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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 20-F

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

OR

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

For the fiscal year ended January 31, 2009

OR

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

OR

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

Commission file number: **001-32929**

POLYMET MINING CORP.(Formerly Fleck Resources Ltd.)(Exact name of Registrant as
specified in its charter)

British Columbia, Canada(Jurisdiction
of incorporation or organization)

Suite 1003  1177 West Hastings St., Vancouver, British
Columbia V6E 2K3(Address of principal executive offices)

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

Common Shares, without par value(Title
of Class)

Name of each exchange on which registered

New York Stock Exchange AmexToronto Stock
Exchange

Securities registered or to be registered pursuant to Section
12(g) of the Act:None

Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: None

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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.               
137,303,875

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 of 15(d) of the Securities Exchange Act of 1934. [   ]
Yes   [X] No

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 ninety days. [X]
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 [X] | Non-accelerated filer [   ]
|----------------------------- | --------------------- | ---------------------------

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

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

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

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TABLE OF CONTENTS

|Part
      I    |                                                                                             |   
|--------------- | ------------------------------------------------------------------------------------------- | --
|                |                                                                                             |   
|ITEM
      1.   | IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                                 | 1 
|ITEM
      2.   | OFFER
      STATISTICS AND EXPECTED TIMETABLE                                               | 1 
|ITEM
      3.   | KEY
      INFORMATION                                                                       | 2 
|ITEM
      4.   | INFORMATION
      ON THE COMPANY                                                            | 9 
|ITEM
      4A.  | UNRESOLVED
      STAFF COMMENTS                                                             | 24
|ITEM
      5.   | OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS                                          | 24
|ITEM
      6.   | DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES                                            | 34
|ITEM
      7.   | MAJOR
      SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                     | 39
|ITEM
      8.   | FINANCIAL
      INFORMATION                                                                 | 43
|ITEM
      9.   | THE
      OFFER AND LISTING                                                                 | 43
|ITEM
      10.  | ADDITIONAL
      INFORMATION                                                                | 45
|ITEM
      11.  | QUANTITATIVE
      AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                             | 51
|ITEM
      12.  | DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES                                | 52
|                |                                                                                             |   
|Part
      II   |                                                                                             |   
|                |                                                                                             |   
|ITEM
      13.  | DEFAULT,
      DIVIDEND ARREARAGES AND DELINQUENCIES                                        | 52
|ITEM
      14.  | **MATERIAL
      MODIFICATIONS TO THE RIGHT OF SECURITY HOLDERS AND USE OF
      PROCEEDS** | 52
|ITEM
      15.  | CONTROLS
      AND PROCEDURES                                                               | 52
|ITEM
      16A. | **AUDIT
      COMMITTEE FINANCIAL EXPERT**                                                  | 53
|ITEM
      16B. | **CODE
      OF ETHICS**                                                                    | 53
|ITEM
      16C. | **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**                                            | 55
|                |                                                                                             |   
|Part
      III  |                                                                                             |   
|                |                                                                                             |   
|ITEM
      17.  | FINANCIAL
      STATEMENTS                                                                  | 54
|ITEM
      18.  | FINANCIAL
      STATEMENTS                                                                  | 54
|ITEM
      19.  | EXHIBITS                                                                                    | 58

Financial Statements:

Managements
      Responsibility for the Financial Statements
    F-1Report
      of Independent Registered Public Accounting Firm
    F-3Consolidated
      Balance Sheet
    F-5Consolidated
      Statements of Loss, Other Comprehensive Loss and Deficit
    F-6Consolidated
      Statements of Shareholders Equity
    F-7Consolidated
      Statements of Cash Flows
    F-8Notes
      to Consolidates Financial Statements
    F-9


i

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This Annual Report on Form 20-F contains statements that
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act
of 1934, as amended (the Exchange Act). These statements appear in a number of
different places in this Annual Report and can be identified by words such as
"expects", anticipates, "believes", "intends", "estimates", potential,
possible, "projects", "plans", and similar expressions, or statements that
events, conditions or results will, may, could, or should occur or be
achieved or their negatives or other comparable words. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements that may
expressed or implied by such forward-looking statements. The statements,
including the statements contained in Item 3D Risk Factors, Item 4B Business
Overview, Item 5 Operating and Financial Review and Prospects and Item 11
Quantitative and Qualitative Disclosures About Market Risk, are inherently
subject to a variety of risks and uncertainties that could cause actual results,
performance or achievements to differ significantly. Forward-looking statements
include statements regarding the outlook for our future operations, plans and
timing for our exploration and development programs, statements about future
market conditions, supply and demand conditions, forecasts of future costs and
expenditures, the outcome of legal proceedings, and other expectations,
intentions and plans that are not historical fact. You are cautioned that any
such forward-looking statements are not guarantees and may involve risks and
uncertainties. Our actual results may differ materially from those in the
forward-looking statements due to risks facing us or due to actual facts
differing from the assumptions underlying our predictions. Some of these risks
and assumptions include:

|- | general economic and business
      conditions, including changes in interest rates and exchange rates;                           
|- | ----------------------------------------------------------------------------------------------------------------------------------
|- | prices of natural resources,
      costs associated with mineral exploration and development, and other
      economic conditions;
|- | natural phenomena;                                                                                                                
|- | actions by government
      authorities, including changes in government regulation;                                              
|- | uncertainties associated with
      legal proceedings;                                                                            
|- | changes in the resources market;                                                                                                  
|- | future decisions by management in
      response to changing conditions;                                                          
|- | our ability to execute
      prospective business plans, and                                                                      
|- | misjudgments in the course of
      preparing forward-looking statements.                                                         

We advise you that these cautionary remarks expressly qualify
in their entirety all forward-looking statements attributable to us or persons
acting on our behalf. We expressly disclaim any obligation to update publicly or
otherwise these statements, whether as a result of new information, future
events or otherwise except to the extent required by law. You should carefully
review the cautionary statements and risk factors contained in this and other
documents that we file from time to time with the Securities and Exchange
Commission (the SEC).

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISORS

Not required.

ITEM 2. OFFER STATISTICS AND EXPECTED
TIMETABLE

Not required.

1

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ITEM 3. KEY INFORMATION

A.        Selected
Financial Data

The following table presents selected financial information.
Our financial statements are prepared in accordance with Canadian Generally
Accepted Accounting Principles (GAAP); the application of which conforms in all
material respects for the periods presented with United States (US) GAAP,
except as disclosed in the footnotes to the financial statements. The selected
financial data should be read in conjunction with the consolidated financial
statements and other information included elsewhere in the Annual Report.

Selected Financial Data (US$ in 000s, except loss per share
and weighted average shares)

Year
    Year
    Year
    Year
    YearEnded
    Ended
    Ended
    Ended
    Ended1/31/09
    1/31/08
    1/31/07
    1/31/06
    1/31/05Revenue
    $                 
      
    $                 
      
    $                 
      
    $                 
      
    $                 
      Income (loss) from Operations
    $                 
      
    $                 
      
    $                 
      
    $                 
      
    $                 
      Net Loss
    $        
      (4,536)
    $         (3,690)
    $      (17,893)
    $      (15,929)
    $        
      (4,416)US GAAP Net Loss1
    $       
       (4,979)
    $        
      (4,124)
    $      (18,126)
    $      (15,976)
    $       
       (4,416)Loss Per Share
    $         
       (0.03)
    $          (0.03)
    $          (0.16)
    $          (0.22)
    $          (0.09)US GAAP Loss Per Share
    $          (0.04)
    $          (0.03)
    $          (0.16)
    $          (0.22)
    $          (0.08)Diluted Net Loss Per Share
    $          (0.03)
    $          (0.03)
    $          (0.16)
    $          (0.22)
    $          (0.09)Dividends Per Share
    $                 
      
    $                 
      
    $                 
      
    $                 
      
    $                 
      Weighted Average Shares
    137,187,927
    133,697,572
    114,754,213
    73,484,490
    51,946,290Working Capital
    $           
      3,582
    $        
      16,558
    $           
      5,240
    $           
      9,070
    $           
      1,274Total Assets
    $      
       102,756
    $        
      89,199
    $         48,731
    $         26,034
    $          
       2,350US GAAP Total Assets1
    $       
       101,599
    $       
       88,485
    $         48,451
    $         25,987
    $          
       2,350Long-Term and
      Convertible
    $          24,006
    $         10,834
    $         11,853
    $           
      1,420
    $                 
      DebtUS GAAP Long-Term
      and
    $          24,256
    $        
      10,834
    $         11,853
    $           
      1,420
    $                 
      Convertible Debt2Shareholders Equity
    $          71,492
    $        
      69,151
    $         29,938
    $         19,387
    $           
      2,019US GAAP
      Shareholders
    $          70,085
    $       
       68,437
    $         29,658
    $         19,340
    $          
       2,019Equity1,2Capital Stock
    $       
      104,768
    $       104,615
    $         72,923
    $         46,009
    $        
       19,027US GAAP Mineral Properties1
    $          91,707
    $       
       64,052
    $         37,776
    $         14,178
    $  
                     
      


|1 | Under Canadian GAAP, the Company capitalizes accretion
      relating to asset retirement obligations. Under US GAAP, this amount is
      expensed.                               
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                    
|2 | Under Canadian GAAP, the Company includes the fair value
      of the conversion ability as shareholders equity. Under US GAAP, this
      amount is included in convertible debt.

Unless otherwise indicated, all monetary amounts in this Annual
Report are expressed in United States dollars, the Companys reporting
currency.

2

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D.        Risk
Factors

Factors that could cause our actual results to differ
  materially from those described in the forward-looking statements contained in
  this Annual Report and other documents we file with the Securities andExchange Commission include the risks described below. You
  should also refer to the other information in this Annual Report, including the
  financial statements and accompanying notes thereto.

RISKS RELATING TO OUR BUSINESS

We may experience delays, higher than expected costs,
difficulties in obtaining environmental permits and other obstacles when
implementing our capital expenditure projects.

We are investing heavily in various facets of our NorthMet
Project. Our project is subject to a number of risks that may make it less
successful than anticipated, including:

- we may encounter delays or higher than expected costs in obtaining the
  necessary equipment or services to build and operate our projects, and
- adverse mining conditions may delay and hamper our ability to produce the
  expected quantities of minerals.

Our future activities could be subject to environmental laws
  and regulations which may have a materially adverse effect on our future operations,
  in which case our operations could be suspended or terminated.

We, like other development stage companies doing business in
the United States and Canada, are subject to a variety of federal, provincial,
state and local statutes, rules and regulations designed to, among other things:

- protect the environment, including the quality of the air and water in the
  vicinity of exploration, development, and mining operations;
- remediate the environmental impacts of those exploration, development, and
  mining operations;
- protect and preserve wetlands and endangered species, and
- mitigate negative impacts on certain archeological and cultural sites.

We are required to obtain various governmental permits to
conduct exploration, development, construction and mining activities at our
properties. Obtaining the necessary governmental permits is often a complex and
time-consuming process involving numerous U.S. or Canadian federal, provincial,
state, and local agencies. The duration and success of each permitting effort is
contingent upon many variables not within our control. In the context of
obtaining permits or approvals, we must comply with known standards, existing
laws, and regulations that may entail greater or lesser costs and delays
depending on the nature of the activity to be permitted and the interpretation
of the laws and regulations implemented by the permitting authority. The failure
to obtain certain permits or the adoption of more stringent permitting
requirements could have a material adverse effect on our business, operations,
and properties and we may be unable to proceed with our exploration and
development programs.

Federal legislation and implementing regulations adopted and
administered by the U.S. Environmental Protection Agency, Forest Service, Bureau
of Land Management, Fish and Wildlife Service, Mine Safety and Health
Administration, and other federal agencies, and legislation such as the Federal
Clean Water Act, Clean Air Act, National Environmental Policy Act, Endangered
Species Act, and Comprehensive Environmental Response, Compensation, and
Liability Act, have a direct bearing on U.S. exploration, development and mining
operations. Due to the uncertainties inherent in the permitting process, we
cannot be certain that we will be able to obtain required approvals for proposed
activities at any of our properties in a timely manner, or that our proposed
activities will be allowed at all.

The process of obtaining federal and local regulatory approvals
is increasingly cumbersome, time-consuming, and expensive, and the cost and
uncertainty associated with the permitting process could have a material adverse
effect on exploring, developing or mining our properties. Moreover, compliance
with statutory environmental quality requirements described above may require
significant capital outlays, significantly affect our earning power, or cause
material changes in our intended activities. Environmental standards imposed by federal, state, or local governments may
be changed or become more stringent in the future, which could materially and
adversely affect our proposed activities.

3

---

Because the price of metals fluctuate, if the prices of
metals in our ore body decrease below a specified level, it may no longer be
profitable to develop our NorthMet Project for those metals and we will cease
operations.

Prices of metals are determined by some of the following
factors:

- expectations for inflation;
- the strength of the United States dollar;
- global and regional supply and demand, and
- political and economic conditions and production costs in major metals
  producing regions of the world.

The aggregate effect of these factors on metals prices is
impossible for us to predict. In addition, the prices of metals are sometimes
subject to rapid short-term and/or prolonged changes because of speculative
activities. The current demand for and supply of various metals affect the
prices of copper, nickel, cobalt, platinum, palladium and gold, but not
necessarily in the same manner as current supply and demand affect the prices of
other commodities. The supply of these metals primarily consists of new
production from mining. If the prices of copper, nickel, cobalt, platinum,
palladium and gold are, for a substantial period, below our foreseeable costs of
production, we could cease operations.

We are dependent on our key personnel

Our success depends on key members of our management. The loss
of the services of one or more of such key management personnel could have a
material adverse effect us. Our ability to manage exploration and development
activities, and hence our success, will depend in large part on the efforts of
these individuals. We face intense competition for qualified personnel, and we
cannot be certain that we will be able to attract and retain such personnel.

We may not be able to raise the funds necessary to develop
our mineral properties. If we are unable to raise such additional funds, we will
have to suspend or cease operations.

We will need to seek additional financing to complete our
development and construction of the NorthMet Project. Sources of such external
financing include future equity offerings, advance payments by potential
customers to secure long-term supply contracts, grants and low-cost debt from
certain state financial institutions, and commercial debt secured by the
NorthMet Project. The failure to obtain such additional financing could have a
material adverse effect on our results of operations and financial condition. We
may not be able to secure the financing necessary to sustain exploration and
development activities in the future. If we cannot raise the money necessary to
continue to explore and develop our property, we will have to suspend or cease
operations.

Our metals exploration and development efforts are highly
speculative in nature and may be unsuccessful.

As a development stage company, our work is speculative and
involves unique and greater risks than are generally associated with other
businesses.

The development of mineral deposits involves uncertainties,
which careful evaluation, experience, and knowledge cannot eliminate. Although
the discovery of an ore body may result in substantial rewards, few properties
explored are ultimately developed into producing mines. It is impossible to
ensure that the current development program we have planned will result in a
profitable commercial mining operation. Significant capital investment is
required to achieve commercial production from successful exploration
efforts.

We are subject to all of the risks inherent in the mining
industry, including, without limitation, the following:

4

---

- Success in discovering and developing commercially viable quantities of
  minerals is the result of a number of factors, including the quality of
  management, the interpretation of geological data, the level of geological and
  technical expertise and the quality of land available for exploration;
- Exploration for minerals is highly speculative and involves substantial
  risks, even when conducted on properties known to contain significant
  quantities of mineralization, and most exploration projects do not result in
  the discovery of commercially mineable deposits of ore;
- Operations are subject to a variety of existing laws and regulations
  relating to exploration and development, permitting procedures, safety
  precautions, property reclamation, employee health and safety, air and water
  quality standards, pollution and other environmental protection controls, all
  of which are subject to change and are becoming more stringent and costly to
  comply with;
- A large number of factors beyond our control, including fluctuations in
  metal prices and production costs, inflation, the proximity and liquidity of
  precious metals and energy fuels markets and processing equipment, government
  regulations, including regulations relating to prices, taxes, royalties, land
  tenure, land use, importing and exporting of minerals and environmental
  protection, and other economic conditions, will affect the economic
  feasibility of mining;
- Substantial expenditures are required to construct mining and processing
  facilities;
- Title to mining properties may be subject to other claims, and
- In the development stage of a mining operation, our mining activities could
  be subject to substantial operating risks and hazards, including metal bullion
  losses, environmental hazards, industrial accidents, labor disputes,
  encountering unusual or unexpected geologic formations or other geological or
  grade problems, encountering unanticipated ground or water conditions, cave-
  ins, pit-wall failures, flooding, rock falls, periodic interruptions due to
  inclement weather conditions or other unfavorable operating conditions and
  other acts of God. Some of these risks and hazards are not insurable or may be
  subject to exclusion or limitation in any coverage which we obtain or may not
  be insured due to economic considerations.

As a result of all of these factors, we may run out of money,
in which case we will have to suspend or cease operations.

Our actual mineral reserves and mineral resources may not
conform to our established estimates.

The figures for mineral reserves and mineral resources stated
in this Annual Report are estimates and no assurances can be given that the
anticipated tonnages and grades will be achieved or that the indicated level of
recovery will be realized. Market fluctuations and the prices of metals may
render reserves and mineral resources uneconomic. Moreover, short-term operating
factors relating to the mineral deposits, such as the need for the orderly
development of the deposits or the processing of new or different grades of ore,
may cause a mining operation to be unprofitable in any particular accounting
period.

There is no assurance that any of our mineral resources, not
currently classified as mineral reserves, will ever be classified as mineral
reserves under the disclosure standards of the SEC.

Item 4.D of this Annual Report discusses our mineral resources
in accordance with Canadian National Instrument 43-101  Standards of Disclosure
for Mineral Projects (NI 43-101). Resources are classified as measured
resources, indicated resources and inferred resources under NI 43-101.
However, U.S. investors are cautioned that the SEC does not recognize these
resource classifications. There is no assurance that any of our mineral
resources, not currently classified as mineral reserves, will be converted into
mineral reserves under the disclosure standards of the SEC.

We have had no production history and we do not know if we
will generate revenues in the future.

While we were incorporated in 1981, we have no history of
producing minerals. We have not developed or operated any mines, and we have no
operating history upon which an evaluation of our future success or failure can
be made. We currently have no mining operations of any kind. Our ability to
achieve and maintain profitable mining operations is dependent upon a
number of factors, including our ability to either attract a partner to operate,
or to successfully build and operate mines, processing plants and related
infrastructure ourselves.

5

---

We are subject to all the risks associated with establishing
new mining. We may not successfully establish mining operations or profitably
produce metals at any of our properties. As such, we do not know if we will ever
generate revenues.

We have a history of losses which we expect will continue
for the future. If we do not begin to generate revenues or find alternate
sources of capital, we may either have to suspend or cease operations.

As a development stage company with no holdings in any
producing mines, we continue to incur losses and expect to incur losses in the
future. As of January 31, 2009, we had an accumulated deficit of $60,825,000. We
may not be able to achieve or sustain profitability in the future. If we do not
begin to generate revenues or find alternate sources of capital, we may either
have to suspend or cease operations.

We may not have adequate, if any, insurance coverage for
some business risks that could lead to economically harmful consequences to
us.

Our businesses are generally subject to a number of risks and
hazards, including:

- industrial accidents;
- railroad accidents;
- labor disputes;
- environmental hazards;
- electricity stoppages;
- equipment failure, and
- severe weather and other natural phenomena.

These occurrences could result in damage to, or destruction of,
mineral properties, production facilities, transportation facilities, or
equipment. They could also result in personal injury or death, environmental
damage, waste of resources or intermediate products, delays or interruption in
mining, production or transportation activities, monetary losses and possible
legal liability. The insurance we maintain against risks that are typical in our
business may not provide adequate coverage. Insurance against some risks
(including liabilities for environmental pollution or certain hazards or
interruption of certain business activities) may not be available at a
reasonable cost or at all. As a result, accidents or other negative developments
involving our mining, production or transportation facilities could have a
material adverse effect on our operations.

The mining industry is an intensely competitive industry,
and we may have difficulty effectively competing with other mining companies in
the future.

We face intense competition from other mining and producing
companies. In recent years, the mining industry has experienced significant
consolidation among some of our competitors, as a result these companies may be
more diversified than us. We cannot assure you that the result of current or
further consolidation in the industry will not adversely affect us.

In addition, because mines have limited lives we must
periodically seek to replace and expand our reserves by acquiring new
properties. Significant competition exists to acquire properties producing or
capable of producing copper, nickel and other metals.

If we are unable to successfully manage these risks, our growth
prospects and profitability may suffer.

6

---

We may be subject to risks relating to the global economy.

Recent market events and conditions, including disruptions in
the international credit markets and other financial systems and the
deterioration of global economic conditions could impede our access to capital
or increase the cost of capital. In 2007 and into 2008, the U.S. credit markets
began to experience serious disruption due to, among other things, deterioration
in residential property values, defaults and delinquencies in the residential
mortgage market and a decline in the credit quality of mortgage backed
securities. These problems led to a slow-down in residential housing market
transactions, declining housing prices, delinquencies in non-mortgage consumer
credit and a general decline in consumer confidence. These conditions worsened
in 2008 and are continuing in 2009, causing a loss of confidence in the broader
U.S. and global credit and financial markets and resulting in the collapse of,
and government intervention in, major banks, financial institutions and insurers
and creating a climate of greater volatility, less liquidity, widening of credit
spreads, a lack of price transparency, increased credit losses and tighter
credit conditions. Notwithstanding various actions by the U.S. and foreign
governments, concerns about the general condition of the capital markets,
financial instruments, banks, investment banks, insurers and other financial
institutions caused the broader credit markets to further deteriorate and stock
markets to decline substantially. In addition, general economic indicators have
deteriorated, including declining consumer sentiment, increased unemployment and
declining economic growth and uncertainty about corporate earnings.

These unprecedented disruptions in the current credit and
financial markets have had a significant material adverse impact on a number of
financial institutions and have limited access to capital and credit for many
companies. These disruptions could, among other things, make it more difficult
us to obtain, or increase its cost of obtaining capital and financing for its
operations. Our access to additional capital may not be available on terms
acceptable to it or at all.

We are also exposed to liquidity risks in meeting its operating
and capital expenditure requirements in instances where cash positions are
unable to be maintained or appropriate financing is unavailable. These factors
may impact our ability to obtain loans and other credit facilities in the future
and, if obtained, on terms favourable to us. If these increased levels of
volatility and market turmoil continue, our operations could be adversely
affected and the trading price of our shares could be adversely affected. As a
result of current global financial conditions, numerous financial institutions
have gone into bankruptcy or have been rescued by government authorities. As
such, we are subject to the risk of loss of its deposits with financial
institutions that hold our cash.

RISKS RELATED TO THE OWNERSHIP OF OUR STOCK

We may experience volatility in our stock price.

Our common shares are listed for trading on the Toronto Stock
Exchange and on the American Stock Exchange. Our shareholders may be unable to
sell significant quantities of the common shares into the public trading markets
without a significant reduction in the price of the shares, if at all. The
market price of our common shares may be affected significantly by factors such
as changes in our operating results, the availability of funds, fluctuations in
the price of metals, the interest of investors, traders and others in
development stage public companies such as us and general market conditions. In
recent years the securities markets have experienced a high level of price and
volume volatility, and the market price of securities of many companies,
particularly small capitalization development companies similar to us, have
experienced wide fluctuations, which have not necessarily been related to the
operating performances, underlying asset values, or the future prospects of such
companies. There can be no assurance that future fluctuations in the price of
our shares will not occur.

A large number of shares will be eligible for future sale
and may depress our stock price.

Our shares that are eligible for future sale may have an
adverse effect on the price of our stock. As of January 31, 2009 there were
137,303,875 of our common shares outstanding. The average trading volume for the
three months prior to January 31, 2009 was approximately 102,000 shares per day
on the Toronto Stock Exchange and 297,000 shares per day on the New York Stock Exchange Amex. Sales of substantial amounts of our common shares, or a perception that such sales could occur, and the existence of options or warrants to purchase common shares
at prices that may be below the then current market price of our common shares, could adversely affect the market price of our common shares and could impair our ability to raise capital through the sale of our equity securities.

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Your ownership interest, voting power and the market price of our common shares may decrease because we have issued, and may continue to issue, a substantial number of securities convertible or exercisable into our common shares.

We have issued common shares and options, and warrants to purchase our common shares to satisfy our obligations and fund our operations (see Item 5.A).  Since we currently do not have a source of revenue, we will likely issue additional common
shares, options, warrants, preferred stock or other securities exercisable for or convertible into our common shares to raise money for our continued operations or as non-cash incentives to our own and our subsidiaries' directors, officers,
insiders, and key employees. If conversions of warrants and/or options into common shares or additional sales of equity occur, your ownership interest and voting power in us will be diluted and the market price of our common shares may decrease.

Under our 2007 Omnibus Share Compensation Plan (the Plan) which was adopted on May 25, 2007, and approved by our shareholders on June 27, 2007, the aggregate number of Common Shares that may be issuable pursuant to the Plan may not at
any time exceed the greater of (i) 10% of our issued and outstanding common shares and (ii)18,592,888 common shares, representing 13.62% of our outstanding common shares at the time of the approval of the Plan, of which 5,940,000 common shares are
reserved for issuance as awards other than options. As of January 31, 2009 the aggregate number of Common Shares issuable pursuant to the Plan was 13,730,387 shares.  Our bonus share incentive plan (the Bonus Plan) was established for
our directors and key employees and was approved by the disinterested shareholders at the Companys shareholders meeting held on May 28, 2004. Under the Bonus Plan we may issue an additional 4,940,000 shares upon achieving certain
milestones.

Upon any issuances or exercise of options issued, the ownership interests and voting power of existing shareholders may be further diluted.

We have a Shareholders Rights Plan Agreement and certain employment and management contracts that contain provisions designed to discourage a change of control.

An updated Shareholders Rights Plan between us and shareholders effective as of June 27, 2007 and modified on June 17, 2008 and certain employment and management agreements contain provisions that could discourage an acquisition or change of control
without our board of directors approval. Under the Shareholders Rights Plan, if a shareholder individually or in concert with other shareholders acquires 20% or more of our common shares outstanding without complying with the
Shareholders Rights Plan or without the approval of our board of directors, all holders of record will have a right to one common share for each share owned. We have also entered into agreements with certain key employees and officers that
contain severance provisions in the event of a take-over bid. The Shareholders Rights Plan and the preceding agreements may make it more difficult for a third party to acquire control of us, even if such a change of control is more beneficial
to shareholders.

Because we believe that we will be classified as a passive foreign investment company (a PFIC), U.S. holders of our common shares may be subject to United States federal income tax consequences that are worse than those that would apply if we
were not a PFIC.

Because we believe that we will be classified as a passive foreign investment company (a PFIC), U.S. holders of our common shares may be subject to United States federal income tax consequences that are worse than those that would apply if we were
not a PFIC, such as ordinary income treatment plus a charge in lieu of interest upon a sale or disposition of our common shares even if the shares were held as a capital asset. See Certain United States Federal Income Tax Consequences.

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Conflicts of Interest

Certain of our directors, officers or promoters are directors,
officers, significant shareholders or promoters of other U.S. and Canadian
publicly traded companies. As a result, potential conflicts of interest may
arise with respect to the exercise by such persons of their respective duties
for us. In the event that such a conflict of interest arises at a meeting of our
directors, a director who has such a conflict will abstain from voting for or
against the approval of such participation or such terms. In the appropriate
cases, we will establish a special committee of independent directors to review
a matter in which several directors, or management, may have a conflict. Other
than as indicated, we have no other procedures or mechanisms to deal with
conflicts of interest. We are not aware of any conflicts of interest at the
present time.

Absence of Dividends

We have never declared or paid cash dividends on our common
shares and do not anticipate doing so in the foreseeable future. There can be no
assurance that our board of directors will ever declare cash dividends, which
action is exclusively within its discretion. Investors cannot expect to receive
a dividend on our common shares in the foreseeable future, if at all.

Increased Costs and Compliance Risks as a Result of Being a
Public Company

Legal, accounting and other expenses associated with public
company reporting requirements have increased significantly in the past few
years. We anticipate that general and administrative costs associated with
regulatory compliance will continue to increase with recently adopted governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002, as
well as new rules implemented by the SEC, Canadian Securities Administrators,
the New York Stock Exchange Amex and the TSX. We expect these rules and
regulations to significantly increase its legal and financial compliance costs
and to make some activities more time consuming and costly. There can be no
assurance that we will continue to effectively meet all of the requirements of
these new regulations, including Sarbanes-Oxley Section 404 and Canadian
National Instrument 52-109  Financial Disclosure (NI 52-109). Any failure to
effectively implement new or improved internal controls, or to resolve
difficulties encountered in their implementation, could harm our operating
results, cause us to fail to meet reporting obligations or result in management
being required to give a qualified assessment of our internal controls over
financial reporting or our independent registered public accounting firm
providing an adverse opinion regarding managements assessment. Any such result
could cause investors to lose confidence in our reported financial information,
which could have a material adverse effect on our stock price. We also expect
these new rules and regulations may make it more difficult and more expensive
for us to obtain director and officer liability insurance, and it may be
required to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. As a result, it may be more
difficult for us to attract and retain qualified individuals to serve on our
board of directors or as executive officers. If we fail to maintain the adequacy
of our internal controls, our ability to provide accurate financial statements
and comply with the requirements of the Sarbanes-Oxley Act and/or MI 52-109
could be impaired, which could cause the our stock price to decrease.

ITEM 4. INFORMATION ON THE COMPANY

A.        History and
Development of the Company

PolyMet Mining Corp. was incorporated under the British
ColumbiaCompanies Act and continued under the Business Corporations
Act(British Columbia) in British Columbia, Canada on March 4, 1981, under
the name Fleck Resources Ltd., which we changed to PolyMet Mining Corp. on June
10, 1998.

Our principal executive office is situated at Suite 1003  1177
West Hastings Street, Vancouver, B.C. V6E 2K3. Our phone number is (604)
669-4701. Our registered and records office is located at our legal counsels
offices situated at 2500  700 West Georgia Street, Vancouver, B.C. V7Y 1B3,
CANADA. Our operational headquarters are located at P.O. Box 475, 6500
County Road 666, Hoyt Lakes, Minnesota 55750-0475, United States.

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We are a reporting issuer in the following Canadian provinces:
Alberta, British Columbia, and Ontario. Our common shares have been listed on
the Toronto Stock Exchange (TSX) since February 1, 2007 and, formerly, on the
TSX Venture Exchange (TSX-V) (formerly the Vancouver Stock Exchange) from April
13, 1984 to January 31, 2007 under the symbol "POM" and since June 26, 2006 our
common shares have been listed on the New York Stock Exchange Amex (formerly the
American Stock Exchange) under the symbol PLM.

Our registrar and transfer agent is Computershare Investor
Services Inc. of 9th Floor, 100 University Avenue, Toronto, Ontario M5J 2Y1,
CANADA.

During the years ended January 31, 2009, 2008, and 2007 we
spent $22.776 million, $21.161 million, and $13.015 million, respectively to
acquire property, perform pre-feasibility work and perform work following
completion of our Definitive Feasibility Study on our NorthMet Project located
in Minnesota, USA. In addition, during the years ended January 31, 2009, 2008,
and 2007 we issued shares valued at $nil, $nil and $6.160 million, respectively,
in optioning and purchasing a nearby crushing and grinding plant and associated
infrastructure (the Erie Plant) and land.

All of these expenses were incurred at our NorthMet Project and
were funded from the proceeds of equity and convertible debtfinancings. Until the completion of Definitive Feasibility Study in
September 2006, these expenditures were expensed with the exception of the Erie
Plant acquisition. Expenditures after October 1, 2006, the completion of the
Definitive Feasibility Study, have been capitalized.

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B.        Business
Overview

We are a development stage company engaged in the exploration
and development of natural resource properties. Currently our sole mineral
property is the NorthMet Project, a polymetallic deposit located in northeastern
Minnesota, USA.

In the years ended January 31, 2009, 2008 and 2007, we
conducted exploration, development and acquisition activities only and did not
conduct any operations that generated revenues. Thus, we rely principally on
equity or debt convertible into equity financings to fund our projects and
expenditures.

Since 2003, we have focused on commencing commercial production
on our NorthMet Project. We have focused our efforts on four main areas:

Acquisition of the Erie Plant.
The Erie Plant is a large processing facility and associated infrastructure
located approximately six miles west of our NorthMet deposit. On November 15,
2005 and December 20, 2006 respectively we entered into three Contracts for Deed
with Cliffs Erie LLC, a subsidiary of Cliffs Natural Resources Inc. (formerly
Cleveland Cliffs, Inc.) of Cleveland, Ohio (Cliffs), under which we now own a
large processing facility, a tailings disposal facility, and extensive
associated infrastructure located approximately six miles west of our NorthMet
deposit. In combination, the Erie Plant includes a 100,000 ton-per-day crushing
and milling facility, a railroad and railroad access rights connecting the Erie
Plant to the NorthMet deposit, as well as 120 railcars, locomotive fueling and
maintenance facilities, water rights and pipelines, large administrative offices
on site and approximately 6,000 acres to the east and west of the Erie Plant,
contiguous to the existing tailing facilities.

Environmental permitting.To
commence commercial production at NorthMet, various regulatory approvals are
needed. The Minnesota Department of Natural Resources (the MDNR), the United
States Forest Service (the USFS) and the United States Army Corps of Engineers
(the USACE) agreed to cooperate in preparing a single Environmental Impact
Statement (the EIS) under state guidelines issued by the MDNR.

The draft EIS will be an assessment of
potential environmental, social and economic effects of the proposed project.
Once the draft EIS is published, non-government organizations, government
agencies and the public will have an opportunity to comment. The final EIS will
incorporate analysis and appropriate responses to comments. The issuance of a
final EIS would allow the MDNR to issue environmental and operating permits.
Prior to receipt of these permits, the Company intends to secure production debt
financing that would be available upon receipt of key permits, with construction
slated to start upon availability of construction finance.

Engineering and feasibility. We
retained Bateman Engineering Pty. of Brisbane, Australia (Bateman) as the
coordinating consultant to prepare a Definitive Feasibility Study (the DFS).
On September 25, 2006 we reported that the Definitive Feasibility Study (DFS)
prepared by Bateman confirmed the economic and technical viability of our
NorthMet Project.

Bateman was responsible for completing
the process design and detail engineering and cost estimates for the plant and
infrastructure. This work was supported by other firms that provided
geo-statistical reviews of the ore body, mine planning and scheduling of ore and
waste, and assessment of the market for the metals and intermediate products
planned to be produced.

Since September 2006 we have completed
additional drilling, expanded the reserves, and more recently we have been
updating the mine scheduling, approximately within the DFS pit design, and
updating estimated capital and operating costs.

In May 2008 we completed an internal
update of the DFS (the DFS Update) which contemplates an initial stage in
which we would sell concentrate during completion of construction and
commissioning of the hydrometallurgical plant that was contemplated in the DFS.
This approach has the advantage of staging capital costs so that the
hydrometallurgical plant can be funded in part from cash
flow from sales of concentrate, and it reduces our reliance on delivery of long
lead-time equipment before we start commercial production.

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Financing and corporate
development. Since 2003 we have raised approximately $80 million from equity
private placement financings. In October 2008, we entered into a strategic
partnership with Glencore AG (Glencore) whereby Glencore will invest up to $50
million in PolyMet in the form of a loan exchangeable into our common shares,
and Glencore agreed to purchase all of our production of concentrates, metal, or
intermediate products on market terms at the time of delivery, for at least the
first five years of production. We also appointed a senior technical
representative of Glencore to join our Technical Steering Committee. We have
also expanded and strengthened our management team and, in February 2008 we
relocated our operational headquarters to Hoyt Lakes, Minnesota.

C.        Organizational
Structure

Poly Met Mining, Inc., incorporate in Minnesota, USA, is our only material wholly owned subsidiary.

We have strengthened our management team at both the corporate
level and at our facilities in Minnesota. During the fiscal year ended January
31, 2009 we appointed Joseph Scipioni, Frank Sims and Stephen Rowland to the
Board, we appointed William Murray as Executive Chairman and we promoted Joseph
Scipioni to the position of President and Chief Executive Officer.

D.        Property, Plant
and Equipment

Property - NorthMet Project, Minnesota, USA

Our primary mineral property is the NorthMet Project, a
polymetallic project located in northeastern Minnesota, USA. Our Erie Plant
facility is located approximately six miles west of the NorthMet ore body.

In the years ended January 31, 2009, 2008 and 2007, we
conducted exploration, development and acquisition activities only and did not
conduct any operations.

(a)        History

The NorthMet Project is located immediately south of the
historic Mesabi Iron Range in northeastern Minnesota. Mining in the Iron Range
dates back to the 1880s when high grade iron ore known as hematite was first
mined commercially. During the 1940s and 1950s, with reserves of hematite
dwindling, the iron industry began to focus on taconite, a lower-grade iron ore.
Eight large crushing, grinding, milling facilities were built by various iron
and steel companies to process the taconite, including the Erie Plant that we
acquired in November 2005.

In the 1940s, copper and nickel were discovered nearby,
following which, in the 1960s, United States Steel Corporation (US Steel)
drilled what is now our NorthMet property. US Steel investigated the deposit as
a high-grade, underground copper-nickel resource, but considered it to be
uneconomic based on its inability to produce separate, clean nickel and copper
concentrates with the metallurgical processes available at that time. In
addition, prior to the development of the autocatalyst market in the 1970s,
there was little market for platinum group metals (PGMs) and there was no
economic and reliable method to assay for low grades of these metals.

In 1987, the Minnesota Natural Resources Research Institute
(NRRI) published data suggesting the possibility of a large resource of PGMs
in the base of the Duluth Complex. In 1989, we acquired a 20-year renewable
mining lease over the property from US Steel and commenced an investigation into
the potential for mining and recovery of copper, nickel, and PGMs. We re-assayed
pulps and rejects from the previous US Steel drilling to obtain data on the
PGMs. Sequentially we entered into joint venture agreements with Nerco and Argosy Mining, which assisted in identifying and quantifying potential PGM values.  However, the challenge of producing separate concentrates of saleable copper and nickel remained.

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In the mid-90s, we began investigating the use of alternative metallurgical processes, including bio-leaching and pressure oxidation.  In 1998 we focused on a hydrometallurgical technology that uses autoclaves, which are vessels operating at
high temperature, high pressure, and in an oxygen-enriched environment, to oxidize the sulfidic ores and leach the metals therein. This technology has been used commercially in the copper, nickel, cobalt, and precious metals industries since the
1980s.

In July 2000, we entered into a joint venture arrangement with North Limited (North), a major Australian mining company, to advance the NorthMet Project to commercial production.  Under the joint venture arrangement, North had the
opportunity to earn an 87.5% interest in the NorthMet Project by producing a feasibility study and funding 100% of the total capital costs to develop the project.

In August 2000, Rio Tinto Limited (Rio Tinto) acquired North. Subsequently, Rio Tinto decided not to proceed with the NorthMet Project and we exercised our 30-day pre-emptive right, under a change of control clause, to
terminate the joint venture arrangement. As a result, we regained a 100% interest in the NorthMet Project.

Following completion of metallurgical pilot plant work in November 2000, we commissioned a pre-feasibility study on the project that was completed in April 2001. The pre-feasibility study contemplated a 50,000 metric tonne-per-day (55,000 short tpd)
operation and anticipated the construction of a new, stand-alone processing plant to produce copper, nickel and cobalt metals on site. The study found the economics of the NorthMet Project were unacceptably low owing to the capital cost of building
a new plant facility combined with low metal prices prevailing at that time. No further work was done until March 2003, when a new management team took over our company and commenced a detailed review of the project.

The new management team believed that acquisition of the Erie Plant had the potential to substantially reduce the capital cost and to simplify the permitting process which could improve the project economics.

By a Memorandum of Understanding dated December 5, 2003 and an option agreement dated February 14, 2004, we obtained an option (the Cliffs Option) to acquire certain property, plant, and equipment (Cliffs Assets) from Cliffs
Erie LLC, a wholly owned subsidiary of Cliffs, located near our NorthMet Project. As consideration for the Cliffs Option, we paid $500,000 prior to January 31, 2004 and issued to Cliffs 1,000,000 shares of our common stock on March 30, 2004,
valued at $229,320 to maintain our exclusive rights until June 30, 2006. On September 15, 2005 we reached an agreement with Cliffs on the terms for the early exercise of our option to acquire 100% ownership of large portions of the former LTV
Steel Mining Company ore processing plant in northeastern Minnesota (the Asset Purchase Agreement). Under this agreement we agreed to pay Cliffs $1 million in cash, 6.2 million of our shares, and make quarterly payments of
$250,000 starting on March 31, 2006 for a total of $2.4 million plus interest at 4% per annum on the outstanding balance. The final payment was made on June 30, 2008.

On November 15, 2005, we consummated the Asset Purchase Agreement and completed the acquisition thereunder. The property, plant, and equipment assets we now own includes land, crushing and milling capacity, extensive spare parts, plant site
buildings, real estate, tailings impoundments and workshops, as well as access to extensive mining infrastructure.

On September 14, 2006, we entered into an agreement through two separate contracts for deed with Cliffs whereby we would acquire property and associated rights (Cliffs II.) We closed the transaction on December 20, 2006.  The transaction
provides us with a railroad connection linking the mine development site and the Erie Plant as well as a 120-railcar fleet, locomotive fueling and maintenance facilities, water rights and pipelines, large administrative offices on site and
approximately 6,000 acres to the east and west of and contiguous to our existing tailings facilities.

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The purchase price for this additional infrastructure consisted
of 2 million of our common shares and US$15 million in cash to be issued and
paid in four tranches:

- 2 million of our common shares;
- $1 million in cash was paid at closing;
- $7 million in cash is payable in quarterly installments of $250,000
  commencing December 31, 2006 with the balance payable upon receipt of
  commercial financing. Interest on the outstanding amount be payable quarterly
  from December 31, 2006 at the Wall Street JournalPrime Rate. As of
  March 31, 2009 the remaining balance was $4.5 million; and
- $7 million in cash is payable in quarterly installments of $250,000
  commencing on December 31, 2009. Interest will begin to accrue on the
  outstanding amount beginning on December 31, 2009 after which it will be
  payable quarterly at the Wall Street JournalPrime Rate.

PolyMet also assumed certain liabilities associated with the
property.

As of January 31, 2009, we have expended $93 million primarily
on the acquisition of the Erie Plant and related infrastructure. Under the Asset
Purchase Agreement we have paid $3.4 million plus interest and owe Cliffs $nil.
Under Cliffs II we have paid $4.25 million plus interest and owe $11.75 million.

During the three years ended January 31, 2009 we expended an
additional $20.0 million on feasibility work at the deposit and plant. Since
inception, we have a cumulative deficit of $60.8 million, much of which has been
incurred directly and indirectly in connection with our NorthMet Project. These
expenditures supported drilling, sampling, assaying, environmental,
metallurgical testing, and the pre-feasibility studies.

The following diagram illustrates the location of the NorthMet
  Project.

Figure No. 1 NorthMet Project Map



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(b)        Location /
Access / Climate

The PolyMet Project covers a total of 16,700 acres or 25.9
square miles comprising two areas: the NorthMet mine site totaling 4,300 acres
or 6.5 square miles of leased mineral rights and the Erie plant site totaling
12,400 acres of freehold land located approximately six miles west of the mine
site. The property is located in St. Louis County in the Mesabi Range District
about 60 miles north of Duluth, Minnesota. The Project is easily accessible via
state and county roads. The surfaced County Highway 666 links the plant to the
town of Hoyt Lakes, itself approximately 25 miles east of Virginia, Minnesota
which is located on State Highway 53. The mine site is accessible by an
all-season gravel road from the plant site and a private railroad crosses the
property immediately south of the deposit and runs to the plant site. The plant
site is serviced by commercial railroad which connects into the US national and
Trans-Canadian railroad systems, as well as a private railroad providing access
to port facilities located on Lake Superior. Three high-voltage power lines
supplied by Minnesota Power supply the plant site and there is ready access to
industrial electric power at the mine site.

The northern Minnesota climate is continental, characterized by
wide variations in temperature. The temperature in the nearby town of Babbit
averages -14oC (7oF) in January and 19oC (66oF) in July. The average annual
precipitation is 28 inches with approximately 30% during the months from
November to April and 70% from May through October.

(c)        Claims and
ownership

(i)        NorthMet Leases

Pursuant to two lease agreements, we lease certain lands
covering 4,282 acres or 6.5 square miles located in St. Louis County, Minnesota,
known as the NorthMet Project:

- Pursuant to an agreement dated January 4, 1989, subsequently amended and
      assigned, we lease 4,162 acres from RGGS Land & Minerals Ltd., L.P (RGGS).
      During the year ended January 31, 2005, US Steel assigned the lease to RGGS.
      The initial term of the renewable lease was 20 years and called for total
      lease payments of $1.450 million. All lease payments have been paid or accrued
      to 31 January 2009.
      We can, at our option, terminate the lease at any time by giving written
      notice to the lessor not less than 90 days prior to the effective termination
      date or can indefinitely extend the 20-year term by continuing to make $150,000
      annual lease payments on each successive anniversary date.The lease payments
      are considered advance royalty payments and will be deducted from future
      production royalties payable to RGGS, which range from 3% to 5% based on
      the net smelter return that we receive. Our recovery of the advance royalty
      payments is subject to the lessor receiving an amount not less than the
      amount of the annual lease payment due for that year.
- Pursuant to an agreement effective 1 December, 2008, we lease 120 acres
      that are encircled by the RGGS property from LMC Minerals (LMC).
      The initial term of the renewable lease is 20 years and calls for minimum
      annual lease payments of $3,000 on each successive anniversary date until
      our project commences commercial production, or for the first four years,
      whichever is the shorter, after which the minimum annual lease payment increases
      to $30,000. The initial term may be extended for up to four additional five-year
      periods on the same terms.
      The lease payments are considered advance royalty payments and will be deducted from future production royalties payable to LMC, which range from 3% to 5% based on the net smelter return that we receive.  Our recovery of the advance royalty payments is subject to the lessor receiving an amount not less than the amount of the annual lease payment due for that year.(ii)              
      The Erie Plant

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The Erie PlantAs set forth under the Asset Purchase
Agreement, we have assumed certain ongoing site-related environmental and
reclamation obligations of Cliffs in connection with the Erie Plant. Once we
obtain our permit to mine and Cliffs is released from its obligations by certain
state agencies, we will be directly obligated to comply with applicable
environmental and reclamation obligations. Prior to Cliffs acquisition of the
plant from LTV Steel and prior to our acquisition of the plant from Cliffs, both
Cliffs and we undertook environmental assessments and concluded that there were
no material liabilities other than the ultimate closure and reclamation of the
site. Until operating permits are granted to us, Cliffs remains the named party
of record for such obligations although, as part of the Asset Purchase
Agreement, we have indemnified Cliffs for such costs. As of January 31, 2009 we
estimate that liability to be approximately $23.5 million and, based on the
expected timing of such payments, our cost of capital, and anticipated inflation
rates, we made a provision of $3.2 million in our financial statements at that
date.

Under the terms of the agreement Cliffs has the right to
participate pro-rata on its ownership of 6.7% of our outstanding common shares
in future cash equity financings. We have a 20 business day right of first
refusal to either buy or place some or all of our shares owned by Cliffs should
Cliffs decide to sell.

The Erie Plant comprises a large crushing, grinding and milling
facility that was built by a consortium of steel companies in the mid-1950s and
processed low grade iron ore known as taconite that was transported to the
facility by railroad from nearby mines. In the mid-1980s, the consortium was
consolidated into a single owner  LTV Steel. Pickands-Mather and its successor
Cliffs operated the plant on behalf of the owners, processing approximately
100,000 tons per day of taconite ore. The plant was shut down in 2001 when LTV
Steel filed for bankruptcy protection. Since then it has been maintained
initially by Cliffs and, since November 15, 2005, by us. The plant did not
operate during the period ended January 31, 2009.

The plant is located approximately six miles west of our
NorthMet ore body, about five miles north-northwest of the town of Hoyt Lakes,
itself located about 25 miles west of Virginia, Minnesota. The plant site covers
approximately 12,400 acres, or approximately 19.4 square miles, and is powered
by electricity from local power lines.

The plant facilities include two rail dump pockets, two primary
60 gyratory crushers, four secondary seven-foot standard cone crushers, seven
tertiary seven-foot standard cone crushers, 14 seven-foot short-head crushers,
30 mill circuits each comprising one 12x 14' rod mill and one 12x 14' ball
mill, three 12'x 24' regrind mills, maintenance facilities and spare parts,
extensive conveyors, feeders, bins, auxiliary facilities and offices,
established infrastructure including a 225 MVA high voltage electrical
substation, water supply, roads, tailings basins and rail facilities.

With the completion of Cliffs II, we also own a 120-railcar
fleet, locomotive fueling and maintenance facilities, water rights and
pipelines, and large administrative offices on site.

Until the plant was closed in 2001, Cliffs had undertaken
numerous programs to update and modernize control systems. The plant is
generally in good physical condition and was operating at or near full capacity
prior to its closure. We are not yet utilizing the Erie Plant but we have
examined the plant in detail and have restarted certain pieces of equipment and
believe it to be serviceable.

We plan to use approximately one-third of the historic
productive capacity to crush and grind material that we expect to mine from the
NorthMet deposit. We intend to construct new facilities to recover copper metal,
nickel and cobalt hydroxides, and precious metal precipitates. These new
facilities replace the equivalent facilities used historically to recover iron
from the taconite, which are not applicable to our anticipated metal products.

(d)        Permitting and
Environmental

The environmental review process in the State of Minnesota is
reasonably well-defined. An Environmental Impact Statement will be required and
various permits from state and federal authorities will be necessary before we
can commence construction.

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On January 11, 2005, we submitted initial documentation to the
MDNR, the USFS, and the USACE. These documents and data provided the information
required for preparation of a Draft Scoping Environmental Assessment Worksheet
(the EAW).

On March 14, 2005, we reached an agreement with the MDNR, USFS
and USACE to cooperate in preparing a EIS under state guidelines issued by the
MDNR.

On October 25, 2005, the MDNR issued the Final Scoping EAW and
related Final Scoping Decision after a period of public review and comment.
These documents defined the scope of the EIS and were used to develop a request
for proposal (the RFP) for third-party preparation of an EIS that will involve
public participation. On April 3, 2006 the Minnesota DNR selected the
independent contractor (the EIS Contractor) which is preparing the EIS.

In January 2007, we submitted a Detailed Project Description
(DPD) to state and federal regulators. The DPD lays out our development plans
and proposed environmental safeguards. Since then we have submitted a
supplemental DPD as well as more than 100 supporting research studies.

The draft EIS will be an assessment of potential environmental,
social and economic effects of the proposed project, comprising 19 chapters and
major subchapters. On December 22, 2008, the MDNR provided a preliminary version
of the draft EIS to us and various government agencies. These groups completed
their reviews and submitted extensive comments to the MDNR.

The MDNR is working with the EIS Contractor to incorporate
comments and analysis to ensure that the draft EIS meets the MDNR's standard of
thoroughness and accuracy. Significant progress has been made, with final
revisions completed on a number of chapters.

Once the draft EIS is published, non-government organizations,
government agencies and the public will have an opportunity to comment. The
final EIS will incorporate analysis and appropriate responses to comments, a
process that can take several months. Once the EIS receives a declaration of
adequacy the various permits required for construction can be issued. It
should be noted that the government agencies that are preparing the EIS are the
same agencies that will be responsible for preparing the permits that we will
need before we can commence construction.

We commenced the permitting process in early 2004. As of
January 31, 2009, we had spent approximately $21.7 million on environmental and
permitting activities.

(e)        History of
Exploration

Prospectors first discovered copper and nickel near Ely,
Minnesota about 20 miles north of NorthMet in the 1940s. Subsequently, the Bear
Creek Mining Company conducted a regional exploration program resulting in the
discovery of the Babbitt deposit (northeast of NorthMet). US Steel began an
exploration program in the Duluth Complex in the late 1960s and over the next
few years drilled 114 core holes into the NorthMet property (then called Dunka
Road).

17

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Cautionary Note to United States Investors Concerning
        Estimates of Measured, Indicated and Inferred Resources 
        This section uses the terms measured resources, indicated
        resources, and inferred resources. We advise United States investors
        that while these terms are recognized and required by Canadian regulations
        (under National Instrument 43-101 - Standards of Disclosure for Mineral
        Projects (NI-43-101)), the SEC does not recognize them. United States
          investors are cautioned not to assume that any part or all of the
          mineral deposits in these categories will ever be converted to
            reserves.In addition, inferred resources have a great amount of
        uncertainty as to their existence and economic and legal feasibility. It
        cannot be assumed that all or any part of an Inferred Mineral Resource
        will ever be upgraded to a higher category. Under Canadian Rules,
        estimates of Inferred Mineral Resources may not form the basis of
        Feasibility or Pre-Feasibility Studies, or economic studies except for a
        Preliminary Assessment as defined under NI 43-101. United States investors are cautioned not to assume that part or all
      of an inferred resource exists, or is economically or legally
      mineable.
        Important Notes and Assumptions
        Throughout.
        1. **The terms Mineral Resources and Reserves as used herein conform to the
          definitions** contained in NI 43-101.
          2. **Reserves are contained within the envelope of Measured & Indicated
            Mineral Resource.** Mineral Resources are not Reserves and do
              not have demonstrated economic
              viability. 3.Mineral Resources and Reserves have been calculated using the
              following metal prices: Copper - $1.25/lb, Nickel - $5.60 per
                pound, Cobalt - $15.25/lb, Palladium - $210 per ounce, Platinum -
          $800 per ounce and Gold - $400 per ounce.
          4. **Base
            Case economics for the purpose of the Technical Report to NI
            43-101standards are the** weighted average of the three-year
              trailing (60%) and two-year forward (40%) market prices using July
          31, 2006 as a reference for the three-year trailing price and average
          forward prices during July 2006 for forward prices. Specifically,
                these prices are: Copper - $2.25/lb, Nickel - $7.80 per pound, Cobalt
                - $16.34/lb, Palladium - $274 per ounce, Platinum - $1,040 per
                  ounce and Gold - $540 per ounce.
          5. The copper
            equivalent grade is calculated by multiplying the grade of each metal by
            the metal price (in the same units) used in reserve and resource
              modeling (see note 3) and dividing the product by the copper
                price.
          6. **The
            Net Metal Value (NMV) is calculated by summing the product of the grade of
            each metal,** the metal price (in the same units) used in
              reserve and resource modeling (see note 3), the expected metal
      recovery, and the expected payment terms.


From 1998 to present, we have conducted four drilling programs
totaling 257 holes for approximately 151,000 feet of core and reverse
circulation drilling. The latest campaign comprising 61 holes totaling 24,500
feet was completed during the fiscal year ended January 31, 2008 and, combined
with earlier drilling by us and by US Steel, brings the total to 405 diamond and
reverse circulation holes aggregating to approximately 307,000 feet. In
addition, we have meticulously recompiled all prior work started by US Steel in
1969.

Mineral Resources and Reserves

Within the overall mineralized envelope defined by these
exploration programs, the 2006 DFS defined measured and indicated mineral
resources above the 500-foot elevation (approximately 1,120 feet below surface.)
On August 9, 2007 we reported that measured and indicated mineral resources at
the NorthMet Project had increased by 51% to 638 million short tons from the 422
million short tons reported in the DFS. The revised mineral resource estimates
are based on the same cut-off grades used in the DFS  namely a Net Metal Value
(NMV) of US$7.42 per ton, reflecting mine planning at a copper price of
US$1.25 per pound and a nickel price of US$5.60 per pound  see notes to the
following table.

The increase in mineral resources reflects two changes:

- Data from the 2007/08 drill program which confirmed the continuity of the
  main mineralized zone and the size of the Magenta Zone, which was extended
  down dip and to the west. These changes contributed 149 million short tons to
  the increase in measured and indicated mineral resources.
- Extension of the overall mineral envelope to approximately 1,620 feet below
  surface, compared with the prior cutoff at approximately 1,120 feet below
  surface. This change contributed 67 million short tons to the increase in
  measured and indicated mineral resources.

18

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As a result, measured and indicated mineral resources have
increased by 216 million short tons to 638 million short tons and inferred
mineral resources have been expanded to 252 million short tons from 121 million
short tons  all on the DFS cut-off grade. Details of the mineral resources are
set out in the following table.

Updated Mineral Resources compared with DFS

Short
      Copper
      Nickel
      Cobalt
      Precious Metals(million)
      (%)
      (%)
      (%)
      (oz/st)
      (g/mt)Updated Mineral Resouce EstimateMeasured
      187.0
      0.287
      0.084
      0.007
      0.010
      0.359Indicated
      451.1
      0.256
      0.075
      0.007
      0.009
      0.325Measured & Indicated
      638.2
      0.265
      0.078
      0.007
      0.010
      0.334Inferred
      251.6
      0.275
      0.079
      0.006
      0.011
      0.385DFSMeasured
      133.7
      0.298
      0.087
      0.008
      0.011
      0.371Indicated
      288.4
      0.266
      0.078
      0.007
      0.010
      0.330Measured & Indicated
      422.1
      0.276
      0.081
      0.007
      0.010
      0.343Inferred
      120.6
      0.247
      0.074
      0.007
      0.009
      0.315Change in M&I from DFS to CurrentInfill drilling
      149.3Extension to 0' elevation from 500' elevation
      66.7Total change
      216.1


| | 1. | Mineral resources have been calculated using the
      following metal prices: Copper - $1.25/lb, Nickel - $5.60 per pound,
      Cobalt - $15.25/lb, Palladium - $210 per ounce, Platinum - $800 per ounce
      and Gold - $400 per ounce.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                             
| | 2. | The NMV is calculated by summing the product of the grade
      of each metal, the metal price (in the same units) used in resource
      modeling, the expected metal recovery, and the expected payment terms as
      set out in the DFS.

The reserve estimate update was completed by a team from the Toronto office of Wardrop Engineering working closely with our team of Don Hunter and Richard Patelke. Gordon Zurowski of Wardrop and Don Hunter of PolyMet were the Qualified Persons.

On September 26, 2007 PolyMet reported that proven and probable
mineable reserves at the NorthMet Project had increased by 51% to 275 million
short tons from the 182 million short tons reported in the DFS.

These reserves are constrained to mineable blocks associated
with material contained in the measured and indicated resource blocks in the DFS
for which detailed mining cost estimates, infrastructure planning, and waste
rock stockpile locations were prepared as part of a larger study supporting the
DFS. It should be noted that the inferred resources were not included in the DFS
or in this interim reserve update.

In conjunction with this increase in reserves, the strip
(waste:ore) ratio for the revised mine plan declined to 1.46:1 from 1.66:1.

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Updated Reserves compared with DFS

|                         | Short Tons | Copper | Nickel | Cobalt | Precious Metals
|------------------------ | ---------- | ------ | ------ | ------ | ---------------
|                         | (millions) | (%)    | (%)    | (%)    | (oz/st)        
|Updated Reserve Estimate |            |        |        |        |                
|Proven                   | 118.1      | 0.30   | 0.09   | 0.008  | 0.011          
|Probable                 | 156.5      | 0.27   | 0.08   | 0.008  | 0.010          
|Proven and Probable      | 274.7      | 0.28   | 0.08   | 0.008  | 0.010          
|Waste                    | 401.2      |        |        |        |                
|Strip Ratio              | 1.46       |        |        |        |                
|                         |            |        |        |        |                
|DFS                      |            |        |        |        |                
|Proven                   | 80.4       | 0.32   | 0.09   | 0.008  | 0.012          
|Probable                 | 101.3      | 0.30   | 0.08   | 0.007  | 0.011          
|Proven and Probable      | 181.7      | 0.31   | 0.08   | 0.008  | 0.012          
|Waste                    | 302.3      |        |        |        |                
|Strip Ratio              | 1.66       |        |        |        |                

| | 1. | The terms Mineral Resources and Reserves as used herein
      conform to the definitions contained in NI 43- 101.                                                                                                                                        
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                          
| | 2. | Mineral Resources and Reserves have been calculated using
      the following metal prices: Copper - $1.25/lb, Nickel - $5.60 per pound,
      Cobalt - $15.25/lb, Palladium - $210 per ounce, Platinum - $800 per ounce
      and Gold - $400 per ounce.

The reserve estimate update was completed by a team from the Toronto office of Wardrop Engineering working closely with our team of Don Hunter and Richard Patelke. Gordon Zurowski of Wardrop and Don Hunter of PolyMet were the Qualified Persons.

We are completing a detailed update of operating and capital
costs reflecting the planned use of a more efficient mining fleet than
contemplated in the DFS, the results of an assessment of the marketability of
copper and nickel concentrates during the construction and commissioning of the
hydrometallurgical plant, and other operating parameters.

f)        Geology and
Mineralization

The geology of northeastern Minnesota is predominantly
Precambrian in age. Approximately 1.1 billion years ago, mid-continent rifting
resulted in mafic volcanism and associated intrusions along a portion of the
Midcontinent Rift System, which extends from Ohio, through the Lake Superior
region to Kansas. The Midcontinent Rift consists of three parts: thick lava
flows, intrusive rock and overlying sedimentary rock. There are three major
intrusive complexes: the Coldwell Complex of Ontario, the Mellen Complex along
the south shore of Lake Superior and the Duluth Complex along the north shore.

The Duluth Complex hosts the NorthMet mineralization. The
Complex extends in an arcuate belt from Duluth to the northeastern tip of
Minnesota. Emplacement of the intrusion appears to have been along a system of
northeast-trending normal faults that form half-grabens stepping down to the
southeast. The magma was intruded as sheet-like bodies along the contact between
the Early Proterozoic sedimentary rocks of the Animikie Group and the mafic lava
flows of the North Shore Volcanic Group.

The Duluth Complex is represented by the Partridge River
intrusion which overlays the Biwabik Iron Formation  the Partridge River
intrusion is locally sub-divided into seven troctolitic units:

- Unit 7 and Unit 6  texturally homogeneous plagioclase-rich troctolite,
  each with a persistent ultramafic base. Units 6 and 7 are each about 400 ft.
  thick.
- Unit 5  coarse grained anorthositic troctolite (300 ft.) grading down to
  Unit 4.
- Unit 4  homogeneous augite troctolite and troctolite, with a less
  persistent ultramafic horizon. The contact between Unit 4 and Unit 5 is
  difficult to establish and the two units may actually be a single unit.
- Unit 3  the most easily recognized unit because of its mottled appearance
  due to olivine oikocrysts. It is fine grained troctolitic anorthosite to
  anorthositic troctolite. Average thickness is 250 ft. but locally can be up to
  500 ft.

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- Unit 2  homogeneous troctolite with abundant ultramafic units and a
  generally persistent basal ultramafic. This unit shows the most variation in
  thickness and may be locally absent. Units 2 & 3 are modeled as a single
  package for resource estimation.
- Unit 1  the most heterogeneous unit, both texturally and compositionally.
  Grain size is generally coarser at the top of the unit and fines downward. The
  unit contains abundant inclusions of the footwall rock and is noritic towards
  the base. This is the main sulfide mineral bearing unit. Two internal
  ultramafic layers are generally present. Unit 1 is probably the result of
  multiple pulses of magma injection. Average thickness is about 450 ft.

The general trend of the sedimentary rocks at the base of the
NorthMet deposit is striking east-northeast and to dipping to the southeast
about 15-25°, and the Partridge River intrusion appears to follow this general
trend.

The majority of the rock at NorthMet is unaltered, with a minor
alteration found along fractures and micro-fractures, consisting of serpentine,
chlorite and magnetite replacing olivine, uralite and biotite replacing
pyroxene, and sausserite and sericite replacing plagioclase. Sulfide
mineralization does not appear to be directly related to the alteration.

The metals of interest at NorthMet are copper, nickel, cobalt,
platinum, palladium, gold and lesser amounts of rhodium and ruthenium. In
general, the metals are positively correlated with copper mineralization, cobalt
being the main exception. Unit 1 mineralization is found throughout the deposit.
A less extensive mineralized zone is found in Units 4, 5, and 6 in the western
part of the deposit, it is copper-rich relative to sulfur, and moderately
enriched in PGMs.

Sulfide mineralization consists of chalcopyrite, cubanite,
pyrrhotite and pentlandite with minor bornite, violarite, pyrite, sphalerite,
galena, talnakhite, mackinawite and valleriite. Sulfide minerals occur mainly as
blebs interstitial with plagioclase, olivine and augite grains, but also occur
within plagioclase and augite grains, as intergrowths with silicates, or as fine
veinlets. The percentage of sulfides varies from trace to about 5%. Palladium,
platinum and gold are associated with the sulfides.

The NorthMet deposit has been identified over a length of
approximately 2.5 miles and has been found to a depth of more than 2,600 feet.
It is covered by a thin layer of glacial till but otherwise reaches to the
subsurface at the northern edge.

(g)        Development
Plans

Our development plans were set out in our Definitive
Feasibility Study prepared by Bateman Engineering Pty. in September 2006. This
contemplated the development of a new open pit mine at our NorthMet ore body,
using rail infrastructure we acquired as part of Cliffs II to transport
approximately 32,000 tons of ore per day from the mine site to our Erie Plant,
where we would use our existing facilities to crush and mill the rock. The
finely ground material would then pass to a new flotation circuit with waste
material sent to existing waste tailings facilities and the concentrate being
passed to a new hydrometallurgical plant that we plan to build at the Erie Plant
site.

We believe that we have completed exploration work required for
the initial phases of production at NorthMet, however, we may need to conduct
further in-fill drilling during the anticipated life of the project. Since
publication of the DFS, we have recognized the commercial potential to sell
concentrates during the construction and commissioning of the new
hydrometallurgical facilities.

DFS Update

On May 20, 2008 PolyMet reported revised plans and cost
estimates for construction and operating costs. The revised plans include:

- the sale of concentrate during the construction and commissioning of new
  metallurgical facilities resulting in a shorter pre-production construction
  period (under twelve months) and reduced

21

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- the new metallurgical facilities to be constructed during initial
  production and sales of concentrate. PolyMet anticipates that much of the
  additional $290 million of capital costs, including $20 million of additional
  environmental measures, will be funded from cash flow from initial operations;
- mine plans (based on copper at $1.25 per pound) reflect the increase in
  reserves and decrease in stripping ratio reported on September 26, 2007, the
  use of 240-ton trucks, and owner versus contract mine operations, and
- $77 million of mining equipment, which was assumed to be provided by a
  mining contractor in the DFS has been incorporated as an operating lease in
  updated operating costs.

Saleable Products The DFS describes three products
from NorthMet. During construction and commissioning of the hydrometallurgical
plant, we anticipate that we will sell either a bulk concentrate containing the
full suite of metals and sulfur, or separate copper and nickel concentrates.
Once the hydrometallurgical plant is operational, our long term products will
comprise:

- High grade copper cathode that can be sold on the LME or COMEX markets or
  shipped directly to copper fabricators. Such product could potentially capture
  a premium price that has not been included in the economic analysis.
- A mixed hydroxide of nickel and cobalt that will be shipped to a
  third-party processor to produce nickel and cobalt metals. We are in advanced
  discussions with potential buyers for the product.
- A precious metals precipitate that will be shipped to a third-party refiner
  for production of palladium, platinum and gold. We are in advanced discussions
  with potential buyers for the product.

The copper metal will be electrowon from a copper sulfate
solution from the hydrometallurgical plant. Electrowinning is a well
established, low-cost and low-energy process that eliminates the need for
traditional smelting of sulfidic concentrates. Other metals will be shipped off
site for final processing.

Part of our plan has been to establish a long-term marketing or
off-take agreement for our hydroxides, precipitates and as appropriate,
concentrates. On 4 September 2008 we announced that we had reached an agreement
with Glencore whereby Glencore would purchase our production of concentrates,
metals, or intermediate products at prevailing market terms at the time of
delivery for at least the first 5 years of production. We executed the agreement
on 31 October 2008 as part of a strategic alliance between us and Glencore.

Capital Costs Our May 2008 DFS Update set out that,
on a like-for-like basis, the total capital cost had increased to $516.8
million. This increase reflects both cost inflation and design scope changes
since the DFS, including facilities needed to ship concentrate during the
construction and commissioning of the new hydrometallurgical plant. This staged
approach shortens the initial construction period, makes the project less
sensitive to the delivery schedule for long lead time equipment such as
autoclave vessels, and means that we can commence operations of the mine, the
existing crushing and milling plant, the existing tailings disposal facilities,
and the new flotation circuit, before starting the new hydrometallurgical plant.

In addition to these scope changes and the effect of inflation,
we anticipate spending an additional $85.1 million on measures to protect the
environment, over and above the measures contemplated in the DFS. $76.6 million
for mining equipment that was assumed to be provided by a mining contract in the
DFS has been incorporated as an operating lease in updated operating costs.

22

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Capital Costs (US dollars, millions)

|                                   |              | Change   | Initial Concentrate
|---------------------------------- | ------------ | -------- | -------------------
|                                   | Full Project | from DFS | Sales              
|                                   |              |          |                    
|Definitive Feasibility Study       | 379.8        |          | 138.7              
|Escalation and other scope changes | 137.0        | 36%      | 108.9              
|Total                              | 516.8        |          | 247.6              
|Environmental measures             | 85.1         |          | 64.7               
|Total change                       | 222.1        | 58%      | 173.6              
|TOTAL                              | 601.9        |          | 312.3              

Operating Plans and Costs The overall mining and
operating plan remains the same as that defined in the DFS and which forms the
basis of the plan being analyzed in the environmental impact statement. We
intend to mine 32,000 tons of ore per day for an operating life of twenty years,
processing a total of 224 million tons of ore. The mine plan continues to be
based on the following metal prices: copper - $1.25/lb, nickel - $5.60 per
pound, cobalt - $15.25/lb, palladium - $210 per ounce, platinum - $800 per
ounce, and gold - $400 per ounce.

Operating costs per ton of ore processed have increased to
$13.33 from $11.02 in the DFS reflecting higher fuel, mine equipment, and other
consumable costs, as well as general inflation. The cost of mining and
delivering ore to the plant is now estimated at $4.31 per ton compared with
$3.80 per ton in the DFS. The increase in mining costs has been partially offset
by the lower strip ratio, larger mining equipment, and owner versus contractor
operation.

Since completing the DFS Update in May 2008, key components of
both capital and operating costs, such as diesel and steel, have declined in
price quite significantly. We plan to further update the DFS during the course
of our current fiscal year ahead of seeking to secure senior construction
finance commitments.

The economic analysis is based on SEC-reserve standards, namely
the three-year trailing average, which we calculated at April 30, 2008 (the end
of our first fiscal quarter). This price deck is: copper - $2.90/lb, nickel -
$12.20/lb, cobalt - $23.50/lb, palladium - $320/oz, platinum - $1,230/oz, and
gold - $635/oz. While these prices are somewhat higher than those used on the
economic analysis in the DFS, the price are slightly below the three-year
average at the end of our fiscal 2009 year, namely: copper - $3.13/lb, nickel -
$12.45/lb, cobalt - $27.34/lb, palladium - $342/oz, platinum - $1,343/oz, and
gold - $733/oz.

The DFS Update prices translate into copper cash costs of $1.05
per pound using a co-product basis to calculate costs, compared with the DFS
estimate of $0.81 per pound. Taking revenues from the other metals as a
deduction against costs, the co-product basis shows a cost of $(0.28) per pound
compared with $0.06 per pound in the DFS.

Economic Summary 
  Key economic metrics include
earnings before interest, tax, depreciation, and amortization (EBITDA) which is
projected to increase to $217.3 million on average over the first five years of
operations from $175.3 million estimated in the DFS. The net present value of
future cash flow (after tax) discounted at 7.5% is estimated to be $649.4
million compared with $595.4 million in the DFS, and the after tax internal rate
of return is now estimated at 30.6% compared with 26.7% in the DFS. The table
below also sets out the affect on EBITDA of a 10% change in each metal price.

23

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Key Economic Highlights



(h)        Regulations
and Government Rules

The mining industry has been subject to increasing government
controls and regulations in recent years. We have obtained all necessary permits
for exploration work performed to date and anticipate no material problems
obtaining the necessary permits to proceed with further development.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

(a)        Operating
Results

This discussion and analysis should be read in conjunction with
our consolidated financial statements. Our functional currency is the United
States dollar and our financial statements are prepared in accordance with
Canadian Generally Accepted Accounting Principles (GAAP); however, the only
material difference between U.S. GAAP and Canadian GAAP with regard to our
financial statements relates to the capitalizing of accretion related to asset
retirement obligations under Canadian GAAP while US GAAP requires these amounts
to expensed (see Item 3: Key Information  A. Selected Financial Data for the
impact of this difference). All amounts in this discussion and in the
consolidated financial statements are expressed in United States dollars, unless
identified otherwise.

24

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Summary of Events During the Fiscal Year Ended January 31,
2009

During the year ended January 31, 2009, and through the date
  of the filing of this Annual Information Form / Annual Report on Form 20-F,
  the Company continued to advance its NorthMet Project including the activities
  noted below.

On 5 February 2008, PolyMet announced that it has re-allocated
responsibilities amongst its senior management team and was relocating its
headquarters to Hoyt Lakes, Minnesota. William Murray, formerly President and
CEO, was appointed Executive Chairman, and Joseph Scipioni assumed Mr. Murray's
former role as President and CEO. Ian Forrest, the former Chairman, continues to
serve as an independent director and as Chairman of the Audit Committee.

On 19 February 2008, PolyMet announced that Frank Sims and
Joseph Scipioni had joined its board of directors.

On May 20, 2008 PolyMet reported revised plans and cost
estimates for construction and operating costs. The revised plans include:

- the sale of concentrate during the construction and commissioning of new
  metallurgical facilities resulting in a shorter pre-production construction
  period (under twelve months) and reduced capital costs prior to first revenues
  ($312 million versus $380 million) despite the inclusion of an estimated $65
  million of additional measures to protect the environment;
- the new metallurgical facilities to be constructed during initial
  production and sales of concentrate. PolyMet anticipates that much of the
  additional $290 million of capital costs, including $20 million of additional
  environmental measures, will be funded from cash flow from initial operations;
- mine plans (based on copper at $1.25 per pound) reflect the increase in
  reserves and decrease in stripping ratio reported on September 26, 2007, the
  use of 240-ton trucks, and owner versus contract mine operations, and
- $77 million of mining equipment, which was assumed to be provided by a
  mining contractor in the DFS has been incorporated as an operating lease in
  updated operating costs.

On 12 June 2008, PolyMet announced the hiring of Paul Brunfelt
as division manager responsible for concentrating and crushing activities.

On 10 October 2008, the Company announced that it had received
the consent from the holders of more than two-thirds of the 8,020,000 warrants
issued as part of the April 2007 private placement to exchange those warrants
into:

- 4,010,000 warrants, each warrant entitling the holder to purchase one
  share of PolyMet common stock at US$3.00 per share at any time until the
  sooner of 30 calendar days after publication of the draft Environmental Impact
  Statement by the State of Minnesota in the states Environmental Quality Board
  Monitor and October 13, 2009, and
- 4,010,000 warrants, each warrant entitling the holder to purchase one
  share of PolyMet common stock at US$5.00 if exercised before the NorthMet
  Project has produced a cumulative total of 20,000 metric tonnes of
  concentrate, or US$6.00 thereafter and prior to August 31, 2011. PolyMet can
  accelerate the expiration of the warrants if PolyMets volume-weighted 20-day
  average stock price trades at a 50% premium to the exercise price applicable
  at any time.

On 31 October 2008, the Company announced that it had completed
the strategic partnership with Glencore AG (Glencore) announced on 4 September
2008.

Glencore will purchase PolyMets production of concentrates,
metals or intermediate products at prevailing market terms for at least the
first 5 years of production.

An aggregate of US$50 million floating rate secured debentures
due on September 30, 2011 (the "Debentures") are to be issued by the Company's
wholly-owned Minnesota subsidiary, Poly Met Mining, Inc. (PolyMet US), and
guaranteed by the Company. The Debentures bear interest at 12-month US dollar
LIBOR plus 4%. Interest is payable in cash or by increasing the principal amount
of the Debentures, at PolyMets option, for payments on or before September 30,
2009, and at Glencores option thereafter. The Debentures are secured by all of the assets of PolyMet and PolyMet US, including a pledge of PolyMets 100% shareholding in PolyMet US.

25

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The Debentures are exchangeable into common shares of PolyMet at US$4.00 per share. The Issuer can, at its option, prepay the Debentures if PolyMets shares trade at a 20-day volume weighted average price equal to or exceeding US$6.00,
at which time, and at Glencores option, Glencore could exchange the Debentures for common shares of PolyMet within 30 days in lieu of payment. Repayment between October 1, 2009 and September 30, 2010 would be at 105% of the then outstanding
principal of the Debentures, repayment between October 1, 2010 and September 30, 2011 would be at 102.5% of the outstanding principal.

An initial US$7.5 million of the Debentures were issued on 31 October 2008 and an additional US$7.5 million of the Debentures were issued on 22 December, 2008. US$10.0 million of the Debentures will be issued in two tranches subject to
expenditures being in material compliance with budget, other customary conditions and agreement between Glencore and Cliffs on terms and conditions whereby Cliffs will provide its consent to Glencore as mortgagee of the Erie Plant. These funds will
be used to complete critical engineering work and the final Environmental Impact Study (EIS) for PolyMets NorthMet Project.

The final US$25 million of the Debentures, to be used primarily for detailed engineering and
  procurement, are to be issued upon publication of the Final EIS in the State of Minnesotas Environmental Quality Board Monitor, receipt by the Company of a bona fide term sheet for construction financing and are subject to expenditures being
  in material compliance with budget and other customary conditions.

On 31 October 2008, PolyMet issued to Glencore warrants to purchase 6.25 million common shares of PolyMet at US$5.00 if exercised before the NorthMet Project has produced a total of 20,000 metric tonnes of concentrate, or US$6.00 thereafter.
 The warrants expire on September 30, 2011.  If the volume-weighted 20-day average price of PolyMets common shares trade at a 50% premium to the then applicable exercise price, Glencore must exercise the warrants within 30 days or the warrants
will expire.

On 31 October 2008, PolyMet also announced that Stephen Rowland had joined its board of directors. Mr. Rowland has been an executive with Glencore since 1988, having begun his career in mining and metals trading with Cargill, Incorporated in
Minnesota.

On 18 March 2009, PolyMet announced that the Minnesota Department of Natural Resources continues to progress toward publication of the draft Environmental Impact Statement, which is expected to be ready for public review in the second quarter of
2009.

26

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Summary of Operating Results

As of January 31, 2009, we operated in one segment, the
exploration and development of the base and precious metals at our NorthMet
Project in Minnesota, United States. Head office comprises general and
administrative costs, stock based compensation expense, financing expenses,
foreign exchange interest income, assets, purchase of property, plant and
equipment and amortization reported by the Canadian head office.

|                                      |   | NorthMet   |  |   | Head Office |  |   | Consolidated | 
|------------------------------------- | - | ---------- |  | - | ----------- |  | - | ------------ | 
|                                      |   | Project    |  |   | (US$000s)  |  |   | (US$000s)   | 
|2009                                  |   | (US$000s) |  |   |             |  |   |              | 
|                                      |   |            |  |   |             |  |   |              | 
|Segment operating loss                | $ | 117        |  | $ | 4,419       |  | $ | 4,536        | 
|                                      |   |            |  |   |             |  |   |              | 
|Mineral property, plant and equipment | $ | 92,989     |  | $ | 78          |  | $ | 93,067       | 
|                                      |   |            |  |   |             |  |   |              | 
|Other assets                          | $ | 2,546      |  | $ | 7,143       |  | $ | 9,689        | 
|                                      |   |            |  |   |             |  |   |              | 
|Identifiable assets                   | $ | 95,535     |  | $ | 7,221       |  | $ | 102,756      | 
|                                      |   |            |  |   |             |  |   |              | 
|2008                                  |   |            |  |   |             |  |   |              | 
|                                      |   |            |  |   |             |  |   |              | 
|Segment operating loss                | $ | 403        |  | $ | 3,287       |  | $ | 3,690        | 
|                                      |   |            |  |   |             |  |   |              | 
|Mineral property, plant and equipment | $ | 64,914     |  | $ | 105         |  | $ | 65,019       | 
|                                      |   |            |  |   |             |  |   |              | 
|Other assets                          | $ | 3,926      |  | $ | 20,254      |  | $ | 24,180       | 
|                                      |   |            |  |   |             |  |   |              | 
|Identifiable assets                   | $ | 68,840     |  | $ | 20,359      |  | $ | 89,199       | 
|                                      |   |            |  |   |             |  |   |              | 
|2007                                  |   |            |  |   |             |  |   |              | 
|                                      |   |            |  |   |             |  |   |              | 
|Segment operating loss                | $ | 9,069      |  | $ | 8,824       |  | $ | 17,893       | 
|                                      |   |            |  |   |             |  |   |              | 
|Mineral property, plant and equipment | $ | 38,056     |  | $ | 110         |  | $ | 38,166       | 
|                                      |   |            |  |   |             |  |   |              | 
|Other assets                          | $ | 2,177      |  | $ | 8,388       |  | $ | 10,565       | 
|                                      |   |            |  |   |             |  |   |              | 
|Identifiable assets                   | $ | 40,233     |  | $ | 8,498       |  | $ | 48,731       | 

Year ended January 31, 2009 compared with the year ended
January 31, 2008

Overall. Our focus for the fiscal year ended January 31,
2009 was to provide the state input into the environmental impact statement and
permitting work at the NorthMet Project, obtain additional financing and to
continue to develop the Project including updating the mineral reserves and
mineral resources estimates and preparing for construction.

Loss for the year. During the year ended 31 January
2009, we incurred a loss of $4.536 million ($0.03 loss per share) compared to a
loss of $3.690 million ($0.03 loss per share) in 2008. The increase in the net
loss for the period was primarily attributable to:

- An other than temporary impairment loss of $1,365,000 (prior year period -
  $1,050,000) on an investment  by the Company in the prior year;

27

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- A decrease in interest income to $154,000 (prior year period - $1,168,000)
  due to lower cash balances and interest rates, and
- Foreign exchange translation losses of $156,000 (prior period  gain of
  $566,000) as the United States dollar strengthened against the Canadian dollar
  in the current period while it weakened in the prior year period.

The above was partially offset by $215,000 (prior year period -
$25,000) of income from rental of property and services to third parties.

General and Administrative expense in the year ended 31 January
2009 excluding non-cash stock based compensation expenses was $2,897,000
compared with $3,764,000 for the prior year period with the decrease due to
lower legal costs, lower investor relations costs and lower office and corporate
wage expenses as a result of no bonuses paid out the current year as compared
with the prior year period. Stock-based compensation in the current period was
$487,000 (prior year period - $635,000).

Year ended January 31, 2008 compared with the year ended
January 31, 2007

Overall. Our focus for the fiscal year ended January 31,
2008 was to provide the state input into the environmental impact statement and
permitting work at the NorthMet Project and to continue to develop the Project
including updating the mineral reserves and mineral resources estimates and
preparing for construction.

Loss for the year. During the year ended January 31,
2008 we incurred a loss of $3.690 million ($0.03 loss per share) compared to a
loss of $17.893 million ($0.16 loss per share) in fiscal 2007. The decrease in
the net loss for the period was primarily attributable to:

- Upon completion of the DFS in late September 2006, we commenced
  capitalizing those costs directly related to the NorthMet Project (prior to
  this those costs had been expensed in line with our accounting policy in this
  area);
- During fiscal 2008, stock-based compensation expense was $635,000 compared
  to $4.723 million in the prior year due to the fact that $2.422 million of
  stock option costs were capitalized to mineral property, plant and equipment
  in 2008 (prior year period - $nil) and the timing of accounting as most of the
  options issued in fiscal 2008 have vesting periods while almost all of those
  issued in fiscal 2007 vested on issuance;
- During fiscal 2007, we issued $1.289 million of bonus shares for the
  successful completion of Milestone 3 (completion of a DFS which indicates that
  commercial production from the NorthMet Project is viable), and
- Interest income in the year ended January 31, 2008 was $1.168 million
  compared to $428,000 in the prior year period due primarily to higher cash
  balances as a result of the completion of a private placement in April 2007.

The above was partially offset by the recording of an other
than temporary impairment loss of $1.050 million on an investment made by the
Company during the year ended 31 January 2008.

General and Administrative expense in the year ended January
31, 2008, excluding non-cash stock based compensation related to incentive stock
options, was $3.764 million compared with $4.251 million for the prior year. The
decrease was due to the impact of the bonus shares in the prior year being
greater than the increased corporate activities and higher office and corporate
wage expenses in the year ended 31 January 2008 as a result of additional
personnel and cash bonuses.

During the year ended January 31, 2008 we expended $nil million
in exploration, pre-feasibility and lease payments compared to $8.844 million in
fiscal 2007. The decrease in fiscal 2008 was a result of the completion of the
DFS during the third quarter of fiscal 2007 and the subsequent capitalizing of
site costs.

Foreign exchange translation gains were $566,000 for the year
ended January 31, 2008 (prior year  loss of $536,000) due to the increasing
strength of the Canadian dollar compared to the U.S. dollar.

28

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(b)        Liquidity And
Capital Resources

Financing Activities

On October 31, 2008, the Company entered into a financing with
Glencore for an aggregate of US$50 million floating rate secured debentures due
on September 30, 2011 are to be issued by PolyMet US, and guaranteed by the
Company. The Debentures bear interest at 12-month US dollar LIBOR plus 4%.
Interest is payable in cash or by increasing the principal amount of the
Debentures, at PolyMets option, for payments on or before September 30, 2009,
and at Glencores option thereafter. The Debentures are secured by the assets of
PolyMet and PolyMet US, including PolyMets 100% shareholding in PolyMet US.

The Debentures are exchangeable into common shares of PolyMet
at Glencores option at US$4.00 per share. The Issuer can, at its option, prepay
the Debentures if PolyMets shares trade at a 20-day volume weighted average
price equal to or exceeding US$6.00, at which time, and at Glencores option,
Glencore could exchange the Debentures for common shares of PolyMet within 30
days in lieu of payment. Repayment between October 1, 2009 and September 30,
2010 would be at 105% of the then outstanding principal of the Debentures,
repayment between October 1, 2010 and September 30, 2011 would be at 102.5% of
the outstanding principal.

US$7.5 million of the Debentures were issued on 31 October 2008
and another US$7.5 million were issued on December 22, 2008. US$10 million of
the Debentures will be issued in two tranches subject to expenditures being in
material compliance with budget, other customary conditions and agreement
between Glencore and Cliffs on terms and conditions whereby Cliffs will provide
its consent to Glencore as mortgagee of the Erie Plant.

The final US$25 million of the Debentures are to be issued upon
publication of the Final EIS in the State of Minnesotas Environmental Quality
Board Monitor, receipt by the Company of a bona fide term sheet for construction
financing and are subject to expenditures being in material compliance with
budget and other customary conditions.

On 31 October 2008, PolyMet issued to Glencore warrants to
purchase 6.25 million common shares of PolyMet at US$5.00 if exercised before
the NorthMet Project has produced a total of 20,000 metric tonnes of
concentrate, or US$6.00 thereafter. The warrants expire on September 30, 2011.
If the volume-weighted 20-day average price of PolyMets common shares trade at
a 50% premium to the then applicable exercise price, Glencore must exercise the
warrants within 30 days or the warrants will expire.

During the year ended 31
  January 2009 the Company issued 312,800 shares (prior year period  462,200)
  upon exercise of options for proceeds of $452,000 (prior year period -
  $303,000).

During the year ended January 31, 2008 we issued 15 million
units at US$2.75 per unit, with each unit comprising one common share and
one-half of one common share purchase warrant (for accounting purposes, the
value of the units was bifurcated between the common shares and the warrants).
Each whole warrant was exercisable into a common share at a price of US$4.00 at
any time until October 13, 2008 (see amendment below), subject to an early
trigger if the 20-day volume weighted average price of the common shares is
US$6.00 or more. In connection with the private placement, the Company paid
finders fees totaling US$1.43 million in cash, 150,000 shares and 520,000
broker warrants having the same terms as the warrants described above. During
the period the Company also issued 462,200 shares upon exercise of options for
proceeds of $303,000.

29

---

During the year ended January 31, 2007 the Company issued:

- 14,662,703 common shares upon the exercise of warrants for proceeds of
  $14.310 million;
- 2,193,000 common shares upon the exercise of options for proceeds of
  $765,000, and
- 2,350,000 common shares under the Companys Bonus Share Plan for deemed
  proceeds of $1,289,000.

On 10 October 2008, the Company announced that it had received
the consent from the holders of more than two-thirds of the 8,020,000 warrants
issued as part of the April 2007 private placement to exchange those warrants
into:

- 4,010,000 warrants, each warrant entitling the holder to purchase one
  share of PolyMet common stock at US$3.00 per share at any time until the
  sooner of 30 calendar days after publication of the draft Environmental Impact
  Statement by the State of Minnesota in the states Environmental Quality Board
  Monitor and October 13, 2009, and
- 4,010,000 warrants, each warrant entitling the holder to purchase one
  share of PolyMet common stock at US$5.00 if exercised before the NorthMet
  Project has produced a cumulative total of 20,000 metric tonnes of
  concentrate, or US$6.00 thereafter and prior to August 31, 2011. PolyMet can
  accelerate the expiration of the warrants if PolyMets volume-weighted 20-day
  average stock price trades at a 50% premium to the exercise price applicable
  at any time.

Year Ended January 31, 2009

Cash used in operating activities in the year ended 31 January
2009 was $3.290 million compared to cash used in the prior year of $2.690
million. The variance is primarily due to the cash based operating activity
differences described above and changes in working capital.

Cash provided by financing activities for the year ended 31 January 2009 was $13.336 million compared with $37.533 million in the prior year. The current year activity was primarily due to funding of convertible debt by Glencore AG and $1.400 million of scheduled debt repayment (prior year period - $2.000 million).  Other prior year activity was primarily due to the private placement which closed in April and deferred financing costs of $293,000 relating to BNPP (current year period - $49,000).  In the year ended 31 January 2009 option and warrant exercises provided cash of $452,000 (prior year - $303,000).

Cash used in investing activities for the year ended 31 January
2009 was $22.776 million compared with $23.656 million in the preceding year,
with the decrease being primarily the result of the cash purchase of $2.495
million of common shares of a publicly traded Canadian mining company whose
primary business is the operation of a base metal mine in the prior year period,
partially offset by higher engineering, project and environmental / permitting
costs in the current year period.

Total cash for the year ended 31 January 2009 decreased by
$12.730 million for a balance of $7.354 million compared to the year ended 31
January 2008 when cash increased by $11.187 million to a balance of $20.084
million.

Substantially all cash and equivalents are held in United
States currency.

As at 31 January 2009 we had working capital of $3.582 million
compared with $16.558 million at 31 January 2008 consisting primarily of cash of
$7.354 million (31 January 2008 - $20.084 million), prepaids of $470,000 (31
January 2008 - $793,000) investments of $57,000 (31 January 2008 - $1,445,000)
accounts payable and accrued liabilities of $2.797 million (31 January 2008 -
$4.266 million) and the current portion of the notes to Cliffs of $1.250 million
(31 January 2008 - $1.401 million). We expect to pay the remaining balance of
$10.063 million (31 January 2008 - $10.834 million) long term notes to Cliffs
and the convertible debt principal balance of $15 million from
working capital, additional financing and funds from operations once commercial
production has commenced. Our cash is primarily held in deposits and bearer
deposits of a major Canadian bank and does not include any exposure to
asset-backed commercial paper.

30

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The consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities in the normal course of operations.  Liquidity risk is the risk that the Company will be unable to meet its financial obligations as they fall due.

The Company has taken steps to fund its operations through the issuance of equity and debt.  It plans to meet its financial obligations to the point at which all regulatory approvals for its NorthMet project have been obtained and which will allow the Company to raise capital to construct its mine and commence commercial production.  Management believes that the negotiation of a convertible debenture for $50 million in 2008 will be sufficient to meet its obligations until it is able to raise capital to construct its mine.  Two tranches of the convertible debenture amounting to $15 million were advanced to the Company by January 31, 2009.  Further advances require the Company to achieve certain milestones and conditions. One of these conditions is for the Company to obtain the consent of Cliffs to allow the debenture holder to obtain a mortgage over certain of the Company’s assets.  In the event that the milestones and conditions laid out in the convertible debenture are not met or their achievement is delayed the Company may be forced to curtail or delay expenditures, sell assets or seek additional financing sources.  All of these circumstances may delay the progress of or affect the ultimate success of the Company’s plans.

Management of the Company has developed plans which, in the event of delays of the achievement of milestones under the convertible debenture, involve the curtailment or postponement of certain activities, the sale of assets and the provision of additional sources of finance.  However, there is no assurance that management will be successful in achieving any or all of the opportunities it has identified or obtain sufficient liquidity to execute its business plans.

Should the Company wish to continue to further advance the NorthMet Project to commercial production PolyMet will require additional funds. As the Company has no operating revenues, the only source of liquidity consists primarily of cash from proceeds of project debt, other debt and equity financing.

Debt

Pursuant to Asset Purchase Agreements, our wholly owned
subsidiary Poly Met Mining, Inc. signed three notes payable to Cliffs in the
amounts of $2,400,000, $7,000,000 and $7,000,000, respectively. The first note
is interest bearing at the annual simple rate of four percent (4%) and is being
paid in quarterly instalments equal to $250,000 for total repayment of
$2,400,000. The second note is interest bearing at the Wall Street JournalPrime Rate and is being paid in quarterly instalments equal to $250,000
commencing December 31, 2006, with the balance repayable upon receipt of
commercial financing, for total repayment of $7,000,000. The third note is
interest bearing at the Wall Street JournalPrime Rate and shall be paid
in quarterly instalments equal to $250,000 commencing on December 31, 2009 for
total repayment of $7,000,000. No interest will be payable on the third note
until December 31, 2009, accordingly it has been fair valued, for balance sheet
purposes, by discounting it at 8.25% .

Pursuant to a financing agreement with Glencore, the Company
has entered into convertible debenture agreements for $15 million. The
Debentures are due on 30 September 2011 and bear interest at 12-month US dollar
LIBOR plus 4%. Interest is payable in cash or by increasing the principal amount
of the Debentures, at PolyMets option, for payments on or before September 30,
2009, and at Glencores option thereafter.

As at January 31, 2009 the outstanding long term debt was as
follows:

| |                      |   | January 31, 2009 |   |   | January 31, 2008 |  
| | -------------------- | - | ---------------- | - | - | ---------------- | -
| |                      |   |                  |   |   |                  |  
| | Notes payable        | $ | 11,299           |   | $ | 12,204           |  
| | Accrued interest     |   | 14               |   |   | 31               |  
| | Convertible debt     |   | 13,943           |   |   | -                |  
| | Total debt           |   | 25,256           |   |   | 12,235           |  
| | Less current portion |   | (1,250           | ) |   | (1,401           | )
| |                      |   |                  |   |   |                  |  
| | Long term debt       | $ | 24,006           |   | $ | 10,834           |  

We anticipate using working capital, additional financing and
funds from operations once commercial production has commenced to meet the above
payment obligations to Cliffs and Glencore

(c)        Research and
Development, Patents and Licenses, Etc.

Not applicable.

(d)        Trend
Information

Not applicable.

(e)        Off-Balance
Sheet Arrangements

31

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Not applicable.

(f)        Tabular
Disclosure of Contractual Obligations

The following table lists as of January 31, 2009 information
with respect to the Companys known contractual obligations:

Payments due by periodTotal
      
      
      Less than
      
      
      1  3 years
      
      
      3  5 years
      
      
      More than 5Contractual Obligations
      
      
      
      
      1
        year
      
      
      
      
      
      
      
      
      yearsAccounts payable and
      $
      2,797,000
      
      $
      2,797,000
      
      $
      -
      
      $
      -
      
      $
      -accrued liabilitiesLong-term debt obligations
      
      31,790,000
      
      
      1,948,000
      
      
      24,157,000
      
      
      2,619,000
      
      
      3,066,000Asset retirement obligation
      
      23,556,000
      
      
      337,000
      
      
      927,000
      
      
      1,192,000
      
      
      21,100,000Total
      $
      58,143,000
      
      $
      5,082,000
      
      $
      25,084,000
      
      $
      3,811,000
      
      $
      24,166,000


Long-term debt obligations (including the current portion) are
comprised of long-term and convertible debt balances, are set out in this table
on an undiscounted basis and include anticipated interest. Asset retirement
obligation represents the undiscounted obligation at 31 January 2009.

(g)        Critical
Accounting Policies

Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in Canada that require
management to make assumptions and estimates that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities as
at the date of the financial statements. Significant estimates used in the
preparation of these consolidated financial statements include, amongst other
things, expected economic lives of plant and equipment, anticipated costs of
asset retirement obligations including the reclamation of mine site, valuation
of options and share purchase warrants, and the assessment of impairment in
value of long lived assets.

Mineral Property, Plant and Equipment

Mineral property costs, aside from mineral property acquisition
costs, incurred prior to determination of the DFS are expensed as incurred and
expenditures incurred subsequent to the DFS and mineral property acquisition
costs are deferred/capitalized until the property is placed into production,
sold, allowed to lapse or abandoned. Acquisition costs include cash and fair
market value of common shares. As a result of the DFS on the NorthMet Project,
the NorthMet Project entered the development stage effective October 1, 2006. We
have deferred mineral property development expenditures related to the NorthMet
Project from that date.

Plant and equipment are recorded at cost and depreciated over
the estimated life of the related assets calculated on a unit of production or
straight-line basis, as appropriate. Mineral property, plant and equipment
related to the NorthMet Project will begin to be amortized at the time the
project commences operations.

We perform impairment tests on our mineral property, plant and
equipment when events or changes in circumstances indicate that the carrying
values of assets may not be recoverable. These tests require the comparison of
the undiscounted future cash flows derived from these assets with the carrying
value of the assets. If a shortfall exists, the assets are written down to fair
value, determined primarily using discounted cash flow models.

32

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Stock-Based Compensation and Share Purchase Warrants

All stock-based awards made to directors, employees and non-employees are measured and recognized using a fair value based method. For directors and employees, the fair value of the options is measured at the date of the grant. For non-employees,
the fair value of the options is measured on the earlier of the date at which the counterparty performance is complete or the date the performance commitment is reached or the date at which the equity instruments are granted if they are fully vested
and non-forfeitable. For directors, employees and non-employees, the fair value of the options is accrued and charged either to operations or mineral property plant and equipment, with the offsetting credit to contributed surplus, on a graded method
over the vesting period.  If and when the stock options are ultimately exercised, the applicable amounts of contributed surplus are transferred to share capital.

We issue share purchase warrants in connection with certain equity transactions. The fair value of the warrants, as determined using the Black-Scholes option pricing model, is credited to contributed surplus. The recorded value of share purchase
warrants is transferred to share capital upon exercise.

Asset Retirement Obligations

The Company follows CICA Handbook Section 3110, Asset Retirement Obligations which requires the recognition of a legal liability for obligations relating to the retirement of property, plant and equipment and obligations arising from the
acquisition, construction, development, or normal operation of those assets. Such asset retirement costs must be recognized at fair value, when a reasonable estimate of fair value can be estimated, in the year in which the liability is incurred.  A
corresponding increase to the carrying amount of the related asset, where one is identifiable, is recorded and amortized over the life of the asset. Where a related asset is not easily identifiable with a liability, the change in fair value over the
course of the year is expensed.  The amount of the liability is subject to re-measurement at each reporting year-end.  The estimates are based principally on legal and regulatory requirements.  It is possible that the Companys estimates of its
ultimate reclamation and closure liabilities could change as a result of changes in regulations, changes in the extent of environmental remediation required, changes in the means of reclamation or changes in cost estimates.

The operations of the Company may in the future be affected from time to time in varying degrees by changes in environmental regulations, including those for future removal and site restoration costs. Both the likelihood of new regulations and their
overall effect upon the Company may vary greatly and are not predictable.

Financial Instruments

Section 3855 of the CICA Handbook requires that all financial assets, except those classified as held to maturity, and derivative financial instruments, must be measured at fair value. All financial liabilities must be measured at fair value when
they are classified as held for trading, otherwise, they are measured at cost. Investments classified as held for sale are reported at fair market value (or mark to market) based on quoted market prices with unrealized gains or losses excluded from
earnings and reported as other comprehensive income or loss. All financial assets and liabilities have been classified as either held-to-maturity, available-for-sale, held for trading or loans and receivables effective February 1, 2007. Investments
subject to significant influence are reported at cost and not adjusted to fair market value.

33

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND
EMPLOYEES

A.        Directors and
Senior Management

Each Director serves until the next annual general meeting of
shareholders or until his/her successor is duly elected, unless his/her office
is vacated in accordance with our Certificate of Incorporation.

Vacancies on the Board of Directors are filled by election from
nominees chosen by the remaining Directors and the persons filling those
vacancies will hold office until the next annual general meeting of
shareholders, at which time they may be re-elected or replaced. (For more
details on the process for nominating directors, see our Nominations Committee
Charter, referenced hereto as Exhibit 11.2. )

The following is a list of the names and ages of our directors
and executive officers:

Name
    
    Age
    
    PositionWilliam Murray
    
    60
    
    Executive
      ChairmanJoseph Scipioni
    
    55
    
    Director, President, and Chief
      Executive OfficerDouglas J. Newby
    
    50
    
    Chief Financial OfficerNiall Moore
    
    47
    
    Corporate
      Secretary and Group ControllerWilliam Corneliuson
    
    66
    
    DirectorDavid Dreisinger
    
    51
    
    DirectorW. Ian L. Forrest
    
    70
    
    DirectorGeorge Molyviatis
    
    46
    
    DirectorFrank Sims
    
    58
    
    DirectorJames Swearingen
    
    66
    
    DirectorStephen Rowland
    
    47
    
    Director


William Murrayhas served as our Executive Chairman
since February 5, 2008 and has served as a member of our board of directors
since March 17, 2003. He previously served as our President and Chief Executive
Officer from March 17, 2003 until February 5, 2008. Mr. Murray is an engineer in
the mining industry with more than 35 years of experience in construction
management and project evaluation in North America and Africa. From April 1993
to 2003, Mr. Murray provided consulting services to the mining industry as a
principal of Optimum Project Services Ltd. Prior to that, Mr. Murray was
employed by Fluor Daniel, a large U.S. Engineering & Construction
contractor, as the Director of New Business from October 1989 to April 1993.
From September 1981 to May 1986, Mr. Murray was a Director of Project Services
at Denison Mines where he was part of the core team than built the $1.2 billion
Quintette Coal project. From September 1970 to August 1981, Mr. Murray held a
number of positions at Anglo American Corp in South Africa, principally in the
Gold Division. Mr. Murray is also a director of South American Silver Corp. and
Aura Minerals, Inc. Mr. Murray currently resides in British Columbia, Canada.

Joseph Scipionihas served as our President and Chief
Executive Officer since February 5, 2008 and as a member of our board of
directors since February 19, 2008. He also serves on our safety, health and
environmental committee. Mr. Scipioni served as our Chief Operating Officer
since March 2007 and as General Manager of our Minnesota operations since July
2006. Prior to June 2006, Mr. Scipioni's career spanned more than 30 years with
United States Steel Corporation where he worked in a number of progressively
senior positions in operations. His last position was Plant Manager at the
Keewatin Taconite plant in Minnesota. Mr. Scipioni is an active advisor to the
University of Minnesota Natural Resources Research Institute based in Duluth,
Minnesota and is an officer of the Northern Minnesota Chapter of the Society of
Mining, Metallurgy and Exploration. In addition, Mr. Scipioni has served in
leadership positions with the Iron Mining Association of Minnesota, Central Iron
Range Initiative, United Way of Northeastern Minnesota and Hibbing Chamber of
Commerce. Mr. Scipioni currently resides in Minnesota, United States.

34

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Douglas J. Newby has served as our Chief Financial Officer since November 2005.  Mr. Newby has nearly 30 years of experience in the evaluation and financing of mining companies and projects around the world. Before coming to PolyMet, Mr.
Newby served variously as a Director, Executive Vice President, interim Chairman, President and Chief Executive Officer of Western Goldfields, Inc. a US-based gold mining company. Mr. Newby has also been President of Proteus Capital Corp., a
corporate advisory firm that specializes in the natural resource industries, since July 2001. Mr. Newby served as Managing Director of Proteus Consultants Ltd. from January 1991 to July 2001 and Managing Partner of Moyes Newby & Co., Inc. from
April 1994 to December 1998, both of which provided corporate advisory services primarily to the international energy and mining industries. From January 2004 to March 2006, Mr. Newby served as Vice-President of Cadence Resources Corporation, an oil
and gas exploration and development company. Prior to January 1991, Mr. Newby held senior positions with the investment banking firms of S.G. Warburg & Co., Inc., Morgan Grenfell & Co., and James Capel & Co. Mr. Newby currently resides
in New York, United States.

Niall Moore has served as our Corporate Secretary since December 2006 and as our Group Controller since September 2006.  Mr. Moore has over 20 years of experience with public companies in the resource sector. From November 2002 to May 2006,
he was Director, Corporate Reporting for Placer Dome Inc. and from May 2006 until December 2006 he worked as a consultant to Barrick Gold, Inc. following that companys acquisition of Placer. Prior to November 2002, Mr. Moore was an audit
partner at Ernst & Young LLP. Mr. Moore has extensive experience in financial reporting, compliance and valuation work. Mr. Moore currently resides in British Columbia, Canada.

William D. Corneliuson has served as a member of our board of directors since March 8, 2007. He also serves on our audit, nominating and corporate governance, and compensation committees.  In April 1993, Mr. Corneliuson founded B.C. Holdings
and to date remains as the President and Chief Investment Officer. Mr. Corneliuson has over 30 years of investment experience in a range of asset management positions including managing large institutional portfolios, mutual funds and a private
investment fund. Prior to founding B.C. Holdings, Mr. Corneliuson co-founded Strong Capital Management in 1976, which became Strong/Corneliuson Capital Management, where he served as the firm's President and raised and managed several billion
dollars of institutional assets and a variety of mutual funds that achieved superior ratings.  Mr. Corneliuson received a B.A. in Political Science and subsequently an MBA from Michigan State University. Mr. Corneliuson served in the U.S. Marine
Corps where he achieved the rank of Captain. Mr. Corneliuson also serves as Chairman of the board of Medwave Inc., a medical device development company. Mr. Corneliuson currently resides in Wisconsin, United States.

Dr. David Dreisinger has served as a member of our board of directors since October 3, 2003.  Dr. Dreisinger also served on our audit committee prior to June 2006. Since 1988, Dr. Dreisinger has been a member of the faculty at the University
of British Columbia in the Department of Metal and Material Engineering and is currently Professor and Chairholder of Industrial Research and Chair in Hydrometallurgy. He has published over 100 papers and has been extensively involved as a process
consultant in industrial research programs with metallurgical companies. Dr. Dreisinger has participated in 11 U.S. patents for work in areas such as pressure leaching, ion exchange removal of impurities from process solutions, use of thiosulfate as
an alternative to cyanide in gold leaching, and leach-electrolysis treatment of copper recovery from sulfide ores, and the Sepon Copper Process for copper recovery from sulfidic-clayey ores.Dr. Dreisinger serves as a director of
International Nickel Ventures, Inc. and as Vice President  Metallurgy/Process of Baja Mining Corp. Dr. Dreisinger currently resides in British Columbia, Canada.

35

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W. Ian L. Forrest has served as a member of our board of
directors since October 3, 2003 and served as Chairman of our board until
February 5, 2008. He also serves on our audit, compensation, and nominating and
corporate governance committees. Mr. Forrest is a member of the Institute of
Chartered Accountants of Scotland and continues to practice as a public
accountant in Geneva, Switzerland. Mr. Forrest has more than 30 years of
experience with public companies in the resource sector. His experience
encompasses the areas of promotion, financing, exploration, production and
company management. He has also participated in several notable projects
including Gulfstream's North Dome gas discovery, Qatar, Reunion Mining's
Scorpion zinc, Namibia, which was subsequently developed by Anglo American, and
Ocean Diamond Mining which pioneered the independent diamond dredging industry
off the west coast of southern Africa. He also serves as a director of Mengold
Resources Inc. Having played an important role in the revival of PolyMet Mining
Corporation in 2003, he was appointed Chairman in May 2004. Mr. Forrest
currently resides in Vaud, Switzerland.

George Molyviatis has served as a member of our board of
directors since March 17, 2003. Mr. Molyviatis also serves on our audit,
compensation, and nominating and corporate governance committees. Mr. Molyviatis
has approximately 20 years experience as an investment banker and businessman.
He started his career with BNP Paribas in Geneva in 1986 where held increasingly
senior positions, ultimately becoming a Senior Vice-President. In 1994 he joined
the Credit Suisse group as a Senior Vice-President and left in 1996 to join
Pegasus Securities, S.A., a Greek investment bank that he ran until 1999, when
it was sold. Since then Mr. Molyviatis has been a private investor in several
natural resource companies and owns several large forestry and timber processing
facilities in Georgia and Russia. Mr. Molyviatis currently resides in Athens,
Greece.

Stephen Rowlandhas served as a member of our board of
directors since October 30, 2008. Mr. Rowland has been an executive with
Glencore, a privately held diversified natural resources company, since 1988.
Mr. Rowland has held various positions with responsibility for international
trading in metals and minerals in London, Switzerland, and the United States.
Prior to joining Glencore, Mr. Rowland started his career in 1985 with Cargill,
Inc. in Minneapolis. Mr. Rowland currently resides in Connecticut, United
States.

Frank L. Sims has served as a member of our board of
directors since February 19, 2008. He also serves on our audit, nominating and
corporate governance and safety, health and environmental committees. Mr. Sims
is a recognized business leader whose career has been focused in Minnesota and
the upper Midwest. Mr. Sims has held a series of progressively senior positions
with Cargill, Incorporated between 1972 and his retirement in December 2007.
Most recently he served as Corporate Vice President. Minnesota-headquartered
Cargill is an international provider of food, agricultural and risk management
products and services. Mr. Sims currently serves on the board of Piper Jaffray
Companies. Mr. Sims has previously served on the board of Tennant Company, as
Vice-Chair of the U.S. Marine Transportation System National Advisory Council,
was a Chairman of the board of the North American Export Grain Association, and
as Chairman of the Federal Reserve Bank of Minneapolis. Mr. Sims currently
resides in Minnesota, United States.

James Swearingen has served as a member of our board of
directors since January 14, 2005. He also serves on our safety, health and
environmental committee. From September 1994 to April 2003, Mr. Swearingen was
General Manager of US Steel Corporations Minnesota Ore Operations located at
the Minntac mine and plant, the largest mining operation in North America. He
held a series of progressively senior positions with US Steel Corporation
between 1964 and his retirement in 2003. He has served as co-chair of the
Governor's Committee on Minnesota's Mining Future. Mr. Swearingen is also active
with other groups that bring new technology to north-eastern Minnesota to
develop non-ferrous mines and new, value added, projects in steel making. He is
also an active advisor to the University of Minnesota's Natural Resources
Research Institute based in Duluth, Minnesota, and was recently elected to the
City Council of Biwabik, Minnesota. Mr. Swearingen currently resides in
Minnesota, United States.

W. Ian L. Forrest was a director of AB Airlines plc from June
30 to July 30, 1999 and, on August 2, 1999 AG Airlines plc was placed in
administrative receivership.

36

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B.        Statement of
Executive Compensation

The following table sets forth the compensation paid to our
Named Executive Officers for the fiscal year ended January 31, 2009:

|                               |   |             |  |   |            |  |   | Pension,    |  |   |              | 
|------------------------------ | - | ----------- |  | - | ---------- |  | - | ----------- |  | - | ------------ | 
|                               |   | Salaries    |  |   |            |  |   | Retirement  |  |   |              | 
|                               |   | Commissions |  |   |            |  |   | and Similar |  |   | Total        | 
|                               |   | and Bonuses |  |   | Options(1) |  |   | Benefits(2) |  |   | Compensation | 
|                               |   |             |  |   |            |  |   |             |  |   |              | 
|William Murray, Executive      |   |             |  |   |            |  |   |             |  |   |              | 
|Chairman                       | $ | 278,877     |  | $ | nil        |  | $ | nil         |  | $ | 278,877      | 
|Joseph Scipioni, President and |   |             |  |   |            |  |   |             |  |   |              | 
|Chief Executive Officer        | $ | 200,000     |  | $ | 99,206     |  | $ | 14,952      |  | $ | 314,158      | 
|Douglas Newby Chief Financial  |   |             |  |   |            |  |   |             |  |   |              | 
|Officer                        | $ | 200,000     |  | $ | nil        |  | $ | 8,002       |  | $ | 208,002      | 

|(1) | Balance represents the fair value of options issued to
      Mr. Scipioni when he joined the Board of Directors in February
  2008.
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                    
|(2) | Balances represent Company contributions under 401k pension plans.                                                                 

During the fiscal year ended January 31, 2009, we had three
Named Executive Officers (NEOs) (for the purposes of applicable securities
legislation), namely:

| | (a) | William Murray, Executive Chairman;                       
| | --- | ----------------------------------------------------------
| |     |                                                           
| | (b) | Joseph Scipioni, President and Chief Executive Officer and
| |     |                                                           
| | (c) | Douglas Newby, Chief Financial
Officer.                   

During the fiscal year ended January 31, 2009, no compensation
was paid or is payable by us to the directors of the Company, other than the
NEOs (the Other Directors), or our subsidiaries, if any, for their services in
their capacity as directors, including any amounts payable for committee
participation or special assignments pursuant to any standard or other
arrangements; or The Company has no pension plan or other arrangement for
non-cash compensation to the Other Directors, except as follows:

Name of
      Director
    Consulting FeesDavid Dreisinger
    56,000
      (1)


(1) Consulting Fees paid in connection with the
Companys NorthMet Project.

Upon joining the Board of Directors in February 2008, Frank
Sims was granted stock options with a fair value of $396,823.

C.        Board Practices

All of our directors hold office until the next annual meeting
of shareholders and until their successors have been elected and qualified. Our
officers are elected by the Board of Directors at the first Board of Directors
meeting after each annual meeting of shareholders and hold office until death,
resignation, or upon removal from office.

None of our directors have service contracts with us providing
for benefits upon termination of their employment.

Our Audit Committee consists of W. Ian L. Forrest, William
Corneliuson, George Molyviatis and Frank Sims, all of whom are independent
directors. All four members of the Audit Committee meet the criteria of an
Audit Committee Financial Expert under the applicable rules and regulations of
the SEC. and such designation has been ratified by the Board of Directors. The
Audit Committee oversees our auditing procedures, receives and accepts the reports of our independent
certified public accountants, oversees our internal systems of accounting and
management controls, and makes recommendations to the Board of Directors as to
the selection and appointment of our auditors. The Audit Committee is governed
by the terms of the Charter of the Audit Committee of the Board of Directors
which has previously been filed as Exhibit 16.1.

37

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Our Compensation Committee consists of W. Ian L. Forrest,
William Corneliuson and George Molyviatis. Mr. Forrest is the chair of the
Compensation Committee. The function of the Compensation Committee is to
administer the 2007 PolyMet Omnibus Share Compensation Plan and to have
authority over the salaries, bonuses, and other compensation arrangements of our
executive officers.

Our Nominating and Corporate Governance Committee consists of
W. Ian L. Forrest, William Corneliuson, George Molyviatis and Frank Sims. Mr.
Sims is the chair of the Nominating Committee. This committee (1) identifies
individuals qualified to become members of the Board, (2) selects, or recommends
to the Board, the director nominees for the next annual shareholders meeting,
(3) selects candidates to fill any vacancies on the Board; and (4) develops and
recommends to the Board a set of corporate governance principles applicable to
the corporation.

D.        Employees

As of January 31, 2009 we had 20 full-time employees, with
three located in our Vancouver office and the 15 located in our Hoyt Lakes
office. None of our employees are covered by a collective bargaining
agreement. We believe that our relations with our employees are good.

During the fiscal year ended January 31, 2009, we employed an
average of 6 consultants working out of our Vancouver and Minnesota offices.

E.        Share Ownership

For the shareholdings of our directors and executive officers
see Item 7(A).

38

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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.        Major
Shareholders

The following table sets forth, as of April 27, 2009, certain
  information regarding the ownership of our voting securities by each stockholder
  known to our management to be (i) the beneficial owner of more than 5% of our
  outstanding common stock, (ii) our directors, (iii) our current executive officers
  identified under Item 6(A), and (iv) all executive officers and directors as
  a group. We believe that, except as otherwise indicated, the beneficial owners
  of the common stock listed below, based on information furnished by such owners,
  have sole investment and voting power with respect to such shares.

|                                                                                |  |                      |  | Percent of        
|------------------------------------------------------------------------------- |  | -------------------- |  | ------------------
|Name and Address of                                                             |  | Amount and Nature of |  | Outstanding Shares
|Beneficial
      Owner(1)                                                       |  | Beneficial Ownership |  | of Common Stock   
|                                                                                |  |                      |  |                   
|William Murray (2)                                                              |  | 2,847,276            |  | 2.1%              
|                                                                                |  |                      |  |                   
|Douglas J. Newby (3)                                                            |  | 1,050,000            |  | *                 
|                                                                                |  |                      |  |                   
|Joseph Scipioni (4)                                                             |  | 1,050,000            |  | *                 
|                                                                                |  |                      |  |                   
|Niall Moore (5)                                                                 |  | 525,000              |  | *                 
|                                                                                |  |                      |  |                   
|David Dreisinger (6)                                                            |  | 1,276,300            |  | *                 
|                                                                                |  |                      |  |                   
|W. Ian L. Forrest (7)                                                           |  | 2,303,000            |  | 1.7%              
|                                                                                |  |                      |  |                   
|George Molyviatis (8)                                                           |  | 8,734,920            |  | 6.3%              
|                                                                                |  |                      |  |                   
|James Swearingen (9)                                                            |  | 550,000              |  | *                 
|                                                                                |  |                      |  |                   
|William D. Corneliuson (10)                                                     |  | 960,000              |  | *                 
|                                                                                |  |                      |  |                   
|Frank Sims (11)                                                                 |  | 600,000              |  | *                 
|                                                                                |  |                      |  |                   
|Stephen Rowland                                                                 |  | Nil                  |  | *                 
|                                                                                |  |                      |  |                   
|All executive officers and directors as
      a group (11 persons) (12)         |  | 19,896,496           |  | 13.7%             
|                                                                                |  |                      |  |                   
|5% or more shareholders:                                                        |  |                      |  |                   
|                                                                                |  |                      |  |                   
|Cleveland-Cliffs, Inc. (13) 1100
      Superior Avenue Cleveland, OH 44114-2589 |  | 9,200,547            |  | 6.7%              

|*  | Less than 1%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|1. | The address of each person, unless otherwise noted, is
      c/o PolyMet Mining Corp., Suite 1003- 1177 West Hastings Street,
      Vancouver, British Columbia V6E 2K3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|2. | Includes 100,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of CDN$0.66 per share
      set to expire on July 5, 2009, 300,000 shares of common stock issuable
      upon exercise of currently exercisable options, at an exercise price of
      CDN$1.36 per share set to expire on September 19, 2010, 450,000 common
      shares issuable upon exercise of currently exercisable options at an
      exercise price of CDN$2.76 per share set to expire on March 20, 2011 and
      200,000 shares of common stock issuable upon exercise of currently
  exercisable options, at an exercise price of US$0.82 per share set to expire on February 17, 2014. Mr. Murray directly owns 810,100 common shares and has voting and dispositive control over 987,176 common shares owned in the name of Group 4 Ventures of which he is the sole stockholder.

39

---

|3. | Includes 200,000 common shares held in the name of Proteus Capital Corp. of which he is the President and controlling shareholder, 100,000 common shares issuable upon exercise of currently exercisable options, at an exercise price
of CDN$1.15 per share set to expire on December 5, 2010, 500,000 common shares issuable upon exercise of currently exercisable options, at an exercise price of CDN$2.76 per share set to expire on March 20, 2011 held in Mr. Newbys name;
and 40,000 common shares issuable upon exercise of currently exercisable options, at an exercise price of CDN$0.94 per share set to expire on June 15, 2010, and 210,000 common shares issuable upon exercise of currently exercisable options, at an
exercise price of CDN$1.36 per share set to expire on September 19, 2010 held in the name of Proteus Capital Corp. of which he is the President and controlling shareholder.                                                                                      
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4. | Includes 200,000 common shares issuable upon exercise of currently exercisable options, at an exercise price of CDN$2.97 per share set to expire on June 19, 2011, 300,000 common shares issuable upon exercise of currently
non-exercisable options, at an exercise price of CDN$3.30 per share set to expire on January 5, 2012, 250,000 common shares issuable upon exercise of currently non-exercisable options, at an exercise price of USD$2.92 per share set to expire
on March 12, 2012 and 100,000 common shares issuable upon exercise of currently non- exercisable options, at an exercise price of USD$2.72 per share set to expire on February 15, 2013, 200,000 shares of common stock issuable upon exercise of
currently exercisable options, at an exercise price of US$0.82 per share set to expire on February 17, 2014 held in Mr. Scipionis name.                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|5. | Includes 275,000 common shares issuable upon exercise of currently exercisable options, at an exercise price of CDN$3.82 per share set to expire on September 1, 2011, 175,000 common shares issuable upon exercise of currently
non-exercisable options, at an exercise price of CDN$3.30 per share set to expire on January 5, 2012 and 75,000 shares of common stock issuable upon exercise of currently exercisable options, at an exercise price of US$0.82 per share set to
expire on January 30, 2014 held in Mr. Moores name.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|6. | Includes 300,000 common shares issuable upon exercise of currently exercisable options, at an exercise price of CDN$0.66 per share set to expire on July 5, 2009, 150,000 common shares issuable upon exercise of currently
exercisable options, at an exercise price of CDN$1.36 per share set to expire on September 19, 2010, 250,000 common shares issuable upon exercise of currently exercisable options, at an exercise price of CDN$2.76 per share set to expire on
March 20, 2011 and 150,000 shares of common stock issuable upon exercise of currently exercisable options, at an exercise price of US$0.82 per share set to expire on February 17, 2014. Dr. Dreisinger directly owns 426,300 common shares.                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|7. | Includes 350,000 common shares issuable upon exercise of currently exercisable options, at an exercise price of CDN$0.66 per share set to expire on July 5, 2009, 150,000 common shares issuable upon exercise of currently
exercisable options, at an exercise price of CDN$1.36 per share set to expire on September 19, 2010, 250,000 common shares issuable upon exercise of currently exercisable options, at an exercise price of CDN$2.76 per share set to expire on
March 20, 2011 and 150,000 shares of common stock issuable upon exercise of currently exercisable options, at an exercise price of US$0.82 per share set to expire on February 17, 2014. Mr. Forrest has voting and dispositive control with respect
to 1,028,000 common shares owned in the name of Micor Trading SA of which he is a director, 375,000 common shares owned in the name of Panares Resources Inc. of which he is a director, and Catherine L. Forrest, Mr. Forrests wife, directly owns
932,380 common shares.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|8. | Includes 150,000 common shares issuable upon exercise of currently exercisable options, at an exercise price of CDN$1.36 per share set to expire on September 19, 2010, 250,000 common shares issuable upon exercise of currently
exercisable options, at an exercise price of CDN$2.76 per share set to expire on March 20, 2011 and 150,000 shares of common stock issuable upon                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

40

---

|    | exercise of currently exercisable options, at an exercise
      price of US$0.82 per share set to expire on February 17, 2014. Mr.
      Molyviatis directly owns 8,184,920 common shares.                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|9.  | Includes 150,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of CDN$1.36 per share
      set to expire on September 19, 2010, 250,000 common shares issuable upon
      exercise of currently exercisable options, at an exercise price of
      CDN$2.76 per share set to expire on March 20, 2011 and 150,000 shares of
      common stock issuable upon exercise of currently exercisable options, at
      an exercise price of US$0.82 per share set to expire on February 17, 2014.
      Mr. Swearingens wife, directly owns 900 common shares.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10. | Includes 400,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of US$2.88 per share
      set to expire on March 8, 2012 and 200,000 shares of common stock issuable
      upon exercise of currently exercisable options, at an exercise price of
      US$0.82 per share set to expire on February 17, 2014. Mr. Corneliuson
      directly owns 360,000 common shares.                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|11. | Includes 400,000 common shares issuable upon exercise of
      currently un-exercisable options, at an exercise price of US$2.72 per
      share set to expire on February 15, 2014 and 200,000 shares of common
      stock issuable upon exercise of currently exercisable options, at an
      exercise price of US$0.82 per share set to expire on February 17,
    2013.                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|12. | Includes 7,525,000 common shares issuable upon exercise
      of currently exercisable options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|13. | This shareholder held 1,000,000 shares as of January 31,
      2005, 7,200,547 as of January 31, 2006 and 9,200,547 as of January 31,
      2007, January 31, 2008 and January 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                     

Our shareholders who beneficially own more than 5% of our
common shares outstanding do not have voting rights different from any other
shareholders of common shares.

As of April 27, 2009, there were 337 holders of record of our
common shares of which 259 were U.S. residents owning 31.47% of our outstanding
common shares.

41

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B.        Related Party
Transactions

The Company has conducted transactions with officers, directors
and persons or companies related to directors and paid or accrued amounts as
follows:

| |                                             |   | 2009 |  |   | 2008 |  |   | 2007 | 
| | ------------------------------------------- | - | ---- |  | - | ---- |  | - | ---- | 
| |                                             |   |      |  |   |      |  |   |      | 
| | Consulting fees paid to David Dreisinger, a | $ | 56   |  | $ | 63   |  | $ | 62   | 
| | Director of the Company                     |   |      |  |   |      |  |   |      | 
| | Consulting fees paid to James Swearingen,   |   | -    |  |   | 55   |  |   | 60   | 
| | a Director of the Company                   |   |      |  |   |      |  |   |      | 
| | Management fees paid to Group 4             |   | -    |  |   | 81   |  |   | 180  | 
| | Ventures, an affiliate controlled by the    |   |      |  |   |      |  |   |      | 
| | Executive Chairman of the Company           |   |      |  |   |      |  |   |      | 
| | Rent and office charges paid to Baja Mining |   | 5    |  |   | 25   |  |   | 62   | 
| | Corp., a company of which the Executive     |   |      |  |   |      |  |   |      | 
| | Chairman was a director                     |   |      |  |   |      |  |   |      | 
| |                                             | $ | 61   |  | $ | 224  |  | $ | 364  | 

The amounts charged to the Company for the services provided
have been determined by negotiation among the parties and, in certain cases, are
covered by signed agreements. These transactions were in the normal course of
operations and were measured at the exchange value, which is the amount of
consideration established and agreed to by the related parties.

During the year ended 31 January 2009, the Company paid $56,000
(2008 - $63,000 and 2007 - $62,000) to Dr. Dreisinger for consulting fees
primarily in connection with activities related to the processing / technical
side of the NorthMet project and related expenses (the latter were supported by
invoices and receipts). The consulting fees were based on a monthly fee of
Canadian $5,500 plus general sales tax. Throughout the term of his engagement,
Dr. Dreisinger has conducted in-person and telephonic meetings with Mr. William
Murray, the Companys Executive Chairman and formally its President and Chief
Executive Officer, and other members of management at which he provided both
verbal and written updates on the status of test work and made recommendations
for future activities. These meetings occurred approximately every two to three
weeks for the past five years.

During the year ended 31 January 2009, the Company paid $nil
(2008 - $55,000 and 2007 - $59,600) to Mr. Swearingen for consulting fees
primarily in connection with activities related to our agreements with Cliffs
Erie L.L.C. and land tenure and related expenses (the latter were supported by
invoices and receipts). The consulting fees were based on a monthly fee of
$5,000. Mr. Swearingen spent a significant amount of time in our Hoyt Lakes
office reporting to both Mr. Murray and Mr. Warren Hudelson, our senior officer
at that site, on a regular basis until Mr. Joseph Scipioni joined the Company.
He then reported to Mr. Scipioni, who at the time, was PolyMets General Manager
and Chief Operating Officer.

The agreements with Dr. Dreisinger and Mr. Swearingen were
entered into at a time when the Companys current business plans were being
formulated and were month to month and oral in nature. Each agreement was
approved by Mr. William Murray. They were discussed with the Companys board of
directors who did not consider that formal approval and written contracts were
necessary at that time. The Company believes that both of these contracts were
at terms as least as good as could be obtained from third parties. The agreement
with Mr. Swearingen was terminated effective January 1, 2008.

During the year ended 31 January 2009, the Company paid $nil
(2008 - $81,000 and 2007 - $180,000) to Group 4 Ventures (Group 4) for the
provision of consulting services of Mr. Murray, at a fixed monthly rate in
accordance with a written contract. These amounts were in addition to the salary
paid to him during the year ended 31 January 2008 of $172,000 (2007 - $53,000).
Effective 1 July 2007, Mr. Murrays employment agreement was adjusted to
include, as salary, the amounts formerly paid to Group 4 Ventures as consulting
fees and the contract with Group 4 was terminated.

42

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During the year ended 31 January 2009, the Company paid $5,000
(2008 - $25,000 and 2007 - $62,000) to Baja Mining Corp. (Baja) primarily for
rent and office costs, including health insurance plan costs. The agreement
between Baja and the Company was oral in nature. Mr. Murray ceased being a
Director of Baja in June 2008. Effective 1 February, 2007, the Company occupied
its own premises and ceased paying rent to Baja. Effective 1 September, 2008,
the Company ceased paying the remaining costs to Baja.

The Company believes that the contracts with Group 4 and Baja
were at terms that were fair to the parties involved.

C.        Interests of
experts and counsel.

Not applicable.

ITEM 8. FINANCIAL INFORMATION

A.        Consolidated
Statements and Other Financial Information

See Item 17.

Legal Proceedings

Neither we nor our subsidiaries is a party to, nor is our
property or the property of our subsidiaries the subject of, any pending legal
or arbitration proceeding that is material.

Dividend Policy

Since its incorporation, we have not declared or paid, and have
no present intention to declare or to pay in the foreseeable future, any cash
dividends with respect to our common shares. Earnings will be retained to
finance further growth and development of our business. However, if our board of
directors declares dividends, all common shares will participate equally, and,
in the event of liquidation, in our net assets.

B.        Significant
Changes

There have been so significant changes subsequent to January
31, 2009.

43

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ITEM 9. THE OFFER AND LISTING

A.        The Offer and
Listing Details

The following table outlines the annual high and low market
prices for the five most recent fiscal years:

FiscalYear Ended
      TorontoStockExchange1/ TSXVentureExchange
      AmericanStockExchange2/Over theCounterBulletinBoardHigh
      Low
      High
      LowJanuary 31, 2009
      CDN$4.49
      CDN$0.60
      US$4.50
      US$0.46January 31, 2008
      CDN$4.61
      CDN$2.65
      US$4.18
      US$2.7201January 31, 2007
      CDN$5.34
      CDN$2.58
      US$4.21
      US$2.25January 31, 2006
      CDN$2.74
      CDN$0.51
      US$2.42
      US$0.42January 31, 2005
      CDN$1.20
      CDN$0.27
      US$0.90
      US$0.20


The following table outlines the high and low market prices for
each fiscal financial quarter for the two most recent fiscal periods and any
subsequent period:

FiscalQuarter
        Ended
      TorontoStockExchange
      AmericanStockExchangeHigh
      Low
      High
      LowJanuary 31, 2009
      CDN$1.61
      CDN$0.60
      US$1.40
      US$0.46October 31, 2008
      CDN$3.64
      CDN$1.01
      US$3.47
      US$0.90July 31, 2008
      CDN$4.49
      CDN$3.24
      US$4.50
      US$3.21April 30, 2008
      CDN$3.80
      CDN$2.56
      US$3.78
      US$2.60January 31, 2008
      CDN$3.59
      CDN$2.65
      US$3.89
      US$2.7201October 31, 2007
      CDN$2.93
      CDN$4.01
      US$4.02
      US$2.73July 31, 2007
      CDN$4.15
      CDN$2.60
      US$3.74
      US$2.25April 30, 2007
      CDN$4.61
      CDN$3.25
      US$4.15
      US$2.74


The following table outlines the high and low market prices for
each of the most recent six months:

Month Ended
      TorontoStockExchange
      AmericanStockExchangeHigh
      Low
      High
      LowMarch 31, 2009
      CDN$1.00
      CDN$0.72
      US$0.84
      US$0.57February 28, 2009
      CDN$1.09
      CDN$0.74
      US$0.90
      US$0.60January 31, 2009
      CDN$1.18
      CDN$0.81
      US$0.99
      US$0.67December 31, 2008
      CDN$1.17
      CDN$0.60
      US$1.25
      US$0.46November 30, 2008
      CDN$1.61
      CDN$0.60
      US$1.40
      US$0.46October 31, 2008
      CDN$2.46
      CDN$1.01
      US$2.30
      US$0.90


|1. | On January 31, 2007 we ceased trading on the TSX Venture
      Exchange and on February 1, 2007, we commenced trading on the Toronto
      Stock Exchange.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                           
|2. | On June 26, 2006, we began trading on the New York Stock
      Exchange Amex.                                                                             

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B.        Plan of
Distribution

Not applicable.

C.        Markets

In April 1984, our common shares commenced trading on the TSX
Venture Exchange in British Columbia, Canada under the symbol "POM. On February
1, 2007, our common shares graduated to trading on the TSX Exchange in British
Columbia under the symbol POM. In August 2000, our common shares began trading
on the OTCBB under the symbol POMGF. On June 26, 2006, our common shares
commenced trading on the New York Stock Exchange Amex (formerly the American
Stock Exchange) under the symbol PLM.

D.        Selling
Shareholders

Not applicable.

E.        Dilution

Not applicable.

F.        Expenses of the
Issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A.        Share Capital

Not Applicable.

B.        Memorandum and
Articles of Association

Incorporation

We were incorporated under the name Fleck Resources Ltd.
pursuant to the Companies Act (British Columbia) and continued under the
Business Corporations Act (British Columbia) by registration of its
memorandum in British Columbia, Canada, under Certificate of Incorporation
#BC0228310 on March 4, 1981. We changed our name to PolyMet Mining Corp. on June
10, 1998. We do not have any stated objects or purposes as such that are not
required by the corporate laws of the Province of British Columbia. Rather, we
are, by such corporate laws, entitled to carry on any activities whatsoever that
are not specifically precluded by other statutory provisions of the Province of
British Columbia.

Powers and Functions of the Directors

The powers and functions of the directors are set forth in our
Articles, the current version of which were adopted on October 6, 2004, and in
the Business Corporations Act (British Columbia). They provide that:

|(a) | a director who holds office or possesses any property,
      right, or interest that could result, directly or indirectly, in the
      creation of a duty of interest that materially conflicts with his duty or
      interest as a director must disclose the nature and extent of the conflict
      and abstain from voting on the approval of the proposed contract or
      transaction, unless all the directors have a disclosable interest, in
      which case the director may vote on such resolution, and moreover, may be
      liable to account to us for any profit that accrued under such an interest
      contract or transaction;
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|(b) | a director is not deemed to be interested in a proposed
      contract or transaction merely because it relates to the remuneration of a
      director in that capacity. The directors may, in the absence of an
      independent quorum, vote compensation to themselves;
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                             
|(c) | there are no specific limitations on the exercise by the
      directors of our borrowing powers;                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                             
|(d) | there are no provisions for the retirement or
      non-retirement of directors under an age limit, and                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                             
|(e) | there is no requirement for a director to hold any shares
      in us.                                                                                                                                                                                                      

Rights and Restrictions Attached to the Shares

As all of our authorized and issued shares are of one class of
common shares, there are no special rights or restrictions of any nature or kind
attached to any of the shares, including any dividend rights. All authorized and
issued shares rank equally in respect to the declaration and receipt of
dividends and rights to share in any profits or surplus upon our liquidation,
dissolution or winding-up. Each share has attached to it one non-cumulative
vote. Shareholders are not liable to further capital calls made by us. There is
no specific sinking fund provision or any provision discriminating against any
existing or prospective holder of shares as a result of such shareholder owning
a substantial number of shares.

Alteration of Share Rights

The rights of holders of our issued common shares may be
altered by special resolution, which requires the approval of the holders of
two-thirds or more of the votes cast at a meeting of our shareholders called and
held in accordance with applicable law.

Annual General Meetings

Annual General Meetings are called and scheduled upon decision
by the Board of Directors. Pursuant to the Business Corporations Act(British Columbia), we are required to hold an annual meeting in each year,
not more than 15 months after the date of the most recent annual meeting. The
directors may call a meeting of the shareholders whenever they see fit. All
meetings of the shareholders may be attended by registered shareholders or
persons who hold powers of attorney or proxies given to them by registered
shareholders.

Foreign Ownership Limitations

Our Articles and charter documents do not contain limitations
prohibiting non-residents, foreigners or any other group from holding or voting
shares.

Change of Control

There are no provisions in our Articles or charter documents
that currently have the effect of delaying, deferring or preventing a change in
the control in us, or that would operate with respect to any proposed merger,
acquisition or corporate restructuring involving us or any of our subsidiaries.

Share Ownership Reporting Obligations

There are no provisions in our Articles requiring share
ownership to be disclosed.

Securities legislation in Canada requires that shareholder
ownership must be disclosed once a person owns beneficially or has control or
direction over greater than 10% of the issued shares of a corporation, such as
us. This threshold is higher than the 5% threshold under U.S. securities
legislation at which shareholders must report their share ownership.

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C.        Material
Contracts

Asset Purchase Agreements

For a complete description of the acquisition of the mine site
lease, see Item 4(D)(c)(i).

For a complete description of the acquisition of the Erie Plant
and associated infrastructure acquired in the Asset Purchase Agreements I and
II, see Item 4(D)(c)(ii).

Purchase Agreement

For a complete description of the purchase agreement entered
into with Glencore AG, see Item 5(a).

D.        Exchange
Controls

There are no governmental laws, decrees or regulations in
Canada relating to restrictions on the export or import of capital, or affecting
remittance of interest, dividends or other payments to non-resident holders of
our common shares. Any remittances of dividends to United States residents are,
however, subject to a 15% withholding tax (5% if the shareholder is a company
owning at least 10% of the outstanding common shares) pursuant to the reciprocal
tax treaty between Canada and the United States. See the section of this Form
20-F entitled Taxation.

Except as provided in the Investment Canada Act (the ICA),
which has provisions which govern the acquisition of a control block of voting
shares by a person who is not a Canadian resident (a non-Canadian) of a
company carrying on a Canadian business, there are no limitations specific to
the rights of non-Canadians to hold or vote the common shares under the laws of
Canada or the Province of British Columbia or in our charter documents.

E.        Taxation

The following summary of the material Canadian federal income
tax considerations generally applicable to our common shares reflects our
opinion. The tax consequences to any particular holder of common shares will
vary according to the status of that holder as an individual, trust,
corporation, or member of a partnership, the jurisdiction in which that holder
is subject to taxation, the place where that holder is resident and, generally,
according to that holders particular circumstances. This summary is applicable
only to holders who are residents of the United States, have never been a
resident of Canada, deal at arms length with us, hold their common shares as
capital property, and who will not use or hold the common shares in carrying on
business in Canada. Special rules, which are not discussed in this summary, may
apply to a United States holder that is an issuer that carries on business in
Canada and elsewhere.

This summary is based upon the provisions of the Income Tax Act
of Canada and the regulations thereunder (collectively, the Tax Act, or ITA)
and the Canada-United States Tax Convention as amended by the Protocols thereto
(the Tax Convention) as of the date of the Annual Report and the current
administrative practices of Revenue Canada, Customs, Excise and Taxation. This
summary does not take into account Canadian provincial income tax consequences.

This summary is not exhaustive of all possible income tax
consequences. It is not intended as legal or tax advice to any particular holder
of common stock and should not be so construed. Each holder should consult his
own tax advisor with respect to the income tax consequences applicable to him in
his own particular circumstances.

North American Free Trade Agreement (Canada). The
Investment Act was amended with the North American Free Trade Agreement (NAFTA)
to provide for special review thresholds for Americans (including
American-controlled entities as defined in the Investment Act). Under the
Investment Act, as amended, an investment in our common shares by an American
would be reviewable only if it was an investment to acquire control of us and
the value of our assets was equal to or greater than a specified amount (the Review Threshold), which increases in stages. The Review Threshold is currently $150 million.

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Disposition of Common Shares. If a non-resident of Canada were to dispose of our common shares to a Canadian corporation which deals or is deemed to deal on a non-arms length basis with the non-resident and that, and immediately after
the disposition is connected with us (i.e. holds shares representing more than 10% of the voting power and more than 10% of the market value of all of our shares issued and outstanding), the amount by which the fair market value of any consideration
(other than any shares of the purchaser corporation) exceeds the paid-up capital of the common shares sold will be deemed to be taxable as a dividend paid by the purchasing corporation, either immediately or eventually by means of a deduction in
computing the paid-up capital of the purchasing corporation, and subject to withholding taxes as described below.

Under the Tax Act, a gain from the sale of common shares by a non-resident will not be subject to Canadian tax, provided the shareholder (and/or persons who do not deal at arms length with the shareholder) has not held a substantial
interest in us (25% or more of the shares of any class of our stock) at any time in the five years preceding the disposition. Generally, the Tax Convention will exempt from Canadian taxation any capital gain realized by a resident of the
United States, provided that the value of the common shares is not derived principally from real property situated in Canada.

Dividend. In the case of any dividends paid to non-residents, we withhold the Canadian tax and remit only the net amount to the shareholder. By virtue of Article X of the Tax Convention, the rate of tax on dividends paid to residents of the
United States is generally limited to 15% of the gross dividend (or 5% in the case of certain corporate shareholders owning at least 10% of our voting shares upon ratification of the Protocol amending the treaty. In the absence of the Tax Convention
provisions, the rate of Canadian withholding tax imposed on non-residents is 25% of the gross dividend. Stock dividends received by nonresidents from us are taxable by Canada as ordinary dividends and therefore the withholding tax rates will be
applicable.

Where a holder disposes of common shares to us (unless we acquired the common shares in the open market in the manner in which shares would normally be purchased by any member of the public), this will result in a deemed dividend to the U.S. holder
equal to the amount by which the consideration we paid by exceeds the paid-up capital of such stock.  The amount of such dividend will be subject to withholding tax as described above.

Capital Gains. A non-resident of Canada is not subject to tax under the ITA in respect of a capital gain realized upon the disposition of a share of a class that is listed on a prescribed stock exchange unless the share represents
taxable Canadian property to the holder thereof.  Our common shares will be taxable Canadian property to a non-resident holder if, at any time during the period of five years immediately preceding the disposition, the non-resident
holder, persons with whom the non-resident holder did not deal at arms length, or the non-resident holder and persons with whom he/she did not deal at arms length owned 25% or more of our issued shares of any class or series. In the case
of a nonresident holder to whom our shares represent taxable Canadian property and who is resident of the United States, no Canadian tax will be payable on a capital gain realized on such shares by reason of the Tax Convention unless the value of
such shares is derived principally from real property situated in Canada or the non-resident holder previously held the shares while resident in Canada. We believe that the value of our common shares is not derived from real property situated inside
Canada.

Certain United States Federal Income Tax Consequences.  The following is a discussion of certain possible United States Federal income tax consequences, under the law, generally applicable to a U.S. Holder (as defined below) of our common
shares.  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  tax-exempt organizations,
qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, and shareholders who acquired their stock through the exercise of employee stock options or
otherwise as compensation. In addition, this discussion does not cover any state, local or foreign tax consequences.

48

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The following discussion is based upon the sections of 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, the discussion does not consider the potential effects, both adverse
and beneficial, of possible legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time. The following discussion is for general information only and is not intended to be, nor should it be construed to be, legal or
tax advice to any holder or prospective holder of our common shares and no opinion or representation with respect to the United States Federal income tax consequences to any such holder or prospective holder is made. Accordingly, holders and
prospective holders of our common shares should consult their own tax advisors about the federal, state, local, and foreign tax consequences of purchasing, owning and disposing of our common shares.

U.S. Holders. As used herein, the term U.S. Holder means a beneficial owner of our common shares that is, for U.S. federal income tax purposes, (i) a citizen or resident of the United States, (ii) a corporation (or other entity
taxable as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States or of any political subdivision thereof, (iii) an estate the income of which is includible in gross income subject
to United States federal income tax regardless of its source, or (iv) a trust (a) the administration of which is subject to the primary supervision of a court in the United States and for which one or more U.S. persons have the authority to control
all substantial decisions or (b) that has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person. If a partnership is a beneficial owner of our common shares, the tax treatment of a partner in the partnership
will generally depend upon the status of the partner and the activities of the partnership. If you are a partner in a partnership that owns our common shares, you should consult your own tax advisor.

Distributions on Our Common Shares. Except as set forth below with regard to excess distributions, U.S. Holders receiving dividend distributions (including constructive dividends) with respect to our common shares are required to
include in gross income for United States Federal income tax purposes the gross amount of such distributions when received, 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 credited, subject to certain limitations, against the U.S. Holders United States Federal Income tax liability or, alternatively, may be deducted in computing the U.S.
Holders United States Federal taxable income by those who itemize deductions.  (See more detailed discussion at 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 up to the U.S. Holders adjusted basis in the common shares and thereafter as gain from the sale or exchange of the common shares. Preferential tax rates for long-term capital gains are
currently applicable to a U.S. Holder that is an individual, estate or trust. Dividends paid on our common shares will not generally be eligible for the dividends received deduction provided to corporations receiving dividends from certain United
States corporations.

Classification As a Passive Foreign Investment Company.  A non-U.S. corporation is classified as a passive foreign investment company (a PFIC) for a taxable year if either: (i) at least 75% or more of its gross income is passive
income or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during the taxable year) is attributable to passive assets (which includes cash and any assets that produce, or are held for the
production of, passive income). For at least as long as we do not generate income from our operations, we believe that we will be classified as a PFIC for United States federal income tax purposes.  As a result, a U.S. Holder of our common shares
will be subject to special tax rules with respect to any excess distribution that it receives and any gain it realizes from a sale or other disposition (including a pledge) of our common shares, unless it makes either a
mark-to-market or qualified electing fund election as discussed below. Distributions a U.S. Holder receives in a taxable year that are greater than 125% of the average annual distributions such U.S. Holder received during the
shorter of the three preceding taxable years or the U.S. Holders holding period for the common shares will be treated as an excess distribution. In addition, a step-up in the tax basis of stock in a PFIC may not be available upon the death of
an individual U.S. Holder.

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Under these special tax rules: (i) the excess distribution or gain will be allocated ratably over the U.S. Holders holding period for the common shares, (ii) the amount allocated to the current taxable year, and any taxable year prior to the
first taxable year in which we were a PFIC, will be treated as ordinary income, and (iii) the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to
underpayments of tax will be imposed on the resulting tax attributable to such year.

The tax liability for amounts allocated to years prior to the year of disposition or excess distribution cannot be offset by any net operating losses for such years and gains (but not losses) realized on the sale of common shares cannot
be treated as capital, even if the U.S Holder holds the common shares as capital assets.

Alternatively, a U.S. Holder of marketable stock (as defined below) in a PFIC may make a mark-to-market election for stock of a PFIC to elect out of the tax treatment discussed in the two preceding paragraphs. If a U.S. Holder makes a
mark-to-market election for common shares, the U.S. Holder will include in income each year an amount equal to the excess, if any, of the fair market value of the common shares as of the close of its taxable year over its adjusted basis in such
common shares. A U.S. Holder is allowed a deduction for the excess, if any, of the adjusted basis of common shares over their fair market value as of the close of the taxable year.  However, deductions are allowable only to the extent of any net
mark-to-market gains on common shares included in the U.S. Holders income for prior taxable years. Amounts included in a U.S. Holders income under a mark-to-market election, as well as gains on the actual sale or other disposition of
common shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on common shares, as well as to any loss realized on the actual sale or disposition of common shares, to the
extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such common shares.  A U.S. Holders basis in common shares will be adjusted to reflect any such income or loss amounts.

The mark-to-market election is available only for marketable stock, which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter on a qualified exchange, including the New York Stock
Exchange Amex, or other market, as defined in applicable U.S. Treasury regulations. Our common shares are listed on the New York Stock Exchange Amex and, consequently, the mark-to-market election should be available to a U.S. Holder, provided that
our common shares are traded in sufficient quantities.

In general, if a non-U.S. corporation is a PFIC, a holder of shares in that corporation may avoid taxation under the rules described above by making a qualified electing fund (QEF) election to include in income its share of
the corporations income on a current basis, or a deemed sale election once the corporation no longer qualifies as a PFIC. However, a U.S. Holder may make a qualified electing fund election with respect to common shares only if we
furnish certain tax information to the U.S. Holder annually, and we do not currently intend to prepare or provide such information.

Foreign Tax Credit. A U.S. Holder that pays (or has withheld from distributions) Canadian income tax with respect to the ownership of our common shares may be entitled, at the option of the U.S. Holder, to either a deduction or a tax credit
for such foreign tax paid or withheld.  Generally, it will be more advantageous to claim a credit because a credit reduces United States Federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayers income
subject to tax. This election is made on year-by-year basis and applies to all foreign income taxes (or taxes in lieu of income tax) paid by (or withheld from) the U.S. Holder during the year. There are significant and complex limitations which
apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holders United States income tax liability that the U.S. Holders foreign source income bears to his/her or its
worldwide taxable income. In the determination of the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process.  The availability
of the foreign tax credit and the application of the limitations on the credit are fact specific and holders and prospective holders of our common shares should consult their own tax advisors regarding their individual circumstances.

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F.        Dividends and
Paying Agents

Not Applicable.

G.        Statement by
Experts

Not Applicable.

H.        Documents on
Display

All documents referred to in this Form 20-F are available for
inspection at our office, listed below, during normal office hours.

PolyMet Mining Corp. #1003 - 1177
West Hastings Street Vancouver, British Columbia V6E 2K3 Canada

We are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended. In accordance with these
requirements, we file reports and other information with the SEC. These
materials, including this annual report on Form 20-F and its exhibits, may be
inspected and copied at the SECs Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549 and at the SECs regional office at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of the materials may be
obtained from the Public Reference Room of the Commission at 100 F. Street,
N.E., Washington, D.C. 20549 at prescribed rates. The public may obtain
information on the operation of the Commissions Public Reference Room by
calling the Commission in the United States at 1-800-SEC-0330.

Our reports, registration statements and other information can
also be inspected on EDGAR available on the SECs website at
www.sec.gov.

In Canada, additional information, including directors and
officers remuneration and indebtedness, principal holders of our securities and
securities authorized for issuance under equity compensation plans, is contained
in our Management Information Circular for our most recent annual meeting of
securityholders that involved the election of directors.

Additional financial information is provided in our financial
statements and MD&A, copies of which can be obtained by contacting our
Corporate Secretary in writing at 1003  1177 West Hastings Street, Vancouver,
British Columbia V6E 2K3 or by e-mail at info@polymetmining.com. Copies of such documents will
be provided to shareholders free of charge.

Additional information relating to PolyMet may be found on the
System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.

I.        Subsidiary
Information

Not Applicable

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK

We may be subject to foreign currency exchange rate risk,
because we hold funds and financial instruments in Canadian dollars but report
our financial information using the U.S. dollar. If we hold onto funds obtained
from financings, currently our only means to obtain funds, in Canadian dollar
accounts and the Canadian dollar depreciates in comparison to the U.S. the fair
value of our funds will decrease and will be reported on our financial
statements at this depressed conversion rate. If the Canadian dollar appreciates
as compared to the U.S. dollar, however, fair value of any financial instruments
or funds held will increase and be reported on our financial statements based on
this favorable conversion rate. Our current exposure, however, is not sufficient to have a material
effect on our results of operations and financial condition.

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Moreover, we periodically access the capital markets with the
issuance of new shares to fund operating expenses, and we do not maintain
significant cash reserves over periods of time that could be materially affected
by fluctuations in interest rates or foreign exchange rates.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not Applicable.

ITEM 13. DEFAULT, DIVIDEND ARREARAGES AND
DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHT OF SECURITY
HOLDERS AND USE OFPROCEEDS

Shareholder Rights Plan

Effective May 25, 2007, the Company adopted an updated
Shareholder Rights Plan (Rights Plan), which was approved by the Companys
shareholders on June 27, 2007 and modified by the Companys shareholders on 17
June 2008. Under the Rights Plan, the Company has issued one right for no
consideration in respect of each outstanding common share of the Company to all
holders of record of common shares on December 4, 2003. All common shares
subsequently issued by the Company during the term of the Rights Plan will have
one right represented for each common share held by the shareholder of the
Company. The term of the Rights Plan is 10 years, unless the rights are earlier
redeemed or exchanged. The Rights issued under the Rights Plan become
exercisable only if a party acquires 20% or more of the Company's common shares
without complying with the Rights Plan or without the approval of the Board of
Directors of the Company.

Each Right entitles the registered holder thereof to purchase
from the Company on the occurrence of certain events, one common share of the
Company at the price of CDN$50 per share, subject to adjustment (the Exercise
Price). However, if a Flip-in Event (as defined in the Rights Plan) occurs,
each Right would then entitle the registered holder to receive, upon payment of
the Exercise Price, that number of common shares that have a market value at the
date of that occurrence equal to twice the Exercise Price. The Rights are not
exercisable until the Separation Time as defined in the Rights Plan.

The Shareholder Rights Plan is filed as Exhibit 14.1.

ITEM 15. CONTROLS AND PROCEDURES

A. Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report, an
evaluation was performed under the supervision and with the participation of our
management, including the chief executive officer and chief financial officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15 of the Exchange Act, as amended). Based on
that evaluation, our management, including the chief executive officer and chief
financial officer, concluded that at 31 January 2009 the Companys disclosure
controls and procedures were effective in providing reasonable assurance that
material information required to be disclosed by us in the reports that we file
or submit under the Exchange Act, as amended, is recorded, processed, summarized
and reported within the time periods specified in the SECs rules and forms. In reaching
this conclusion, the Company recognizes two factors that must be and are
present:

52

---

| | a) | the Company is dependent upon its advisors and
      consultants (primarily legal counsel) to assist in recognizing,
      interpreting and understanding and complying with the various securities
      regulations disclosure requirements, and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) | an active board of directors and management with open
      lines of communication.                                                                                                                                                               

B. Management's Annual Report on Internal Control over
Financial Reporting

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal control over
financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934, as amended, as a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that (1) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company's assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risks that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Companys
internal control over financial reporting as at 31 January 2009. In making its
assessment, management has used the criteria established in Internal Control
- Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) to evaluate the Companys internal control
over financial reporting. Based on this assessment, management has concluded
that the Company had a material weakness in internal control over financial
reporting.

A material weakness is a control deficiency, or combination of
control deficiencies, such that there is a reasonable possibility that a
material misstatement of the annual financial statements will not be prevented
or detected.

As at 31 January 2009, effective controls were not maintained over the accounting treatment and review of one-off transactions in the financial statement close process relating to the Company’s share bonus plan.  This isolated control deficiency resulted in a non-cash increase in contributed surplus and mineral property of $2.0 million in the consolidated financial statements.

As a result, management concluded that the Companys internal
control over financial reporting was not effective as at 31 January 2009.

C. Attestation Report of the Registered Public Accounting
Firm

The attestation report of PricewaterhouseCoopers with respect
to the Companys internal control over financial reporting is filed with Item 17
of this Annual Report.

53

---

D. Changes in Internal Controls

Other than discussed in Item15B above, there have been no other
  changes in the Companys internal control over financial reporting during the
  year ended 31 January 2009 that have materially affected, or are reasonably
  likely to material affect, its internal control over financial reporting.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

As of January 31, 2009, the audit committee consisted of four
directors. All four members of the Audit Committee, W. Ian L. Forrest, William
Corneliuson, George Molyviatis and Frank Sims, meet the criteria of an Audit
Committee Financial Expert under the applicable rules and regulations of the
SEC, and each of their designation as an Audit Committee Financial Expert has
been ratified by the Board. All four members of the Audit Committee are
independent, as that term is defined in the New York Stock Exchange Amexlisting standards.

ITEM 16B. CODE OF ETHICS

We have adopted Code of Ethics, effective April 5, 2006, which
applies to all our employees, including our directors and executive officers,
including our principal executive, financial and accounting officers, and
persons performing similar functions. The Code of Ethics covers areas of
professional and business conduct, and is intended to promote honest and ethical
behavior, including fair dealing and the ethical handling of conflicts of
interest, support full, fair, accurate, and timely disclosure in reports and
documents we file with, or submit to, the SEC and other governmental
authorities, and in its other public communications; deter wrongdoing; encourage
compliance with applicable laws, rules, and regulations; and to ensure the
protection of our legitimate business interests. We also encourage our
directors, officers, employees and consultants to promptly to report any
violations of the Code of Ethics.

The Code has previously been filed as Exhibit 11.1.

54

---

ITEM 16C.       
PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following outlines the expenditures for accounting fees
billed and paid for the last two fiscal periods ended:

Financial YearEnding
      Audit Fees
      Audit RelatedFees
      Tax Fees1
      All Other FeesJanuary 31, 2009
    CDN
      $279,220
    CDN
      $47,000
    CDN
      $14,130
    CDN
      $NilJanuary 31, 2008
    CDN
      $148,333
    CDN
      $23,400
    CDN
      $14,500
    CDN
      $Nil


| | 1 | Audit Related Fees are the aggregate fees billed for
      assurance and related services that are reasonably related to the
      performance of the audit and are not reported under Audit Fees.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2 | Tax fees consist of fees to prepare the Companys annual
      tax filings.                                                                                                                       

Pre-Approval Policies and Procedures

All of the fees paid to our auditors, PricewaterhouseCoopers
LLP, were pre-approved by our Audit Committee. This pre-approval involved a
submission by our auditors to our Audit Committee of a scope of work to complete
the audit and prepare tax returns, an estimate of the time involved, and a
proposal for the fees to be charged for the audit. The Audit Committee reviewed
this proposal with our management and after discussion with our auditors,
pre-approved the scope of work and fees.

ITEM 16D.      
 EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16D.        PURCHASES
  OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATEDPURCHASERS

None.

PART III

ITEM 17. FINANCIAL STATEMENTS

Our financial statements are stated in United States Dollars
(US$) and are prepared in accordance with Canadian Generally Accepted Accounting
Principles; the application of which, in our case, conforms in all material
respects for the periods presented with U.S. GAAP, except as disclosed in
footnotes to the financial statements.

Index to Financial Statements

Description
    
    PageManagements
      Responsibility for the Financial Statements
    
    F-1Report
      of Independent Registered Public Accounting Firm
    
    F-3Consolidated
      Balance Sheet
    
    F-5Consolidated
      Statements of Loss, Other Comprehensive Loss and Deficits
    
    F-6Consolidated
      Statements of Shareholders Equity
    
    F-7Consolidated
      Statements of Cash Flows
    
    F-8Notes
      to Consolidated Financial Statements
    
    F-9


55

---



POLYMET MINING CORP.(a
    development stage company)

CONSOLIDATED FINANCIAL STATEMENTS

31 January 2009, 2008 and 2007

U.S. Funds









---

| | POLYMET MINING CORP.
| | --------------------

Management Report

Managements Responsibility for Consolidated Financial
  Statements

The accompanying Consolidated Financial Statements of PolyMet
  Mining Corp. (the Company) are the responsibility of management. The
  Consolidated Financial Statements have been prepared by management in accordance
  with Canadian generally accepted accounting principles and include certain
  estimates that reflect managements best judgments.

The Companys Board of Directors has approved the information
  contained in the Consolidated Financial Statements. The Board of Directors
  fulfills its responsibilities regarding the Consolidated Financial Statements
  mainly through its Audit Committee, which has a written mandate that complies
  with current requirements of Canadian securities legislation and the United
  States Sarbanes-Oxley Act of 2002. The Audit Committee meets at least on a
  quarterly basis.

Managements Annual Report on Internal Control over
  Financial Reporting

Management is also responsible for establishing and maintaining
  adequate internal control over financial reporting. Internal control over
  financial reporting is a process designed to provide reasonable assurance
  regarding the reliability of financial reporting and the preparation of the
  Consolidated Financial Statements for external reporting purposes in accordance
  with GAAP.

Internal control over financial reporting, no matter how well
  designed, has inherent limitations. Also, projections of any evaluation of
  effectiveness to future periods are subject to the risk that controls may become
  inadequate because of changes in conditions, or that the degree of compliance
  with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Companys
  internal control over financial reporting as at 31 January 2009. In making its
  assessment, management has used the criteria established in Internal Control
    - Integrated Frameworkissued by the Committee of Sponsoring Organizations
  of the Treadway Commission (COSO) to evaluate the Companys internal control
  over financial reporting. Based on this assessment, management has concluded
  that the Company had a material weakness in internal control over financial
  reporting.

A material weakness is a control deficiency, or combination of
  control deficiencies, such that there is a reasonable possibility that a
  material misstatement of the annual financial statements will not be prevented
  or detected.

As at 31 January 2009, effective controls were not maintained over the accounting treatment and review of one-off transactions in the financial statement close process relating to the Company’s share bonus plan.  This isolated control deficiency resulted in a non-cash increase in contributed surplus and mineral property of $2.0 million in the consolidated financial statements.

F-1

---

As a result, management concluded that the Companys internal
  control over financial reporting was not effective as at 31 January 2009.

The effectiveness of the Companys internal control over
  financial reporting as at 31 January 2009 has been audited by
  PricewaterhouseCoopers LLP, our independent auditors, as stated in their report
  which appears herein.

|Joseph
      Scipioni(signed)       |  | Douglas Newby(signed)
|------------------------------------- |  | -----------------------
|                                      |  |                        
|                                      |  |                        
|Joseph Scipioni                       |  | Douglas Newby          
|President and Chief Executive Officer |  | Chief Financial Officer

F-2

---

Independent Auditors Report

To the Shareholders of PolyMet Mining Corp.

We have completed integrated audits of PolyMet Mining
  Corp.s 2009 and 2008 consolidated financial statements and of its internal
  control over financial reporting as at January 31, 2009 and an audit of its 2007
  consolidated financial statements. Our opinions, based on our audits, are
  presented below.

Consolidated financial statements

We have audited the accompanying consolidated balance sheets of PolyMet Mining Corp. (the “Company”) as at January 31, 2009 and 2008, and the related consolidated statements of loss, other comprehensive loss and deficit, changes in shareholders’ equity and cash flows for each of the years in the three year period ended January 31, 2009.  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 of the Companys financial statements
  in accordance with Canadian generally accepted auditing standards and the
  standards of the Public Company Accounting Oversight Board (United States).
  Those standards require that we plan and perform an audit to obtain reasonable
  assurance about whether the financial statements are free of material
  misstatement. An audit of financial statements includes examining, on a test
  basis, evidence supporting the amounts and disclosures in the financial
  statements. A financial statement audit also includes assessing the accounting
  principles used and significant estimates made by management, and evaluating the
  overall financial statement presentation. We believe that our audits provide a
  reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
  to above present fairly, in all material respects, the financial position of the
  Company as at January 31, 2009 and January 31, 2008 and the results of its
  operations and its cash flows for each of the years in the three year period
  endedJanuary 31, 2009, in accordance with Canadian generally accepted
  accounting principles.

Internal control over financial reporting

We have also audited PolyMet Mining Corp.’s internal control over financial reporting as at January 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit of internal control over financial
  reporting in accordance with the standards of the Public Company Accounting
  Oversight Board (United States). Those standards require that we plan and
  perform the audit to obtain reasonable assurance about whether effective
  internal control over financial reporting was maintained in all material
  respects. An audit of internal control over financial reporting includes
  obtaining an understanding of internal control over financial reporting,
  assessing the risk that a material weakness exists, testing and evaluating the
  design and operating effectiveness of internal control, based on the assessed
  risk, and performing such other procedures as we consider necessary in the
  circumstances. We believe that our audit provides a reasonable basis for our
  opinion.

F-3

---

A companys internal control over financial reporting is a
  process designed to provide reasonable assurance regarding the reliability of
  financial reporting and the preparation of financial statements for external
  purposes in accordance with generally accepted accounting principles. A
  companys internal control over financial reporting includes those policies and
  procedures that (i) pertain to the maintenance of records that, in reasonable
  detail, accurately and fairly reflect the transactions and dispositions of the
  assets of the company; (ii) provide reasonable assurance that transactions are
  recorded as necessary to permit preparation of financial statements in accordance with
  generally accepted accounting principles, and that receipts and expenditures of
  the Company are being made only in accordance with authorizations of management
  and directors of the Company; and (iii) provide reasonable assurance regarding
  prevention or timely detection of unauthorized acquisition, use, or disposition
  of the Companys assets that could have a material effect on the financial
  statements.

Because of its inherent limitations, internal control over
  financial reporting may not prevent or detect misstatements. Also, projections
  of any evaluation of effectiveness to future periods are subject to the risk
  that controls may become inadequate because of changes in conditions, or that
  the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of
  deficiencies, in internal control over financial reporting, such that there is a
  reasonable possibility that a material misstatement of the Companys annual
  financial statements will not be prevented or detected on a timely basis. As at
  January 31, 2009, a material weakness relating to the Companys share bonus plan
  was identified as described in the accompanying Management Annual Report on
  Internal Control over Financial Reporting.

We considered this material weakness in determining the nature,
  timing and extent of audit tests applied in our audit of the Companys January
  31, 2009 consolidated financial statements, and our opinion regarding the
  effectiveness of the Companys internal control over financial reporting does
  not affect our opinion on these consolidated financial statements.

In our opinion, the Company did not maintain, in all material
  respects, effective internal control over financial reporting as at January 31,
  2009based on criteria established in Internal Control  Integrated
  Framework issued by the COSO.

**"PricewaterhouseCoopers LLP"**

Chartered AccountantsVancouver, BC, Canada 
  April
  29, 2009

F-4

---

PolyMet Mining Corp.(a development stage
    company)Consolidated Balance SheetsAs at January 31All figures in Thousands of U.S.
    Dollars

|ASSETS                                                        |   | 2009    |   |   | 2008    |  
|------------------------------------------------------------- | - | ------- | - | - | ------- | -
|Current                                                       |   |         |   |   |         |  
|Cash and equivalents                                          | $ | 7,354   |   | $ | 20,084  |  
|Accounts receivable and
      advances                        |   | 69      |   |   | 168     |  
|Investment (Note 13)                                          |   | 57      |   |   | 1,445   |  
|Prepaid expenses                                              |   | 470     |   |   | 793     |  
|                                                              |   | 7,950   |   |   | 22,490  |  
|Deferred Financing Costs(Note
      14c)                      |   | 1,739   |   |   | 1,690   |  
|Mineral Property, Plant and Equipment(Notes 3
      and 4)    |   | 93,067  |   |   | 65,019  |  
|                                                              | $ | 102,756 |   | $ | 89,199  |  
|                                                              |   |         |   |   |         |  
|LIABILITIES                                                   |   |         |   |   |         |  
|Current                                                       |   |         |   |   |         |  
|Accounts payable and
      accrued liabilities                | $ | 2,797   |   | $ | 4,266   |  
|Current portion of long term debt (Note 5)                    |   | 1,250   |   |   | 1,401   |  
|Current portion of
      asset retirement obligation (Note 6) |   | 321     |   |   | 265     |  
|                                                              |   | 4,368   |   |   | 5,932   |  
|Long term                                                     |   |         |   |   |         |  
|Long term debt (Note 5)                                       |   | 10,063  |   |   | 10,834  |  
|Long term accounts
      payable                              |   | -       |   |   | 108     |  
|Convertible debt (Note 7)                                     |   | 13,943  |   |   | -       |  
|Asset retirement
      obligation (Note 6)                    |   | 2,890   |   |   | 3,174   |  
|Total Liabilities                                             |   | 31,264  |   |   | 20,048  |  
|                                                              |   |         |   |   |         |  
|SHAREHOLDERS EQUITY                                          |   |         |   |   |         |  
|Share Capital-(Note 8)                                        |   | 104,768 |   |   | 104,615 |  
|Contributed Surplus(Note 8d)                                 |   | 27,549  |   |   | 20,825  |  
|Deficit                                                       |   | (60,825 | ) |   | (56,289 | )
|                                                              |   | 71,492  |   |   | 69,151  |  
|Total Liabilities and Shareholders Equity                    | $ | 102,756 |   | $ | 89,199  |  

Nature of Business and Liquidity Risk (*Note 1*)Contingent Liabilities and Commitments(Notes 4 and
    14)

ON BEHALF OF THE BOARD:

|William
      Murray   | , Director
|------------------------ | ----------
|                         |           
|David
      Dreisinger | , Director

- See Accompanying Notes 

F-5

---

PolyMet Mining Corp.(a development
    stage company)Consolidated Statements of Loss, Other
    Comprehensive Loss and DeficitFor the Years Ended 31 JanuaryAll figures in Thousands of U.S. Dollars, except per share amounts

|                                         |   | 2009        |   |   | 2008        |   |   | 2007        |  
|---------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|Pre-feasibility Costs(Note 2)            |   | -           |   |   | -           |   |   | 8,844       |  
|                                         |   |             |   |   |             |   |   |             |  
|                                         |   |             |   |   |             |   |   |             |  
|General and Administrative               |   |             |   |   |             |   |   |             |  
|Amortization                             |   | 31          |   |   | 56          |   |   | 7           |  
|Consulting fees                          |   | 45          |   |   | 73          |   |   | 1,458       |  
|Investor relations and
      financing   |   | 169         |   |   | 270         |   |   | 218         |  
|Office and corporate wages               |   | 1,247       |   |   | 1,681       |   |   | 899         |  
|Professional fees                        |   | 512         |   |   | 652         |   |   | 790         |  
|Shareholders information                |   | 311         |   |   | 373         |   |   | 125         |  
|Stock-based compensation (Note 8c))      |   | 487         |   |   | 635         |   |   | 4,723       |  
|Transfer agent and filing fees           |   | 158         |   |   | 127         |   |   | 272         |  
|Travel                                   |   | 424         |   |   | 532         |   |   | 482         |  
|                                         |   | 3,384       |   |   | 4,399       |   |   | 8,974       |  
|                                         |   |             |   |   |             |   |   |             |  
|Other Expenses (Income)                  |   |             |   |   |             |   |   |             |  
|Interest income, net                     |   | (154        | ) |   | (1,168      | ) |   | (428        | )
|Loss (gain) on foreign exchange          |   | 156         |   |   | (566        | ) |   | 536         |  
|Investment loss (Note 13)                |   | 1,365       |   |   | 1,050       |   |   | -           |  
|Rental income                            |   | (215        | ) |   | (25         | ) |   | (33         | )
|                                         |   | 1,152       |   |   | (709        | ) |   | 75          |  
|                                         |   |             |   |   |             |   |   |             |  
|Loss for the Year and Comprehensive Loss |   | 4,536       |   |   | 3,690       |   |   | 17,893      |  
|                                         |   |             |   |   |             |   |   |             |  
|Deficit Beginning of the Year            |   | 56,289      |   |   | 52,599      |   |   | 34,706      |  
|                                         |   |             |   |   |             |   |   |             |  
|Deficit End of Year                      |   | 60,825      |   |   | 56,289      |   |   | 52,599      |  
|                                         |   |             |   |   |             |   |   |             |  
|Basic and Diluted Loss per Share         | $ | (0.03       | ) | $ | (0.03       | ) | $ | (0.16       | )
|                                         |   |             |   |   | -           |   |   |             |  
|Weighted Average Number of Shares        |   | 137,187,927 |   |   | 133,697,572 |   |   | 114,754,213 |  

- See Accompanying Notes -

F-6

---

PolyMetMiningCorp.(adevelopmentstagecompany)Consolidated Statements of Changes in Shareholders
    Equity

|All figures in Thousands of U.S. Dollars, except for Shares         |  | Common Shares (Note 8) |  |  |             |  |   |         |   |   |             |   |   |         |  
|------------------------------------------------------------------- |  | ---------------------- |  |  | ----------- |  | - | ------- | - | - | ----------- | - | - | ------- | -
|                                                                    |  | Authorized             |  |  |             |  |   |         |   |   | Contributed |   |   |         |  
|                                                                    |  | Shares                 |  |  | Shares      |  |   | Amount  |   |   | Surplus     |   |   | Deficit |  
|Balance  31 January 2006                                           |  | Unlimited              |  |  | 100,173,173 |  |   | 46,009  |   |   | 8,084       |   |   | (34,706 | )
|Loss for the year                                                   |  | -                      |  |  | -           |  |   | -       |   |   | -           |   |   | (17,893 | )
|Issuance of shares for bonus (Note
      14a))                      |  | -                      |  |  | 2,350,000   |  |   | 1,289   |   |   | -           |   |   | -       |  
|Shares issued for cash:                                             |  |                        |  |  |             |  |   |         |   |   |             |   |   |         |  
|Exercise of warrants                                                |  | -                      |  |  | 14,662,703  |  |   | 17,963  |   |   | (3,653      | ) |   | -       |  
|Exercise of options                                                 |  | -                      |  |  | 2,193,000   |  |   | 765     |   |   | -           |   |   | -       |  
|Shares issued for property (Note 4)                                 |  | -                      |  |  | 2,000,000   |  |   | 6,160   |   |   | -           |   |   | -       |  
|Stock-based compensation                                            |  | -                      |  |  | -           |  |   | -       |   |   | 4,723       |   |   | -       |  
|Warrants issued for deferred financing
      costs                  |  | -                      |  |  | -           |  |   | -       |   |   | 1,197       |   |   | -       |  
|Fair value of stock options exercised                               |  | -                      |  |  | -           |  |   | 737     |   |   | (737        | ) |   | -       |  
|Balance  31 January 2007                                           |  | Unlimited              |  |  | 121,378,876 |  | $ | 72,923  |   | $ | 9,614       |   | $ | (52,599 | )
|Loss for the year                                                   |  | -                      |  |  | -           |  |   | -       |   |   | -           |   |   | (3,690  | )
|Shares and warrants issued:                                         |  |                        |  |  |             |  |   |         |   |   |             |   |   |         |  
|Exercise of options                                                 |  | -                      |  |  | 462,200     |  |   | 303     |   |   | -           |   |   | -       |  
|Fair value of stock options exercised                               |  | -                      |  |  | -           |  |   | 212     |   |   | (212        | ) |   | -       |  
|Private placement, finders
      fees and issuance costs           |  | -                      |  |  | 15,149,999  |  |   | 31,177  |   |   | 8,346       |   |   | -       |  
|Stock-based compensation                                            |  | -                      |  |  | -           |  |   | -       |   |   | 3,077       |   |   | -       |  
|Balance  31 January 2008                                           |  | Unlimited              |  |  | 136,991,075 |  | $ | 104,615 |   | $ | 20,825      |   | $ | (56,289 | )
|Loss for the year                                                   |  | -                      |  |  | -           |  |   | -       |   |   | -           |   |   | (4,536  | )
|Shares and warrants issued:                                         |  |                        |  |  |             |  |   |         |   |   |             |   |   |         |  
|Exercise of options                                                 |  | -                      |  |  | 312,800     |  |   | 452     |   |   | -           |   |   | -       |  
|Fair value of stock
      options exercised                         |  | -                      |  |  | -           |  |   | 245     |   |   | (245        | ) |   | -       |  
|Convertible debt  conversion
      factor and warrants **(Note**7) |  | -                      |  |  | -           |  |   | -       |   |   | 691         |   |   | -       |  
|**Accrual of Milestones 2 and 4 Bonus
      Shares (Note 14)**      |  | -                      |  |  | -           |  |   | -       |   |   | 3,912       |   |   | -       |  
|Amendment to previously issued
      warrants (Note  8a))           |  | -                      |  |  | -           |  |   | (544    | ) |   | 544         |   |   | -       |  
|Stock-based compensation                                            |  | -                      |  |  | -           |  |   | -       |   |   | 1,822       |   |   | -       |  
|Balance  31 January 2009                                           |  | Unlimited              |  |  | 137,303,875 |  | $ | 104,768 |   | $ | 27,549      |   | $ | (60,825 | )

- See Accompanying Notes -

F-7

---

PolyMet Mining Corp.(a development
    stage company)Consolidated Statements of Cash FlowsFor the Years Ended 31 JanuaryAll figures in
    Thousands of U.S. Dollars

|                                                                    |   | 2009    |   |   | 2008    |   |   | 2007    |  
|------------------------------------------------------------------- | - | ------- | - | - | ------- | - | - | ------- | -
|Operating Activities                                                |   |         |   |   |         |   |   |         |  
|Loss for the year                                                   | $ | (4,536  | ) | $ | (3,690  | ) | $ | (17,893 | )
|Items not involving cash                                            |   |         |   |   |         |   |   |         |  
|Consulting fees and
      Office and Corporate wages (Note 14a))    |   | -       |   |   | -       |   |   | 1,289   |  
|Amortization                                                        |   | 31      |   |   | 56      |   |   | 7       |  
|Investment loss (Note
      13)                                     |   | 1,365   |   |   | 1,050   |   |   | -       |  
|Stock-based compensation                                            |   | 487     |   |   | 635     |   |   | 4,723   |  
|Changes in non-cash working capital items                           |   |         |   |   |         |   |   |         |  
|Accounts
      receivable and advances                              |   | 99      |   |   | (107    | ) |   | (20     | )
|Prepaid expenses                                                    |   | 323     |   |   | (583    | ) |   | (135    | )
|Accounts
      payable and accrued liabilities                      |   | (1,059  | ) |   | (51     | ) |   | (199    | )
|Net cash used in operating activities                               |   | (3,290  | ) |   | (2,690  | ) |   | (12,228 | )
|                                                                    |   |         |   |   |         |   |   |         |  
|Financing Activities                                                |   |         |   |   |         |   |   |         |  
|Share capital - for cash                                            |   | 452     |   |   | 39,826  |   |   | 15,075  |  
|Long-term debt repayment                                            |   | (1,400  | ) |   | (2,000  | ) |   | (1,250  | )
|Convertible debt                                                    |   | 14,333  |   |   | -       |   |   | -       |  
|Deferred financing costs                                            |   | (49     | ) |   | (293    | ) |   | (200    | )
|Net cash provided by financing
      activities                     |   | 13,336  |   |   | 37,533  |   |   | 13,625  |  
|                                                                    |   |         |   |   |         |   |   |         |  
|Investing Activities                                                |   |         |   |   |         |   |   |         |  
|Purchase of investment                                              |   | -       |   |   | (2,495  | ) |   | -       |  
|Purchase of mineral property,
      plant and equipment             |   | (22,776 | ) |   | (21,161 | ) |   | (4,171  | )
|Net cash used in investing activities                               |   | (22,776 | ) |   | (23,656 | ) |   | (4,171  | )
|                                                                    |   |         |   |   |         |   |   |         |  
|Net Increase (Decrease) in Cash and Cash Equivalents
      Position |   | (12,730 | ) |   | 11,187  |   |   | (2,774  | )
|Cash and Cash Equivalents Position -
      Beginning of Year        |   | 20,084  |   |   | 8,897   |   |   | 11,671  |  
|Cash and Cash
      Equivalents Position - End of Year              | $ | 7,354$  |   |   | 20,084  |   | $ | 8,897   |  

- See Accompanying Notes -

F-8

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|1. | Nature of Business and Liquidity Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | PolyMet Mining Corp. (the Company) was incorporated in
      British Columbia, Canada on 4 March 1981 under the name Fleck Resources
      Ltd. The Company changed its name from Fleck Resources to PolyMet Mining
      Corp. on 10 June 1998. The Company is engaged in the exploration and
      development, when warranted, of natural resource properties. The Companys
      primary mineral property is the NorthMet Project, a polymetallic project
      in northeastern Minnesota, USA. The realization of the Companys
      investment in the NorthMet Project and other assets is dependent upon
      various factors, including the existence of economically recoverable
      mineral reserves, the ability to obtain the necessary financing to
      complete the exploration and development of the NorthMet Project, future
      profitable operations, or alternatively upon disposal of the investment on
      an advantageous basis.                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | On 25 September 2006, the Company received the results of a Definitive Feasibility Study (“DFS”) prepared by Bateman Engineering (Pty) Ltd. (“Bateman”) that confirms the economic and technical viability of the NorthMet Project and, as such, the Project has moved from the exploration stage to the development stage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | **Liquidity Risk**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities in the normal course of operations.  Liquidity risk is the risk that the Company will be unable to meet its financial obligations as they fall due.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The Company has taken steps to fund its operations through the issuance of equity and debt.  It plans to meet its financial obligations to the point at which all regulatory approvals for its NorthMet project have been obtained and which will allow the Company to raise capital to construct its mine and commence commercial production.  Management believes that the negotiation of a convertible debenture (Note 7) for $50 million in 2008 will be sufficient to meet its obligations until it is able to raise capital to construct its mine.  Two tranches of the convertible debenture amounting to $15 million were advanced to the Company by January 31, 2009.  Further advances require the Company to achieve certain milestones and conditions. One of these conditions is for the Company to obtain the consent of Cliffs Natural Resources Inc. ("Cliffs") to allow the debenture holder to obtain a mortgage over certain of the Company’s assets (Notes 4&5).  In the event that the milestones and conditions laid out in the convertible debenture are not met or their achievement is delayed the Company may be forced to curtail or delay expenditures, sell assets or seek additional financing sources.  All of these circumstances may delay the progress of or affect the ultimate success of the Company’s plans.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Management of the Company has developed plans which, in the event of delays of the achievement of milestones or conditions under the convertible debenture, involve the curtailment or postponement of certain activities, the sale of assets and the provision of additional sources of finance.  However, there is no assurance that management will be successful in achieving any or all of the opportunities it has identified or obtain sufficient liquidity to execute its business plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

F-9

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|2. | Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The consolidated financial statements of PolyMet Mining
      Corp. have been prepared in accordance with accounting principles
      generally accepted in Canada that require management to make assumptions
      and estimates that affect the reported amounts of assets and liabilities
      and disclosures of contingent assets and liabilities as at the date of the
      financial statements.                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Significant estimates used in the preparation of these
      consolidated financial statements include, amongst other things, expected
      economic lives of plant and equipment, anticipated costs of asset
      retirement obligations including the reclamation of mine site, valuation
      of options, convertible debt and share purchase warrants, and the
      assessment of impairment in value of long lived assets. Actual results
      could differ from these estimates. Significant differences from United
      States generally accepted accounting principles are disclosed in Note
      16.

| |                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Basis of consolidation                                                                                                                                                                                          
| |                                                                                                                                                                                                                 
| | The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Poly Met Mining, Inc.  Inter-company balances and transactions have been eliminated on consolidation.
| |                                                                                                                                                                                                                 
| | Cash and Cash Equivalents                                                                                                                                                                                       
| |                                                                                                                                                                                                                 
| | The Company considers cash and cash equivalents to include amounts held in banks and highly liquid debt investments with remaining maturities at point of purchase of three months or less.                     

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Mineral Property, Plant and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Mineral property                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Mineral property costs, aside from mineral property
      acquisition costs, incurred prior to determination of the DFS are expensed
      as incurred and expenditures incurred subsequent to the DFS and mineral
      property acquisition costs are deferred or capitalized until the property
      is placed into production, sold, allowed to lapse or abandoned.
      Acquisition costs include cash, debt and fair market value of common
      shares.    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Upon commencement of production, mineral properties and
      acquisition costs relating to mines are amortized over the estimated life
      of the proven and probable mineral reserves to which they relate,
      calculated on a unit of production basis.                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | As a result of the DFS on the NorthMet Project, the
      Project entered the development stage effective 1 October 2006. The
      Company has deferred mineral property development expenditures related to
      the NorthMet Project from that date.                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Ownership in mineral interests involves certain inherent
      risks due to the difficulties of determining the validity of certain
      claims as well as the potential for problems arising from the frequently
      ambiguous conveyance history characteristic of many mineral interests. The
      Company has investigated ownership of its mineral interests and, to the
      best of its knowledge, ownership of its interests are in good
      standing.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Plant and equipment are recorded at cost and depreciated
      over the estimated life of the related assets calculated on a unit of
      production or straight-line basis, as appropriate.                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Depreciation of plant and equipment is provided on a
      straight-line basis over the estimated economic life of the assets as
      follows:                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Leasehold improvements  Straight-line over the term of
      the lease 
      Furniture and equipment  Straight-line over 10 years 
      Computers  Straight-line over 5 years 
      Computer software 
      Straight-line over 1 year                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Mineral property, plant and equipment related to the
      NorthMet Project will begin to be amortized at the time the project
      commences operations.                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Loss Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Loss per share is computed by dividing the loss for the
      year by the weighted average number of common shares outstanding during
      the year. Basic and diluted losses per share are the same for the periods
      reported, as the effect of potential issuances of shares under warrant or
      share option agreements would be anti-dilutive.                                                                                                          

F-10

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 
|                                                                                                 

|2. | Significant Accounting Policies- Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Foreign Currency Translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The United States (U.S.) dollar is the functional
      currency of the Companys business. Accordingly, amounts in these
      consolidated financial statements are expressed in U.S. dollars unless
      otherwise stated. The Companys non-U.S. operations are considered to be
      integrated with the U.S. operations and have been translated into U.S.
      dollars using the temporal method. Under this method, monetary assets and
      liabilities are translated at the rate of exchange in effect at the
      balance sheet dates and non-monetary assets and liabilities are translated
      at the exchange rate in effect at the times of the transactions. Revenue
      and expense items are translated at rates approximating the exchange rate
      in effect at the time of the transactions, except for amortization which
      is translated at historical rates. Translation gains and losses are
      reflected in the year.                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Stock-Based Compensation and Share Purchase
      Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | All stock-based awards made to directors, employees and
      non-employees are measured and recognized using a fair value based method.
      For directors and employees, the fair value of the options is measured at
      the date of the grant. For non-employees, the fair value of the options is
      measured on the earlier of the date at which the counterparty performance
      is complete or the date the performance commitment is reached or the date
      at which the equity instruments are granted if they are fully vested and
      non-forfeitable. For directors, employees and non-employees, the fair
      value of the options is accrued and charged either to operations or
      mineral property plant and equipment, with the offsetting credit to
      contributed surplus, on a graded method over the vesting period. If and
      when the stock options are ultimately exercised, the applicable amounts of
      contributed surplus are transferred to share capital.                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company issues share purchase warrants in connection
      with certain equity transactions. The fair value of the warrants, as
      determined using the Black-Scholes option pricing model, is credited to
      contributed surplus. The recorded value of share purchase warrants is
      transferred to share capital upon exercise.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Asset Retirement Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company follows CICA Handbook Section 3110, Asset
      Retirement Obligations(CICA 3110) which requires the recognition of
      a legal liability for obligations relating to the retirement of property,
      plant and equipment and obligations arising from the acquisition,
      construction, development, or normal operation of those assets. Such asset
      retirement costs must be recognized at fair value, when a reasonable
      estimate of fair value can be estimated, in the year in which the
      liability is incurred. A corresponding increase to the carrying amount of
      the related asset, where one is identifiable, is recorded and amortized
      over the life of the asset. Where a related asset is not easily
      identifiable with a liability, the change in fair value over the course of
      the year is expensed. The estimates are based principally on legal and
      regulatory requirements. It is possible that the Companys estimates of
      its ultimate reclamation and closure liabilities could change as a result
      of changes in regulations, changes in the extent of environmental
      remediation required, changes in the means of reclamation or changes in
      cost estimates.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The operations of the Company may in the future be
      affected from time to time in varying degrees by changes in environmental
      regulations, including those for future removal and site restoration
      costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

F-11

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|2. | Significant Accounting Policies- Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Both the likelihood of new regulations and their overall
      effect upon the Company may vary greatly and are not
      predictable.                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Impairment of Long-Lived Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Company performs impairment tests on its mineral
      property, plant and equipment when events or changes in circumstances
      indicate that the carrying values of assets may not be recoverable. These
      tests require the comparison of the undiscounted future cash flows derived
      from these assets with the carrying value of the assets. If a shortfall
      exists, the assets are written down to fair value, determined primarily
      using discounted cash flow models.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Company has adopted the following CICA standards
      effective for the Company commencing February 1, 2008:                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F-12

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|2. | Significant Accounting Policies- Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | In addition to above noted accounting policies, on 1
      February 2008 the Company also adopted CICA Handbook Section 1535 
      Capital Disclosures. The Companys objectives when managing capital are to
      safeguard the Companys ability to continue as a going concern in order to
      pursue the development of the NorthMet Project and to maintain a flexible
      capital structure which optimizes the costs of capital at an acceptable
      risk.                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Similar to other companies in the development stage, the
      Company is in discussions with certain parties to provide funding which
      will enable the Company to execute its business plan. With the completion
      of the DFS and taking into account the current permitting process the
      Company is in, PolyMet will require additional funds through completion of
      permitting and through Project construction. Funding for the Project could
      come from a number of sources and include internal cash flows (for the
      second stage of the construction), bank project financing and capital
      market financing. During the upcoming fiscal year, the Companys objective
      is to identify the source or sources from which it will obtain the capital
      required to complete the Project.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company has no externally imposed capital
      requirements. In the management of capital, the Company includes the
      components of shareholders equity, convertible debt and long-term debt.
      The Company manages the capital structure and makes adjustments to it
      depending on economic conditions and the rate of anticipated expenditures.
      To maintain or adjust the capital structure, the Company may attempt to
      issue new shares, issue new debt, acquire or dispose of assets.                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | In order to assist in management of its capital
      requirements, the Company prepares expenditure budgets that are updated as
      necessary depending on various factors. The budgets are approved by the
      Companys Board of Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Although the Company expects its current capital
      resources, supplemented by the financing discussed in Note 7 to these
      financial statements, will be sufficient to carry out its plans and
      operations through 31 January 2010, it does not currently have sufficient
      capital to meet its estimated project capital expenditure requirements and
      is currently in discussions to arrange sufficient capital to meet these
      requirements.                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On February 1, 2009, the Company will be required to adopt CICA Section 3064, Goodwill and Intangible Assets.  This new standard provides guidance on the recognition, measurement, presentation and disclosure of goodwill and other intangible assets.  The adoption of this standard is expected to result in the Company ceasing to capitalize to mineral property, on a retrospective basis, accretion related to asset retirement obligations in its consolidated financial statements.                                                                                                                                                                                                                                                                                                                                          

F-13

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|2. | Significant Accounting Policies- Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | In January 2009, the CICA issued Section 1582 Business
      Combinations to replace Section 1581. Prospective application of the
      standard is effective January 1, 2011, with early adoption permitted. This
      new standard effectively harmonizes the business combinations standard
      under Canadian GAAP with International Financial Reporting Standards
      (IFRS). The new standard revises guidance on the determination of the
      carrying amount of the assets acquired and liabilities assumed, goodwill
      and accounting for non-controlling interests at the time of a business
      combination.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The CICA concurrently issued Section 1601 Consolidated
      Financial Statements and Section 1602 Non-Controlling Interests which
      replace Section 1600 Consolidated Financial Statements. Section 1601
      provides revised guidance on the preparation of consolidated financial
      statements and Section 1602 addresses accounting for non-controlling
      interests in consolidated financial statements subsequent to a business
      combination. These standards are effective January 1, 2011, unless they
      are early adopted at the same time as Section 1582 Business
      Combinations.           

F-14

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|3. | Resource Property Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | NorthMet, Minnesota, U.S.A. - Lease                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Pursuant to an agreement dated 4 January 1989,
      subsequently amended and assigned, the Company leases certain lands in St.
      Louis County, Minnesota from RGGS Land & Minerals Ltd., L.P. During
      the year ended 31 January 2005, United States Steel Corporation assigned
      the lease to RGGS Land & Minerals Ltd., L.P. The current term of the
      renewable lease is 20 years and calls for total lease payments of
      $1,475,000. All lease payments have been paid to 31 January
      2009.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company can, at its option, terminate the lease at
      any time by giving written notice to the lessor not less than 90 days
      prior to the effective termination date or can indefinitely extend the
      20-year term by continuing to make $150,000 annual lease payments on each
      successive anniversary date.                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The lease payments are considered advance royalty
      payments and shall be deducted from future production royalties payable to
      the lessor, which range from 3% to 5% based on the net smelter return
      received by the Company. The Companys recovery of the advance royalty
      payments is subject to the lessor receiving an amount not less than the
      amount of the annual lease payment due for that year.                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Pursuant to the leases, PolyMet holds mineral rights and
      the right to mine. PolyMet had intended to acquire surface rights through
      a land exchange with the United States Forest Service, which costs have
      been included in the capital cost estimate of the Project. Legislation has
      been introduced in the United States Congress to facilitate a possible
      direct acquisition of surface rights.                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

F-15

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|4. | Mineral Property, Plant and Equipment
|-- | -------------------------------------
|   |                                      
|   | Details are as follows:              

| |                         |   |        |  |   | Accumulated  |  |   | Net
      Book | 
| | ----------------------- | - | ------ |  | - | ------------ |  | - | -------------- | 
| | 31 January 2009         |   | Cost   |  |   | Amortization |  |   | Value          | 
| | NorthMet Project        | $ | 92,864 |  | $ | -            |  | $ | 92,864         | 
| | Leasehold improvements  |   | 47     |  |   | 21           |  |   | 26             | 
| | Computers               |   | 224    |  |   | 125          |  |   | 99             | 
| | Furniture and equipment |   | 137    |  |   | 59           |  |   | 78             | 
| |                         | $ | 93,272 |  | $ | 205          |  | $ | 93,067         | 

| |                         |   |        |  |   | Accumulated  |  |   | Net Book | 
| | ----------------------- | - | ------ |  | - | ------------ |  | - | -------- | 
| | 31 January 2008         |   | Cost   |  |   | Amortization |  |   | Value    | 
| | NorthMet Project        | $ | 64,766 |  | $ | -            |  | $ | 64,766   | 
| | Leasehold improvements  |   | 48     |  |   | 12           |  |   | 36       | 
| | Computers               |   | 135    |  |   | 23           |  |   | 112      | 
| | Furniture and equipment |   | 136    |  |   | 31           |  |   | 105      | 
| |                         | $ | 65,085 |  | $ | 66           |  | $ | 65,019   | 

Erie Plant, Minnesota, U.S.A.

On 15 November 2005, the Company
  exercised an option to acquire 100% ownership of large portions of the former
  LTV Steel Mining Company ore processing plant in northeastern Minnesota under
  the Asset Purchase Agreement with Cliffs.

The consideration for the purchase was
  $1 million in cash, $2.4 million in notes payable and the issuance of 6,200,547
  common shares (at fair market value of $7,564,000) in the capital stock of the
  Company. The final instalment was paid on 30 June 2008 (Note 5).

F-16

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|4. | Mineral Property, Plant and Equipment- Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | On 20 December 2006, the Company closed a transaction
      (the Asset Purchase Agreement II) in which it acquired, from Cliffs,
      property and associated rights sufficient to provide it with a railroad
      connection linking the mine development site and the Erie Plant. The
      transaction also included a 120-railcar fleet, locomotive fuelling and
      maintenance facilities, water rights and pipelines, large administrative
      offices on site and an additional 6,000 acres to the east and west of and
      contiguous to its existing tailing facilities.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The purchase price totalling 2 million shares and $15
      million in cash and debt was in four tranches:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| | The Company has assumed certain ongoing site-related
      environmental and reclamation obligations as a result of the above
      purchases. These environmental and reclamation obligations are presently
      contracted under the terms of the purchase agreements with Cliffs. Once
      the Company obtains its permit to mine and Cliffs is released from its
      obligations by the State agencies, the environmental and reclamation
      obligations will be direct with the governing bodies. The present value of
      the asset retirement obligation in the amount of $3,211,000 (Note 6) has
      been recorded as an increase in the carrying amount of the NorthMet
      Project assets and will be amortized over the life of the asset.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Interest and loan accretion to 31 January 2009 in the
      amount of $1,957,000 (2008 - $1,227,000) has been capitalized as part of
      the cost of the NorthMet Project assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | As the above assets are not in use no amortization of
      these assets has been recorded to 31 January 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F-17

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|5. | Long Term Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Pursuant to the Asset Purchase Agreements (Note 4) the Company’s wholly owned subsidiary Poly Met Mining, Inc. signed three notes payable to Cliffs in the amounts of $2,400,000, $7,000,000 and $7,000,000, respectively.  The first note was interest bearing at the annual simple rate of four percent (4%) and the final payment was made on June 2008.  The second note is interest bearing at the Wall Street Journal Prime Rate and is being paid in quarterly instalments equal to $250,000 commencing 31 December 2006, with the balance repayable upon receipt of commercial financing, for total repayment of $7,000,000. The third note is interest bearing at the Wall Street Journal Prime Rate and shall be paid in quarterly instalments equal to $250,000 commencing on 31 December 2009 for total repayment of $7,000,000. No interest will be payable on the third note until 31 December 2009.  Accordingly it has been fair valued, for balance sheet purposes, by discounting it at 8.25%.  If PolyMet were to default on individual elements of the transactions with Cliffs, the assets associated with the default could revert to Cliffs’ control. As at 31 January 2009 the outstanding long term debt was as follows:

| |                      |   | 31 January 2009 |   |   | 31 January 2008 |  
| | -------------------- | - | --------------- | - | - | --------------- | -
| |                      |   |                 |   |   |                 |  
| | Notes Payable        | $ | 11,299          |   | $ | 12,204          |  
| | Accrued interest     |   | 14              |   |   | 31              |  
| | Total debt           |   | 11,313          |   |   | 12,235          |  
| | Less current portion |   | (1,250          | ) |   | (1,401          | )
| |                      |   |                 |   |   |                 |  
| | Long term debt       | $ | 10,063          |   | $ | 10,834          |  

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | Asset Retirement Obligation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | As part of the consideration for the Cliffs Purchase
      Agreements (Note 4), the Company indemnified Cliffs for the liability for
      final reclamation and closure of the acquired property.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Federal, state and local laws and regulations concerning
      environmental protection affect the Companys operations. Under current
      regulations, the Company is contracted to indemnify Cliffs requirement to
      meet performance standards to minimize environmental impact from
      operations and to perform site restoration and other closure activities.
      The Companys provisions for future site closure and reclamation costs are
      based on known requirements. It is not currently possible to estimate the
      impact on operating results, if any, of future legislative or regulatory
      developments. The Companys estimate of the present value of the
      obligation to reclaim the NorthMet Project is based upon existing
      reclamation standards at 31 January 2009 and Canadian GAAP. Once the
      Company obtains its permit to mine the environmental and reclamation
      obligations will be direct with the governing bodies.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Companys estimate of the fair value of the asset
      retirement obligation at 31 January 2009 was $3,211,000 (2008 -
      $3,439,000). These were based upon a 31 January 2009 undiscounted future
      cost of $21.5 million for the first Cliffs transaction and $2.0 million
      for Cliffs II, an annual inflation rate of 2.00%, and a credit-adjusted
      risk free interest rate of 12.00% and a mine life of 20 years and a
      reclamation period of 9 years. Accretion of the liability to 31 January
      2009 of $1,157,000 (2008 - $714,000) until the commencement of commercial
      production has been capitalized to the NorthMet Project assets.                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

F-18

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|7. | Convertible Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On October 31, 2008, the Company entered into a financing
      with Glencore AG (Glencore) for an aggregate of US$50 million floating
      rate secured debentures due on September 30, 2011 (the "Debentures") to be
      issued by the Company's wholly-owned Minnesota subsidiary, Poly Met
      Mining, Inc. (PolyMet US), and guaranteed by the Company. The Debentures
      bear interest at 12-month US dollar LIBOR plus 4%. Interest is payable in
      cash or by increasing the principal amount of the Debentures, at PolyMets
      option, for payments on or before September 30, 2009, and at Glencores
      option thereafter. At 31 January 2009, $180,000 of interest had been added
      to the principal amount of the debt. The Debentures are secured by all of
      the assets of PolyMet and PolyMet US, including a pledge of PolyMets 100%
      shareholding in PolyMet US.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Debentures are exchangeable into common shares of
      PolyMet at Glencores option at US$4.00 per share. The Issuer can, at its
      option, prepay the Debentures if PolyMets shares trade at a 20-day volume
      weighted average price equal to or exceeding US$6.00, at which time, and
      at Glencores option, Glencore could exchange the Debentures for common
      shares of PolyMet within 30 days in lieu of payment. Repayment between
      October 1, 2009 and September 30, 2010 would be at 105% of the then
      outstanding principal of the Debentures, repayment between October 1, 2010
      and September 30, 2011 would be at 102.5% of the outstanding
      principal.                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | US$7.5 million of the Debentures were issued on 31
      October 2008 and an additional US$7.5 million of the Debentures were
      issued on 22 December 2008. US$10 million of the Debentures will be issued
      in two tranches subject to expenditures being in material compliance with
      budget, other customary conditions and agreement between Glencore and
      Cliffs on terms and conditions whereby Cliffs will provide its consent to
      Glencore as mortgagee of the Erie Plant.                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The final US$25 million of the Debentures, to be used
      primarily for detailed engineering and procurement, are to be issued upon
      publication of the Final Environmental Impact Statement in the State of
      Minnesotas Environmental Quality Board Monitor, receipt by the Company of
      a bona fide term sheet for construction financing and are subject to
      expenditures being in material compliance with budget and other customary
      conditions.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On 31 October 2008, PolyMet issued to Glencore warrants
      to purchase 6.25 million common shares of PolyMet at US$5.00 if exercised
      before the NorthMet Project has produced a total of 20,000 metric tonnes
      of concentrate, or US$6.00 thereafter. The warrants expire on September
      30, 2011. If the volume-weighted 20-day average price of PolyMets common
      shares trade at a 50% premium to the then applicable exercise price,
      Glencore must exercise the warrants within 30 days or the warrants will
      expire.                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company has accounted for the initial US$7.5 million
      of the Debentures and the 6.25 million common share warrants by allocating
      the $7.5 million between the debt, the exchangeable feature of the debt
      and the warrants based on their pro rata fair values. The debt has been
      fair valued using the difference between 9% and 12 month LIBOR at October
      31, 2008 (3.2075%) plus 4%. Costs related to the financing of $636,000
      have been recorded against the convertible debt.                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company has accounted for the second US$7.5 million
      of the Debentures by allocating the $7.5 million between the debt and the
      exchangeable feature of the debt based on their pro rata fair values. The
      debt has been fair valued using the difference between 9% and 12 month
      LIBOR at October 31, 2008 (3.2075%) plus 4%. Costs related to the
      financing of $31,000 have been recorded against the convertible
      debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

F-19

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|8. | Share Capital
|-- | -------------
|   |              
|   | a)           
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              

During the year ended 31 January 2007
  the Company issued the following shares for cash:

| | i)  | 14,662,703 shares pursuant to the exercise of warrants at
      prices between Cdn$0.20 and Cdn$2.00 (US$0.09 and US$1.77) for total
      proceeds of $14,310,000 (Note 8e)), and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                   
| | ii) | 2,193,000 shares pursuant to the exercise of stock
      options for total proceeds of $765,000.                                                                                  

On 10 October 2008, the Company
  announced that it had received the consent from the holders of more than
  two-thirds of the 8,020,000 warrants issued as part of the April 2007 private
  placement to exchange those warrants into:

| | • | 4,010,000 warrants, each warrant entitling the holder to
      purchase one share of PolyMet common stock at US$3.00 per share at any
      time until the sooner of 30 calendar days after publication of the draft
      Environmental Impact Statement by the State of Minnesota in the states
      Environmental Quality Board Monitor and October 13, 2009, and                                                                                                                                     
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | 4,010,000 warrants, each warrant entitling the holder to
      purchase one share of PolyMet common stock at US$5.00 if exercised before
      the NorthMet Project has produced a cumulative total of 20,000 metric
      tonnes of concentrate, or US$6.00 thereafter and prior to August 31, 2011.
      PolyMet can accelerate the expiration of the warrants if PolyMets
      volume-weighted 20-day average stock price trades at a 50% premium to the
      exercise price applicable at any time.




F-20

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|8. | Share Capital- Continued
|-- | ------------------------
|   |                         
|   | b)                      
|   |                         
|   |                         
|   |                         
|   |                         

| |                            |  | 31 January |   |  | 31 January |   |  | 31 January |  
| | -------------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | -
| |                            |  | 2009       |   |  | 2008       |   |  | 2007       |  
| |                            |  | Options    |   |  | Options    |   |  | Options    |  
| | Outstanding - Beginning of |  |            |   |  |            |   |  |            |  
| | year                       |  | 11,312,800 |   |  | 9,090,000  |   |  | 6,783,700  |  
| | Granted                    |  | 1,690,000  |   |  | 2,685,000  |   |  | 4,500,000  |  
| | Cancelled / Forfeited      |  | (75,000    | ) |  | -          |   |  | (700       | )
| | Exercised                  |  | (312,800   | ) |  | (462,200   | ) |  | (2,193,000 | )
| |                            |  |            |   |  |            |   |  |            |  
| | Outstanding - End of year  |  | 12,615,000 |   |  | 11,312,800 |   |  | 9,090,000  |  

F-21

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|8. | Share Capital- Continued
|-- | ------------------------
|   |                         
|   | b)                      
|   |                         
|   |                         

| |                       |  |                |  |  |                |  |  | Number
      of | 
| | --------------------- |  | -------------- |  |  | -------------- |  |  | --------------- | 
| |                       |  | Exercise Price |  |  | Exercise Price |  |  | options         | 
| | Expiry Date           |  | (US$)          |  |  | (CDN$)         |  |  | outstanding     | 
| | 9 March 2009          |  | 0.33           |  |  | 0.40           |  |  | 175,000         | 
| | 28 April 2009         |  | 0.61           |  |  | 0.75           |  |  | 150,000         | 
| | 5 July 2009           |  | 0.54           |  |  | 0.66           |  |  | 825,000         | 
| | 18 October 2009       |  | 0.64           |  |  | 0.79           |  |  | 50,000          | 
| | 30 March 2010         |  | 0.53           |  |  | 0.65           |  |  | 235,000         | 
| | 1 May 2010            |  | 0.69           |  |  | 0.85           |  |  | 350,000         | 
| | 15 June 2010          |  | 0.76           |  |  | 0.94           |  |  | 40,000          | 
| | 19 September 2010     |  | 1.11           |  |  | 1.36           |  |  | 1,690,000       | 
| | 24 October 2010       |  | 0.98           |  |  | 1.20           |  |  | 200,000         | 
| | 5 December 2010       |  | 0.93           |  |  | 1.15           |  |  | 200,000         | 
| | 20 March 2011         |  | 2.24           |  |  | 2.76           |  |  | 3,100,000       | 
| | 19 June 2011          |  | 2.41           |  |  | 2.97           |  |  | 325,000         | 
| | 1 September 2011      |  | 3.11           |  |  | 3.82           |  |  | 300,000         | 
| | 22 September 2011     |  | 2.85           |  |  | 3.51           |  |  | 75,000          | 
| | 5 January 2012        |  | 2.68           |  |  | 3.30           |  |  | 525,000         | 
| | 13 February 2012      |  | 2.99           |  |  | 3.68           |  |  | 1,250,000       | 
| | 8 March 2012          |  | 2.88           |  |  | 3.54           |  |  | 400,000         | 
| | 12 March 2012         |  | 2.92           |  |  | 3.59           |  |  | 250,000         | 
| | 23 March 2012         |  | 2.89           |  |  | 3.56           |  |  | 50,000          | 
| | 4 September 2012      |  | 3.00           |  |  | 3.69           |  |  | 360,000         | 
| | 12 December 2012      |  | 3.05           |  |  | 3.75           |  |  | 205,000         | 
| | 11 January 2013       |  | 3.03           |  |  | 3.73           |  |  | 70,000          | 
| | 31 January 2013       |  | 2.87           |  |  | 3.53           |  |  | 100,000         | 
| | 15 February 2013      |  | 2.72           |  |  | 3.35           |  |  | 500,000         | 
| | 2 June 2013           |  | 3.92           |  |  | 4.82           |  |  | 100,000         | 
| | 30 July 2013          |  | 3.22           |  |  | 3.96           |  |  | 175,000         | 
| | 30
      January 2014 |  | 0.82           |  |  | 1.01           |  |  | 915,000         | 
| |                       |  | 1.94           |  |  | 2.40           |  |  | 12,615,000      | 

As at 31 January 2009 all options had
  vested and were exercisable, with the exception of 30,000 which vest
  incrementally until September 2009 and 1,752,500 which vest upon completion of
  specific targets.

Subsequent to year end, on February
  17, 2009, the Company granted 1,410,000 options to directors, officers and
  employees with an average exercise price of USD$0.82 per option.

F-22

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|8. | Share Capital- Continued
|-- | ------------------------
|   |                         
|   | c)                      
|   |                         
|   |                         

| |  | Risk-free interest rate             | 1.54% to 3.23%  
| |  | ----------------------------------- | ----------------
| |  | Expected dividend yield             | Nil             
| |  | Expected stock price volatility     | 56.52% to 83.90%
| |  | Expected option life
      in years | 2.33            

The weighted fair value of options
  granted during the period was US$0.79. Option pricing models require the input
  of highly subjective assumptions including the estimate of the share price
  volatility. Changes in the subjective input assumptions can materially affect
  the fair value estimate, and therefore, the existing models do not necessarily
  provide a reliable single measure of the fair value of the Companys stock
  options. During the year ended 31 January 2009, the Company recorded $1,822,000
  for stock based compensation in its accounts as an expense of $487,000 and a
  debit to mineral property, plant and equipment of $1,335,000, with the
  offsetting entries going to contributed surplus.

During the year ended 31 January 2008,
  the Company granted 2,685,000 options to directors, officers, consultants and
  employees with an average exercise price of US$2.97 per option. These values
  were estimated at the date of grant using the Black-Scholes Option Pricing Model
  with the following weighted average assumptions:

| |  | Risk-free interest rate             | 3.23% to 4.35%  
| |  | ----------------------------------- | ----------------
| |  | Expected dividend yield             | Nil             
| |  | Expected stock price volatility     | 62.47% to 65.02%
| |  | Expected option life
      in years | 2.33            

The weighted fair value of options
  granted was US$1.29 (Cdn$1.36) . The fair value of stock-based compensation in
  the amount of $3,077,000 has been recorded in the accounts of the Company as an
  expense of $635,000 and a debit to mineral property, plant and equipment of
  $2,442,000 with the offsetting credit going to contributed surplus.

During the year ended 31 January 2007,
  the Company granted 4,500,000 options to directors, officers, consultants and
  employees. The fair value of stock-based compensation in the amount of
  $4,723,000 has been recorded in the accounts of the Company as an expense with
  the offsetting entry to contributed surplus. This value is estimated at the date
  of grant using the Black-Scholes Option Pricing Model with the following
  weighted average assumptions:



| |  |  | Risk-free interest rate             | 3.89% to 4.09%  
| |  |  | ----------------------------------- | ----------------
| |  |  | Expected dividend yield             | Nil             
| |  |  | Expected stock price volatility     | 59.91% to 83.01%
| |  |  | Expected option life
      in years | 2.33            

F-23

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|8. | Share Capital- Continued
|-- | ------------------------
|   |                         
|   | d)                      
|   |                         
|   |                         
|   |                         
|   |                         

| |                                                               |   | 31 January |   |   | 31 January |  
| | ------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
| |                                                               |   | 2009       |   |   | 2008       |  
| | Balance  Beginning of year                                   | $ | 20,825     |   | $ | 9,614      |  
| | Current year fair value of stock-based compensation           |   | 1,822      |   |   | 3,077      |  
| | Fair value of exchangeable warrants and
      debt conversion |   |            |   |   |            |  
| | (Note 7)                                                      |   | 691        |   |   | -          |  
| | Fair value of warrants issued as finders
      fees          |   | -          |   |   | 695        |  
| | Fair value of warrants issued in unit financing               |   | -          |   |   | 7,651      |  
| | Change in fair value of warrants amended (Note 8a))           |   | 544        |   |   | -          |  
| | Accrual of Bonus Shares for Milestones 2 and 4 (Note          |   |            |   |   |            |  
| | 14a))                                                         |   | 3,912      |   |   | -          |  
| | Fair value of
      stock options exercised during the year   |   | (245       | ) |   | (212       | )
| | Balance  End of year                                         | $ | 27,549     |   | $ | 20,825     |  

| | e) | Share Purchase
      Warrants
| | -- | -----------------------------

| | Details
      of stock purchase warrant activity are as follows: |  |                       |   |  |                       |  | 
| | ---------------------------------------------------------------- |  | --------------------- | - |  | --------------------- |  | 
| |                                                                  |  |                       |   |  |                       |  | 
| |                                                                  |  | 31
      January 2009 |   |  | 31 January
      2008 | 
| |                                                                  |  |                       |   |  | Weighted              |  | 
| |                                                                  |  |                       |   |  | Average               |  | 
| |                                                                  |  |                       |   |  | Exercise              |  | 
| |                                                                  |  | Warrants              |   |  | Price                 |  | 
| |                                                                  |  |                       |   |  | (US$)                 |  | 
| | Warrants outstanding - beginning of                              |  |                       |   |  |                       |  | 
| | period                                                           |  | 9,120,000             |   |  | 4.00                  |  | 
| | Issued (Note 8a))                                                |  | -                     |   |  | -                     |  | 
| | Cancelled (Note 8a))                                             |  | (8,020,000            | ) |  | 4.00                  |  | 
| | Issued (Note 8a))                                                |  | 4,010,000             |   |  | 3.00                  |  | 
| | Issued (Note 8a))                                                |  | 4,010,000             |   |  | 5.50                  |  | 
| | Issued (Note 7)                                                  |  | 6,250,000             |   |  | 5.50                  |  | 
| |                                                                  |  |                       |   |  |                       |  | 
| | Warrants outstanding  end of period                             |  | 15,370,000            |   |  | 4.74                  |  | 

F-24

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|8. | Share Capital- Continued
|-- | ------------------------
|   |                         
|   | e)                      
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   | f)                      
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         

F-25

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|9. | Supplemental Disclosure With Respect To Statements of
      Cash Flows                                                                               
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                      
|   | During the years ended 31 January 2009, 2008 and 2007 the
      Company entered into the following non-cash investing and financing
      activities:

| |                                                           |   | 2009  |  |   | 2008  |  |   | 2007   | 
| | --------------------------------------------------------- | - | ----- |  | - | ----- |  | - | ------ | 
| | Issued nil (2008  nil; 2007  2,000,000)
      shares to |   |       |  |   |       |  |   |        | 
| | Cliffs pursuant to the Companys exercise of the          |   |       |  |   |       |  |   |        | 
| | Cliffs Option to purchase the Cliffs Assets               | $ | -     |  | $ | -     |  | $ | 6,160  | 
| | Issued promissory notes payable to Cliffs                 |   |       |  |   |       |  |   |        | 
| | pursuant to the Companys exercise of the
      Cliffs    |   |       |  |   |       |  |   |        | 
| | Option to purchase the Cliffs Assets                      | $ | -     |  | $ | -     |  | $ | 12,518 | 
| | Recorded an Asset Retirement Obligation and
      a       |   |       |  |   |       |  |   |        | 
| | corresponding increase in Cliffs Assets pursuant          |   |       |  |   |       |  |   |        | 
| | to the Companys exercise of the Cliffs
      Option to   |   |       |  |   |       |  |   |        | 
| | purchase the Cliffs Assets                                | $ | -     |  | $ | -     |  | $ | 911    | 
| | Issued nil (2008 - 150,000; 2007 nil)
      shares and   |   |       |  |   |       |  |   |        | 
| | 520,000 broker warrants for finders fees on              |   |       |  |   |       |  |   |        | 
| | private placements                                        | $ | -     |  | $ | 1,108 |  | $ | -      | 
| | Changes in accounts payable and accrued                   |   |       |  |   |       |  |   |        | 
| | liabilities related to Investing Activities               | $ | 1,970 |  | $ | 2,907 |  | $ | -      | 
| |                                                           |   |       |  |   |       |  |   |        | 

F-26

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|10. | Related Party Transactions                                                                                                                                       
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                  
|    | The Company has conducted transactions with officers,
      directors and persons or companies related to directors and paid or
      accrued amounts as follows:

| |                                                    |   | 2009 |  |   | 2008 |  |   | 2007 | 
| | -------------------------------------------------- | - | ---- |  | - | ---- |  | - | ---- | 
| |                                                    |   |      |  |   |      |  |   |      | 
| | Consulting fees paid to David Dreisinger, a        | $ | 56   |  | $ | 63   |  | $ | 62   | 
| | Director of the Company                            |   |      |  |   |      |  |   |      | 
| | Consulting fees paid to James Swearingen, a        |   | -    |  |   | 55   |  |   | 60   | 
| | Director of the Company                            |   |      |  |   |      |  |   |      | 
| | Management fees paid to Group 4 Ventures,
      an |   | -    |  |   | 81   |  |   | 180  | 
| | affiliate controlled by the Executive Chairman of  |   |      |  |   |      |  |   |      | 
| | the Company                                        |   |      |  |   |      |  |   |      | 
| | Rent and office charges paid to Baja Mining        |   | 5    |  |   | 25   |  |   | 62   | 
| | Corp., a company of which the Executive            |   |      |  |   |      |  |   |      | 
| | Chairman was a director                            |   |      |  |   |      |  |   |      | 
| |                                                    | $ | 61   |  | $ | 224  |  | $ | 364  | 

The amounts charged to the Company for
  the services provided have been determined by negotiation among the parties and,
  in certain cases, are covered by signed agreements. These transactions were in
  the normal course of operations and were measured at the exchange value, which
  is the amount of consideration established and agreed to by the related parties.

During the year ended 31 January 2009,
  the Company paid $56,000 (2008 - $63,000 and 2007 - $62,000) to Dr. Dreisinger
  for consulting fees primarily in connection with activities related to the
  processing / technical side of the NorthMet project and related expenses (the
  latter were supported by invoices and receipts). The consulting fees were based
  on a monthly fee of Canadian $5,500 plus general sales tax. Throughout the term
  of his engagement, Dr. Dreisinger has conducted in-person and telephonic
  meetings with Mr. William Murray, the Companys Executive Chairman and formerly
  its President and Chief Executive Officer, and other members of management at
  which he provided both verbal and written updates on the status of test work and
  made recommendations for future activities. These meetings occurred
  approximately every two to three weeks for the past five years.

During the year ended 31 January 2009,
  the Company paid $nil (2008 - $55,000 and 2007 - $59,600) to Mr. Swearingen for
  consulting fees primarily in connection with activities related to our
  agreements with Cliffs Erie L.L.C. and land tenure and related expenses (the
  latter were supported by invoices and receipts). The consulting fees were based
  on a monthly fee of $5,000. Mr. Swearingen spent a significant amount of time in
  our Hoyt Lakes office reporting to both Mr. Murray and Mr. Warren Hudelson, our
  senior officer at that site, on a regular basis until Mr. Joe Scipioni joined
  the Company. He then reported to Mr. Scipioni, who at the time, was PolyMets
  General Manager and Chief Operating Officer.

The agreements with Dr. Dreisinger and
  Mr. Swearingen were entered into at a time when the Companys current business
  plans were being formulated and were month to month and oral in nature. Each
  agreement was approved by Mr. William Murray. They were discussed with the
  Companys board of directors who did not consider that formal approval and
  written contracts were necessary at that time. The Company believes that both of
  these contracts were at terms at least as

F-27

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|10. | Related Party Transactions- Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | good as could be obtained from third parties. The
      agreement with Mr. Swearingen was terminated effective January 1,
      2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | During the year ended 31 January 2009, the Company paid
      $nil (2008 - $81,000 and 2007 - $180,000) to Group 4 Ventures (Group 4)
      for the provision of consulting services of Mr. Murray, at a fixed monthly
      rate in accordance with a written contract. These amounts were in addition
      to the salary paid to him during the year ended 31 January 2008 of
      $172,000 (2007 - $53,000). Effective 1 July 2007, Mr. Murrays employment
      agreement was adjusted to include, as salary, the amounts formerly paid to
      Group 4 Ventures as consulting fees and the contract with Group 4 was
      terminated.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | During the year ended 31 January 2009, the Company paid
      $5,000 (2008 - $25,000 and 2007 - $62,000) to Baja Mining Corp. (Baja)
      primarily for rent and office costs, including health insurance plan
      costs. The agreement between Baja and the Company was oral in nature. Mr.
      Murray ceased being a Director of Baja in June 2008. Effective 1 February,
      2007, the Company occupied its own premises and ceased paying rent to
      Baja. Effective 1 September, 2008, the Company ceased paying the remaining
      costs to Baja.                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Company believes that the contracts with Group 4 and
      Baja were at terms that were fair to the parties involved.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

F-28

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|11. | Income Taxes                                                                                                                                                                                                        
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                     
|    | The Companys provision for income taxes differs from the
      amounts computed by applying the combined Canadian federal and provincial
      income tax rates to the net loss as a result of the
      following:

| |                                                          |   | 2009   |   |   | 2008   |  
| | -------------------------------------------------------- | - | ------ | - | - | ------ | -
| | Provision for recovery of taxes at
      statutory rates | $ | (1,361 | ) | $ | (2,960 | )
| | Tax benefit not recognized on current year losses        |   | 2,751  |   |   | 1,770  |  
| | Differences in foreign tax rates                         |   | (9     | ) |   | 19     |  
| | Non-deductible items and other                           |   | (1,381 | ) |   | 1,171  |  
| |                                                          |   |        |   |   |        |  
| |                                                          | $ | -      |   | $ | -      |  

Future income taxes reflect the net
  effects of temporary differences between the carrying amounts of assets and
  liabilities for financial reporting purposes and the amounts used for income tax
  purposes. The significant components of the Company's future tax assets as at 31
  January 2009 are as follows:

| |                                 |   | 2009    |   |   | 2008    |  
| | ------------------------------- | - | ------- | - | - | ------- | -
| | Non-capital loss carry forwards | $ | 10,421  |   | $ | 7,923   |  
| | Unutilized exploration expenses |   | 2,144   |   |   | 6,617   |  
| | Capital assets                  |   | (36     | ) |   | (10     | )
| | Total future income tax assets  |   | 12,529  |   |   | 14,530  |  
| | Less: valuation allowance       |   | (12,529 | ) |   | (14,530 | )
| |                                 |   |         |   |   |         |  
| | Net future income tax assets    | $ | -       |   | $ | -       |  

| | The Company has income tax loss carry forwards of
      approximately $9.9 million in Canada, which may be used to reduce future
      income taxes otherwise payable and which expire in the years 2010 to 2029.                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                         
| | The Company has income tax loss carry forwards of
      approximately $20.9 million in the United States, which may be used to
      reduce future income taxes otherwise payable and which expire in the years
      2010 to 2029. Virtually all of the unutilized exploration expenses are in
      the United States.
| |                                                                                                                                                                                                                                                                                                                         
| | The tax benefit of the above noted tax assets have been
      offset by recognition of a valuation allowance in these financial
      statements.                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                         

F-29

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|12. | Segmented Information                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                              
|    | The Company is in the feasibility stage of developing its
      mineral properties in the U.S. and provides for its financing and
      administrative functions at the head office located in Canada. Segmented
      information on a geographic basis is as
      follows:

| | 2009                      |   | Canada |  |   | U.S.   |  |   | Consolidated | 
| | ------------------------- | - | ------ |  | - | ------ |  | - | ------------ | 
| | Segment operating loss    | $ | 4,419  |  | $ | 117    |  | $ | 4,536        | 
| | Identifiable
      assets | $ | 7,221  |  | $ | 95,535 |  | $ | 102,756      | 
| |                           |   |        |  |   |        |  |   |              | 
| | 2008                      |   |        |  |   |        |  |   |              | 
| | Segment operating loss    | $ | 3,287  |  | $ | 403    |  | $ | 3,690        | 
| | Identifiable
      assets | $ | 20,359 |  | $ | 68,840 |  | $ | 89,199       | 
| |                           |   |        |  |   |        |  |   |              | 
| | 2007                      |   |        |  |   |        |  |   |              | 
| | Segment operating loss    | $ | 8,824  |  | $ | 9,069  |  | $ | 17,893       | 
| | Identifiable
      assets | $ | 8,498  |  | $ | 40,233 |  | $ | 48,731       | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|13. | Investment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | During the quarter ended 31 July 2007, the Company
      acquired, for cash, common shares of a publicly traded Canadian mining
      company whose primary business is the operation of a recommissioned base
      metal mine. This investment represents less than 5% of the public mining
      companys outstanding common shares and was designated as
      available-for-sale and, as such, had been marked-to-market with the change
      in the fair value of the investment from acquisition to quarterly
      financial statements being recorded in Other Comprehensive Loss.                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | As at 31 January 2008, the Company determined that the
      investment has had an other than temporary decline in value. This
      determination was based on, among other factors, a significant drop in
      market price for the investment companys main product and a continued
      decline in the share price of the investment company. The initial
      acquisition cost of the investment was US$2,495,000 (C$2,618,000) and the
      fair value of the investment at 31 January 2008 was US$1,445,000
      (C$1,440,000). As a result, the Company recorded an investment loss of
      $1,050,000 in its income statement and reversed the amounts that had
      previously been recorded in Other Comprehensive Loss.                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | As at 31 January 2009, the Company determined that the
      investment has had an additional other than temporary decline in value.
      This determination was based on, among other factors, a continued drop in
      market price for the investment companys main product and a continued
      decline in the share price of the investment company. The fair value of
      the investment at 31 January 2009 was US$57,000. In the first three
      quarters of the current fiscal year, the Company recorded investment
      losses of $1,272,000 due to declines in value in those quarters. In the
      fourth quarter, as a result of the additional decline in value, the
      Company recorded an additional investment loss of $93,000 in its income
      statement.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F-30

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|14. | Contingent Liabilities and Commitments
|--- | --------------------------------------
|    |                                       
|    | a)                                    
|    |                                       
|    |                                       

Bonus SharesMilestone 1
      1,590,000
      issuedMilestone 2
      1,300,000
      (i)Milestone 3
      2,350,000
      (ii) issuedMilestone 4
      3,640,000
      (iii)
        and (iv)


| | (i)   | Milestone 2  Negotiation and completion of an off-take
      agreement with a senior metals producer for the purchase of
      nickel-hydroxide produced from the NorthMet Project, and / or an equity
      investment in the Company by such a producer or producers. The bonus
      shares allocated to Milestone 2 are valued at C$0.75. During the year
      ended 31 January 2009, the Company accrued $357,000 related to Milestone 2
      (2008 - $nil; 2007 - $nil), these amounts were capitalized to Mineral
      Property, Plant and Equipment.
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (ii)  | Milestone 3  Completion of a bankable feasibility
      study which indicates that commercial production from the NorthMet
      Project is viable. This milestone was achieved on 25 September 2006 and
      therefore, during the year ended 31 January 2007, the Company expensed a
      C$1,762,500 ($1,289,000) bonus as consulting fees and allotted 2,350,000
      shares. These shares were issued in October 2006.                                                                                                                               
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (iii) | Milestone 4  Commencement of commercial production at
      the NorthMet Project at a time when the Company has not less than 50%
      ownership interest.                                                                                                                                                                                                                                                                                                                                                                                                    
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (iv)  | At the Annual General Meeting of shareholders of the
      Company, held on 17 June 2008, the disinterested shareholders approved the
      bonus shares for Milestone 4. The bonus shares allocated to Milestone 4
      are valued at US$3.80, the Companys closing trading price on 17 June
      2008. During the year ended 31 January, the Company accrued $3,583,000
      related to Milestone 4 (2008 - $nil; 2007 - $nil), these amounts were
      capitalized to Mineral Property, Plant and
      Equipment.                                      

F-31

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|14. | Contingent Liabilities and Commitments-
      Continued
|--- | -------------------------------------------------------
|    |                                                        
|    | b)                                                     
|    |                                                        
|    | c)                                                     
|    |                                                        
|    | d)                                                     
|    |                                                        
|    | e)                                                     
|    |                                                        
|    | f)                                                     
|    |                                                        

F-32

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|15. | Financial Instruments and Risk
      Management                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                        
|    | Categories of financial assets and
      liabilities                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                        
|    | Under Canadian GAAP, financial instruments are classified
      into one of the following five categories: held-for-trading; held to
      maturity investment; loans and receivables; available-for-sale financial
      assets, and other financial liabilities. The carrying values of the
      Companys financial instruments are classified into the following
      categories:

| |                                       |   | 31 January |  |   | 31 January | 
| | ------------------------------------- | - | ---------- |  | - | ---------- | 
| |                                       |   | 2009       |  |   | 2008       | 
| | Held-for-trading (1)                  | $ | 7,354      |  | $ | 20,084     | 
| | Available-for-sale                    |   | 57         |  |   | 1,445      | 
| | Loans and receivables                 |   | 69         |  |   | 168        | 
| | Other financial
      liabilities (2) |   | 28,053     |  |   | 16,609     | 

| | (1) | Includes cash and equivalents.                                                               
| | --- | ---------------------------------------------------------------------------------------------
| | (2) | Includes accounts payable and accrued liabilities,
      convertible debt and long-term debt.

The Company has determined the
  estimated fair values of its financial instruments based on appropriate
  valuation methodologies. The fair values of the Companys financial instruments
  are not materially different from their carrying values.

Risks arising from financial
  instruments and risk management

The Companys activities expose it to a
  variety of financial risks: market risk (including foreign exchange), credit
  risk, liquidity risk, interest rate risk and investment risk. Reflecting the
  current stage of development of the Companys NorthMet Project, PolyMets
  overall risk management program focuses on facilitating the Companys ability to
  continue as a going concern and seeks to minimize potential adverse effects on
  PolyMets ability to execute its business plan.

Risk management is the responsibility
  of executive management. Material risks are identified and monitored and are
  discussed with the audit committee and the board of directors.

Foreign exchange risk

The Company incurs expenditures in
  Canada and in the United States. The functional and reporting currency of the
  Company is the United States dollar. Foreign exchange risk arises because the
  amount of Canadian dollar cash and equivalents, receivables, investment or
  payables will vary in United States dollar terms due to changes in exchange
  rates.

As the majority of the Companys
  expenditures are in United States dollars, the Company has kept a significant
  portion of its cash and equivalents in United States dollars. The Company has
  not hedged its exposure to currency fluctuations.

F-33

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|15. | Financial Instruments and Risk Management-
      continued                                                                                              
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                         
|    | As at 31 January 2009, the Company is exposed to currency
      risk through the following assets and liabilities denominated in Canadian
      dollars:

| |                                 |   | 31 January |   |   | 31 January |  
| | ------------------------------- | - | ---------- | - | - | ---------- | -
| |                                 |   | 2009       |   |   | 2008       |  
| | Held-for-trading (1)            | $ | 155        |   | $ | 1,388      |  
| | Available-for-sale              |   | 57         |   |   | 1,445      |  
| | Loans and receivables           |   | 34         |   |   | 153        |  
| | Other financial liabilities (2) |   | (255       | ) |   | (454       | )
| |                                 |   |            |   |   |            |  
| |                                 | $ | (9         | ) | $ | 2,532      |  

| | (1) | Includes cash and equivalents.                          
| | --- | --------------------------------------------------------
| | (2) | Includes accounts payable and accrued
      liabilities.

Based on the above net exposures, as at
  31 January 2009, a 10% change in the Canadian / United States exchange rate
  would impact the Companys earnings by $1,000.

Credit risk

Credit risk arises on cash and
  equivalents held with banks and financial institutions, as well as credit
  exposure on outstanding accounts receivable. The maximum exposure to credit risk
  is equal to the carrying value of the financial assets.

The Companys cash and equivalents are
  held through a large Canadian financial institution.

Liquidity risk

Liquidity risk arises through the
  excess of financial obligations over available financial assets due at any point
  in time. The Companys objective in managing liquidity risk is to maintain
  sufficient readily available reserves in order to meet its liquidity
  requirements at any point in time. The Company achieves this by maintaining
  sufficient cash and equivalents.

Interest rate risk

Interest rate risk arises on cash and
  equivalents and long-term debt and fluctuations in the related interest rates.
  The Company has not hedged any of its interest rate risk.

As at 31 January 2009, the Company is
  exposed to interest rate risk through the following assets and liabilities:

| |                                       |   | 31 January |  |   | 31 January | 
| | ------------------------------------- | - | ---------- |  | - | ---------- | 
| |                                       |   | 2009       |  |   | 2008       | 
| | Held-for-trading (1)                  | $ | 7,354      |  | $ | 20,084     | 
| | Other financial
      liabilities (2) |   | 25,256     |  |   | 12,235     | 

| | (1) | Includes cash and equivalents.                                         
| | --- | -----------------------------------------------------------------------
| | (2) | Represents long-term debt (Note 5) and convertible debt
      (Note 7).

F-34

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|15. | Financial Instruments and Risk Management- continued                                                                                                                                                                                       
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                            
|    | Investment risk                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                            
|    | The Companys investment in the common shares of a
      publicly traded Canadian mining company (see Note 13) bears investment
      risk. The maximum exposure to investment risk is equal to the carrying
      value of the investment.
|    |                                                                                                                                                                                                                                            
|    | As at 31 January 2009, the Company is exposed to
      investment risk through the following assets:                                                                                                                                       

| |                        |   | 31 January |  |   | 31 January | 
| | ---------------------- | - | ---------- |  | - | ---------- | 
| |                        |   | 2009       |  |   | 2008       | 
| | Available-for-sale (1) | $ | 57         |  | $ | 1,445      | 

(1) Includes investment.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|16. | Differences Between Canadian and United States
      Generally Accepted Accounting Principles                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | These consolidated financial statements are prepared in
      accordance with Canadian generally accepted accounting principles
      (GAAP). The U.S. Securities and Exchange Commission requires that
      financial statements of foreign registrants contain a reconciliation
      presenting the statements on the basis of accounting principles generally
      accepted in the U.S. Any differences in accounting principles as they
      pertain to the accompanying consolidated financial statements are not
      material except as follows:
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F-35

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2009, 2008 and 2007                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|16. | Differences Between Canadian and United States
      Generally Accepted Accounting Principles-                                                                    
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                   
|    | Continued                                                                                                                                                         
|    |                                                                                                                                                                   
|    | The effects of the differences in accounting principles
      on accretion of asset retirement obligation on net loss and comprehensive
      loss are as follows:

| |                                                                  |   | 2009        |   |   | 2008        |   |   | 2007        |  
| | ---------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
| |                                                                  |   |             |   |   |             |   |   |             |  
| | Net Loss and Comprehensive Loss:                                 |   |             |   |   |             |   |   |             |  
| |                                                                  |   |             |   |   |             |   |   |             |  
| | Net loss - Canadian GAAP basis                                   | $ | 4,536       |   | $ | 3,690       |   | $ | 17,893      |  
| | Adjustment of accretion to asset retirement obligation           |   | 443         |   |   | 434         |   |   | 233         |  
| |                                                                  |   |             |   |   |             |   |   |             |  
| | Net loss and comprehensive loss - U.S. GAAP basis                | $ | 4,979       |   | $ | 4,124       |   | $ | 18,126      |  
| |                                                                  |   |             |   |   |             |   |   |             |  
| |                                                                  |   |             |   |   |             |   |   |             |  
| | Weighted average number of shares computed
      under U.S. GAAP |   | 137,187,927 |   |   | 133,697,572 |   |   | 114,754,213 |  
| |                                                                  |   |             |   |   |             |   |   |             |  
| | Loss per share following U.S. GAAP                               | $ | (0.04       | ) | $ | (0.03       | ) | $ | (0.16       | )
| |                                                                  |   |             |   |   |             |   |   |             |  
| | Convertible Debt  Canadian GAAP basis                           | $ | 13,943      |   | $ | -           |   | $ | -           |  
| |                                                                  |   |             |   |   |             |   |   |             |  
| | Convertible Debt  US GAAP basis                                 | $ | 14,193      |   | $ | -           |   | $ | -           |  
| |                                                                  |   |             |   |   |             |   |   |             |  
| | Shareholders Equity  Canadian GAAP basis                       | $ | 71,492      |   | $ | 69,151      |   | $ | 29,938      |  
| |                                                                  |   |             |   |   |             |   |   |             |  
| | Shareholders Equity  US.GAAP basis                             | $ | 70,085      |   | $ | 68,437      |   | $ | 29,658      |  

| | b) | Recent U.S. Accounting Pronouncements, which relate to
      the Companys current operations are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | SFAS 141R, Business Combinations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | In December 2007, FASB issued a revised standard on
      accounting for business combinations (SFAS-141R). The statement is
      effective for periods beginning on or after December 15, 2008. SFAS-141R
      requires fair value measurement for all business acquisitions including
      pre- acquisition contingencies. The standard also expands the existing
      definition of a business and removes certain acquisition related costs
      from the purchase price consideration. Since the Company has not been
      involved in any business combinations, the adoption of this standard has
      no impact to the Companys consolidated financial statements.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F-36

---

ITEM 18. FINANCIAL STATEMENTS

Not Applicable.

56

---

ITEM 19. EXHIBITS

|Exhibit |                                                                                                                                                  | Footnote
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------ | --------
|No.     | Description                                                                                                                                      | Ref.    
|        |                                                                                                                                                  |         
|1.1     | Certificate of Incorporation.                                                                                                                    | (2)     
|        |                                                                                                                                                  |         
|1.2     | Certificate of Change of Name.                                                                                                                   | (2)     
|        |                                                                                                                                                  |         
|1.3     | Articles of Incorporation of PolyMet
      Mining Corp.                                                                                          | (2)     
|        |                                                                                                                                                  |         
|4.1     | Incentive Stock Option Plan.                                                                                                                     | (2)     
|        |                                                                                                                                                  |         
|4.2     | Shareholder Rights Plan Agreement.                                                                                                               | (2)     
|        |                                                                                                                                                  |         
|4.3     | Contract for Deed between us and
      Cleveland Cliffs, Ohio, dated November 15, 2005.                                                          | (2)     
|        |                                                                                                                                                  |         
|4.4     | Contract for Deed between us and
      Cleveland Cliffs, Ohio, dated December 20, 2006                                                           | (1)     
|        |                                                                                                                                                  |         
|4.5     | Purchase Agreement between us
      and Glencore, dated October 31, 2008                                                                         | (8)     
|        |                                                                                                                                                  |         
|4.6     | Floating Rate Secured Debenture
      between us and Glencore, dated October 31, 2008                                                            | (8)     
|        |                                                                                                                                                  |         
|4.7     | Parent Guarantee between PolyMet
      Mining Corp. and Glencore, dated October 31, 2008                                                         | (8)     
|        |                                                                                                                                                  |         
|4.8     | Security Agreement between PolyMet
      Mining Corp. and Glencore, dated October 31, 2008                                                       | (8)     
|        |                                                                                                                                                  |         
|4.9     | Security Agreement between Poly
      Met Mining, Inc. and Glencore, dated October 31, 2008                                                      | (8)     
|        |                                                                                                                                                  |         
|4.10    | Pledge Agreement between us and
      Glencore, dated October 31, 2008                                                                           | (8)     
|        |                                                                                                                                                  |         
|4.11    | Exchange Warrant of PolyMet Mining
      Corp., dated October 31, 2008                                                                           | (8)     
|        |                                                                                                                                                  |         
|4.12    | Purchase Warrant of PolyMet Mining
      Corp., dated October 31, 2008                                                                           | (8)     
|        |                                                                                                                                                  |         
|6.1     | 2007 PolyMet Omnibus Share Compensation
      Plan                                                                                               | (7)     
|        |                                                                                                                                                  |         
|8.1     | List of Subsidiaries.                                                                                                                            | (2)     
|        |                                                                                                                                                  |         
|11.1    | Code of Ethics.                                                                                                                                  | (3)     
|        |                                                                                                                                                  |         
|11.2    | Statement of Corporate Governance
      Practices, including Audit Mandate and Charter.                                                          | (4)     
|        |                                                                                                                                                  |         
|12.1    | Certification
      of Principal Executive Officer pursuant to 17 C.F.R. 240.13a-14(a).                                                          | *       
|        |                                                                                                                                                  |         
|12.2    | Certification
      of Principal Financial Officer pursuant to 17 C.F.R. 240.13a-14(a).                                                          | *       
|        |                                                                                                                                                  |         
|13.1    | Certification
      of Principal Executive Officer and Principal Financial Officer pursuant
      to 17 C.F.R. 240.13a-14(b) and 18 U.S.C. 1350. | *       
|        |                                                                                                                                                  |         
|14.1    | Amended and Restated Shareholder
      Rights Plan                                                                                               | (7)     
|        |                                                                                                                                                  |         
|15.1    | Technical Report on NorthMet Project
      by P. Downey and Associates, dated July 2004                                                          | (5)     

57

---

|15.2  | Subscription
      Agreement dated as of July 19, 2004, between us and certain investor(s).                              | (2)
|----- | ------------------------------------------------------------------------------------------------------------------------ | ---
|      |                                                                                                                          |    
|15.3  | Subscription
      Agreement dated as of February 11, 2005, between us and certain
      investor(s).                    | (2)
|      |                                                                                                                          |    
|15.4  | Subscription
      Agreement closing on August 29, 2005, between us and certain investor(s).                             | (2)
|      |                                                                                                                          |    
|15.5  | Subscription
      Agreement dated as of September 21, 2005, between us and certain
      investor(s).                   | (2)
|      |                                                                                                                          |    
|15.6  | Form of Canadian
      Subscription Agreement between us and certain investor (s).                                       | (1)
|      |                                                                                                                          |    
|15.7  | Form of U.S.
      Subscription Agreement between us and certain investor(s).                                            | (1)
|      |                                                                                                                          |    
|15.8  | Lease Agreement
      between us and U.S. Steel Corporation, dated January 4, 1989.                                      | (2)
|      |                                                                                                                          |    
|15.9  | Notice of
      Assignment of the Lease Agreement from U.S. Steel Corporation to RGGS Land
      and Minerals, Ltd. L.P. | (2)
|      |                                                                                                                          |    
|15.10 | Nominating and
      Corporate Governance Committee Charter                                                              | (7)
|      |                                                                                                                          |    
|15.11 | Technical Report
      on NorthMet Project by P.J. Hunter C. Eng. CP dated October 2006                                  | (6)
|      |                                                                                                                          |    
|16.1  | Audit Committee
      Charter                                                                                            | (7)
|      |                                                                                                                          |    
|17.1  | Executive
      employment agreement with Mr. William Murray dated July 1, 2007 and
      amended January 25, 2008       | (7)
|      |                                                                                                                          |    
|17.2  | Executive
      employment agreement with Mr. Douglas Newby dated July 1, 2007                                           | (7)
|      |                                                                                                                          |    
|17.3  | Executive
      employment agreement with Mr. Joseph Scipioni dated July 1, 2007                                         | (7)
|      |                                                                                                                          |    
|17.4  | Employment
      agreement with Mr. Niall Moore dated May 6, 2007 and amended January 25,
      2008                     | (7)

**Footnote 
      Ref.**
    **Description***
    Filed herewith.(1)
    Incorporated by reference to our Annual Report on Form
      20-F/A for the fiscal year ended January 31, 2007, filed on May 31 2007.(2)
    Incorporated by reference to our Annual Report on Form
      20-F/A for the fiscal year ended January 31, 2006, filed on July 31 2006.(3)
    Incorporated by reference to our Annual Report on Form
      20-F/A for the fiscal year ended January 31, 2004, filed on July 7, 2005.(4)
    Incorporated by reference to our Annual Report on Form
      20-F for the fiscal year ended January 31, 2005, filed on July 25, 2005.(5)
    Incorporated by reference to our Annual Report on Form
      20-F for the fiscal year ended January 31, 2004, filed on June 30, 2004.(6)
    Incorporated by reference to our Report on Form 6-K,
      filed on November 13, 2006.(7)
    Incorporated by reference to our Annual Report on
      Form-20-F/A for the fiscal year ended January 31, 2008, filed on August
      27, 2008.(8)
    Incorporated by reference to our Form 13-D relating to
  our Purchase Agreement filed on November 10, 2008.


58

---

SIGNATURES

The Registrant hereby certifies that it meets all of the
requirements for filing on Amended Form 20-F and has duly caused and authorized
the undersigned to sign this amended Annual Report on its behalf.



|Dated: April 30, 2009 | POLYMET MINING CORP.                   
|--------------------- | ---------------------------------------
|                      |                                        
|                      |                                        
|                      | /s/
      Joseph Scipioni              
|                      | Name: Joseph Scipioni                  
|                      | Title:    Chief Executive
      Officer

---