UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

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

OR

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

For the fiscal year ended ____________

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 PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report _____________=

For the transition period from ____________ to ____________

Commission file number N/A

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 LLP
Barristers and Solicitors
Suite 800 – 885 West Georgia Street
Vancouver, British Columbia, Canada V6C 3H1
Telephone: 604-687-5700     Facsimile: 604-687-6314

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

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


2

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.

There were 46,292,676 Common Shares without par value issued and outstanding as at November 16, 2006.

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

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 [   ] NO

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

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

Indicate by check mark which financial statement item the registrant has elected to follow.
[   ] ITEM 17 [X] ITEM 18

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

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 [   ] NO


TABLE OF CONTENTS

    Page
Forward-Looking Statements 1
PART I   1
Financial Information And Accounting Principles 1
Item 1 Identity of Directors, Senior Management and Advisers 1
  A. Directors and Senior Management 1
  B. Advisers 2
  C. Auditors 2
Item 2 Offer Statistics and Expected Timetable 2
Item 3 Key Information 2
  A. Selected Financial Data 2
  B. Capitalization and Indebtedness 4
  C. Reasons for the Offer and Use of Proceeds 4
  D. Risk Factors 4
Item 4 Information on our Company 9
  A. History and Development of our Company 9
  B. Business Overview 10
  C. Organizational Structure 13
  D. Property, Plant and Equipment 13
Item 5 Operating and Financial Review and Prospects 21
  A. Operating Results 21
  B. Liquidity and Capital Resources 22
  C. Research and Development, Patents and Licenses, etc. 24
  D. Trend Information 24
  E. Off-Balance Sheet Arrangements 24
  F. Tabular Disclosure of Contractual Obligations 24
Item 6 Directors, Senior Management and Employees 24
  A. Directors and Senior Management 24
  B. Compensation 26
  C. Board Practices 26
  D. Employees 27
  E. Share Ownership 27
Item 7 Major Shareholders and Related Party Transactions 28
  A. Major Shareholders 28
  B. Related Party Transactions 29
  C. Interests of Experts and Counsel 29
Item 8 Financial Information 29
  A. Financial Statements and Other Financial Information 29
  B. Significant Changes 31
Item 9 The Offer and Listing 31
  A. Offer and Listing Details 31
  B. Markets 32
Item 10 Additional Information 32
  A. Share Capital 32
  B. Articles of Incorporation and By-laws 35
  C. Material Contracts 38
  D. Exchange Controls 38


2

  E. Taxation 39
  F. Dividends and Paying Agents 45
  G. Statement by Experts 45
  H. Documents on Display 45
  I. Subsidiary Information 46
Item 11 Quantitative and Qualitative Disclosures About Market Risk 46
Item 12 Description of Securities Other than Equity Securities 46
PART II   46
Item 13 Defaults, Dividend Arrearages and Delinquencies 46
Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds 46
Item 15 Controls and Procedures 46
Item 16 [Reserved] 46
  A. Audit Committee Financial Expert 46
  B. Code of Ethics 46
  C. Principal Accountant Fees and Services 46
  D. Exemptions from the Listing Standards for Audit Committees. 46
  E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers. 46
PART III   46
Item 17 Financial Statements 46
Item 18 Financial Statements 47
Item 19 NET CASH FLOWS USED IN OPERATING ACTIVITIES 71
Unaudited Interim Financial Statements 72
Financial Instruments 73
Item 20 Exhibits 80
SIGNATURE 81


FORWARD-LOOKING STATEMENTS

Except for the statements of historical fact contained herein, some information presented in this registration statement constitutes forward-looking statements. When used in this registration statement, 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 registration statement speak only as to the date hereof. Our company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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

As used in this prospectus, the terms “we”, “us”, “our” and “Hard Creek” mean Hard Creek Nickel Corporation, unless otherwise indicated.

PART I

FINANCIAL INFORMATION AND ACCOUNTING PRINCIPLES

The financial statements and summaries of financial information contained in this document are reported in Canadian dollars (“$”) unless otherwise stated. A “tonne” is one metric ton or 2204.6 pounds. All such financial statements have been prepared in accordance with United States generally accepted accounting principles.

The financial statements of Hard Creek for the years ended December 31, 2004 and 2003 have been reported on by Dale Matheson Carr-Hilton LaBonte, Chartered Accountants, Suite 1700 – 1140 West Pender Street, Vancouver, British Columbia, V6E 4G1. The financial statements of Hard Creek for the six months ended June 30, 2005 and 2004 have been prepared by management and have neither been reviewed nor audited by Dale Matheson Carr-Hilton LaBonte.

Item 1             Identity of Directors, Senior Management and Advisers

A.         Directors and Senior Management

The Directors and the senior management of our company as of November 16, 2006 are as follows:

Name Business Address Function
Mark Jarvis

1060 – 1090 W. Georgia St.
Vancouver, BC V6E 3V7
Canada
As President, Chief Executive Officer and director, Mr. Jarvis is
responsible for the development of our strategic direction and the
management and supervision of our overall business.
George Sookochoff

1305 – 1323 Homer Street
Vancouver, BC V6B 5T1
Canada
As a non-executive director, Mr. Sookochoff is responsible for the
corporate governance of our company.
Frank Wright

427 Fairway Drive
North Vancouver, BC V7G 1L4
Canada
As a non-executive director, Mr. Wright is responsible for the
corporate governance of our company.


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Name                     Business Address Function
Lyle Davis

2838 Carnation Street
North Vancouver, BC V7H 1L8
Canada
As a non-executive director, Mr. Davis is responsible for the
corporate governance of our company.
Brian Fiddler

408 Shiles Street
New Westminster, BC V3L 3K4
Canada
As Controller and Chief Financial Officer, Mr. Fiddler is
responsible for the financial and corporate management and
supervision of the affairs and business of our company.
Tony Hitchins


1060-1090 West Georgia Street
Vancouver, BC V6E 3V7
Canada
As Chief Operating Officer, Mr. Hitchins is responsible for the
project management, field management and logging core,
supervision of exploration on the Turnagain Nickel Project, hiring
field staff and maintaining claims in good standing.
Neil Froc

42621 Canyon Road
Lindell Beach, BC V2R 5B8
Canada
As Executive Vice President, Mr. Froc is responsible for the
management of engineering and technical studies including
infrastructure and socio-economic project development.
Leslie Young


1060 – 1090 W. Georgia St.
Vancouver, BC V6E 3V7
Canada
As Corporate Secretary, Ms. Young is responsible for the internal
accounting and record keeping, general administration, and
making all necessary filings and financial reporting for our
company.

B.         Advisers

Our legal advisers are Clark Wilson LLP, Barristers & Solicitors, with a business address at Suite 800, 885 West Georgia Street, Vancouver, British Columbia, Canada V6C 3H1.

C.         Auditors

Our auditors are Dale Matheson Carr-Hilton LaBonte, Chartered Accountants, with a business address at Suite 1700 – 1140 West Pender Street, Vancouver, British Columbia, V6E 4G1. Dale Matheson Carr-Hilton LaBonte are members of the Canadian Institute of Chartered Accountants.

Item 2               Offer Statistics and Expected Timetable

Not Applicable.

Item 3              Key Information

A.         Selected Financial Data

The following table summarizes selected financial data for our company for the years ended December 31, 2005, 2004, 2003, 2002 and 2001 respectively. The information in the table was extracted from the detailed financial statements and related notes included in this registration statement and should be read in conjunction with such financial statements and with the information appearing under the heading, “Item 5 – Operating and Financial Review and Prospects”.


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Selected Financial Data
(Stated in CAN Dollars)

Fiscal Year Ended December 31


US GAAP
2005
Audited
2004
Audited
2003
Audited
2002
Unaudited
2001
Unaudited
Net Sales or Operating Revenue NIL NIL NIL NIL NIL
Net Loss $3,332,394 $4,648,724 $3,215,856 $676,492 $368,482
Net Loss from Operations (January 17, 1983 (inception to December 31, 2005) $19,901,059 $16,568,665 $11,919,941 $8,704,085 $8,027,593
Depreciation $6,780 $6,076 $2,511 $808 NIL
General and Administrative Expenses $890,690 $1,910,813 $1,209,312 $328,370 $207,315
Mineral Property Exploration Costs $2,679,212 $2,987,287 $2,069,772 $450,710 $161,167
Other Income $237,508 $249,376 $63,228 $102,588 NIL
Basic and Diluted Net Loss per Share $0.11 $0.20 $0.28 $.08 $0.07
Assets $1,697,951 $1,303,553 $498,557 $189,947 $36,209
Current Assets $846,465 $607,583 $282,752 $154,905 $6,209
Capital Stock $18,632,327 $15,059,286 $10,363,422 $7,200,297 $6,548,992
Common Stock (adjusted to reflect changes in capital) 37,675,494
common shares
28,310,394
common shares
17,390,189
common shares
8,103,098
common shares
5,052,990
common shares
Basic and Diluted Net Loss per Common Share $0.11 $0.20 $0.28 $0.08 $0.07
Cash Dividends per Common Share NIL NIL NIL NIL NIL

The following table summarizes selected financial data for our company for the six-month interim period ended June 30, 2006 and the six-month interim period ended June 30, 2005, which information is not audited. The information in the table should also be read in conjunction with these financial statements and with the other information appearing under the heading, “Item 5 – Operating and Financial Review and Prospects”.

Selected Financial Data
(Stated in CANADIAN Dollars)

Six-month Interim Period Ended June 30, 2006 (Unaudited)


US GAAP
Six Months ended
June 30, 2006
Six Months ended
June 30, 2005
Net Sales or Operating Revenue NIL NIL
Net loss $2,479,181 $1,078,835
Net Loss from Operations (January 17, 1983 (inception to June 30, 2006) $22,380,240 $21,644,211
Depreciation $3,164 $3,152
General and Administrative Expenses $856,474 $417,476
Mineral Property Exploration Costs $1,635,392 $664,136
Other Income $15,849 $5,929
Basic and Diluted Net Loss per Common Share $0.06 $0.04


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US GAAP

At
June 30, 2006
At
December 31,
2005
Assets $1,847,332 $1,697,951
Capital Stock $1,847,332 $846,465
Common Stock $20,360,709 $18,632,327
Common Stock (adjusted to reflect changes in capital)

40,884,125
common
shares
37,675,494
common
share at 12/31
Cash Dividends per Common Share NIL NIL

B.        Capitalization and Indebtedness

Our authorized capital consists of an unlimited number of Common Shares without par value and an unlimited number of Class A Preference Shares without par value. As of November 16, 2006, we had 46,292,676 Common Shares and no Class A Preference Shares issued and outstanding.

The table below sets forth our total indebtedness in Canadian dollars and capitalization as of June 30, 2006. You should read this table in conjunction with the audited and unaudited financial statements and accompanying notes, included in this registration statement.

As at June 30, 2006 (unaudited)

 Liabilities      
                   Current, unsecured $  715,609  
                   Long term, unsecured      
  $  715,609  
Shareholders’ Equity      
                   Common stock $  20,360,709  
                   Additional paid-in capital   3,342,308  
                   Deficit   (22,380,240 )
  $  1,322,777  

C.         Reasons for the Offer and Use of Proceeds

Not applicable.

D.         Risk Factors

This Registration Statement 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 Registration Statement. 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.


5

An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this prospectus in evaluating our company and our business before purchasing shares of our company’s common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. The risks described below are not the only ones facing our company. Additional risks not presently known to us may also impair our business operations. You could lose all or part of your investment due to any of these risks.

Risks Associated with Mining

All of our properties are in the exploration stage. There is no assurance that any of our properties contain any mineral resources in commercially exploitable quantities. 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.

Despite exploration work on our mineral properties, we have not established that any of them contain any commercially exploitable mineral reserves, nor can there be any assurance that we will ever find commercially exploitable mineral reserves. The probability of an individual prospect ever having a commercially exploitable mineral reserve is extremely remote; in all probability our mineral resource properties do not contain any reserves and any funds that we spend on exploration will probably be lost. The search for valuable minerals as a business is extremely risky. We can provide investors with no assurance that additional exploration on our properties will establish that commercially exploitable reserves of minerals exist on our mineral properties. 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.

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.

Our competition there 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 be unable to acquire financing on terms we consider acceptable. This 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 or for qualified employees, our exploration programs may be slowed down or suspended. If we are unable to successfully compete for the acquisition of suitable prospects for exploration in the future, there can be no assurance that we will acquire any interest in additional mineral resource properties. The occurrence of any of these things may cause us to cease operations as a 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.

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 or against 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.

Our title to our resource properties may be challenged by third parties or the licenses that permit us to explore our properties may expire if we fail to timely renew them and pay the required fees.

We have investigated the status of our title to our mineral resource properties and we are satisfied that the title to these properties is properly registered in the name of our company. but we cannot guarantee that the rights to explore our properties will not be revoked or altered to our detriment. The ownership and validity of mining claims and concessions are often uncertain and may be contested. Should such a challenge to the boundaries or registration of ownership arise, the resolution of disputes or the process of clarifying the accuracy of our mining license registration could take substantial time and money. Further, the preservation of our title to our mineral properties requires that we continue to expend money or work the claims. If we fail to expend the necessary amount of money or if we fail to work our mineral claims, then our title to our mineral properties could expire or be forfeit.


6

Mineral prices are subject to dramatic and unpredictable fluctuations.

The market price of precious metals and other minerals is volatile and has fluctuated widely, particularly in recent years. The prices of various metals are affected by numerous factors beyond our control, including international economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates and global or regional consumption patterns, speculative activities and increased production due to improved mining and production methods. The supply of and demand for metals are affected by various factors, including political events, economic conditions and production casts in major mineral producing regions. Variations in the market prices of metals may impact on our ability to raise funding to continue exploration of our properties. In addition, any significant fluctuations in metal prices will impact on our decision to accelerate or reduce our exploration activities. If the price of precious metals and other minerals should drop significantly, the cost of mineral extraction may be higher than is economically feasible. The marketability of minerals is also affected by numerous other factors beyond our control, including government regulations relating to royalties, allowable production and importing and exporting of minerals, the effect of which cannot be accurately predicted.

Mineral operations are subject to government regulations which could have the effect of reducing or preventing us from exploiting any possible mineral reserves on our properties.

Exploration activities are subject to national and local laws and regulations governing prospects, taxes, labour 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.

Our operations may be subject to environmental regulations which may result in the imposition of fines and penalties.

Our operations may be subject to environmental regulations promulgated by government agencies from time to time. 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 are more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost of compliance with changes in governmental regulations has a potential to reduce the profitability of operations.

Risks Related To Our Company

The fact that we have not generated any operating revenues since our incorporation raises substantial doubt about our ability to continue as a going concern.

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. We had cash in the amount of $1,728,875 as of June 30, 2006. We estimate our average monthly operating expenses to be approximately $60,000 to $70,000 each month. As a result, we need to generate significant revenues from our operations or obtain financing. We cannot assure that we will be able to successfully explore and develop our mining properties or assure that viable reserves exist on the properties for extraction. These circumstances raise substantial doubt about our ability to continue as a going concern as described in an explanatory paragraph to our independent auditors’ report on our financial statements for the year ended December 31, 2005. It is unlikely that we will generate any funds internally until we discover commercially viable quantities of ore. If we are unable to generate revenue from our business during the fiscal year 2006, 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.

We have a limited operating history on which to base an evaluation of our business and prospects.

Although we have been in the business of exploring mineral resource properties since 1983, we have not yet located any mineral reserve. As a result, we have never had any revenues from our operations. In addition, our operating history has been restricted


7

to the acquisition and exploration of our mineral properties and this does not provide a meaningful basis for an evaluation of our prospects if we ever determine that we have a mineral reserve and commence the construction and operation of a mine. We have no way to evaluate the likelihood of whether our mineral properties contain any mineral reserve or, if they do that we will be able to build or operate a mine successfully. We anticipate that we will continue to incur operating costs without realizing any revenues during the period when we are exploring our properties. We expect to continue to incur significant losses into the foreseeable future. We recognize that if we are unable to generate significant revenues from mining operations and any dispositions of our properties, we will not be able to earn profits or continue operations. At this early stage of our operation, we also expect to face the risks, uncertainties, expenses and difficulties frequently encountered by companies at the start up stage of their business development. We cannot be sure that we will be successful in addressing these risks and uncertainties and our failure to do so could have a material adverse effect on our financial condition. There is no history upon which to base any assumption as to the likelihood that we will prove successful and we can provide investors with no assurance that we will generate any operating revenues or ever achieve profitable operations.

We have not generated any revenue from our business and we may 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 will need to raise $4,000,000 for the 12 month period ending June 30, 2007, and that we will need to raise further capital very soon thereafter in the approximate amount of $5,000,000 to $7,000,000. We do not currently have any arrangements for financing and we can provide no assurance to investors we will be able to find such financing if required. We have no assurance that additional funding will be available to us for further exploration and development of our projects or to fulfil our obligations under any applicable agreements. Although we have been successful in the past in obtaining financing through the sale of equity securities, there can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favourable. Failure to obtain such additional financing could result in a delay or indefinite postponement of further exploration and development of our projects with the possible loss of such properties.

Conflicts of interest may arise as a result of our directors and officers being directors and officers of other natural resource companies.

Certain of our directors and officers may continue to be involved in a wide range of business activities through their direct and their indirect participation in corporations, partnerships or joint ventures. Situations may arise in connection with potential acquisitions and investments where the other interests of these directors and officers may conflict with the interests of our company.

Our Articles of Incorporation indemnify our officers and directors against all costs, charges and expenses incurred by them.

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

Risks Relating to our Securities

Trading in our common shares on the TSX Venture 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 Venture 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.


8

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’ interests in our company will be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities.

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. If we are required to issue additional shares to raise financing, your interests in our company will be diluted and you may suffer dilution in your net book value per share depending on the price at which such securities are sold. As at November 16, 2006, there were outstanding an aggregate number of common share purchase warrants and share purchase options as, upon exercise, would result in the issue of an additional 8,606,919 of our common shares which, if exercised, would represent approximately 17% of our issued and outstanding common chares. 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.

Investors’ interests in our company will be diluted and investors may suffer dilution in their net book value per share if we issue employee/director/consultant options

We have granted and may in the future continue to grant to some or all of our directors, officers, insiders, and key employees options to purchase our common shares as non-cash incentives to those persons. Such options may be granted at exercise prices equal to market prices, or at such other price as may be permitted under the policies of any stock exchange upon which our securities are traded (currently, our common shares are listed for trading on the TSX Venture Exchange), when the public market is depressed. The issuance of additional shares will cause our existing shareholders to experience dilution of their ownership interests.

We do not expect to declare or pay any dividends.

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.

U.S. investors may not be able to enforce their civil liabilities against us or our Directors, controlling persons and officers.

It may be difficult to bring and enforce suits against us. We were incorporated under the Company Act (British Columbia) and transitioned under the Business Corporations Act (British Columbia) in June of 2004. All of our directors and officers are residents of countries other than the United States and all of our assets are located outside of the United States. Consequently, it may be difficult for United States investors to effect service of process in the United States upon those directors or officers who are not residents of the United States, or to realize in the United States upon judgments of United States courts predicated upon civil liabilities under the United States Securities Exchange Act of 1934, as amended. There is substantial doubt whether an original action could be brought successfully in Canada against any of such persons or us predicated solely upon such civil liabilities.

Trading of our stock may be restricted by the SEC’s “Penny Stock” regulations which may limit a stockholder’s ability to buy and sell our stock.

The U.S. 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 broker-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-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-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-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-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


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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-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 broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.

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 Registration Statement for a more detailed description of the PFIC rules and how those rules may affect their ownership of our capital shares.

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

  • they will be taxed at the highest ordinary income tax rates in effect during their holding period on certain distributions on our capital shares, and gains from the sale or other disposition of our capital shares;

  • they will be required to pay interest on taxes allocable to prior periods; and

  • the tax basis of our capital shares will not be increased to fair market value at the date of their date.

Item 4              Information on our Company

A.         History and Development of our Company

We were originally incorporated in British Columbia Canada under the Company Act (British Columbia) on January 17, 1983, under the name “Bren-Mar Resources Limited”, with an authorized capital of 50,000,000 Common Shares without par value. On March 15, 2000, we changed our name to “Bren-Mar Minerals Ltd.” 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. On November 22, 2000, we changed our name to “Canadian Metals Exploration Ltd.”

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”, 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.

We have our head office and principal place of business at Suite 1060 – 1090 West Georgia Street, Vancouver, British Columbia V6E 3V7 Canada (Telephone: 604.681.7896) .

Our common shares are listed on the TSX Venture 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$1,000,000on exploration of the property within 5 years of acquisition. We have now earned the 100% interest and it is subject to a 4% net smelter royalty on possible future production. We have the right to pay out the net smelter royalty for CAN$1,000,000 for each 1% of the royalty. So, to pay out all 4% of the royalty, we would be required to pay CAN$4,000,000.

On April 25, 2001, we entered into an agreement with Northwest Petroleum Inc. of Bakersfield, California to acquire rights to two separate oil and gas projects located in the state of California, consisting of the Buttonwillow Oil and Gas Leases in Kern


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County, California and the Moffat Ranch Gas Field in Madera County, California. We subsequently determined in March of 2002 that the Buttonwillow oil and gas leases and the Moffat Ranch Gas Field gas project were not feasible. Accordingly, the agreement with Northwest Petroleum Inc. was terminated on March 21, 2002 and our investment of $143,717 was written off.

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

Between November , 2003 and March, 2005 we staked additional claims, enlarging the Turnagain property from 3,700 hectares to approximately 27,500 hectares. In April, 2004, we staked three claim blocks in northern British Columbia. The staked properties vary in size from 1500 to 5500 hectares and total 9000 hectares and are located in northern British Columbia, between 20km west and 100km northwest of the Turnagain property. These three claim blocks are known as the Green, Serp and Cot properties.

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

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

In March, 2006 we acquired by staking on-line, one additional claim block which is known as the Lunar property. It consists of approximately 4,489 hectares and is located approximately 130km southeast of the Turnagain property. Some reconnaissance prospecting was completed in the summer of 2006 with follow up work to be completed in 2007.

In May, 2006 we acquired by staking on-line, two additional claim blocks which are known as the Lime 1 and Lime 2 properties. They consist of approximately 1,133 hectares and are located approximately 15km and 35km west of the Turnagain property. Some reconnaissance prospecting was completed in the summer of 2006 with follow up work to be completed in 2007 or 2008.

In July, 2006 we acquired by staking on-line, one additional claim block which is known as the Conuma property. It consists of approximately 18,050 hectares and is located on the west side of Vancouver Island approximately 130km west of Campbell River, B.C. No work has been completed on the property to date but is scheduled for the summer of 2007.

On October 11, 2006 we acquired by legal action, one additional claim block which is known as the Bobner property. It consists of approximately 150 hectares and is located approximately 8km west of the Turnagain property. No work has been completed on the property to date but is scheduled for the summer of 2007.

Present Operations of Our Company

Turnagain Property Project

Our current mineral exploration activities on the Turnagain Property include core drilling, geological mapping, geochemical surveys, downhole geophysical surveys, baseline environmental and engineering studies, and metallurgical testing. From 2001 to the end of 2005, we had drilled 115 core holes for a total depth of 82,539 feet. Approximate total exploration expenditure during this period was CAN$9,980,000.

B.        Business Overview

Nature of Operations and Principal Activities

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


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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 seven very early stage, mineral properties in central and northern British Columbia. We have not identified the existence of any commercially viable mineral deposits at any of our mineral properties. We intend to conduct prospecting and sampling on several of these properties in 2007.

There is no assurance 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 8 of this registration statement, 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 should consist of metals refineries and base metal traders and dealers.

Seasonality of our Business

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

Sources and Availability of Raw Materials

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


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

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

Competitive Conditions

We compete with other mining companies, some of which have greater financial resources and technical facilities, for the acquisition of mineral interests, as well as for the recruitment and retention of qualified employees. Exploration in British Columbia has experienced a dramatic revival in the past two years and increased activity is forecast for the future. We compete for qualified employees with Vancouver based companies, including Hunter Dickenson Inc., Equity Engineering and Ivanhoe Mines, and international mining companies, including Billiton-BHP, Rio Tinto and Anglo American.

Governmental Regulations

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

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

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

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

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

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

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

We will have to sustain the cost of reclamation and environmental mediation for all exploration work undertaken. The amount of these costs is not known at this time as we do not know the extent of the exploration program that will be undertaken beyond completion of the recommended work programs. It is estimated that reclamation of existing exploration drill sites and access roads on the Turnagain property will cost approximately $60,000. 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.


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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

Our executive office is located at 1060 – 1090 West Georgia Street, Vancouver, British Columbia V6E 3V7, Canada. The Company leases the 1,890 sq.ft space for $31,185 per annum and expires on April 30, 2008. 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.

We own office equipment with a value of approximately $20,000 and it is located at our Vancouver Office. We lease a photocopier at the rate of $700/three months.

Our company has three significant mineral properties:

1.

The Turnagain Property;

2.

Lunar; and,

3.

Serp.

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 a Technical Report and Mineral Resource Estimate prepared by Ronald G. Simpson, P.Geo., dated April 13, 2006, and prepared in compliance with the requirements of National Instrument 43-101 and Form 43-101F1 as adopted by the British Columbia Securities Commission. This Technical Report was used as supporting documentation and was filed with the British Columbia Securities Commission and the TSX Venture Exchange. Mr. Ronald G. Simpson is a “qualified person” as the term is defined under National Instrument 43-101.


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Exploration data collected during the 2004 and 2005 exploration programs, was done under the supervision of Chris Baldys, P. Eng., Neil Froc, P. Eng., and Tony Hitchins, M.Sc.

Location and Accessibility

The Turnagain Property consists of 53 contiguous mineral claims situated in the Liard Mining Division of northern British Columbia, 70 kilometres east of Dease Lake and 1350 kilometres north-northwest of Vancouver. Please see the above map to see where the property is located in the province of British Columbia, Canada. The mineral claims collectively cover an area of 29,370 hectares (264 square kilometres.) The Turnagain Property is situated in the Stikine Ranges of the Cassiar Mountains. Elevations range from about 1,000 metres above sea level along the Turnagain River, in the central claim area, to 2,200 metres 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 kilometres north of the port of Stewart, is 70 kilometres 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 kilometres.

A dirt airstrip, measuring 700 metres, constructed in the 1960s and graded in 2004, is situated within the claims on the northwest side of the Turnagain River and can accommodate small 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 kilometres by road west of the Turnagain Property.

Dease Lake has three times a week scheduled airline service and offers some supplies and services. The communities of Terrace and Smithers, both several hundred kilometres 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 metres above sea level and separated by wide, drift-filled valleys in which elevations average 1,000 metres. Forest cover, present in valley areas, is replaced by typical alpine flora above 1500 metres. Bedrock is reasonably well exposed in the areas above tree line and along drainages.

Description of Claims

Our Turnagain Property consists of 53 contiguous mineral claims. Hard Creek Nickel Corporation owns a 100% interest in all of these mineral claims subject to a 4% net smelter royalty on possible future production on one mineral claim (Tenure No. 511330 formerly the “Cub” claim). We retain the right to purchase all or part of the net smelter royalty for CAN $1,000,000 per 1%. The following table summarizes the claim name, size, and expiry date for the 53 claims in the Turnagain property as of November 16, 2006

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

Tenure
Number
Claim Name Area
(ha)
Record Date Expiry Date
Legacy Mineral Claim      
407627 PUP 4 500 January 1,2004 January 1,2016
Cell Mineral Claims      
501131 DRIFT 1 422 January 12,2005 January 12,2008
501168 DRIFT 2 422 January 12,2005 January 12,2008
501234 DRIFT 3 422 January 12,2005 January 12,2008
501298 DRIFT 4 422 January 12,2005 January 12,2008
508218 DINAH 1 407 March 3,2005 March 3,2009
508219 DINAH 2 407 March 3,2005 March 3,2009


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Tenure
Number
Claim Name Area
(ha)
Record Date Expiry Date
508221 DINAH 3 407 March 3,2005 March 3,2008
508222 DINAH 4 407 March 3,2005 March 3,2009
508223 DINAH 5 407 March 3,2005 March 3,2009
508225 DINAH 6 407 March 3,2005 March 3,2009
508226 DINAH 7 255 March 3,2005 March 3,2009
508227 DINAH 8 407 March 3,2005 March 3,2009
508228 DINAH 9 136 March 3,2005 March 3,2009
508229 DINAH 10 203 March 3,2005 March 3,2009
528780 T1 67.7 Feb 23, 2006 Feb 23, 2007
528781 T2 203 Feb 23, 2006 Feb 23, 2007
528782 T3 153 Feb 23, 2006 Feb 23, 2007
528784 T4 288 Feb 23, 2006 Feb 23, 2007
528787 T5 170 Feb 23, 2006 Feb 23, 2007
528788 T6 270 Feb 23, 2006 Feb 23, 2007
528789 T7 422 Feb 23, 2006 Feb 23, 2007
528790 T8 254 Feb 23, 2006 Feb 23, 2007
Cell Claims Converted from Legacy Claims - April, 2005  
503365 HARD 2 793 January 14, 2005 February 18, 2009
510889 FLAT 10,13,15 1628 April 6,7,2004 April 7,2010
510892 FLAT 2,6 1219 April 6,2004 April 7,2010
510910 FLAT 9,12,14 1424 April 18,2004 April 7,2010
510911 FLAT 1,5 1067 April 6,2004 April 7,2010
510912 FLAT 8,11 780 April 5,7,2004 April 7,2009
511214 HARD 4,6 980 February 18,2004 February 18,2009
511226 HILL 1,2 1216 February 18,2004 February 18,2009
511227 HILL 3 507 February 18,2004 February 17,2009
511230 HILL 4,5 760 February 18,2004 February 17,2009
511234 HILL 6 186 February 16,2004 February 16,2009
511244 HARD 5,7 490 February 18,2004 February 18,2009
511251 HARD 8 473 February 17,2004 February 17,2009
511257 HILL 9,10 1014 February 17,2004 February 17,2009
511279 HARD 9,10 897 February 17,2004 February 17,2009
511304 HILL 7,8 1150 February 17,2004 February 17,2010
511305 HOUND 3 271 Sept. 27,2003 Sept 27,2010
511306 TURN 2,FLAT 7 881 February 19,2004 February 19,2013
511329 HOUND 1,2 1015 Sept. 27,2003 Sept. 27,2010
511330 CUB 593 May 5,1996 December 1,2015
511337 CUB 10,18,PUP 1 1066 July-Dec.,1996 December 1,2015
511340 CUB 17 254 Sept.17,2002 December 1,2015


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Tenure
Number
Claim Name Area
(ha)
Record Date Expiry Date
511344 TURN 1 271 19-Feb-04 February 19,2013
511347 FLAT 3,4 474 April 5,21,2004 April 7,2013
511348 CUB 2 389 June 20,1996 December 1,2015
511586 PUP 2 237 January 1,2004 January 1,2016
511593 PUP 3 102 January 1,2004 January 1,2016
511627 CUB 11 592 July 17,1996 December 1,2015
511628 HARD 1 709 February 18,2004 February 18,2009
511629 HARD 3 473 February 18,2004 February 18,2009

The map below, labelled “Figure 2”, indicates a group of claims held in trust by the Supreme Court of British Columbia. In February 2004, we filed an action in the Supreme Court of British Columbia against Mr. Wolf Wiese, a former consultant to our company. The action sought the transfer to our company of claims neighbouring the Turnagain property, which were staked in the name of Mr. Wiese. We believe that these claims should have been staked in the name of the Company. On July 10, 2006 the Supreme Court of British Columbia ordered that the claims be transferred back to our company. The transfer of ownership has not been completed to date. Mr. Wiese has subsequently filed a Notice of Appeal of the Order.


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Exploration History

Nickel and copper sulphides were discovered within the current Turnagain property area in a bedrock exposure along Turnagain River in 1956. Mineral claims covering this showing and other occurrences were acquired by Falconbridge Nickel Mines Limited in 1966. Falconbridge Nickel Mines Limited also completed work over the ensuing seven years, including surface and airborne geophysical surveys, geological mapping, geochemical surveys and 2895 metres of conventional and packsack diamond drilling in 40 widely spaced drill holes.


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Our Turnagain Property represents a unique style of sulphide mineralization associated with a zoned, ultramafic complex. Iron and nickel sulphides of magmatic origin are widespread in dunite and wehrlite near dunite-wehrlite contacts. Exploration on the Turnagain Property between 1967 and 2002 was sporadic and was concentrated in the Horsetrail area or near small exposures of net-textured sulphides. We acquired the property in 1996.

Work Completed by the Registrant

We acquired the Turnagain River property in 1996 and our exploration work that year included 400 line kilometres of airborne magnetic surveys and 795.5 metres of diamond drilling in 5 holes. Additional diamond drilling completed by our company in 1997 and 1998 amounted to 3,123 metres in 14 holes. Related work included 18 line kilometres 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 metres 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 metres 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.

A comprehensive exploration program in 2004 included a helicopter borne magnetic and electromagnetic survey totalling 1,866 line km, 14 km of ground magnetic and electromagnetic surveys, 1:20,000 scale aerial photography of the entire property, collection of more than 3,000 geochemical soil samples, geological mapping, and 7522 metres of diamond drilling in 49 holes. The approximately 4,000 core samples were analysed for 30 elements including nickel, copper, cobalt, sulphur and often platinum and palladium. Extensive metallurgical test work is still in progress on 2003-2004 composite core samples.

Hard Creek Nickel’s 2005 exploratory program consisted of geological mapping, bedrock and soil sampling, and 7,143 metres of diamond drilling in 37 holes. Various mineralogical, environmental baseline, engineering, metallurgical and analytical studies were also undertaken.

Present Condition of the Property

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

A camp capable of accommodating approximately 30 people has been constructed, consisting of 17 wall tents, 3 trailers and drill core storage facilities. A 700 meter unpaved air strip is adjacent to the camp. Power is provided by an on-site diesel generator

Our properties are without known reserves and our proposed work program is exploratory in nature.

Mineralization

A number of mineral showings, located during early exploration on the Turnagain property consist of net-textured to semi-massive magmatic pyrrhotite (a common iron sulphide mineral) with minor pentlandite (iron and nickel sulphide mineral) in altered ultramafic rocks. Extensive drilling in the Horsetrail Zone on the Turnagain property during the 2002-2005 period outlined broad zones of disseminated to intercumulus (between silicate grains) sulphide mineralization either in dunite or in wehrlite near dunite-wehrlite contacts.

Within the broad zone of disseminated intercumulus mineralization in the Horsetrail area, the sulphide grains range in size from 0.5mm to 5mm with cuspate contacts against oval olivine grains. Pyrrhotite is the most abundant sulphide but usually encloses conspicuous pentlandite grains, especially in the higher grade intervals. Chalcopyrite (copper-iron sulphide), when present, is usually localized along the margins of the pyrrhotite or as minute veinlets extending away from the sulphide grain. Trace to minor quantities of bornite (another copper-iron sulphide), native copper, valleriite, mackinawite, smythite (complex iron-nickel-cobalt-copper sulphide minerals), and several unnamed Ni-Fe-Cu-Co sulphides have been identified in metallurgical concentrates.

The Horsetrail Zone of the Turnagain property comprises several northwest to west-northwest striking zones of more than 0.25% nickel separated by intervals of lower grade nickel sulphide mineralization. Mineralization is interpreted to dip steeply to the north.


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Platinum and palladium mineralization has been intersected in several drill holes in the D.J. Zone, located on the Turnagain property approximately three kilometres northwest of the Horsetrail Zone. Host for the mineralization is usually magnetite-clinopyroxenite within a dominantly hornblendite lithology. Textural and analytical data suggest a location near the roof of the ultramafic intrusion. Platinum and palladium values in drill holes include 2407 parts per billion (parts per billion) Pt+Pd over 2m in hole 04-59, 1645 parts per billion Pt+Pd over 2.15m in hole 04-44, 1530 parts per billion Pt+Pd over 13m in hole 05-88 and 2320 parts per billion Pt+Pd over 2m in Hole 05-101. Preliminary analysis has identified minor arsenic and antimony in association with platinum and palladium, respectively, but it is not clear whether the mineralization is dominantly magmatic or the result of a post-crystallization hydrothermal (involving water rich fluid) event.

Environmental Surveys

Since the timely collection of long lead-time baseline data on the Turnagain property, such as meteorological, hydrological, water quality, and wildlife, is important to the environmental permitting process, we initiated collection of water quality data and wildlife observations in 2003. The program was expanded in 2004 and 2005 to include hydrological measurements on Hard Creek, ground water quality in the Horsetrail Zone on the Turnagain property, and meteorological data (temperature, precipitation, evaporation, wind speed and direction). A preliminary study to determine the presence and species of fish in the Turnagain River and tributaries of Hard Creek was conducted in 2004.

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

Metallurgical Test Work

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

Evaluation of nickel recovery included 12 tests performed on lower grade composite samples. An additional 13 flotation tests that were performed on composite samples. Eight tests were performed on composite samples. Two locked cycle flotation tests were also performed. Based on the results to date, our company will continue to conduct metallurgical test work.

Recommendations and Cost  Estimate

The following exploration program for the Turnagain Property has been recommended to our company by Chris Baldys, P. Eng., Neil Froc, P. Eng., and Tony Hitchins, M.Sc. and is in progress for 2006.

The Horsetrail Zone on the Turnagain property has been the focus of our drilling for the last several years and hosts the resource estimate. Fill-in and step-out drill hole locations are designed to expand the zone of nickel-cobalt mineralization.The 2004 airborne magnetic-electromagnetic survey located a number of significant, untested conductors near the northwestern and southeastern margins of the ultramafic intrusion. We did not test all of the conductors in 2005. Several smaller, isolated conductors, hosted by either ultramafic rocks or the enclosing phyllite are also of interest, especially when enhanced by nickel or coincident Pt-Pd soil anomalies. Additional drilling is recommended to test the geophysical anomalies. Further bedrock sampling in areas of rock exposure, detailed prospecting, mapping, and channel sampling will enable some prioritizing of drill targets and is also recommended. In areas of deeper overburden, drill testing will be the unequivocal test of buried geophysical anomalies.

   

Further metallurgical testing focusing primarily on grinding, flotation and hydrometallurgical testing is also recommended.



20

Diamond Drilling – 21,000 metres @ $102.25/metre plus associated costs $2,513,850
Road construction, drill pads, etc. $215,,000
Geophysics Surveying $59,000
Technical Personnel – Senior Geologists, Junior Geologists , Field assistants $442,000
Field Labor – Core splitters, road slashing, maintenance, etc. 276,500
Analytical costs – drill core, bedrock, soil, duplicate & check samples $415,200
Miscellaneous Field Supplies $8,000
Camp costs – cooks, room and board, maintenance, etc. $329,000
Communications – satellite telephone, facsimile, internet $30,000
Transportation – scheduled airline service $55,000
                   - helicopter support $232,500
                   - road transport of supplies $170,000
Data Management $274,000
Baseline Environmental and Engineering Studies $149,000
Metallurgical test work and related studies $620,000
Contingencies @ 10% $579,000
Total $6,368,050

The Lunar Property

The Lunar property consists of eleven mineral cell claims covering an area of 4489.1 hectares located in central northern British Columbia, within the Stikine Ranges of the Omineca Mountains, approximately 160 km south east of the Turnagain Property. The property covers a large mafic-ultramafic complex.

Access to the claims is by helicopter.

British Columbia Geological Survey geologists reported a rock sample assay of 1017 parts per billion platinum in chromite (reported in the Province of British Columbia Ministry of Energy, Mines and Petroleum Resources Open File 1990-12) on the Lunar property. The presence of sulphide was reported , although apparently not investigated for nickel mineralization. Hard Creek geologists have made an initial property visit and an assessment is pending sample analysis.

These claims came into the possession of our company through the process of electronic staking of claims, as described on page 11 of this prospectus under the title “Governmental Regulations.” Cell mineral claims may be kept in good standing by incurring assessment work or by paying cash-in-lieu of assessment work in the amount of CAN$4.00 per hectare per year during the first 3 years following the location of the mineral claims. This amount is increased to CAN$8.00 per hectare in the fourth and succeeding years. Our claims on the Lunar Property expire on March 31, 2007.

Other than the sample assays conducted by government geologists, as noted above, and our removal of 40 rock samples from the property, we are not aware of any previous operations that have taken place on these claims prior to our company acquiring them. The present condition of the property is untouched and without sign of mining activity. We have no plant, equipment or improvements on the claims.

The Lunar property is in the exploration stage, without known reserves and any work program that our company may decide to undertake thereon will be exploratory in nature.

If we conduct a work program on the property, our source of power will likely be on-site diesel power generation.


21

The Serp Property

The Serp property consists of seven four post mineral claims and two mineral cell claims covering an area of 4175.9 hectares located in the Liard mining district of northern British Columbia approximately 30 km west of our Turnagain properties. The property covers ultramafic rocks and limestone.

Access to the claims is by helicopter.

These claims came into the possession of our company through the staking of four post mineral claims, prior to the introduction of electronic staking in British Columbia, as well as through the process of electronic staking of claims, as described on page 11 of this prospectus under the title “Governmental Regulations.” The mineral claims may be kept in good standing by incurring assessment work or by paying cash-in-lieu of assessment work in the amount of CAN$4.00 per hectare per year during the first 3 years following the location of the mineral claims. This amount is increased to CAN$8.00 per hectare in the fourth and succeeding years. Our Serp claims expire April 8, 2007.

Getty Minerals Canada conducted preliminary exploration in the area in 1985, but reported no significant results (British Columbia Ministry of Energy, Mines and Petroleum Resources Assessment Report 14006) The present condition of the property is untouched and without sign of mining activity. We have no plant, equipment or improvements on the claims. We have gathered 28 silt, 335 soil and 20 rock samples from the property. The soil, silt and 11 of the rock samples have been analyzed for 36 elements, including nickel, copper, platinum, palladium, gold and sulfur. Hard Creek’s exploration in 2004 revealed a malachite and chalcocite-rich copper showing with grab samples reporting up to 3% copper. Nine rock samples taken in 2006 consist of limestone, which will be tested for suitability as a metallurgical reagent.

The Serp property is in the exploration stage, without known reserves and any work program that our company may decide to undertake thereon in the future will be exploratory in nature.

If we conduct a work program on the property, our source of power will likely be on-site diesel power generation.

Item 5             Operating and Financial Review and Prospects

The following discussion and analysis of our financial condition and results of operations for the fiscal years ended December 31, 2005 and 2004 and the six-month interim periods ended June 30, 2006 and June 30, 2005 should be read in conjunction with our financial statements and related notes included in this registration statement in accordance with “Item 8 – Financial Information”. Our financial statements included in this registration statement were prepared in accordance with United States generally accepted accounting principles.

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, 2005 Compared to Year Ended December 31, 2004

For the years ended December 31, 2005 and 2004, we did not receive any revenue from our interest in the Turnagain Property.

During the year ended December 31, 2005 we incurred a net loss of $3,332,394 ($0.11 per share) compared to a net loss of $4,648,724 ($0.20 per share) for the year ended December 31, 2004. Our administrative expenses for 2005 were $890,690, down from $1,910,813 the prior year . The total administrative expenses include a non-cash expense intended to recognize the cost of stock options; this amount was $139,799 and $1,002,552 in 2005 and 2004 respectively. Net of this item, our total administrative expenses for 2005 were $750,891, down from $908,261 the prior year. The stock option expense is included with the line items ‘consulting fees’ and ‘general and administrative’. Net of option expense, consulting expenses in 2005 were $136,665 (2004: $141,665) a decrease of $5,000 and general and administrative expenses in 2005 were $512,809 (2004: $495,483) an increase of $17,326 or approximately 3%. Professional fees of $101,417 in 2005 were down significantly from $215,162 the previous year. The decrease in 2005 is attributed to a reduction of legal expenses previously incurred in 2004


22

associated with the legal action commenced in February against Wolf Wiese, the counterclaim by Quorum in July 2004, and a further counterclaim by the Company against Quorum and Wiese in December 2004. This lawsuit is discussed in more detail in the section of this registration statement entitled “Legal Proceedings” , beginning at page 33. In addition, in 2004 we incurred legal expenses when we were forced to respond to a Notice of Hearing issued by the British Columbia Securities Commission in 2003, which matter was settled in November 2004.

During the year ended December 31, 2005, we incurred exploration expenses of $2,679,212 on the Turnagain property (2004: $2,987,287). Field activity resumed in May 2005, and prior thereto, efforts were focused on mapping, compiling and analyzing data from the 2004 program. Before drilling resumed in July, field crews were prospecting and sampling EM conductors identified in the 2004 air borne E-M survey, and refining the 2005 drill targets. Phase I of the drill program began in early July and ended in mid November, and comprised 18 holes and approximately 3,100 m of drilling. Phase I included testing extensions of the Horsetrail zone, and exploration holes in the Bench zone and the Highland zone. Phase II of the 2005 drill program commenced in late November, comprised 19 holes and 4,048 meters, and was conducted in the Horsetrail zone. Field work is seasonal, and concluded in early November. The most notable results of 2005 came from the Phase II drill program and were released December 13 th : a 236 m interception of 0.30% Ni starting 3.1 m from surface, and a 91 m interception of 0.30% Ni starting 4.3 m from surface.

Drilling expenses for the year were $1,104,010 which were down slightly from the $1,180,667 spend in 2004. Geological and geophysical services expenses of $633,739 were incurred during the year and relate to the air-borne survey, ground and down-hole geophysical surveys, and data analysis. Assay and analytical expenses of $268,101 were incurred during the year. Other major components of the 2005 field work include metallurgical testing $105,469, transportation $208,533, and exploration data management $204,842.

Six-Month Period Ended June 30, 2006 Compared to the Six-Month Period Ended June 30, 2005.

During the six months ended June 30, 2006 we incurred a net loss of $2,479,181 ($0.06 per share) compared to a net loss of $1,078,835 ($0.04 per share) for the six month period ended June 30, 2005. The increase in our net loss was primarily due to an increase in our operating activities, which led to higher mineral property exploration costs, consulting fees, professional fees and general and administrative fees.

Consulting fees for the six months ended June 30, 2006 were $217,455, compared to the $114,263 in consulting fees incurred over the same period in the previous year. General and administrative expenses for the six months ended June 30, 2006 were $534,140, which were up $252,662 from the $281,478 in general and administrative expenses incurred over the six months ended June 30, 2005, Professional fees for the six months ended June 30, 2006 were 108,043 compared to 24,887 for the six months ended June 30, 2005. The majority of these increases were primarily due to the increase in stock based compensation and legal fees incurred for the trial against Wolf Wiese pertaining to the lawsuit filed in February 2004.

Stock-based compensation for the six months ended June 30, 2006 were $464,766, up $337,527 over the $127,239 incurred over the same period ending June 30, 2005. The increase in stock-based compensation was the result of our decision to compensate some employees through shares in the common stock of our company.

During the six months ended June 30, 2006 we incurred mineral property exploration costs of $1,635,392, compared to $664,136 for the same period in 2005. This increase of $971,256 is the result of our increase in operating activities, namely drilling, geological services and metallurgy.

B.       Liquidity and Capital Resources

At June 30, 2006 we had working capital of $1,131,723 but no restricted cash (restricted cash is cash raised by the issuance of flow-through common shares and allocated for qualifying exploration expenditures). Accounts payable and accrued liabilities at June 30, 2006 were $715,609. During the first six months of 2006, we raised $1,728,382 in proceeds, net of issue costs, from the issuance of shares.

Our budget for our 2006 exploration program is approximately $6.4 million, and we will need to raise $6 million in order to fund this program and our general administrative expenses. We intend to obtain these funds through further equity issues.

Application of Critical Accounting Policies

The preparation of financial statements in conformity with applicable generally accepted accounting principles requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of


23

contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Our management routinely makes judgements and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgements become even more subjective and complex. We have identified certain accounting policies, described below, that are the most important to the portrayal of our current financial condition and results of operations. Our significant accounting policies are disclosed in Note 1 to our financial statements included in this registration statement.

Going concern

Our financial statements are prepared on the basis that we will continue as a going concern. The going concern basis of presentation assumes we will continue in operation for the foreseeable future, which is a minimum of one year from the balance sheet date, and will be able to realize our assets and settle our liabilities and commitments in the normal course of business. Our ability to continue as a going concern and to realize our assets and discharge our liabilities when due in the normal course of business is dependent upon the existence of economically recoverable mineral reserves and our ability to raise adequate financing from lenders, shareholders and other investors to support such business activities. During the six month period ending June 30, 2006, we raised proceeds, net of issue costs, of $1,728,382 through the issuance of common shares. Management believes that proceeds from this and subsequent financings and the exercise of share purchase warrants will be sufficient for the planned operating and exploration activities during the next twelve months. If expenditures in the next twelve months exceed planned levels and we are not able to obtain financing, we will be required to curtail operations and exploration activities. The financial statements do not reflect adjustments, which could be material, to the carrying values of assets and liabilities which may be required should we be unable to continue as a going concern.

Stock based compensation

Effective January 1, 2003, we adopted a new accounting standard of the Canadian Institute of Chartered Accountants (“CICA”) regarding stock-based compensation and other stock-based payments. This standard requires that all stock based awards made to employees and non-employees be measured and recognized using a fair value based method.

Use of estimates

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates relate to the determination of impairment of assets, resource property carrying values, useful lives for depreciation and amortization, determination of fair value for stock based transactions and allocations of certain administration costs shared by a related group. Financial results as determined by actual events could differ from those estimates.

Foreign Currency

Substantially all of our operations are conducted in Canadian dollars.

Derivative Instruments

Derivatives are financial instruments, the payments of which are linked to the prices, or relationships between prices, of securities or commodities, interest rates, currency exchange rates or other financial measures. Derivatives are designed to enable parties to manage their exposure to interest rates and currency exchange rates, and security and other price risks.

We do not have any derivative instruments which are subject to the requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities .

Inflation

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


24

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

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

D.       Trend Information

Our business is the exploration for and development of nickel mineral deposit, so the commodity price of nickel has a direct impact on our revenue prospects and our ability to raise capital. Although there is no assurance that this trend will continue, management is optimistic that the current price level will continue for the foreseeable future.

E.       Off-Balance Sheet Arrangements

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

F.       Tabular Disclosure of Contractual Obligations

We do not have any contractual obligations and commitments as of December 31, 2005 that will require significant cash outlays in the future.

Item 6            Directors, Senior Management and Employees

A.       Directors and Senior Management

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

Name
Office Held
Age


Area of Experience and Functions in Our Company
Mark Jarvis
Director and Chief
Executive Officer
Age: 51

Mr. Jarvis has been a director of our company and our Chief Executive Officer since January of 2004. As director, Mr. Jarvis is responsible for the management and supervision of our board of directors and of the affairs and business of our company. As Chief Executive Officer, Mr. Jarvis is responsible for the development of our strategic direction and the management and supervision of our overall business.

George Sookochoff
Director
Age: 55

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.

Frank Wright
Director
Age: 50

Mr. Wright has been a director of our company since November of 2003. As a non-executive director, Mr. Wright is responsible for the corporate governance of our company.

Lyle Davis
Director
Age: 51

Mr. Davis was a director of our company in November of 2003 for a short period of time. He was later elected again as a director of our company in June of 2004. As a non-executive director, Mr. Davis is responsible for the corporate governance of our company.

Brian Fiddler
Controller and
Chief Financial Officer
Age: 44

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.

Tony Hitchins
Chief Operating Officer
Age: 59

Mr. Hitchins was appointed as Chief Operating Officer on January 7, 2005. As our Chief Operating Officer, Mr. Hitchins is responsible for the project management, field management and logging core, supervision of exploration on the Turnagain Nickel Project, hiring field staff and maintaining claims in good standing.



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Name
Office Held
Age


Area of Experience and Functions in Our Company
Neil Froc
Executive Vice President
Age: 45

Mr. Froc was appointed as our executive vice president in June 2006. As Executive Vice President, Mr. Froc is responsible for responsible for the management of engineering and technical studies including infrastructure and socio-economic project development.

Leslie Young
Corporate Secretary
Age: 47

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. Mr. Jarvis is also a former 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.

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.

Frank Wright – Director

Mr. Wright has been a director of our company since November of 2003. Mr. Wright is a consulting professional engineer with experience in project management, design and supervision of laboratory and pilot plant mineral testing programs, environmental assessment, process flow sheet development and economic evaluation. His background includes experience on precious and base metal projects worldwide, but focused in British Columbia. He has been involved with a variety of major studies for metallurgical programs, including pioneering work with bacterial leaching of minerals leading to patent filings. Mr. Wright has 20 years of process consulting experience serving junior and major mining firms that has included employment with Bacon Donaldson Associates Ltd. and Process Research Associates Ltd.

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 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.

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.


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Tony Hitchins – Chief Operating Officer

Mr. Hitchins has been an officer of our company since January 2005. Before joining our company, Mr. Hitchins was a geologist with International Taurus Resources and a district manager for Cyprus Gold in Australia. He attended University of Toronto and has M.Sc. and BA Sc degrees.

Neil Froc – Executive Vice President

Mr. Froc has been an officer of our company since June 2006 and has provided engineering services to the company for two years prior to this time. He is an engineering graduate from the University of Saskatchewan. Mr. Froc has been involved in various aspects of geological engineering and resource development in British Columbia since 1979.

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. She has had experience in operations and executive administration.

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

B.      Compensation

During the fiscal year ended December 31, 2004 the aggregate remuneration paid to directors in their capacity as directors of our company was $NIL. Management fees totalling $77,000 were paid to our directors and officers. Geological and consulting fees totalling $161,145 in cash, together with $774,938 worth of our securities were paid to directors and officers.

Executive Compensation

The following table provides a summary of compensation paid by us during the fiscal year ended December 31, 2005 to our chief executive officer and to our next four most highly paid executive officers who received a combined salary and bonus during such period in excess of $100,000 (collectively, with the chief executive officer, the “Named Executive”):

   SUMMARY COMPENSATION TABLE   




Name and Principal
Position





Year
Annual Compensation (1) Long Term Compensation


All other
Compen-
sation




Salary




Bonus

Other
Annual
Compen-
sation (2)
Securities
Under
Options/
SARs
Granted

Shares or units
subject to
resale
restrictions.
Mark Jarvis
CEO and Director (3)
2005
2004
Nil
Nil
Nil
Nil
Nil
Nil
Nil
800,000
Nil
Nil
Nil
Nil
Anthony Hitchins
COO (4)
2005
2004
$120,000
$120,000
$12,000
$10,000
Nil
Nil
75,000
125,000
Nil
Nil
Nil
Brian Fiddler
CFO (5)
2005
2004
$ 42,000
$ 42,000
Nil
Nil
Nil
Nil
50,000
50,000
Nil
Nil
Nil
Nil

  (1)

On a cash basis, unless otherwise stated..

  (2)

The value of perquisites and other personal benefits, securities and property for the Named Executives that do not exceed the lesser of $50,000 or 10% of the total of the annual salary and bonus are not reported herein.

  (3)

Mark Jarvis was appointed as Chief Executive Officer and President of our company on January 9, 2004.

  (4)

Anthony Hitchins was appointed as Chief Operating Officer of our company on January 7, 2005

  (5)

Brian Fiddler has served as Chief Financial Officer of our company since January 2003.

C.       Board Practices

The election and retirement of directors are provided for in our Articles. An election of directors shall take place at each annual meeting of shareholders and all the directors then in office shall retire but, if qualified, shall be eligible for re-election. A director shall retain office only until the election of his successor. The number of directors to be elected at such meeting shall be


27

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

We currently do not have a remuneration or compensation committee.

D.       Employees

As of November 16, 2006, we have four employees, including three of our officers. We do not have any relationship with any labor unions.

E.        Share Ownership

There were 46,292,676 Common Shares issued and outstanding as of November 16, 2006. Of the shares issued and outstanding, warrants held and stock options granted, our directors and officers owned the following Common Shares as of November 16, 2006:



Name
Number of Common Shares
Beneficially Owned as of
November 16, 2006


Percentage (1)
Mark Jarvis 5,330,756 (2) 9.46%
George Sookochoff 290,500 (3) 0.52%
Frank Wright 333,000 (4) 0.59%
Lyle Davis 280,000 (5) 0.50%
Anthony Hitchins 333,750 (6) 0.59%
Brian Fiddler 237,768 (7) 0.42%
Leslie Young 154,000 (8) 0.27%
Neil Froc 300,000 (9) 0.53%

(1)

Based on 46,292,676 Common Shares issued and outstanding as at November 16, 2006, and the number of shares issuable upon the exercise of issued and outstanding stock options and warrants which are exercisable within 60 days of November 16, 2006.

(2)

Includes stock options and warrants to purchase up to 1,787,500 of our Common Shares at exercise prices ranging from $.50 - $1.00 per share expiring up to January 16, 2011.

(3)

Includes stock options and warrants to purchase up to 257,500 of our Common Shares at exercise prices ranging from $.35 - $1.00 per share expiring up to January 16, 2011.

(4)

Includes stock options and warrants to purchase up to 260,000 of our Common Shares at exercise prices ranging from $.40 - $1.00 per share expiring up to January 16, 2011.

(5)

Includes stock options and warrants to purchase up to 250,000 of our Common Shares at exercise prices ranging from $.54 - $1.00 per share expiring up to January 11,2011.



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(6)

Includes stock options and warrants to purchase up to 300,000 of our Common Shares at exercise prices ranging from $.40 - $1.00 per share expiring January 16, 2011.

(7)

Includes stock options and warrants to purchase up to 155,000 of our Common Shares at exercise prices ranging from $.35 - $.75per share expiring January 16, 2011.

(8)

Includes stock options and warrants to purchase up to 150,000 of our Common Shares at exercise prices ranging from $0.60 - $1.00 per share expiring January 16, 2011.

(9)

Includes stock options and warrants to purchase up to 300,000 of our Common Shares at exercise prices ranging from $0.60 - $.80 per share expiring June 16, 2011.

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

Stock Option Plan

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

During the fiscal year ended December 31, 2005 and the six months ended June 30, 2006, we granted the following stock options to our directors and officers:

Name Number of Options Exercise Price Expiry Date
Mark Jarvis 1,200,000 $.60 – 1.00 January 16, 2011
Frank Wright 250,000 $.40 – 1.00 January 16, 2011
George Sookochoff 250,000 $.35 – 1.00 January 16, 2011
Lyle Davis 250,000 $.60 – 1.00 January 16, 2011
Anthony Hitchins 300,000 $.40 – 1.00 January 16, 2011
Brian Fiddler 150,000 $.35 – .75 January 16, 2011
Leslie Young 150,000 $.60 - $1.00 January 16, 2011
Neil Froc 300,000 $.60 - $1.00 June 16, 2011

Item 7             Major Shareholders and Related Party Transactions

A.       Major Shareholders

The following table sets forth, as of November 16, 2006, 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 5,330,756 (2) 9.46%

(1)

Based on 46,292,676 Common Shares issued and outstanding as at November 16, 2006, and the number of shares issuable upon the exercise of issued and outstanding stock options and warrants which are exercisable within 60 days of November 16, 2006.

(2)

Includes stock options and warrants to purchase up to 1,787,500 of our Common Shares at exercise prices ranging from $0.50 – 1.00 per share expiring January 16, 2011.



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

As at November 16, 2006, the registrar and transfer agent for our company reported that there were 46,292,676 common shares of our company issued and outstanding. Of these, 39,419,634 were registered to Canadian residents (17 shareholders), 1,762,908 were registered to residents of the United States (6 shareholders) and 43,193 were registered to residents of other foreign countries (23 shareholders).

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

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

B.       Related Party Transactions

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



Six Months
Ended
June 30, 2006
Year Ended December 31,
2005 2004 2003
Frank Wright – Exploration Expenditures $33,660 $34,783 $20,195 $1,845
George Sookochoff – Exploration Expenditures $58,110 $112,645 $79,150 $4,100
Anthony Hitchins – Exploration Expenditures $60,000 $120,000 $NIL $NIL
Neil Froc – Exploration Expenditures $11,364 $NIL $NIL $NIL
Neil Froc – Consulting Fees $4,429 $NIL $NIL $NIL
Lyle Davis – Consulting Fees $1,650 $2,800 $6,300 $NIL
Brian Fiddler – Management fees $21,000 $42,000 $42,000 $38,238
Leslie Young – Management fees $21,000 $42,000 $35,000 $NIL

C.       Interests of Experts and Counsel

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

Item 8             Financial Information

A.       Financial Statements and Other Financial Information

Our financial statements are stated in Canadian dollars and are prepared in accordance with accounting principles generally accepted in the United States of America.


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Financial Statements filed as part of this registration statement:

Financial Statements of Hard Creek Nickel Corporation for the years ended December 31, 2005 and 2004 reported on by Dale Matheson Carr-Hilton LaBonte, Chartered Accountants.

  Auditor’s Report of Dale Matheson Carr-Hilton LaBonte, Chartered Accountants dated June 16, 2006
   
  Consolidated Balance Sheets as at December 31, 2005 and 2004
   
  Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003
   
  Consolidated Statement of Stockholders’ Equity from inception January 17, 1983 to December 31, 2005
   
  Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003
   
  Notes to Consolidated Financial Statements

Financial Statements of Hard Creek Nickel Corporation for the period ended June 30, 2006 (unaudited -prepared by Management).

  Consolidated Balance Sheets as at June 30, 2006
   
  Consolidated Statement of Operations for the six months ended June 30, 2006
   
  Consolidated Statement of Cash Flows for the six months ended June 30, 2006
   
  Notes to Consolidated Financial Statements

Legal Proceedings

Other than as disclosed below, as of November 16, 2006, there are no legal proceedings to which our company is a party and, to our knowledge, no such proceedings are pending:

  (1)

In October of 2003, the British Columbia Securities Commission (the “BCSC”) issued a Notice of Hearing against us and three individuals who were our directors at the time. The primary allegation by the BCSC was with respect to violation of National Instrument 43-101, Standards of Disclosure for Mineral Projects, and certain violations in securities issuances. We settled the allegations made by the BCSC in November of 2004. In the settlement, we agreed to comply with the British Columbia Securities Act and Regulations and to pay a fine of $20,000 representing a portion of the cost of the investigation.

     
  (2)

In February 2004, we filed an action in the Supreme Court of British Columbia against Mr. Wolf Wiese, a former consultant to our company. The action sought the transfer to our company of claims neighbouring the Turnagain property, which were staked in the name of Mr. Wiese. We believe that these claims should have been staked in the name of the Company. On July 10, 2006 the Supreme Court of British Columbia ordered that the claims be transferred back to our company. The transfer of ownership has not been completed to date. Mr. Wiese has subsequently filed a Notice of Appeal of the Order.

     
  (3)

In July of 2004, each of Quorum Capital Corp. and Stewart Jackson, a former President and director of our company, filed a countersuit against us with respect to our action against Mr. Wiese. We have filed our defence to the respective countersuits and asserted counterclaims against Quorum Capital Corp. and Stewart Jackson claiming they have improperly received monies and securities from our company and also claiming for damages. We are currently unable to determine the potential outcome of the action and the countersuits.

Dividend Distributions

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


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B.       Significant Changes

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

Item 9             The Offer and Listing

A.       Offer and Listing Details

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, 2000 through to December 31, 2004) on the TSX Venture Exchange (formerly the Canadian Venture Exchange) were as follows:

Year/Period Ended High Low
December 31, 2001 $0.80 $0.20
December 31, 2002 $0.42 $0.14
December 31, 2003 $0.51 $0.31
December 31, 2004 $0.85 $0.43
December 31, 2005 $0.58 $0.36

Full Financial Quarters (two most recent financial years)

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

            Quarter Ended High Low
March 31, 2004 $0.85 $0.47
June 30, 2004 $0.80 $0.56
November 30, 2004 $0.61 $0.48
December 31, 2004 $0.55 $0.43
March 31, 2005 $0.52 $0.37
June 30, 2005 $0.47 $0.39
November 30, 2005 $0.46 $0.38
December 31, 2005 $0.58 $0.37
March 31, 2006 $0.98 $0.55
June 30, 2006 $0.89 $0.62


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Most Recent 6 Months

The high and low market prices for each of the most recent six months on the TSX Venture Exchange were as follows:

              Month Ended High Low
May, 2006 $0.77 $0.60
June, 2006 $0.84 $0.62
July, 2006 $0.79 $0.68
August, 2006 $0.79 $0.68
September, 2006 $0.79 $0.66
October, 2006 $0.79 $0.70

B.       Markets

Our common shares trade on the TSX Venture Exchange. Our symbol is “HNC” and our CUSIP number is 411637.

Item 10             Additional Information

A.       Share Capital

As at June 30, 2006 and as of November 16, 2006 we are authorized to issue an unlimited number of Common Shares without par value and an unlimited number of Class A Preference Shares without par value. As at June 30, 2006 we had 40,884,124 common shares issued and outstanding and no Class A Preference Shares issued and outstanding. As at November 16, 2006 we had 46,272,676 common shares issued and outstanding and no Class A Preference Shares issued and outstanding.

On January 1, 2005 we had 28,310,394 common shares issued and outstanding. During the year ended December 31, 2005 we issued a total of 9,365,100 common shares so that we had 37,675,494 common shares issued and outstanding as at December 31, 2005. During the six months ended June 30, 2006 we issued a total of 3,208,630 so that we had 40,884,124 common shares issued and outstanding.

We do not own any shares of our company.

As at December 31, 2005 we had 9,791,051 warrants outstanding as follows:

Type Amount Exercise Price           Expiration Date
Warrants 2,675,000 $0.54 February 19, 2006
Warrants 675,000 $0.70 February 28, 2006
Warrants 158,333 $0.70 March 15, 2006
Warrants 30,000 $0.70 March 28, 2006
Warrants 1,050,000 $0.90 May 26, 2006
Warrants 646,533 $0.50 August 4, 2006
Warrants 42,500 $0.50 August 9, 2006
Warrants 248,750 $0.50 August 31, 2006
Warrants 350,000 $0.50 October 24, 2006
Warrants 113,333 $0.50 November 25, 2006
Warrants 1,019,936 $0.50 December 2, 2006
Warrants 1,100,000 $0.45 December 2, 2006


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Type Amount Exercise Price           Expiration Date
Warrants 66,666 $0.50 December 5, 2006
Warrants 275,000 $0.45 December 7, 2006
Warrants 1,340,000 $0.42 August 9, 2007

As at December 31, 2005 we had 2,385,000 options, each for the purchase of one share of our common stock, outstanding as follows:

Type Amount Exercise Price           Expiration Date
Options 50,000 $0.35 October 1, 2008
Options 90,000 $0.35 November 3, 2008
Options 64,000 $0.40 December 4, 2008
Options 36,000 $0.40 December 11, 2008
Options 60,000 $0.40 January 7, 2009
Options 620,000 $0.60 January 23, 2009
Options 505,000 $1.00 January 23, 2009
Options 200,000 $0.60 February 27, 2009
Options 25,000 $1.00 February 27, 2009
Options 75,000 $0.60 June 11, 2009
Options 75,000 $1.00 June 11, 2009
Options 10,000 $0.60 June 30, 2009
Options 25,000 $0.60 August 24, 2009
Options 115,000 $0.60 November 24, 2009
Options 260,000 $1.00 January 7, 2010
Options 75,000 $0.60 May 10, 2010
Options 25,000 $0.60 June 9, 2010
Options 25,000 $0.60 July 25, 2010
Options 50,000 $0.60 December 1, 2010

As at November 16, 2006 we had 6,304,355 warrants outstanding as follows :

Type Amount Exercise Price Expiration Date
Warrants 113,333 $0.50 November 25, 2006
Warrants 1,019,936 $0.50 December 2, 2006
Warrants 1,100,000 $0.45 December 2, 2006
Warrants 66,666 $0.50 December 5, 2006
Warrants 275,000 $0.45 December 7, 2006
Warrants 1,190,000 $0.42 August 9, 2007
Warrants 118,417 $1.00 August 24, 2007
Warrants 556,002 $1.00 August 28, 2007


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Type Amount Exercise Price Expiration Date
Warrants 430,001 $1.00 October 6, 2007
Warrants 1,435,000 $1.00 October 25, 2007

As at November 16, 2006 we had 3,745,000 options, each for the purchase of one share of our common stock, outstanding as follows :

Type Amount Exercise Price           Expiration Date
Options 50,000 $0.35 October 1, 2008
Options 90,000 $0.35 November 3, 2008
Options 64,000 $0.40 December 4, 2008
Options 36,000 $0.40 December 11, 2008
Options 30,000 $0.40 January 7, 2009
Options 620,000 $0.60 January 23, 2009
Options 505,000 $1.00 January 23, 2009
Options 200,000 $0.60 February 27, 2009
Options 25,000 $1.00 February 27, 2009
Options 75,000 $0.60 June 11, 2009
Options 75,000 $1.00 June 11, 2009
Options 25,000 $0.60 August 24, 2009
Options 100,000 $0.60 November 24, 2009
Options 260,000 $1.00 January 7, 2010
Options 50,000 $0.60 May 10, 2010
Options 25,000 $0.60 June 9, 2010
Options 50,000 $0.60 December 1, 2010
Options 980,000 $0.75 January 16, 2011
Options 25,000 $0.75 January 18, 2011
Options 200,000 $0.75 June 7, 2011
Options 150,000 $0.80 June 16, 2011
Options 100,000 $0.80 September 13, 2008
Options 10,000 $0.80 September 21, 2011

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

Balance as at December 31, 2002 8,103,098
Common Shares issued for cash proceeds (i) 8,137,892
Warrants converted to Common Shares (ii) 788,199
Options converted to Common Shares (ii) 361,000


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Balance as at December 31, 2003 17,390,189
Common Shares issued for cash proceeds (iii) 7,482,916
Warrants converted to Common Shares (iv) 2,501,289
Options converted to Common Shares (iv) 936,000
Balance as at December 31, 2004 28,310,394
Common Shares issued for cash proceeds (v) 6,949,947
Warrants converted to Common Shares (vi) 2,360,153
Options converted to Common Shares (vi) 55,000
Balance as at December 31, 2005 37,675,494

(i)

During the year ended December 31, 2003, we issued by private placement, 8,137,892 Common Shares for cash proceeds of $2,914,620.

   
(ii)

The Company issued 1,149,199 Common Shares for the exercise of 788,199 share purchase warrants and 361,000 stock options for cash proceeds of $328,678.

   
(iii)

During the year ended December 31, 2004, we issued by private placement, 7,482,916 Common Shares for cash proceeds of $3,822,089

   
(iv)

The Company issued 3,437,289 Common Shares for the exercise of 2,501,289 share purchase warrants and 936,000 stock options for cash proceeds of $1,112,246.

   
(v)

During the year ended December 31, 2005, we issued by private placement, 6,949,947 Common Shares for cash proceeds of $2,744,627.

   
(vi)

The Company issued 2,415,153 Common Shares for the exercise of 2,360,153 share purchase warrants and 55,000 stock options for cash proceeds of $1,057,385.

   
(vii)

During the period ending June 30, 2006, the Company issued 3,208,630 Common Shares for the exercise of 3,153,630 share purchase warrants and 55,000 stock options for cash proceeds of $1,728,382.

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 travelling and other expenses


36

properly incurred by them in attending meetings of the board or any committee thereof. No independent quorum is required when the board is making decisions on directors’ remuneration.

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

  (a)

borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate,

     
  (b)

issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of the Company or any other person,

     
  (c)

guarantee the repayment of money by any other person or the performance of any obligation of any other person, and

     
  (d)

mortgage or charge, whether by way of specific or floating charge, or give other security on the whole or any part of the present and future undertaking of the Company.

Qualifications of Directors

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

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

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


37

the property or assets of our company, except as specifically provided in the special rights and restrictions attached to any particular series.

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

Procedures to Change the Rights of Shareholders

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

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.

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.

Limitations on Ownership of Securities

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

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

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

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

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


38

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 Registration Statement 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

With the exception of the contracts listed below, we have not entered into any material contracts during the last twenty-four months.

1.

Surface Drilling contract between Hard Creek Nickel Corporation and DJ Drilling (2004) Ltd dated April 5, 2006.;

   
2.

Consulting Agreement between Hard Creek Nickel Corporation and JA Chapman Mining Services dated November 18, 2005;

   
3.

Investor Relations Agreement between Hard Creek Nickel Corporation and Martin E. Janis & Company, Inc. dated July 15, 2006;

   
4.

Financial Advisory Services Agreement between Hard Creek Nickel Corporation and The Balloch Group dated May 29, 2006; and

   
5

Services Agreement between Hard Creek Nickel Corporation and T1 Solutions Corp. dated July 14, 2006.

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.


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E.       Taxation

Canadian Federal Income Taxation

We consider that the following summary fairly describes the principal Canadian federal income tax consequences applicable to a holder of our common shares who at all material times deals at arm’s length with our company, who holds all common shares as capital property, who is resident in the United States, who is not a resident of Canada and who does not use or hold, and is not deemed to use or hold, his common shares of our company in connection with carrying on a business in Canada (a “non-resident holder”). It is assumed that the common shares will at all material times be listed on a stock exchange that is prescribed for purposes of the Income Tax Act (Canada) (the “ITA”) and regulations thereunder. Investors should be aware that the Canadian federal income tax consequences applicable to holders of our common shares will change if, for any reason, we cease to be listed on a prescribed stock exchange. Accordingly, holders and prospective holders of our common shares should consult with their own tax advisors with respect to the income tax consequences of them purchasing, owing and disposing of our common shares should we cease to be listed on a prescribed stock exchange.

This summary is based upon the current provisions of the ITA, the regulations thereunder, the Canada-United States Tax Convention as amended by the Protocols thereto (the “Treaty”) as at the date of the registration statement and the currently publicly announced administrative and assessing policies of the Canada Customs and Revenue Agency (the “CCRA”). This summary does not take into account Canadian provincial income tax consequences. This description is not exhaustive of all possible Canadian federal income tax consequences and does not take into account or anticipate any changes in law, whether by legislative, governmental or judicial action. This summary does, however, take into account all specific proposals to amend the ITA and regulations thereunder, publicly announced by the Government of Canada to the date hereof.

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

Dividends

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

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

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

  (a)

if the shares in respect of which the dividends are paid formed part of the business property or were otherwise effectively connected with a permanent establishment or fixed base that the holder has or had in Canada within the 12 months preceding the disposition, or

     
  (b)

the holder is a U.S. LLC which is not subject to tax in the U.S.

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


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Capital Gains

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

  (a)

the non-resident holder;

     
  (b)

persons with whom the non-resident holder did not deal at arm’s length- or

     
  (c)

the non-resident holder and persons with whom he did not deal at arm’s length,

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

  (a)

the value of such shares is derived principally from real property (including resource property) situated in Canada,

     
  (b)

the holder was resident in Canada for 120 months during any period of 20 consecutive years preceding, and at any time during the 10 years immediately preceding, the disposition and the shares were owned by him when he ceased to be a resident of Canada,

     
  (c)

they formed part of the business property or were otherwise effectively connected with a permanent establishment or fixed base that the holder has or bad in Canada within the 12 months preceding the disposition, or

     
  (d)

the holder is a U.S. LLC which is not subject to tax in the U.S.

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

United States Federal Income Taxation

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

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

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


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U.S. Holders

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

Dividend Distribution on Shares of our Company

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

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

Foreign Tax Credit

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

Disposition of Common Shares

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


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

Other Considerations for U.S. Holders

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

Foreign Personal Holding Company

If at any time during a taxable year more than 50% of the total combined voting power or the total value of our outstanding shares is owned, actually or constructively, by five or fewer individuals who are citizens or residents of the United States and 60% or more of our gross income for such year was derived from certain passive sources (e.g., from dividends received from its subsidiaries), we would be treated as a “foreign personal holding company.” In that event, U.S. Holders that hold common shares in our capital would be required to include in income for such year their allocable portion of our passive income which would have been treated as a dividend had that passive income actually been distributed.

Foreign Investment Company

If 50% or more of the combined voting power or total value of our outstanding shares are held, actually or constructively, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), and we are found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that we might be treated as a “foreign investment company” as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging our common shares to be treated as ordinary income rather than capital gains.

Passive Foreign Investment Company

A U.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a passive foreign investment company (“PFIC”) is subject to U.S. federal income taxation of that foreign corporation under one of two alternative tax methods at the election of each such U.S. Holder.

Section 1297 of the Code defines a PFIC as a corporation that is not formed in the United States and, for any taxable year, either (i) 75% or more of its gross income is “passive income,” which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by value (or, if the company is a controlled foreign corporation or makes an election, adjusted tax basis), of its assets that produce or are held for the production of “passive income” is 50% or more. For taxable years of U.S. persons beginning after December 31, 1997, and for tax years of foreign corporations ending with or within such tax years, the Taxpayer Relief Act of 1997 provides that publicly traded corporations must apply this test on a fair market value basis only.

As a PFIC, each U.S. Holder must determine under which of the alternative tax methods it wishes to be taxed. Under one method, a U.S. Holder who elects in a timely manner to treat the Registrant as a Qualified Electing Fund (“QEF”), as defined in the Code, (an “Electing U.S. Holder”) will be subject, under Section 1293 of the Code, to current federal income tax for any taxable year in which we qualify as a PFIC on his pro-rata share of our (i) “net capital gain” (the excess of net long-term capital gain over net short-term capital loss), which will be taxed as long-term capital gain to the Electing U.S. Holder and (ii) “ordinary earnings” (the excess of earnings and profits over net capital gain), which will be taxed as ordinary income to the Electing U.S. Holder, in each case, for the U.S. Holder’s taxable year in which (or with which) our taxable year ends, regardless of whether such amounts are actually distributed. Such an election, once made shall apply to all subsequent years unless revoked with the consent of the IRS.


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A QEF election also allows the Electing U.S. Holder to (i) generally treat any gain realized on the disposition of his common shares (or deemed to be realized on the pledge of his common shares) as capital gain; (ii) treat his share of our net capital gain, if any, as long-term capital gain instead of ordinary income, and (iii) either avoid interest charges resulting from PFIC status altogether (see discussion of interest charge below), or make an annual election, subject to certain limitations, to defer payment of current taxes on his share of our annual realized net capital gain and ordinary earnings subject, however, to an interest charge. If the Electing U.S. Holder is an individual, such an interest charge would be not deductible.

The procedure a U.S. Holder must comply with in making an timely QEF election will depend on whether the year of the election is the first year in the U.S. Holder’s holding period in which we are a PFIC. If the U.S. Holder makes a QEF election in such first year, (sometimes referred to as a “Pedigreed QEF Election”), then the U.S. Holder may make the QEF election by simply filing the appropriate documents at the time the U.S. Holder files its tax return for such first year. If, however, we qualified as a PFIC in a prior year, then the U.S. Holder may make an “Unpedigreed QEF Election” by recognizing as an “excess distribution” (i) under the rules of Section 1291 (discussed below), any gain that he would otherwise recognize if the U.S. Holder sold his stock on the qualification date (Deemed Sale Election) or (ii) if we are a controlled foreign corporation (“CFC”), the Holder’s pro rata share of the corporation’s earnings and profits (Deemed Dividend Election) (But see “Elimination of Overlap Between Subpart F Rules and PFIC Provisions”). The effect of either the deemed sale election or the deemed dividend election is to pay all prior deferred tax, to pay interest on the tax deferral and to be treated thereafter as a Pedigreed QEF as discussed in the prior paragraph. With respect to a situation in which a Pedigreed QEF election is made, if we no longer qualify as a PFIC in a subsequent year, normal Code rules and not the PFIC rules will apply.

If a U.S. Holder has not made a QEF Election at any time (a “Non-electing U.S. Holder”), then special taxation rules under Section 1291 of the Code will apply to (i) gains realized on the disposition (or deemed to be realized by reason of a pledge) of his common shares and (ii) certain “excess distributions”, as specially defined, by our company. An “excess distribution” is any current-year distribution in respect of PFIC stock that represents a rateable portion of the total distributions in respect of the stock during the year that exceed 125 percent of the average amount of distributions in respect of the stock during the three preceding years.

A Non-electing U.S. Holder generally would be required to pro-rate all gains realized on the disposition of his common shares and all excess distributions over the entire holding period for the common shares. All gains or excess distributions allocated to prior years of the U.S. Holder (other than years prior to our first taxable year during such U.S. Holder’s holding period and beginning after January, 1987 for which it was a PFIC) would be taxed at the highest tax rate for each such prior year applicable to ordinary income. The Non-electing U.S. Holder also would be liable for interest on the deferred tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year. A Non-electing U.S. Holder that is an individual is not allowed a deduction for interest on the deferred tax liability. The portions of gains and distributions that are not characterized as “excess distributions” are subject to tax in the current year under the normal tax rules of the Internal Revenue Code.

If we are a PFIC for any taxable year during which a Non-electing U.S. Holder holds common shares, then we will continue to be treated as a PFIC with respect to such common Shares, even if it is no longer by definition a PFIC. A Non-electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules discussed above for Non-Electing U.S. Holders) as if such common shares had been sold on the last day of the last taxable year for which it was a PFIC.

Under Section 1291(f) of the Code, the Department of the Treasury has issued proposed regulations that would treat as taxable certain transfers of PFIC stock by Non-electing U.S. Holders that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. If a U.S. Holder makes a QEF Election that is not a Pedigreed Election (i.e., it is made after the first year during which we are a PFIC and the U.S. Holder holds our shares) (a “Unpedigreed Election”), the QEF rules apply prospectively but do not apply to years prior to the year in which the QEF first becomes effective. U.S. Holders should consult their tax advisors regarding the specific consequences of making a Non-Pedigreed QEF Election.

Certain special, generally adverse, rules will apply with respect to the common shares while we are a PFIC whether or not it is treated as a QEF. For example under Section 1297(b)(6) of the Code (as in effect prior to the Taxpayer Relief Act of 1997), a U.S. Holder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such stock.

The foregoing discussion is based on currently effective provisions of the Code, existing and proposed regulations thereunder, and current administrative rulings and court decisions, all of which are subject to change. Any such change could affect the validity of this discussion. In addition, the implementation of certain aspects of the PFIC rules requires the issuance of


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regulations which in many instances have not been promulgated and which may have retroactive effect. There can be no assurance that any of these proposals will be enacted or promulgated, and if so, the form they will take or the effect that they may have on this discussion. Accordingly, and due to the complexity of the PFIC rules, U.S. Holders of the Registrant are strongly urged to consult their own tax advisors concerning the impact of these rules on their investment in our company. For a discussion of the impact of the Taxpayer Relief Act of 1997 on a U.S. Holder of a PFIC, see “Mark-to-Market Election For PFIC Stock Under the Taxpayer Relief Act of 1997” and “Elimination of Overlap Between Subpart F Rules and PFIC Provisions” below.

Mark-to-Market Election for PFIC Stock Under the Taxpayer Relief Act of 1997

The Taxpayer Relief Act of 1997 provides that a U.S. Holder of a PFIC may make a mark-to-market election with respect to the stock of the PFIC if such stock is marketable as defined below. This provision is designed to provide a current inclusion provision for persons that are Non-Electing Holders. Under the election, any excess of the fair market value of the PFIC stock at the close of the tax year over the Holder’s adjusted basis in the stock is included in the Holder’s income. The Holder may deduct any excess of the adjusted basis of the PFIC stock over its fair market value at the close of the tax year. However, deductions are limited to the net mark-to-market gains on the stock that the Holder included in income in prior tax years, or so called “unreversed inclusions.” For purposes of the election, PFIC stock is marketable if it is regularly traded on (1) a national securities exchange that is registered with the SEC, (2) the national market system established under Section II A of the Securities Exchange Act of 1934, or (3) an exchange or market that the IRS determines has rules sufficient to ensure that the market price represents legitimate and sound fair market value.

A Holder’s adjusted basis of PFIC stock is increased by the income recognized under the mark-to-market election and decreased by the deductions allowed under the election. If a U.S. Holder owns PFIC stock indirectly through a foreign entity, the basis adjustments apply to the basis of the PFIC stock in the hands of the foreign entity for the purpose of applying the PFIC rules to the tax treatment of the U.S. owner. Similar basis adjustments are made to the basis of the property through which the U.S. persons hold the PFIC stock.

Income recognized under the mark-to-market election and gain on the sale of PFIC stock with respect to which an election is made is treated as ordinary income. Deductions allowed under the election and loss on the sale of PFIC with respect to which an election is made, to the extent that the amount of loss does not exceed the net mark-to-market gains previously included, are treated as ordinary losses. The U.S. or foreign source of any income or losses is determined as if the amount were a gain or loss from the sale of stock in the PFIC.

If PFIC stock is owned by a CFC (discussed below), the CFC is treated as a U.S. person that may make the mark-to-market election. Amounts includible in the CFC’s income under the election are treated as foreign personal holding company income, and deductions are allocable to foreign personal holding company income.

The above provisions apply to tax years of U.S. persons beginning after December 31, 1997, and to tax years of foreign corporations ending with or within such tax years of U.S. persons.

The rules of Code Section 1291 applicable to nonqualified funds as discussed above generally do not apply to a U.S. Holder for tax years for which a mark-to-market election is in effect. If Code Section 1291 is applied and a mark-to-market election was in effect for any prior tax year, the U.S. Holder’s holding period for the PFIC stock is treated as beginning immediately after the last tax year of the election. However, if a taxpayer makes a mark-to-market election for PFIC stock that is a nonqualified fund after the beginning of a taxpayer’s holding period for such stock, a co-ordination rule applies to ensure that the taxpayer does not avoid the interest charge with respect to amounts attributable to periods before the election.

Controlled Foreign Corporation Status

If more than 50% of the voting power of all classes of stock or the total value of the stock of our company is owned, directly or indirectly, by U.S. Holders, each of whom own after applying rules of attribution 10% or more of the total combined voting power of all classes of stock of our company, we would be treated as a “controlled foreign corporation” or “CFC” under Subpart F of the Code. This classification would bring into effect many complex results including the required inclusion by such 10% U.S. Holders in income of their pro rata shares of “Subpart F income” (as defined by the Code) of our company and our earnings invested in “U.S. property” (as defined by Section 956 of the Code). In addition, under Section 1248 of the Code if we are considered a CFC at any time during the five year period ending with the sale or exchange of its stock, gain from the sale or exchange of common shares of our company by such a 10% U.S. Holder of our common stock at any time during the five year period ending with the sale or exchange is treated as ordinary dividend income to the extent of our earnings and profits


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attributable to the stock sold or exchanged. Because of the complexity of Subpart F, and because we may never be a CFC, a more detailed review of these rules is beyond of the scope of this discussion.

Elimination of Overlap Between Subpart F Rules and PFIC Provisions

Under the Taxpayer Relief Act of 1997, a PFIC that is also a CFC will not be treated as a PFIC with respect to certain 10% U.S. Holders. For the exception to apply, (i) the corporation must be a CFC within the meaning of section 957(a) of the Code and (ii) the U.S. Holder must be subject to the current inclusion rules of Subpart F with respect to such corporation (i.e., the U.S. Holder is a “United States Shareholder,” see “Controlled Foreign Corporation,” above). The exception only applies to that portion of a U.S. Holder’s holding period beginning after December 31, 1997. For that portion of a United States Holder before January 1, 1998, the ordinary PFIC and QEF rules continue to apply.

As a result of this new provision, if we were ever to become a CFC, U.S. Holders who are currently taxed on their pro rata shares of Subpart F income of a PFIC which is also a CFC will not be subject to the PFIC provisions with respect to the same stock if they have previously made a Pedigreed QEF Election. The PFIC provisions will however continue to apply to U.S Holders for any periods in which Subpart F does not apply (for example he is no longer a 10% Holder or we are no longer a CFC) and to U.S. Holders that did not make a Pedigreed QEF Election unless the U.S. Holder elects to recognize gain on the PFIC shares held in our company as if those shares had been sold.

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

F.      Dividends and Paying Agents

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

G.       Statement by Experts

The financial statements of our company as of December 31, 2005 and 2004 included in this registration statement have been audited by Dale Matheson Carr-Hilton LaBonte, Chartered Accountants, of Suite 1500 – 1140 West Pender Street, Vancouver, British Columbia, V6E 4G1, Canada, as stated in their reports appearing in this registration statement and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.

The technical information regarding the Turnagain Property included in this registration statement is based on the Technical Report prepared by N.C. Carter, Ph.D., P. Eng., dated April 21, 2004, prepared in compliance with the requirements of National Instrument 43-101 and Form 43-101F1 as adopted by the British Columbia Securities Commission. This Technical Report was used as supporting documentation and was filed with the British Columbia Securities Commission and the TSX Venture Exchange. Mr. N.C. Carter is a “qualified person” as the term is defined under National Instrument 43-101. The information of the Technical Report appearing in this registration statement has been included in reliance upon Mr. N.C. Nelson’s authority as an expert in geology.

H.      Documents on Display

Upon the effectiveness of this filing, we will be subject to the informational requirements of the Securities Exchange Act of 1934 , as amended, and we will thereafter file reports and other information with the SEC. You may read and copy any of our reports and other information at, and obtain copies upon payment of prescribed fees from, the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington, DC 20549. In addition, the SEC maintains a web site that contains reports and other information regarding registrants that file electronically with the SEC at HTTP://www.sec.gov. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

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


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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 registration statement, we have one wholly owned subsidiary, Canadian Metals Exploration Limited.

Item 11             Quantitative and Qualitative Disclosures About Market Risk

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

Item 12            Description of Securities Other than Equity Securities

PART II

Item 13             Defaults, Dividend Arrearages and Delinquencies.

None

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

Not Applicable

Item 15             Controls and Procedures

Not Applicable

Item 16             [Reserved]

A.       Audit Committee Financial Expert

Not Applicable

B.       Code of Ethics

Not Applicable

C.       Principal Accountant Fees and Services

Not Applicable

D.       Exemptions from the Listing Standards for Audit Committees.

Not Applicable

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

Not Applicable

PART III

Item 17             Financial Statements

Refer to Item 18 - Financial Statements.


47

Item 18             Financial Statements

Financial Statements filed as part of the registration statement:

Financial Statements of Hard Creek Nickel Corporation for the years ended December 31, 2005 and 2004 reported on by Dale Matheson Carr-Hilton LaBonte, Chartered Accountants.

  Auditor’s Report of Dale Matheson Carr-Hilton LaBonte, Chartered Accountants dated June 16, 2006
  Consolidated Balance Sheets as at December 31, 2005 and 2004
  Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003
  Consolidated Statements of Stockholders’ Equity from January 17, 1983 to December 31, 2005
  Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003
  Notes to Consolidated Financial Statements

Financial Statements of Hard Creek Nickel Corporation for the period June 30, 2006.

  Consolidated Balance Sheets as at June 30, 2006
  Consolidated Statement of Operations for the six months ended June 30, 2006
  Consolidated Statement of Cash Flows for the six months ended June 30, 2006
  Notes to Consolidated Financial Statements



 

REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM

To the Shareholders and Board of Directors of
Hard Creek Nickel Corp.:

We have audited the accompanying consolidated balance sheets of Hard Creek Nickel Corp. (formerly Canadian Metals Exploration Ltd. - the “Company”) as of December 31, 2005 and 2004 and the related consolidated statements of operations, cash flows and stockholders’ equity for each of the years in the three-year period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Our audits included consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2005 and 2004, and the consolidated results of its operations and its cash flows and the changes in stockholders’ equity for each of the years in the three-year period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, to date the Company has reported losses since inception from operations and requires additional funds to meet its obligations and fund the costs of its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Signed “Dale Matheson Carr-Hilton Labonte”

Chartered Accountants

Vancouver, Canada
June 16, 2006



49

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)

CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
(IN CANADIAN DOLLARS)

 

 

CONSOLIDATED BALANCE SHEETS
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


50

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
(IN CANADIAN DOLLARS)

    December 31,     December 31,  
    2005     2004  
             
ASSETS     
             
CURRENT            
     Cash $  741,271   $  486,954  
     Recoverable taxes   60,678     64,856  
     Prepaid expenses   44,516     55,773  
    846,465     607,583  
             
RECLAMATION BOND   127,900     77,200  
RESTRICTED CASH (Note 7)   702,808     600,266  
FURNITURE AND EQUIPMENT, net of accumulated            
     depreciation of $16,176 and $9,396.   20,778     18,504  
             
$ 1,697,951   $  1,303,553  
             
             
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)    
             
CURRENT LIABILITIES            
     Accounts payable and accrued liabilities $  89,141   $  101,163  
             
             
             
             
COMMITMENTS AND CONTINGENCIES (Notes 6 and 7)            
             
             
STOCKHOLDERS’ EQUITY            
     Capital stock (Note 4 )            
           Common stock no par value; unlimited shares authorized            
           37,675,494 (2004 – 28,310,394) issued and outstanding   18,632,327     15,059,286  
     Additional paid-in capital   2,877,542     2,711,769  
     Deficit accumulated during the exploration stage   (19,901,059 )   (16,568,665 )
             
    1,608,810     1,202,390  
             
$ 1,697,951   $  1,303,553  

The accompanying notes are an integral part of these financial statements


51

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN CANADIAN DOLLARS)

                      Results of  
                      operations from  
                      January 17, 1983  
    Year ended     Year ended     Year ended     (inception) to  
    December     December     December     December 31,  
    31, 2005     31, 2004     31, 2003     2005  
                         
EXPENSES                        
     Consulting fees $  218,528   $  591,567   $  640,806   $  2,858,052  
     General and administrative   570,745     1,104,084     462,604     4,402,332  
     Professional fees   101,417     215,162     105,902     1,030,264  
     Mineral property exploration costs   2,679,212     2,987,287     2,069,772     12,268,799  
                         
LOSS BEFORE OTHER INCOME   3,569,902     4,898,100     3,279,084     20,559,447  
                         
OTHER INCOME                        
     Interest and other   8,537     10,905     1,148     32,743  
     Gain on settlement of accounts payable   -     -     62,080     158,203  
     Deferred income tax recovery (Note 8)   228,971     238,471     -     467,442  
                         
    237,508     249,376     63,228     658,388  
                         
NET LOSS $  3,332,394   $  4,648,724   $  3,215,856   $  19,901,059  
                         
                         
                         
                         
BASIC AND DILUTED NET LOSS PER SHARE $  (0.11 ) $  (0.20 ) $  (0.28 )      
                         
WEIGHTED AVERAGE COMMON SHARES                        
OUTSTANDING – BASIC AND DILUTED   30,698,463     23,483,920     11,412,881        

The accompanying notes are an integral part of these financial statements


52

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD JANUARY 17, 1983 (INCEPTION) TO DECEMBER 31, 2005

(IN CANADIAN DOLLARS)

                            Deficit        
                            Accumulated        
                Additional     Share     During the        
    Common stock     Paid-in     Subscriptions      Development         
    Shares     Amount     Capital     Received     Stage     Total  
                                     
                                     
Issued for cash   2,122,661   $  320,684   $  -   $  -   $  -   $  320,684  
Net loss, January 17, 1983                                    
     (inception) to December 31, 1987   -     -     -     -     (266,599 )   (266,599 )
                                     
Balance, December 31, 1987   2,122,661     320,684     -     -     (266,599 )   54,085  
                                     
Issued for cash   650,000     350,044     -     -     -     350,044  
Net loss   -     -     -     -     (103,673 )   (103,673 )
                                     
Balance, December 31, 1988   2,772,661     670,728     -     -     (370,272 )   300,456  
                                     
Issued for cash   145,000     26,500     -     -     -     26,500  
Issued for services   66,000     12,678     -     -     -     12,678  
Issued for debt settlement   200,000     30,000     -     -     -     30,000  
Net loss   -     -     -     -     (329,490 )   (329,490 )
                                     
Balance, December 31, 1989   3,183,661     739,906     -     -     (699,762 )   40,144  
                                     
Issued for cash   185,000     27,751     -     -     -     27,751  
Net loss   -     -     -     -     (90,505 )   (90,505 )
                                     
Balance, December 31, 1990   3,368,661     767,657     -     -     (790,267 )   (22,610 )
                                     
Net loss   -     -     -     -     (142,902 )   (142,902 )
                                     
Balance, December 31, 1991   3,368,661     767,657     -     -     (933,169 )   (165,512 )
                                     
Issued for cash   131,000     20,890     -     -     -     20,890  
Issued for debt settlement   789,267     118,392     -     -     -     118,392  
Net loss   -     -     -     -     (193,653 )   (193,653 )
                                     
Balance, December 31, 1992   4,288,928     906,939     -     -     (1,126,822 )   (219,883 )
                                     
Issued for cash   200,000     50,000     -     -     -     50,000  
Issued for debt settlement   600,200     105,470     -     -     -     105,470  
Net loss   -     -     -     -     (102,308 )   (102,308 )
                                     
Balance, December 31, 1993   5,089,128   $  1,062,409     -     -   $  (1,229,130 ) $  (166,721 )

The accompanying notes are an integral part of these financial statements


53

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (CONTINUED)

FOR THE PERIOD JANUARY 17, 1983 (INCEPTION) TO DECEMBER 31, 2005

(IN CANADIAN DOLLARS)

                            Deficit        
                            Accumulated        
                Additional     Share     During the        
    Common stock     Paid-in     Subscriptions      Development         
    Shares     Amount     Capital     Received     Stage     Total  
                                     
Balance, December 31, 1993   5,089,128   $  1,062,409     -     -   $  (1,229,130 ) $  (166,721 )
                                     
Issued for cash   348,000     107,800     -     -     -     107,800  
Net loss   -     -     -     -     (171,903 )   (171,903 )
                                     
Balance, December 31, 1994   5,437,128     1,170,209     -     -     (1,401,033 )   (230,824 )
                                     
Issued for cash   2,575,000     1,327,260     -     -     -     1,327,260  
Net loss   -     -     -     -     (1,154,307 )   (1,154,307 )
                                     
Balance, December 31, 1995   8,012,128     2,497,469     -     -     (2,555,340 )   (57,871 )
                                     
Shares released from escrow   -     -     495,750     -     -     495,750  
Issued for cash   3,129,500     2,021,760     -     -     -     2,021,760  
Issued for property acquisition   50,000     67,500     -     -     -     67,500  
Net loss   -     -     -     -     (2,651,593 )   (2,651,593 )
                                     
Balance, December 31, 1996   11,191,628     4,586,729     495,750     -     (5,206,933 )   (124,454 )
                                     
Shares released from escrow   -     -     318,125     -     -     318,125  
Stock-based compensation   -     -     181,646     -     -     181,646  
Issued for cash   600,000     432,000     -     -     -     432,000  
Issued for property acquisition   50,000     42,500     -     -     -     42,500  
Net loss   -     -     -     -     (1,138,025 )   (1,138,025 )
                                     
Balance, December 31, 1997   11,841,628     5,061,229     995,521     -     (6,344,958 )   (288,208 )
                                     
Stock-based compensation   -     -     300,526     -     -     300,526  
Issued for cash   495,412     324,180     -     -     -     324,180  
Issued for property acquisition   50,000     28,500     -     -     -     28,500  
Issued for debt settlement   168,401     61,533     -     -     -     61,533  
Net loss   -     -     -     -     (1,008,931 )   (1,008,931 )
                                     
Balance, December 31, 1998   12,555,441     5,475,442     1,296,047     -     (7,353,889 )   (582,400 )
                                     
Issued for cash   1,150,000     462,500     -     -     -     462,500  
Issued for property acquisition   50,000     15,000     -     -     -     15,000  
Net loss   -     -     -     -     (250,320 )   (250,320 )
                                     
Balance, December 31, 1999   13,755,441   $  5,952,942   $  1,296,047     -   $  (7,604,209 ) $  (355,220 )

The accompanying notes are an integral part of these financial statements


54

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (CONTINUED)

FOR THE PERIOD JANUARY 17, 1983 (INCEPTION) TO DECEMBER 31, 2005

(IN CANADIAN DOLLARS)

                            Deficit        
                            Accumulated        
                Additional     Share     During the        
    Common stock     Paid-in     Subscriptions     Development        
    Shares     Amount     Capital     Received     Stage     Total  
                                     
Balance, December 31, 1999   13,755,441   $  5,952,942   $  1,296,047     -   $  (7,604,209 ) $  (355,220 )
                                     
Consolidation 5:1   (11,004,353 )   -     -     -     -     -  
Stock-based compensation   -     -     3,677     -     -     3,677  
Issued for cash   655,000     110,250     -     -     -     110,250  
Issued for debt settlement   380,000     121,000     -     -     -     121,000  
Net loss   -     -     -     -     (54,902 )   (54,902 )
                                     
Balance, December 31, 2000   3,786,088     6,184,192     1,299,724     -     (7,659,111 )   (175,195 )
                                     
Issued for cash   1,266,902     364,800     -     -     -     364,800  
                -     -     -        
Net loss   -     -     -     -     (368,482 )   (368,482 )
                                     
Balance, December 31, 2001   5,052,990     6,548,992     1,299,724     -     (8,027,593 )   (178,877 )
                                     
Issued for cash   2,950,108     625,305     -     -     -     625,305  
Issued for property acquisition   100,000     26,000     -     -     -     26,000  
Stock-based compensation   -     -     22,860     -     -     22,860  
Subscriptions received   -     -     -     196,300     -     196,300  
Net loss   -     -     -     -     (676,492 )   (676,492 )
                                     
Balance, December 31, 2002   8,103,098     7,200,297     1,322,584     196,300     (8,704,085 )   15,096  
                                     
Issued for cash   9,287,091     3,163,125     -     (196,300 )   -     2,966,825  
Stock-based compensation   -     -     386,632     -     -     386,632  
                                     
Net loss   -     -     -     -     (3,215,856 )   (3,215,856 )
                                     
Balance, December 31, 2003   17,390,189     10,363,422     1,709,216     -     (11,919,941 )   152,697  
                                     
Issued for cash   10,920,205     4,934,335     -     -     -     4,934,335  
Reduction from sale of tax benefits                                    
relating to flow-through shares   -     (238,471 )   -     -     -     (238,471 )
Stock-based compensation   -     -     1,002,553     -     -     1,002,553  
Net loss   -     -     -     -     (4,648,724 )   (4,648,724 )
                                     
Balance, December 31, 2004   28,310,394   $  15,059,286   $  2,711,769     -   $  (16,568,665 ) $  1,202,390  

The accompanying notes are an integral part of these financial statements


55

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (CONTINUED)

FOR THE PERIOD JANUARY 17, 1983 (INCEPTION) TO DECEMBER 31, 2005

(IN CANADIAN DOLLARS)

                            Deficit        
                            Accumulated        
                Additional     Share     During the        
    Common stock     Paid-in     Subscriptions     Development          
    Shares     Amount     Capital     Received     Stage     Total  
                                     
Balance, December 31, 2004   28,310,394   $  15,059,286   $  2,711,769     -   $  (16,568,665 ) $  1,202,390  
                                     
Issued for cash   9,365,100     3,802,012     -     -     -     3,802,012  
Reduction from sale of tax benefits                                    
     relating to flow-through shares   -     (228,971 )   -     -     -     (228,971 )
Stock-based compensation   -     -     139,799     -     -     139,799  
Fair value of broker warrants   -     -     25,974     -     -     25,974  
Net loss   -     -     -     -     (3,332,394 )   (3,332,394 )
                                     
Balance, December 31, 2005   37,675,494   $  18,632,327   $  2,877,542     -   $  (19,901,059 ) $  1,608,810  


56

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN CANADIAN DOLLARS)

                      Results of  
                      operations from  
                      January 17, 1983  
    Year ended     Year ended     Year ended     (inception) to  
    December 31,     December 31,     December 31,     December 31,  
    2005     2004     2003     2005  
                         
CASH FLOWS FROM OPERATING                        
ACTIVITIES                        
   Net loss $  (3,332,394 ) $  (4,648,724 ) $  (3,215,856 ) $  (19,901,059 )
   Non cash items                        
             Depreciation   6,780     6,076     2,511     16,175  
             Non-cash expenses   -     -     -     1,006,053  
             Stock-based compensation   139,799     1,002,553     386,632     2,037,693  
             Deferred income tax recovery   (228,971 )   (238,471 )   -     (467,442 )
                         
   Changes in working capital, other than cash   3,413     (257,504 )   93,805     420,342  
                         
NET CASH FLOWS USED IN OPERATING                        
ACTIVITIES   (3,411,373 )   (4,136,070 )   (2,732,908 )   (16,888,238 )
                         
CASH FLOWS FROM INVESTING                        
ACTIVITIES                        
   Reclamation bond   (50,700 )   (22,800 )   (24,400 )   (127,900 )
   Purchases of furniture and equipment   (9,054 )   (13,692 )   (8,358 )   (36,953 )
                         
NET CASH FLOWS USED IN INVESTING                        
    ACTIVITIES   (59,754 )   (36,492 )   (32,758 )   (164,853 )
                         
                         
CASH FLOWS FROM FINANCING                        
ACTIVITIES                        
   Proceeds from share issuance, net of issue costs   3,827,986     4,934,335     2,966,825     18,497,170  
   Net increase in restricted cash   (102,542 )   (449,750 )   (150,516 )   (702,808 )
                         
NET CASH FLOWS PROVIDED BY                        
    FINANCING ACTIVITIES   3,725,444     4,484,585     2,816,309     17,794,362  
                         
NET INCREASE IN CASH   254,317     312,023     50,643     741,271  
                         
CASH, BEGINNING OF YEAR   486,954     174,931     124,288     -  
                         
CASH, END OF YEAR $  741,271   $  486,954   $  174,931   $  741,271  

The Company did not make any cash payments for interest or tax expenses during the current and prior years.

The accompanying notes are an integral part of these financial statements


57

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 – IN CANADIAN DOLLARS

NOTE 1 - NATURE OF CONTINUED OPERATIONS AND BASIS OF PRESENTATION

Hard Creek Nickel Corp. (the “Company”) (formerly Canadian Metals Exploration Ltd.), is an exploration company focusing on its Turnagain Nickel property in the Liard Mining Division in northern British Columbia, Canada. The Company is a reporting issuer in British Columbia and Alberta, and trades on the TSX Venture Exchange under the symbol HNC. Funding for operations is raised primarily through share offerings.

These consolidated financial statements have been prepared under a going concern assumption which contemplates the Company will continue operations and realize the carrying value of assets and discharge its liabilities in the normal course of business. Should the going concern assumption not continue to be appropriate, further adjustments to carrying values may be required. The ability of the Company to continue as a going concern is dependent upon raising additional capital and ultimately on generating future profitable operations.

As at December 31, 2005, the Company has stockholders’ equity of $1,608,810 and has incurred significant losses since inception and further losses are anticipated in its continual exploration of mineral properties raising substantial doubt as to the Company’s ability to continue as a going concern. The Company will require significant additional financial resources and will be dependent on future financings to fund its ongoing exploration activities. Management expects to raise capital through private placements as required to meet operating budgets.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Canadian Metals Exploration Ltd. All intercompany balances and transactions have been eliminated. The subsidiary has remained inactive since incorporation on July 19, 2004.

These consolidated financial statements are presented in Canadian dollars and prepared in accordance with accounting principles generally accepted in the United States of America.

Use of Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Significant areas requiring the use of estimates include the determination of fair value for stock-based compensation, and the allocation of proceeds relating to flow-through shares issued. Actual results could differ from those estimates.

Furniture and Equipment

Furniture and equipment are stated at cost. Depreciation is computed on a declining balance basis at rates ranging from 20% to 30% per year.


58

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 – IN CANADIAN DOLLARS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Mineral Property Costs

For the year ended December 31, 2004 the Company adopted recommendations from the Emerging Issues Task Force (“EITF”) – EITF Abstract 04-2: “Whether Mineral Rights Are Tangible or Intangible Assets”. In accordance with the EITF, acquisition costs for mineral rights are accounted for as tangible assets and shown as a separate component of property, plant, and equipment. During 2005 and 2004 the Company did not incur any mineral property acquisition costs. Costs relating to exploration and development are expensed as incurred until such time as economic reserves are quantified. To date, the Company has not established any proven reserves on any of its mineral properties.

Financial Instruments

The Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The fair value of the Company’s financial assets and financial liabilities approximate their carrying values due to the immediate or short-term maturity of these financial instruments. The fair value of the Company’s rights to purchase net smelter royalties (“NSR” – See note 3) is not determinable at the current stage of exploration. No value has been assigned by management. The Company is not currently exposed to any significant credit risk or currency risk and does not use any derivative or hedging instruments.

Foreign Currency Translation

The financial statements are presented in Canadian dollars. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency Translation”, foreign denominated monetary assets and liabilities are translated to their Canadian dollar equivalents using foreign exchange rates that prevailed at the balance sheet date. Non-monetary assets and liabilities are translated at exchange rates prevailing at the transaction date. The resulting gains and losses from these foreign currency translation adjustments are included as a component of stockholders’ equity. Revenue and expenses are translated at average rates of exchange during the year. Gains or losses resulting from these foreign currency transactions are included in results of operations.

Stock-Based Compensation

The Company follows SFAS No. 123 “Accounting for Stock-based Compensation” as amended by SFAS No. 148 “Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of SFAS No. 123”. The Company applies the fair value method using the Black-Scholes option-pricing model in accounting for options granted to employees, directors and consultants.

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the EITF in Issue No. 96-18. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by EITF No. 96-18.


59

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 – IN CANADIAN DOLLARS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes

The Company has adopted the liability method of accounting and reporting for income taxes as set forth in SFAS No. 109, “Accounting for Income Taxes”. Under this method, deferred tax assets and liabilities are recognized for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. To the extent that it is not more likely than not that a deferred tax asset will be realized, a valuation allowance is provided.

Flow-Through Shares

Under United States GAAP when flow-through shares are issued, the proceeds are allocated between the issue of shares and the sale of tax benefits. The value assigned to the sale of tax benefits is determined as the difference between the market price of a non-flow-through common share and the issue price of a flow-through common share. This value is recorded as a liability when the flow-through shares are issued and stockholders’ equity is reduced accordingly. Upon the Company renouncing the related tax benefits in favour of the subscribers, the liability is reversed and a deferred tax liability is recognized with the difference between the liability and the deferred tax liability recorded as deferred tax expense. The deferred tax liability recorded can be offset by any previously unrecognized non-capital losses carried forward and a deferred tax expense recovery is recorded if available.

Loss Per Share

The Company computes loss per share in accordance with Statement SFAS No. 128, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period including stock options and warrants, using the treasury method, and preferred stock, using the if-converted method. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.

Recent Accounting Pronouncements

 

(i)

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-Based Payment”, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. A key provision of this statement is the requirement of a public entity to measure the cost of employee services received in exchange for an award of equity instruments (including stock options) based on the grant date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award (i.e., the requisite service period or vesting period). This standard becomes effective for the Company for the period beginning after December 15, 2005. Management is currently evaluating the impact of this standard on the Company’s financial condition and results of operations.

     
 

In March 2005, the Securities Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin (“SAB”) No. 107, “Share-based Payment,” to provide guidance on the implementation of SFAS No. 123R. The Company will consider SAB No. 107 during implementation of SFAS No. 123R.



60

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 – IN CANADIAN DOLLARS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements (continued)

 

(ii)

In March 2005, the FASB issued FASB Interpretation (“FIN”) No. 47, “Accounting for Conditional Asset Retirement Obligations”. Under the provisions of FIN No. 47, the term conditional asset retirement obligation as used in SFAS No. 143, “Accounting for Asset Retirement Obligations”, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity while the obligation to perform the asset retirement activity is unconditional. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The fair value of a liability for the conditional asset retirement obligation is required to be recognized when incurred—generally upon acquisition, construction, or development and/or through the normal operation of the asset. The Company has adopted FIN No. 47 as of December 31, 2005. Adoption of this pronouncement did not have a significant effect on the 2005 financial statements, and management does not expect this pronouncement to have a significant effect on the Company’s future reported financial position or earnings.

     
  (iii)

In May 2005, the FASB issued SFAS No. 154, “Accounting for Changes and Error Corrections - A Replacement of APB Opinion No. 20 and FASB Statement No. 3”. Under the provisions of SFAS No. 154, a voluntary change in accounting principle requires retrospective application to prior period financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. A change in depreciation, amortization, or depletion method for long-lived, non-financial assets must be accounted for as a change in accounting estimate affected by a change in accounting principle. The guidance contained in APB No. 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate was not changed. The Company will implement this new standard beginning January 1, 2006. This standard is not expected to have a significant effect on the Company’s future reported financial position or results of operations.

     
 

(iv)

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140”, to simplify and make more consistent the accounting for certain financial instruments. SFAS No. 155 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, to permit fair value remeasurement for any hybrid financial instrument with an embedded derivative that otherwise would require bifurcation, provided that the whole instrument is accounted for on a fair value basis. SFAS No. 155 amends SFAS No. 140, “Accounting for the Impairment or Disposal of Long-Lived Assets”, to allow a qualifying special-purpose entity to hold a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 applies to all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after November 15, 2006, with earlier application allowed. This standard is not expected to have a significant effect on the Company’s future reported financial position or results of operations.

     
 

(v)

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. This statement requires all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable, and permits for subsequent measurement using either fair value measurement with changes in fair value reflected in earnings or the amortization and impairment requirements of Statement No. 140. The subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value eliminates the necessity for entities that manage the risks inherent in servicing assets and servicing liabilities with derivatives to qualify for hedge accounting treatment and eliminates the characterization of declines in fair value as impairments or direct write-downs. SFAS No. 156 is effective for an entity’s first fiscal year beginning after November 15, 2006. This adoption of this statement is not expected to have a significant effect on the Company’s future reported financial position or results of operations.



61

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 – IN CANADIAN DOLLARS

NOTE 3 – MINERAL PROPERTY

Turnagain Nickel Property

The Company holds a 100% interest (subject to a 4% net smelter return (“NSR”) in the mineral claims and the rights to explore the Turnagain property, covering an area of 274 sq. kilometers, approximately 70 kilometers east of Dease Lake in British Columbia. The Company completed a 37-hole drill program of approximately 7,143 meters on the property during 2005. Drilling, assaying, geological and geophysical services comprised the majority of the total expenditures of $2,679,212 on the project in 2005.

The property interest was acquired in two transactions for total consideration of 300,000 shares (with a fair value of $179,500), and exploration expenditures of approximately $1,100,000 on the property. The obligations to the vendors have been met, and the acquisition costs of the properties were $179,500 which have been charge to Mineral Property Expenditures on the statement of operations. The Company has the option to purchase the NSR’s for 4 years following commencement of production for approximately $1,000,000 per 1% NSR.

In addition to the Turnagain property, the Company staked and holds three additional areas of interest in the Liard Mining Division, being the Green claims, the Serp claims, and the Cot claims. In early 2005, the Company acquired, by map staking, four new claim blocks totaling 298 sq. km. in north central British Columbia. The Lexa property is the largest of the four at 121 sq. km. and was acquired on the basis of anomalous nickel and copper values in government stream sediment samples.

NOTE 4 – CAPITAL STOCK

During the year ended December 31, 2005, the Company issued 9,365,100 (2004 – 4,326,666) flow-through common shares at issue prices ranging from $0.40 to $0.45 for gross proceeds totaling $3,095,700 (2004 - $1,619,730). The value assigned to the sale of tax benefits amount to $228,971 (2004 – $238,471). The value assigned to the sale of tax benefits is determined as the difference between the market price of non-flow-through common shares and the issue price of the flow-through common shares.

The Company has a formal stock option plan whereby options can be granted to directors, employees and /or consultants by the board of directors. The number of options is limited to 10% of the total shares issued and outstanding.

In May 2005, the Company repriced a total of 1,045,000 incentive options from $1.00 to $0.60, resulting in a total of $40,747 in additional stock-based compensation expense. During the year ended December 31, 2005, 435,000 (2004 – 1,971,000) stock options were granted to consultants and employees. Management estimated the fair value of these stock options to be $139,799 (2004 - $1,002,552) using the Black-Scholes option pricing model with the following assumptions:

  2005 2004
Risk-free interest rate 3.13% 2.9%
Dividend yield 0% 0%
Volatility factor 66% 90%
Expected option life 3 - 5 Years 5 Years


62

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 – IN CANADIAN DOLLARS

NOTE 4 – CAPITAL STOCK (continued)

The summaries of stock option activity for the years ended December 31, 2005 and 2004 are as follows:

    2005           2004        
Balance, beginning of year   2,335,000   $  0.89     1,336,000   $  0.34  
Granted   435,000     0.84     1,971,000     0.98  
Exercised   (55,000 )   0.35     (936,000 )   0.34  
Cancelled   (330,000 )   0.76     (36,000 )   0.40  
Balance, end of year   2,385,000   $  0.72     2,335,000   $  0.89  

The weighted average remaining life of all outstanding stock options is 3.27 years (2004 – 3.90 years). Refer to Note 9.

The Company issues whole share purchase warrants, half share purchase warrants and / or agent warrants in connection with its ongoing brokered and non-brokered private placements. The summaries of warrants activity, including the weighted average exercise prices, during the years ended December 31, 2005 and 2004 are as follows:

    2005           2004        
Balance, beginning of year   10,427,741   $  0.55     7,512,854   $  0.42  
Issued   5,202,718     0.48     5,706,000     0.65  
Exercised   (2,360,153 )   0.45     (2,501,289 )   0.35  
Expired   (3,479,255 )   0.38     (289,824 )   0.39  
Balance, end of year   9,791,051   $  0.55     10,427,741   $ 0.55  

The weighted average remaining life of all outstanding share purchase warrants is 0.67 years (2004 – 0.79 years). Refer to Note 9.

NOTE 5 - RELATED PARTY TRANSACTIONS

The Company incurred the following expenditures with directors and officers and/or companies controlled by directors and/or officers:

    2005     2004  
Geological and project management services $  267,428   $  153,345  
Management fees   84,000     77,000  
Consulting fees   2,800     7,800  
Stock-based compensation   57,936     774,938  
  $  412,164   $  1,013,083  

In May 2005, the Company repriced a total of 1,045,000 incentive options from $1.00 to $0.60, of which 845,000 were held by related parties.


63

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 – IN CANADIAN DOLLARS

NOTE 6 - CONTINGENCIES

In February 2004, the Company filed an action in the Supreme Court of British Columbia against Mr. Wolf Wiese, a former consultant to the Company, seeking the transfer to the Company of claims contiguous to the Turnagain property which were staked for the benefit of Mr. Wiese. The Company contends that the claims should have been staked for the benefit of the Company.

In July 2004, Quorum Capital Corp. (believed to be associated with the former consultant) filed a counter suit against the Company, claiming, among other things, loss of economic opportunity with respect to the above mentioned claims.

In August 2004, Stewart Jackson, a former director, filed a writ of summons against the Company in which he claimed the sum of $17,500 pursuant to an alleged consulting contract. The Company denies any liability and has defended the claims on the basis that it had tendered all monies owing to Jackson. In December 2004, the Company issued a counterclaim against Jackson claiming damages for actions of Jackson which management alleges resulted in the issuance of a cease trade order against the Company and other damages suffered by the Company from the resulting investigation by the British Columbia Securities Commission (“BCSC”). Further damages were claimed in the counterclaim in respect of payments made to Stewart Jackson which the Company alleges he was not entitled to. The Company further claims entitlement for the recovery of shares and warrants issued by the Company to Jackson with funds that the Company contents were not payable to Jackson.

In December 2004, the Company filed a counter claim against Quorum Capital Corp. and Mr. Wolf Wiese, alleging that Quorum and Wiese engaged in a series of transactions through which Quorum improperly received monies from and securities issued by the Company. The Company also claimed for damages in relation to a BCSC proceeding in which the Company was penalized for disclosure infractions under NI 43-101.

In January 2005, Quorum Capital Corp. and Mr. Wolf Wiese commenced an action against the Company and Mr. Mark Jarvis, the Company President, for libel, contending that the December 17, 2004 news release issued by the Company with respect to the Company’s counterclaim was libellous and untrue.

None of the claims and/or counterclaims of the Company, Mr. Jackson, Quorum, or Mr. Wiese have been proven in court. The outcome of these legal actions and the potential for loss, if any, is presently not determinable nor can the amount of the claims and unspecified damages be quantified. The Company has not made any provision in these financial statements with respect to these legal actions.

Upon resolution of the claims any resulting recovery or costs will be recorded in the period of resolution.


64

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 – IN CANADIAN DOLLARS

NOTE 7 - COMMITMENTS

  i)

The Company entered into an agreement for its premise requiring minimum rental payments of $29,295 per annum up to April 30, 2005 and $31,185 per annum up to the lease expiration date of April 30, 2008.

     
 

Future minimum committed payments for the above for the next five years are as follows:


2006 $  33,609  
2007   33,609  
2008   12,819  
2009   606  
       
  $  80,643  

  ii)

During 2005 the Company obtained equity financing by completing various private placements whereby flow- through common shares were issued for proceeds totalling $1,961,977 (2004 - $2,571,000). The Company is committed to expending the funds on qualifying exploration in accordance with the provisions of the Canadian Income Tax Act. As at December 31, 2005 the Company has $702,808 of cash on hand relating to its unexpended 2005 flow-through commitments.

NOTE 8 – DEFERRED INCOME TAXES

As of December 31, 2005, the Company had net operating losses carried forward of approximately $3,000,000 that may be available to reduce future years’ taxable income and will expire between the years 2006 and 2025. Deferred tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax losses carried forward.

The significant components of the Company’s deferred income taxes are as follows:

      2005     2004  
               
  Tax value of mineral properties in excess of carrying value $  5,192,912   $  4,475,676  
  Tax value of equipment in excess of carrying value   16,175     9,396  
  Non-capital loss carry forwards   3,062,067     2,558,184  
               
      8,271,154     7,043,256  
  Estimated corporate income tax rate   36%     37%  
               
  Potential deferred income tax asset   2,977,615     2,606,004  
  Less: recognized as deferred tax expense recovery   (228,971 )   (238,471 )
  Less: valuation allowance   (2,748,644 )   (2,237,533 )
               
  Net deferred income tax asset $  -   $  -  

As the criteria for recognizing future income tax assets have not been met due to the uncertainty of realization, a full valuation allowance was recorded for the current and prior year.


65

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 – IN CANADIAN DOLLARS

NOTE 9 – SUBSEQUENT EVENTS

The following transactions occurred after December 31, 2005:

  a)

Subsequent to the year end, share purchase warrants were exercised resulting in the issuance of a total of 3,153,630 common shares for total proceeds of $1,701,382.

     
  b)

Subsequent to the year end, stock options were exercised resulting in the issuance of a total of 55,000 common shares for total proceeds of $27,000.

     
  c)

Subsequent to the year end, the Company granted 1,405,000 stock options with an exercise price of $0.75 to officers, employees and consultants.



 

 

 

HARD CREEK NICKEL CORP.
(An Exploration Stage Company)

CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2006

 (Unaudited – Prepared by Management)

(IN CANADIAN DOLLARS)

 

 

CONSOLIDATED BALANCE SHEETS
 
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
 
CONSOLIDATED INTERIM STATEMENT OF STOCKHOLDERS’ EQUITY
 
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
 
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 



68

HARD CREEK NICKEL CORP.
(An Exploration Stage Company)

CONSOLIDATED BALANCE SHEETS

(Unaudited – Prepared by Management)

(IN CANADIAN DOLLARS)

    June 30,     December 31,  
    2006     2005  
    (Unaudited)        
             
ASSETS     
             
CURRENT ASSETS            
     Cash $  1,728,875   $  741,271  
     Recoverable taxes   79,661     60,678  
     Due from subsidiary   965     -  
     Prepaid expense   37,831     44,516  
    1,847,332     846,465  
             
RECLAMATION BOND   167,900     127,900  
RESTRICTED CASH (Note 7)   -     702,808  
FURNITURE AND EQUIPMENT, net of accumulated            
depreciation of $19,339 and $16,176   23,154     20,778  
             
  $  2,038,386   $  1,697,951  
             
             
LIABILITIES AND STOCKHOLDERS’ EQUITY     
             
CURRENT LIABILITIES            
     Accounts payable and accrued liabilities $  715,609   $  89,141  
             
             
COMMITMENTS AND CONTINGENCIES (Notes 6 and 7)            
             
STOCKHOLDERS’ EQUITY            
     Capital stock (Note 4 )            
           Common stock no par value; unlimited shares authorized            
           40,884,125 (2005 – 37,675,494) issued and outstanding   20,360,709     18,632,327  
     Additional paid-in capital   3,342,308     2,877,542  
     Deficit accumulated during the exploration stage   (22,380,240 )   (19,901,059 )
             
    1,322,777     1,608,810  
             
  $  2,038,386   $  1,697,951  

The accompanying notes are an integral part of these financial statements


69

HARD CREEK NICKEL CORP.
(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited – Prepared by Management)

(IN CANADIAN DOLLARS)

                January 17,  
    Six months     Six months     1983  
    ended June 30,     ended June     (inception) to  
    2006     30, 2005     June 30, 2006  
                   
EXPENSES                  
     Consulting fees $  217,455   $  114,263   $  3,075,507  
     General and administrative   534,140     281,478     4,936,472  
     Professional fees   108,043     24,887     1,138,307  
     Mineral property exploration costs   1,635,392     664,136     13,904,191  
                   
LOSS BEFORE OTHER INCOME   2,495,030     1,084,764     23,054,477  
                   
OTHER INCOME                  
     Interest and other   15,849     5,929     48,592  
     Gain on settlement of accounts payable   -     -     158,203  
     Deferred income tax recovery   -     -     467,442  
                   
    15,849     5,929     674,237  
                   
NET LOSS $  2,479,181   $  1,078,835   $  22,380,240  
                   
                   
                   
                   
BASIC AND DILUTED NET LOSS PER SHARE $  (0.06 ) $  (0.04 )      
                   
WEIGHTED AVERAGE COMMON SHARES                  
OUTSTANDING – BASIC AND DILUTED   40,196,050     28,866,192        

The accompanying notes are an integral part of these financial statements


70

HARD CREEK NICKEL CORP.
(Formerly Canadian Metals Exploration Ltd.)
(An Exploration Stage Company)

CONSOLIDATED INTERIM STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD JANUARY 1, 2005 TO JUNE 30, 2006

(IN CANADIAN DOLLARS)

                            Deficit        
                            Accumulated        
                Additional     Share     During the        
    Common stock           Paid-in     Subscriptions      Development         
    Shares     Amount     Capital     Received     Stage     Total  
                                     
Balance, December 31, 2004   28,310,394   $  15,059,286   $  2,711,769     -   $  (16,568,665 ) $  1,202,390  
                                     
Issued for cash   9,365,100     3,802,012     -     -     -     3,802,012  
Reduction from sale of tax benefits                                    
      relating to flow-through shares   -     (228,971 )   -     -     -     (228,971 )
Stock-based compensation   -     -     139,799     -     -     139,799  
Fair value of broker warrants   -     -     25,974     -     -     25,974  
Net loss   -     -     -     -     (3,332,394 )   (3,332,394 )
                                     
Balance, December 31, 2005   37,675,494     18,632,327     2,877,542     -     (19,901,059 )   1,608,810  
                                     
Issued for cash   3,208,631     1,728,382     -     -     -     1,728,382  
Stock-based compensation   -     -     464,766     -     -     464,766  
Net loss                           (2,479,181 )   (2,479,181 )
                                     
Balance, June 30, 2006   40,884,125   $  20,360,709   $  3,342,308     -   $  (22,380,240 ) $  1,322,777  

The accompanying notes are an integral part of these financial statements


71

HARD CREEK NICKEL CORP.

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited – Prepared by Management)

(IN CANADIAN DOLLARS)

                Results of  
                operations from  
    Six months     Six months     January 17, 1983  
    ended June 30,     ended June 30,     (inception) to  
    2006     2005     June 30, 2006  
                   
CASH FLOWS FROM OPERATING                  
ACTIVITIES                  
   Net loss $  (2,479,181 ) $  (1,078,835 ) $  (22,380,240 )
   Non cash items                  
             Depreciation   3,164     3,152     19,339  
             Non-cash expenses   -     -     1,006,053  
             Stock-based compensation   464,766     127,239     2,502,459  
             Deferred income tax recovery   -     -     (467,442 )
                   
   Changes in working capital, other than cash   613,205     73,618     1,033,547  
                   
Item 19 NET CASH FLOWS USED IN                  
    OPERATING ACTIVITIES   (1,398,046 )   (874,826 )   (18,286,284 )
                   
CASH FLOWS FROM INVESTING                  
ACTIVITIES                  
   Reclamation bond   (40,000 )   (50,700 )   (167,900 )
   Purchase of furniture and equipment   (5,540 )   (7,294 )   (42,493 )
                   
NET CASH FLOWS FROM INVESTING                  
ACTIVITIES   (45,540 )   (57,994 )   (210,393 )
                   
                   
CASH FLOWS FROM FINANCING                  
ACTIVITIES                  
   Proceeds from share issuance, net of issue costs   1,728,382     360,387     20,225,552  
   Restricted cash   702,808     427,384     -  
                   
NET CASH FLOWS FROM FINANCING                  
ACTIVITIES   2,431,190     787,771     20,225,552  
                   
INCREASE (DECREASE) IN CASH   987,604     (145,049 )   2,199,664  
                   
CASH, BEGINNING OF PERIOD   741,271     486,954     -  
                   
CASH, END OF PERIOD $  1,728,875   $  341,905   $  1,728,875  

The accompanying notes are an integral part of these financial statements


72

HARD CREEK NICKEL CORP.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited – Prepared by Management)
JUNE 30, 2006 – IN CANADIAN DOLLARS

NOTE 1 - NATURE OF CONTINUED OPERATIONS AND BASIS OF PRESENTATION

Hard Creek Nickel Corp. (the “Company”), is an exploration company focusing on its Turnagain Nickel property in the Liard Mining Division in northern British Columbia, Canada. The Company is a reporting issuer in British Columbia and Alberta, and trades on the TSX Venture Exchange under the symbol HNC. Funding for operations is raised primarily through share offerings. These consolidated financial statements have been prepared under a going concern assumption which contemplates the Company will continue operations and realize the carrying value of assets and discharge its liabilities in the normal course of business. Should the going concern assumption not continue to be appropriate, further adjustments to carrying values may be required. The ability of the Company to continue as a going concern is dependent upon raising additional capital and ultimately on generating future profitable operations.

As at June 30, 2006, the Company has stockholders’ equity of $1,322,777 and has incurred significant losses since inception and further losses are anticipated in its continual exploration of mineral properties raising substantial doubt as to the Company’s ability to continue as a going concern. The Company will require significant additional financial resources and will be dependent on future financings to fund its ongoing exploration activities. Management expects to raise capital through private placements as required to meet its operating budgets.

Unaudited Interim Financial Statements

The accompanying unaudited interim financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 20F. They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2005 included in the Company’s Annual Report on Form 20F filed with the Securities and Exchange Commission. The interim unaudited financial statements should be read in conjunction with those financial statements included in the Form 20F. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal and recurring adjustments have been made. Operating results for the six months ended June 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Canadian Metals Exploration Ltd. All significant intercompany balances and transactions have been eliminated.

These consolidated financial statements are presented in Canadian dollars and prepared in accordance with accounting principles generally accepted in the United States of America.

  (i)

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Significant areas requiring the use of estimates include the determination of fair value for stock-based compensation, and the allocation of proceeds relating to flow-through shares issued. Actual results could differ from those estimates.


73

HARD CREEK NICKEL CORP.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited – Prepared by Management)
JUNE 30, 2006 – IN CANADIAN DOLLARS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Furniture and Equipment

Furniture and equipment are stated at cost. Depreciation is computed on a declining balance basis at rates ranging from 20% to 30% per year.

Mineral Property Costs

For the year ended December 31, 2004 the Company adopted recommendations from the Emerging Issues Task Force (“EITF”) – EITF Abstract 04-2: “Whether Mineral Rights Are Tangible or Intangible Assets”. In accordance with the EITF, acquisition costs for mineral rights are accounted for as tangible assets and shown as a separate component of property, plant, and equipment. During 2005 and 2004 the Company did not incur any mineral property acquisition costs. Costs relating to exploration and development are expensed as incurred until such time as economic reserves are quantified. To date, the Company has not established any proven reserves on any of its mineral properties.

FINANCIAL INSTRUMENTS

The Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The fair value of the Company’s financial assets and financial liabilities approximate their carrying values due to the immediate or short-term maturity of these financial instruments. The fair value of the Company’s rights to purchase net smelter royalties (“NSR” – See note 3) is not determinable at the current stage of exploration. No value has been assigned by management. The Company is not currently exposed to any significant credit risk or currency risk and does not use any derivative or hedging instruments.

Foreign Currency Translation

The financial statements are presented in Canadian dollars. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency Translation”, foreign denominated monetary assets and liabilities are translated to their Canadian dollar equivalents using foreign exchange rates that prevailed at the balance sheet date. Non-monetary assets and liabilities are translated at exchange rates prevailing at the transaction date. The resulting gains and losses from these foreign currency translation adjustments are included as a component of stockholders’ equity. Revenue and expenses are translated at average rates of exchange during the year. Gains or losses resulting from these foreign currency transactions are included in results of operations.

Stock-Based Compensation

On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004) (SFAS No. 123R), Share-Based Payment , which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. In January 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 107, which provides supplemental implementation guidance for SFAS No. 123R. SFAS No. 123R eliminates the ability to account for stock-based compensation transactions using the intrinsic value method under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees , and instead generally requires that such transactions be accounted for using a fair-value-based method. The Company uses the Black-Scholes-Merton (“BSM”) option-pricing model to determine the fair-value of stock-based awards under SFAS No. 123R, consistent with that used for pro forma disclosures under SFAS No. 123, Accounting for Stock-Based Compensation . The Company has elected the modified prospective transition method as permitted by SFAS No. 123R and accordingly prior periods have not been restated to reflect the impact of SFAS No. 123R. The modified prospective transition method requires that stock-based compensation expense be recorded for all new and unvested stock options, restricted stock, restricted stock units, and employee stock purchase plan shares that are ultimately expected to vest as the requisite service is rendered beginning on January 1, 2006. The Company has adopted the requirements of SFAS No. 123R for the fiscal year beginning on January 1, 2006 under the prospective method therefore no compensation expense under SFAS No. 123R with respect to unvested stock options was recorded during the first quarter of 2006.

Stock-based compensation expense for awards granted prior to January 1, 2006 is based on the grant date fair-value as determined under the pro-forma provisions of SFAS No. 123.


74

HARD CREEK NICKEL CORP.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited – Prepared by Management)
JUNE 30, 2006 – IN CANADIAN DOLLARS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes

The Company has adopted the liability method of accounting and reporting for income taxes as set forth in SFAS No. 109, “Accounting for Income Taxes”. Under this method, deferred tax assets and liabilities are recognized for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. To the extent that it is not more likely than not that a deferred tax asset will be realized, a valuation allowance is provided.

Flow-Through Shares

Under United States GAAP when flow-through shares are issued, the proceeds are allocated between the issue of shares and the sale of tax benefits. The value assigned to the sale of tax benefits is determined as the difference between the market price of a non-flow-through common share and the issue price of a flow-through common share. This value is recorded as a liability when the flow-through shares are issued and stockholders’ equity is reduced accordingly. Upon the Company renouncing the related tax benefits in favour of the subscribers, the liability is reversed and a deferred tax liability is recognized with the difference between the liability and the deferred tax liability recorded as deferred tax expense. The deferred tax liability recorded can be offset by any previously unrecognized non-capital losses carried forward and a deferred tax expense recovery is recorded if available.

Loss Per Share

The Company computes loss per share in accordance with Statement SFAS No. 128, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period including stock options and warrants, using the treasury method, and preferred stock, using the if-converted method. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.

Recent Accounting Pronouncements

(i)

In March 2005, the FASB issued FASB Interpretation (“FIN”) No. 47, “Accounting for Conditional Asset Retirement Obligations”. Under the provisions of FIN No. 47, the term conditional asset retirement obligation as used in SFAS No. 143, “Accounting for Asset Retirement Obligations”, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity while the obligation to perform the asset retirement activity is unconditional. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The fair value of a liability for the conditional asset retirement obligation is required to be recognized when incurred—generally upon acquisition, construction, or development and/or through the normal operation of the asset. The Company has adopted FIN No. 47 as of December 31, 2005. Adoption of this pronouncement did not have a significant effect on the 2005 financial statements or these June 2006 financial statements, and management does not expect this pronouncement to have a significant effect on the Company’s future reported financial position or earnings.



75

HARD CREEK NICKEL CORP.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited – Prepared by Management)
JUNE 30, 2006 – IN CANADIAN DOLLARS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements (continued)

(ii)

In May 2005, the FASB issued SFAS No. 154, “Accounting for Changes and Error Corrections - A Replacement of APB Opinion No. 20 and FASB Statement No. 3”. Under the provisions of SFAS No. 154, a voluntary change in accounting principle requires retrospective application to prior period financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. A change in depreciation, amortization, or depletion method for long-lived, non-financial assets must be accounted for as a change in accounting estimate affected by a change in accounting principle. The guidance contained in APB No. 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate was not changed. The Company will implement this new standard beginning January 1, 2006. This standard is not expected to have a significant effect on the Company’s future reported financial position or results of operations.

   

(iii)

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140”, to simplify and make more consistent the accounting for certain financial instruments. SFAS No. 155 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, to permit fair value remeasurement for any hybrid financial instrument with an embedded derivative that otherwise would require bifurcation, provided that the whole instrument is accounted for on a fair value basis. SFAS No. 155 amends SFAS No. 140, “Accounting for the Impairment or Disposal of Long-Lived Assets”, to allow a qualifying special-purpose entity to hold a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 applies to all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after November 15, 2006, with earlier application allowed. This standard is not expected to have a significant effect on the Company’s future reported financial position or results of operations.

   
(iv)

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. This statement requires all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable, and permits for subsequent measurement using either fair value measurement with changes in fair value reflected in earnings or the amortization and impairment requirements of Statement No. 140. The subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value eliminates the necessity for entities that manage the risks inherent in servicing assets and servicing liabilities with derivatives to qualify for hedge accounting treatment and eliminates the characterization of declines in fair value as impairments or direct write-downs. SFAS No. 156 is effective for an entity’s first fiscal year beginning after November 15, 2006. This adoption of this statement is not expected to have a significant effect on the Company’s future reported financial position or results of operations.

   

(v)

In September 2006, the FASB issued SFAS No. 157, “ Fair Value Measurements ”. The objective of SFAS 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. The adoption of this statement is not expected to have a material effect on the Company’s future reported financial position or results of operations.



76

HARD CREEK NICKEL CORP.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited – Prepared by Management)
JUNE 30, 2006 – IN CANADIAN DOLLARS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements (continued)

(vi)

In September 2006, the FASB issued SFAS No. 158, “ Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R) ”. This statement requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. The provisions of SFAS No. 158 are effective for employers with publicly traded equity securities as of the end of the fiscal year ending after December 15, 2006. The adoption of this statement is not expected to have a material effect on the Company’s future reported financial position or results of operations.

   
(vii)

In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB No. 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB No. 108 requires companies to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative an qualitative factors. SAB No. 108 is effective for period ending after November 15, 2006. The Company is currently evaluating the impact of adopting SAB No. 108 but does not expect that it will have a material effect on its financial statements.


NOTE 3 – MINERAL PROPERTY

TURNAGAIN NICKEL PROPERTY

The Company holds a 100% interest (subject to a 4% net smelter return (“NSR”)) of the mineral claims and the rights to explore the Turnagain property, covering an area of 293 sq. kilometers, approximately 70 kilometers east of Dease Lake in British Columbia. The Company completed a 37-hole drill program of approximately 7,143 meters on the property during 2005, which drilling, assaying, geological and geophysical services comprised the majority of the total expenditures of $2,679,212 on the project in 2005. During the six months ended June 30, 2006 we incurred exploration expenses of $1,635,392 on the property.

The property interest was acquired in two transactions for total consideration of 300,000 shares (with a fair value of $179,500), and exploration expenditures of approximately $1,100,000 on the property. The obligations to the vendors have been met, and the acquisition costs of the properties were $179,500 which have been charge to Mineral Property Expenditures on the statement of operations. The Company has the option to purchase the NSR’s for 4 years following commencement of production for approximately $1,000,000 per 1% NSR.

In addition to the Turnagain property, the Company holds, by staking, three additional areas of interest in the Liard Mining Division, being the Green claims, the Serp claims, and the Cot claims. In early 2005, the Company acquired, by map staking, four new claim blocks totaling 298 sq. km. in north central British Columbia. The Lexa property is the largest of the four at 121 sq. km. and was acquired on the basis of anomalous nickel and copper values in government stream sediment samples. The other three properties were acquired on the basis of anomalous copper and molybdenum values in sediment samples.


77

HARD CREEK NICKEL CORP.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited – Prepared by Management)
JUNE 30, 2006 – IN CANADIAN DOLLARS

NOTE 4 – CAPITAL STOCK

During the six months ended June 30, 2006, the Company issued 3,208,631 commons shares for the exercise of stock options and share purchase warrants for proceeds of $1,728,382.

The Company has a formal stock option plan whereby options can be granted to directors, employees and /or consultants by the board of directors. The number of options is limited to 10% of the total shares issued and outstanding.

During the six months ended June 30, 2006, 1,405,000 (2005 – 435,000) stock options were granted to consultants and employees. Management estimated the fair value of these stock options to be $464,766 (2005 - $139,799) by using the Black-Scholes option pricing model using the following assumptions:

  2006 2005
Risk-free interest rate 4.00% 3.13%
Dividend yield 0% 0%
Volatility factor 57% 66%
Expected option life 5 Years 3-5 Years

The summaries of stock option activity for the six months ended June 30, 2006 and the year ended December 31, 2005 are as follows:

    June 30, 2006     December 31, 2005  
Balance, beginning of period   2,385,000   $  0.72     2,335,000   $  0.89  
Granted   1,405,000     0.76     435,000     0.84  
Exercised   (55,000 )   0.49     (55,000 )   0.35  
Cancelled   -     -     (330,000 )   0.76  
Balance, end of period   3,735,000   $  0.73     2,385,000   $  0.72  

The weighted average remaining life of all outstanding stock options is 3.51 years (2005 – 3.27 years).

The Company issues whole share purchase warrants, half share purchase warrants and / or agent warrants in connection with its ongoing brokered and non-brokered private placements. The summaries of warrants activity, including the weighted average exercise prices, during the six months ended June 30, 2006 and the year ended December 31, 2005 are as follows:

    June 30, 2006     December 31, 2005  
Balance, beginning of period   9,791,051   $  0.55     10,427,741   $  0.55  
Issued   -     -     5,202,718     0.48  
Exercised   (3,153,631 )   0.54     (2,360,153 )   0.45  
Expired   (1,765,501 )   0.82     (3,479,255 )   0.38  
Balance, end of period   4,871,919   $  0.47     9,791,051   $  0.55  

The weighted average remaining life of all outstanding share purchase warrants is 0.54 years (2005 – 0.67 years). Refer to Note 8.


78

HARD CREEK NICKEL CORP.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited – Prepared by Management)
JUNE 30, 2006 – IN CANADIAN DOLLARS

NOTE 5 - RELATED PARTY TRANSACTIONS

The Company incurred the following expenditures with directors and officers and/or companies controlled by directors and/or officers:

    June 30, 2006     June 30, 2005  
Geological and project management services $  163,134   $  131,675  
Management fees   42,000     42,000  
Consulting fees   6,079     2,150  
Stock-based compensation   295,773     51,516  
  $  506,986   $  227,341  

NOTE 6 - CONTINGENCIES

In February 2004, the Company filed an action in the Supreme Court of British Columbia against Mr. Wolf Wiese, a former consultant to the Company, seeking the transfer to the Company of claims contiguous to the Turnagain property which were staked for the benefit of Mr. Wiese. The Company believes the claims should have been staked for the benefit of the Company. Refer to Note 8.

In July 2004, Quorum Capital Corp. (believed to be controlled by the former consultant) filed a counter suit against the Company, claiming, among other things, loss of economic opportunity with respect to the above mentioned claims.

In August 2004, Stewart Jackson, a former director, issued a writ of summons in which he claimed the sum of $17,500 pursuant to an alleged consulting contract. The Company denies any liability and has defended on the basis that it had tendered all monies owing to Jackson. In December 2004, the Company issued a counterclaim against Jackson wherein the Company claimed damages for actions of Jackson which resulted in the issuance of a cease trade order against the Company and the damages suffered by the Company from the resulting investigation by the British Columbia Securities Commission (“BCSC”). Further damages were claimed in the counterclaim in respect of payments made to Stewart Jackson which the Company alleges he was not entitled to. The Company further claims the recovery of shares and warrants issued by the Company to Jackson with the funds that the Company says were not payable to Jackson.

In December 2004, the Company filed a counter claim against Quorum Capital Corp. and Mr. Wolf Wiese, alleging that Quorum and Wiese engaged in a series of transactions through which Quorum improperly received monies from and securities issued by the Company. The Company also claimed for damages in relation to a BCSC proceeding in which the Company was penalized for disclosure infractions under NI 43-101.

In January 2005, Quorum Capital Corp. and Mr. Wolf Wiese commenced an action against the Company and Mr. Mark Jarvis, the Company President, for libel, contending that the December 17 2004 news release issued by the Company with respect to the Company’s counterclaim was libellous and untrue.

None of the claims and/or counterclaims of the Company, Mr. Jackson, Quorum, or Mr. Wiese have been proven in court. The outcome of these legal actions and the potential for loss, if any, is presently not determinable nor can the amount of the claims and unspecified damages be quantified. The Company has not made any provision in these financial statements with respect to these legal actions.

Upon resolution of the claims any resulting recovery or costs will be recorded in the period of resolution.


79

HARD CREEK NICKEL CORP.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited – Prepared by Management)
JUNE 30, 2006 – IN CANADIAN DOLLARS

NOTE 7 - COMMITMENTS

  i)

The Company entered into an agreement for its premise requiring minimum rental payments of $29,295 per annum up to April 30, 2005 and $31,185 per annum up to the lease expiration date of April 30, 2008.


NOTE 8 – SUBSEQUENT EVENTS

The following transactions occurred after June 30, 2006:

  (a)

Share purchase warrants were exercised resulting in the issuance of a total of 625,982 common shares for total proceeds of $312,992.

     
  (b)

Case # S041141 regarding the disputed claims contiguous to the Turnagain property commenced in BC Supreme Court in May, and judgement in favour of the Company was rendered in July 2006. Mr. Wiese has subsequently filed a Notice of Appeal of the Order.



80

Item 20            Exhibits

Exhibits Required by Form 20-F

Exhibit  
Number Description
   
1.

Articles of Incorporation and By-laws:

 

 

1.1

Certificate of Incorporation under The Business Companies Act (British Columbia)

 

 

1.2

Articles of Canadian Metals Exploration Limited (the name has now been changed to Hard Creek Nickel Corporation)

 

 

4.

Material Contracts

 

 

4.1

Surface Drilling contract between Hard Creek Nickel Corporation and DJ Drilling (2004) Ltd. Dated April 5, 2006

 

 

4.2

Consulting Agreement between Hard Creek Nickel Corporation and JA Chapman Mining Services dated November 18, 2005

 

 

4.3

Investor Relations Agreement between Hard Creek Nickel Corporation and Martin E. Janis & Company, Inc. dated July 15, 2006

 

 

4.4

Financial Advisory Services Agreement between Hard Creek Nickel Corporation and The Balloch Group dated May 29, 2006

 

 

4.5

Services Agreement between Hard Creek Nickel Corporation and T1 Solutions Corp. dated July 14, 2006

 

 

8.

Subsidiaries

 

 

8.1

Canadian Metals Exploration Limited

 

 

15.

Additional Exhibits

 

 

15.1

Consent of Dale Matheson Carr-Hilton LaBonte, Chartered Accountants



81

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 registration statement on its behalf.

HARD CREEK NICKEL CORPORATION

/s/ Brian Fiddler                                                                  
Brian Fiddler
Chief Financial Officer

Date: November 17, 2006












EXHIBIT 1.2

Incorporation No. 259067

BUSINESS CORPORATIONS ACT

ARTICLES

OF

CANADIAN METALS EXPLORATION LTD.

Table of Contents

Part 1 – Interpretation 1
Part 2 – Shares and Share certificates 1
Part 3 – Issue of Shares 2
Part 4 – Share Transfers 2
Part 5 – Acquisition of Shares 3
Part 6 – Borrowing Powers 3
Part 7 – General Meetings 4
Part 8 – Proceedings at Meetings of Shareholders 5
Part 9 – Votes of Shareholders 8
Part 10 – Directors 10
Part 11 – Election and Removal of Directors 11
Part 12 – Proceedings of Directors 13
Part 13 – Committees of Directors 14
Part 14 – Officers 15
Part 15 – Certain Permitted Activities of Directors 16
Part 16 – Indemnification 16
Part 17 – Auditor 16
Part 18 – Dividends 16
Part 19 – Accounting Records 17
Part 20 – Execution of Instruments Under Seal 17
Part 21 – Notices 18
Part 22 - Special Rights and Restrictions 19



Incorporation No. 259067

BUSINESS CORPORATIONS ACT

ARTICLES

OF

CANADIAN METALS EXPLORATION LTD.
(the “Company”)

PART 1– INTERPRETATION

1.1

Definitions

   

Without limiting Article 1.2, in these Articles, unless the context requires otherwise:

“adjourned meeting” means the meeting to which a meeting is adjourned under Article 8.7 or 8.11; “board” and “directors” mean the directors or sole director of the Company for the time being;

Business Corporations Act means the Business Corporations Act , S.B.C. 2002, c.57, and includes its regulations;

Interpretation Act means the Interpretation Act , R.S.B.C. 1996, c. 238;

“trustee”, in relation to a shareholder, means the personal or other legal representative of the shareholder, and includes a trustee in bankruptcy of the shareholder.

1.2

Business Corporations Act definitions apply

   

The definitions in the Business Corporations Act apply to these Articles.

   
1.3

Interpretation Act applies

   

The Interpretation Act applies to the interpretation of these Articles as if these Articles were an enactment.

   
1.4

Conflict in definitions

   

If there is a conflict between a definition in the Business Corporations Act and a definition or rule in the Interpretation Act relating to a term used in these Articles, the definition in the Business Corporations Act will prevail in relation to the use of the term in these Articles.

   
1.5

Conflict between Articles and legislation

   

If there is a conflict between these Articles and the Business Corporations Act , the Business Corporations Act will prevail.

PART 2 – SHARES AND SHARE CERTIFICATES

2.1

Form of share certificate

   

Each share certificate issued by the Company must comply with, and be signed as required by, the Business Corporations Act .


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2.2

Right to share certificate

     

Each shareholder is entitled, without charge, to one certificate representing the share or shares of each class or series of shares held by the shareholder.

     
2.3

Sending of share certificate

     

Any share certificate to which a shareholder is entitled may be sent to the shareholder by mail and neither the Company nor any agent is liable for any loss to the shareholder because the certificate sent is lost in the mail or stolen.

     
2.4

Replacement of worn out or defaced certificate

     

If the directors are satisfied that a share certificate is worn out or defaced, they must, on production to them of the certificate and on such other terms, if any, as they think fit,

     
(a)

order the certificate to be cancelled, and

     
(b)

issue a replacement share certificate.

     
2.5

Replacement of lost, stolen or destroyed certificate

     

If a share certificate is lost, stolen or destroyed, a replacement share certificate must be issued to the person entitled to that certificate if the directors receive

     
(a)

proof satisfactory to them that the certificate is lost, stolen or destroyed, and

     
(b)

any indemnity the directors consider adequate.

     
2.6

Splitting share certificates

     

If a shareholder surrenders a share certificate to the Company with a written request that the Company issue in the shareholder’s name 2 or more certificates, each representing a specified number of shares and in the aggregate representing the same number of shares as the certificate, so surrendered, the Company must cancel the surrendered certificate and issue replacement share certificates in accordance with that request.

PART 3 – ISSUE OF SHARES

3.1

Directors authorized to issue shares

   

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

   
3.2

Company need not recognize unregistered interests

   

Except as required by law or these Articles, the Company need not recognize or provide for any person’s interests in or rights to a share unless that person is the shareholder of the share.

PART 4 – SHARE TRANSFERS

4.1

Recording or registering transfer

     

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

     

(a)

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

     
(b)

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



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4.2

Form of instrument of transfer

     

The instrument of transfer in respect of any share of the Company must be either in the form, if any, on the back of the Company’s share certificates or in any other form that may be approved by the directors from time to time.

     
4.3

Signing of instrument of transfer

     

If a shareholder, or his or her duty authorized attorney, signs an instrument of transfer in respect of shares registered in the name of the shareholder, the signed instrument of transfer constitutes a complete and sufficient authority to the Company and its directors, officers and agents to register the number of shares specified in the instrument of transfer, or, if no number is specified, all the shares represented by share certificates deposited with the instrument of transfer,

     
(a)

in the name of the person named as transferee in that instrument of transfer, or

     
(b)

if no person is named as transferee in that instrument of transfer, in the name of the person on whose behalf the share certificate is deposited for the purpose of having the transfer registered.

     
4.4

Enquiry as to title not required

     

Neither the Company nor any director, officer or agent of the Company is bound to inquire into the title of the person named in the instrument of transfer as transferee or, if no person is named as transferee in the instrument of transfer, of the person on whose behalf the instrument is deposited for the purpose of having the transfer registered or is liable for any claim related to registering the transfer by the shareholder or by any intermediate owner or holder of the shares, of any interest in the shares, of any share certificate representing such shares or of any written acknowledgment of a right to obtain a share certificate for such shares.

     
4.5

Transfer fee

     

There must be paid to the Company, in relation to the registration of any transfer, the amount determined by the directors.

PART 5 – ACQUISITION OF SHARES

5.1

Company authorized to purchase shares

   

Subject to the special rights and restrictions attached to any class or series of shares, the Company may, if it is authorized to do so by the directors, purchase or otherwise acquire any of its shares.

   
5.2

Company authorized to accept surrender of shares

   

The Company may, if it is authorized to do so by the directors, accept a surrender of any of its shares by way of gift or for cancellation.

   
5.3

Company authorized to convert fractional shares into whole shares

   

The Company may, if it is authorized to do so by the directors, convert any of its fractional shares into whole shares in accordance with, and subject to the limitations contained in, the Business Corporations Act .

PART 6 – BORROWING POWERS

6.1

Powers of directors

     

The 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,



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  (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.

PART 7 – GENERAL MEETINGS

7.1

Annual general meetings

     

Unless an annual general meeting is deferred or waived in accordance with section 182(2)(a) or (c) of the Business Corporations Act , the Company must hold its first annual general meeting within 18 months after the date on which it was incorporated or otherwise recognized, and after that 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.

     
7.2

When annual general meeting is deemed to have been held

     

If all of the shareholders who are entitled to vote at an annual general meeting consent by a unanimous resolution under the Business Corporations Act to all of the business that is required to be transacted at that annual general meeting, the annual general meeting is deemed to have been held on the date of the unanimous resolution. The shareholders must, in any unanimous resolution passed under this Article 7.2, select as the Company’s annual reference date a date that would be appropriate for the holding of the applicable annual general meeting.

     
7.3

Calling of shareholder meetings

     

The directors may, whenever they think fit, call a meeting of shareholders.

     
7.4

Notice for meetings of shareholders

     

The Company must send notice of the date, time and location of any meeting of shareholders, in the manner provided in these Articles, or in such other manner, if any, as may be prescribed by ordinary resolution (whether previous notice of the resolution has been given or not), to each shareholder entitled to attend the meeting, to each director and to the auditor of the Company, unless these Articles otherwise provide, at least the following number of days before the meeting:

     
(a)

if and for so long as the Company is a public company, 21 days;

     
(b)

otherwise, 10 days.

     
7.5

Record date for notice

     

The directors may set a date as the record date for the purpose of determining shareholders entitled to notice of any meeting of shareholders. The record date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general meeting requisitioned by shareholders under the Business Corporations Act , by more than four months. The record date must not precede the date on which the meeting is held by fewer than:

     
(a)

if and for so long as the Company is a public company, 21 days;

     
(b)

otherwise, 10 days.

     

If no record date is set, the record date is 5 p.m. on the day immediately preceding the first date on which the notice is sent or, if no notice is sent, the beginning of the meeting.

     
7.6

Record date for voting

     

The directors may set a date as the record date for the purpose of determining shareholders entitled to vote at any meeting of shareholders. The record date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general meeting requisitioned by shareholders under the Business Corporations Act , by more than four months. If no record date is set, the record date is 5 p.m. on the day immediately preceding the first date on which the notice is sent or, if no notice is sent, the beginning of the meeting.



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7.7

Failure to give notice and waiver of notice

       

The accidental omission to send notice of any meeting to, or the non-receipt of any notice by, any of the persons entitled to notice does not invalidate any proceedings at that meeting. Any person entitled to notice of a meeting of shareholders may, in writing or otherwise, waive or reduce the period of notice of such meeting.

       
7.8

Notice of special business at meetings of shareholders

       

If a meeting of shareholders is to consider special business within the meaning of Article 8.1, the notice of meeting must:

       
(a)

state the general nature of the special business; and

       
(b)

if the special business includes considering, approving, ratifying, adopting or authorizing any document or the signing of or giving of effect to any document, have attached to it a copy of the document or state that a copy of the document will be available for inspection by shareholders:

       
(i)

at the Company’s records office, or at such other reasonably accessible location in British Columbia as is specified in the notice; and

       
(ii)

during statutory business hours on any one or more specified days before the day set for the holding of the meeting.

PART 8 – PROCEEDINGS AT MEETINGS OF SHAREHOLDERS

8.1

Special business

       

At a meeting of shareholders, the following business is special business:

       
(a)

at a meeting of shareholders that is not an annual general meeting, all business is special business except business relating to the conduct of or voting at the meeting;

       
(b)

at an annual general meeting, all business is special business except for the following:

       
(i)

business relating to the conduct of or voting at the meeting;

       
(ii)

consideration of any financial statements of the Company presented to the meeting;

       
(iii)

consideration of any reports of the directors or auditor;

       
(iv)

the setting or changing of the number of directors;

       
(v)

the election or appointment of directors;

       
(vi)

the appointment of an auditor;

       
(vii)

the setting of the remuneration of an auditor;

       
(viii)

business arising out of a report of the directors not requiring the passing of a special resolution or an exceptional resolution;

       
(ix)

any other business which, under these Articles or the Business Corporations Act , may be transacted at a meeting of shareholders without prior notice of the business being given to the shareholders.

       
8.2

Special majority

       

The majority of votes required for the Company to pass a special resolution at a meeting of shareholders is two-thirds of the votes cast on the resolution.

       
8.3

Quorum

       

Subject to the special rights and restrictions attached to the shares of any class or series of shares, the quorum for the transaction of business at a meeting of shareholders 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.



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8.4

One shareholder may constitute quorum

     

If there is only one shareholder entitled to vote at a meeting of shareholders,

     
(a)

the quorum is one person who is, or who represents by proxy, that shareholder, and

     
(b)

that shareholder, present in person or by proxy, may constitute the meeting.

     
8.5

Other persons may attend

     

The directors, the president, if any, the secretary, if any, and any lawyer or auditor for the Company are entitled to attend any meeting of shareholders, but if any of those persons do attend a meeting of shareholders, that person is not to be counted in the quorum, and is not entitled to vote at the meeting, unless that person is a shareholder or proxy holder entitled to vote at the meeting.

     
8.6

Requirement of quorum

     

No business, other than the election of a chair of the meeting and the adjournment of the meeting, may be transacted at any meeting of shareholders unless a quorum of shareholders entitled to vote at the meeting is present at the commencement of the meeting.

     
8.7

Lack of quorum

     

If, within 1/2 hour from the time set for the holding of a meeting of shareholders, a quorum is not present,

     
(a)

in the case of a general meeting convened by requisition of shareholders, the meeting is dissolved, and

     
(b)

in the case of any other meeting of shareholders, the meeting stands adjourned to the same day in the next week at the same time and place.

     
8.8

Lack of quorum at succeeding meeting

     

If, at the meeting to which the first meeting referred to in Article 8.7 was adjourned, a quorum is not present within 1/2 hour from the time set for the holding of the meeting, the persons present and who are, or who represent by proxy, shareholders entitled to attend and vote at the meeting constitute a quorum.

     
8.9

Chair

     

The following individual is entitled to preside as chair at a meeting of shareholders:

     
(a)

the chair of the board, if any;

     
(b)

if the chair of the board is absent or unwilling to act as chair of the meeting, the president, if any.

     
8.10

Alternate chair

     

At any meeting of shareholders, the directors present must choose one of their number to be chair of the meeting if: (a) there is no chair of the board or president present within 15 minutes after the time set for holding the meeting; (b) the chair of the board and the president are unwilling to act as chair of the meeting; or (c) if the chair of the board and the president have advised the secretary, if any, or any director present at the meeting, that they will not be present at the meeting. If, in any of the foregoing circumstances, all of the directors present decline to accept the position of chair or fail to choose one of their number to be chair of the meeting, or if no director is present, the shareholders present in person or by proxy must choose any person present at the meeting to chair the meeting.

     
8.11

Adjournments

     

The chair of a meeting of shareholders may, and if so directed by the meeting must, adjourn the meeting from time to time and from place to place, but no business may be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place.

     
8.12

Notice of adjourned meeting

     

It is not necessary to give any notice of an adjourned meeting or of the business to be transacted at an adjourned meeting of shareholders except that, when a meeting is adjourned for 30 days or more, notice of the adjourned meeting must be given as in the case of the original meeting.



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8.13

Motion need not be seconded

       

No motion proposed at a meeting of shareholders need be seconded unless the chair of the meeting rules otherwise, and the chair of any meeting of shareholders is entitled to propose or second a motion.

       
8.14

Manner of taking a poll

       

Subject to Article 8.15, if a poll is duly demanded at a meeting of shareholders,

       
(a)

the poll must be taken

       
(i)

at the meeting, or within 7 days after the date of the meeting, as the chair of the meeting directs, and

       
(ii)

in the manner, at the time and at the place that the chair of the meeting directs,

       
(b)

the result of the poll is deemed to be a resolution of, and passed at, the meeting at which the poll is demanded, and

       
(c)

the demand for the poll may be withdrawn.

       
8.15

Demand for a poll on adjournment

       

A poll demanded at a meeting of shareholders on a question of adjournment must be taken immediately at the meeting,

       
8.16

Demand for a poll not to prevent continuation of meeting

       

The demand for a poll at a meeting of shareholders does not, unless the chair of the meeting so rules, prevent the continuation of a meeting for the transaction of any business other than the question on which a poll has been demanded.

       
8.17

Poll not available in respect of election of chair

       

No poll may be demanded in respect of the vote by which a chair of a meeting of shareholders is elected.

       
8.18

Casting of votes on poll

       

On a poll, a shareholder entitled to more than one vote need not cast all the votes in the same way.

       
8.19

Chair must resolve dispute

       

In the case of any dispute as to the admission or rejection of a vote given on a poll, the chair of the meeting must determine the same, and his or her determination made in good faith is final and conclusive.

       
8.20

Chair has second vote

       

In case of an equality of votes, the chair of a meeting of shareholders will, either on a show of hands or on a poll, have a casting or second vote in addition to the vote or votes to which the chair may be entitled as a shareholder.

       
8.21

Declaration of result

       

The chair of a meeting of shareholders must declare to the meeting the decision on every question in accordance with the result of the show of hands or the poll, as the case may be, and that decision must be entered in the minutes of the meeting.

       
8.22

Meetings by telephone or other communications medium

       

A shareholder or proxy holder who is entitled to participate in a meeting of shareholders may do so in person, or by telephone or other communications medium, if all shareholders and proxy holders participating in the meeting are able to communicate with each other; provided, however, that nothing in this Section shall obligate the Company to take any action or provide any facility to permit or facilitate the use of any communications medium at a meeting of shareholders. If one or more shareholders or proxy holders participate in a meeting a shareholders in a manner contemplated by this Section,

       
(a)

each such shareholder or proxy holder shall be deemed to be present at the meeting, and



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  (b)

the meeting shall be deemed to be held at the location specified in the notice of the meeting.

PART 9 – VOTES OF SHAREHOLDERS

9.1

Voting rights

       

Subject to any special rights or restrictions attached to any shares and to the restrictions imposed on joint registered holders of shares under Article 9.3,

       
(a)

on a vote by show of hands, every person present who is a shareholder or proxy holder and entitled to vote at the meeting has one vote, and

       
(b)

on a poll, every shareholder entitled to vote has one vote in respect of each share held by that shareholder that carries the right to vote on that poll and may exercise that vote either in person or by proxy.

       
9.2

Trustee of shareholder may vote

       

A person who is not a shareholder may vote on a resolution at a meeting of shareholders, whether on a show of hands or on a poll, and may appoint a proxy holder to act at the meeting in relation to that resolution, if, before doing so, the person satisfies the chair of the meeting at which the resolution is to be considered, or satisfies all of the directors present at the meeting, that the person is a trustee for a shareholder who is entitled to vote on the resolution.

       
9.3

Votes by joint shareholders

       

If there are joint shareholders registered in respect of any share,

       
(a)

any one of the joint shareholders, but not both or all, may vote at any meeting, either personally or by proxy, in respect of the share as if that joint shareholder were solely entitled to it, or

       
(b)

if more than one of the joint shareholders is present at any meeting, personally or by proxy, the joint shareholder present whose name stands first on the central securities register in respect of the share is alone entitled to vote in respect of that share.

       
9.4

Trustees as joint shareholders

       

Two or more trustees of a shareholder in whose sole name any share is registered are, for the purposes of Article 9.3, deemed to be joint shareholders.

       
9.5

Representative of a corporate shareholder

       

If a corporation that is not a subsidiary of the Company is a shareholder, that corporation may appoint a person to act as its representative at any meeting of shareholders of the Company, and,

       
(a)

for that purpose, the instrument appointing a representative must

       
(i)

be received at the registered office of the Company or at any other place specified, in the notice calling the meeting, for the receipt of proxies, at least 2 business days before the day set for the holding of the meeting, or

       
(ii)

be provided, at the meeting, to the chair of the meeting, and

       
(b)

if a representative is appointed under this Article 9.5,

       
(i)

the representative is entitled to exercise in respect of and at that meeting the same rights on behalf of the corporation that the representative represents as that corporation could exercise if it were a shareholder who is an individual, including, without limitation, the right to appoint a proxy holder, and

       
(ii)

the representative, if present at the meeting, is to be counted for the purpose of forming a quorum and is deemed to be a shareholder present in person at the meeting.



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9.6

When proxy provisions do not apply

     

Articles 9.7 to 9.13 do not apply to the Company if and for so long as it is a public company or a pre- existing reporting company.

     
9.7

Appointment of proxy holder

     

Every shareholder of the Company, including a corporation that is a shareholder but not a subsidiary of the Company, entitled to vote at a meeting of shareholders of the Company may, by proxy, appoint a proxy holder to attend and act at the meeting in the manner, to the extent and with the powers conferred by the proxy.

     
9.8

Alternate proxy holders

     

A shareholder may appoint one or more alternate proxy holders to act in the place of an absent proxy holder.

     
9.9

When proxy holder need not be shareholder

     

A person must not be appointed as a proxy holder unless the person is a shareholder, although a person who is not a shareholder may be appointed as a proxy holder if

     

(a)

the person appointing the proxy holder is a corporation or a representative of a corporation appointed under Article 9.5,

     

(b)

the Company has at the time of the meeting for which the proxy holder is to be appointed only one shareholder entitled to vote at the meeting, or

     

(c)

the shareholders present in person or by proxy at and entitled to vote at the meeting for which the proxy holder is to be appointed, by a resolution on which the proxy holder is not entitled to vote but in respect of which the proxy holder is to be counted in the quorum, permit the proxy holder to attend and vote at the meeting.

     
9.10

Form of proxy

     

A proxy, whether for a specified meeting or otherwise, must be either in the following form or in any other form approved by the directors or the chair of the meeting:


 (Name of Company)
 

The undersigned, being a shareholder of the above named Company, hereby appoints _______________________ or, failing that person, _______________________, as proxy holder for the undersigned to attend, act and vote for and on behalf of the undersigned at the meeting of shareholders to be held on the day of and at any adjournment of that meeting.

 
Signed this ___________day of __________________________, __________ 
 
_______________________________________
Signature of shareholder

9.11

Provision of proxies

     

A proxy for a meeting of shareholders must

     

(a)

be received at the registered office of the Company or at any other place specified, in the notice calling the meeting, for the receipt of proxies, at least the number of business days specified in the notice, or if no number of days is specified, 2 business days, before the day set for the holding of the meeting, or

     

(b)

unless the notice provides otherwise, be provided at the meeting to the chair of the meeting.
     
9.12

Revocation of proxies

     

Subject to Article 9.13, every proxy may be revoked by an instrument in writing that is

     

(a)

received at the registered office of the Company at any time up to and including the last business day before the day set for the holding of the meeting at which the proxy is to be used, or



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(b)

provided at the meeting to the chair of the meeting.

     
9.13

Revocation of proxies must be signed

     

An instrument referred to in Article 9.12 must be signed as follows:

     
(a)

if the shareholder for whom the proxy holder is appointed is an individual, the instrument must be signed by the shareholder or his or her trustee;

     
(b)

if the shareholder for whom the proxy holder is appointed is a corporation, the instrument must be signed by the corporation or by a representative appointed for the corporation under Article 9.5.

     
9.14

Validity of proxy votes

     

A vote given in accordance with the terms of a proxy is valid despite the death or incapacity of the shareholder giving the proxy and despite the revocation of the proxy or the revocation of the authority under which the proxy is given, unless notice in writing of that death, incapacity or revocation is received

     
(a)

at the registered office of the Company, at any time up to and including the last business day before the day set for the holding of the meeting at which the proxy is to be used, or

     
(b)

by the chair of the meeting, before the vote is taken.

     
9.15

Production of evidence of authority to vote

     

The chair of any meeting of shareholders may, but need not, inquire into the authority of any person to vote at the meeting and may, but need not, demand from that person production of evidence as to the existence of the authority to vote.

PART 10 – DIRECTORS

10.1

Number of directors

       

The number of directors, excluding additional directors appointed under Article 11.8, is set at:

       
(a)

if the Company is a public company, the greater of three and the number most recently established:

       
(i)

by ordinary resolution (whether or not previous notice of the resolution was given); and

       
(ii)

under Article 11.4;

       
(b)

if the Company is not a public company, the number most recently established:

       
(i)

by ordinary resolution (whether or not previous notice of the resolution was given); and

       
(ii)

under Article 11.4.

       
10.2

Change in number of directors

       

If the number of directors is set under Articles 10.1(a)(i) or 10.1(b)(i):

       
(a)

the shareholders may elect or appoint the directors needed to fill any vacancies in the board of directors up to that number;

       
(b)

if, contemporaneously with setting that number, the shareholders do not elect or appoint the directors needed to fill vacancies in the board of directors up to that number, then the directors may appoint, or the shareholders may elect or appoint, directors to fill those vacancies.

       
10.3

Directors’ acts valid despite vacancy

       

An act or proceeding of the directors is not invalid merely because fewer directors have been appointed or elected than the number of directors set or otherwise required under these Articles.



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10.4

Qualifications of directors

   

A director is not required to hold a share in the capital of the Company as qualification for his or her office but must be qualified as required by the Business Corporations Act to become, act or continue to act as a director.

   
10.5

Remuneration of directors

   

The directors are entitled to the remuneration, if any, for acting as directors as the directors may from time to time determine. If the directors so decide, the remuneration of the directors will be determined by the shareholders. That remuneration may be in addition to any salary or other remuneration paid to a director in such director’s capacity as an officer or employee of the Company.

   
10.6

Reimbursement of expenses of directors

   

The Company must reimburse each director for the reasonable expenses that he or she may incur in and about the business of the Company.

   
10.7

Special remuneration for directors

   

If any director performs any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director, or if any director is otherwise specially occupied in or about the Company’s business, he or she may be paid remuneration fixed by the directors, or, at the option of that director, fixed by ordinary resolution, and such remuneration may be either in addition to, or in substitution for, any other remuneration that he or she may be entitled to receive.

   
10.8

Gratuity, pension or allowance on retirement of director

   

Unless otherwise determined by ordinary resolution, the directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any director who has held any salaried office or place of profit with the Company or to his or her spouse or dependants and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance.

PART 11 – ELECTION AND REMOVAL OF DIRECTORS

11.1

Election at annual general meeting

     

At every annual general meeting and in every unanimous resolution contemplated by Article 7.2:

     
(a)

the shareholders entitled to vote at the annual general meeting for the election of directors must elect, or in the unanimous resolution appoint, a board of directors consisting of the number of directors for the time being set under these Articles; and

     
(b)

all the directors cease to hold office immediately before the election or appointment of directors under paragraph (a), but are eligible for re-election or re-appointment.

     
11.2

Consent to be a director

     

No election, appointment or designation of an individual as a director is valid unless:

     
(a)

that individual consents to be a director in the manner provided for in the Business Corporations Act ; or

     
(b)

that individual is elected or appointed at a meeting at which the individual is present and the individual does not refuse, at the meeting, to be a director.

     
11.3

Failure to elect or appoint directors

     

If:

     

(a)

the Company fails to hold an annual general meeting, and all the shareholders who are entitled to vote at an annual general meeting fail to pass the unanimous resolution contemplated by Article 7.2, on or before the date by which the annual general meeting is required to be held under the Business Corporations Act ; or



- 12 -

  (b)

the shareholders fail, at the annual general meeting or in the unanimous resolution contemplated by Article 7.2, to elect or appoint any directors;

then each director in office at such time continues to hold office until the earlier of:

(c)

the date on which his or her successor is elected or appointed; and

     
(d)

the date on which he or she otherwise ceases to hold office under the Business Corporations Act or these Articles.

     
11.4

Places of retiring directors not filled

     

If, at any meeting of shareholders at which there should be an election of directors, the places of any of the retiring directors are not filled by that election, those retiring directors who are not re-elected and who are asked by the newly elected directors to continue in office will, if willing to do so, continue in office to fill the vacancies in the number of directors set pursuant to these Articles until further new directors are elected at a meeting of shareholders convened for that purpose. If any such election or continuance of directors does not result in the election or continuance of the number of directors set pursuant to these Articles, the number of directors of the Company is deemed to be set at the number of directors actually elected or continued in office.

     
11.5

Directors may fill casual vacancies

     

Any casual vacancy occurring in the board of directors may be filled by the directors.

     
11.6

Remaining directors’ power to act

     

The directors may act notwithstanding any vacancy in the board of directors, but if the Company has fewer directors in office than the number set pursuant to these Articles as the quorum of directors, the directors may only act for the purpose of appointing directors up to that number or for the purpose of summoning a meeting of shareholders to fill any vacancies on the board of directors or for any other purpose permitted by the Business Corporations Act .

     
11.7

Shareholders may fill vacancies

     

If the Company has no directors or fewer directors in office than the number set pursuant to these Articles as the quorum of directors, the shareholders may elect or appoint directors to fill any vacancies on the board of directors.

     
11.8

Additional directors

     

Notwithstanding Articles 10.1 and 10.2, between annual general meetings or unanimous resolutions contemplated by Article 7.2, the directors may appoint one or more additional directors, but the number of additional directors appointed under this Article 11.8 must not at any time exceed:

     
(a)

one-third of the number of first directors, if, at the time of the appointments, one or more of the first directors have not yet completed their first term of office; or

     
(b)

in any other case, one-third of the number of the current directors who were elected or appointed as directors other than under this Article 11.8.

     

Any director so appointed ceases to hold office immediately before the next election or appointment of directors under Article 11.1(a), but is eligible for re-election or re-appointment.

     
11.9

Ceasing to be a director

     

A director ceases to be a director when:

     
(a)

the term of office of the director expires;

     
(b)

the director dies;

     
(c)

the director resigns as a director by notice in writing provided to the Company or a lawyer for the Company; or

     
(d)

the director is removed from office pursuant to Articles 11.10 or 11.11.



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11.10

Removal of director by shareholders

   

The Shareholders may, by special resolution, remove any director before the expiration of his or her term of office, and may, by ordinary resolution, elect or appoint a director to fill the resulting vacancy. If the shareholders do not contemporaneously elect or appoint a director to fill the vacancy created by the removal of a director, then the directors may appoint, or the shareholders may elect or appoint by ordinary resolution, a director to fill that vacancy.

   
11.11

Removal of director by directors

   

The directors may remove any director before the expiration of his or her term of office if the director is convicted of an indictable offence, or if the director ceases to be qualified to act as a director of a company and does not promptly resign, and the directors may appoint a director to fill the resulting vacancy.

PART 12 – PROCEEDINGS OF DIRECTORS

12.1

Meetings of directors

       

The directors may meet together for the conduct of business, adjourn and otherwise regulate their meetings as they think fit, and meetings of the board held at regular intervals may be held at the place, at the time and on the notice, if any, that the board may by resolution from time to time determine.

       
12.2

Chair of meetings

       

Meetings of directors are to be chaired by

       
(a)

the chair of the board, if any,

       
(b)

in the absence of the chair of the board, the president, if any, if the president is a director, or

       
(c)

any other director chosen by the directors if

       
(i)

neither the chair of the board nor the president, if a director, is present at the meeting within 15 minutes after the time set for holding the meeting,

       
(ii)

neither the chair of the board nor the president, if a director, is willing to chair the meeting, or

       
(iii)

the chair of the board and the president, if a director, have advised the secretary, if any, or any other director, that they will not be present at the meeting.

       
12.3

Voting at meetings

       

Questions arising at any meeting of directors are to be decided by a majority of votes and, in the case of an equality of votes, the chair of the meeting does not have a second or casting vote.

       
12.4

Meetings by telephone or other communications medium

       

A director may participate in a meeting of the directors or of any committee of the directors in person, or by telephone or other communications medium, if all directors participating in the meeting are able to communicate with each other. A director may participate in a meeting of the directors or of any committee of the directors by a communications medium other than telephone if all directors participating in the meeting, whether in person or by telephone or other communications medium, are able to communicate with each other and if all directors who wish to participate in the meeting agree to such participation. A director who participates in a meeting in a manner contemplated by this Article 12.4 is deemed for all purposes of the Business Corporations Act and these Articles to be present at the meeting and to have agreed to participate in that manner .

       
12.5

Who may call extraordinary meetings

       

A director may call a meeting of the board at any time. The secretary, if any, must on request of a director , call a meeting of the board.



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12.6

Notice of extraordinary meetings

     

Subject to Articles 12.7 and 12.8, if a meeting of the board is called under Article 12.4, reasonable notice of that meeting, specifying the place, date and time of that meeting, must be given to each of the directors

     
(a)

by mail addressed to the director’s address as it appears on the books of the Company or to any other address provided to the Company by the director for this purpose,

     
(b)

by leaving it at the director’s prescribed address or at any other address provided to the Company by the director for this purpose, or

     
(c)

orally, by delivery of written notice or by telephone, voice mail, e-mail, fax or any other method of legibly transmitting messages.

     
12.7

When notice not required

     

It is not necessary to give notice of a meeting of the directors to a director if

     
(a)

the meeting is to be held immediately following a meeting of shareholders at which that director was elected or appointed or is the meeting of the directors at which that director is appointed, or

     
(b)

the director has filed a waiver under Article 12.9.

     
12.8

Meeting valid despite failure to give notice

     

The accidental omission to give notice of any meeting of directors to any director, or the non-receipt of any notice by any director, does not invalidate any proceedings at that meeting.

     
12.9

Waiver of notice of meetings

     

Any director may file with the Company a document signed by the director waiving notice of any past, present or future meeting of the directors and may at any time withdraw that waiver with respect to meetings of the directors held after that withdrawal.

     
12.10

Effect of waiver

     

After a director files a waiver under Article 12.9 with respect to future meetings of the directors, and until that waiver is withdrawn, notice of any meeting of the directors need not be given to that director unless the director otherwise requires in writing to the Company.

     
12.11

Quorum

     

The quorum necessary for the transaction of the business of the directors may be set by the directors and, if not so set, is a majority of the directors.

     
12.12

If only one director

     

If there is only one director, the quorum necessary for the transaction of the business of the directors is one director, and that director may constitute a meeting.

PART 13 – COMMITTEES OF DIRECTORS

13.1

Appointment of committees

       

The directors may, by resolution,

       
(a)

appoint one or more committees consisting of the director or directors that they consider appropriate,

       
(b)

delegate to a committee appointed under paragraph (a) any of the directors’ powers, except

       
(i)

the power to fill vacancies in the board,

       
(ii)

the power to change the membership of, or fill vacancies in, any committee of the board, and

       
(iii)

the power to appoint or remove officers appointed by the board, and



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(c)

make any delegation referred to in paragraph (b) subject to the conditions set out in the resolution.

     
13.2

Obligations of committee

     

Any committee formed under Article 13.1, in the exercise of the powers delegated to it, must

     
(a)

conform to any rules that may from time to time be imposed on it by the directors, and

     
(b)

report every act or thing done in exercise of those powers to the earliest meeting of the directors to be held after the act or thing has been done.

     
13.3

Powers of board

     

The board may, at any time,

     
(a)

revoke the authority given to a committee, or override a decision made by a committee, except as to acts done before such revocation or overriding,

     
(b)

terminate the appointment of, or change the membership of, a committee, and

     
(c)

fill vacancies in a committee,

     
13.4

Committee meetings

     

Subject to Article 13.2(a),

     
(a)

the members of a directors’ committee may meet and adjourn as they think proper,

     
(b)

a directors’ committee may elect a chair of its meetings but, if no chair of the meeting is elected, or if at any meeting the chair of the meeting is not present within 15 minutes after the time set for holding the meeting, the directors present who are members of the committee may choose one of their number to chair the meeting,

     
(c)

a majority of the members of a directors’ committee constitutes a quorum of the committee, and

     
(d)

questions arising at any meeting of a directors’ committee are determined by a majority of votes of the members present, and in case of an equality of votes, the chair of the meeting has no second or casting vote.

PART 14 – OFFICERS

14.1

Appointment of officers

     

The board may, from time to time, appoint a president, secretary or any other officers that it considers necessary, and none of the individuals appointed as officers need be a member of the board.

     
14.2

Functions, duties and powers of officers

     

The board may, for each officer,

     
(a)

determine the functions and duties the officer is to perform,

     
(b)

entrust to and confer on the officer any of the powers exercisable by the directors on such terms and conditions and with such restrictions as the directors think fit, and

     
(c)

from time to time revoke, withdraw, alter or vary all or any of the functions, duties and powers of the officer.

     
14.3

Remuneration

     

All appointments of officers are to be made on the terms and conditions and at the remuneration (whether by way of salary, fee, commission, participation in profits or otherwise) that the board thinks fit and are subject to termination at the pleasure of the board.



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PART 15 – CERTAIN PERMITTED ACTIVITIES OF DIRECTORS

15.1

Other office of director

   

A director may hold any office or place of profit with the Company (other than the office of auditor of the Company) in addition to his or her office of director for the period and on the terms (as to remuneration or otherwise) that the directors may determine.

   
15.2

No disqualification

   

No director or intended director is disqualified by his or her office from contracting with the Company either with regard to the holding of any office or place of profit the director holds with the Company or as vendor, purchaser or otherwise.

   
15.3

Professional services by director or officer

   

Subject to compliance with the provisions of the Business Corporations Act , a director or officer of the Company, or any corporation or firm in which that individual has an interest, may act in a professional capacity for the Company, except as auditor of the Company, and the director or officer or such corporation or firm is entitled to remuneration for professional services as if that individual were not a director or officer.

   
15.4

Remuneration and benefits received from certain entities

   

A director or officer may be or become a director, officer or employee of, or may otherwise be or become interested in, any corporation, firm or entity in which the Company may be interested as a shareholder or otherwise, and, subject to compliance with the provisions of the Business Corporations Act , the director or officer is not accountable to the Company for any remuneration or other benefits received by him or her as director, officer or employee of, or from his or her interest in, such other corporation, firm or entity.

PART 16 – INDEMNIFICATION

16.1

Indemnification of directors

   

The directors must cause the Company to indemnify its directors and former directors, and their respective heirs and personal or other legal representatives to the greatest extent permitted by Division 5 of Part 5 of the Business Corporations Act .

   
16.2

Deemed contract

   

Each director is deemed to have contracted with the Company on the terms of the indemnity referred to in Article 16.1.

PART 17 – AUDITOR

17.1

Remuneration of an auditor

   

The directors may set the remuneration of the auditor of the Company.

   
17.2

Waiver of appointment of an auditor

   

The Company shall not be required to appoint an auditor if all of the shareholders of the Company, whether or not their shares otherwise carry the right to vote, resolve by a unanimous resolution to waive the appointment of an auditor. Such waiver may be given before, on or after the date on which an auditor is required to be appointed under the Business Corporations Act , and is effective for one financial year only.

PART 18 – DIVIDENDS

18.1

Declaration of dividends

   

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



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18.2

No notice required

     

The directors need not give notice to any shareholder of any declaration under Article 18.1.

     
18.3

Directors may determine when dividend payable

     

Any dividend declared by the directors may be made payable on such date as is fixed by the directors.

     
18.4

Dividends to be paid in accordance with number of shares

     

Subject to the rights of shareholders, if any, holding shares with special rights as to dividends, all dividends on shares of any class or series of shares must be declared and paid according to the number of such shares held.

     
18.5

Manner of paying dividend

     

A resolution declaring a dividend may direct payment of the dividend wholly or partly by the distribution of specific assets or of paid up shares or fractional shares, bonds, debentures or other debt obligations of the Company, or in any one or more of those ways, and, if any difficulty arises in regard to the distribution, the directors may settle the difficulty as they consider expedient, and, in particular, may set the value for distribution of specific assets.

     
18.6

Dividend bears no interest

     

No dividend bears interest against the Company.

     
18.7

Fractional dividends

     

If a dividend to which a shareholder is entitled includes a fraction of the smallest monetary unit of the currency of the dividend, that fraction may be disregarded in making payment of the dividend and that payment represents full payment of the dividend.

     
18.8

Payment of dividends

     

Any dividend or other distribution payable in cash in respect of shares may be paid by cheque, made payable to the order of the person to whom it is sent, and mailed

     

(a)

subject to paragraphs (b) and (c), to the address of the shareholder,
     

(b)

subject to paragraph (c), in the case of joint shareholders, to the address of the joint shareholder whose name stands first on the central securities register in respect of the shares, or

     

(c)

to the person and to the address as the shareholder or joint shareholders may direct in writing.
     
18.9

Receipt by joint shareholders

     

If several persons are joint shareholders of any share, any one of them may give an effective receipt for any dividend, bonus or other money payable in respect of the share.

PART 19 – ACCOUNTING RECORDS

19.1

Recording of financial affairs

   

The board must cause adequate accounting records to be kept to record properly the financial affairs and condition of the Company and to comply with the provisions of the Business Corporations Act .

PART 20 – EXECUTION OF INSTRUMENTS UNDER SEAL

20.1

Who may attest seal

     

The Company’s seal, if any, must not be impressed on any record except when that impression is attested by the signature or signatures of

     
(a)

any 2 directors,

     
(b)

any officer, together with any director,



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(c)

if the Company has only one director, that director, or

     
(d)

any one or more directors or officers or persons as may be determined by resolution of the directors.

     
20.2

Sealing copies

     

For the purpose of certifying under seal a true copy of any resolution or other document, the seal must be impressed on that copy and, despite Article 20.1, may be attested by the signature of any director or officer.

PART 21 – NOTICES

21.1

Method of giving notice

       

Unless the Business Corporations Act or these Articles provides otherwise, a notice, statement, report or other record required or permitted by the Business Corporations Act or these Articles to be sent by or to a person may be sent by any one of the following methods:

       
(a)

mail addressed to the person at the applicable address for that person as follows:

       
(i)

for a record mailed to a shareholder, the shareholder’s registered address;

       
(ii)

for a record mailed to a director or officer, the prescribed address for mailing shown for the director or officer in the records kept by the Company or the mailing address provided by the recipient for the sending of that record or records of that class;

       
(iii)

in any other case, the mailing address of the intended recipient;

       
(b)

delivery at the applicable address for that person as follows, addressed to the person:

       
(i)

for a record delivered to a shareholder, the shareholder’s registered address;

       
(ii)

for a record delivered to a director or officer, the prescribed address for delivery shown for the director or officer in the records kept by the Company or the delivery address provided by the recipient for the sending of that record or records of that class;

       
(iii)

in any other case, the delivery address of the intended recipient;

       
(c)

sending the record by fax to the fax number provided by the intended recipient for the sending of that record or records of that class;

       
(d)

sending the record by email to the email address provided by the intended recipient for the sending of that record or records of that class;

       
(e)

physical delivery to the intended recipient.

       
21.2

Deemed receipt of mailing

       

A record that is mailed to a person by ordinary mail to the applicable address for that person referred to in Article 21.1 is deemed to be received by the person to whom it was mailed on the day, Saturdays, Sundays and holidays excepted, following the date of mailing.

       
21.3

Certificate of sending

       

A certificate signed by the secretary, if any, or other officer of the Company or of any other corporation acting in that behalf for the Company stating that a notice, statement, report or other record was addressed as required by Article 21.1, prepaid and mailed or otherwise sent as permitted by Article 21.1 is conclusive evidence of that fact.

       
21.4

Notice to joint shareholders

       

A notice, statement, report or other record may be provided by the Company to the joint shareholders of a share by providing the notice to the joint shareholder first named in the central securities register in respect of the share.



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21.5

Notice to trustees

   

A notice, statement, report or other record may be provided by the Company to the persons entitled to a share in consequence of the death, bankruptcy or incapacity of a shareholder by:


  (a)

mailing the record, addressed to them:

       
  (i)

by name, by the title of the legal personal representative of the deceased or incapacitated shareholder, by the title of trustee of the bankrupt shareholder or by any similar description; and

       
  (ii)

at the address, if any, supplied to the Company for that purpose by the persons claiming to be so entitled; or

       
  (b)

if an address referred to in Article 21.5(a)(ii) has not been supplied to the Company, by giving the notice in a manner in which it might have been given if the death, bankruptcy or incapacity had not occurred.

PART 22 - SPECIAL RIGHTS AND RESTRICTIONS

22.1

Common shares

     

Each Common share shall entitle the holder thereof to notice of and to attend and to cast ONE (1) vote for each matter to be decided at a general meeting of the Company.

     
22.2

Class A Preference shares issuable in series

     

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

     
(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.

     
22.3

Dissolution or winding up

     

The holders of Class A Preference shares shall be entitled, on the liquidation or dissolution of the Company, whether voluntary or involuntary, or on any other distribution of its assets among its shareholders for the purpose of winding up its affairs, to receive, before any distribution is made to the holders of Common shares or any other shares of the Company ranking junior to the Class A Preference shares with respect to the repayment of capital on the liquidation or dissolution of the Company, whether voluntary or involuntary, or on any other distribution of its assets among its shareholders for the purpose of winding up its 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, which for such purpose shall be calculated as if such dividends were accruing on a day-to-day basis up to the date of such distribution, 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 shall not, as such, be entitled to share in any further distribution of the property or assets of the Company, except as specifically provided in the special rights and restrictions attached to any particular series.



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22.4

Class A Preference shares do not confer right to receive notice of, attend or vote at general meetings

   

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 the Company.




EXHIBIT 4.1

SURFACE DRILLING CONTRACT

THIS AGREEMENT made this 5 day of April 2006.

BETWEEN:

Hard Creek Nickel Corp.
Suite 1060, 1090 W. Georgia St.,
Vancouver, B.C.
V6E 3V7

(Hereinafter referred to as “the Client”)

OF THE FIRST PART

AND

D. J. DRILLING (2004) LTD.
Box # 193 – 640 26310 Fraser Hwy
Aldergrove BC. V4W 2Z7

(Hereinafter referred to as “the Contractor”)

OF THE SECOND PART

WHEREAS the Client wishes to have performed certain diamond drilling on their Turnagain River Project, in Northern British Columbia, and whereas the Contractor, in consideration of payments hereinafter contained, undertakes to do the said diamond drilling.

NOW THEREFORE IT IS WITNESSED

1. Guaranteed Footage:
   

The Client guarantees a minimum 20,000 feet of diamond drilling in a series of holes to a maximum depth of 3,000 feet recovering BQ/NQ wire line core. It is agreed that no hole shall be flatter than 45 degrees.

   
2. Equipment and Start of Drilling

  (a)

The Contractor agrees to supply (1 or 2) skid mount Longyear #38 diamond core drills, and Prospecting Rig along with necessary associated equipment, bits and labor to commence work on or about May , 2006. At the rates listed under the Schedule of Rates and under the terms and conditions of this agreement



2

(b)

The Contractor agrees that all it’s labor, diamond wear and loss and all other operating expenses, except as hereinafter provided, shall be at its own cost and for its own account.


3.

Camp Facilities


(a)

The Contractor agrees to provide camp facilities or suitable lodging for the Contractors personnel and the Clients personnel. The Clients men to be at $100.00 per day per man.

   
(b)

The cost of setting up and winterizing camp shall be as follows:

   

Opening and winterizing Boulder Camp        @ Labor Rate:$50.00 per man hour
Setting up Turnagain Camp                             @ Labor Rate:$50.00 per man hour

   
(c)

Level 3 First Aid attendant, required by chief inspector       @ Cost plus 10%
Building of any additional accommodation                             @ Labor Rate
Clients personnel                                                                         @ $100.00 per day
Additional Labor                                                                          @ Labor Rate

   
(d)

Cost of supplies, trailers, generators etc. to expand the camp facilities will be for the Client’s account at cost + 15 %

   
(e)

Mobilizing camp supplies from the supplier to Dease Lake at cost.

   
(f)

Dease Lake to Turnagain camp to be charged at the equipment hourly Rate.


4.

Schedule of Rates (all prices shown - per lineal foot)


  BQ NQ
0 – 500 feet $24.95 per foot $26.95 per foot
500 – 1000 feet $27.75 $30.25
1000 to 1500 feet $31.00 $34.00
1500 to 2000 feet $34.00 $40.50
2000 to 2250 feet $38.00 $43.00
2250 to 2500 feet $43.50 $49.00
2500 to 2750 feet $51.50 $59.00
2750 to 3000 feet $66.50 $74.00

5.

Overburden


  (a)

Wherever overburden is encountered on a setup, it is agreed that the Contractor’s charge for penetrating such overburden per lineal foot shall be for the Client’s account at the rates listed below.


  BW NW
0 – 50 feet $35.00 per foot $38.00 per foot
50 feet & beyond The greater of footage or Hourly Rate.


3

6.

Hourly Rate


  (a)

It is agreed that the Hourly Rate shall be interpreted here and hereinafter to be One hundred and sixty five ( $165.00) dollars per hour, per drill outfit. It is also agreed that the Contractor shall include in the Hourly Rate the cost of supplying a regular two (2) man drill crew, supervision and maintenance as required, drilling machinery and associated equipment.

     
  (b)

It is further agreed and understood that when the Contractor is working at the Hourly Rate, the cost of pipe or casing lost or left in the hole, diamond articles, and materials and supplies consumed in the work shall be for the Client’s account at cost plus 15%.


7.

Labor Rate

   

It is agreed that if additional men are required when working at the Hourly Rate, or where work is being carried out at straight labor rate with no charge being made to the Client for the equipment, the cost of such labor shall be for the Client’s account at the rate of fifty ($50.00) dollars per man, per hour.

   
8.

Work Schedule

   

The Contractor agrees to operate on a minimum two- (2) shift, twenty- (20) hour per day, seven- (7) day’s per week basis.

   
9.

Caves, Cementing, Reaming, Wedging, Down-Hole Geophysics & Re-entering Holes:


  (a)

If the Contractor and the Client’s Representative mutually agree that loose and caving material will prevent successful completion of a hole, the Contractor shall not be obligated to drill any specified depth.

     
  (b)

In the event that it becomes necessary to ream through, case, or cement caving formations, this will be for the Client’s account at the Hourly Rate (Sec. 6).

     
  (c)

Wedging to be performed at the Rate of $195.00 per hour. All materials consumed during the operation to be charged to the Clients account at cost plus 15%.

     
  (d)

Down Hole Geophysics will be performed at the rate of $195.00 per hour to be charged to the Client’s account.

     
  (e)

Re-entering of old Holes shall be for the Client’s account at the rate of $195.00 per hour.


10.

Pipe or Casing Left in Holes

   

Whatever pipe or casing is left in the hole at the Client’s request, the Client agrees to pay the Contractor for such pipe or casing at cost. The Client agrees to pay the Contractor the cost of the diamond set casing shoes, in addition to any casing left in the hole plus 15%.



4

11 .

Mud Circulation

   

It is understood that the Contractor may employ drilling mud and shall have the right to determine the type of drilling mud to be employed. The cost of supplying mud and any other additives will be for the Client’s account at the rates listed below:

Consumables:

  Bag Mud $ 16.00 per bag
  Quick Gel $ 16.00 per bag
  Alcomer $160.00 per pail
  Cement $ 18.00 per bag
  CL Chloride $ 65.00 per bag
  Crystal Polymer $200.00 per pail
  Linseed Soap $150.00 per pail
  Mud Booster $ 20.00 per bag
  Clay Seam $185.00 per pail
  G – Stop $250.00 per pail

12.

Tests

   

The Contractor agrees to take tests as required at the Hourly Rate (Sec.6) for the Client’s account.

   
13.

Water


  (a)

It is agreed that the setting up, tearing down, and maintenance of waterlines over 1000 feet shall be for the Client’s account at the Labor Rate (Sec.7).

     
  (b)

It is agreed that in freezing conditions, the setup, tear down and maintenance of all waterlines shall be at the Labor Rate (Sec.7). All materials and fuel consumed in freezing conditions, to be charged to the Client at cost plus 15% percent.


14.

Mobilization, Demobilization, Moves


  (a)

It is agreed that the moving of drill equipment, personnel and supplies from the

       
 

Contractor’s base in Watson Lake, YT, to the Dease Lake landing site, and return shall be for the Client’s account. The price shall be as listed:

       
  (a)

Highway Truck & Trailer                                $165.00 per hour

       
  (b)

Mobilizing Equipment, and camp from Dease Lake to Drill Site and return to landing site shall be for the Client’s account with no cost to the Contractor. Equipment prices shall be as listed:

       
  (a)

6 Wheel Delta with fuel and Operator          $150.00 per hour



5

  (b)

4 Wheel Delta with fuel and Operator $ 90.00 per hour


  (c)

Opening of Roads from Dease Lake to the Drill site, Preparing Campsite, Building and maintaining drill roads and Drill moves and Traveling from camp to drill site shall be for the Client’s account at the following rates:


  Cat D8K with fuel and Operator $170.00 per hour
  D6D with fuel and Operator $115.00 per hour
  LS 3400 Excavator with fuel and Operator $130.00 per hour
  6 Wheel Delta with fuel and Operator $150.00 per hour
  Wheel Delta with fuel and Operator $ 90.00 per hour
  D400D Rock Truck / A35 $190.00 per hour
     
  Skidder $ 90.00 per hour

Any helicopter support for crew relief, emergency evacuation or fuel drops shall be charged to the Client’s account.

     
15.

Standby Time

     

It is understood and agreed that time lost waiting for orders from the Client’s Resident Engineer or delays in selecting drill sites, etc., shall be for the Client’s account at the Labor Rate (Sec. 7).

     
16.

Travel

     

Travel Time in Excess of one hour, per man, per day, will be for the Client’s account at the Labor rate (Sec. 7).

     
17.

Fuel

     

The Client agrees to reimburse the Contractor for the full cost of diesel fuel delivered to Dease Lake .Cost of transporting diesel fuel from Dease Lake to site will be at no cost to the Client.

     
18.

Core

     
(a)

The drilling shall be conducted so as to provide maximum core recovery with every precaution taken to prevent crushing or grinding core.

     
(b)

All cores recovered by the Contractor shall be delivered to the Client at the drill site and carefully marked and placed in core boxes to be furnished by the Contractor at a cost of BQ $16.00 per box, NQ $16.50 per box, $8.00 per lid to the Client’s account.



6

19.

Security

   

The Contractor will not give out any information regarding drill results or permit access to any drill core to any person other than the Client’s accredited representatives, except upon specific permission of responsible officials of the Client.

   
20.

Discipline


  (a)

The Contractor shall at all times enforce strict discipline and maintain good order among its employees and shall not retain on the work site any unfit person or anyone not skilled in the work assigned.

     
  (b)

Any employees of the Contractor, who are objectionable or unsatisfactory to the Client, shall be removed from the work site and replaced by an employee satisfactory to the Client.


21.

Insurance


  (a)

The Contractor shall maintain such insurance as will protect it from all claims and damage for personal injury, including death resulting therefrom and from claims for property damage resulting from the operating under this contract, in an amount not to exceed (5) million ($5,000,000.00) dollars inclusive for all liabilities for any one accident or occurrence.

     
  (b)

The Contractor shall be liable at all times for damage to or destruction of the

     
 

Contractor’s surface equipment, materials and supplies regardless of how such damage or destruction occurs. The Client shall be under no liability to reimburse the Contractor for any such loss except loss or damage caused by the negligence of the Client or the Clients agents or employees.

     
  (c)

The Contractor will indemnify and save the Client harmless from and against all damages and claims from damages by reason of injury or death of persons, or damage to property caused by negligence of the Contractor, it’s agents or employees, in the performance of work hereunder and not caused or contributed to by the negligence of the Client, it’s agents or employees.


22.

Sanitation and Environment

During the course of the work, the Contractor shall at all times keep the Client’s premises free from accumulation of waste material and rubbish, and upon completion of work shall remove all tools, scaffoldings, surplus materials and rubbish and leave the premises in a clean condition. The Contractor shall observe and comply with all applicable Federal and Provincial laws, regulations and orders relating to the preservation of forest fires and sanitation in the bush.

23.

Rights of Way



7

The Client shall provide at no cost to the Contractor, all rights of way of ingress and egress to all lands that may be required to enable the Contractor to carry out the work specified. The Contractor shall not cut or fell any timber without first obtaining specific authorization from the Clients Representatives.

24.

Payments


  (a)

The Client agrees to pay the Contractor, in Canadian funds, the above prices. Payment due upon receipt of invoice. Invoices shall be submitted twice monthly. A service charge of one and one-half (l ½ %) percent per month shall be charged on overdue accounts.

     
  (b)

The Goods and Services Tax of seven (7%) will be added to the total of all invoices. The Contractor G.S.T. , number is R85694-5902.


25.

General

Neither party shall be held liable for any loss or damage suffered by reason of any cause beyond its active control such as riots, strikes, lockouts, Acts of God or such other reasons.

Time is of the essence of this Agreement.

    D.J. DRILLING (2004) LTD.
     
     
Witness   David Schussler
     
     
     
    Hard Creek Nickel Corp.
     
     
Witness   Tony Hitchens



EXHIBIT 4.2

CONSULTING AGREEMENT

THIS AGREEMENT is made as of the 18th day of November, 2005.

BETWEEN:

HARD CREEK NICKEL CORPORATION, a company
having an office at Suite 1060 - 1090 West Georgia Street,
Vancouver, BC V6E 3V7

(hereinafter called the “Company”)

OF THE FIRST PART

AND:

J.A. CHAPMAN MINING SERVICES, a consulting company
having an office at #18-1480 Foster Street,
White Rock, BC V4B 3X7

(hereinafter referred to as “Mr. Chapman”)

OF THE SECOND PART

                              WHEREAS the Company is incorporated under the laws of British Columbia and carries on business as a mineral exploration, development and production company;

                              AND WHEREAS the Company wishes to enter into a consulting agreement with Mr. Chapman, and Mr. Chapman has agreed to provide the Company services, as required, on the terms and subject to the conditions herein set forth;

                              AND WHEREAS the parties wish to formally record the terms of consulting agreement for Mr. Chapman and his responsibilities;

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and mutual covenants herein, the parties hereby covenant and agree with each other as follows:

1.0                         EMPLOYMENT

1.01                       The Company agrees to compensate Mr. Chapman and Mr. Chapman agrees to serve the Company in the capacity of mining industry consultant, during the term of this Agreement. It is expected that these services would mainly be provided with phone and email communication with up to one day per month of time allocated for meetings.

1.02                       The compensation of Mr. Chapman under this Agreement shall commence on December 1, 2005 and continue until May 31, 2006. After this date the compensation will continue on a month to month basis.

1.03                       Mr. Chapman shall report to and be directly responsible to the President and CEO of the Company consistent with the status of Mr. Chapman as a senior consultant of the Company.


2.0                           COMPENSATION

2.01                        The Company agrees to pay Mr. Chapman and Mr. Chapman agrees to accept as remuneration for services hereunder the minimum sum of CDN $1,000 per month, payable as invoiced accordingly and for work approved by the President and CEO and provided by Mr. Chapman in 1.01 above. In addition, any pre-approved services beyond the one day per month, stated in 1.01 above, will be charged to the Company by Mr. Chapman at the rate of $125 per hour.

2.02                         The Company agrees to grant to Mr. Chapman incentive stock options in the amount of 50,000 at an exercise price of $0.60 per share, good for a period of five years as long as Mr. Chapman is continuing to provide services to the Company.

3.0                           TERMINATION

3.01                         The Company or Mr. Chapman may terminate this Agreement at any time after the initial six month period by giving 30 days written notice.

4.0                            MISCELLANEOUS

4.01                          Any notice is deemed to have been duly given if delivered by hand or mailed by postage (Special Delivery) prepaid and addressed as follows:

  To the Consultant: J.A. Chapman Mining Services
    Suite #18
    1480 Foster Street
    White Rock, BC
    V4B 3X7
     
  To the Company: Hard Creek Nickel Corporation
    1060-1090 West Georgia St.
    Vancouver, BC V6E 3V7

IN WITNESS WHEREOF the parties have executed this Agreement as of the day, month and year first above written.

  HARD CREEK NICKEL CORPORATION   J.A. CHAPMAN MINING SERVICES
       
Per:

 

   


 



EXHIBIT 4.3

INVESTOR RELATIONS AGREEMENT

THIS INVESTOR RELATIONS AGREEMENT is made effective as of the 15 TH ay of July, 2006.

BETWEEN:

HARD CREEK NICKEL CORPORATION , with an address
at Suite 1060, 1090 West Georgia Street, Vancouver, BC, V6E 3V7

(the “Company”)

AND:

MARTIN E. JANIS & COMPANY, INC. , with an address a
t Suite 420, 625 North Michigan Avenue, Chicago, Illinois 60611

(the “Contractor”)

WHEREAS:

A.                          The Company is engaged in, among other things, the business of the acquisition and exploration of mining properties;

B.                          The Company is a reporting issuer in British Columbia and its common shares are listed for trading on the TSX Venture Exchange;

C.                          The Company desires to retain the Contractor to assist with the corporate and investor relations of the Company and the Contractor has agreed to assist with the corporate relations of the Company pursuant to the terms of this Agreement.

                              NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants and promises set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each, the parties hereto agree as follows:

ARTICLE 1
APPOINTMENT AND AUTHORITY OF CONTRACTOR

1.1                          Appointment of Contractor

                              The Company hereby appoints the Contractor to perform certain services for the benefit of the Company as hereinafter set forth, and the Company hereby authorizes the Contractor to exercise such powers as provided under this Agreement. The Contractor accepts such appointment on the terms and conditions herein set forth.


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1.2                          Authority of Contractor

                              The Contractor shall have no right or authority, express or implied, to commit or otherwise obligate the Company in any manner whatsoever except to the extent specifically provided herein or specifically authorized in writing by the Company.

1.3                          Independent Contractor

                              In performing its services hereunder, the Contractor shall be an independent contractor and not an employee or agent of the Company, except that the Contractor shall be the agent of the Company solely in circumstances where the Contractor must be the agent to carry out its obligations as set forth in this Agreement. Nothing in this Agreement shall be deemed to require the Contractor to provide its services exclusively to the Company and the Contractor hereby acknowledges that the Company is not required and shall not be required to make any remittances and payments required of employers by statute on the Contractor's behalf and the Contractor or any of its agents or employees shall not be entitled to the fringe benefits provided by the Company to its employees.

1.4                          Contractor’s Warranties

                              The Contractor represents and warrants that it will provide, as required and at its own expense, competent management personnel and that its agents or employees have the qualifications, experience and capabilities necessary to carry out the services to be performed hereunder, and that the services will be performed to the standard of care, skill and diligence of experienced workers in that same field.

ARTICLE 2
CONTRACTOR'S AGREEMENTS

2.1                          General

                              The Contractor, at the expense of and on behalf of the Company, shall:

  (a)

assist with the corporate and investor relations of the Company pursuant to the terms and conditions of this Agreement;

     
  (b)

implement or cause to be implemented decisions of the Company in accordance with and as limited by this Agreement;

     
  (c)

at all times be subject to the direction of the Company and shall keep the Company informed as to all matters concerning the Contractor's activities; and

     
  (d)

meet the performance standards that may be reasonably prescribed by the Company from time to time. The Company acknowledges that, since the Contractor is an independent contractor and not an employee of the Company, the Contractor shall have direction and control, of the manner, methods, techniques and procedures used by its agents or employees to perform the services described herein.

2.2                           Contractor's Activities

                              In carrying out its obligations under this Agreement with respect to the promotional activities of the Company, the Contractor shall:


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  (a)

introduce to the Company brokerage firms; the money managers and research departments of certain funds and institutions; analysts; special situation people or special situation investing groups; and other persons or entities who may have a direct interest in the Company’s stock (collectively, the “Investing Groups”). Further, the Contractor shall initiate and maintain communication with the Investing Groups through a series of meetings in selected cities, by written correspondence, personal visits, individual telephone conversations and teleconferencing;

     
  (b)

create, carry out and provide a publicity program to the Company using the following means: (i) financial newspapers, magazines and periodicals; (ii) news, feature and financial sections of the national news magazines; (iii) wire services and feature syndicates; (iv) financial, news and feature sections of daily newspapers; (v) financial television and radio programs (vi) trade periodicals that circulate throughout the Company’s industry; (vii) press releases; and (viii) press presentations and special press interviews (collectively, the “Public Relations Program”);

     
  (c)

the Public Relations Program provided to the Company shall consist of information, provided by the Company to the Contractor. Further, the Public Relations Program will relate to the Company’s general corporate activity; personnel and executives including management and management philosophy; corporate history and future goals; potential sales and earnings; expansion programs; ore findings and reports; and other salient subjects that will enhance the Company’s corporate image;

     
  (d)

write, develop and create the Company’s financial written and graphic materials such as the Company’s annual reports; interim reports; and special communiqués to the Company’s shareholders and the financial community at large;

     
  (e)

in addition to the services provided herein, the Contractor may provide to the Company certain corporate finance advisory services. Through the firms’ relationship with the investment banking community, the Contractor is able to introduce the Company to potential sources of financing, such as, investment bankers, brokerage firms, venture capital groups, and individuals or special group investors. If the Contractor provides such services to the Company and monies are raised for the Company, then the Company agrees to pay to the Contractor a finder’s fee. The amount of such finder’s fee shall be based on a mutually agreed upon percentage of such monies raised;

provided that it is acknowledged that the Company may engage other entities to assist with the corporate and investor relations of the Company and in this regard the Contractor will take such steps as shall be necessary to co-ordinate its activities with such other entities to ensure there is no duplication of services.

2.3                          Fiduciary Obligations

                              Without limiting the generality of the foregoing, the Contractor will not during the term of this Agreement act in any manner contrary to the terms of this Agreement, or the best interests of the Company.

2.4                           Dissemination of Information

                              The Contractor will not disseminate or spread any false or misleading information regarding the Company to any person. The Contractor will disseminate any news and information which


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is specifically authorized in writing by the Company. No act or omission by the Company will act to waive the requirements of this Section 2.4.

2.5                           Books and Records

                              At all times during the term hereof the Contractor shall cause accurate books and records of all expenditures made by it in connection with the activities being performed for the Company under this Agreement to be kept and keep all invoices receipts and vouchers relating thereto and permit the Company or its authorized representatives to inspect, examine, copy and conduct audits of such books and records.

2.6                           Expense Statements

                              The Contractor shall on or before the last day of each calendar month during the term hereof, or if a Saturday, Sunday or holiday the next following business day, render to the Company an itemized statement and accounting for the previous calendar month, together with such supporting documents as and when the Company may reasonably require, of all expenses which the Company is obligated by this Agreement to reimburse.

                              The Contractor may incur expenses in the name of the Company of up to $300 per month, or a higher amount agreed to in advance by the Company, such expenses shall relate solely to the carrying out of the Contractor's duties hereunder. The Contractor will immediately forward all invoices for expenses incurred on behalf of and in the name of the Company and the Company agrees to pay said invoices directly on a timely basis.

ARTICLE 3
COMPANY'S AGREEMENTS

3.1                          Compensation of Contractor

                              As compensation for the services rendered by the Contractor pursuant to this Agreement, the Company shall pay to the Contractor monthly in advance, on or before the first day of each month or if a Saturday, Sunday or holiday the next following business day, a fee of USD$7,500 per month during the Term of this Agreement.

3.2                          Access to Company Information

                              The Company will make available to the Contractor such information and data and will permit the Contractor, its agents and employees, to have access to such documents or premises as are reasonably necessary to enable it to perform the services provided for under this Agreement.

3.3                           Indemnity by Company

                              The Company hereby agrees to indemnify, defend and hold harmless the Contractor, from and against any and all claims, demands, losses, actions, lawsuits and other proceedings, judgments and awards, and costs and expenses (including reasonable legal fees), arising directly or indirectly, in whole or in part, out of any matter related to any action taken by the Contractor within the scope of its duties or authority hereunder, excluding only such of the foregoing as arise from the fraudulent, gross negligence, reckless or wilful act or omission of the Contractor, its officers, directors, agents or employees or as arise in respect of the Contractor's office overhead or the Contractor's general


- 5 -

administrative expenses, and the provisions of this Section 3.3 shall survive termination of this Agreement.

ARTICLE 4
DURATION, TERMINATION AND DEFAULT

4.1                          TSX Approval and Effective Date

                              This Agreement is conditional and subject to the approval of the TSX Venture Exchange, and if approved, this Agreement shall become effective as of the 1st day of July, 2006, and shall remain in force for a term of 12 months, subject to termination as provided herein. The Contractor will assist the Company with providing such information as the TSX Venture Exchange may require in considering this Agreement.

4.2                          Termination

                              This Agreement may be terminated by either party on December 31, 2006 (or the next business day) by giving the other party written notice of such termination, and such termination shall be effective immediately.

4.3                          Duties Upon Termination

                              Upon termination of this Agreement for any reason, the Contractor shall, upon receipt of all sums due and owing, promptly deliver the following in accordance with the directions of the Company:

  (a)

a final accounting, reflecting the balance of expenses incurred on behalf of the Company as of the date of termination; and

     
  (b)

all documents pertaining to the Company or this Agreement, including but not limited to, all books of account, correspondence and contracts, provided that the Contractor shall be entitled thereafter to inspect, examine and copy all of the documents which it delivers in accordance with this provision at all reasonable times upon three (3) days' notice to the Company.

4.4                           Compensation of Contractor on Termination

                              Upon termination of this Agreement, the Contractor shall be entitled to receive as its full and sole compensation in discharge of obligations of the Company to the Contractor under this Agreement (except as otherwise provided in Section 3.4), all sums due and payable under this Agreement to the date of termination and the Contractor shall have no right to receive any further payments; provided, however, that the Company shall have the right to offset against any payment owing to the Contractor under this Agreement any damages, liabilities, costs or expenses suffered by the Company by reason of the fraud, negligence or wilful act of the Contractor, to the extent such right has not been waived by the Company.


- 6 -

ARTICLE 5
CONFIDENTIALITY

5.1                           Ownership of Work Product

                              All reports, documents, concepts, products and processes together with any marketing schemes, business or sales contracts, or any business opportunities prepared, produced, developed, or acquired, by or at the direction of the Contractor, directly or indirectly, in connection with or otherwise developed or first reduced to practice by the Contractor performing the services (collectively, the "Work Product") shall belong exclusively to the Company which shall be entitled to all right, interest, profits or benefits in respect thereof. No copies, summaries or other reproductions of any Work Product shall be made by the Contractor or any of its agents or employees without the express permission of the Company, provided that the Contractor is hereby given permission to maintain one copy of the Work Product for its own use.

5.2                           Confidentiality

                              The Contractor shall not, except as authorized or required by its duties, reveal or divulge to any person or companies any of the trade secrets, secret or confidential operations, processes or dealings or any information concerning the organization, business, finances, transactions or other affairs of the Company, which may come to its knowledge during the term of this Agreement and shall keep in complete secrecy all confidential information entrusted to him and shall not use or attempt to use any such information in any manner which may injure or cause loss, either directly or indirectly, to the Company's business or may be likely so to do. This restriction shall continue to apply after the termination of this Agreement without limit in point of time but shall cease to apply to information or knowledge which may come into the public domain.

                              The Contractor shall comply, and shall cause its agents and employees to comply, with such directions as the Company shall make to ensure the safeguarding or confidentiality of all such information. The Company may require that any agent or employee of the Contractor execute an agreement with the Company regarding the confidentiality of all such information.

5.3                          Devotion to Contract

                              During the term of this Agreement, the Contractor shall devote sufficient time, attention, and ability to the business of the Company, and to any associated company, as is reasonably necessary for the proper performance of its services pursuant to this Agreement. Nothing contained herein shall be deemed to require the Contractor to devote its exclusive time, attention and ability to the business of the Company. During the term of this Agreement, the Contractor shall, and shall cause each of its agents or employees assigned to performance of the services on behalf of the Contractor to,:

  (a)

at all times perform its services faithfully, diligently, to the best of its abilities and in the best interests of the Company;

     
  (b)

devote such of its time, labour and attention to the business of the Company as is necessary for the proper performance of the Contractor's services hereunder; and

     
  (c)

refrain from acting in any manner contrary to the best interests of the Company or contrary to the duties of the Contractor as contemplated herein.



- 7 -

5.4                           Other Activities

                              The Contractor shall not be precluded from acting in a function similar to that contemplated under this Agreement or in any other capacity for any other person, firm or company provided such action shall not conflict with the Contractor's duty to the Company and shall not prevent the Contractor from fulfilling its duties pursuant to this Agreement.

5.5                           Trading/Tipping

                              The Contractor will not disclose to any party information respecting the Company that has not been publicly disclosed, nor will the Contractor trade in shares of the Company while in possession of such knowledge.

ARTICLE 6
MISCELLANEOUS

6.1                           Waiver; Consents

                              No consent, approval or waiver, express or implied, by either party hereto, to or of any breach of default by the other party in the performance by the other party of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such other party of the same or any other obligations of such other party or to declare the other party in default, irrespective of how long such failure continues, shall not constitute a general waiver by such party of its rights under this Agreement, and the granting of any consent or approval in any one instance by or on behalf of the Company shall not be construed to waiver or limit the need for such consent in any other or subsequent instance.

6.2                          Governing Law

                              This Agreement and all matters arising thereunder shall be governed by the laws of the Province of British Columbia.

6.3                           Successors, etc.

                              This Agreement shall enure to the benefit of and be binding upon each of the parties hereto and their respective heirs, successors and permitted assigns.

6.4                          Subcontracts

                              The Contractor has the right, power, and authority to delegate any duties or obligations arising hereunder, with the approval of the Company, or to subcontract its services, or any portion thereof, with the approval of the Company, provided that any subcontract shall be made subject to the terms of this Agreement and the Contractor shall require the subcontractor, to acknowledge such terms in writing at the time the subcontract agreement is executed. No such delegation or subcontracting shall relieve the Contractor from any of its obligations under this Agreement and a subcontractor shall, as between the Company and the Contractor, be deemed to be the agent of the Contractor.

6.5                           Assignment

                              This Agreement may not be assigned by any party except with the written consent of the other party hereto.


- 8 -

6.6                          Entire Agreement and Modification

                              This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements and undertakings, whether oral or written, relative to the subject matter hereof. To be effective any modification of this Agreement must be in writing and signed by the party to be charged thereby.

6.7                          Headings

                              The headings of the Sections and Articles of this Agreement are inserted for convenience of reference only and shall not in any manner affect the construction or meaning of anything herein contained or govern the rights or liabilities of the parties hereto.

6.8                          Notices

                              All notices, requests and communications required or permitted hereunder shall be in writing and shall be sufficiently given and deemed to have been received upon personal delivery or, if mailed, upon the first to occur of actual receipt or forty-eight (48) hours after being placed in the mail, postage prepaid, registered or certified mail, return receipt requested, respectively addressed to the Company or the Contractor as follows:

The Company:

Suite 1060 - 1090 West Georgia Street
Vancouver, British Columbia
V6E 3V7

Attention: Mark Jarvis

The Contractor:

Suite 420 - 625 North Michigan Avenue
Chicago, Illinois
60611

Attention: Martin E. Janis

or such other address as may be specified in writing to the other party, but notice of a change of address shall be effective only upon the actual receipt.

6.9                          Time of the Essence

                              Time is of the essence.

6.10                        Further Assurances

                              The parties hereto agree from time to time after the execution hereof to make, do, execute or cause or permit to be made, done or executed all such further and other lawful acts, deeds, things, devices and assurances in law whatsoever as may be required to carry out the true intention and to give full force and effect to this Agreement.


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6.11                         Counterparts

                              This Agreement may be executed in several counter-parts, each of which will be deemed to be an original and all of which will together constitute one and the same instrument.

                              IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written.

HARD CREEK NICKEL CORPORATION

Per:

            ______________________________________
            Authorized Signatory

 

MARTIN E. JANIS & COMPANY, INC.

Per:

            ______________________________________
            Authorized Signatory




EXHIBIT 4.4

CONFIDENTIAL

May 29, 2006

Mark Jarvis
President and Chief Executive Officer
Hard Creek Nickel Corp.
Suite 1060, 1090 West Georgia Street
Vancouver, BC, V6E 3V7, Canada
Fax: +1-604-681-2310

Re: Financial Advisory Services

Dear Mr. Jarvis,

The purpose of this letter (the “Agreement”) is to set forth the terms of the engagement (the “Engagement”) under which The Balloch Group Ltd. (“TBG”) may be retained by Hard Creek Nickel Corp (“Hard Creek” or the “Company”) to render services to Hard Creek in relation to its interests in China, and in particular, to assist Hard Creek in identifying and potentially developing a long-term partnership with a Chinese entity.

1. Services to be Provided by the Balloch Group

The role of The Balloch Group under the Engagement is to:

  a)

Identify potential partners for Hard Creek in China with the financial capacity and interest in developing a mutually beneficial business relationship relating to the Turnagain nickel deposit in Northern British Columbia, providing Hard Creek with background and analytical information on those potential partners so that Hard Creek can make informed decisions about whether and how it might work with them;

     
  b)

Make introductions and facilitate meetings with potential partners in China;

     
  c)

Prepare presentation materials in English and Chinese that can be used in discussion with potential partners and propose alternative structures to Hard Creek to achieve Hard Creek’s business objectives;

     
  d)

Assist Hard Creek in any discussions and negotiations it has with potential Chinese partners, and ensure that sufficient due diligence has been conducted on those companies to identify any impediments or challenges to the proposed business arrangements;

Page 1 of 6



  e)

Develop, in consultation with Hard Creek, one or more investment structures that would maximize the value to Hard Creek of any proposed transaction, and prepare an implementation strategy with detailed timetables of events, among other things, and assist in ensuring that the deadlines set out in such timetables are met;

     
  f)

Assist Hard Creek and its partner, as appropriate, in obtaining the necessary support for any proposed transaction from Chinese authorities as required;

     
  g)

Advise the Company on potential issues and personalities, among other things, that may affect the Company’s activities and arrange for appropriate introductions and the development of relationships that may be helpful in the pursuit of Hard Creek’s long-term corporate objectives with Chinese entities.


2.

Reports

The Balloch Group will provide regular oral briefings and written reports to Hard Creek on its activities under the Engagement. The parties agree to maintain regular contact through e-mail and telephone conferences in order to facilitate effective communication during the course of the Engagement. In addition to the regular briefings and consultations during the course of the Engagement, The Balloch Group will, upon request, make special presentations to Hard Creek management in Canada or in China.

   
3.

Limitations

The duties and responsibilities of The Balloch Group under this Agreement shall be limited to those expressly set out herein but shall not include The Balloch Group i) giving tax, legal, accountancy or other specialist or technical advice or services other than as otherwise expressly set out above, and which is not intended to take the place of the advice of Hard Creek’s independent professional tax, legal and accounting advisors; and (ii) giving general financial or strategic advice other than expressly set out above.

   

It is emphasised that any valuation advice given by The Balloch Group will be on the understanding that no responsibility or liability whatsoever is assumed by The Balloch Group for the accounting or other data and any commercial or technical assumption on which such a valuation is based. It remains Hard Creek’s sole responsibility to assess and evaluate such advice and the data and assumptions on which such advice is based.

   

In the course of carrying out the Engagement, The Balloch Group shall not (i) represent itself as an agent of Hard Creek, (ii) assume obligations in the name of or on the account of Hard Creek, or (iii) make any representations or warranties on behalf of the Company, except as expressly authorized by Hard Creek. The Balloch Group shall be deemed at all times to be a facilitator and an independent contractor and nothing contained herein shall be deemed to create the relationship of employer and employee between Hard Creek and The Balloch Group.

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4.

Compensation for Services

As compensation for the Services, Hard Creek shall pay TBG the following:


  (a)

Monthly retainer fees in the amount of up to US$9,000 (nine thousand United States dollars) (the “Retainer Fee”) with the first payment to be paid within ten days upon signature of this agreement and subsequent payments paid monthly in arrears within five days upon submission of duly constituted invoices, which invoices will provide a description of the specific services provided by The Balloch Group during the applicable month.

  (b)

Fifty thousand (50,000) options to purchase common shares in Hard Creek, vested immediately, with an exercise price to be set on the date of signature of this agreement;

  (c)

Fifty thousand (50,000) options to purchase common shares in Hard Creek, vested if and when during the Extended Term (defined below) a Chinese entity introduced by TBG enters into a letter of intent to explore investing in the Turnagain nickel project or directly in Hard Creek, with an exercise price to be set on the date of signature of this agreement;

  (d)

One hundred thousand (100,000) options to purchase common shares in Hard Creek, vested if and when during the Extended Term a definitive agreement between Hard Creek and a Chinese partner introduced by TBG is executed by both parties, on an investment by the latter in either the Turnagain nickel project or Hard Creek, with an exercise price to be set on the date of signature of this agreement.

  (e)

It is agreed that options under section (c) and (d) above will be exerciseable only if the events indicated occur during the term of this Agreement or within a period of 18 months after its termination (the “Extended Term”); provided, however, that the board of Hard Creek may determine to accelerate the vesting of such options in its sole discretion.


It is understood that TBG may decide to assign