fair value of agents warrants
      until such time that the stock options or warrants are exercised, at which
      time the corresponding amount will be transferred to share
  capital.
|    |                                                                                                                                                                                                                                                                                                                                                                                 
|    | The intrinsic value of the warrants is the difference
      between the market value of the stock when issued and the unit price of
      the private placement times the number of units
issued.                                                                                                                                                                               

20

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years ended
      December 31, 2012 and 2011

|12. | Related party transactions                                                                                
|--- | ----------------------------------------------------------------------------------------------------------
|    |                                                                                                           
|    | Related party balances                                                                                    
|    |                                                                                                           
|    | The following amounts due to related parties are included
      in trade payables and accrued liabilities:

| |                                                                 |   | December 31, |  |   | December 31, | 
| | --------------------------------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                                                 |   | 2012         |  |   | 2011         | 
| | Companies controlled by directors of the
      Company (Note 7) | $ | -            |  | $ | 4,500        | 
| | Directors of the
      Company and of its subsidiaries (Note 7) |   | 51,000       |  |   | -            | 
| |                                                                 | $ | 51,000       |  | $ | 4,500        | 

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

Related party transactions

The Company incurred the following
transactions with companys that are controlled by directors of the Company.

| |                                                       |   | Years
      ended | 
| | ----------------------------------------------------- | - | ----------------- | 
| |                                                       |   | December 31,      | 
| |                                                       |   | 2012              | 
| | Exploration and evaluation expenditures (capitalized) | $ | -                 | 
| | Interest expense on unsecured loan                    |   | 7,144             | 
| | Director fees                                         |   | 4,000             | 
| | Stock-based compensation                              |   | -                 | 
| |                                                       | $ | 11,144            | 

In July 2012, a director of the Company
advanced $175,000 to the Company under a promissory note bearing interest at 10%
per annum. The promissory note and accrued interest of $7,144 was repaid in full
in December 2012.

Key management personnel
compensation

| |                                                       |   | Years
      ended | 
| | ----------------------------------------------------- | - | ----------------- | 
| |                                                       |   | December 31,      | 
| |                                                       |   | 2012              | 
| | Exploration and evaluation expenditures (capitalized) | $ | 89,500            | 
| | Management fees                                       |   | 198,000           | 
| | Stock-based compensation                              |   | -                 | 
| |                                                       | $ | 287,500           | 

|13. | Supplemental cash flow information                                            
|--- | ------------------------------------------------------------------------------
|    |                                                                               
|    | Investing activities included in trade payables and
      accrued liabilities:

| |                                                   |   | December 31, |  |   | December 31, | 
| | ------------------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                                   |   | 2012         |  |   | 2011         | 
| | Expenditures on exploration and evaluation assets | $ | 52,553       |  | $ | 99,742       | 

Non-cash investing transactions

| |                                                                                           |   | December 31, |  |   | December 31, | 
| | ----------------------------------------------------------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                                                                           |   | 2012         |  |   | 2011         | 
| | Stock-based compensation capitalized in exploration and
      evaluation assets (Note 10) | $ | -            |  | $ | 93,911       | 

21

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years ended
      December 31, 2012 and 2011

|14. | Financial instruments and financial risk
      management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Company is exposed in varying degrees to a variety of
      financial instrument related risks. The Board of Directors approves and
      monitors the risk management processes, inclusive of documented investment
      policies, counterparty limits, and controlling and reporting structures.
      The type of risk exposure and the way in which such exposure is managed is
      provided 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 cash held in bank accounts. All of the cash is deposited in bank
      accounts held with one major bank in Canada. Since all of the Companys
      cash is held by one bank there is a concentration of credit risk. This
      risk is managed by using major banks that are high credit quality
      financial institutions as determined by rating agencies. The Companys
      secondary exposure to risk is on its other receivables. This risk is
      minimal as receivables consist primarily of refundable government
      taxes.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Liquidity risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Liquidity risk is the risk that the Company will not be
      able to meet its financial obligations as they fall due. The Company has a
      planning and budgeting process in place to help determine the funds
      required to support the Companys normal operating requirements on an
      ongoing basis. The Company ensures that there are sufficient funds to meet
      its short-term business requirements, taking into account its anticipated
      cash flows from operations and its holdings of cash and cash
      equivalents.                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Historically, the Company's sole source of funding has
      been the issuance of equity securities for cash, primarily through private
      placements. The Companys access to financing is always uncertain. There
      can be no assurance of continued access to significant equity
    funding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The following is an analysis of the contractual
      maturities of the Companys non-derivative financial liabilities as at
      December 31, 2012:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| |                |   | Within one |  |   | Between one |  |   |            | 
| | -------------- | - | ---------- |  | - | ----------- |  | - | ---------- | 
| |                |   | year       |  |   | and five    |  |   | More than  | 
| |                |   |            |  |   | years       |  |   | five years | 
| | Trade payables | $ | 121,910    |  | $ | -           |  | $ | -          | 

Foreign exchange risk

Foreign currency risk is the risk that
the fair values of future cash flows of a financial instrument will fluctuate
because they are denominated in currencies that differ from the respective
functional currency. The Company does not have any direct exposure to foreign
exchange risk.

Interest rate risk

Interest rate risk is the risk that the
fair value of future cash flows of a financial instrument will fluctuate because
of changes in market interest rates. The Company does not have any significant
interest rate risk.

22

---

|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years ended
      December 31, 2012 and 2011

|14. | Financial instruments and financial risk management(contd)                           
|--- | --------------------------------------------------------------------------------------
|    |                                                                                       
|    | Classification of financial
    instruments                                           
|    |                                                                                       
|    | Financial assets included in the statement of financial
      position are as follows:

| |                        |   | December 31, |  |   | December 31, | 
| | ---------------------- | - | ------------ |  | - | ------------ | 
| |                        |   | 2012         |  |   | 2011         | 
| | Cash                   | $ | 518,489      |  | $ | 236,530      | 
| | Loans and receivables: |   |              |  |   |              | 
| | Reclamation deposits   |   | 337,900      |  |   | 337,900      | 
| |                        | $ | 856,389      |  | $ | 574,430      | 

Financial liabilities included in the
statement of financial position are as follows:

| |                                       |   | December 31, |  |   | December 31, | 
| | ------------------------------------- | - | ------------ |  | - | ------------ | 
| |                                       |   | 2012         |  |   | 2011         | 
| | Non-derivative financial liabilities: |   |              |  |   |              | 
| | Trade payables                        | $ | 121,910      |  | $ | 156,284      | 

Fair value

The fair value of the Companys
financial assets and liabilities approximates the carrying amount. Financial
instruments measured at fair value are classified into one of three levels in
the fair value hierarchy according to the relative reliability of the inputs
used to estimate the fair values. The three levels of the fair value hierarchy
are:

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


The following is an analysis of the
Companys financial assets measured at fair value as at December 31, 2012 and
2011:

| |      |   | As
      at December 31, 2012 | 
| | ---- | - | ----------------------------- | 
| |      |   | Level 1                       | 
| | Cash | $ | 518,489                       | 

| |      |   | As
      at December 31, 2011 | 
| | ---- | - | ----------------------------- | 
| |      |   | Level 1                       | 
| | Cash | $ | 236,530                       | 

|15. | Capital management                                                                                                                                                                                                                                                                                                                                                                                           
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                              
|    | The Company's policy is to maintain a strong capital base
      so as to maintain investor and creditor confidence, safeguard the
      Companys ability to support the exploration and development of its
      exploration and evaluation assets and to sustain future development of the
      business. The capital structure of the Company consists of equity and debt
      obligations, net of cash.
|    |                                                                                                                                                                                                                                                                                                                                                                                                              
|    | There were no changes in the Company's approach to
      capital management during the year and no
restrictions.                                                                                                                                                                                                                                                                                             

23

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|Hard Creek Nickel Corporation                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|Expressed in Canadian dollars                       
|For the years ended
      December 31, 2012 and 2011

|16. | Segmented information                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                     
|    | Operating segments                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                     
|    | The Company operates in a single reportable operating
      segment  the acquisition, exploration and development of mineral
      properties.                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                     
|    | Geographic segments                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                     
|    | All of the Company's assets are located in
  Canada.                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                     
|17. | Subsequent events                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                     
|    | In January 2013, the Company granted a total of 2,650,000
      stock options to directors, officers, employees and consultants. Each
      stock option is exercisable into one common share at an exercise price of
      $0.10 for a period of five years from the date of
grant.

24

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